Good afternoon, ladies and gentlemen, and welcome to Cansortium's Corporate Update and Third Quarter 2024 Conference Call. Joining us today is the company's CEO, Robert Beasley, and the company's CFO, Patricia Fonseca. At this time, all participants are in a listen-only mode. After the company's prepared remarks, the management team will conduct a question-and-answer session. To join the question queue, you may press star then one on your telephone keypad. Should you need assistance during the conference, you may signal an operator by pressing star then zero. As a reminder, this conference call is being recorded and will be available for replay in the investor section of the company's website at www.getfluent.com.
Please note that certain subjects discussed on this call, including answers the company may provide to questions, may include content that is forward-looking in nature and therefore subject to risks and uncertainties and other factors, which could cause actual results or performance to differ materially from any implied expectations. Such risks around the forward-looking statements are all outlined and detailed within the company's regulatory filings, which can be found on sedar.com. The company does not undertake to update or revise any forward-looking statements except to the extent required by applicable securities laws in Canada. In addition, during this call, the company will refer to the supplemental non-IFRS accounting measures, including adjusted EBITDA, which do not have any standardized meaning prescribed by IFRS. As a final reminder of today's call, unless otherwise indicated, all dollar amounts are expressed in U.S. dollars. Please note this call is being recorded, and I would now like to turn the conference over to Mr. Robert Beasley, the company's CEO. Sir, please go ahead.
Thank you, Alison, and good afternoon, everyone. We're incredibly proud to share that we've successfully completed our anticipated business combination with RIV Capital. On today's call, I'll discuss the importance of this transaction as well as a brief high-level overview of FLUENT's third quarter highlights. After my remarks, I'll turn the call over to CFO, Patricia Fonseca, for a more in-depth review of FLUENT's financial results for Q3. And following that, we'll open the call for some questions. With the successful completion of the RIV transaction, we've strategically entered one of the largest and fastest-growing cannabis markets. We've secured key assets in New York across the retail, wholesale, and cultivation front. This has now expanded our total footprint of stores to 42 locations in these two high-growth markets of New York and Florida.
With the legal annual cannabis industry now expected to reach $58 billion this next year, our combined company is well-suited in these high-growth markets to represent and participate in what amounts to 25% of the U.S. population, and any forthcoming regulatory advancements are expected to have a significant impact on these markets. While today marks the first official day of our combined company, our teams have been collaborating since June under an MSA and have made great strides, and we are poised for a successful start. Together, we have come together to change and update cultivation and manufacturing practices, and we've also launched our very first product with the Moods brand in New York, and it has done phenomenal. We've been very happy to see that a product that was successful in Florida is also very successful in New York. At this time, we'll continue to launch our brands that we house in Florida, as well as new and exciting brands that are specific and compliant with New York regulation. New York also marks our first entry into the wholesale operation.
We believe this has immense potential to scale as the growth of the retail side and the card program continues to grow in the state. Since entering the original agreement in June and undergoing the MSA, we've seen a tremendous growth in the retail sector, which at one time was languishing under good regulatory concepts but bad implementation. Now it seems to have kickstarted, and we believe we've hit this market at exactly the right time. To date, our integration activities have already resulted in $2 million in annualized operating savings, and we've identified another $2 million in cost savings to be realized over the next six months, thanks to operating efficiencies, corporate integration, and eliminating duplicative public company cost. We're eager to work together with the team at Etain and realize the benefits of a combined strong company. Turning now to our financial performance in Q3, we reported solid results for the third quarter of 2024, achieving our 12th consecutive quarter of positive cash flow from operations and delivering year-over-year revenue growth.
These key metrics underscore the stability of our business and effective execution of our strategic initiatives as we build a strong foundation for future growth. In Florida, we grew revenue by 3.6%, and we recently expanded our cultivation canopy to align with the strong demand in the medical market. Additionally, we plan to open four new stores in 2025 to continue to support and expand our footprint in Florida. While we were understandably disappointed, along with the rest of the industry, that the Florida Adult Use Vote did not pass, none of our upcoming plans or financial commitments were dependent on this measure, and we remain exceptionally well-positioned to support Florida's robust, growing medical market. Looking at our cultivation footprint, the Ruskin facility is now operational, adding 14,000 sq ft of cultivation canopy. We completed our first harvest in June of 2024 and are pleased that the indoor growth portion of that is now producing whole flower with recent testing at 32.5%. Construction is also nearing completion with our Rosa facility, which will further support our indoor high-quality output.
