Grown Rogue International Inc. (GRUSF) Q3 2026 Earnings Call Transcript

Good afternoon, and welcome to Grown Rogue International Incorporated's Third Quarter 2026 Earnings Conference Call. Please note that today's call is being recorded. Before we begin, management's remarks and responses to questions may include forward-looking statements within the meeting of applicable Canadian and United States securities laws. These statements reflect management's current expectations and assumptions and are subject to risk and uncertainties that could cause actual results to differ materially. Further information about this risk and assumption is available in today's earnings release and the company's filings on CETTERPLUS and EDCOR. Listeners should not place undue reliance on these statements which speak only as of today. Grown Rogue undertakes no obligation to update them except as required by law. Management may also refer to non-GAAP financial measures and ratios, including EBITDA, Adjusted EBITDA, and Adjusted EBITDA Margin. This provides supplemental information, do not have standardized meanings under U.S. GAAP and may not be comparable to similarly titled measures used by other companies. They should not be considered substitutes for GAAP results. Definitions and reconciliations of historical NANDGAP measures are included in today's earnings release. Available at ir.grownrogue.com. Unless otherwise indicated, all financial amounts are in U.S. dollars. And now, I will turn the call over to Obie Strickler, Chief Executive Officer of GrownRogue. Obie, please go ahead.

