Grown Rogue International Inc. (GRUSF) Q2 2026 Earnings Call Transcript

As a reminder, during the course of this conference call, Grown Rogues management may make forward-looking statements based on current expectations, estimates, and assumptions. These statements are subject to risk and uncertainties that could cause actual results to differ materially from those expressed or implied. These risks are described in the risk factor section of the company's filings and other public disclosure materials. Any forward-looking statements made on this call speak only as of today, and Grown Rogues undertakes no obligation to update or revise them in the future except as required by law. During today's call, we will also refer to certain non-GAAP financial measures, including EBITDA and adjusted EBITDA. These measures do not have standardized meanings under GAAP and may not be comparable to similarly titled measures used by other companies. Grown Rogues believes these measures provide useful supplemental information to investors, but they should not be considered a substitute for GAAP results. A reconciliation to the most directly comparable GAAP measures is included in the press release issued earlier today. With that, I'll turn the call over to Obie Strickler, Chief Executive Officer of Grown Rogue. Obi, please go ahead.

Great, thank you. And thanks everyone for joining today. I'm going to try and, you know, just try keeping today's commentary a little brief. Another very solid quarter. And what continues to impress me the most is, you know, we talk about this a lot, just the amazing team that we have at Grown Rogue. You know, we're running a few projects in parallel right now with New Jersey, Minnesota, and Illinois. And the team is just, you know, working their tails off every day to bring these projects forward into fruition. The problem-solving, collaboration, passion, and intensity just continues to inspire me every day to do, you know, my best work individually. And, you know, watching the team execute has just been, you know, pretty spectacular in 26 and, you know, previously. I hadn't worked in too many industries, as many of you probably know. You know, it's probably a factor in how focused, you know, we maintain ourselves at Grown Rogue. But it sure feels like this one brings a lot of, you know, unique set of challenges and just difficulties and, you know, all the things that go in with being a successful cannabis business. And so, you know, we spend a lot of time, you know, recruiting for experience, agility. And what we've seen so far, which is kind of awesome, is that our culture ends up largely being self-selecting. We end up getting a lot of references from our team and those close to us with, you know, great talent and people that want to join kind of the mission that we set ourselves, you know, out on. Before I get into some market-specific comments, one thing I wanted to share today was the internal pillars that we refined last year as we really began to lean into our growth efforts. You know, we worried a lot, you know, myself included, about keeping our scrappy, you know, entrepreneurial get-shit-done culture, you know, as we continue to expand. And we're going to do our best to try and maintain that and be intentional about avoiding extra management layers, unnecessary bureaucracy, you know, and all the things that kind of slow down your nimbleness and flexibility. You know, at our core, we're a team of doers, and maintaining that is going to be super critical to our success as we go forward. So, again, last year, we clarified and kind of defined, you know, our core beliefs as an organization. We coined these the pillars of grown road culture. love the plant with our rogue valley heritage cultivation is our passion and it starts with sourcing and breeding the best genetics our genetics reflects the creative inspiration of our team and company number two we are craft cultivators our goal isn't to be the biggest but to have right size facilities and production goals that allow us to produce boutique quality flower at scale. We are consumers at our core and pride ourselves on sharing our craft with the world. Number three, continuous improvement. We are constantly iterating and improving our practices to increase quality and yield. This relentless focus ensures we continue to win in a rapidly maturing and increasingly competitive industry. Number four, cost control. We aggressively manage costs across the business to ensure the best possible pricing to our customers and ensure our business makes money regardless of market pricing. If it doesn't help the plants or our customers, why are we doing it? Number five, the last one, team first mentality. Everything we do starts with our amazing team. It's the engine that drives us every day, filled with fun, respect, accountability, and hard work. At Grown Rogue, we don't just grow plants, we grow leaders so those are the five pillars um just something again we put together for our team just to refine and really give clarity to like how we show up every day and the intention that we bring into you know our working environment um so getting into the market so i'll start with new jersey um honestly just particularly pleased with how new jersey has been progressing has really get our flywheel going you know seeing that 100 of our package flower sales you know this quarter you know coupled with we actually purchased some bulk product in the open market to continue to fulfill the demand that our brands have started to kind of you know demand inside of you know the market out there so that was kind of an awesome kind of addition to what we did in Q2 actively constructing to get to our full 16,000 square foot capacity and one to reiterate we expect to have that completed by the year end. You know, that involves turning on three additional flower rooms, you know, plus a mother room, but just, you know, getting that full facility built out and to its, you know, 100 percent capacity. Still have some work to do, you know, to get our yields and costs, you know, to the excellence we're seeing in Michigan and Oregon, but feeling good about where we sit and how this canopy expansion will bode as we finish up 2026 and moving to 2027. One thing I wanted to