Grown Rogue International Inc. (GRIN) Q4 2025 Earnings Call Transcript

Good afternoon ladies and gentlemen and welcome to the Grown Rogue International Inc. Full Year 2025 Results and Outlook. As a reminder, during the course of this conference call, Grown Rogue's management may make forward-looking statements based on current expectations, estimates, and assumptions. These statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied. these risks are described in the risk factors section of the company's filings and other public disclosures material any forward-looking statements made on this call speak only as of today and grown rogue 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-gap financial measures measures, including EBITDA and adjusted EBITDA. These measures do not have standardized meanings under CAP and may not be comparable to similarly entitled measures used by other companies. Gromero believes these measures provide useful supplemental information to investors, but they should not be considered a substitute for CAP results. A reconciliation to the most direct comparable gap 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 Chromebook. Obie, please go ahead.

Thanks, and thanks, everyone, for joining us. Sorry for the head fake last week, but that IPRC gap conversion proved to be a little more tricky than expected. I'm so excited to have it done now and get that behind us. Why does it start today's call on one of the critical items that we had discussed in the past, bandwidth and the ability of our team to handle the growth, knowing talent was a potentially limiting factor to our expansion? We got a lot of questions over that. We talked about it. And, you know, building our team out over the last couple of years has been a focus priority of the organization, not only through our internal growth and how we're building up people inside the organization, but also how we're attracting external talent, you know, who want to join our mission and kind of our platform. Sarah, my wife, says it best, and she says, we aren't just growing plants, we're growing leaders. And when we started Growing Rogue, it really never occurred to us that one of the most exciting, rewarding portions of this business for us was going to be watching, you know, our early top performers just crush it and grow into these advanced leadership roles within the organization where, you know, early people in our company are now running sales, cultivation, and production, you know, across our states. And we're starting to see kind of the next generation of management to have come up through our system. It's obviously very exciting for the company and, you know, how we're able to put people in positions in these states to be successful. But it's also really good for our culture, you know, and the rest of the team where everyone sees this opportunity for growth. It's something we've talked about. We think it's really quite special with regard to what, you know, that does for Grown Ro, and something I strongly believe will continue to separate us going forward. So as you couple this reputation we're building as a disciplined, you know, focused operator with great culture, you know, it's really starting to attract an outside talent, which we were, you know, I wouldn't say was. kind of is available, you know, in previous years, because they see a system that they want to be a part of. And I wanted to take this moment to highlight kind of, you know, three recent hires we've made in key areas of our business, you know, over the last, you know, call it eight to 12 months. The first one is on the construction side, you know, obviously with the growth, you know, not only in phase two in New Jersey, but, you know, the Minnesota project, the new project in Dwight, you know, someone that could be the centralized leader for our construction was going to be super critical. And so we brought out Mark Doherty kind of early summer last year, you know, really to manage the construction, the facilities. Since previously, you know, we've been doing this by committee. You know, effectively, I was kind of the lead of that. You know, we got our team focused on it, but there wasn't like a centralized kind of leader inside of that critical area of our business. And Mark has just been a complete game changer for us, Not only with his technical knowledge and organization, but he's got, like, a long history in horticulture and just a real passion for quality products. So it really kind of meets our culture and kind of, you know, where our business sits and what we prioritize. And that really gets into his kind of design and construction criteria to kind of fit the growing road model. It's just going to, you know, huge effort he's taken off my plate, again, to, you know, to manage the different phases of growth that we're embarking on this year. And, yeah, I don't know where we'd be without him at this point. But, yeah, just kudos to Mark for, you know, what he's done and continues to do for the organization. The second side of that was, and you've heard me talk about the last couple of calls, brand and marketing. You know, we started Grown Rogue really as a product-forward, sales-centric organization. Oregon and Michigan, big bulk markets, not as much packaged flour. And we've realized, you know, obviously that, you know, as we move into Jersey, into Illinois, into Minnesota, you know, this focus on brand and the investments into the brands and the marketing kind of apparatus to support our high-quality, low-cost foundation is going to be critical. So similar to Mark, we engaged with a woman, Laura Stensgaard, a similar time last summer as our fractional chief marketing officer, you know, kind of, again, to help us get situated. You know, take the committee out of it, put a single source of responsibility, you know, inside of this, you know, kind of department of the organization. And she started off kind of part-time, you know, fractional, maybe 20 hours a week, that kind of thing, just to see, right fit, is the culture good? And she turned out to be fantastic. And joining us full-time in March, she's just a very much a results-oriented leader that brings the marketing and branding strategy lens that we need while fitting right in with that, you know, sales-driven culture that we've talked about and kind of where the foundation of Grown Road sits. Last person on that list, and this is the most recent one. I think he started in February