Welcome to the Air Wellness Second Quarter 2021 Earnings Call, Brad Asher and the company's Co Chief Operating Officer, Jennifer Drake. The company will discuss forward looking matters on this call, including targets for revenues and adjusted EBITDA. This forward looking information is subject to the assumptions and risks as described in the company's management discussion and analysis for the quarter ended June 30, 2021. As well, we remind you that adjusted EBITDA is a non GAAP measure. We refer you to the reconciliation to GAAP measures and other disclosure concerning non GAAP measures in 'twenty one.
I will now turn the call over to Aehr's CEO, Jonathan Sandelman. Please go ahead.
Thank you, and good morning, everyone. We continue to go through our transformative time in our business. Those of you who have heard me speak over the last past quarters Have heard me say again and again that our goal is to be the largest producer of high quality flower in the United States. Everything we have done as a company throughout Q2 has focused on investing in our operations to ensure that our goal becomes reality and it is working. In Florida, because of the improvement of our cultivation And our biomass output, we have moved from number 7 at the time of closing to number 4 today in total flower output and increased our streams from 2 to 12.
This has allowed us to open new stores at a rapid clip and greatly expanded our presence in what is Quickly becoming a massive market. I told you on our last earnings call that we expect the value of our Florida operations Soon to be larger than our entire market cap today, and I feel even more confident in that statement given our recent success. Our quality offerings and brands are resonating with the consumers in each of the markets we operate. Our wholesale presence has increased by 3 times And our flower and other products can be found in over 280 retail locations, including 57 of our own stores. Just 1 year ago, our product has tremendous growth in 1 year alone and we have announced a handful of exciting planned acquisitions, Including the top selling cannabis infused beverage, Levia.
As a premier U. S. Cannabis company, we believe that everything starts with the plan. Everything we do at Aehr starts with the plan because in all DPG businesses, Everything starts with the quality of the product being sold and every product we produce starts with the quality of the plant Why is that important? The cannabis industry is only going to get more competitive.
We believe that cannabis consumer is discerning and will increasingly recognize quality. You may be able to fool biscuits, it's what's Inside the box. Success in the cannabis industry will increasingly be determined by what's inside the box. Being the largest scale producer of high quality cannabis in the United States, uniquely positions Aehr To be the leading cannabis CPG company in the United States. As we build out our national brand footprint, We're building our brands around what's inside the box.
We're delivering quality to consumers with great value. We're delivering affordable luxury. This is what many of the best non cannabis CPG brands are built on, the brands that have real staying power. The focus of the Aehr brand going forward will be KineFlower, Virgin Extracts And Leviar, our newest proposed acquisition. We are putting significant investments in marketing talent behind these brands nationally.
I've always said when the time was right, we would unify our retail brands. And now that we have moved from 2 states in 2020 8 states, it is time. It aligns with our vision and our mission and our belief that everything starts with the plan And that the commitment to the plant has to be the foundation of the leading cannabis CPG company. It doesn't happen overnight It's incredibly important to think big and to get it right. I've been talking more and more about our plans here recently and we will begin rebranding All of our retail stores to air during the second half of the year.
We will continue to think big in terms of footprint And we will continue to deliver on those big plans. With that, I'll pass the call over to our CFO, Brad Asher to walk through our financial results.
Good morning. As John mentioned, we are proud of the record results and significant growth in Q2, where sales increased to 91,300,000 representing an increase of 2 22% over prior year and 56% over prior quarter. This was driven by contributions from recent acquisitions as well as organic growth. The contribution from M and A expansion included 204% growth in order of both the store count and daily average sales grew by roughly 20%, 8 25% growth in Arizona, driven by a full quarter of contribution relative to the 8 days in Q1 and 307% growth in Pennsylvania, driven by the launch of the Rebel flower brands along with the commencement of our wholesale business in June. That resulted in $1,500,000 of wholesale revenue in the 1st month of sales.
We also achieved 158% growth in retail revenue almost entirely from the same store growth with our newest store in Gibsonia contributing just 9 days of sale in the period. In addition, total sales from our original footprint in Massachusetts and Nevada increased 8% quarter over quarter. Adjusted EBITDA for the quarter was $27,400,000 representing a 2 25% increase over prior year on an apples to apples basis And a 49% increase over prior quarter. Adjusted gross profit $34,200,000 in prior quarter. We believe adjusted gross profit, a non GAAP measure, provides valuable insight into our performance by excluding depreciation and amortization, Interest and start up costs as well as the fair value step up of inventory from acquisitions.