call out in New Jersey is around our ASP. You will see if you're looking at the KPIs, how it increased from last quarter as we realized that one of our products is called Yeti Ready to Roll was being included in our ASP. This product is 100% comprised of shake that would normally go to extractors for around $250 a pound. But with demand so high in New Jersey and kind of the opportunity set that sits there, what we've been doing is taking that material, grinding it up, and putting it into Yeti ounce bags that we call ready-to-roll and selling this for around $1,000 a pound. That being said, this weight is not included in kind of our flower yields and the way we like to manage our business. And then with that lower price point, you know, it's artificially impacting our flower ASPs, so we've chosen to exclude that. inside of our reporting metrics. Oregon, you know, was worried starting the year around where Oregon was sitting, you know, especially around the pricing environment. It was really nice to see some modest price recovery in Oregon over the last quarter, and we're definitely hoping that continues. Demand min remains high. The team is super locked in and executing at a high level as we continue to, you know, manage a very competitive marketplace. We've completed a lot of the technical improvements that we talked about last call, you know, that are driving some of the incredible numbers out of Michigan. So excited to continue to see yield and cost improvements in Oregon, you know, over the coming months and, you know, throughout the rest of kind of, you know, activity there. Switching to Michigan, I mean, 90 grand square foot of flower and a $277 pound of cost. I think that kind of says it all. I don't think I was really, really excited to see that there's not a lot to kind of elaborate on there the execution of that team you know particularly against you know the challenging state environment right now in terms of the pricing you know environment that we're living in has been pretty amazing just watching them lean in grind push forward great product you know good yields record yields frankly um and just yeah super excited about the way they're navigating you know this pricing cycle the wholesale tax that was implemented earlier this year and they're setting new standards for what we can expect and how the rest of our states are going to push towards you know cost control and you know growing you know good strong yields um illinois we got plants into the building in early june and are expecting our first harvest in september it's been super great to watch the team come together i was talking to one of our guys who's out there this week um our vp of production and just you know the energy the culture the way everything is coming together are out there is super exciting um and you know like anything startup new project take over you know the fires that come with that as you're turning back on a facility just really impressed watching the way the teams navigated that as you know due to regulatory we started with 5,000 square feet um we've already submitted 5,000 square feet of canopy you know we've submitted already and gotten approval to go to 10,000 square feet you know which we're in the process of completing we need to do a little bit of upgrade work to kind of meet our standards you know there's some lights to order you know a little bit of retrofitting which we anticipated and we're expecting to be at the full 10 000 square feet um a flowering canopy canopy by the end of the year so yeah again excited about illinois excited to bring that product into the market and you know looking forward to seeing what the you know initial output in terms of quality will be minnesota at the finish line of phase one and we talked um you know working through some like last item was local and state on kind of occupancy metrics, always dealing with the last kind of, you know, big push on the construction side. But hopefully, you know, you can never really gauge timeline when you have regulatory kind of uncertainty, but, you know, very optimistic that we're going to be able to bring plants into the building sometime in August. And then very optimistic around our previously stated timelines, with first harvest by the end of the year and then selling products in the Minnesota market, you know, starting in Q1 and 27. Team is a consistent theme for us and particularly excited about how the team is stepping up in Minnesota. You know, our previous general manager in Oregon who had been with us for five or six years is relocating to Minnesota to get that project stood up for us. And then also our cultivation leadership, you know, we're spending a considerable amount of time on site over the next six to 12 months, you know, to make sure we get our production valued in and just hit that market with our best foot forward. So again, great quarter, excited to see what the team is doing, excited about kind of the expansion of the projects in front of us. And yeah, just head down, continuing to work.

So with that, I'll hand it over to Josh. Excuse me. Thanks, Obi.

I just wanted to take a minute to talk about capital allocation and how we keep our discipline with business development and reflect on the time and energy that I've continued to spend on evaluating distress in the industry. And I think the first mention here, although not something worthy of disclosure on our end at the time, it is publicly available information that we bid for Forefront's Massachusetts operations, and ultimately the bidding became too rich for us earlier this year. What was most intriguing to us in this deal was a very well-constructed cultivation facility that was right in our wheelhouse, about 15,000 square feet of flattering canopy in a 50,000 square foot building. It was a right-sized opportunity but also included a couple of high-performing stores and we had high conviction in the execution what the competitive market in Massachusetts. Our approach to capital allocation is likely different than what I perceived to be the situations for most of our peers in the industry in large part because it comes through the lens of applying our core competency. That core competency that Colby alludes to, the efficient production of quality flower.