This location is adjacent to our Tampa facility and will add, at first phase, 7,000 sq ft of high-quality canopy. We expect the first harvest out of the Rosa facility to be in Q2 2025. I'm also relieved to report that we incurred no major significant damage from any of the hurricanes in the summer of Florida. While both Tampa and some of other locations did receive fairly proximate direct hits, we had no interruptions to operations or services, and most of the stores that were impacted were open within 48 to 72 hours. And so, all in all, we were very lucky this hurricane season and continue to cross our fingers for seasons to come. In Pennsylvania, we continue to maintain strong partnerships with wholesale suppliers that enable us to keep prices competitive while protecting our margins, and our Annville store has now become our number one location in the entire system. We've recently completed renovation at our Hanover retail location, and we received a positive impact about the expansion of that store, which is now double its previous size. In Texas, our small but strong presence continues to perform well.
We're excited to see that the Texas authorities are finally going to address the illegal cannabis shops which plague the state. Hopefully, this opens up and provides for more room for growth as we continue to steadily expand in the Texas market. Our plans for Houston Delivery Center are ongoing. This will serve as an ease-of-access point for patients as well as an educational center and give us a flag in the state of Texas. We anticipate this location will open in early 2025. We still believe that Texas, as one of only three license holders in that state, represents tremendous potential for future growth for this company. Following the quarter-end, we closed on a new senior secured credit agreement, which includes access to two additional credit lines totaling $25 million. This refinancing was an important step that allows us to enter 2025 with no material debt maturities until 2028.
The loan's favorable interest rate, single financial covenant, and non-dilutive structure significantly underscore the lender's confidence in our ability to execute on our growth plans and our strong financial standing. Now, with our access to $25 million in credit and the RIV cash balance of over $30 million, our strategic growth plans and goals will be supported by a strong balance sheet. With these resources at our disposal, we are well-positioned to strategically pursue accretive growth opportunities in our current markets like Pennsylvania and New York, while also targeting new prospects in high-growth states. We're eager to unlock the full potential of our combined team and operations and drive significant value for both our customers and our shareholders, and are more excited than ever for what the future holds for FLUENT. I'll now hand it over to Patricia Fonseca, our CFO, to walk through the financial highlights in more detail. Patricia.
Thank you, Robert, and good afternoon, everyone. Please note that all figures are in U.S. dollars and all variance commentary is on a year-over-year basis, unless otherwise indicated. Before I dive into Q3 results, I would like to highlight some of the terms of the business combination transaction. RIV Capital shareholders received 1.245 of a common share of Cansortium. The $160 million in convertible notes held by RIV Capital were converted to approximately 151 million exchangeable shares of Cansortium. Total shares outstanding after the business combination is approximately 600 million shares, including the exchangeable shares. The combined company pro forma debt outstanding is $74 million, with a cash balance of approximately $40 million. Effective as of today, Cansortium shares are DTC eligible, making our shares eligible to be electronically cleared and settled. Now, into Q3 2024 results, revenue increased 3.5% to $26.1 million in the third quarter of 2024 compared to $25.3 million in the third quarter of 2023. The increase is primarily related to increased production and additional expansion opening Florida.
Florida revenue increased 3.6% to $22 million compared to $21.3 million in the same period last year. Gross profit for the quarter was $14.3 million, or 54.6% of revenue, compared to $13.7 million, or 54% of revenue. The increase in gross profit was primarily related to increase in operating expenses. Adjusted EBITDA for the quarter was $7.5 million compared to $7.7 million last year, with the minimal decrease primarily attributed to higher general administrative expenses as we prepare for the transaction. Cash from operations during the third quarter was $9.6 million compared to $7.1 million in the prior period. The increase is primarily due to changes in working capital driven by more efficient inventory management. On September 30, 2024, we had approximately $8.9 million in cash and $74.1 million of total debt, with approximately 303 million shares outstanding. This concludes our financial highlights. We're now ready to open the call for Q&A.
