Earnings Call: Q4 2020

Mar 17, 2021

Ladies and gentlemen, thank you for standing by, and welcome to the Green Thumb Industries, Inc. Q4 2020 Earnings Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. We ask that you limit yourself to one question and one follow-up. I would now like to hand the conference over to your speaker today, Jennifer Dooley, Chief Strategy Officer. Thank you. Please go ahead, ma'am. Thanks, David. Good afternoon, and welcome to Greenstone's Q4 2020 earnings call. Today's discussion and responses to questions may include forward looking statements, which are subject to various risks and uncertainties that could cause our actual results to differ materially from These risks and uncertainties are detailed in the company's reports filed with the United States Securities and Exchange Commission And Canadian securities regulators, including our quarterly report and annual report on Form 10 ks, which we expect to be filed tomorrow. A reconciliation of non GAAP financial measures to the most directly comparable GAAP measures is included in our earnings press release Thanks, everybody. And now we're Sven. Thanks, Chad. Good afternoon, and thank you for joining our 4th quarter Year End 2020 Earnings Call. What a year. While we've ticked off 2021 With incredible optimism, I'd be remiss not to acknowledge what a test 2020 was on so many fronts. But the essential business designation of cannabis by local governments and communities across the country With a strong vote of confidence amidst great uncertainty. It said, Cannabis is for the people. Cannabis job creation is meaningful And communities benefit from cannabis tax dollars. 2020 was also a test of adaptability As Americans found new ways of living and learning and businesses across the country dream some inclusion, innovative privacy To meet customer needs in a dynamic marketplace. From the 1st day of 2020, when we kicked off Illinois adult use, Nearly every day in between, our team was there for our customers when they needed us most. In 2020, we completed almost 4,000,000 transactions. That's 4,000,000 1 on 1 consumer interactions. That's more than double 2019. We opened 11 new stores last year, plus several remodels and expansions. We acquired a 3rd store in Connecticut and have already started in 2021 with 3 new openings, making 54 stores open We are investing in new ways to strengthen our customer relationships That reinforce what consumers love about our products and retail experiences. And we continue to build our team To support our growth, hybrid throughout the pandemic with 1300 people joining the team in 2020. All the while, our commitment to our communities remains steadfast. We have several active programs and partnerships. One example is the Dogwalkers animal rescue and shelter support Funded by purchases of dog walker's brand pre rolls. We also have a program where we donate our 1st day process to community organizations With each new dispensary opening, we're thankful for the support of partners like community shelter services in Erie, Pennsylvania Florida RIGHTS Coalition and Restoration in Kendall, Florida and most recently, Piranha Children's Health Foundation with our opening this week in New Jersey. We are privileged with the opportunity to have a seat at the table as a new industry unfolds. And it is my special privilege to say 2020 was a very productive year delivered outstanding results for our shareholders and more cannabis to more people across the country. 4th quarter revenue increased 13% over Q3 to $177,000,000 and for the full year Reached $557,000,000 more than double 2019. For those of you on this call that we met along our roadshow in May 2018, we estimated back then that our 2020 revenue would be just under $400,000,000 So we are pleased with over $550,000,000 We delivered $22,000,000 of positive GAAP net income in the quarter and achieved our 2nd consecutive quarter of positive EPS, $0.11 in the 4th quarter, more than double Q3. Increased scale and operating leverage from expanding production capacity drove $66,000,000 of adjusted operating EBITDA. That's 26% above 3rd quarter. And stepping back, Q4 to Q4, we grew revenue $100,000,000 on the core business or 134%, While we prove EBITDA $52,000,000 or nearly buybacks, it's pretty amazing. It's a pretty amazing situation year over year. We continue to make disciplined, high return investment into the business. The outlook for U. S. Cannabis remains strong, and we are pleased to be riding the wave. We are still in the early innings of the great American cannabis growth story. As the consumer, Social, capital and political landscape wind up for change. The political stage is set for action The new administration is committed to advancing comprehensive cannabis reform. In the capital markets, There was over $1,000,000,000 raised across U. S. Operators in just January alone. At Greenstone, we remain focused on driving down our cost of capital. And to start the year, we completed our U. S. IPO And sale of NDC registered shares directly to U. S. Investors. This is an important milestone, And we view that one step closer to listening on a major U. S. Exchange, giving us equal footing to our Canadian peers. We completed the financing without any fees. So gross equals net and $156,000,000 goes straight To the balance sheet, this transaction is a big win for two reasons: our shareholders And the industry. For shareholders, it's dry powder for freedom to invest and capitalize on high return growth opportunities It drives shareholder