Conversation with Jushi CEO Jim Cacioppo

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In this episode, Jim Cacioppo, CEO of Jushi Holdings, a national, multi-state operator speaks with Vivien Azer, Beverages, Tobacco & Cannabis Analyst. They discuss the US cannabis market and the impact of COVID-19 on eCommerce sales.  They also discuss Jushi’s strategic focus on retail, their wholesale products, and their geographic footprint. Press play to listen to the podcast.


Speaker 1:                       Welcome to Cowen Insights, a space that brings leading thinkers together to share insights and ideas shaping the world around us. Join us as we converse with the top minds who are influencing our global sectors.

Vivien Azer:                     I’m Vivien Azer, Cowen’s beverages, tobacco and cannabis analyst, delighted to be joined by Jushi Holdings’ founder, chairman and CEO, Jim Cacioppo.

                                         Jim, thanks for joining us.

Jim Cacioppo:                  Great. Thanks for having me, Vivian. I appreciate the opportunity.

Vivien Azer:                     Jim, as a newer entrant into the US cannabis ecosystem, can you talk a little bit about what makes Jushi Holdings different?

Jim Cacioppo:                  Yeah. We were started with a philosophy of shareholders first and a very management intensive practice. By background, I have been a hedge fund investor, private equity investor for over 25 years. I was introduced to the cannabis business in 2015 as an investor. I think I invested in roughly 25 different companies prior to starting Jushi. That gives me the perspective of the market and understanding shareholder value.

                                         I started Jushi because I [inaudible] opportunity was in the US, and I thought that there wasn’t a lot of great management teams to invest in. This was prior to some of the bigger companies going public.

                                         I had been involved in two different companies that both were public. They ended up merging. I was right about the management issues. They ultimately restructured. It was iAnthus and then MPX. I invested in both of those. Did well because I sold. But nonetheless, management principles are the key. A very strong management team is the key.

Vivien Azer:                     Absolutely. That sounds pretty sound. Given the timing of your entry into the marketplace, it seems like Jushi is taking a slightly different approach from some of your larger peers who seem to be a little bit more wholesale oriented. Can you talk about that?

Jim Cacioppo:                  Yeah, I think a lot of those companies were really started through winning licenses, and had that advantage of not having to [inaudible] capital out for licenses. Now, shareholders today, you’re not getting that advantage, because you’re paying for that license value when you buy their stocks today.

                                         But for a company like Jushi, we were started after a lot of that happened, the licensing period in states like Illinois or Pennsylvania, for example. We decided that our critical competence was buying. I have a great M&A background, investing background. Did it for years. So we’ve probably been, I believe, pretty well-known, for those who follow us, one of the best companies in terms of acquiring companies.

                                         We went retail first, because that is a capital light venture. Compared to grower/processor where you have to build, build, build, put more capital in, I thought that was risky. A lot of companies have had problems. They’ve been too weighted to grower/processors. They’ve been unable to finish their builds. They’ve subsequently had to sell at distressed prices.

                                         We said, “Hey, let’s build a base of revenues off of retail.” Number one, we thought the retail competitive advantage would last longer, because municipalities don’t want more in their neighborhoods. They take the NIMBY approach, Not In My Back Yard. That’s worked out very well for us.

                                         In Pennsylvania, we’ve acquired 18 licenses for about $80 million. If you look at what other folks are paying these days, and there’s plenty of examples, they’ve paid hundreds of millions of dollars, approaching a half a billion for 18 different dispensary licenses. So it really worked out for us.

                                         Pennsylvania’s an example. We were able to get a distressed grower/processor. A company was out of cash. They had to sell. We picked it up during the COVID time period for $37 million, 88,000 square feet with the ability to expand to over 200,000 square feet. That’s a pretty good deal. $37 million. It had revenues, cash flows, all of that.

Vivien Azer:                     Absolutely, yeah. Speaking of M&A and valuations, absent the pullback that we’ve seen in the space more recently, the broad US cannabis sector had a really nice run coming out of the election. How do you ensure that you’re paying reasonable valuations given the change in, I think, certainly investor sentiment, likely seller sentiment after Democrats swept in the 2020 election?

