Good morning. My name is Julianne, and I will be your conference operator today. At this time, I would like to welcome everyone to Jushi Holdings Inc.'s fourth quarter and full year 2022 earnings conference call. Today's call is being recorded. I will now turn the call over to Lisa Forman, Director of Investor Relations. Thank you. Please go ahead.
Good morning. Thank you for joining us today for the Jushi Holdings Inc. fourth quarter and full year 2022 earnings conference call. Joining me on today's call are Jim Cacioppo, Chief Executive Officer, Chairman and Founder, Jon Barack, President and Founder, and Michelle Mosier, Chief Financial Officer of Jushi. This morning, we issued a press release announcing our unaudited preliminary fourth quarter and full year 2022 financial results, which are available on our website under the Investor Relations section and filed on EDGAR and SEDAR. The company has not yet completed its reporting process for Q4 2022. The preliminary results presented herein are unaudited and based on the company's reasonable estimates and the information available to the company at this time. As such, the company's actual results may materially vary from the preliminary results presented herein and will not be finalized until the completion of its annual audit.
In addition, any statements regarding the company's preliminary financial performance do not present all information necessary for an understanding of the company's financial condition and results of operations. The unaudited preliminary financial results presented herein were not reviewed by our independent registered public accounting firm. The financial statement information has been prepared based on U.S. GAAP. Additionally, Non-GAAP financial measures referenced on this call are reconciled to the most directly comparable U.S. GAAP measure in the company's earnings release, which is posted in the Investor Relations section of our website and will also be available in the company's MD&A for the year ended December thirty-first, twenty-twenty-two, which will be filed in the company's annual report on Form 10-K on EDGAR and on SEDAR. All numbers herein are approximate and rounded to the nearest whole number.
Before we begin, I would like to remind listeners that certain matters discussed in today's presentation or answers that may be given to questions asked could constitute forward-looking information within the meaning of Canadian and security laws and forward-looking statements with the meaning of United States security laws, which, by their nature, involve estimates, projections, plans, goals, forecasts, and assumptions. Actual results could differ materially from those anticipated in these forward-looking statements. The risk factors that may affect actual results will be detailed in Jushi's 10-K and other periodic filings and registration statements. These documents may be accessed via EDGAR and SEDAR. These forward-looking statements speak only as of the date of this call and should not be relied upon as predictions of future events. With that, I would now like to turn the call over to Jim Cacioppo, Chief Executive Officer, Chairman, and Founder of Jushi.
Thank you, Lisa. Thank you everyone for joining our call today. This morning, I will provide an overview of our fourth quarter and full year 2022 performance and operational achievements. I will turn the call over to Michelle to review our financial results in more detail before providing closing comments and opening the question-and-answer period. To begin, I'm happy to report both annual and quarterly top-line growth despite an unquestionably challenging year for the cannabis industry. In the fourth quarter of 2022, revenue grew 17% year-over-year and 6% sequentially to a record $76.8 million, compared to $65.9 million in Q4 of 2021, and $72.8 million in Q3 of 2022.
Full year 2022 revenue increased 36% to a record $284.3 million, as compared to $209.3 million in 2021. In the fourth quarter of 2022, we showed strong adjusted EBITDA growth compared to Q4 of 2021 and Q3 2022, which Michelle will discuss later. In Q4 2022, Jushi had positive cash flow from operations in the amount of $2.9 million. We generated this strong growth as a result of several operational achievements over the course of the year and in the fourth quarter of 2022, including the expansion of our retail network and vertical footprint.
However, as already mentioned by many of our peers, we in the industry faced substantial macroeconomic headwinds, which had an overall impact on operating results. These included significant inflationary pressures, disrupted supply chains, and rising interest rates, among other things. These factors have led to increased cost of capital for Jushi and the industry, slower completion of investment projects, and pricing pressures across some of our markets. These pressures have unfortunately overshadowed the growth potential of the U.S. industry, especially in large developing markets which have yet to implement adult use programs such as Virginia and Pennsylvania, two of our primary markets. First, I will summarize our operational achievements, including those that took place throughout 2022 and to date in the first quarter of 2023.
First, our vertical operations grew from three to five states, with acquisitions in Nevada in 2022 and the establishment of an Ohio retail operation in Q1 2023. Through the acquisition of NuLeaf and Apothecarium, we expanded our operational footprint in Nevada to four operating retail dispensaries, 47,000 sq ft of cultivation and processing capacity, and 9,000 sq ft of canopy. Additionally, in the first quarter of 2023, our first retail store opened near Cincinnati, Ohio, enabling us to capture the vertical margin in the state with our existing 17,000 sq ft cultivation and processing facilities. Since opening, the store has remained consistently busy and has exceeded our expectations. Next, seven new retail stores were opened over the course of 2022 across a few markets, including Nevada, Pennsylvania, and Virginia.
As of the first quarter of 2023, we are now operating 37 dispensaries nationwide, having just recently opened medical dispensaries in Arlington, Virginia, and the aforementioned Cincinnati, Ohio location. We expect to open one additional medical dispensary in Woodbridge, Virginia in 2023, which will take our nationwide retail footprint to a total of 38 stores. In 2023, our focus has shifted from rapidly expanding our brick-and-mortar footprint to optimizing our existing wide-reaching retail network, which includes our largest store, our Beyond Hello e-commerce platform. Lastly, significant progress was made on our expansion projects at our Grower-Processors in Pennsylvania and Virginia. Throughout 2023, our Pennsylvania and Virginia Grower-Processors are expected to continue showing more of their output potential with meaningful improvements in the second quarter.