value. And for the industry, we see it as a leading indicator of There are a lot of ways to both grow and slice the pie simultaneously, And we like our position as the green wave unfolds. We believe what is happening in Illinois With over $1,000,000,000 in year 1 adult use sales and nearly $200,000,000 of tax revenue, It's actually a preview of what's to come across New England, the Southeast and the Midwest. And if you think about it, Illinois is just starting. In fact, our status of the day is The state of Illinois collected more tax dollars from cannabis than alcohol this February. The line is crossed. Illinois cannabis contributes more tax dollars than Illinois alcohol. More growth in Illinois cannabis than in Illinois alcohol ahead. Momentum in markets like Connecticut, New Jersey, New York and Pennsylvania makes sense Because there are a lot of consumers who live there that want a lot of cannabis. As the details of these programs are worked out, Lessons from the Illinois adult league rollout are noted, especially regarding social equity licenses that still remain unissued, And that is not good. The industry has been a place that can enable new wealth and new opportunity for those that did not have access And Greenbob wants to help make that happen. At Greenbob, we are actively studying, planning and building our boat because, As I hope we can see by now, the tidal wave is real. We opened our 1st California store in Pasadena this month, giving us firsthand experience Inside the country's pioneering cannabis market. So we recently announced partnerships where expanding assets to California's number one cannabis beverage, Can by bringing it to Illinois this spring. This is an entirely familiar format, sparkling beverages, yet totally untapped in cannabis. We're excited to invest in the nation's leading cannabis beverage and to introduce a compelling alcohol alternative To tens of millions of Americans, the Green Dot team loves the white space opportunities to connect with consumers With safer alternatives such as an Incredible Snoozeberry instead of an Amiad, Doctor. Solomon's rescue lotion instead of icy hot, a long day of rhythm proudest couch instead of Xanax, A Vivo Pestil instead of a wine hangover and now a can instead of a White Claw. Above all, we have a solid foundation, a really fantastic team, excellent products, Very high quality flower, which really is the start of it all and a proven track record of doing what we say we will do. There is no exact blueprint for how the world, the country or the industry will evolve in a new post COVID world. But the American consumer guides us, and the Greenstone team remains as energized as ever to serve them. With that, I'll turn the call over to Anthony to take you through our financial results for the Q4 and full year. Anthony? Thanks, Ben, and good afternoon, everyone. As you just heard, we're incredibly proud of what the team accomplished in the Q4 and throughout 2020. In addition to generating record revenue and profitability, the team showed tremendous growth. None of the accomplishments in the last year would have been possible without the hard work, Dedication and personal sacrifice of every member of the Green Pump family. And while the successes in 2020 were significant, We remain steadfast and focused as ever on the future. But we'll get to that later. For now, we're testing both with our numbers, Starting with revenue. In 2019, the company generated $216,000,000 of revenue in 2020, $557,000,000 2.5x growth in the middle of the pandemic certainly made for an interesting year. In Q4 alone, the company generated $177,000,000 of revenue, a 13% increase over Q3 and $100,000,000 greater than our Q4 2019 revenue. Given our limited M and A activity in 2020, nearly all of this growth was driven the old fashioned way. We made more and we sold more. For the quarter, gross CPG revenue grew by $23,000,000 or 31% over Q3. On a net basis, accounting for intercompany revenue, our quarterly growth approximated $11,000,000 or 25%. Over retail, revenue increased $9,000,000 or 8%, primarily driven by same store sales growth. On a gross basis, our revenue split for the quarter was 55% retail, 45% CPG. On a net basis, 68 percent retail, 32 percent CPG. It's exciting to see the impact of our CapEx dollars at work As our CPG to retail revenue ratio continues to tilt towards CPG. As a reminder, the difference between gross and net intercompany revenue, which Number 1, more legal consumption. Demand is big and growing. 2, quality products. Our goal from day 1 has been to produce and sell great cannabis products, products that we ourselves would want to purchase. Last, execution. We cultivate, we manufacture, we retail. The fundamentals of this business are similar to any other. We push our team to consistently choose simple over complex. Turning to profitability. The company continues to perform, posting gross margin for the quarter and year in the mid-50s. In fact, Q4 was a record just under 57%. As I've said before, our intrinsic goal is to keep this very important metric Ads score above 50%. On the SG and A side, expense for the quarter approximated $53,000,000 or 30% of revenue. Excluding D and A and stock based time, normalized operating costs totaled $38,000,000 compared with $34,000,000 last quarter. While operating leverage didn't quite have the verticality as it did in previous quarters, we have made a conscious effort to Even the company's bench in the face of regulatory change. Total other income for the quarter approximated 