Q3 2025 Grown Rogue International Inc Earnings Call
Welcome to the grown rogue's third quarter 2025 earnings conference. Call today's call is being recorded after the proprietary remarks to be questioning answer session.
As a reminder, during the course of this conference, call Chrome, Rogues management. Mimic, 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 its closure materials.
Any forward-looking statements should be considered in light of these factors.
Please note that the Safe Harbor. Any electric presented speaks as of today and grown Rogues 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 aita.
These measures do not have any standardized definition under IFRS and may or may not be comparable to those used by other companies. They are provided as supplemental information to evaluate the company's score, operating performance, and should be viewed alongside IFRS results.
I'll now turn the call over to OB strickler. Chief Executive Officer of grown Rogue. Thank you, please go ahead.
Yeah, thank you very much, and, uh, thanks everyone for joining today. I appreciate all of you taking the time out of your busy day to, you know, learn more about our business. As we talk about Q3.
Uh, it would be better to me not to start today. I think with the recent regulatory change on hemp, um, you know, I think there's a lot of, uh, polarization when it comes to the, you know, that topic I think regardless of your position whether it was a loophole or not, whether you think it should have passed or not. Um, this what I consider unexpected change in the regulatory structure there. Um, certainly reflects the volatility and uncertainty that we face every day in this industry. Um, but I think it's important to remember it's this volatility that creates so much turmoil and risk, uh, that have navigated properly.
Is going to result in significant reward for the winners, um, and I couldn't be more excited, more confident in the ability of grown Rogue to win and to win big because we continue to navigate and kind of, you know, expand our platform inside of this industry.
So I think that's why I wanted to start today's call. Um was really talking about how we think about winning in this industry and what that looks like
Um, at the core for us, it always starts with our people.
Uh, we had recently, I think it's our fourth annual Leadership Summit in Oregon. It's where we bring like the entire team together. Kind of like the Senior Management uh, from each of our states. You know, we've got a kind of a diverse group that lives in different parts of the country and it's the 1 time a year where we get everyone in the same room and what was so kind of you know, uh, important and kind of awesome for me to experience during this time was you know kind of watching the integration of you know what I like to call the ogs like the original kind of group that's been with us for 4 5, 6 years. Uh 1 of the person people on our team has been with us since we started. Um coupled with the new folks that we've been bringing in as we've embarked on those uh kind of growth platform um you know kind of bolster our abilities and help us execute on this next phase of growth.
I can't stress enough the importance of tune and how critical that is to good operations, good culture, um you know lack of drama like a bureaucracy and you know the focus grown Rogue myself and the rest of the team put on that um from leadership all the way down to the people working inside to grows. Um we'll continue to invest and focus you know on our team as a critical path of what we think will be 1 of the core principles of companies that are going to win and you know, win long term in the space. Um the next thing we think about a lot is the controls, you know, there's a lot of things in life in this industry that we don't control. And then there's the things that we have, uh, significant amount of control over. You know, in our business that really comes down to kind of the 2, most important things, and it relates to production, which is yielding costs.
And I think you'll see from the, you know, the press release we put out that had some of the KPIs.
Uh, you know, both Michigan and Oregon had incredible production costs this quarter. Um, and I think it was $368 and $348, respectively.
Everyone. This is a all-in 4 wall cost, right? This is not just cogs, like typical companies will report, um, you know, our business is really focused on cash generation and so we look at true cash costs. What does it take for us to grow it? Sell it, get it out the door, get it into a customer's hand. Um, you know, I mentioned this, I think, on the last conference call and I think we've even, you know, um, beat what we were doing previously, this quarter in terms of cost control. But if you look at a true definition of cogs for indoor production, at the Quality that we put out, we're probably sitting, you know, some are less than 200 dollars, um, which is pretty fantastic. Um, for a, you know, cost of production, uh, yields are also up, um, we're pushing 75 grams a square foot of full flour, which is almost a 20% Improvement year-over-year, um, you know, we believe, effectively, we're 1 of the leading indoor producers in the US that combines this amazing quality
Coupled with yield and industry-leading cost of production. Um, it's this fact coupled with others but this is probably 1 of the most important components that positions us as well as you know, any company we think in the space. You know, to continue to expand our portfolio into new States in a very kind of cost-efficient um and profitable manner.
The next big thing for us and you've heard Ron ruegg, talk about this, you know, consistently year after year, after year is focus, um, you know, staying core to our flour for it approach. Um, not losing our low cost and quality Focus.
Um, it gets increasingly difficult, especially as the industry continues to evolve. Um, because there are lots of things to chase. Um,
and you know, our focus is going to be 1 of the big differentiators and a lot of people may say, you're not going fast enough, you're not doing enough things. Um, you know, we're very committed to doing a smaller number of things, very good. Um, we want to be excellent at what we want to do and not get kind of overextended or to spread out what we do. Um, we take the Mantra that Simplicity is the true form of Mastery and we're going to continue to execute against that plan as we continue before. Um,
Next, big thing on our list is balance sheet.
You know, obviously we've seen a lot of distress, um, and a healthy balance sheet to not getting overextended is critical.
Uh, we have done and will continue to do a great job at managing the balance sheet. Um, it's important to remind everyone that we upsized our credit facility in September, adding another $9 million. You know, we're now sitting on a $12 million credit facility at a sub-8% interest rate. I think our newest tranche was somewhere in the range of 7.5%. Um, again, this positions us very well for our immediate development goals, and we have a very healthy cash balance. Um,
You know, coming out of 2 3 with a little over 13 million dollars in the bank.
