Grown Rogue International Inc. (PNK:GRUSF) Q1 2025 Earnings Call Transcript

Grown Rogue International Inc. (PNK:GRUSF) Q1 2025 Earnings Call Transcript May 13, 2025

Operator: Welcome to the Green Rogue First Quarter 2025 Earnings Conference Call. Today’s call is being recorded. [Operator Instructions] After the prepared remarks, there will be a question-and-answer session. As a reminder, during the course of this conference call, Green Rogue’s management may make forward-looking statements that are based on current expectations and are subject to a number of risks and uncertainties that may cause actual results to differ materially from expectations. The risks are outlined in the Risk Factors section of the company’s filings and disclosure materials. Any forward-looking statements should be considered in light of these factors. Please note that a Safe Harbor any outlook presented speaks as of today and Green Rogue’s management does not undertake any obligation to revise any forward-looking statements in the future.

This call will also reference non-IFRS financial measures, including adjusted EBITDA. These measures do not have any standardized definitions under IFRS and may have – may not be comparable to those used by other companies. They are provided as supplemental information to evaluate the company’s core operating performance and should be viewed alongside IFRS results. I will now turn the call over to Obie Strickler, Chief Executive Officer of Grown Rogue. Please go ahead.

Obie Strickler: Thanks, Allen. Appreciate the introduction there and welcome everyone. This is Grown Rogue’s inaugural quarterly conference call. Super excited to have everyone who joined. So again, thanks for showing up. We’ll keep this very focused and to the point, which is typical GR kind of approach and fashion and yes, looking forward to kind of talking through how we view and are managing the business. And at the end of this, we’ll have some questions that we will open up for the audience. We are not here to regurgitate the press release. Hopefully everyone got a copy of that, had a chance to look at it, feel free to read it, and maybe I’ll drive some of the questions you come up with. So Q1 was the first full quarter of sales in New Jersey, which is super exciting.

We’ve been talking about this for 12 to 18 months. Really exciting to see kind of the results that come out of the growth platform that we put out and are beginning to execute upon. Very excited and pleased with the initial results. We are seeing really, really good operating performance that kind of costs our key metrics, good cultivation yields, quality post-harvest practices, just to ensure the right integrity like our flower, and starting to see some pretty strong sell-through. As everyone is aware of kind of the Grown Rogue approach, we would like to build these projects in phases to really manage the production capacity against working capital. We built New Jersey. Phase 1 was about 50% of our production capacity, and so that’s about 8,000 to 9,000 square feet of total bench space in the flowering sector.

When we get to full production capacity, it will double our flowering capacity inside of New Jersey. And so Phase 1 is about 500 to 600 pounds a month. Phase 2 will take that to around 1,000 to 1,200. It’s really important to note that with the strong kind of initial quarter out of the gate with Jersey, it’s only about 25% of our total operating capacity. So we believe we are selling about 300 pounds a month at this point coming out of March, and so quite a bit of room for growth and continued improvement inside of Jersey as we fully ramp up inside of that market. Right now, based upon sell-through and kind of reorder rates, our kind of expectation is that by the end of Q2 early Q3 we will be at full sell-through of Phase 1, again, about 500 to 600 pounds a month, and we are kind of slowly beginning Phase 2 construction, with the anticipation to have that completed towards the end of the year, ideally with full sell-through of the full capacity started in early ’26.

Now, one of the things we will do with Jersey, again, to manage kind of capacity and sell-through kind of dynamics is we plan to turn on subsequent flower rooms almost one at a time. And so we’ll go from 5 to 6 to 7 to 8, 900 to 1000 and kind of just really balance sell through with production capacity, just in Jersey again, super excited first quarter, really proud of the team, what they have accomplished. Switching to Oregon and Michigan, kind of the core markets, we really built the foundation. We are seeing a ton of pricing pressure in both of these markets, more familiar and comfortable within Oregon, having gone through this over a longer timeframe, but we are seeing pricing pressure year-over-year in the 20% range. Wish we control pricing, unfortunately, we do not.