Putting that into an appropriate infrastructure is really the core focus of our, excuse me, of our, going in circles here for a moment.

It is the core focus of our business development plans. And so when you take that flower forward ethos that you hear from us frequently, it doesn't preclude us from including manufacturing or retail when we look at deals. And it's one of the reasons that I alluded back to the Massachusetts example a moment ago. If we're taking something on, it's because of how we trust our team's core competency to be the value driver. We also don't have unlimited bandwidth. and this ties directly to being choosy to those situations that we think we can generate 75 cents of operating profit for every dollar we invest. We don't think that this can happen immediately in most deals, but once we've had 12 to 18 months to improve performance, this is the return profile we're after.

This is a high hurdle.

There are a lot of opportunities to buy private or public players with existing profits at what would be a discounted EBITDA multiple, perhaps benefiting from arbitrage between our public multiple and what we can buy, but this is not our approach. We aim to map our bandwidth against true value-enhancing opportunities to grow our platform, not for scale itself, but for what we see as the financial and team-building benefits of bringing our passion for quality products to cut to more customers. I'll end by highlighting that in Fenkel Capital's second quarter investor update that gets posted on Substack, we wrote about cultivation math specifically, as in the math of cultivation, And I'll warn that it's a little bit of a long essay is how I would describe it. But it ties directly into why I'm in this seat in my view that this is one of the best opportunities for adding value that I've seen in my career.

I will now hand it over to Andrew.

We do report our Michigan excise tax as revenue as we do charge this out to our customers.

The exposure to that tax is often shared with customers, but ultimately we do have to pay this amount to the state. So the corresponding expense is recorded in general and administrative expenses.

Really just going to keep this short and sweet.

We had a great, clean, easy quarter reported out pretty quickly. And the team's got a lot of work to do and a lot of projects in front of it for Q3.

So we're going to put our heads down and get back to it and execute. Thanks, you guys. With that, we will open it up to any questions.

Thank you. Ladies and gentlemen, we will now begin the question and answer session. To join the question queue, you may press star, then one on your touchtone phone. You will hear a tone acknowledging your request. If you are using a speaker phone, please pick up your handset before pressing any keys. To withdraw your question, please press star, then the number two. We'll pause for a moment to compile the Q&A roster. We have a question from Aaron Edelheid from Mindset Capital. Your line is open.

Hey, guys. I wanted to congratulate you specifically on some of the cost figures and the production. When I'm looking at Michigan, I think that that's a quarterly record in terms of harvest and cost. And I wanted to ask, is there any reason why what you're doing in Michigan couldn't be replicated in Oregon, maybe in yield, let's just talk yield, and in New Jersey and eventually Illinois and Minnesota long term?

From a practical perspective, Aaron, and good question, no, there's no reason why we should not be able to replicate those. Each market is going to be slightly different in terms of how we manage, you know, volume of capacity based on what we think the market demand is. And then each market will have slightly different, you know, kind of like mechanical support systems, you know, to kind of influence this additional technology we put in to drive these yields and effectively lower the costs. um you know we started installing a lot of these in oregon so i would expect to see that coming you know kind of q3 q4 you know as we got a big chunk of our facility kind of outfitted you know for relatively low cost like i mentioned last time this is measured in very low six figures to do this work uh which has a fantastic roi um you know illinois may be a little different in terms of the mechanical needs in order to do that and so your costs may go up and so as we evaluate that market. Same thing in New Jersey, you know, same thing in Minnesota is we evaluate the markets and look at where the demand sits, what the cost profile is. But it's definitely set a new standard in terms of what the expectations and the potential is inside of our assets. And so, you know, actively evaluating those to look at, you know, when's the right time and then, you know, what is the cost to install them and, you know, how does that work out? But again, our goal right now in New Jersey is get the rest of the building built, you know, get the rest of the flower rooms turned on you know we've already started doing some planning around how we would you know kind of construct this additional opportunity and then illinois is just early right we're just getting that turned on um and we expect minnesota to be kind of similar in terms of where we go um and so one of the beauties in oregon and michigan with these mature kind of markets is you know we are able to make those decisions because we don't really want to build extra capacity so this is an exciting way to get there you look at like minnesota and do you you know do this pack and get you know higher yields and less rooms do you build up more infrastructure what's the trade-off there in terms of overall kind of um you know production capacity it's all things the team is working on but it's not unlikely to think that you know 90 to 100 grams a square foot of flour and sub 300 pounds is the new standard and normal that we'll be pushing against great uh keep up the great progress thanks thank you again if you would like to ask the question simply press start and one on your touchstone phone.