We should approach the full potential of these facilities in the second half of 2023 as cultivation and downstream processes are dialed in and the construction and supply chain issues like CO2 and mechanical systems are fully solved. In Virginia, we are also in the design phase of a second connected building that can increase the facility's total square footage up to approximately 260,000 sq ft. However, we expect to do this in multiple phases, and we will not make a final investment decision on this expansion until we have visibility into the timing of the rollout of an adult use program in the state, or we have a line of sight on the potential for $100 million of revenue in the medical market, which our current capacity should support with no third-party purchases or sales.
Given our higher cost of capital, we have recently split the next phase into two pieces to develop the next leg of the expansion at a much reduced $35 million cost. Our 123,000 sq ft Pennsylvania facility is now delivering better yields and potency. This facility is equipped to produce ample supply for our 18 Beyond Hello medical dispensaries, which represent approximately 10% of the state's retail market. Margins should increase as we increase efficiencies, ramp up and eliminate third-party bulk biomass purchases, improve yields and potency, and roll out our new innovative high-end Hijinks flower brand with new and improved genetics. I would note that unlike many operators, Jushi has had an established strong value offering with Sèchè and The Bank Gold. However, our current high-end offering has been priced well below the best flower offerings in the market.
Hijinks is being developed and rolled out to address the premium flower market to increase our margins as our newer genetics get more fully dialed in. In Q1 2023, we expanded our 93,000 sq ft Virginia facility and its canopy to approximately 15,700 sq ft by bringing an additional flower room online for a total of six rooms. Later in 2023, the facility is expected to be running at approximately 18,700 sq ft of canopy with one more flower room for a total of seven flower rooms. When the market requires more capacity, we can add an eighth grow room with minimal CapEx in the existing warehouse as part of our discretionary capital investment program.
Our Virginia facility is well equipped to support our significant wholesale business as other Virginia license holders are opening additional medical dispensaries in 2023. In Virginia, we have grown a significant wholesale business, and we believe we have not yet fully met current wholesale demand. As a reminder, our sixth Beyond Hello location in Woodbridge is expected to come online in 2023. In Q4 2022, Jushi has scaled to become EBITDA positive in Virginia, and we are seeing a continued steady growth of the medical market.
We are adding approximately 1,000 new patient certifications a month in Jushi's exclusive retail service area, and the total number of certified patients in our footprint to date in Virginia is approximately 22,620. With most of our capital expenditures requirements for Pennsylvania and Virginia facilities behind us, our 2023 spend for new projects is estimated to be approximately $13 million, of which $7 million is non-discretionary and $6 million is discretionary growth capital. The company's focus is now on optimizing our retail capabilities, improving product quality, and maximizing our yields, potency and production efficiencies at the GPs. Part of this optimization includes expanded vertical sell-through of Jushi-branded products into our stores.
This has increased Jushi-branded sales as a percent of total retail sales in our five vertical markets from 41% in Q3 2022, to 47% in Q4 2022, and 50% in Q1 2023. As a percent of total retail sales, including Illinois and California, where we are not vertically integrated, Jushi-branded products represent 36% of Q1 2023 sales. We have made good progress with our cost savings and efficiency optimization plan. Throughout 2022, we have made significant cost cuts, reducing our employee headcount from approximately 1,570 total employees at our peak in 2022 to approximately 1,310 total employees now. We also have significant non-employee cost cuts which are more difficult to quantify but are significant in our view. At the corporate level, our workforce was reduced by 31%.
At retail, there has been a 13% reduction in our average labor hours per dispensary per month, from approximately 3,100 hours in April 2022 to approximately 2,700 hours in February 2023. As of April 2nd, 2023, we expect to move to a budgeted labor hour model that will result in approximately 1,550 average hours per dispensary per month, resulting in a total estimated 50% labor hour savings since April 2022, and we will seek to continue to improve our labor model to drive profitability. At our Grower-Processors, we are rightsizing direct labor costs based on production KPIs and rationalizing our national team by deploying most of our formerly shared resources directly into facilities.
We also drove significant packaging savings in 2022, and will seek to continue this process in 2023 with the shift to new packaging such as Mylar. Another example is our introduction of a 1-gram cart in Massachusetts that has virtually the same cost to fill and package as smaller carts. These efficiencies began to hit our P&L in 2022 and will continue to flow through the P&L throughout 2023. On the legislative side in Virginia, we were disappointed at the slowdown in the implementation of adult use. However, our continued focus is on serving our rapidly growing medical patient population. Also, on January 1st, 2024, the medical program is expected to formally transition to the Cannabis Control Authority, known as the CCA, the cannabis-focused regulatory body.
This transition is favorable for licensed operators since the CCA is staffed with individuals with cannabis-specific regulatory experience. I note that Virginia's implementation of adult use program is not off the table given that the CCA will begin regulating medical cannabis on January first 2024, and newly elected legislators will meet in Q1 of 2024 when Virginia is back in session. Cannabis remains very popular in Virginia, and we are hopeful that the new legislative body will reconsider adult use legislation. In the meantime, it appears that the current governor of Virginia has no appetite for additional licenses, which increases Jushi's strategic value and gives us time to invest in the market.
In Pennsylvania, we are encouraged by recent movements with Governor Shapiro's 2025 budget request to include the legalization and taxing of adult use cannabis, as well as the current increasing bipartisan interest in progressing adult use legislation in the Pennsylvania Senate and House. We will continue to work with the industry to seek to make adult use a reality in Pennsylvania as soon as reasonably possible. In summary, our footprint grew significantly in 2022. This year, we are shifting our focus to, one, optimizing the strong asset base we have built in 2022. Two, becoming more operationally efficient. Three, generating positive free cash flow as soon as practicable.