Um,
All of those pieces, is what drives us into, you know, the exciting part of our industry, which is growth. Um, and once you have those core components, I just mentioned, it's all about how you maintain them and use them to continue to grow the platform.
Um, you know, our expansion into New Jersey has gone. Extremely well, been a little slower than we all hoped, but it's definitely solidified in my mind, our ability, to transfer our expertise, into new markets, um, in a successful way, not only with our systems, but ability to produce quality products that customers love and I keep coming back, you know, the customer. That's where the focus is at our ability to give them, you know, products that they're happy about at the right price, um, and we're having to earn it in Jersey, you know, we expected that market to be a little bit more seamless, um, but the benefit of like that brand loyalty, you know, earning customers, you know, and their loyalty. Um, and 1 of those, you know, turned into a fairly competitive market is amazing. Um, and you know, I don't know if people saw, uh, I think it was in the press release. But, you know, big kudos to our team. We won 2 Awards recently at the best in Grass competition, uh, 1 for flour and 1 for pre-roll. So again, solidifying ourselves of the big player in that market, you know, continuing to expand and build out Phase 2, um, and very excited that
Kind of the position where we sit inside of New Jersey. Um,
We have an Oregon. Michigan, Emerald, New Jersey will sit when it's fully built out up to 30,000 square feet, which just gives us a lot more flexibility and kind of opportunity to lean in to that market. If we feel that the demand and the opportunity sits there, um, we definitely believe, you know, being an early mover in Minnesota is going to be critical. Um, you know, we talked a lot about Surplus profits, um and you know those versus what we consider kind of a more sustainable Profit Stream and we think Minnesota has the potential to generate considerable surface profits in the early years and so we're excited about taking advantage of that.
The other thing is, we're continuing to get closer and closer, and, you know, this kind of gets away from.
You know, less part of the controllable piece as I talked about earlier, but the distress that we've been talking about for the last, you know, 3, 4 months. Um, we keep getting closer to some of these, you know, moving down the path. There's a lot of different um, you know, parties involved. And so it makes a little bit harder for us to kind of
Wrap our arms around the specifics. Um, but definitely seeing some of these, I think get much closer to the finish line. And I think taking advantage of some of these distress opportunities to kind of augment our new project and, you know, New Market builds. It's just want to get an increase, our scale, and our reach and our financial returns. As we looked again, to expand the portfolio, you know, from 3 current States into 5 into 7. Um, and so Josh will talk more about some of the distress. He's been leading a lot of that for us as I think most of you are aware. But you know, very excited about that portion of the business opportunity.
In front of us as well. Um, Switching gears a little bit. I think it's time, you know, to, and I want to touch a little bit on our renewed, focus on the brand.
Um, you know, our history in Oregon, you know, when Sarah and I first started the company, you know, God going all the way back to, like, the medical days in 2005 2006. But even when we first started growing Rogue,
In 2016, it was always about consistent quality of product—like, first for ourselves and our medical patients, and then consumers. But it was always just about good weed. Like, that was what the core focus was: to be reliable. Um, it was to be consistent. That was really what got us into this industry in the first place. It was never about building this company; it was never about building a brand. We just wanted a great, reliable flower. Um, you know, this ethos was how we started it. You know, it was the initial building block of how we started growing Rogue, where we really focused on product quality. We focused on cost control, and that resulted in a very salesforce-driven culture.
This was coupled with the fact, as many of, you know, you know, Oregon is essentially a 100% deadly style Market.
Not as great for brand development. Fantastic for the consumer. They get to see it; they get to smell it if they want. There's a lot more interaction, and so you make sure what you're buying, you're very comfortable with. There's a similar market in Michigan. Michigan has a little bit more packaging component, but still, the bulk of flour sold in Michigan is deli style. And so,
Branding is important, but has not been as critical in some of these markets. Um, but obviously, with kind of the focus and the where the organization is heading, you know, realizing what the foundation we have, how important brand has become to the story and, you know, winning the hearts and minds of consumers long term.
And this is very interesting because in New Jersey, it's essentially the opposite.
I think right now, I mean shoot Michigan's, probably 80% bulk, 20% package
Organs, probably somewhere in that range jerseys the opposite. I mean our goal in Jersey is to be 100% packaged, right now? We're probably 80% packaged 20% kind of, you know, bulk flower sales. Um
And what we've realized over the years, you know, especially as we move into some of these markets, is ...
our flower competes with anyone, even the more recognized groups that you'll hear in the markets or, you know, in the news and you know, as we think about how we compete and the long term value of what we're trying to establish in the industry, you know, with our foundation set, low cost, great yield great culture, you know, our companies definitely going to be investing more heavily, you know, focusing more on building the brand and our brand Equity, um,
This doesn't mean we're turning into a marketing engine.