However, what you’ll see and we put a lot of this disclosure inside the press release is the operational KPIs that we really focus on internally as part of our business are showing good strength. These are things we control, because the things that we focus on, it’s really delivering quality and affordability to our customers, which is kind of the root of what Grown Rogue is focused on. Yields were up in both states. Cost of production was down in both states. And I think it’s important to kind of recognize even under the pricing pressure, which I think again we said pricing down 20% plus in Oregon and Michigan, we still had 30% plus EBITDA margins inside of those markets, which again just further kind of the convictions we have around the growth platform in general, as we take this high quality, low cost production method into new markets across the U.S. We are super relentless as you know.

We have a grittiness to our team and kind of our process and our business. And so one of the things we did notice in Q1 is A-flower, which is a really important kind of category to how we look at our business. It’s not just kind of biomass like you hear a lot of companies talk about, like we looked at whole flower, A-flower in particular. We saw a reduction in A-flower in Michigan in Q1. I talk to my team a lot about just as we operate at such a high level of excellence for the most part, that how do we extend those periods when we have this just prime efficiency, it’s almost like a sports team that’s at the peak of their game that followed sometimes by little slumps as we call it this natural slump. So we went through a little slump, I think in Q1.

It’s being corrected. We are seeing even positive results coming through April in Michigan in terms of repairing and getting our A-flower back where we want. It’s important to as annoyed as I get, as I watch like the pricing environments play out in Oregon, and now, really for the first time in Michigan, this is what we were built for. This is the platform we’ve been talking about for years around how we think markets may look in the future and how Grown Rogue has established this position to deliver excellence inside of pricing environments that are super uncomfortable. We call them, like Michigan, like in Oregon I call these for a couple times. It’s like, we call them extinction events. You see tons of distress come into the market.

And we said a couple of these in Oregon. I think the earliest one was, like 2017, as we’re building the business and going public, we saw another one kind of in ‘21 and we’ve kind of been in this one here in Oregon over the last year or so. The interesting part now in Oregon, it doesn’t actually feel all that bad, right. Like revenue was pretty much flat, EBITDA was down a little bit, but like, we are kind of used to it. Team in Michigan, it’s definitely a bit more impactful. It’s just a good reminder to the team around focus on what we do, the things that we control, and making sure that we are continuing to grow the business and looking for other ways to cut costs and become more efficient. We don’t have a crystal ball in the pricing, but as you’ve heard people say time and time again, the key to low prices is low prices.

And as I mentioned earlier, we’re definitely excited about the opportunities that this distress will create in both markets. And we have also found that we just kind of regurgitate on the point like this is when some of the best work happens for Grown Rogue, right. This is when we get super focused. Our intensity ramps up and we just – we create and implement solutions that are long lasting, and pricing will come back as it does, pretty much other sectors, but in cannabis, particularly. It feels like we are at the bottom in Oregon and Michigan. Again, hard to predict based upon pricing that as we look at like demand kind of criteria, what the kind of discussions we are having with our retail partners. It sure seems like we are hitting kind of a pricing trough.

And we hope that pricing will start to come up here in the short-term, no guarantees, but what we do know is the improvements we are making on our KPIs, like you are getting side yields up year-over-year, who is making good improvements inside the facilities to drive that. And I just want to reiterate that and stress low cost producer is absolutely critical to our long-term success and this is regardless of pricing, environment, week-strong whatever it is like, being a low cost producer. It’s just quarter who we are, and we will continue to do that. The other thing you will notice in our financial results, obviously, is the impact that we were making in our teams and our systems generally, to prepare us for the growth that we’re undertaking, particularly in New Jersey, which we just launched this quarter.