3,400,000 Largely driven by the mark to market of our investment portfolio. Accounting for everything above, in Q4, the company generated over $65,000,000 Adjusted operating EBITDA close to 37 percent of revenue. We also produced just shy of $51,000,000 in pretax income $22,000,000 in net income. This provided Greenfield with the 2nd consecutive quarter of positive EPS and $0.11 a share, A nice increase of the $0.04 we reported in Q3. For its fiscal year 2020, The company generated approximately $108,000,000 of adjusted operating EBITDA, 6 times more than $28,000,000 generated in 2019. In summary, from 2019 to 2020, the company grew its revenue by 2.5x And it's EBITDA by 6x. Pretty, pretty good. Turning to our balance sheet. We ended the year with just under $84,000,000 in cash and continue to keep a tight leash on the company's working capital, notwithstanding its tremendous growth. Subsequent to quarter end, we raised $156,000,000 in additional equity capital. What's notable about the range was first, it was self conducted, meaning it's not using intermediary It's been succinctly said, credit equals NAV. 2nd, the equity we sold is registered with the SEC. In early February, the SCCD and RS1 effective, a major accomplishment for the industry. On our public float, over 80% of our shares are freely traded. We continue to believe that liquidity brings confidence. Net net, we are extremely proud of our Q4 2020 financial results. During our last call, I indicated that 2021 will be a year where many things would change, yet many would stay the same. Simple principles such as leading with the consumer, Focus drives excellence, market optimization, proven capital allocation, investing in the team And claim to win will remain our North Star. The only difference is we now have a well stocked war chest. And with that war chest, we not only plan to build a bigger boat, but in our model. In closing, I'll leave you with a quote from the Oracle of Omaha. Every decade or so, dark clouds will fill the economic skies And we will briefly grant gold. Downpours of that sort of curve, it's imperative that we rush outdoors carrying wash tubs, not teaspoons, and And that is what we will do. And in this 100 year storm we call Prohibition 2.0, we are going to bring other people along with us to take advantage The greatest economic and cultural opportunity a generation has ever seen. Back to you, man. Thanks, Anthony. Any dynamic comments from the CFO are appreciated. This is our 3rd year end call since we went public in 2018. And when I look back at what our team has accomplished in this short period of time, I'm both humbled and grateful. We have built a very strong foundation to continue our growth trajectory, But that's only part of the Green Dot story. Each day is a new day at Green Dot. How might we expand access to well-being, Serve our customers and communities better. How might we provide more opportunities for our team And manage capital more efficiently. I'm especially proud that our team continues to dedicate time to support our communities And one another during COVID and beyond. Given these international women's months, I want to give a special shout out I will pivot on the Greenfeld team on today, the greenest day of the year. And for me personally, I feel welcome to be part of this team in this industry. We still have a lot to learn, and I expect and hope we'll continue To have a lot of fun learning. From a consumer perspective, the cannabis industry product and access We'll only improve. That means 2021 is a new beginning for all of us. We wake up every day here energized by that idea. It's still day 1. Operator, we'll now open the line to take questions. Your first question comes from the line of Matt McGinley with Needham. Your line is open. Thank you. My first question is on the CPG business. The sequential increase in revenue in this quarter was impressive given that most of your production assets would have been operational for Note to the Q3, I think your big cultivation project this year don't really become operational until later in the year. So the question is, would the Increases in production efficiency be enough to sustain your CPG revenue growth in the first half? Or does that become more muted until later in the year? Matt, this is Anthony. I'll take that one. So the team did an excellent job of bringing forward some of the future CPG revenue that we have projected, the construction projects ended early. We got the plans planted early and then subsequently we're able to get that revenue P and L, certainly, we initially anticipated. Obviously, we'll continue to focus on efficiencies, but that was one of the drivers of the growth that we saw quarter over quarter. And on the CapEx, I didn't hear anything with regard to the CapEx I think you spent around $100,000,000 in 2019. I'm not sure what the very end of the year was for this year, but it was around probably $110,000,000 $120,000,000 How does that look for next year and with regard to this year? And would you expect a new sale leasebacks? Or would that Excellent question. Hey, Matt, it's Ben. I think you're right to focus on that because I think the spend is the leading indicator of what's to come as we try to So we continue to preview over the last 18 months or so as we turned on some things in 2020. You're exactly right. $110,000,000 to $120,000,000 on the CapEx. We'll see that tomorrow with the 500 ks. And I would say really in 2021, we're We're going to go bigger in 2020. It's a little hard to handicap exactly