All right. Thank you very much, and thanks, everyone, for joining today. Some of you may be aware we're having a, what looks like a global outage in Outlook, Microsoft, obviously shut down emails from the company today. So obviously got the press release out, we're having a conference call, you know, all the filings are completed, you know, just waiting on kind of email traffic to come back up, and then we'll get those, you know, filed for, you know, the queues and, you know, all the different components that are coming along with that. So, yeah, thanks for your patience and a little bit out of our control. But I had a really another solid quarter, you know, in Q3 in the midst of, you know, executing on our ambitious growth plans this year. As you can imagine, you know, things are busy and a lot going on for the organization. I wanted to take a few minutes to talk about some of the key milestones, you know, we've achieved since our last conference call. So, starting in Minnesota, you know, we pride ourselves on standing things up quickly, as time is money in so many ways. And in the case of Minnesota, it's even more important, as we believe the market is significantly supply-constrained, you know, especially when it comes to indoor flower, let alone the craft-quality indoor flower that we are building our business on. Construction is materially complete for the first phase, which will start, as we've said in the past, with approximately 8,000 square feet of flowering canopy that should be producing around 500 pounds, you know, of whole flower per month. Each of the five flower rooms is populated inside the facility, and we're scheduled for our first harvest at the end of November. And then with our crop schedule, you know, we'll be starting to harvest, you know, out of that facility effectively every two weeks. Getting the team and our systems dialed in, you know, with the quality of our construction and, you know, the design that we put in place, just super excited about our ability to get this facility, you know, up to Our standards in short order and looking forward to starting our sales in January of 2027. New startup is always a scramble as usual, but excited how the existing team and then the new team members we brought in are coming together with their planning and execution. As you know, in Minnesota at full capacity with our licensing, we can increase our flowering canopy up to 30,000 square feet, which we will obviously do in phases. We've begun starting kind of the internal design work for the next phase of that construction. You know, that would take us up to probably the next phase of our growth, which we've got 16,000 square feet of flower. Obviously, that'll depend upon, you know, executing on that work, you know, depending upon sell-through and the market demand, you know, but considering the undersupply situation, you know, currently in Minnesota, you know, what we're observing there, what other companies are talking about, you know, very excited about the potential in this market. Illinois, similar to Minnesota, you know, really pleased with how quickly the team pulled us together and just how nimble we've been to address the issues, you know, with taking over an already built facility. We're now several harvests in and excited about the initial quality and the response to our brands in the marketplace as we've begun selling, you know, back in October. It's important to note that, you know, Illinois is, you know, we look at this as a little bit of a slower build. It does not have the supply limitations, and, you know, we know we need to earn the shelf space in a market with larger, you know, more vertical operators that control a significant, you know, portion of that market. Confident in our ability to be great partners, you know, both to the large players, you know, and the independents across Illinois. And, you know, very confident and believe strongly that we bring a great quality and value proposition, you know, to the customers across our, you know, kind of brand portfolio. New Jersey, I mean, continues to be a great market for us, and, you know, what we're learning, you know, there is really informing our practices in new markets. Package sales continues to be effectively 100% of our production, which has been one of our, you know, goals and mandates since the beginning. And we continue to have more demand than production, which bodes well for the three additional flower rooms we are building to get the full capacity. This will add another 6,000 square feet of flowering canopy, which will translate our kind of estimated yields to around 400 pounds per month of additional supply. We plan to populate these new flower rooms starting in December. And then into the first part of the year, you know, to balance the new capacity, you know, against kind of our monthly sales and really targeting the upswing you see, you know, after the slow winter months coming into, you know, spring 420, you know, things like that, where the demand starts to pick back up. I think one important note, and, you know, there's a lot of data sources out there, you know, we rely upon Pistol, but Pistol data shows us as the number three brand in the state, you know, across our 3.5 brand, eight category. And then when you include seven grams into that form factor, the number five brand in the state across, you know, the various brands that we have in that market, it's a really exciting accomplishment for the team, and obviously it makes us very hungry to improve those rankings, you know, as we move into 2027. I'll let Josh talk a little bit more about New York specifically, but similarly, I want to highlight how quickly, you know, mobilizing resources to revitalize, you know, PharmaCAN's Hamptonburg facility. The team is pushing, and, you know, thanks to all their hard work, all 15 indoor flower rooms are already populated with our first harvest scheduled for the middle of December. It's a monster facility, but at the speed at which the teams are executing, it's just been very, very impressive. Unlike Throne Room's kind of history, we are not being incremental in New York with the amount of production that we're bringing online, which should be about 20,000, or sorry, not 20,000, 2,000 pounds per month of our high-quality indoor flower. And we got a lot of confidence in our ability to grow that based on what the And then more importantly, get it packaged and into the market effectively, you know, as we kind of navigate what the, you know, demand looks like there, the brands, you know, just the ethos of that market, you know, as we get our arms around it. Again, first harvest will be in December. We expect to start sales and kind of, you know, mid late January, early February. And also wanted to highlight just, you know, the appreciation for the PharmaCan