Right, like we're going to do this, the grown-up way, you're not going to be spending tons of money on marketing and fancy agencies and all these types of things like yeah we'll do it. The wrong way with an emphasis on the consumer, um, more exciting, packaging offerings, you know, better customer engagement with our Retail Partners. Um, you know, we're building a brand new and revised website that is much more consumer focused. You know, I invite people on this call, it should be launched within the next week or 2, you know, much more focused on our packaging, some of the strain specific stuff. We're doing that is getting, you know, very very good reviews in both uh Michigan and about to roll out some of that stuff in Jersey.
portfolio now,
So, pretty excited about that piece of it. Um, the other area we're spending some time on in our core markets is product extension. Um, and this isn't to get away from our focus; this is just, you know, effectively the ability, um, you know, to broaden our product offering, you know, inside of the markets that we operate. Um, you know, and some of this is being driven by the pressure we see on, like, Oregon and Michigan. I mean, pricing is difficult. You know, BC pressure the space. Um, but we've also navigated, you know, several of these over the last 15 years. Um, as you see these pricing cycles kind of come and go, um, and they put a ton of pressure on every business owner, Rogue included. Um, but I can't stress enough, it's during this distress, it's during these periods of pain where you really have to lean in. I mean, this is where we make our most significant strides in terms of improvements, not only inside the business, but it also gives us opportunity outside of the business as we work with our partners and our customers to grab more share.
Um, you know, I coined the term a few years ago with our internal team: we're going to meet pressure with force.
And we see pricing pressure; we meet it with force. We meet it with better cost control, better yields, and maybe more products. This is something that we're doing across all aspects of the business. Again, you'll see that in lower costs, better yields, and new products coming to the market.
Most of our R&D work happens in Oregon. You know, it's one of the reasons we like the state. It's got a really kind of, um,
You know, uh, advanced experience consumer.
It's also the state where we have probably the strongest talent in terms of just operational efficiencies, and the resources and the infrastructure to support kind of new product ideation. Um, you know, we launched pre-rolls in Oregon about 18 months ago.
I think we're already at top 5 brands in the state between, you know, the 2 brands that we have, um, which is pretty spectacular in a very strong and mature Market to come in with a branding product. And I think it goes to the team, the efficiency, but also the Loyalty that we have across uh this state in terms of the brand presence. Um excuse me, we launched our first infused pre-roll I think I mentioned it on the conference call, um, you know, a few months ago and that's not really, really well, you know, we're slowly starting to build kind of the scale and the size of that, you know, thinking about some different offerings, we can bring in in terms of how we build out our icus pre-roll business. Um and then the team has been working on our first Faith cartridge that should come out later this year. Um and so you know just looking at ways that you know we can expand the business through non expensive Capital allocation um to take advantage of kind of the platform. We have, you know, these are not huge Endeavors by our team, but really just incremental improvements in our
Production capabilities, you know, capitalizing on the brand reputation we have with our retailers and customers and then really taking advantage of our already established sales and distribution channels and we have sales networks and all these states we have teams that cover the entire Market. We have customers that are looking for more reliable and better products. And so these are things that are kind of right in our knitting. Um, you know once we kind of fine-tune these in Oregon, you know, we then look to roll them out, you know, across our markets, you know, probably sell them with Michigan, you know, soon to come to New Jersey and then other states as we turn them on,
I didn't want to shift to a couple of the kind of the KPIs in our press release. I kind of talked about and sprinkled those in throughout this.
kind of monologue here. Um,
Production-wise, uh, you know, very strong yield improvements, most notably in Oregon, where we had a 23% yield improvement year-over-year. Most importantly, the 21% flower improvement year-over-year. Um, we definitely have some room to improve in New Jersey. I think New Jersey is down by the low 50s to low 60s in terms of yields. Um, which really shows you, like, you know, what we do is hard. Even with our expertise, like, you don't just start a new state and instantly get to the level of quality that we have in markets we've been operating in for years. I think that helps us with our remotes, and understanding that, something we're really good at is still hard to get right right out of the gate. Um, but you know, I'm excited about the opportunity that sits there as we kind of get the team trained up and get the systems fully entrenched, you know.
These cycles before there are changes. Um, we expect it to recover and shift back upwards in a positive direction, but again, that's why we're so focused on, you know, price control and cost control. Um, you know, we're prepared to come back to these markets for as long as it takes, um, before you see some of that supply-demand balance, um, kind of correct itself.
Uh, particularly excited about Michigan. Um, you know, we had a couple rough quarters there, you know, some of that was price compression, some of that was self-inflicted, you know, as we talked about, um, over the last, you know, few months around. Just, you know, we're not perfect. You know, we make mistakes. Um, we get, you know, caught up in other things and take our attention. Um, and when you see those things it's always a good. Just brings us back to the core. Like, where do we want to focus? You know, how do we dig in, you know, how do we correct things? And, you know, seeing Michigan, get back up above a million dollars of you get a was really kind of encouraging, you know, seeing price, you know, still down a little bit, but starting to stabilize, um, you know, as exciting. We've been making some Capital Improvements in there, but I think we'll continue to help with yield, you know. So expecting them to be producing more product coming out of that uh, that market, you know, as you know this year ends and gets into 2026. Um, you know, on the flip side, Oregon was a tough quarter, you know, we know organs, tough s*** to, that's easy area to laugh at it, but it just never surprises me.
Just how hard these markets are. I mean, it's a damn nice fight every day. Um, so a little disappointed in Oregon this quarter. Um, you know, very happy with the controllables, but again, disappointed with kind of the pricing environment. You know, some of this was kind of, uh, uh, exacerbated by like, you know, getting rid of some old inventory. Um, you know, things like that, you know, typical companies would do like a deduction or an ad back. Like that's not the game we play. Like, we had old inventory. We sold it. That affected price a little bit. Um, but we've seen a nice recovery in October, and so we're optimistic for a strong Q4. Um, as we look at Oregon kind of individually, um, you know, long term, the goal I think for the organization, and I've been talking to our GMs about this is, you know, we need these kind of mature states to be in the $12 million run rates, you know, a million bucks a month. Hopefully pushing up a little bit more when pricing is better, you know? And having kind of, you know, long-term sustainability in that range. I mean, that's kind of the objective. That's the goal. Those are averages; things are going to be up and down from that a little bit, but we think these are markets.