Thank you. We will now begin the question- and- answer session. To join the question queue, you may press star, then one on your telephone keypad. You will hear a tone acknowledging your request. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then two. We will pause for a moment as callers join the queue. Our first question today will come from Frederico Gomes of ATB Capital Markets. Please go ahead.
Hi, good afternoon. Thanks for taking my questions. On Florida, I guess with the Amendment III not passing, just curious, how does that impact your market strategy? And how do you think the competitive environment in Florida is going to evolve now that it's not only a medical market with, I guess, no prospect of adult use near term? So do you think that's going to become more and more competitive? Do you anticipate further price compression or do you think consolidation could happen, etc.? So just broad color on your Florida outlook. Thanks.
Yeah, thank you. That's a great question and one that we've asked ourselves and others keep asking, so internally, as I mentioned before, we did very little in anticipation of the Amendment III, not because necessarily we thought it wouldn't pass, but my concern, as expressed previously multiple times, was what next? If it passes, I believe that it was an 18- to 24-month run to the start line, and an institution that would have been more permanent, we would just assume that we would catch it up as we were able to grow into it, and so we did not financially extend. The only thing we did do was we put a contract in on a future expansion facility, which is still in a due diligence period now, and then we located four stores that were what I would call more Adult Use-oriented as far as their locational criteria. We did those things. Immediately after it did not pass, we dropped those three stores away. That gives us now the five-store expansion that I mentioned, a four- to five-store expansion by Q2 into 2025. That was it. We only prepared.
We didn't financially extend. Internally to our company, we have no further adjustments to make to accommodate the failure. Now, as to the greater market, that is not necessarily the case. Multiple new entry companies, they put a lot on this gamble, and they expanded production and canopy. They contracted for new stores. We've seen a wave of store site listings available. They're out on the market now, where these store sites were available and sited but now are being sold off. We're seeing that wave now. What I anticipate to occur next is a scenario where the amount of production that has been contemplated is still going to proceed, and so therefore it's going to cause an increase of overall material available in the market.
Now, what does that do, of course, is it probably will lead to price compression. In preparation for that, we are anticipating becoming 10%-12% more efficient on our side so that we can maintain margins, and we have a plan for doing that, for actioning that, but we do expect a period that's good for the consumer, but going to be very tough for the competition in Florida as all of this canopy space, this availability gets put into the market, and I expect that for two quarters, maybe three. And then at the end of 2025, the holdout period for some of these operations that were operating at a rate that expected a much higher population of patients, it's just going to lead to some further M&A. So that's how I see the Florida market coming. It's going to be a bit of a knife fight for two quarters or maybe three, and then it'll stabilize as this excess capacity gets kind of washed through the system. I hope that answers your question.
Yes, yes, it does. And I appreciate the call, sir. I guess the second question, just on New York, we know that that's a market that faces competition from illicit stores, etc. So are you concerned about that? How do you plan to, I guess, compete against that illicit market? And then the second question on New York is just how's the supply-demand balance there at this point at the wholesale level? Thanks.
Yeah, so the first question is the illicit market. It exists. There's been some recent actual measures. There's been a lot of talk over the last year that we've watched through the regulators, but the actual measures in the city itself of cracking down not only operators, but the landlords, that has been effective. They're starting to close the illegal stores. But the reality is that it's always going to be there. Fortunately, we're pretty well-versed because we operate in Miami, and Miami and New York are going to continue to have an illicit market. And we have to see them as competition, and we have to understand what they're providing and what we can do to basically beat them as competitors. In a perfect world, law enforcement would shut them all down and eliminate that area of competition, but we don't live in that world and don't expect to. So the recent progress has helped, but ultimately, we have to just outcompete them. The other good thing about New York is this problem we're talking about is really focused in Manhattan and New York City. We have other locations. Our White Plains location is a little bit outside the city. It doesn't seem to have that kind of pressure.