of this year, and this is Josh Crane, who is really focused on our New Jersey business. We brought him on just – he was a general manager at what was the – and kind of built the most successful independent business in Jersey. So, he's kind of looking at all things, right, culture, team, production, you know, brand and marketing, you know, sales apparatus, relationships, and, you know, Josh just brings a tremendous amount of expertise, deep-seated relationships in the New Jersey market, and then he comes from California where he had a long history in cannabis, you know, kind of out in the West Coast. So, just another kind of key component to kind of our cultural, you know, influence, you know, as we continue to build the organization. Next, I'll kind of talk about 2025 a little bit, almost like 2025 in review. Like 2025 is about growth, scale, and Eastern markets. And we learned very quickly, you know, high price doesn't always mean undersupplied. You know, more packaging, you know, different kind of design inside of these markets in terms of how the sales process works, you know, what the consumers are looking for. So it was really interesting for us to kind of embark upon that and our launch in New Jersey, you know, and get us prepared for, you know, again, soon-to-be Illinois, you know, Minnesota coming. But it was really an exciting time to just think about scale, growth, you know, how these more packaged markets work, and very excited about the progress we made there. You know, New Jersey was able to ramp up, probably slower than we kind of anticipated, going back to some of the, you know, dynamics inside of that sales market. But it was really exciting to watch us get to full sell through a phase one, you know, kind of coming out of the summer into the fall. And most importantly, at a very high package rate, right? I think our package rates in Q4 were 95% of our total sales at full sell through a phase one. So really kind of meeting that brand apparatus and how we're putting that together. You know, one of the things we learned early on in Jersey was, you know, the importance of having multiple brands. You know, there's different tiers. There's different price points customers are looking for. And we should have launched Yeti from day one. You know, Yeti is our kind of value brand. That's the same great product that you can expect from Girl Road, but at a better price point, you know, maybe a little bit lower potency, you know, maybe a strain that we're not quite as happy with, but still an amazing product for the customer. And it's just nice to see that sell through and that adoption, and that brand since we officially launched, I think, in June or July of last year. So just some good learnings and then reinforcing of just the brand power and the strategy around that. We've begun construction on phase two in New Jersey, you know, sticking with that state. Our fifth flower room is already planted, and we expect our first harvest out of that room sometime in May. We plan to bring the rest of the facility to get the full construction of phase two completed in Jersey during this year. And as we've talked about, since we built phase one, we're going to do that incrementally, right? We'll probably turn another flower room every one to three months to kind of balance additional capacity versus our cell room. And so, you know, excited to get that thing fully built, you know, get the economies to scale, you know, see our cost of production go down, which I'm pretty happy with right now on kind of a cost-of-pound basis. But, you know, as we put more production against some of our fixed costs, you know, we expect to drive that down, you know, even more as we come out of 26 into 27. And everyone knows, not a surprise, you know, it's painful when you're there. And I've gone through several of these cycles now, you know, in Oregon specifically. But, you know, Oregon and Michigan, very challenging year. You know, that cyclical pricing pressure that you'll see in markets like this is just painful, especially when you're in the middle of it. But, again, having gone through this, like, it wasn't, like, uncomfortable, disappointing, frustrating, all those things, but it wasn't unknown. And it's during these times, like, this is when the resilience grows. I mean, this is why Grown Rogue has built this foundation of strength, you know, low-cost, high-quality, super-resilient, strong team, good culture. And it's times like this where, you know, you really understand, like, who's in the huxel with you, right? Who do you want on your side? Like, who's going to battle with you every day? And it's during these times, like, we have our biggest improvements, you know, the focus and the intensity tune-up. And those things we keep. You know, as we start to dial in little things, make different planning decisions, you know, take up the way our apparatus works and just make our business even that much stronger and more resilient. That being said, we are, and it's difficult to predict, right? We're always trying to look at cycles and, you know, kind of the timeline of the curve. Is it a month? Is it a year? Is it two years? It does seem like we're starting to see a little bit of stabilization and recovery in those markets, in particular in more in Oregon. I mean, we did mention in the press release, you know, we expect to see double digits revenue growth in Q126 versus Q125, you know, so we're seeing some of the benefits of Jersey, but we're also seeing some improvements in Oregon. And what we see most interestingly, and this usually is a signal for kind of return of pricing is your demand starts to go up. You see more interest, you see more buying, you see more buyers coming through, you see bigger demand at the dispensary. And so hopefully that's a signal of price recovery. You know, it's gotten pretty rough through Oregon, you know, over the last, you know, 12 months or so, especially when you look at the trends. But, again, these things are cyclical. They go up, they go down. You know, the key is to, you know, kind of grind through the low points and take advantage of when the pricing comes back. We also secured our next growth stage. You know, Minnesota, as everyone knows, is, you know, kind of the core focus of the organization over 26. building secured, you know, construction has started, you know, we're estimating the completion date of construction, you know, sometime in Q3 of this year. And again, going back to Mark, like he's reading that charge and, you know, making sure we hit that schedule and budget. And then from, you know, kind of construction completed, plans go on the ground, you know, it's a three to four month process. So I'm targeting internally and pushing the team super hard for a q4 kind of delivery date you know obviously q1 could happen q1 is potentially the conservative side of that but you know we're pushing as hard as we can to get product into that market as soon as possible anyone who's watching minnesota know there's really no independence very few businesses have turned on and so the opportunity to go into minnesota which should be a monster market early with some level of scale you know we're targeting eight to 8,500 square feet of flowering canopy in phase one. It's pretty exciting. And so, you know, really excited to get that market through and kind of get operational out there. 