That should have long-term, you know, kind of sustainability in those ranges. And, you know, we're going to keep pushing the team to find areas to be more efficient.
Seeing opportunities to expand our kind of product offering. And then, obviously on the non-controlled side, you know, there will be a recovery in price at some points, you know, as we go through these kind of, you know, pendulum swings in the cycle. Um,
And so that's it for me. I'm going to hand it over to Josh, who is going to talk uh, a bit about kind of capital allocation, you know, what we're prioritizing right now and then obviously he's been the primary lead in our distress um and all the different opportunities that you know. We're kind of evaluating that would you know be kind of you know, dish opportunities for the company as we uh you know, continue our growth still Josh.
Where's yours?
All right.
Thanks Obby.
As I’ll be referenced, I’m going to talk about capital allocation and then weave that into how we’re thinking about distress as part of our overall growth plans.
We believe we have a multifaceted growth platform with our flower production capabilities.
I often refer to this as the engine of the industry.
In addition to the product expansion opportunities that I'll be referencing, which does represent our most capital efficient growth driver,
The more significant growth drivers continue to tie to new market expansion, which can take the form of organic new builds like New Jersey or according to fixer-uppers.
Uh, for us, the Fixer Upper theme currently maps to our focus on distress.
Building new cultivation facilities is one of the most capital-intensive parts of the industry. It's also where many of our peers have gotten sideways due to a lack of discipline in cost containment and overbuilding.
And most often, not being prepared for eventual price normalization.
We're going to keep looking for opportunities for us to build new facilities and markets we believe are undersupplied. When it comes to affordable quality flour, New Jersey is a prime example of this, and we previously highlighted that Illinois was going to be our next new build.
Based upon our internal analysis and experience, we've pivoted to prioritizing Minnesota over Illinois when it comes to deploying capital into a new build.
I wanted to provide the context on this decision.
To start. We invite familiarity with the Minnesota Market, including our experiencing, including our experience, helping to turn around zero, and gross, and grow gross advisory work, which was specifically focused on Minnesota and Maryland.
Our core criteria for supporting new builds relate to being confident that the market is undersupplied with affordable quality flour.
They'll be referenced to focus our real estate strategy on having the flexibility to scale in some more capacity than the typical Grown Rogue buildout.
In this case, the degree of about 2 times.
As it will be referenced, the maximum allowable area for a cultivation license in Minnesota is 30,000 square feet.
To be clear, we're not planning to build this immediately, nor are we necessarily going to build it, but we searched for a property that would allow for us.
Our plan starting point for Phase 1 is approximately 10,000 square feet of bench and canopy space, and we currently anticipate having product available early in 2027.
Uh, and we are doing everything in our power to try to accelerate that timeline.
Importantly, our preferred property received its conditional use permit yesterday. So we had some good news. Uh,
This prioritization of Minnesota doesn't imply that we're not going to build out Illinois. We have the flexibility with the favorable lease deposit or capital expenditures in Illinois.
Sometimes we need to make tough decisions about optimizing our capital allocation based on available capital, maintaining a prudent balance sheet, and managing our original bandwidth.
It's also worth noting that we're currently evaluating a couple of compelling fixer-upper or distressed opportunities in Illinois that could support a slower approach to deploying more meaningful capital. In this market, these fixer-uppers might provide us an opportunity to materially increase our speed to market while also materially decreasing our near-term capital needs.
Shooting in this materialized at a minimum. We think it helps de-risk our planned CapEx in Illinois.
Turning to distress more formally on our last items call, I highlighted a confluence of factors creating a window of opportunity to evaluate distressed assets, and we remain highly active. Our work includes recently submitted multiple non-binding LOIs and ongoing follow-ups with bankers, receivers, landlords, and restructuring officers as they work through their processes.
It has become abundantly clear that there are not many companies positioned like ours. Most other potential buyers and discuss assets are heavily focused on retail and are in a much narrower set of states.
I also want to repeat that while we are unable to commit to specific timelines.
We would be disappointed if these opportunities do not become a meaningful contributor to our growth within the next several quarters.
These processes take time, and the one I'll share is that of the opportunities we're most excited about. None of them is traded away from us yet.
They're a slogan from the process of patient standpoint, and we'll state disciplined.
1 last mention for me, and it's likely less relevant after the recent news out of the federal government, and Obie referenced this at the outset. But it's still useful for folks to understand how we evaluate risks and opportunities.
We believe the ambiguity around M. Plus may be a little bit, a little bit less ambiguity now. Uh, and particularly for us, the Tha Flower World. It compelled us to better understand that emerging market both as a competitive threat and as a potential opportunity.
We believe our core competency, the low-cost production of craft-quality flour, transcends regulatory regimes, and we want to ensure we are positioned long-term to capitalize on our capabilities.
So, we recently started a very deliberate collaboration, exploration to learn more about this market.
Importantly anything we do in this Arena would be very Capital like uh with commensurate low expectations on being a material contributor anytime soon and obviously with the you know more more recent news we will pay very close attention.
The fortune, you go over to Andrew. I simply wanted to remind investors that we remain anchored on very high return hurdles when it comes to deploying capital. We've articulated this as targeting $0.75 of sustainable, annualized EBITDA for every dollar deployed.