team, you know, going through what they have over the last couple of years, you know, But rolling with us through this, you know, massive effort that we're undertaking, you know, inside of New York. You find this, and we've talked about it before, but, you know, team highlights, right? I just really want to take a moment to commend and thank, you know, our existing team for their hard work and stepping up over the last year. You know, we were running really hard, even before New York, you know, was kind of announced, and we decided to take this on. You know, obviously, it was not on our bingo card this year, but it was, you know, too special of an opportunity to pass up. We have super high standards and take great pride in our flour and products, and I want to acknowledge that we are stretched a bit thin at the moment, but to a person inside of our team, that does not change our unwavering commitment and passion for producing great flour consistently. Of course, none of this will be possible without some really strong recent additions to our squad over the last few months, coupled with individuals that have been with us for years and have really stepped into their new roles and are embracing this new scale and opportunity that sits in front of us. In particular, I want to highlight Michael Johnson, who I've personally known for years. We go way back and just never kind of been able to align on getting him to join Grown Rogue based upon his other roles, responsibilities, and companies he was working for, and then obviously where Grown Rogue's at. But getting him to come on board and lead New York for us has just been amazing. Michael brings deep industry roots and really, and most importantly, embodies our culture and our passion for excellence. Another recent addition to our team is Naya Gunnett, who joined us a few months ago as our corporate controller, and she's already providing, like, just a much-needed level of support to our accounting team, you know, just, you know, bringing a level of experience and knowledge that is going to be, you know, very critical during this period of growth for the company. So, Eamon McGettrick, who has been instrumental for us the last year, you know, anyone on this call who's met Eamon, you just. Like his passion and intensity and knowledge just is without question. And it's one of the cool stories, you know, kind of inside of Grown Rogue in terms of how we've been growing the business, but also growing the people, you know, who have been with us for years. I think Eamon started with us four or five years ago as a growth tech, you know, quickly moved up through the org, getting into fertigation, then became our director of cultivation in Oregon before recently being promoted to our national director of cultivation, you know, to support the rollout in our new states this year. And Eamon's just been a beast. You know, he was on the ground in Illinois for months as we set up that production. And then I think literally flew to New York within 48 hours of, you know, signing the first set of agreements and has been on the ground out there ever since. So just, you know, big thank you to Eamon and all that he's doing. The other person I want to highlight is Jordan Storms, goes by Jordy, you know, another kind of standout inside the org who I think started with us, you know, again, three, four, five years ago as a tremor. And really, it's just been driving, you know, the training and execution inside of our post-harvest practices and really getting into the, you know, the weeds for, you know, no pun intended of like, you know, with our trim teams, you know, the bucking teams, like how do they, you know, do that and do we spin up these new people under our standards to really preserve the, you know, the handling and the quality of our product. The list could go on and on, and I won't bore you guys with an hour of talking about our amazing team, but expect that to be a part of our calls going forward, just looking at what our team is doing and how they're performing. I want to leave everyone with just a little bit on where we're going. It's kind of, I wouldn't say it's crazy because this is kind of the roadmap that we put in front of us, but we're now operating a six-state footprint. And while we have a ton of execution to get right, you know, it's pretty amazing and should have a material improvement in our financial performance in 2027. Whereas you'll see from our guidance, you know, reflects, you know, 50% revenue growth and about 100% adjusted EBITDA. And I want to be clear, this has no contribution from New York yet, which, you know, time will tell. But based on what we've seen, based on the history there, you know, arguably New York is going to become the largest market in our portfolio. As you've seen over the years with Grown Rogue, our foundation has been set, right? High quality, low cost indoor flower production. And our performance on those fronts in Oregon and Michigan speak for themselves. You can look at the numbers, you can look at the yields, you can look at the costs. But the real test for Grown Rogue is, A, can we translate that performance into our new markets, which we're very confident we will. But B, as we take that foundation. And we really tie the brand and our engagement with our customer to that. And we've been talking more recently about that on our previous calls. We've been investing on it, you know, inside the company. But it's a big, you know, kind of continuous renewed focus on that portion of our business, really to get into, you know, how do our brands resonate? How does the customer view us? You know, do we live up to that consistency and quality that they can rely upon? And I think when we hit that, it's going to be a pretty amazing outcome. Our goal is always to become the leading independent flower company in the space, not necessarily the biggest, and we're well on our way. The six-state portfolio, the fact that I think is potentially understated is that we control all of that production, which allows us to ensure the passion and quality standards that we hold ourselves to is mandated and just not requested from a licensing partner or some other process where we don't have that ability. We need to just really ensure that quality and the genetics and the things that we really well kind of come through. So, very excited about that. You know, Sarah and I started Rogue Rogue, it's kind of wild, you know, 10 years ago, just like a couple weeks ago. And we have never been more excited about our team, our business, and the future than we are today. So, super excited and appreciate everyone's kind of time and journey with us. And, you know, 26 has been a big year of growth. 27 is going to be a pretty amazing year for the organization, and just super excited for the team and what we're going to do.