Adjusted gross profit margins of 58% represents a 40 basis point sequential decrease from the prior quarter. This trend is expected as we enter new markets and make an investment in acquiring customers. During this period, we expect gross margins to persist in the mid-fifty percent range as we wait for capacity to expand represented 30% of sales, sequential increase of 200 basis points from prior quarter. The increase was largely due to our continued investment in building out infrastructure, Including the addition of over 400 employees, representing an approximate increase of 35% of our workforce during the quarter. While we expect operating expenses to increase on a dollar basis as we continue to expand our footprint, we expect SG and A as a percentage of sales be consistent over the next few quarters until ultimately declining in 'twenty two as we build more leverage throughout the year.
Lastly, we ended the quarter with $123,800,000 of cash on hand, demonstrating a strong capital position to fund our growth initiatives. We continue to invest in the future earnings power of the business by building up inventory and business in addition to the $38,000,000 paid year to date in the form of cash consideration, deposits and bridge financing relating to the M and A activities. Throughout this period of investment, we are maintaining a healthy balance sheet with positive working capital of $153,000,000 When adjusted to remove any fair value markups of acquired inventory. This is relative to a negative working capital balance on performing the same calculation from the prior year period. Based on these Q2 results and the progress we see to date in Q3, we are targeting an estimated $100,000,000 in revenue in Q3 with adjusted EBITDA flat sequentially over Q2.
We remind you that these projections are subject to the assumptions and risks outlined in our Q2 MD and A. In closing, the Nance department has gotten the onboarding of acquisitions down to a science with both the speed and precision of a pit stop Only without the luxury of stopping. By quickly implementing our tech stack and methodology, it allows us to provide key insights and analytics in the business is early in the process. In addition, we continue to make enhancements to expand compliance, including the build out of our Sarbanes Oxley program, which will be a requirement as an SEC filer. As a reminder, last quarter was our first reporting in U.
S. GAAP as a U. S. Filer. As such, we would like to announce that we've released a notice of change of auditor from M and P to the U.
S.-based firm, Markham, a top tier firm is a substantial cannabis practice. We've enjoyed working with M and P, have no disagreements for unresolved issues. I would like to thank them for all their efforts and hand it over to our co COO, Jennifer
Drake. Thanks, Brad. This quarter, we want to overview our business a little differently, focusing on the major themes of cultivation and production, retail, wholesale and branding. John already updated you on our branding initiatives, so I'll start with cultivation. We have not been shy about our goal of being the largest scale producer of high quality cannabis flower in the United States.
We are a plant obsessed company because the plant is the foundation of our ability to build strong brands. So we continue to make major investments in our cultivation operations, Facilities and Talent. Cultivation yields have improved over 50% since Aehr taking over the business, helping the quality and amount of flower available at our stores, plus allowing us to add more offerings to our product mix, all while we are adding more and more new stores. By the fall, in Florida, we expect to complete the construction of 20 acres of hoop houses our Gainesville Cultivation. And these will add meaningfully to our biomass for flower, concentrates and our newly launched edibles.
Summing it all up and with respect to Florida Cultivation, when we bought the Liberty business 5 months ago, If there was flower available in the store, which was only 3 or 4 days a week, you'd be lucky to find more than a few strains to choose from. But today, We have flower consistently with more than a dozen strains available. Again, it all starts with the plant. In Pennsylvania, we're the Revel and 7 Hills flower brands, both at our own stores and at wholesale. The feedback on our flower from Pennsylvania's patient community has been excellent.
We've said before Pennsylvania is a market deprived of quality flower, but we are quickly filling that void with our own cultivation. In Q2, we also had our first harvest from the smaller of our 2 Arizona cultivations. The larger 80,000 square foot facility in Arizona will have construction completed in Q4. And next door is our premier producers of high quality cannabis flower. What's really important about adding Tahoe Hydro to air is that we are adding an incredible bank of genetics and intellectual property and an abundance of high level cultivation talent that can be deployed throughout our national footprint.
Rounding out our cultivation news, in Massachusetts, We are not resting on our laurels. We are charging forward with an additional 100,000 square foot cultivation and production facility to increase our cultivation capacity to the maximum allowed so that we can meet the demand growth we expect to see in our wholesale business As more and more adult use dispensaries, especially those that don't have their own cultivation are coming online in the state. Massachusetts is a great example, flower. We will provide best in class products in whatever form factor our customers wish to consume. This is how you build a world class CPG company in the cannabis space.