And then, obviously Illinois, which is on deck in terms of the next state we’re going to enter. And we’re pretty confident, we have a little bit of increased cost as we kind of scale into new markets, but we think we have the foundation now to support the next two or three states after Illinois, and so we should start seeing, S&N area as a percentage of our revenue come back down, especially as we take the corporate support that we put in place, and kind of allocate that across additional states. I know people have been asking about Illinois recently, so we have started construction in the Illinois markets. We are seeing a lot of growth in front of us, obviously, with someone New Jersey, and then what Illinois is doing. But we’re also, as you come to appreciate, hopefully, about Grown large kind of our process, like, we’re just very disciplined, like, we don’t have FOMO, we don’t want to rush, we don’t want to get overextended, and so, we’re going to continue to be very disciplined and look to drive, long-term business success, across, kind of our footprint, big part of this is keeping a very solid balance sheet.

And I think if you look at our you look at our financial results this quarter, balance sheet super strong. It’s better than it was a year ago, and we want to keep it that way. And so we will take these learnings from New Jersey. We are going to apply them into Illinois, and then future projects as we bring them online. I just want to end this first part of my kind of kicked off here before I will hand it over – about the growth in front of us. I mean, we just entered our third state. The runway is long for us. This pricing pressure we’re seeing in Oregon and Michigan, if anything, is confirming our approach towards the ability to execute profitably in very tough environments. And luckily for us, almost every other state in the U.S. has better pricing than what we’re seeing in Oregon and Michigan right now.

And we just very much continue to believe that high quality, low cost flower production at the right scale that customers want is a very protectable note. Both is definitely not linear. We don’t expect it to be as much as we like to peer, kind of just straight lines up into the right that’s just not how things develop. But very excited about the opportunity in front of us, not only with what we’re currently executing upon again, Phase 2 in New Jersey and then the new building Illinois, but also the other opportunities that we’re actively evaluating. So super excited about, kind of where we sit today, where the future, kind of looking for us. And, yes, just, thanks everyone for kind of being a part of this. And then before I turn it over to Andrew for some comments on, kind of some specifics to our financials, I just want to reiterate how excited we are to have Josh Rosen, who joined our team recently, helped lead some of our strategy, helped level us up a little bit of as just as a business, as a team in general.

And with that, I will turn it over to Andrew.

Andrew Marchington: Thanks, Obie. First off, I would like to reiterate what we highlighted in a press release back in April, with respect to how we account for our investment in ABCO. ABCO is an equity method investment, and therefore we do not consolidate ABCO in our financial results, which is why we have reported pro forma revenue and pro forma EBITDA. Given how important that ABCO New Jersey’s results are to the Grown Rogue story right now. With this quarter’s release, we’ve also modified how we calculate our adjusted EBITDA in an effort to simplify the metric and to err towards conservatism. Inconsistency with our disclosure, we provided a full schedule mapping to our fiscal 2023 and calendar 2024, quarters in our press release, and recall that we changed our fiscal year end to December 24 back in ‘20 the end of 2023, so the quarters are fiscal quarters within the 12 months ended October 31, 2023.

Lastly, as a reminder, we are planning on converting to U.S. GAAP for our year end 2025 reporting, this will mean that we will report under IFRS for the second and third quarters, and then our full year 2025 results will be under U.S. GAAP. And with that, I will hand it over to Josh.

Josh Rosen: Alright. Thanks, Andrew. I really only wanted to take a moment here to express my enthusiasm after my first few months being a formal part of this Grown Rogue team. I have a fairly strong view on how I see this industry evolving. Fundamental to this view is the need for the efficient production of a quality flower. This is truly the engine that empowers the supply chain all the way through retail when it’s done right. I don’t think Grown Rogue is the only one doing this right, but in my opinion, it’s not a long list that are doing this right. The commitment of the Grown Rogue team to our craft is inspiring, and I’m excited to help with two primary mandates. First, it’s to mentor and help our finance and management team support our operational growth.