And with that, I will pass it over to Josh. All right. Thanks, Obi.

So on last quarter's call, I led with a story about a deal we got outbid on in Massachusetts as a way of saying, we're active, but disciplined. Sometimes timing is everything. The Friday we lost that deal was in May, and the very next Monday, I got a call about the opportunity I thought was the best fit for us all along, which was Pharmacan's New York operations. Like Massachusetts, we'd originally been outbid on New York, too, but it was coming back to us with workable terms. As you can see from our August announcement, it's a fairly complex transaction, given the multiple parties involved in the regulatory environment in New York. But I want to start with the industrial logic, because this gets right at why I joined Grown Rogue and where I see long-term value creation in the industry. From our perspective, New York's regulated market is undersupplied with quality indoor flower, mostly because there just isn't enough indoor infrastructure. The adult-use rollout prioritized outdoor and greenhouse growers initially, in many ways, at the expense of the original medical license holders, Pharmacan among them. That's left a regulated market that skews heavily toward manufactured products like vapes and edibles, which, for those who know the market, are highly competitive categories in New York. But an indoor flower, we believe the illicit market is still dominant. And the operators with better indoor infrastructure in New York, among them GTI, Gereleaf, and Vireo, have started doing very well over the past several quarters. With more than 20 million people, plus a huge number of visitors, this is an incredibly deep consumer market, and it maps really well to our core competency of producing great flour. Another thing about New York is it has a large and growing number of dispensaries, more than 700 now, with a regulatory regime that's prevented heavy consolidation. That comes with some challenges around the number of customers and, at times, creditworthiness. But in that way, it also looks a lot like our oldest markets, Oregon and Michigan. We know how to serve a large number of smaller doors. In a market like that, retailers don't control the supply chain the way they do in more consolidated markets. And the last piece of the logic for us, which I'll come back to in future quarters, and it'll be just referenced, is the brand. Historically, we've been more of a sales-driven producer than a marketing-driven one, largely because of how Oregon and Michigan are structured, and that's a big part of why you've heard us talk so much about efficiency and low cost. That's shifting to New Jersey, where the brand is resonating, and as Obi just referenced, about everything we sell goes out as brand and pack and product. For us, though, the brand is really about sharing our passion for great flour with more people and putting the customer first. We think New York can be New Jersey on steroids for that. Tying back to August, a quick refresher on the structure in New York. We formed Grown Rogue New York, which we own 51% of, alongside a capital partner who put in $10 million of preferred equity for the other 49% and committed another $5 million term loan. That's against roughly $12 million of estimated total project costs, including the purchase price and capital expenditures and working capital, and with a cushion called the contingency. Grown Rogue New York then signed a goods and services agreement with Pharmacan of New York, which lets us support the operations in the interim, along with a secured loan of up to $9 million to fund the transition. That $9 million came out of the initial 10. And we became the direct tenant to innovative industrial properties at the Hamptonburg facility. The point of all that was to keep the business from shutting down while we finalize the purchase agreements and go through regulatory approval, and to do it with limited risk to Grown Rogue's balance sheet. Turning to where we are today, we're working through what I believe and hope are the final details of the purchase agreements. In August, we said four weeks, and it's taken longer than we anticipated. I'm not expecting to be executed by the end of this month, hopefully sooner. In the meantime, with the goods and services agreement in place, we've been actively supporting Pharmacan and New York's operations, including their four Verilife stores. As I'll be mentioned, we've replanted the Hamptonburg facility with the first harvest expected in December. For context, before production slowed early this year, that facility was producing close to 2,000 pounds of flour a month, mapping to Obie's point earlier. On retail, when our agreement started, the Verilife stores were working through Pharmacan's inventory with very aggressive discounting and limited third-party product. They were basically converting inventory to cash as fast as they could while facing a shutdown. We proactively restocked third-party product. Partly that was a necessity since Pharmacan's in-house inventory was nearly gone. But it's also how we think about retail. Put the customer in the products they want first, rather than prioritizing our own vertical sales. We've also been working with Pharmacan to transition the point-of-sale system, which is now largely complete. Overall, our expectations remain consistent with what we laid out in August. As a reminder, that included about $20 million in annual cost savings that we identified, which we expect to implement over the first six months and is in motion. Included the New York operations becoming after-tax operating cash flow positive within nine months, and after-tax cash flow from operations of roughly $600,000 a month within 18 months. Most importantly, we believe New York meets or exceeds our hurdle of returns on incremental investment capital of greater than 75%. We'll continue to update investors at the important milestones. The next legal step, as I mentioned, is executing the purchase agreements. Under the services agreement, we've already started the required regulatory disclosures, and we're hopeful we'll receive approval from the regulator in the first quarter of next year. To add Bowie's comments about being stretched, We're also building out our support teams. This is a heavy lift for what's historically been a very lean operation. We won't lose our entrepreneurial scrappiness, but we need to make sure we have the internal resources to properly support our local teams as they add value in their markets. Some of you have heard me say previously that I view headquarters and corporate as a tax on the local businesses we run. So we, on this call, need to do our part to add value. And last for me, and maybe this point goes without saying at this juncture, but my strategy and business development focus is entirely on using my experience and relationships to support the markets we're already in. We have a lot to digest and execute.