Obviously, we have a Syracuse location and a Kingston location. Now you're in the middle of the state in New York. We do not see any of that pressure. And so we just have to be successful in these other areas of the state in which there's plenty of opportunity. The map is open in New York. While there's plenty of reserved retail locations that reflect, the actual map is pretty wide open. It's kind of like Florida in 2018 when we were looking at kind of an empty map, but with the A-markets having some pressure. We feel like we can, one, avoid it by avoiding the city presence a little bit, and then also just deal with it. There are ways to compete against the black market or the illicit market, and that has to do with your product profile. The illicit market does focus on certain products, and we can kind of compete through our SKUs and our offerings. That's the strategy for competing in New York. The second question was related to, sorry.
Was the supply-demand balance at the wholesale level in New York?
So that's the good news. Our pro forma puts a lot of weight on wholesale. We're capped on the number of stores we can have and then capped again on the number of stores that can be adult use, and so we have to make it on wholesale, and timing is everything in this world, and what was a languishing, very flat market overall, it really started to uptick about the time we entered into the agreement, so about June of last year, and we watch it every day, of course, and we've seen a steady, steady uptick. One of the things that's really helping that is these social equity programs, these licenses. They started at a very flat start, a lot of reasons, really well-intentioned program, just poorly executed, but now it's starting to get traction.
And we see our wholesale program as somewhat of an assistance program to these retail operations because we can provide products, but also marketing and advertising and help with how to move those products. And so we believe that wholesale is where we're going to be successful in New York, and the growing demand has now proven that out. The last part of wholesale that has been an unexpected attribute that we really didn't factor in is the bulk wholesale. We're being very successful in the bulk wholesale market right now, and that's going to be a growth sector that we previously unrecognized that now we believe is going to be strong.
Thank you. Appreciate that. Congrats on getting the transaction done. Thanks.
Thank you. Thank you so much.
Again, if you would like to ask a question, please press star and then one to join the queue. Our next question comes from Pablo Zuanic from Zuanic and Associates. Please go ahead.
Thank you. And Robert, congratulations again on the transaction. Look, just the first question regarding Florida, maybe thinking in terms of revenue per store, talk about how much progress you've made over the last year and how much room do you have to improve when you benchmark yourself with other operators. I know you talked about capacity and the new square footage coming through a new canopy, but just give us some metrics if you can in terms of how much have you improved over the last year and how much more room do you have to improve on a per-store basis. Thanks. And is that a matter of more SKUs, more brands, or just more output in total? Thanks.
Yeah, and that's a really relevant question to our strategy, and thank you, Pablo, and thank you for having me on your podcast the other day. That was really enjoyable, so this area has been a focus of ours. The reality is that we have underperformed. Our stores in per-store total sales has not been that which our competitors have been able to post, and so we've really dug in here and tried to figure out why, and it's a little bit of what you said. We were late to the concentrate game, and we were late to the variety and SKU varieties when it came to pre-rolls and some of the other, what I would call, more adult use products. The reality is that we're a first mover in Florida, and we learned medical, and we do medical very well, and that's going to help us in New York.
But the latecomers or later comers into the Florida market, they came from the other states where they were more adult use oriented. And so they came in with a little bit more adult use perspective to include their product offerings. And we grew from a medical basis, which included really mainstream medical products, which we still carry. And then we grew into the more adult use product offerings. We now offer concentrates. We now have pre-rolls in various sizes and varieties and so forth. But the concentration is the best example. We were late to the concentrate game because we had to get our BHO installed and so forth and so on. But now we're not known for concentrates. And so coming into the market, and everyone who knows Florida knows that the advertising and marketing restrictions are so extreme that you can only really advertise to your own clients, your own customers.
And of course, they're already your customers, and that's not the point of advertising. It's to get new customers. And so the limitations of marketing and advertising don't allow you to pull customers as readily as you would like. Plus, it's a fixed universe with only 980,000 customers. So it's a little bit difficult to change directions in a growth pattern, but we're doing it. The other thing that we just needed to get better at was our front line, our upselling, our sales techniques, our scripts, the way we present the merchandise. We just needed to get smarter at that. And so we think we have. We plan to increase our same-store sales by 4%-6% this year. We increased them by 2% last year, and we're about 6%-8% below our competitors on that, and so it's an area of focus for us.