These opportunities were evaluating very much fit this profile.
Based on conversations we believe we have a supportive investor base. That's excited about our focus on distress and should something on the larger side of materialized I'm confident that the compelling return profile will speak for itself. In terms of allowing us to access any needed incremental funds.
Hopefully, we can start talking more tangibly about these things shortly.
Uh, now over to Andrew.
Thanks Josh.
First off, I'd like to remind everybody, as we have before, that our investment in Appco Gardens is currently accounted for under IFRS as an equity method investment. This is why we report Appco's revenue and AVA on our pro-forma metrics as though it were consolidated under IFRS. The majority of cash flows from that go are reported in investing activities on the cash flow statement, as the investments sit on those receivables on the Brown Rub balance sheet.
What we don't report a performing cash flow. We are pleased to report that I have good generated. 1.2 million dollars in cash flow from operations for the third quarter of 2025,
Moving to year-end 2025, we are in the midst of converting from IFRS to U.S. GAAP.
Comics benefits. ABCO provides the Grown Road as its full revenue to Dot, and cash flow will be consolidated into our results.
To be clear, this means that when we report our fourth quarter and full year 2025 results, ABC's results will be consolidated in those results for the full fourth quarter and full year of 2025.
With that, I'll send it back over to Obie to conclude.
Yeah, thanks, guys. Um, I think we're thinking of anything else. There are some closing remarks after questions, but like, we're ready to open up to questions. So again, thanks for listening, and uh,
yeah, any 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 1 on your telephone keypad. You will hear a prompt that your hand has been raised. Should you wish to cancel your request, please press star followed by the 2. If you're using a speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question.
Thank you. And your first question comes from the line of Aaron Lale, Heights from Mindset Capital. Please go ahead.
Hey guys, uh, I have a couple of questions. Um, the first was.
You plan to consolidate your results. Uh,
Will it be for Q4 or sometime in 2026? In other words, you won't see this funky kind of reporting tables.
Can you tell us when we might be able to see just one reporting table in the press release?
Yes, it’s Aaron. Technically, the consolidation is going to be effective back in 2024 when we first acquired the equity. So we’ll actually be consolidating.
Approximately 7 months of 2024 and then the 4th year of 2025.
But there will be so, so when we see pro forma reporting.
Gotcha. So when you report in March, it'll just be 1. There won't be 2 different. Is that accurate?
Uh, well, there will just be... yeah, we won't need pro forma results. Everything will be consolidated under ground roads filing on a... okay, great. Yeah.
Great. And I wanted to just uh the uh Obi I wanted to ask you about the 348 cost number
It was, it's a pretty remarkable figure, and I'm just curious.
Do you think that this is the kind of...? Are you scraping the bottom of where costs you can get costs?
Uh, to be, or do you think there's more room for improvement?
Between do that exactly.
What do you want, buddy? Like...
Pretty good for indoor. Sell 300, give me a Target of what you're looking for. Yeah, I I think, I mean, here's where the focus is, hey, I'm always, we're always going to drive for a better, uh, just better metrics. Um, I think where we're really seeing the opportunity is, you know, the efficiencies, we're bringing forward with some of the new, like, lighting technologies that are helping yield, but also a little bit, less costly in terms of, you know, electrical and power. Um, you know, the scale of our footprint is allowing us to maximize kind of, you know, consumable economies of scale. So we're driving down like, fertilizer costs and things like that. Um, our team is super dialed, right? We've been in I mean these costs even include like a bonus that we put in place for our team that's based upon yield that gives them a little bit of participation and hitting some of these numbers and targets.
Uh, so I think there's still room. Um, I think sub 300 would be a great goal. Probably something we should put up on the board, um, as a Target. Um, a lot of its going to come into, you know, continue to drive yield. You know, when you you, you know, our costs are changing a little bit to go down, you know, you have some inflationary pressure things like that. Um, but really, I think yields, the Big Driver and, you know, some of the stuff we've been doing with genetic selection, you know, getting referencing some of the technology that we've been deploying. Um, you know, we're seeing a pretty compelling increase in yield, you know what, you can have a direct impact because it's, you know, fixed cost against, you know, bigger you know denominators. It's just going to lower that cost. And so, uh, challenge accepted trying to go below 300, I think is a really reasonable goal. Um, you know, because we know like it's a
You know.
Just those learnings and that efficiency. Um, and so, yeah, pretty excited. Really happy with the numbers, this quarter and, you know, as always, you pushing us to be better and I agree with that. So, let's make 300 600. So, when I first invested you were at 600 and now at 348 at, so kudos to your, to your team. I, I wanted to to ask when I think about New Jersey Minnesota, Illinois, any distressed opportunities. And I look at that 4 wall costs 348.
For Oregon. Now, I know New Jersey has some extra costs in there.
But is there any reason? Let's just take Minnesota, for example.
that you couldn't get Minnesota to where Oregon and Michigan are now at.