Our new and increased cultivation and production capacity, better genetics, and improved growing and production techniques that we have worked so hard on in 2022 and thus far this year gives us the ability to increase sell-through of our growing product line on our own shelves and through wholesale at higher margins. We have a fast-growing medical market in Virginia, and our two most important markets have a path to adult use in the coming year or two. As I mentioned earlier, we have only $7 million in mandatory capital expenditures for new projects.
We also have identified an additional $6 million of very small but very high ROI capital investments, such as potentially moving a few stores in Pennsylvania and potentially adding an eighth grow room in Virginia. I'll now provide a brief update on actions we have taken that we expect will strengthen our capital position. In the fourth quarter of 2022, we successfully refinanced our senior secured notes, extending the maturity to 2026 in a very unique second lien structure, which creates a lower cost of capital at the first lien level. This second lien structure should help to minimize the first lien refinancing risk at the end of 2024. We are in discussions with several potential commercial banks for additional financings.
Going forward, we do not currently expect to have any acquisitions in 2023, since developmental assets that were built several years ago are the only assets of theoretical value, but will take significant cash to modernize to more efficient standards. Given our higher growth profile and scale in our most important markets, we do not feel the need to buy assets at this time, and instead we are focused on the efficiency and optimization of the assets we already own. We have some opportunity to raise non-dilutive capital by selling non-cash flow-generating assets, as well as taking part in the Employee Retention Credit program. We currently plan to hold off on using these funds for investment until we reach sustainable positive free cash flow, so they can act as a buffer for the unexpected.
To conclude, I'm extremely proud of our team and their dedication to achieving our shared goals. At the end of the year, we strengthened our board of directors with the addition of Bill Wafford as an independent director and chair of the audit committee. Additionally, senior leadership appointments and management changes were made, including Tobi Lebowitz to Chief Legal Officer and Corporate Secretary, Nichole Upshaw to Chief People Officer, Shaunna Patrick to Chief Commercial Director, and Trent Woloveck to Chief Strategy Director. Now I'd like to welcome Michelle Mosier, who assumed the role of Chief Financial Officer at Jushi earlier this year. Michelle joins us from Hamilton Beach Brands and brings over 20 years of financial leadership experience, particularly in the CPG and global manufacturing industries.
We are pleased to have Michelle on our leadership team. I have no doubt that we will significantly benefit from her expertise as we continue to strengthen our financial and accounting practices across the business. With that, I'll now ask Michelle to review our financial results.
Thanks for the warm introduction, Jim, and good morning, everyone. Before we get started, I would like to say that I am thrilled to join the Jushi family and work alongside such a highly talented team with a relentless passion for the cannabis industry. I look forward to contributing to the execution of the company's strategic priorities while upholding the demonstrated financial and operational discipline of the leadership team. Let me begin by reviewing our operating results for 2022 compared to the prior year. As Jim mentioned, revenue in the fourth quarter increased 17% to $76.8 million, compared to $65.9 million in the prior year. Full-year revenue increased 36% to $284.3 million, compared to $209.3 million.
The year-over-year growth in revenue for both the quarter and full year is primarily attributed to the expansion of our retail operations in Nevada, Massachusetts, Pennsylvania, and Virginia. Wholesale revenue grew 38% quarter-over-quarter and 67.9% for the full year due to growth primarily in Massachusetts, Nevada, and Virginia. During 2022, we opened seven stores, including the reopening of our Palm Springs, California store and a more centrally located store in Scranton, Pennsylvania. We ended the year with 35 operating dispensaries in six markets as compared to 28 operating dispensaries in five markets in 2021. Gross profit was $22 million in the fourth quarter of 2022 or 29% of revenue, compared to $19.7 million or 30% of revenue in the prior year.
For the full year, gross profit was $95.5 million, or 34% of revenue, compared to $83.4 million, or 40% of revenue in 2021. While gross profit for both the quarter and full year was impacted by investments in the expansion of our wholesale operations in Pennsylvania and Virginia, which includes significantly higher depreciation in 2022, the impact on the fourth quarter was less significant as we started to realize the benefits of our expansion efforts. We expect that we will continue to have a transitional impact as we scale this side of the business. Additionally, gross profit for the current year is negatively impacted by an increase in non-cash inventory charges of approximately $3 million for the quarter and approximately $4 million for the year.
Price compression across various markets and increased promotional activity in Pennsylvania also affected gross margin. Operating expenses for the fourth quarter of 2022 were $161.2 million compared to $45.7 million. On a full year basis, operating expenses were $315.8 million compared to $119.2 million.
While selling general and administrative expenses quarter-over-quarter were relatively flat at approximately $39.1 million as we worked to rightsize the organization for the full year, SG&A expenses increased from $112.8 million to $156.2 million due to our investment in employees to support our ongoing growth, including recent acquisitions. Noncash impairment charges were $122 million in the fourth quarter 2022, compared to $6.3 million in the prior year. For the full year, noncash impairment charges were $159.6 million compared to $6.3 million.
The impairment charges relate to goodwill and indefinite lived intangible assets and are due to lower than expected operating results of the company's operations in California, Massachusetts, Nevada, Ohio, and Pennsylvania, driven in part by significant price compression, operational issues, and overall economy in the respective states. The net loss, including noncash inventory charges and asset impairment charges, was $139.9 million for the quarter and $202.3 million for the full year. This compares to net income of $6.2 million in the prior year fourth quarter and $17.5 million in the prior year. For the quarter, adjusted EBITDA was $6 million compared to $600,000 in the prior year. The improvement in adjusted EBITDA is primarily due to the increased sales and realizing the benefits of operational efficiencies.