Thank you. That's very helpful and regarding New York, maybe just a reminder of what's the capacity there? We follow the Headset data. We look at brand penetration in your state. I realize that a lot of the established incumbents, right, couldn't start wholesaling right away, but others just don't have the capacity, so just a reminder of your capacity in New York and where you're expanding there.
So we have 20,000 sq ft on the ground of what New York calls indoor. It's a high-functioning climate-controlled greenhouse. We are in progress in constructing the Buffalo facility, which is what we would call indoor, which is a complete indoor 50,000 sq ft facility. We anticipate that facility to be online by mid-spring. The interesting thing about New York is it has a lot of product. It has a lot of cannabis product that comes into that market because of the attributes of those hemp farmers that have converted over, but they're all growing outdoor, which is one big crop a year somewhere between October 15 and November 1st, depending on the weather. And so it pushes in, but most of that product is not eligible for whole flower. It all usually goes into a distillate and so forth. And so New York is overserved with your derivatives. That's to be your distillate-based products. And it's underserved on flower in general, and then it's really underserved in high-quality flower. So it's not about the total volume. It's about the various available streams.
High-quality flower sells, and it's going to sell in Florida and everywhere else, but it's starved in New York right now. And so we believe that's one of our market angles: we continue to bring in our growing techniques and procedures. And then as Buffalo comes online, we then will have the proper environmentals, and we can grow in that high-quality section. We intend on launching a high-quality premium brand, both wholesale and retail, but we don't have the flower yet that meets the brand standards that we believe are appropriate. And the fact is that the quality of flower in the commercial side, the legal side in New York, is about what the quality of flower was about 2018 or 2019 in Florida. It's fairly mid-quality. And we're going to improve that, and stepping into that avenue is where we're going to be successful.
Sounds good. And then a couple of more questions. Maybe a brief answer on this one, and maybe I should know, but the Etain license in New Jersey, that's not part of the deal. That's separate, or are you also buying that?
It is not part of the deal. It is not part of the deal.
Okay. And then in connection with the closing of the, I mean, Hawthorne agreed to convert their existing debt holdings into shares of Cansortium, right, FLUENT? They're going to be one of your largest shareholders. How would you describe your relationship with them? What are strategic priorities? Have they communicated to you on a go-forward basis? Do you see a pathway for an exit for Hawthorne, or are they long-term holders? I know there's a lot there, but if you can comment. I know it's a question for them, but I'm sure maybe you can share some thoughts here. Thank you.
It is a question for them, and it's one I've asked them, right? When we start to approach this deal from the very beginning, I asked that question, which is, are you getting out, or are you doubling down and staying in? And their answer is, we're staying in. We're building an empire here. We want to be a part of this industry. We want to grow with it. And New York didn't come off as red-hot as they expected, but we're going to build it. I wanted to know, and I would not have done this deal if I did not understand and have confidence that we have long-term partners in Hawthorne and their parent companies. We have a partner now that is energetic for the sector. They want to grow. They want to stay in long-term. We're not, and everyone knows us, knows us.
We're not trying to flip this company. We're trying to build something, and they're trying to build something. So we're very, very aligned. We believe together that future M&A is on the horizon for us. We think we need to continue to grow to kind of get out of the lower part of the middle, if you would, the middle of the pack. And I'd like to see growth in Pennsylvania. I'd like to see more growth in Florida. And they are perfectly aligned with that and very supportive. And so, yes, that's something that's not often talked about, but what we picked up here also is a very good partner.
Of course. And at the end of the day, I mean, Hawthorne, it's really such a Scotts Miracle-Gro, right, through the structure they set up. So that could be a source of funding in the future, I suppose. That's more a comment than a question, but yeah.
That's right. Exactly. You want a strong partner and an energetic one, and we have both now.
Thank you very much. Very helpful. Congratulations again.
Thank you, sir.