On the production side, We have a saying in cannabis, quality in, quality out. If you grow great flower and match that with Aehr's best in class SOPs, You reap the benefits with production of top of the line concentrates, vape cartridges and edibles. This quarter, we saw some exciting developments in the expansion of our branded products. In Florida, Origin Extracts and Big Peeps Cookies are first edibles in the market from the kitchen we opened in Q2 and Dummies will follow soon in Florida. Thanks to the success LeafTraits and now Florida also, we expect to continue to bring this has strong brands to our markets nationally.
Since our Arizona cultivation and production facilities have come online, we've begun our first extraction and wholesaling activities in the state, including Hays Premium Concentrates and Litt Cannabis Cartridges. And in Nevada, our newly expanded production facility in Las Vegas has increased our capacity to manufacture extracted products for our growing wholesale business there. Finally, in our retail business, anyone who followed Aehr knows that our established retail locations are some of the most productive in the country. In Nevada, our stores averaged revenue of $20,000,000 a year per store with sales as high as $10,000 per square foot in our most productive store. That is really good.
It's industry leading. And this type of excellent retail expertise will have a massive impact on new stores we open, And our retail stores are an amazing asset to us as we build our national brand. They're a laboratory to help us understand our customer. They let us know real time with great data what the customer wants, whether that's microdose gummies or premium terpene rich flower or Levia cannabis infused seltzer. With that, I'll hand it back to John.
Thanks, Jen, the largest producer of high quality flower at scale And having the ability to create amazing brands that will lead the industry. We're excited to see our strategy playing out as planned And are encouraged by the strong results that we're seeing already. This top line growth will continue with the addition of New Jersey and Illinois to our footprint and the accelerating investments we're putting behind our brands to drive market share at Retail and Wholesale. Given the success of our efforts to date, we are raising our 2022 revenue target to $800,000,000 With $300,000,000 of adjusted EBITDA reflecting substantial investments in growth, We plan to accelerate investments in our KIND, Origin and LEVIA brands and the strategic marketing and operational talent behind them. We've added talent across all levels, deepening our bench across the marketing, technology and operational professionals, will focus on driving scalable processes across our regional footprint.
We are still in the early stages of growth in this industry and we believe we are perfectly positioned to become a leading force in cannabis CPG, A market we think could easily top $100,000,000,000 in revenue over the next several years. As long as we have, we will reinvest in our business in branding, customers, capital projects and M and A. This opportunity is in front of us and we plan to seize it. We put out ambitious plans in 2020 And we've delivered on what we said we would do. You will see us unveil some really exciting evolution of our Air brand soon.
We continue to think big in terms of our footprint and our products and branding, and we intend to continue to deliver on those big plans. With that, I'll hand it over to the operator to open up for questions.
Thank you. We will now begin the question and answer session. Our first question comes from Owen Bennett of Jefferies. Please go ahead.
And then I just wanted to get your thoughts on why you decided to go for a beverage brand and how you see that segment evolving? Thank you guys.
It's John Salomon. The first part of your question was scrambled, so I didn't hear it. I'll start with Levia and then maybe you can repeat it. The way I always thought about our strategy, Our strategy for cannabis, it was very simple, right? We thought about like any other CPG company, who is the customer?
What is the demographics and what form factors would each demographic class like to enjoy their THC, Right. And we wanted to make sure we had a form factor for beverages was a form factor we were lacking. We did have a product called Canopunch and today BDS would say with LEVIA and Canopunch, We have 2 of the top selling beverage brands in the United States. We can't ignore what happens outside of cannabis And we've seen the explosion of hard seltzer, right? It's now a $10,000,000,000 industry.
As younger people want to drink something That's low calorie and session provides a session experience. LEVIA is that product. It's a dominant product, 80% market share today in Massachusetts and it's only in one state. 0 cal future is not the absolute milligrams, but the bioavailability of those milligrams. Consumers are very focused on the THC grams per dollar.
And if your product doesn't have the science To back that up, so that when they buy 5 milligrams, they actually get 5 milligrams, they'll go somewhere else. Lastly, two points. One is, we're very focused on the consumer that hasn't yet experienced cannabis. And we think having people who have never tried cannabis before, but like that form factor Into the cannabis world and the cannabis experience. Last point, the way I thought about it.