what's going to happen and where we'll continue to try to be as transparent as possible. Source of funds, to your question, it's a very interesting time to be thinking about cost of capital And the sale leaseback market and the expense of money and what that's looking like, it's a changing curve, it's not bad. And An asset for a long period of time in a fixed rate much higher, which you no longer own is not as attractive when Traditional mortgage is available or debt rates, as we've talked about, are going down. So everything we look at is a lens of shareholder value, and we wouldn't spend more than we need to, to have the money we need to execute the plan. We're obsessed with driving down cost of capital, and we're pumped about 2021. Your next question comes from the line of Camille Lyon with BTIG, your line is open. Thanks and good afternoon everyone. Great job on the quarter. 2020 was a fantastic year for your gross margin expansion. That really continued Obviously, during the Q4, can you give us some insights into the key drivers of that margin expansion in the 4th quarter? And how would you think about those influencers into 2021, particularly on the pricing side and your expectations for that input? Hey Camille, Anthony here. So look, yes, obviously, incredibly year on the gross margin front. We saw a nice gross margin expansion. I think the biggest driver was operating leverage, particularly on the wholesale side of the business. The retail gross margin is relatively static Depending on the market, depending on the time. But what you really saw throughout the year was we grew into the facility that we built out. And if the teams effectively operate and monitor, we become more efficient. And it's one of the things that we focus Because it's on daily, it's just continuous improvement. It's hard to have a crystal ball to see where that kind of goes in the future. Do I expect the margins to stay where they are? It's really tough to say, and that's why internally, we're really focused Keeping that number at or above 50%. If we can do that in the long term, we should win. So that's really what we're focused on. And as we look ahead, That's really kind of the benchmark that we tie ourselves to. Got it. And then my second question is on the cultivation side. Really from understanding where you're at in New York and the build out of the new facility That I think you built ground on in Warwick, New York. And also, just an update on The progress of the New Jersey Pennsylvania, I believe that you just started carrying some of your own living products So any update on those two assets and their ability to start to supply Your service would be fantastic. Hey, Chris, the Pazen here. Thanks for the question. It's a good question. I think Europe is very, very early And a lot of action to come there. It's a day to day lean cycle there and at the highest of high levels. You've got a lot of people that live there in a very immature early medical market, astronomically So we're thinking long term. We're not thinking next quarter or even next year. We're building a business of 23, 24, 25 for U. S. Cannabis, We're excited about where that is. New Jersey, you're exactly right. We've had AmChine on the shelf. It's a medical only market right now as the rules come out and get formed. We're excited to be able to launch Rhythm, which is a higher quality premium It's great for the patients. And as we have more of it, we'll get it all around the state and really hopefully satisfy those that are interested in premium Cannabis flower, because that's what we're about, and I think we do a pretty good job. But we're going to let the consumer tell us. And in terms of just the scale there, it's never enough and it really is going to be tight on supply for a while. We have some. We We'll have a little more and we'll have a little more. It's a dense market up there in Northern New Jersey for us, but we found the way to invest capital into a facility that can produce the kind of flower we need And other products, as we've talked about, particularly under res, even though the rules aren't fully out, I don't want to jump the gun, we think there will be Expanded access to different form factors of product, and we're excited to be in that market. Your next question comes from the line of Vivien Azer with Cowen. Your line is open. Hi. Thanks very much for the question. So my first is on can. Recognizing that the beverage category broadly is still nascent In the U. S, I was hoping that you could kind of articulate the rollout plan you called out Illinois and beyond when you announced The agreement, should we expect to see beverages in Illinois and other states in 2021? And as well, can you Potentially articulate like how we should think about the P and L impact. Thanks. Sure. So your last question, I don't think it's going to be a major P and L impact. I think it's going to be a major consumer impact. This is a new one factor in the market that is 100% 99% plus off prem, the Atlas based off premises. Slowly, the world, the U. S. Are really involved. And beyond, I mean, these coast markets that are Bellevue is where we can target this Products are to New Jersey. We don't have the rules yet, so it's I don't want to overpromise and other markets out there. We're excited about bringing the products to Chicago to the Midwest to a lot of curious cannabis consumers who seem to be consumers We're unsure exactly. The concept is simply said, sharing a gummy with a friend is not as familiar as sharing a blossom sparkling