For the full year, adjusted EBITDA was $7.1 million compared to $14.3 million in the prior year. Moving to the balance sheet, we ended the year with $27.1 million of cash equivalents and restricted cash on the balance sheet. As of December 31st, our inventory was $35.1 million, a reduction of $8.2 million versus the prior year and down $7 million versus the prior quarter. Cash outflows for capital expenditures were approximately $55 million in 2022 and include investments related to the build-out of new and existing retail stores across 5 states and our Grower-Processor expansions in Pennsylvania and Virginia. As of December 31st, 2022, we had $206.4 million principal amount of debt outstanding.
This excludes leases and financing obligations for property, plant, and equipment. Finally, as previously mentioned and previously disclosed, in December, we completed a $73.2 million debt financing to redeem our senior secured notes that were due in January. With that, I'll now turn the call back to Jim for concluding remarks.
Thank you, Michelle. To reiterate, in 2023, our focus will shift from top-line growth to cash flow generation and driving a highly disciplined capital allocation strategy on existing assets versus M&A. With strong financial and operational discipline and the further implementation of cost savings and efficiency optimization measures similar to those laid out earlier in the call, we hope to see further improvement in our operating cash flows in the second half of the year. I would like to thank our shareholders for their continued support and confidence in our vision. Maximizing return on investment for our shareholders remains a core priority. Lastly, I would like to thank our dedicated employees. I appreciate all that you do, and we would not be where we are today without your hard work and passion for what we are building.
With that, I ask the operator to open up the call to questions.
Thank you. If you would like to ask a question, please press star followed by one on your telephone keypad. In the interest of time, we ask that you please limit yourselves to one question and 1 follow-up. We'll pause for just a moment to compile the Q&A roster. Our first question comes from Russell Stanley from Beacon Securities. Please go ahead. Your line is open.
Good morning. Thank you for taking my question. I guess first, around the retail end and efforts to optimize there, and congrats on the improved vertical sell-through, just wondering what you see as the effective limit or ceiling to that share, given what you're seeing in your markets, how high do you think you can effectively take that before, you know, before perhaps you're sacrificing product variety?
Yeah. Thanks. Thanks, Russell. You know, every market that we're in has its own sort of dynamic, and you can push it sort of pretty far in some markets because that's how the market is. For example, Nevada is a very vertical market. You know, we've seen vertical sell-through in Nevada approaching 70%, you know, as an example. We've seen it even higher before we purchased the business. In Virginia, we see 70%, but that, you know, again, that's a market that's newer. Massachusetts is lower, more like 50%, 55%. Pennsylvania, you know, I would say Pennsylvania is around 50% or-
Trying to get there.
We're trying to get there. Yeah, we're getting there. The Pennsylvania, that's an example of a market where they're more used to selection, right? There's a lot of Grower-Processors, there's a lot of diversity and, you know, the patients. You know, well, and our strategy has been retail first. We were first retail of Pennsylvania. I think our customers like the selection we offer them in Pennsylvania, and we don't wanna take that away. You know, we're just sort of maximizing overall sales. There's a nice wholesale market, with all of our shelf space, we can sell our product wholesale in Pennsylvania, you know, as people wanna get on our shelves.
Thanks for that color. Maybe if I could on Virginia, given the immediate focus on the medical market, just wondering, obviously, the state's taken a number of measures that have opened the medical market, over the last few years. Just wondering what's left to be done there? What major initiatives are required in order to really, help accelerate growth here? It's already growing nicely, but just wondering if there are any other, roadblocks or-
Yeah
... or key bottlenecking that needs to be done at the regulatory level.
Okay. Russell, thanks for the question on that. You know, I think the Virginia regulation for medical is very far along at this point. You know, our big issue was related more to efficiencies in operating versus patient access. As a reminder to the listeners, in Virginia, you just need a prescription from your doctor, or it's not even a doctor, it's a registered practitioner, somebody who has the certification. For us, patient access has been quite good on a relative basis to other states. What the hold up for us was we have costs associated with being a part of a pharmaceutical regulatory body.
They do a great job, they're underfunded, everything is slow. Product changes, if you come without, you know, out of a variance, you have to sort of get a new product registration, which takes longer. It just creates more work in process inventory, you know, as an example. Then we're figuring how to work these regulations. We just did a cost efficiency, which was great for us to see, led by our Virginia resale director. It was his idea, and he consolidated two technology platforms into one, which we think increased the patient experience in terms of timing. The transaction got quicker, which reduced labor costs, and also not entering into two systems saved a, you know, an employee per store.
Those are the types of things that we are doing. We think that the new law that we think the governor will put in place, around April 12th, will increase some variance limitations and stuff, really kind of technical stuff, I don't wanna talk about it on the call, that allows us to just be more efficient in the way we serve the patient, which brings down increased profitability and brings down cost to the patients. As the CCA takes over in January, they're more funded. There's a healthy budget. We could speak to you more about what we think the budget will be for next year. No, next year. It starts next year. They have a budget this year. They're already building it.
They have a budget this year. They have a budget next year, and we believe there's something out there already for 2025. They're gonna have quite a large budget, which allows them to actively regulate us and allows a dialogue and for them to respond to our efficiency concerns. you know, Virginia's growing by 39% sequentially, right? From Q3 of 2022- Q4 2022, we saw a 39% revenue growth. The growth is there. It's just a matter of getting it more profitable. you know, and you know, the growth will continue, right? Because a lot of these stores we added last year are reaching their potential where you can't advertise. It's a regulated market. It's medical.
you know, if you look at a store like Fairfax, which I think could be our best store, you know, ever at Jushi, in an adult use program and our best medical store, and I think the only one store that might be competitive to that in my own mind. You know, it'd be kinda like a betting pool, like the Final Four, right? The other store that I really like is coming online. It's called Woodbridge, and I'll talk about that in a second. These stores, they keep getting momentum in a newer market like that. We saw this in Pennsylvania when it was a new market. They continue on a growth path over two years or something like that before they get to you know, like, before it starts to get to a more pedestrian growth.