When CPG does finally make its strategic move Into cannabis. For me, the easiest place to make that move, That decision, that strategic acquisition is in the products they make every day, The products they know best and for me the easiest move for CPG to enter the cannabis world Will be in the beverage in the can business because who knows it better than big beer, they would be an obvious move.
Okay. Very helpful. Yes, the first question was on Florida. There's obviously a lot of talk around increased competition there and some pricing pressure. I just wanted to get your thoughts on kind of how that pricing environment is evolved.
You're obviously getting a lot of impressive Are you having kind of discount you want to allow yourself to drive about those share gains?
Actually a monopolistic market, right, with 1 dominant player having over 50% of the market. I think what you've seen us do in our other markets, we enter the market with the highest quality products, Again, with the highest quality flower, which produces all the derivative products that are also high quality, We priced value for the customer. We have seen that over and over again that business plan, high quality products Offered at the best value to our patients and our consumers build market share. So Is the old days of Florida where one dominant player doesn't feel that it might have to compete? I can't speak to that because that's I'm not in those strategy sessions, but we know what the playbook is.
We know how to do retail and we've been very successful at it and we're just going to
our next question comes from Matt McGinley of Needham. Please go ahead.
Thank you. What's changed with your assumptions for EBITDA margin rate in 2022? Do you assume a lower gross profit rate? Or are you assuming that G and A Spend is higher than previously assumed. And moreover, how would the assumptions change for spending at the corporate level compared to productivity assumptions that you might have had on an individual asset level?
Is this mainly increasing at the corporate level or is there something changed with individual assets into 2022?
So I'll start this and then I'll hand it over to Brad. Look, I've said to my team over and over again, We're in an industry, as I said earlier in the call, that's growing over 100%. Okay? We're able to buy great companies. I believe this is a once in a lifetime opportunity.
When I look at premium beverage brands, premium alcohol, it grows between 5% 8% and trades at multiples of 2530. So to be able to buy premium brands in a CPG like world, Okay. That's growing over 100%. We are investing. We are building out our existing portfolio While continuing to acquire, there hasn't been a single asset that we bought, no matter what the headline multiple looks like, That we didn't think we can improve.
So in our modeling, we don't even think we're paying 56 And when we bought it. So yes, we are investing. We are building Both in CapEx and branding to build out our national brands, to provide the large scale cultivation And Quality Flower on a national basis that we talk about and that is reflected in the numbers. Brad, do you want to add to that?
Yes. I would just I mean to reiterate on your point on the investment period, I would say that it's Increase overhang gross margins, improve as we bring cultivation capacity online, driving vertical integration And start to get leverage out of our SG and A base as sales are growing.
Great. My second question is on the cash balances and cash flow. In looking at what you presently have in cash and what you'll need to spend in cash flows and cost and CapEx, We need to assume you generate positive cash flow to fund that spend. Working capital investments obviously kept that negative in the first half, but Do you expect to revert back to positive cash flow from operations or might you need to raise capital to support this planned CapEx and cash closing costs related To M and
A. Brad, do you want to take that?
As each cultivation facility is coming online. We're definitely making an investment in cash. As those facilities are online, we definitely think Operational cash flow will be positive going forward. We also know that the debt markets have been very receptive to us. We're also looking at the Investments we're making in CapEx, we know that we have owned real estate and leasehold improvements, approximately $200,000,000 in that leverage.
So we know there's a lot of options available to
Our next question comes from Russell Stanley of Beacon Securities. Please go ahead.
Good morning and thanks for taking my question. I just want Florida, just following up there, understanding your fever with 50 dispensaries in Florida. Just wondering once the hoop houses are complete, how what is your Retail capacity at that point, how many dispensaries do you think you can support well?
With the hoop houses, we think we get to roughly 65 stores.
Great. That's really helpful.
And just But Russ, to be clear, But Russ, to be clear, our goal is not to be solely at 65 stores. You're just saying you're asking a question. The assets we have been placed to be very clear, We're not looking to be anything less than one of the largest players in the state.
That's great. Understood. And that's what I was looking for is just understanding How much runway you have in Florida before needing to invest again in additional CapEx? Maybe just moving one question around
And Russ, one other point. We have 400 acres on this property.
There's lots of additional
capacity. Understood.