25 was another year, I mean, kind of a growth component for the company where we were able to secure our, you know, first term debt with amazing banking partners at industry leading rates. We have a $12 million total facility. It's a sub-8% interest rate that's really allowing us to manage, you know, our expansion in Minnesota, the completion of phase two in Jersey, and so can't thank the bank enough, and I think it shows, you know, things of support of our credits and, you know, what we're doing in the industry that's a little unique compared to others, and so pretty excited about that. Well, subsequent to year-end, you know, we did have this entry into Illinois through the Dwight facility, you know, Josh will get a little bit more into his kind of focus and, you know, on M&A and kind of distress. But I just want to reiterate, you know, entering this market at a fraction of the price of a conventional build, you know, in terms of the capital outlay. And then because it's already constructed, it allows us to go much faster in terms of activation, getting plants in the building, getting our first crop, getting first sales. So the team is in the thick of kind of planning and preparation as we get through the regulatory stuff to get, you know, approval to move plants in, but excited to get this market kind of activated and just, you know, start bringing great product that Grown Rogue is known for, you know, to the great people of Illinois. A little bit on the future, you know, before I'll turn this over to Josh, he talks about kind of growth framework and some of the guidance that we're going to start putting out. A couple things I really want to highlight that I think is important. Current production capacity for Grown Rogue in the three states that we operate, Oregon, Michigan, and New Jersey, and this is flowering canopy, is 37,000 square feet, give or take. In 26, between our phase two expansion New Jersey, the new asset in Illinois, and the phase one in Minnesota, we'll probably add 21,000 square feet this year of flowering capacity, you know, which which is a 50%, greater than 50% improvement. As full capacity, you know, kind of nameplate in these states, which most of it would be sitting in Minnesota with a little bit more to add inside of Dwight, which is the Illinois facility, it would take us almost 90,000 square feet, you know, which is give or take 140, 150% improvements over what GrowingRoad is currently operating, which is pretty exciting to think that we've got so much growth kind of in things we control, things that we're building, not to mention the other things we continue to look at and kind of assess. We continue to drive quality and yield in our business with modest infrastructure and technology improvements. I think you'll see a lot of this as you start to watch the trends in Michigan. You know, we looked at prioritizing this, you know, kind of technology and, you know, yield improvement solution that's very low cost in Michigan first. A, we think Michigan's a bigger market than Oregon. You thought it could handle additional capacity much faster. But you'll see a yield, I think, in Q4, we averaged over 80 grams a square foot. In Michigan, as we're starting to look at numbers in Q1, as, you know, all these rooms get outfitted, and the team really dials in this new kind of growing apparatus, I would not be surprised to start seeing this push 85, you know, 90 grams a square foot on average. Which, you know, as you make those improvements, and we're starting to do these in Oregon, so we'll start implementing some of us in Oregon, again, to drive yield while maintaining our quality, which is just going to have a, you know, an outsized influence on our cost of production. You know, same fixed costs, you know, bigger number than the Dominator, you know, we expect to see our can, you know, cost of production continue to go down. I do want to take a little time to remind everyone, you know, several years ago, as we laid out kind of our expansion goals, you know, We talked about getting into one to two markets per year. No doubt, very lofty goal, and this was hard, humbling work, you know, that we go through every day. But I honestly couldn't be feeling better about our progress against those goals and how that future is lining up. I mean, you think about where we were in 23, 24, two-stage, trying to get into Jersey. As we leave 26, we'll be operational in five states. It's just a completely different business. and you know growth is not a straight line it's bumpy it's messy there's ups there's downs as much as we want it to just be a straight line up and to the right like it's hard like what we do every day battling our markets you know dealing with all the regulatory influence and outside kind of you know components like it's just bumpy the benefit we see is we have a very strong team who's committed to this growth and this platform and bringing our products across into these new markets. And for the most part, we've got a very kind of long-term oriented shareholder base that shares that vision. And while nobody is immune, myself included, to seeing a stock price that's been under the pressure for the last year, our focus is and will continue to be on building value over the long term and not managing these short-term fluctuations. So I know it's a little painful these days, but couldn't be more excited about where Growing Road sits today and then the future of what's coming. And so, yeah, thanks for listening, and I will pass it off to Josh to talk about guidance and growth framework.