You know, Fairfax just opened last August. That's just an example. All of our stores are in that growth curve in Virginia still. We're seeing for each one. We opened a store in January in Arlington, so that's a brand-new store. Then we're opening a store in Woodbridge. Woodbridge is, it's sort of an underserved area, and it sort of reaches into the underserved HSA, where MedMen had a license that was lost. We feel Woodbridge could be the best medical store in the system, probably competing with Fairfax, and some of the best in the country. The growth is there.
It's just us figuring out from how to serve that growth at a lower level with all the rules and regulations that were required by our pharmaceutical regulator, which, you know, again, the regulator changes January first. New rules come into effect July first. We think the governor signs April second. We've already got more efficient by figuring it out and just working through it. You know, that's happening on an ongoing basis. Those are the three things we're doing to get more efficient and profitable.
Our next question comes from-
Great. I'll get back in the queue.
Our next question comes from Kenric Tyghe from ATB Capital Markets. Please go ahead. Your line is open.
Thank you, and good morning. Jim, just with respect to, you know, optimization and the, and the margin profile, can you speak to in the context of the high single digit EBITDA margin in this quarter, can you speak to your expected evolution of the EBITDA margin through 2023? Perhaps also more importantly, the levers in terms of that evolution for us to kind of better understand the trajectory here. You know, is a low double-digit type EBITDA margin a reasonable expectation? How should we think about the evolution of margins through the year?
Well, yeah, we're not gonna provide guidance. It's, it's too tough with the inflationary, recessionary pressures out there and, you know, just, in a highly regulated business, you know, things seem to move slower in the regulatory process. The CapEx, of course, is always slower because we can't get air conditioners, for example, for sometimes 26 weeks, right? I mean, it just is a very difficult market. Now, we're through most of that, but I feel scarred, to say the least. In terms of what our levers are, I would call it that pulling levers makes it sound subtle, and this is not subtle.
In my prepared remarks, if you go back and look at the transcript, we talked about in our retail force going forward, taking our call , what are our hours going from and to on a per store basis?
From February 2023, we're going from $3,000 per store per month to about $1,500 per store per month.
Yeah. From February of 2023, right, from $3,000 per store per month to on April 2nd, we're going to a budgeted hours versus sort of a person-by-person deal and managed by corporate, managed by, you know, the numbers people at corporate, to 15 hours. That's a huge number. That plus we're switching over packaging over the course of the year. We started last year. This isn't sort of a new to us, but it's still on the newer side to us for sure. We're switching over to Mylar, which is, you know, quite competitive and widely used in more competitive markets like California as an example.
That savings, the Mylar savings plus the labor savings gets us, you know, over budgeted over $1 million a month of cost savings coming out of the system. When I say over, there's room to fail to get to $1 million a month. That's our expectations is over. We're being, you know, somewhat conservative based on just running the math. That's not subtle. That's not a lever in my view. Then the other thing that's going on that's very. There's two other things going on that are very dramatic. One is we finally reached EBITDA positive in Virginia in Q4. That's not, it's not like intuitive how long, how much you have to grow the business to get it there.
Remember, we put this GP in place. We did the second floor. We just moved up to the second floor in Q1. There's a lot of costs that go into that that aren't capitalized. Getting these dispensaries operating on an efficient level and getting the number of patients in each dispensary. A dispensary in a medical market typically loses money, you know, for six months in a pretty good medical market, right? Before you get to your EBITDA breakeven. You know, getting that market, which grew again sequentially at 39% quarter-over-quarter to EBITDA positive. I mean, if you valued us based on EBITDA, which nobody was as we didn't have it, but if you valued us, you're getting zero value based on Virginia, which is our most valuable asset in my view.
That's number two. That's, again, that's not a lever. That is not subtle. That's big, and it has momentum. Number three, I think that probably has potential to be as big as one and two is the grow processor ramp up and an efficiency drive. There's been a lot of leadership changes at grow processors. I personally have taken in Q4 personal charge of that. You know, there'll be nobody to blame but me, the CEO, if we don't get to where we need to be, and I'm taking full responsibility for what goes further. That means that we're running people hard, and we have high expectations, and we are not messing around. We have the genetics now.
We need the efficiencies. We need all of the facilities, we're out there in some facilities at about 75 grams per sq ft. We need high testing levels at between 20% and 30% of THC, we are getting there. We need flower ratios of 70% or 80%. We're not there in all of our facilities and in all our grow rooms. I expect significant progress, particularly in Q2, although I've already seen progress because GPs turn positive as far as I can tell so far in Q1 as a unit. We're getting momentum throughout the quarter that goes into Q2.
I think Q2, based upon the ramp up, should be where a lot of this starts to come together, but you're not gonna get a full quarter of that coming together. Q3, Q4, I would hope we're operating much closer to peak potential, if you were like a tier one MSO that's been doing this for four years. If you go back in your head, you think about the people who did tier one stuff, how it took them to ramp up. I've talked to some of these CEOs. I sort of have a good sense of how this works, and we're on that track. Three things that aren't subtle, that aren't levers, that we're working hard on, and we have momentum in already.
Thanks, Jason. Great insights. Just quickly on California, could you sort of speak to the performance of the operations in that market? I think we haven't actually touched on those yet. Perhaps also just your commitment and thoughts around the California market, please. Thank you.
California is an operation that we've done this in probably three or four places where you increase your EBITDA by decreasing your losses. you know, we were, you know, we were very fortunate, you know, we were unfortunate that we spent so much time trying to acquire businesses in California. We were very fortunate that we didn't acquire very much. We acquired three businesses, and we won a license. We were extremely fortunate that they were all retail. We're not in that whole grow processor. That's where you just can't make money for the most part, as you know, from other MSOs. I'm sure there are some people making some money, but it seems to me that a lot of those people are selling to distributors.