Just around the Dilevia transaction, you're already really strong on wholesale and that overlap is there On the retail front, are there complementary is there opportunity for sort of some cross pollination here? Are there shelves that What is on that you're not on yet and vice versa? Are there opportunities in that regard?
Yes. There's definitely opportunities To distribute together on the wholesale side, A, just efficiently, we're in more stores than they are today, so we can help with the distribution of their products. They're in some stores we're not in and they have good relationships. But equally as important, as we mentioned, It's the technology of the emulsion that's really interesting here. Again, you're going to hear me start talking more of Umer's real value, right?
That's what we do on the retail side, High quality at a fair price. And if you define fair price solely about price Per gram without talking about bioavailability, if your milligrams are 5 And your emulsion only produced 30% bioavailability. You're selling 1.5 grams of THC. And as we start to educate the market around the science, the consumer will start demanding Products that actually do what they advertise.
And I
think that's far beyond Beverages, tinctures, gummies, anywhere where we're infusing products, This quick onset, which is extremely important to the new consumer, 15 minute onset allows people to Gauge whether they should have a second can or not. For many people, consumers who haven't tried cannabis, Their biggest issue is that I've heard bad stories of people consuming too much. Rapid on important and that's why you're going to hear talk about it because it's a real edge for us.
Excellent. That's great color. Thank you. I'll get back in queue.
Our next question comes from Scott Fortune of ROTH Capital Partners. Please go ahead.
Good morning. Thanks for the questions. Real quick, I want to talk about bridging to the $800,000,000 revenue guidance you have in 2022. I assume that the addition of La Via here in the Illinois acquisition, but can you step us through kind of the increase from 7.25 to 8 100? What are you kind of factoring in into that revenue guidance?
Brad?
We talked about on the beginning of the call how we're making an investment to really bring forward a lot of the growth rate in this business. And so I think it's really just accelerating the growth, and I would refer you back to those MD and A assumptions to walk through state by state, Had a bridge from 'twenty one to 'twenty two.
Got it. I appreciate that. And then secondly, in Nevada, Obviously, Nevada is opening up lounges as they come on board. Libya would probably roll out very well in there. What's the timing on Nevada cultivation there?
And then what's the color any color on Nevada as far as the tourism there And the Q3 kind of the progress on Q3 with Nevada's growth going forward here.
There was a lot of questions in there. Can you just start with the first one so we can
Yes, sorry. Nevada is bringing on board the lounges. From a regulation standpoint, I Assume, Levia would play well into that as far as is that part of the kind of discussion here of acquiring Levia to what went in And how do you look at that expansion in different states? And just color on Nevada, how that's trending with tourism coming back there in 2nd quarter.
Okay. Two points. I think all the analysts on this call have heard us before say, we're the locals provider of cannabis in the market. That's why our business held up so well True, Chris. And strategy is to be the leading Usher brand in beverages, like I outlined.
And so, Levio will go to every state we're in, where the state allows us to sell an infused drink.
So is that part How quickly can you ramp up or is that one of the key things that you're looking at for, for special lounges?
We didn't see the consumer taste shift in the CPG world. That's where the consumer is today, He and Sheeran to session drinking. That's on a national basis. Consumer today is not drinking hard seltzer in the lounges in Nevada. They're drinking it Everywhere.
Look at the explosion. I mean, it went from 3 years ago to relatively nothing to $10,000,000,000 industry. So we think there's national demand. As I said, this product will be manufactured and distributed nationally wherever we have our
Jim, well, and still on road well up there, how is Pennsylvania trending as far Can you take the 2 on the integration?
Again, you're coming in a bit scrambled. I might turn this over to someone else who might have heard you better. But As we talked about on the call, in our first harvest, again, entering new markets with our Edge, which is our cultivation and high quality flower, The product sold out First Harvest into the wholesale market within days and the reviews were extraordinary. So we're just going to continue what we do in every state and put in our boxes. Again, what we say at Aehr, it's not the box, But what's inside the box, we never underestimate the consumer.
The consumer knows and we'll continue to do that strategy Through Pennsylvania, what we're seeing is the consumer reacted extremely well to that, To those 2 new brands that hit the market. The rest of the question got scrambled, so if someone else on our team heard it, maybe they can answer the Other parts of it.
So I think the main point was that our wholesale is doing Extremely well in Pennsylvania. And as you said, John, we're selling out everything we make, similar to what we do in Massachusetts. So we expect it to be a super strong market.