Jim Cacioppo:                  We just announced a deal in Massachusetts, which was negotiated subsequent to the election. We acquired an asset in Massachusetts, one of the best run companies in Massachusetts, by the name Nature’s Remedy. Nature’s Remedy has a large grower/processor that they’re able to expand, and two retails that are performing very, very well.

                                         We were able to buy that for five times this year EBITDA and three times next year’s EBITDA. [inaudible] there is that they’re doing [inaudible] much more towards wholesale this year. So next year, we believe about 70% or more of their revenue will be wholesale based. To me, that’s a tremendous multiple.

                                         I do not believe the private markets have gotten expensive for quite a few reasons. I think why that is is because most of the large public companies with the best stock, so you’d want to own, if you were a seller, and have the balance sheet to take the acquisitions and invest in them are already full.

                                         [inaudible] How many states can they go in? They can go in a few states, but not many. [GTI’s] probably not too much different. Maybe they can have a little bit more opportunity. Let’s just go down the large companies and look at the states that they can actually do acquisitions in. It’s not that many.

                                         That leaves a small handful of us. We’re already built out in Pennsylvania. We can’t do a deal in Pennsylvania. So you have to look and you can see where the competition is.

                                         There are states where you can get some really good value. Some other states where the sellers feel more emboldened, they’ve always felt emboldened in those states, they’re great states, like a Illinois grower/processor, for example, that could be kind of pricey we think. So we haven’t done that.

Vivien Azer:                     Got it. Well, that seems reasonable enough. You’re right. Some of your large peers are fully penetrated in the market. So even though they’re well capitalized, you’re not bidding against them, which makes a lot of sense.

                                         Let’s stick with Pennsylvania. Tremendous market. Even though it’s medical only, closed out the year with close to 400,000 patients, run rating at a billion dollars. It’s a limited license structure. You guys have the opportunity to open 18 doors. Where are you today?

Jim Cacioppo:                  We have 11 open. Two of those are from an acquisition where we’re not closing the doors, but we’re improving the doors. In one case, we’re moving it, so we’ll close the door eventually, but we’ll move it to a new location. We don’t like the location got in an acquisition. Same acquisition, but we’re doubling size of the store, and then going from three POSs to a big number. We try to get 14, 15 in the store if we can these days in preparation for adult use. So that’s a good location in Bethlehem, but it has a lot of work to do to make a Jushi-quality store.

                                         So we have effectively nine that I would call Jushi-quality stores. Going to 18. We expect all of those additional seven and the two turnarounds to happen in this calendar year, by the latest, the end of the first quarter of next year.

Vivien Azer:                     Obviously, with those expanding retail doors, you’re going to need product to fill them. Pennsylvania is a wholesale market, but you guys are in the process of expanding your own cultivation. Can you just walk the audience through that?

Jim Cacioppo:                  Yeah. First of all, we had not had a problem filling our store [inaudible] since we’ve owned these dispensaries. At the beginning, of course, we did, because we didn’t own them until we owned them.

                                         But we have a great balance sheet. We pay our bills on time. We can actually pay early. We did prepay deals with people. We’re also a good counterparty. We have a lot of stores. We have 17 stores in multiple states. The wholesalers love us. We love them. They love us. So we haven’t had a problem.

                                         Second, in Pennsylvania, we’ve had a fantastic opportunity to get into grower/processors we took advantage of. Now, we’ve invested significant capital into that grower/processor, and we’ll have an expansion complete by the end of the year.

                                         We’ll have the first 88,000 square feet of existing space completely redone to be the center of a 200,000 square foot facility. That could be 350,000 square feet eventually. But the 200,000, what was really 190,000 square foot facility will be finished in the second quarter of next year. The first chunk of that that takes us to, I think, about 140,000 square feet will be done in the fourth quarter of this year.

                                         So as these stores open up in our market in Pennsylvania, we’ll be right there with plenty of capacity to service our stores and to be a significant wholesale player in Pennsylvania.

Vivien Azer:                     Well, certainly that scale is impressive, but you are not the only company that’s expanding your cultivation footprint in Pennsylvania. Jim, how do you think about the evolution of pricing in that market as you and your peers bring online more capacity?