They don't know where that, they don't know where that product is going. Hint, hint, if you look at the 1,200 dispensaries in New York that are illegal, you'll find on the shelves tested California product. You will find tested California product on any illegal dispensaries in New York, on Madison Avenue in the nineties, okay. My point is this, that's what's going on, and for people who are making money are probably doing it that way, right. For the retail dispensaries, we're basically running around a breakeven business, you know, plus or minus. It changes month to month, and we're looking at that business as potent. We have people who would like to acquire our assets.
You know, obviously it's a tough time to sell assets, and, you know, we're not necessarily selling the assets, but getting a, what I call a four-pack plus a license in California retail is a pretty big deal. These are nice markets. Santa Barbara, Grover Beach, they're nice markets. It's not L.A., it's, it's not San Francisco. So I would say we likely go that direction. We learned a lot in California, and that's a real skill that we have in sort of not making the same mistakes twice.
Right. Thanks, Jim. I'll get back in queue.
Our next question comes from Bobby Burleson from Canaccord Genuity. Please go ahead, your line is open.
Yeah, good morning. Maybe this is kind of, I guess, more, more broad, but if you look across your different geographies and what you're seeing with average basket and kind of consumer behavior, relative to price sensitivity, are you seeing any kind of leveling off or maybe even recovery in terms of some of the consumer trends that have acted as headwinds, you know, in 2022?
You know, I don't We don't, you know, focus on this much because we're really, really focused in on a ton of efficiencies on the cost side. You know, for us, you know, it, you know, we, you know, we think it's, you know, been relatively flat. You know, our numbers, because we've grown a lot, like in Virginia, our numbers and the high bar, margin as a company are we have to really dig in deep, you know, to our different states. You know, Nevada is one where you've seen the market decline. It's gotten more competitive in Massachusetts.
It, you know, the transactions have gone up, and the $ per transaction have gone down, and that trend seems to have stabilized. I would say, you know, backing away from the way you're looking at it, and other MSOs have had great comments on that, and we follow that, and it's quite similar to what they're experiencing. Stepping away from that, I would note, like, two green shoots, okay? You know, green shoots is a word. That's a green shoot. It's not, like, cautiously optimistic. It's not like the trend has changed. A green shoot is, like, something you're seeing that's kind of positive, that's kind of new, right? We raised prices on some wholesale products in Nevada. Flower One is done. They're out. They're gone.
If any, I think they're selling the facility to a non-cannabis company. It's 500,000 square feet, not fully utilized, but as an example of what's going on in Nevada. There's some prices that we've raised there. Then in Pennsylvania, due to ramp-up issues, we've had to buy bulk flower in Q1, and we might have our last bulk purchase coming up in the next week or two. It definitely got a lot harder to get it at the prices we were used to. We had to work real hard. We had to push around people based upon our retail, sort of shelf space for their branded products.
We were able to get the job done, but it was much harder in Q1 than it was in Q4 or Q3. Those are green shoots out there of markets, two markets that people, you know, have some concerns about, including us, that where you see these green shoots, where things might be changing.
Great. Thanks. Then in terms of the kinda cost-cutting and optimization work you're doing, are there states that you would call out as, you know, major beneficiaries of that effort this year, where you could really see margin improvement? How would you kinda rank that?
You know, I would say it's system-wide, to be honest with you. It is just, we're doing everywhere. Like, retail, we run quite centrally, in the sense that, you know, we run retail through a retail management system that's a national. We have a national online system that services all of our retail. We call it our biggest store Beyond Hello online. But I would say that, you know, the techniques where we're taking 3,000 hours per store down to 1,500 hours per store, that's coming up starting in April, that's a national effort, okay? The biggest things are national efforts. In terms of the Grower-Processor improvements, you know, we have three big ones. The ones, you know, and I would say the 3...
The one, Nevada, you know, was less, you know, was operating at a higher level, so that's a smaller one. It doesn't, it's not so material to our operations overall. The three big ones, Massachusetts, Pennsylvania, and Virginia, are all ramping up. Massachusetts is not a ramp-up, it's an improvement story, okay? I don't wanna get into it, you know, in too much detail here. You could ask questions about it, but it's a improvement story. Virginia and Pennsylvania, we just finished these facilities. You know, yes, they took way too long, as everybody else's will as well.
I will tell you that one of the things when you look at an operator like us in Pennsylvania, which should be a great state of flip to adult use, eventually, and Virginia, which is definitely a great state, will flip to adult use, you know, we hope all this happens sooner. You know, these Grower-Processors are a lot more valuable than they used to be based upon inflation, based upon time. It's just not so easy to do it, you know, as it was. The standards are a lot higher. You know, operators like us and some of the large MSOs in the top 10, you know, we're building, you know, world-class facilities.
A small operator coming, building an inefficient plant in these already entrenched markets where we are, it's almost impossible to make that investment because you can't justify it. You're not gonna be able to get down the cost curve, you know. Like when you're thinking about the market going forward in the newer markets where the MSOs put big investments in, their plants are much more efficient and much more expensive to build. I do believe that there's this, you know, sort of positive play in terms of assets in the ground. Our two major assets, the biggest assets in the company are still getting up to speed, and that's Virginia grow processor and Pennsylvania grow processor.
Great. Thanks for that color.
Our next question comes from Jon DeCourcey from BTIG. Please go ahead. Your line is open.