Thanks. Appreciate the detail. I'll jump back in the queue.
Thanks, Scott.
Our next question comes from Andrew Semple of Echelon Capital Markets. Please go ahead.
Good morning and congrats on the Q2 results. My first question here, I just wanted to clarify on the Q3 guidance. I just want to be clear on the point that there's no New Jersey contribution expected in Q3 anymore within the $100,000,000 revenue figure. Is that correct?
Brad?
Do you want me to John, do you want me to take that one?
Sure. So
Andrew, we're currently expecting, anticipating that we will still close in Q3. I think we any problems with our application, so we are expecting a little bit of contribution in Q3.
And that's included in the guidance, sorry?
Yes.
Okay. Thanks. My second question, it seems like the expectations for CapEx in Ohio seem to have moved a bit higher quarter over quarter. I believe it's $25,000,000 for that market in the Q1 press release. It looks like $37,000,000 in the latest update.
I'm just wondering if that's reflecting your team perhaps moving a little bit more aggressively in that market. And could you just comment on your plans again for Ohio and perhaps the timing of when those facilities come online?
Misunderstood state, right? It has 12,000,000 to 13,000,000 People is virtually the same size as Pennsylvania within a 1000000 people, 1000000 population. So our strategy there is to build out the MAX facility that the law allows. And we mean to be a significant player in that market. Now just to remind everyone about our strategy, we never enter a market Unless we think 2 things, we can be vertically integrated and be a significant player.
And so I am very focused on Ohio, the various opportunities. There's another round of licensing that are coming.
That's great color. Thanks. Just a final one, if I may. You obviously entered your 8th stake recently in Illinois. Just given your comments there, John, that you like to go big in markets And certainly you've demonstrated that in the past.
Is it safe to assume that's a state where you continue to look to expand your footprint? Thank you.
So I can only repeat, but what I've just said is to and be a significant player. We don't feel we can build a brand that would resonate in our consumers' minds and with their wallet Unless we're a significant player and more importantly, that we are controlling the biomass. That's our Ed. We're never going to be in a market where we can't
Got you. That's great color. Appreciate your insights. Thank you.
Our next question comes from Matt Bottomley of Canaccord. Please go ahead.
Good morning all and again congrats on the strong quarter here. I just wanted to do another follow-up on a previous question on the Q3 outlook. So appreciate the commentary that there could be a little bit of New Jersey contribution in there on the close. Are there any other, I guess, goalposts or Categories that can be disclosed a little more with respect to new store openings. I think you have dozens of new store openings and how that might relate to what you're expecting into Q3 specifically on the top line?
Let me address the stores and then Brad can address the second part. So we've recently said we've opened our 39 store in Florida. We are planning on being at 50 by the end of the year, that's 11, just in that state alone, right? And we've also talked about our strategy of being vertically integrated in every state we go into because we want to control the biomass, the quality of the flower, What goes inside the box? And we lastly said, if we can or do not believe we'd be a significant player in each state.
So I think that gives you at least our vision, our strategy. 11, we're public on. The rest is our strategy that we think we'll execute on. Brad, any other commentary on that?
Yes. Just in terms of bridging to Q3, I'd say there's 3 main drivers. 1 is the small contribution from New Jersey, which we referenced. 2 is 3 months of Pennsylvania wholesale. We talked about the 1 month of sales we had this quarter.
And then 3 It's continued growth in Florida from new store openings.
Okay. Appreciate that. And then just second question for me, I think this one might be for Jen. Obviously, we get a lot of good data coming out from the Florida market weekly volume based, but a lot of just wondering if there's any Metrics you can give, we can kind of see how large the state revenues is and we know how many dispensaries there are. So we have an idea of sort of average contribution per store.
So I'm just curious how those your 3 stores are performing and then how we should think about the mix between wholesale penetration in that market with the infrastructure you have and obviously the infrastructure you're building out Versus that retail exposure as we model out Arizona into the next couple of quarters here.
Yes. Thanks for that, Andrew. So I think what we've said is we've seen good growth in our retail stores at 50% from Pre acquisition, pre adult use. So we're very pleased with that. And we expect to we expect to bring our spot Massachusetts several years ago and really improve the retail experience there by bringing in some of that great retail playbook from Nevada.