I think there will be some um there's going to be some site specific kind of contributors to that. Um, I think the the impact of packaging. Um it's like both, you know like organs of both Market putting you know a pound into 1 bag is infinitely not infinitely. It's less expensive than putting it into 8, it's pretty out of 100 you know 128 bags or something like that. So I don't Oregon's probably always going to be on the Leading Edge um of cost control and kind of cost efficiency. But so much of its fixed, right? It's really about do we get the team trained up um and you know New Jersey right now will have a lot more noise like cost for up to
This quarter, uh, mostly because it's just about Harvest yield like we harvested 1 less room and there's only 4 rooms and so that has like a 20, you know, 15 16% kind of impact to what our, you know, cost structure would be because the costs are kind of fixed and how we calculate it. But I don't know if we'll get to 350. Um, but I don't think it's unreasonable to be looking at, you know, sub $600 pounds in these markets. Um, you know, sub 500 pounds, you know? And so we'll be pushing every lever we can give their, um, I can tell you and this is probably something for me to talk to the team about. Like, I don't think there's anything in Jersey outside of packaging. That is really like. Oh my gosh. This is just so much more expensive than that market. Um, you know, leases a little bit more expensive. Like, we have great lease rates in Oregon that helps with the we have a great lease rate in Michigan. Um, and so probably never reaching kind of those numbers but pushing towards them and still being
You know.
On a normal basis, we're really, really efficient indoor producers in every market that we go into, but obviously, that is the goal.
Gotcha. And a question about Minnesota, just
Just so I understand correctly, when you say you have the potential for double the capacity.
Uh, does that mean when I look at your current markets, you can produce between, you know, 1,000 and 1,200 pounds a month? Does that basically mean that you could do like 25,000 if you decided to build out all of Minnesota?
That you could produce 25,000 pounds of flour. Basically. Double what you do in your other states. Is, is that? Is that correct? Yeah, that's I mean that it's double the potential canopy. Like are we kind of set our core markets at around 15,000, organs like 14,900 Michigan's? Like 14800 Jersey, I think at full production will be 16. That's kind of been our sweet spot and the license in Jersey allows for 30,000 square feet. So if you do the math on the same yield ratios that would double the production amount. Um, we thought about this, we want to get outside of kind of the core kind of knitting of what broke is.
And luckily enough, we're able to find a building that was priced really well. And so we have that flexibility based upon the markets. Um, you know, based upon how you know, we're seeing pricing, you know, based upon balance sheet, like all these things to give us that flexibility without being stuck in a, you know, a crazy expensive building that you're not using half of it and becomes a drag like the overall cost of that building is going to be really good for us. Like we're very happy with that. It's got a ton of power. Um but yeah in a perfect world you know, based on the license type and the size of our building
We could double production capacity in Minnesota versus other states.
Gotcha La, thank you, last question, and then I'll let someone else asked a question, but I think I, I'm starting to understand exactly, uh, how to look at the kpis. Um, and I just want to ask if this is the right way, is that when I look at your yield uh, let's say in like an Oregon or a Michigan. Um, I'm seeing in like Q2 you had a yield of 63 grams of square foot but in Q3 76.
Flow all the way through in Q3. You harvested, but there's a delay between the amount of flour you're harvesting versus actually selling.
So, yeah, is it the right way to think about it? That there might be a quarter or so delay when you see? Because there was quite an improvement in yield both in the A and B and the A's. It feels like because last quarter you had this issue where Michigan looked really rough, but it's because of a production issue from Q1.
Is that the right way to look at this?
Yeah, it gets. So let me just explain a little bit because it's a good question around how, and you know there's a thousand KPIs, and every single one creates, you know, you got to have a view on all of them. And so, you know, we measure our harvested flower pounds quarter to quarter, which is just raw A and B flower. That number can fluctuate a little bit based upon, you know, which.
Rooms you harvested during that quarter, you know, Michigan's a prime example. Every room is a little bit different, you know. A lot of people then were trying to do this. Now, you build the grow rooms exactly the same.
That way, every single room's got to say 2,000 square feet, but Michigan's kind of a Frankenstein. We built it— we were very scrappy; we built a very cheap... you know, some rooms have 800 square feet, some have 1,600 square feet, and so total pounds produced could fluctuate, even though you know the grams per square foot is fantastic. Just because you harvested a bigger room in the quarter twice and you harvested a smaller one once, or vice versa.
So total pounds is a good kind of just production, but it's not necessarily representative of the quality of our growth, which is why we use grams per square foot.
So grams per square foot eliminates the noise between which rooms got harvested or how many got harvested in the quarter, and really looks at, for the area you were able to produce in, what was your efficiency. And so we look at grams per square foot as kind of the North Star for how we're evaluating our production business on a yield standpoint, which is why we report both of those.
And then obviously, flower production is super critical. Um, that's the best value; you know, that's really what we're growing for. Um, and so watching that improve is really important as well. So that's kind of the way the metrics work, you know. And so you could see a great... My, my point being is, as people learn how these KPIs work, you could see great grams per square foot. Like even next quarter, you could see grams per square foot up a little bit, but total yields down. And that's just a factor of the rooms that were harvested. But you can still see the efficiency of what we're able to do inside the, you know, kind of the plant portion.
On the plant that we were able to harvest and operate in.
As it relates to timing, there's definitely overlap.
And it happens in a number of ways. Like, it takes us about 30 to 45 days from harvest to get product ready for sale. Jersey might even be a little bit longer, maybe Oregon a little bit shorter. Um, but you know, you harvest, you got to dry it for 10 days; sometimes you go a little bit more. You then got to bucket trim, pass it, package it, and get it into inventory. But there's kind of this lag, and so it's got like perfect science. You know, sometimes we'll, like in Michigan, we'll harvest 2 rooms in a week sometimes because we have 14 rooms there. You know, sometimes they find demand and we're like, 'Hey, we're not going to process the strain from this room, right? Let's prioritize this one.' So sometimes maybe a strain might take a little bit longer or something. You know, harvest might take 2 months before it gets to the market, and so there's always going to be a little bit of that timing lag. But effectively, I think you could argue that, you know, it's kind of like 45 to 60 days.