And with that, I'll hand it over to Andrew. Thank you, Josh. I want to start off by explaining the

write-off we took this quarter for Rogue-EVC in Illinois. This was largely an accounting decision as a result of what was somewhat of an unclear path forward with this asset. We made the strategic decision to pivot to the Dwight facility based on the speed and cost to get to market, and we still stand behind that, but this did leave Rogue-EVC's facility license on our balance sheet. This didn't really qualify as a discontinued operation or an asset held for sale. So, the most appropriate accounting path forward was to record the consideration, impair the license, and the many existing assets and the lease asset. We're currently assessing various options for monetizing what we can, and we'll update further when something materializes. Next, I want to highlight... Further, to what Josh just stated, the heavy lift we foresee with the anticipated New York acquisition. I anticipate Grunerug will start consolidating Pharmacan of New York upon execution of the purchase agreements, which, as he stated, would lose eminence. This comes with some challenges for a back office. First, we're drinking from a fire hose to work with Pharmacan's existing people For GrownRug, this will include our first consolidation of retail and manufacturing operations. As Josh noted, we've already replaced the point-of-sale system to improve customer experience, but with that comes incremental accounting, procurement, and inventory workload that we have to balance. Secondly, PCNY does not have standalone back-office support and relies heavily upon Pharmacan's corporate team, which has been managing through the sale of their assets for over a year, and at this point, are spread quite thin. We've already begun the process of augmenting the support structure, both inside and outside of PCNY. On the team side, we recently added a corporate controller, as Obi noted, as well as some additional accounting and HR support staff, and we have some additional recruiting, both to support drone rogues growth in the Midwest, but also in New York, as I just alluded to, as there is a lack of dedicated New York support staff, and it is a sizable operation. I'll end by noting that I'm excited to take on these challenges and support our growth, having personal experience with the retail side of the industry and being a big believer in building around an Oregon foundation. I'm excited about the future and aware of the fact that this period of growth will bring us a number of challenges.

With that, I'll send it back to Obi. Great. Thanks, you guys. And I think with that, we'll open it up to questions.

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by the number one on your touchstone phone, and you will hear a prompt that your hand has been raised. If you wish to decline from the polling process, please press star followed by the number two.

Once again, if you wish to ask a question, please press star 1 on your touchtone phone. Again, if you would like to ask a question, please press star 1 on your telephone keypad.

And there are no questions at this time. I will now turn the call over to Mr. Obie Strickler. Please continue.

All right. Thank you very much, and I appreciate everyone who joined and listened. And, yeah, we're going to get back to work and put our heads down and keep on executing. So thanks, everyone, for supporting us. And, yeah, again, looking forward to the future and just can't be more excited about what's sitting in front of us and, yeah, where we're heading. So appreciate everyone. Thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you all for participating. You may now disconnect.