Hey, guys. Thanks for taking the call. You know, one question out of me, and kind of surprised that it didn't come up more on the prepared remarks or anything else, but just wanted to touch on the Illinois kind of, if we look to this year, and particularly Q1, the Illinois drag from, you know, loss sales to Missouri. You know, a lot of your peers have talked about that being a big exposure and, you know, I know the St. Louis area has always been, you know, a real benefit for you guys. You know, what are you seeing there? How, you know, how are you kind of mitigating that and kind of resetting expectations for this year for those, for those related stores, assuming there is a drag?
Yeah, you know, we've really been focused on year-end here and focused on the fourth quarter, you know, and what the actions we're taking on the cost side. You know, we haven't, you know, we haven't closed our books yet, and it was a mid-quarter kind of thing, so we don't wanna get too, you know, aggressive in providing numbers. I would refer you to the Ascend call. They did, you know, they did go through this, you know, for their business. And, you know, our business looks to be similarly affected as their business. And, you know, we might have had 'cause we're closer to St. Louis, we probably had a little bit, you know, you know, more decrease, you know, more reliance on Missouri.
I would say that net-net, they're still good stores, you know, on their own operating today. I would point out that, you know, and I think we're in Q1, we'll see the worst of it. You know, We have a, we have 36 days of having no rec sales in Missouri in Q1, which we'll lose in Q2. In terms of what happened, you know, on February 6th, I think we saw the worst of it in early February for two reasons. One, you know, it was clear that the Missouri market, you know, it's what surprised us, you know, in January, you know, February, I should say, is that they had so much product to sell.
I think, you know, what goes on in these medical markets when you know the prices are going up, you know, for a few months, you kinda, you start hoarding your product. I think there was some hoarding going on, and they hit the market, you know, hard with a lot of product and which allowed, you know, pricing to be probably better than, you know, it will sort of naturally get to. Number two is we made a decision, rightly or wrongly, who knows, you know, not to react to it until we knew what it was. The week we saw it happening, you know, our prices were the same. We said, "Let's just see what happens. Maybe they don't have product." You know, I mean, we just, we didn't, we're not in Missouri.
We don't have a lot of, you know, there's, you know, you can't just call everybody up, "Hey, how much product do you have?" You know. These are all private companies. What we did was is we went to our vendors, we got appropriate discounts, and the vendors have been very, very supportive because they'd like to sell their product, and there is, there is product in Illinois. Right now, our stores offer more competitive prices after taxes than in Missouri. I'm reading things like live. You can go out and read these things. I have no more knowledge than you can get on Google that they're running out of product in Missouri and prices are either starting to go up or expected to go up.
Yeah, expected to go up, so is what Tommy just reminded me here. That's what's going on. You can read that part on Google, our pricing is more competitive on an after-tax basis, after sales tax basis than in Missouri right now. Remember, Illinois, because it's a developed market, has a much bigger suite of product, you know, especially in the quality end, right? I mean, it's not hard to go out and buy, you know, low testing flower, right? Anywhere. But to get higher testing, better buds, better vapes, better gummies, you know, more selection, Wild and Kiva, which will come to Missouri, all these different things. So we have better selection and right now better prices. So we have a competitive strategy, and we're monitoring it, and we're on it.
We've cut store labor in those stores quite dramatically, in half, basically. You know, and so, you know, we have a cost response and there's some lagging in that too. I would point out, you know, What I'm focused on is going forward, you know, moving forward is we have a huge growth market. Virginia grew at 36%, 37% or whatever it was, I said it already, in Q4 from Q3. That will catch up and make up for that, right? Our, so that will happen. Then we opened 2 stores, one in Cincinnati, which exceeded our expectations. It seems like a great store. You know, one of our best store openings that is not in Virginia.
We opened Arlington, Virginia in January. We have a grow. We're increasing our wholesale business, you know, like on a year-over-year, quarter-over-quarter basis, it's increasing. We feel pretty good about sort of getting back to peak revenue post this thing. We have another store we could open up in Illinois, in Peoria. We, you know, we feel good about, you know, getting past, you know, going to peak, you know, revenue. You know, I can't tell you, which quarter it happens, but I think it happens this year and you know, hopefully sooner rather than later. Again, we're not in the prediction business on this call.
In terms of margins, I didn't answer somebody's call about margins. You know, I would say our margins, we're focused on. You know, I look at the tier 2 companies, you know, that are, you know, about our size and a little bit bigger and in 1 case smaller, I would say they're clearly in the 15%-20% range, right? I think that is, that is sustainable, you know, and the 15%, 20%, and that's, and that's our target margin. When we get there, I can't tell you, but all I can tell you is me, the CEO, known to be somewhat aggressive and, you know, detailed oriented and very much in the data, you know, are very, very focused on achieving that number. I...
The sales will get back there and I'm so unfortunate we lost that, but, the margins was something I'm very, very focused on.
Thanks, guys.
Our next question comes from Glenn Matson from Ladenburg Thalmann. Please go ahead, your line is open.
Hi. Yeah, thanks for taking the questions. Can you just give us a kind of a comprehensive overview of what the various kind of what the access to capital is right now? Basically, like, I know you used to have a acquisition facility that you used to talk about. You could tap into that for things that were potentially non-acquisition related. Can you talk about what assets that you have that are unencumbered that you might could maybe put a mortgage on or that kind of thing? Just give a general sense of like, if, you know, if you're looking to tap into the markets this year to raise capital, what are the various avenues and paths that will allow you to do that?
Yeah. We're very focused on that, obviously. You know, in terms of the acquisition facility, there's no acquisitions, there was no reason for us to pay for, you know, pay for the excess. We did away with the sort of facility, the open part of the facility. As part of the refi in Q4, we announced that, you know, that's just a term loan now. You know, I wouldn't even call it an acquisition facility. It's a term loan that matures at the end of 2024, and we pay, I think, 11% on that. It's a first lien. I'll get back to that.