There are no more questions at this time.

Oh, we have a question from Brian Park. Your line is open.

Hey guys, congrats on the quarter. Just wondering what gives you the confidence to raise guidance?

Josh, do you want to take that one? I will jump on this. Yep, for sure.

Yeah, it's really a function of, you know, obviously as you get farther through the year, you have greater visibility into what's closer to you. And so, you know, we're two quarters in. And I think in a combination of seeing the production volumes in Michigan driving some revenue growth there mixed with, I'll call it pricing stability, it tends to be a little volatile in Oregon. But at least, you know, second quarter we saw it stabilize and come back up a little bit. gives us a little bit of comfort with respect to how the back half of the year is shaping up, at least in terms of third quarter into fourth quarter. And so those underlying trends mixed with what Obi was referencing in New Jersey just gave us some nice confidence that the business is performing consistently well. We obviously had some pretty significant pricing headwinds last year and wanted to come into this year being at least cautious with respect to how the year was going to unfold, particularly in Oregon and Michigan. And so just how a lot more stability in those markets flow through with the primary catalyst mixed with just ongoing confidence in New Jersey.

All right.

This one's for Obi. I was just wondering your cost differences in each market and trying to separate out what you can control and what you can't. uh are there what's the percentage of your cost that goes into energy is it much higher in new jersey compared to other markets that's all i got for you guys thank you yeah i mean each market has a slightly different power cost right labor costs like your consumables are pretty fixed across the markets with power bulk purchasing so like your nutrients you know your soil medium um you know Your IPM is pretty consistent.

So you get a little bit of difference in power. I think the big driver is around labor. Labor costs are different in each market. Again, we'll have a little bit of influence on ultimate cost kind of control. I think the biggest driver, Jersey is still not where we expect it to be. The big driver there is power is a little bit more expensive. I would say labor is a little bit more expensive. but not material enough to have that big of a delta. The biggest driver there is, A, like we need to get our yields up a little bit. And, you know, the team understands that we had a leadership change in our cultivation department in the last, you know, couple months, which we're very excited about. But you also got to remember we're carrying fully loaded costs of like key management personnel and facility costs against, you know, what's now, what, 10,000 to 16, you know, 60, 70% of the production capacity. So just naturally through turning on the rest of the facility, like you have one director of cultivation, whether it's 8,000 square feet or 16, you still have that one cost. And so we'll expect to see that kind of driving down a little bit. Facility cost is the other kind of, you know, variable, which we'll see in other markets that we get into. Like, obviously, the Minnesota building is materially more expensive than what we pay in Oregon. Oregon and Michigan have really good cost structures when it comes to some of that just foundational, like, you know, baseline pieces. You know, Jersey's got a little bit more expensive rent. But so there will be little variables. And I'm not saying you can get sub-300 bucks in every state. But I think sub-5 is definitely a goal. And a sub-4, you know, Mrs. Flower only, is extremely reasonable. You know, the other thing I think to think about when you think about Michigan, right, that $277 is flower only. If you add trim into that, we're definitely below sub $200 a pound, you know, full biomass cost of production at this point for indoor production, which is, I mean, if there's anyone else doing it at that level, I'd love to talk to them. But it's, I mean, it's a record for grown rogue.

And I would argue that it might be one of the better costs on a true apples to apples basis that anyone in the industry has seen. Thank you.

If there are no more questions at this time, I would now like to turn the conference back to Ovi.

All right, everyone, thank you for joining.

Appreciate the time and energy. And like I said, we're head down just, you know, doing our work and, you know, really excited about where 26 is going to end up with Jersey, Illinois, Minnesota. And, yeah, looking forward to finishing up this year and really excited about this kind of step change that's going to come into 27 as we get, you know, two more states online and then jersey fully constructed especially where we're seeing oregon and michigan kind of operate now um so yeah look forward to talking to you all and you know three months or so from now uh if you've got any questions in the meantime you know feel free to reach out so always good to talk to folks and you know explain about what we're doing in our business but i appreciate you for taking time later today to come listen thank you this concludes today's conference call thank you for participating you may now disconnect