beverage So we're crushing in the sun, if you want a few of them, and then you're not overconsuming. The key factor here on this form factor and Dosage is a non over consumed setup. But we're going to go slow. We practice a crawl, walk, run. And The supply chain is new. The size of the market is new. But we'll be watching and studying. We want to come with the best brand and a product Differentiating the attitude momentum because everybody's attractive team to love it. Yes. That sounds great. It's Very attractive product indeed. My follow-up question is on your same store sales growth, which looks to have decelerated sequentially. It was very high in In the Q3, it shows some deceleration is not necessarily unexpected. But if you could expand on that, please, I'd appreciate it. Thanks. Yes. TJ, decelerated? Yes. I believe your same store sales growth was 18% last quarter on a 42 store base, and this quarter, it was fixed on 48. Yes. I'm like 65, 160, yes, I wouldn't read much into that. It's a bigger base, more is coming out of the base. Certainly, like as you anticipate, and if you're modeling, you have Q1 Illinois lapping Illinois. You do not have to step up what you did on a big base Like last year, just anticipating how this works, but the boxes are good. There's a lot of demand for the products. And again, the best leading indicator is state data, but it's pretty transparent on a state by state basis. And it's pretty unique to see the penetration level Into the markets where we can invest capital feels pretty good. Your next question comes from the line of Eric De Lorie with Craig Hallum Capital. Your line is open. Great. Thanks for taking my questions and congrats on yet another very impressive quarter. So given this The siloed nature of state markets and the active M and A environment in the space, integration is A vital yet often overlooked aspect of the industry. I know integration is something that you guys have always been focused on with your 1 GTI strategy. And recently, we've been seeing and hearing reviews of improving flower quality from Rhythm. And obviously, investors are seeing Continual improvement in your financial results. So can you talk a bit more about your 1 GTI strategy? How do you seek to drive Continue improvement at GTI, whether it's financials or product quality and sort of how you expect that to maintain your Your position going forward here. Thanks, Derek. Yes, Ben. I appreciate the kind words and Just seeing or the momentum on the Rhythm Flowers and the B and B growth, same British side and the whole team. That's what this is all about. It's 2 things you said, the team and what the team can deliver for the consumer, which is the product, and that product delivers the experience. And we can deliver that experience everywhere. We have consistency and elevated. We win. We believe in the product. We think that it can offer well meaning to consumers across America, and we're sticking to the playbook. And they said, let a doubt, too simple. And so we're learning, we're focusing, we're refining. We do not have it right. We do not know the perfect mix. But we're in a unique position. And we get some of the product right, Good things tend to happen because it's all about the consumer and that experience. So hopefully that answers your question. Yes, yes. No, that's definitely helpful. Thanks for that. And then just as a follow-up, so from an investor point of view, we've certainly seen the impact of Depth over breadth within markets, and you guys have clearly demonstrated some leading capital allocation skill. Can you talk about any insights that you guys have gained over the past months or years? How your capital allocation strategy Has potentially evolved? And then with these 2 large raises year to date and now reports of Safe Banking being reintroduced tomorrow, How might that capital allocation strategy change with increased access to capital markets? Yes. I mean, the short answer is no change, same game. I mean, we're investing on behalf of shareholders to create great returns. We think brands distributed scale is how to win with great brands that resonate with consumers. And we can build those brands across the market. So we sit at the same table, we have the same conversation, And there could be an extra 0. It could be a different state. But we have a team that can handle it now. Not that we're perfect, but it's a different kind of game. You sit and you outgating capital and driving returns that you can believe in the spend. We've been after 6, 7 years, and we made money mistakes and we try to make the same mistake twice and then we do make it less expensive. But that's what we're up to and it continues to be. That's $1.38, dollars 2 It's a growth business at cheap price, so it's like a $0.50 $2 and we're pumped about the game, but we're not going to like So here we are with a lot of cash that came in at the right price and the industry is dynamic and there are tens of millions of consumers across the country They're curious. They're interested. And we just want to be part of the experience of opening this up for folks as they have alternatives. Your next question comes from the line of Pablo Zwaneck with Cantor Fitzgerald, your line is open. Thank you. Ben, it's a little bit maybe a philosophical question, but there's more and more MSOs providing guidance, Some of them with a lot of detail. Is that something you're thinking of doing? Or you don't see value for you guys to do that? Thanks, Pablo. We've been out and around and hearing the trends, watching