So, while not quite what you harvest in Q2 is sold in Q3, a bunch of what you're harvesting in Q2 is sold in Q3.
Um, because there's about a 45 to 60-day lag there. Um, and so, like, you know, I think in Q2, we had kind of a...
Down quarter, but we had a big harvest, and we said, "Okay, great. We're going to be selling that into Q3," which manifested itself out like sales in Q3 were better. You know, we're working through a little kind of production inventory thing in Michigan, you know, around how product is moving through the system. You know, when some of these KPIs identify things for us to kind of really evaluate, which is good. Um, but there's definitely a tiny gap there. Like, you don't harvest a room on September 30th and sell it all that month.
Right? You're going to sell most of that in like October or November, and of October, like the middle of November, that kind of time frame.
That helps you. Thank you so much. Yeah, very helpful. Thank you.
All right, thanks Sharon.
Cherry Dhvani from Bengal Capital. Please go ahead.
Hey guys.
Hey, Jerry. Hello. Hey, can you hear me?
Yep. Gotcha wild and clear. Hey, sorry about that.
Um, I think you covered it, but just, uh,
The.
What is kind of the if you balance out the production, kind of timing stuff? What is kind of the run rate?
Production out of phase 1 in New Jersey, kind of average out, or in terms of flour and a flour going forward, because I know there was a little bit of a timing bump. So you had like 1450 pounds last quarter of 1300 pounds. This quarter? What kind of what should we expect? Kind of going forward.
Yeah, it is. I mean, right now yields are in the 60 gram per foot; call it, they should be in the 70s. So, we're going to see some bump there, but it should be a 500 to 600 pound a month Phase 1 production.
Um, in terms of, you know, total harvested pounds. So we harvested, you know 1300 pounds. Um this quarter um which was 1 less room than last quarter. Uh, yields were up just a tad. But we're getting about 250 300 pounds of harvest is where we should be at. Um we got 4 rooms so you know, 6
00 at the peak of kind of production efficiency.
500 is kind of, I think the bottom of that, um,
And my expectation is that by early 2026, we will be in the kind of 600-pound, you know, 65 grams per square foot category.
Um,
And when you get there, are the costs going to be closer to...
like roughly, if you assume
Just flat costs.
Where does that get you at? Like,
Roughly per pound.
I probably want to come back to you on that and think about it. My suspicion is we should be in the 700s. I think it jumped up a little bit because less pounds were harvested this more towards up to the upper eights. Um, but probably in the sevens, um, maybe pushing down into the sixes. We've got a couple of things working against us in terms of optimizing costs in Jersey right now. Number one is we have fully loaded kind of personnel costs against half the production. Like, we have a Director of Cultivation full salary at the production when we turn on the rest of it, it doesn't, you know, 85 or higher in a second Director of Cultivation. We have Predication Managers, ADCs, we have a GM, we have a Sales Director being loaded against it, so we're kind of fully loaded for like the organizational structure. Um, and then we'll allocate that labor.
Against, um, you know, kind of our management ledger against just more production, Russell still, you know, like we've realized this. I mentioned this in my notes, was, you know, getting the team up to speed. We have established an organ in Michigan has proven it's not a trivial exercise. And so still getting the team like to speed, you know, pushing on them. We've seen the monster movements, you know, over the last 6 months, but there's still room for improvement there. Um, so we expect kind of labor costs to be allocated against a broader footprint. Um, lease costs and things like that. Um, you know consumables kind of scale with production, right? We turn on another room, we got to buy more pots, we got to put more fertilizer in, we got to have more dirt, that kind of thing. But I think, you know, pushing into this 6, 7.
I think kind of in Phase 1 is reasonable, and then Phase 2 comes on. I think that's where we start getting, you know, sub-6, hopefully down into the 5s.
Um, as kind of like a steady state in Jersey.
What's the timeline for Phase 2?
Uh, probably turn on. So we're going to do Phase 2 in um,
Uh, room by room.
Right. We think that's really important like we build Phase 1 with like 4 rooms turned on. You know overnight. Uh we've said this, you know publicly and its continued to be the strategies to turn them on 1 room at a time. Our next room should turn on in
On and then, you know, based on demand and how the sales process is going, you know, we'll continue to turn on, you know, the next room and the room after that with anticipation, you know, middle of 2026. Um, hopefully having the full facility up at operation.
Understood. Thanks. Um.
in terms of,
Corporate costs.
Um,
Is it alright to kind of look at it and go about $1.2 million? I think this quarter roughly.
and,
Do you have any not to say guidance, but do you have any input on on?
How should we think about those costs? Are you guys kind of ready? You know, those customers stay more or less fixed as they have reasonably for like a while. Should we anticipate some more costs there? How should we think about that?
I think, Bob, I'll jump in. Yeah, go ahead, Josh. Yeah, that'd be good. If I could, then you can offer more color. But, I mean, I think the core we're on on this.
It's somewhat will be dictated by a couple of timing, pace, and success of what we're looking at on the distressed side. I think if you look at the core business, you know, the New Jersey...