All right. Thanks, Obie. First, I thought I'd give a little bit more background to our recent announcement in Illinois that Obie was referencing. I thought it might give a little perspective on our inner workings. As Obie referenced, we've been evaluating a number of distressed opportunities, and we do continue to do so. In my various roles in the industry, I've worked with a number of the larger lenders in the space, as well as the larger landlords, including, as is the case with Dwight, innovative industrial properties. The Dwight property of theirs was not high on our list to start in terms of some of the distressed portfolios we were looking at. I had toured it years ago, was not a big fan of the greenhouse at the time and that was before PharmaCAN had added the indoor capacity that they built. So we've been discussing a number of other properties with IIP and when PharmaCAN announced they were closing the Dwight facility we had a very quick efficient exploratory discussion with them. First we explored whether we could get the facility uh to be turned over in with continuity uh kind of an overarching preference if we can make that happen uh but it was really clear pretty quickly that that was going to be too complex a transaction with PharmaCan to put together on the timeline that was needed. So we pivoted to discussing how efficiently new operations could be established in that facility. That included spending some time on the regulatory side, thinking through the Illinois Department of Agriculture's response, that being the state regulator in play here, and the conversation with IIP about the fact that applying a fast thorough license against this facility meant that you largely ignore the greenhouse from a capacity standpoint and that meant largely ignoring the greenhouse from a value and rent standpoint as well. We also determined with regulatory council that matching this facility with a social equity license holder would likely facilitate the fastest movement to getting plants back in the building. So really pleased at the end of the day with what we were able to accomplish in a tight timeline in terms of putting that together. At this point, I can report that we found the regulator to be very supportive of our group's efforts to move efficiently. And I'll say similar to Minnesota, if the stars align from a process standpoint, we hope to beat our anticipated timeline. In this case, we've talked about, you know, a fourth quarter timeline. It's possible we could be a little bit before then, but I'm the conservative one that will be references. Yeah, on the timeline standpoint, I think we articulated it as part of the guidance that I'll get to that we will, okay, Illinois turned down in the fourth quarter, Minnesota turned down in the first quarter from a revenue standpoint, contribution standpoint. Next, I want to comment on the evolution of our KPIs and it's something near and dear to me and my history as an equity analyst. Our goal is to help investors better understand the key drivers of our business. There's a lot of complexity behind the scenes with a large number of the with a large number of SKUs and a very different supply chain in each market that we operate in. So it's not always an easy task to still down to a few numbers that are comparable across markets. As New Jersey and future states that should have a much higher portion of sales coming from packaged products become a more meaningful part of our business, we want the comparison between our cultivation costs across markets to be as close to apples to apples as possible. We've made the decision to no longer include the packaging and sales costs in the externally shared KPI. We also saw an opportunity to provide what we think should be a higher fidelity way to share pricing trends and our business mix with respect to how we think about the business. Ultimately we want to be held accountable to being low cost and delivering quality with that quality and value playbook translating to the full sell through of our products with profitable price points. Adding our KPIs directly to our financials, quarter to quarter is likely to prove challenging, but over longer durations, they should map well. This might go without saying, but we expect overall market pricing to remain volatile, which we think serves us well, as we believe we're the lowest cost producer of indoor commercial craft cannabis. One other highlight that's just worth referencing with respect to how we're articulating the combination of KPIs and low cost, you know, we've referenced, I believe in the press release, having overall costs, and this is overall biomass costs, so not just flower costs being below $225 a pound in our mature facilities over in Michigan. So I just wanted to provide that contrast that that number is a number that includes all biomass, trim included, just so folks understood that number versus what is reported in the KPIs. And then last, with respect to our decision to provide guidance and long-term growth objectives, we believe we have a strong growth platform based upon our view of the industry opportunities and our team's capabilities. Many industry participants have not delivered on their growth commitments and that does make us cautious. We don't take this process lightly nor do we expect investors to give us credit for execution until we start delivering against it. Similar to our KPIs, we hold ourselves accountable to performance standards and we think investors should do the same. We also don't have analyst coverage so we're opting to transparently share what we're working hard to execute against with a clear roadmap for investors as should be evidenced by the longer term growth objectives mainly 25 percent compound revenue growth and 35 percent compound profit growth we see the opportunity for us to be a much larger profitable company in our future and that's what we're building for as will be referenced this industry is not easy and we believe we're up to the challenge With that, I'll put it over to Andrew for a few comments.