The biggest unencumbered asset that we have is in Virginia. We have $70 million in the ground in our grower processor. We've been actively talking to financial institutions, including commercial banks, about capital to do that and, you know, we are in documentation phase there. I don't wanna say more about that. The other thing I would point out to you is the Employee Retention Credit program, which is a U.S. federal government program. We saw some of our competitors and partners, TerrAscend is an example, and Ascend, and we know some others that have hit it too. You know, we've done the calculations. We think it's a significant influx of capital.
Remember, it's not debt, it's more of like, it's a grant. We feel great about that. You know, knock on wood. We've done all the work and, you know, the timing, you know, we don't wanna get into that because there's ways to speed that up that cost a little bit of money. That's a, that would be a nice chunk of capital. I would look at like TerrAscend, and what they got, and I would say, you know, we were probably smaller than they were at the time when you go back to the period you look at, which is 2019 or in the past years, we were, probably a smaller company.
You know, we don't have access to their internal data, but, you know, but I would look at kind of what those guys got. That's what we're shooting for, as a, you know, is that kind of money, maybe on a smaller level. Then, you know, lastly, we do have assets that are non-cash flowing assets. You know, since we're focused on free cash flow and margins, and, you know, and you know, we have non-cash flowing assets that are. We own a lot of real estate in our smaller assets that we can sell, as real estate, or to a cannabis company, including we talked about those California dispensaries.
You know, I don't think any of that's I don't think that's near term. It was brought up in the call already. That, you know, I think that's something you might see, you know, you know, a continual sort of, you know, small deals over maybe a 12-month period. We have a Ohio facility that's unencumbered and that's not for sale, that would be one that we would look at financing. There's always little things here and there in our system that we, you know, do. We have capacity to go to $140 million our second lien. You know, the warrants were priced at a 25% premium to market. You know, at some point that's gonna start to look very attractive. We could take it to $140 million.
The first lien, you know, is right now only $65 million. I would point out that it has the licenses of Virginia and Pennsylvania on a first lien basis. Very protected piece of paper. You know, at some point when the capital markets come back, that should be the easiest part of the capital structure to refi because you're safe. Very, very safe and control. lot of these lenders like control as well. We feel good about our capital structure. We don't feel good about our EBITDA margins, and that's what we're focused on.
Great. That's helpful, Jim. Thanks very much.
Our next question comes from Ty Collin from Eight Capital. Please go ahead. Your line is open.
Hey, thanks for the question. I'll keep it to 1 because I know we're tight on time here. Jim, I just wanted to clarify your comments around M&A in 2023. I think it was just last quarter that you were talking about potentially picking up retail assets in Ohio and Illinois. I just wanna clarify if that's firmly off the table now, or would you still consider acquiring something very opportunistically in those markets?
I think last call was probably last quarter was probably in November. Yeah. That was pre-SAFE Banking, going to the wayside. Our stock was trading a lot higher. We thought that, you know, I mean, you know, maybe we were being optimistic, but, you know, we were in the process. We had a lobbyist and, you know, we felt, you know, we felt that was, you know, more than a possibility. We felt like it was a decent probability that that could happen. Under that scenario, you know, we had a growth plan in place. We tore up that growth plan and put it in the trash can and any employee associated with the growth plan is no longer with us. We are not doing acquisitions until we are free cash flow positive.
Our stock is too low, our cost of capital is too high. you know, it's not even a consideration. I'm not doing deals. Now, there are deals associated with licenses, you know, like you can get licenses in states like New Jersey, you know, and we have partners we're working with. We have things like that that aren't capital intensive, you know, but where we'll see some growth. Those are more likely, you know, things you might put in place in 2023, where you might see something in 2024. We have a growth strategy.
Remember, with Virginia, we have a state where we have production capacity, plus we could add another grow room for like $1 million or something, you know, to get to $100 million in sales, assuming we don't do any wholesale purchases or sales. That's just through our retail network and our product going through our retail network. You know, that's a lot of revenue compared to where we're at. I'm just telling you the capacity of our system at, at pretty close to current prices in the market, right? You know, the, the money for us is focusing just on that and getting margins in place.
I find acquisitions that won't give you any cash flow, you know, relative to what you pay out for it, you know, until 2024, 2025, you know, unappealing.
Got it. Thanks, Jim.
Our last question will come from Andrew Semple from Echelon Capital Markets. Please go ahead. Your line is open.
Hi there. Good morning. Thanks for taking my question. I will also just ask one here. I just want to touch on the five and a half million of inventory adjustments that were added back to this quarter. You know, just want to, first of all, make sure we're understanding this correctly. So could you maybe walk through, you know, what those items were? Secondly, would you expect these impacts to bleed into Q1? Because we're seeing many other operators signal that might be the case. Then would the expectation be that kind of Q2 should be fairly clean from this perspective? Thank you.
Andrew, this is a fairly detailed question. You know, we have some notes. I'm gonna ask you to call. If you don't already have a call this afternoon or this morning with our team, I'll be on some of those calls, and our CFO will be available, Michelle. I would ask you to, you know, get more in detail. Inventory is a very frustrating item for cannabis companies, and it shows up for us, you know, a certain way because of our size. You know, it's more material, and we have to report this. We'll take you through that privately.
Understood. Thank you.
We have no further questions. I would like to turn the call back over to Jim Cacioppo for any closing remarks.
Great. We appreciate everybody listening in this morning, getting up early to follow Jushi. We're looking forward to delivering some great results. We thank our team. We have a great team throughout the network, you know, both in the grow processors and retail, and they've all stepped up. I gave an example of our Virginia manager doing some great things, and they're getting involved in the efficiencies and, you know, the and we couldn't be more proud of, you know, what they do for us. Thank you very much.
This concludes today's conference call. Thank you for your participation. You may.