Jim Cacioppo:                  Yeah. That’s not a market where I worry about it yet, Vivian. I think that market has years and years to go. The reason why is very simple. We’re taking it from 11 to 18. The market is roughly in the same place. Call it 10 to 18. So there’s an 80% increase the number of stores in the medical market over, let’s say, the next 12 to 18 months. Those are in new jurisdictions typically. That’s adding new patients, new sales into the market. So the medical market has a long road in Pennsylvania to go before it’s filled.

                                         Right now, it’s really difficult. Jushi finds it easier to get the flower product, which is the short product in Pennsylvania. We find it easier because of our balance sheet and our relationships, but also we have a grower/processor, so we’re a wholesaler, and we’re able to make ends meet and get our stores filled. But we’re still short product.

                                         But by the end of the year, we’ll have this huge expansion. Other people are expanding, but some of the big expansions are behind us for the medical market. I think the next chunk is really in preparation for the adult use market.

                                         If you look at the Illinois example, the market tripled very, very quickly. When you have a tripling of the market, I believe the market will go short again for product, which will drive prices up, and then have a period of time before the industry gets the build up to meet that demand. We have numbers behind that. That’s proprietary information, so I don’t share those publicly, but we feel confident we have a lot of years to go in Pennsylvania.

Vivien Azer:                     How do you think that incremental capacity will impact the revenue mix within your four walls? What do you guys target, if you target anything, in terms of sales in your dispensary’s own brand versus third party?

Jim Cacioppo:                  In our stores right now in Pennsylvania, where we have a large grower/processor, we’re still a short product from our grower/processor. So we’re not at that next maximum point yet where we would know where we’re going to settle out. That’ll be a decision that we’ll make as we get there.

                                         The goal though is to offer the patients and customers and adult use market a wide selection, cost competitive. We believe our product is a very competitive product. We can produce it at a very good value, and we can sell it at a very good value. So we would expect our products to be the biggest in the store.

                                         I would point out that, in terms of the wholesale business, being a large player in the market, we think we have the power to get our wholesale product on other shelves and assure we get sell-through there too to match the sell-through we get. It’s a monitoring situation. We make sure we sell our products wholesale, and we’ll be fair in our stores and offer the patient competitive choice.

Vivien Azer:                     It sounds like traditional CPG when you talk about the category that way, is you think about price architecture, and a variety of brands and form factors, which is great to see.

                                         Maybe let’s pivot to another very large market for you, Illinois. Your revenue per door, which you guys are very transparent about disclosing, is quite impressive, even for an adult use marketplace. Can you talk a little bit about that?

Jim Cacioppo:                  I think it’s driven by two


markets. The first market is Sauget, which is a very small town across the bridge from St. Louis. The Illinois side actually is East St. Louis. Sauget is effectively a part of the St. Louis. It’s just a separate metropolitan area.

                                         It has made years of a living by servicing the population of St. Louis. There’s all kinds of nightclubs there, so our store is mixed in with all this nightlife activity, and so it’s just a great spot to have high customer penetration. It’s a fun place for people in Illinois to go to from St. Louis. So it’s a great place.

                                         There’s only two stores allowed, and we have them both. Those stores average about 30 million each. I think there’s some growth once those nightclubs open up to their post-COVID potential. They’re open now for the first time in a while, but they have a ways to go before people really get out and use them to the full capacity.

                                         The other metropolitan area that we’re in is Bloomington Normal. That’s known as the home of Illinois State, which is very big university. [inaudible] there. They’ve been closed in COVID. Still, our stores are doing great, between 15 and 18 million each. That’s a really nice number for a store.

                                         We believe there’s growth potential there when the universities get up and going, and population in Bloomington Normal has a full effect of the student and the professors and all the support staff that work at those universities.

Vivien Azer:                     That’s great. I’m glad you called out the COVID impact, because one of the things that I thought was really interesting is that you guys have offered some really granular data points around some of the COVID impacts to your online e-commerce, and in particular that your online sales grew close to 180% between May of 2020 and December of 2020. Can you talk a little bit about the challenges and opportunities that are associated with e-commerce and cannabis specifically?

Jim Cacioppo:                  Yeah, The biggest problem is we can’t use services like Uber Eats, deliver. The ordering system is used, and the patient comes and picks it up. Over time, there’ll be a huge growth when we can be the deliverer of choice, or use a third party service.

                                         But already, we find that 70 to 80% of our sales are touched through the online presence. The customer is like any other customer. They prefer to shop online, and they prefer a quick in and out service when they come into a dispensary.