I view corporate as a tax on local operations, and we have to work really hard to justify our value every day. Our business is growing and selling weed, not sitting in corporate planning meetings thinking we have all the answers. Second is to help drive business development and evaluate market opportunities, including thinking outside the box. I hope to have more to share on this fraud as we move through the year, but I believe as the industry matures, particularly as what we call surplus profits start to disappear, companies like ours will have some meaningful, non linear opportunities to lean into our capabilities at greater scale. And with that, I’ll hand it back to Obie.

Obie Strickler: Yes, thanks, Josh. Before opening up to questions, just wanted to highlight a few kind of immediate and defined growth objectives right in front of us, especially as it relates to New Jersey. As Andrew said, we’re reporting on a pro forma basis, mostly because of the accounting rules and the regulatory structure in Jersey, but we expect revenue this year and into 2026 to grow at a minimum of 30% a year, and profit to be well in excess of that. With Illinois and the other opportunities that we’re looking at in front of us, we expect that to get even better. Obviously, some of this growth, and I think this is a really important thing for people to understand is, in a week, we call it surplus profits, right inside of these markets is, we have a higher pricing environment in Jersey than we see in almost any other market currently, and we expect that pricing to come down.

And so, anchoring on, continued $3,000 pounds in the market in perpetuity is probably not a good kind of outcome. What we do with those surplus profits in the short-term is reinvest them. We establish high levels of efficiency very early, and so we can capture as much of those surplus profits during the period that they exist and then use that to reinvest whether it’s any projects or supplementing other kind of objectives that provide long-term value for the business. And I just want to leave everyone with, at the core. And I think people that get to know us and me in particular, like I’m an operator, we started Grown Rogue, my wife and I shoot back in 2017 with a passion to deliver high quality, low cost flower to the world. That ethos, that passion, that commitment, has permeated that throughout our team, the culture and just the alignment that we have, there’s few people companies that can match that we embrace the grind like we don’t like where we’re seeing some of the challenge we face in southern markets, but like, the resoluteness of our team as we go through this, it’s just so impressive to me, and it’s the way they get up every single day and drive our results, go to work and, like, I couldn’t think of a better team to not to be impactful with.

That’s a tough industry, and I think people need to understand that you’re seeing, difficulties and changes. We try to professionalize a very kind of legacy and historic industry that’s been around for a long time. And the last thing I want to leave you with, and it was a really cool thing we did about 6 months ago. We have our leadership meetings. And like any leading that goes forever, they get a little stale. So like, let’s change this up a little bit. We started doing quotes with everyone on the team, bring a quote that meant something to them. And there was a ton of good ones, but the one that resonated with me the most, and I’ve been saying it quite a bit over the last 6 to 8 months. And I’ll leave everyone with this before I go to questions, which is everything I want is on the other side of heart.

And it could not be more true around life in general, whether it’s Grown Rogue, whether it’s aspirations you have, physically or mentally relationships, and when you achieve it, it is so damn rewarding. So thank you everyone for listening. And with that, I will open it up to questions.

Q&A Session

Operator: [Operator Instructions] Your first question comes from Brian Park, individual investor. Your line is already open.

Brian Park: Hey guys. My question is on target markets, you have got that slide on your investor presentation. I am just wondering if those are the only ones you are considering, and which is on the top of your list. I am going to have a follow-up.

Obie Strickler: Yes. Hey, Brian, it’s Obie. Thanks for joining and listening. In the very short-term, obviously, Phase 2 in Jersey, and then getting Illinois completed is kind of a and b. The states that we articulated out in our investor presentation are just generally, based on current information of what we are looking at. Will that shift a little bit, yes, but what you will see is a kind of a consistent trend towards, states that start with a higher priced environment. One of the things we are not going to get a lot into it during this conference call, but we are seeing quite a bit of stress, as you can imagine, throughout the industry and that’s shifting a little bit how we are looking at the opportunities in front of us, that may change a little bit of the markets that we see, the opportunity to kind of really embrace.