The New Jersey side of the equation, going room by room at a time, mixed with Minnesota, which is heavy on engagement but also heavy on the construction side right now. We’re in very good shape. So, yeah, maybe a little bit of inflationary creep, but we’re in a pretty good place from a corporate standpoint.
If we do some things that ramp our market presence up, uh, and
You know, bringing just a healthy amount of near back office work into the fold quickly, then you'll probably see a commensurate increase in corporate costs, but it will be with a catalyst attached to it, or with something very tangible attached. That we're not talking about tangibly today.
But, yeah, I agree with that. I don't have any other editions. It's the perfect feel-good without distress, Brakefield.
Without distress, even I mean, you know, going into Illinois as the next one, we're really well staffed right now.
Okay.
Understood.
Uh, I think the last question, can you give some idea of what the pricing is versus a pricing? And what trim pricing is, um, because...
You know, a pricing, I know drives a lot of the business, but the I've always kind of mentally thought that there's about a 20% discount for B pricing. So, if that's changed that kind of changes the sum of the math materials. So any, any input on how we should think about that?
I don't have the exact numbers; 20% sounds right in Jersey, Michigan, and Oregon. It is a bigger delta.
We've seen it creep up to the 20% to 30% range, but in periods of distress, usually it's like,
30 to 40% sometimes. 50%
Difference, which is unique to Oregon. It's the only market like that. Like I think, you know, 8. Michigan was 850 B pricing was 675, you know, in that range, um, you know, Oregon call it 600 a pricing, B pricing was in the, you know, i2s, $300 range, so more like that, 50%, um,
And then Jersey. It's, you know, uh, 20% sounds about right. Most of our quarters are in with BBs, you know, our eights. Um, you know, our flowers in the eighth. The flour goes in the quarters, and that's about a 20% gap there. Um, so Oregon's kind of an outlier in that regard. But I think your mask is pretty accurate in the other shapes that we operate in.
And it'll be for trim, or it's also probably an outlier in terms of what trim's worth.
Oh, trim, I mean crap. Like, I mean, I don't even like trims all over the board. I mean, this, this is actually one of the things we're really focused on in Oregon, and we've done this in several states, so the YETI brand.
Is an indoor product that actually incorporates some trim.
And so we've been putting trim into the spring roll with a little bit of flour. It's actually smokes, really, really good. Like, originally we built yet because we were worried that it would degrade, the reputation of grown rope or kind of more of a high-quality product. The reality is that Yeti is a fantastic product, um, but we're using like really low input, trim costs that, you know, like a typical call it, indoor trim pan might be $50.
Into a product called Ready To Roll, um, which is, you know, it's a Yeti product. It's like ground up. We grind it again, but it's effectively trim with maybe a tiny bit of flour in there. That's frowned upon, but we actually saw it for a pretty good price point. Like, tested trimming, Jersey might be $300 a pound.
And we sell, they're ready to roll in our forms for, I think, you know, a thousand dollars a pound. So, again, trying to utilize these products in the best way we can. Um, and then, you know, I talked about some of the other products in our outdoor category with the infused pre-roll as well as our vape cart. We're starting to use all of our outdoor trim, which is really inexpensive, like $10 or $15 a pound, to turn into higher-value, kind of, you know, retail-ready products. So the infused pre-roll, we use like C's for the flower material in the pre-roll, but we extract our own ice hash from the trim.
Thereby, increasing the value of that. And then with the vape cart, we're doing the same thing. We're sending our outdoor trim; it's being extracted into a cured resin vape, you know, which will come back to us. Again, taking a $15 product that people are buying and doing the same thing with it—paying for it ourselves, putting in our own brand, and selling it through the marketplace. Um, but trim is...
After that answer the question on Prem. But we don't spend a lot of time thinking about frame as a contributor mostly. It's is there any additional value? We can squeeze out of that. Um, and because it varies man, the price is all over the place and like key markets it might be over 100 bucks. We've seen it over 100 bucks in Oregon when things get tight, you know, 30 bucks, 40 bucks, 50 bucks.
If you make, get various quite a bit.
Okay. Um,
How is AI changing your business?
I'm just kidding. That's not a real question. I'm just kidding. Uh, thanks, guys. I was going to give you a real answer, too. I talked about...
I mean, we got a big.
We just... we can't talk about it quite yet. It's too secretive. I got a whole server farm going. Um, as I was going to say...
Uh, I'll jump back in the Keo. I don't know if there's anybody else, but thank you, guys.
Thanks Jerry.
Thank you. There are no further questions at this time. I will now hand the call back to the OB speaker for any closing remarks.
Yeah, uh, again, thanks everyone for joining. For those that couldn't, I hope to get a chance to listen to or read the transcript. Um,
You know, I’m excited about the future. Um, because I know how we’re going to win. You know, things are choppy. You know, growth and success is not coming in nice straight lines. Um, you know, we understand that, uh, focusing on what we control, um, you know, costs yields team culture, um, super excited about. But the growth sits in front of us. I mean, Minnesota, I think, is going to be a monster, especially being early. Um, and then, you know, waiting for one of these distressed things to kind of pop. Um, so,
You know like in where we're heading, you know, coming out of 25, moving into the 26. Um, and yeah, very excited about the future. And, you know, hope you guys continue to uh, you know, be a part of that going forward. Um, it's going to be a fun ride. So thanks everyone for joining in. And uh, if you got any questions, feel free to reach out and happy to have calls with investors shareholders, or people just more interested in learning about our, our business,
Thank you.
And this concludes today's call. Thank you for participating. You may all disconnect.