Arizona is even closer to Nevada, so it's an even easier thing for it to do. So we're really optimistic on Future growth from the retail in Arizona, because as an adult use as an adult use state very close to our kind of our folks in Nevada, we think we're going to be able to do really good things there. On the wholesale side, as I mentioned in the call, We have our first cultivation online in Arizona and the bigger cultivation that 80,000 square foot cultivation, which is really going to be the driver of our wholesale, is going to be finished construction at the end of this year. So it won't it will be coming online next year and it's part of that dollars 800,000,000 revenue guidance that we've given for 2022. So that's the big Arizona wholesale is next year.
Got it. And I appreciate that. So then on the Arizona side, would a large majority of what's being cultivated in the existing build be going to service vertically integrated stores, is it fair to say that's where most of it goes?
No. 80,000 square feet will be enough biomass to both have a retail you can't have 100% of your own product in your stores. The consumer does want choice. So there's enough biomass to feed the appropriate amount of air products As well as have very significant wholesale business. But again, as 80,000, a total of 90,000 square feet By the Q4 of cultivation, we want to be a significant brand in each state we are in And we're going to continue to execute on that strategy in every state we're in.
Okay, helpful. Thanks all.
Our next question comes from Greg Gibas of Northland Securities. Please go ahead.
Hey, good morning, John, Brad and Jen. Thanks for taking the questions and congrats on the Q2 results. Great. It's still kind of under 50% of the state average. What are you assuming the average dispensary in Florida Yes.
To get to that $800,000,000 revenue guidance.
Brad?
So we're assuming that by the end of 'twenty two, our stores move more in line with the state average per store, which is in the $3,000,000 to $4,000,000 range.
Greg, you have to think about one thing. We're opening stores at a very quick pace right now, right? So you think a store doesn't get up to its full maximum usefulness Until at least 90 days in. So by opening store revenue, Okay. So that will normalize if the pace normalizes.
But if we continue on this steep trajectory of opening up stores and grabbing footprint, Remember the reason why I moved into Florida, I got seriously concerned about Being locked out. It was a land grab in my mind. My thought was not every municipality will have 10 cannabis stores in it. It's highly unlikely. And if you didn't if we didn't do Liberty when we did it, it's highly likely you're going to be locked out of the some of That's market.
So I am willing to let the average store drop While I continue on the pace of new store openings and then when we're there With the appropriate footprint, you will see the average stores increase simply because our stores now have flowers 7 days a week. They now have 12 strains of flower instead of 2. The quality of the flower is much higher. Quickly, we've increased productivity by 50%. July was the best numbers.
You can't open your stores if your productivity is not there, if you don't put products in your stores that consumers can buy. But the average will drop And we'll stay below the average because we're going for that land grab because we understand if we don't do that now, As I said just seconds ago, you'll be locked out of the best market. And that's why we're opening stores Faster than anyone in the state.
Great. Yes, understood, John. Appreciate that. That's helpful. And it was just kind of more learning about the assumptions that go into that $800,000,000 but that does make sense.
Also kind of with 30% EBITDA margins today, the $100,000,000 revenue, Just kind of wondering, next year, it's 37.5% implied in guidance. If we're looking at flat next quarter, do we think about just gradual improvement through year end 2022? Or is there anything we should really take into account on a quarterly basis?
Yes, I think it's exactly that, the former. It's going to be gradual. And I think each quarter you'll see starting in probably the Q2 of 'twenty two is when we start to open up And realized sales from our larger cultivation facilities. At that point, you're going to start to see leverage be realized in 'twenty two and gradual improvement Each quarter from there on.
Okay, great.
With Hedgeye. Please go ahead.
Hey, thank you so much.
I just wanted to follow-up, John, on your beverage comment that you'll have La Via in every market. What does that look like? I know this question might be premature because you haven't been closed on the acquisition yet, but will you be building production facilities, contract out to third parties And just assuming that the capital spending numbers that you've given don't include any of that. Thanks.
So thanks, Howard. It's a great question because it's one of the reasons, 5th reason why levy was so attractive. So if you look at the explosion of beverages, every time you go into a market today, the choice It's incredible. So, it turns out if you want to build a new beverage brand, capacity is constrained On the bottling lines, the 3rd party co packers, very difficult to get your brand produced, is that these guys built their own assembly line And they did it quickly and they did it for very good value, very efficiently. And so we understood besides great brand builders, great emulsion, They're also great builders and we will build our own assembly lines In every state that we go in so that we can control the quality and the cost.
And these guys have the experience.
This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.