The thing we are always balancing is, the disciplined approach now getting over our skis, and that really goes to bandwidth of our team, right. And so making sure, if we pick one thing and lose weight, to say no to something else, so just being very like thoughtful around where the best place is to stick our time and energy. That’s one of the reasons I am so happy to have Josh on our team, because he does a really good job of kind of parsing through, the roll the decks of opportunity, and helping us focus on something that is really kind of aligned with the best return, not only for our business, but also for our shareholders.

Brian Park: So, a little bit of context.

Obie Strickler: Yes, sure. Josh, you got more to say, jump in, absolutely.

Josh Rosen: I think I mean it speaks to the capabilities, right, that we have got this up on a luxurious position of being able to compete in any market. But we can still be selective about. And I think Obie, in the past, has referenced really trying to make sure we swing at that pitches. And one of the reasons for that, it ties back to this return on bandwidth dynamic, as opposed to just the simple return on capital dynamic. So, we are very returns based on how we look at opportunities. But even when financial returns are compelling, a lot of places have financial returns that are compelling when you can lean in on the operational cost side like we can. The other side is kind of the absolute contribution of those dollars in the execution and what the environment is going to be like in that specific market.

And so by and large, anywhere in the country is a place we could go compete. But they have very different criteria. When you kind of start getting into the different dynamics of, how big of an opportunity is it for us, how long will if there are surplus profits, how long do we think those surplus profits last, and how do we underwrite this. And so what I would say is, with Obie referenced, we will talk a little bit more about distress potentially in the future. But there are a lot of directions to go. And so while that map is pretty representative, I think of I will call it the core linear one of the time focus, we are also going to be opportunistic around that pitches.

Brian Park: Great. Yes. So, out west in the Michigan, there is plenty of experienced workers in the cannabis industry. Can you talk about the importance of your team? I am just wondering if there was any difficulty you finding skilled workers outside of Michigan, Oregon, is that a headwind in places like Illinois?

Obie Strickler: It was such a great question. Very few people ask about the team. The answer is, yes, it is more difficult to find kind of experienced workforce inside of markets that on the East Coast than we have like in Oregon. The mission had a pretty long kind of robust medical program. And so what we have done to address that in particular, and this goes into someone I talked earlier about the SGA, kind of increases you have, what we built, what I call, like our business is really focused on three things. We have a cultivation team that grows the product. We have a post harvest team that ensures it gets managed properly, and you preserve all the great qualities that’s produced on the bench, and then we have your sales team.

And so what we did, and this has gone to some of the increases in corporate overhead, is we built that org design that sits into our markets, and built my national team. So, now we have a National Cultivation Director, National Post Harvest and a National Sales Director. And it’s their job to spend a tremendous amount of time into the markets, training, interviewing and establishing kind of the processes and procedures and kind of our SOPs that we want to implement and have a lot of consistency across each of our markets. And then when you get down into like the individual people doing the work, you got to find the right folks. We find a lot of strong kind of work that comes out of the restaurant business, especially in post harvest. And so we have kind of learned some things and how you do that.

But there is also a ramp, right. That’s why we don’t think in Jersey, for instance, we are going to be at what is our cost of production in Oregon, $450 a pound, like we didn’t estimate that. We didn’t underwrite to that kind of cost. We think we will get there, but it’s probably going to take us a year. But yes, training up and finding the talent is critical to the ultimate success, and we definitely don’t take it for granted, but we are a little bit spoiled with some of just the raw efficiency and just the knowledge that you have in a place like Oregon, that our systems are transferable. That’s the other beauty. Like, we are not McDonald’s, or we have like this box that we put people in, but we have great SOPs, great training, and so we are able to implement kind of those systems and processes pretty quickly.

And then it’s just frequency and repetition. But you are right. I mean it’s a very thoughtful question around just, how do you make those things work at the state level.