Thanks, Josh. Well, 2025 was our first year here, at least the first full year reported under US GAAP. So, as noted, we undertook an IFRS to US GAAP conversion process. This is a pretty in-depth exercise that really reopens up 2024, the prior year, as well as a time activity that occurred before that date in terms of conforming to the new standards. So it was an in-depth process, and the primary places where this impacted things that were challenging to work with was lease accounting, taxes, specifically the uncertain tax position calculation, and financial instruments as well. So our team executed pretty well. Unfortunately, we had a delay, but we're happy with the results at least at this point in time. So, one important note, we previously published 2025 IFRS quarters. These will be refiled within 45 days under UFGAP in comparative format on CDAR in accordance with regulations. So, that will be filed around the same time as our first quarter. And so in a little bit more depth in terms of the changes, 280E was a bit of an issue for this GAAP conversion. The standards under U.S. GAAP are simply stricter, more rule-based and less interpretive than IFRS as it pertains to calculating an uncertain tax position. We, like many of our peers in the space, take the position that 280 doesn't apply to us, so we file our tax returns accordingly. This does result in a disclosure for an uncertain tax position. And in the past, we've taken a different approach to calculating that that was accessible under IFRS, and it no longer was accessible under ESGAP. So, this created a bit of rework late in the process, and as you go, put in a larger uncertain tax position balance on a balance sheet. We also had a bit of a bad debt adjustment related to conforming to the new US GAAP standard, which we will put in approximately $300,000 year-end increase in bad debt expense. So, that had a drag impact on our GNA expense. and in terms of the reporting schedule our Q1 2026 will be due mid-May so we plan on hitting that deadline and then the restated U.S. gap quarters as I noted earlier will be filed on or before that date as well so with that I'll pass it back to Toby.

Great thanks guys I think we're going to open it up to questions now.

Ladies and gentlemen And then we will now begin the question and answer session. If you wish to ask a question, please press star 1 on your touch-tone phone. You will hear a prompt that your hand has been raised, and should you wish to decline from the polling process, please press star followed by the 2. Again, if you would like to ask a question, just press star followed by 1 on your touch-tone We have no questions at this time. Please continue.

You said no questions.

We have no questions.

Okay. Great. Yeah, just in summary, thanks everyone for joining. Looking forward to 26 and yeah, not repeating the I first to gap transition again. I know the accounting finance team will be happy with that. But yeah, looking forward to an exciting 26 and appreciate everyone joining and, you know, listen to the grown-up story.