                                         It’s actually quite logical, if you think about it. The customer base for cannabis trends younger. Therefore, they’re more technologically proficient on average and a different business. So I believe that cannabis will be on the cutting edge of e-commerce.

                                         Our service providers, which are Jane Technologies, Headset, and springbig for our loyalty program, tell us that we’re the most sophisticated company they deal with. We have a great group that runs this. I think we have a fantastic online presence, and we continue to spend dollars to make sure we’re top in the industry.

Vivien Azer:                     You mentioned the inability to use a platform like Uber Eats, which I think is a really great segue to a newer market for you, Virginia. You opened your first dispensary there December of last year, and you do have deliveries in that market.

Jim Cacioppo:                  We do. It’s a very new market. We started first cannabis sales as an industry in the fourth quarter last year. It was late fourth quarter, in fact. So it’s very, very new. We opened our store up then as well.

                                         The store’s growing, early stage. The program’s early. The patients still have trouble getting their cards, because they’re so backlogged at the Board of Pharmacy, which is the regulator. So we see continued growth in that store.

                                         We are doing delivery. We hired a woman out of DoorDash, I believe, one of the delivery companies. We are primed to put best practices in place to have a fantastic delivery operation. We have a beta sort of operation that kicked off late in April. So I think we’re poised to really be top of the business at that, in Virginia, certainly, but also utilize that cost that were incurring in Virginia around the rest of the country.

                                         The way the stores are being designed there are different. Because it’s allowed upfront, we’re devoting … We’ll make the vaults bigger, where the product goes. A separate entrance for the delivery, so they don’t have to go through the front of the store, and they’re sort of not competing with the customers in the store. Just making a very efficient operation, as you would want to do designing it day one.

Vivien Azer:                     That’s great. Let’s stick with Virginia. The licensing model’s a little bit different there. So maybe walk through what is HSA mean for you at Jushi specifically?

Jim Cacioppo:                  Yeah. An HSA is a health service area. We have Health Service Area Two, which is Northern Virginia, also known as NoVa. It is the largest economic and the most populated area. So it has the highest per capita incomes, the highest per capita GDP. The five biggest [MSAs] are in Northern Virginia, and we have an exclusive right to service those.

                                         We have six dispatchers we can open, and we have plans to put in a quarter of a million square foot grower/processor. We already have 90,000 square feet built out. It’s 1/3 built out, meaning the whole building is there, but we’re 1/3 built out in operations. We’re hoping to have everything completed in the fourth quarter of this year to get that up to snuff so it can service a new program.

                                         They allow flower [inaudible], so that is a big boost to a medical program. The existing facility, we have the 33,000 square feet, is big enough for the market right now, but with the flower coming in the fourth quarter, that’s going to be a big impetus for a demand. If you looked in Florida, they had an immediate large uptick in patient population when they allowed flower. It’s typical. Pennsylvania as well. So we feel great about what’s going on in Virginia.

Vivien Azer:                     Jim, last one on Virginia. It’s one of the newest states where the governor signed legislation to legalize adult use in 2024. So while that’s a ways off, talk about your expectations for that market. Number one, do you think that that date could get pulled forward? Number two, what do you think that adult use framework’s going to look like?

Jim Cacioppo:                  The adult use market looks really strong in Virginia. There will be some competition. There always is. More dispensary licenses. We like that. We’ll be the one of the largest wholesalers. We’ll have … A really good dispensary is, we think, relative to the competition, because of the way the law is written. So we’re very excited about that as well.

                                         2024 is a long way off, but we have a very early medical market to build out. So we’re very happy building out that medical market going into 2024. They’ve decriminalized this summer the possession of it, so the governor really would like to bring that forward. The thinking is, in the industry, that that will happen. Time will tell. We’ll see if that gets brought forward. That would be a good thing for us, obviously.

Vivien Azer:                     Certainly. That’ll be something exciting to watch.

                                         Jim Cacioppo, founder, chairman, CEO of Jushi Holdings, thank you so much for joining us.

                                         Again, I’m Vivien Azer, Cowen’s cannabis, beverages and tobacco analyst.

Speaker 1:                       Thanks for joining us. Stay tuned for the next episode of Cowen Insights.

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