Andrew Marchington: I had mentioned my mandate in the prepared remarks one of my two – four mandates, but another one. I mean, Obie still lives on the road. Another one of my softer mandates is to make sure that we allow Obie to stay an operator and be front and center as it relates to building culture. Obviously, you can only be in one place at one time, but a big part of establishing that routine in New Jersey, for instance, has been Obie’s personal presence, and so that dynamic mix with the national folks that will Obie is referencing, I think is a big part of what will allow us to continue to scale

Obie Strickler: Going back to the team like I just – I can’t stress enough how humbled I am to have the team that surrounds us like, my National Sales Director moved to Philadelphia for six months as we were getting Jersey turned on. Right our facility is 20 minutes from Downtown Philadelphia. Like he upgraded his family, he has got two kids, like they moved there just to be on-site and commit. My Post Harvest Director moved out to the shore of Jersey again to be there and to turn it on, just for the summer when he came back to Oregon, again, he has got two kids. And then my cultivation, the National cultivation Director has pretty much been on the road for a year between Jersey, just spent like a month in Michigan, kind of refining and fixing some of the self inflicted problems we experienced out there, mostly around the flower production.

And so they will – I do a lot, but this team we have, and their commitment to driving excellence, it’s just anyway, but that’s the thing gets me excited, like they are just amazing. So, Ijust want to add that, like the level of commitment that we have to driving success in the business is super awesome.

Brian Park: Great. Thanks guys. Good luck.

Obie Strickler: Thanks Brian.

Operator: [Operator Instructions] Your next question comes from Adam August, independent investor. Your line is already open.

Adam August: Hi guys. Good to hear all your voices. And it’s nice to hear this. So, this is what we built for mantra. It was nice to hear that after seeing some of those ASPs, because those selling price metrics were pretty built. So, it was, I was happy to see some of the additional metrics with the costs and so forth, so just give some context to that. With that in mind, I also, of course noticed that the operating cash flow number fits to a loss. And I was just wondering if any of you could maybe speak to that a little bit. I especially see a pretty big jump in payables and prepaid expenses and so forth. So, could you just address that a little bit for me?

Obie Strickler: Andrew, do you want to take that one or Josh, whichever one of you guys?

Andrew Marchington: Yes, I will tackle that one. Thanks Adam. This is primarily driven by changes in non-cash working capital items. And this should flip back around to some extent during Q2. We had some accrual timing differences in Q1 as well as some prepaid items that were added to the book as well. So we do expect that to lessen through Q2 just given the timing.

Josh Rosen: Yes, correct. To make a little extra context to that, I mean it was well north of seven figures just working capital swing just with respect to the combination of prepaid expenses, payables and receivables kind of all just quarter end. And part of this we have this dialogue internally. We are not trying to manage through the quarter relative to reported metrics, we are just running the business kind of best course of action with respect to prepaid expenses, payables etcetera and so just kind of the balance sheet point in time with a little bit more meaningfully negative this quarter than typical.

Adam August: Understood.

Josh Rosen: And I did see the final subsequent events, that’s the government money finally came through. So congratulations on receiving that check, I know that’s a long time coming.

Obie Strickler: Yes, got a good chunk there.

Adam August: Yes, that did take a long time, but good to getting into the cash portion of it.

Operator: There are no further questions at this time. I would hand over the call to Obie Strickler for closing remarks. Please go ahead.

Obie Strickler: Yes, guys, just again thanks everyone for joining. This was the first of what will be many as we continue to do a better job of educating people around the way we look at the business. And so again thanks everyone who joined and look forward to having you on the next one and as always if you have any questions, particular things you would like to learn more about, we are not necessarily helping both, but for the most part we are an open book. So feel free to reach out anytime and yes, thanks again for joining. Appreciate it.

Operator: Ladies and gentlemen, this concludes today’s conference call. Thank you for your participation and you may now disconnect.