people talk about pro formas and the deals Right. Has guidance been helpful for you and the investment community? It's very hard to handicap when these things open and how they go. We're trying to be as transparent as possible about the business, where there's growth and really what's happening. And so the best leading indicator The business is the best guidance and spend. As transparent as possible about that because that's going to drive the business Market is high level where there's more demand and supply. If that involves what that CapEx is doing to fortify the mode, drive down the marginal cost of production and continue to beat the business. So I'm not sure which kind of guidance to give you based on which markets. And I couldn't tell you what month New Jersey turns on, how that works or what's going to happen when Illinois is going to get out of its own way to ship 75 new licenses. I wish I did. That will be fine, but we have to play with the facts we have and share That's fair. And then just a second one. Other companies are talking about making contingency plans or having contingency plans For the onset of interstate trade in the future, I know again that's very hard to predict if that will ever happen and when it will happen. How does that color your plans for expanding capacity in New York, New Jersey or Pennsylvania? Or it does not at all, and you just go after the opportunity in those states pretty much state by state. Thanks. Thanks. It's certainly a factor at the table. We're focused on allocating capital to build the brands, and we study the math a lot. And we're watching what's happening. We do not think interstate is coming tomorrow. I would be surprised that the business would be in great shape if it did. I think many minutes with this question comes up all the time. What else would be happening in the game if that were to occur? And you know that's an interesting thought exercise on a whiteboard for folks. The time simply just interstate. So We are about building brands with consumers and anticipating what we don't know, even though we don't know what we don't know. And if everything we know is what we know, we love what's going on. And therefore, we'll continue to wait. As Anthony says, the team all the time expect the unexpected. So therefore, is that like the way to play or not? And I think this week alone, look what's happening with New York, what was potentially happening Congress and D. C, there is action. And like we said in the remarks, we're prepared for it. We think change is happening, And we're still well. Got it. Thank you. Sure. Thanks, Pavel. Your next question comes from the line of Howard Kenny with Hedgeye. Your line is open. Hey, thanks very much for the question. I'm not sure how to ask this question, but Take a state where you're building cultivation, how many years does it take to get your return, your dollar return on that Investment and asset in the context of interstate commerce that's 5 years down the road where we have gotten payback on those assets you're putting it down. Thanks. Yes. Fast enough that we're not worried to be spending the money we're spending to be sure that whatever happens, we're going to be good. Just a core answer because that's my thought a lot. Zooming out, between permitting and getting set up, and we've talked about at the highest level, 6 months To build in 6 months to grow, it could be 6, 8, 10 months depending on which jurisdiction or sooner. Plans can't be sped up or slowed down. They are what they are as we unroll that. And then you can make some assumptions on prices based on the market to figure out the returns And the yields. But it's an attractive enough investment where we're not worried about what will happen if we can simply, as I said many times, execute. I think we continue to execute well. There's only room for improvement. But if we execute with the dollars, the returns are great, but fantastic. But raising the cash at 1x, right, the dollar is the dollar and investing it for the EBITDA that that dollar creates and trading in a multiple of you making up, Creates a lot of shareholder value, which is exactly what we're up to, which is why to ask a question like the CapEx And then it's why because of the demand curve, and it's around and around we go, and the consumer loves the product. So that's the whole deal here. And then if I could just ask you another one. How important is a capital markets component to the SAFE? In fact, I Appreciate the access to the financial system and all that SAIC brings it, but there's another element that I think is also important. So just curious how important that is. I think you said, and I was on shareholder, that how important the capital markets to the State Banking Act? A capital markets aspect to it, yes. But besides just I mean, there's upside. The way we run the business is sort of an optionality machine, Right. And so we're fine with the way it is now. We think it's better. It will be better. If the cost of capital goes from where it was in the rearview mirror, which was Double digit rate with warrants or these sale these types of double digit rates to where it's going to be very soon, which is single digit, where the credit is probably investment grade. Again, we have to pay more, but it's still single digit, and then it's going to go even lower. But The people that have access to lower cost of capital can't put it inside of our moat. So we're very comfortable with the current setup. We love that we It will be the industry with lowest cost of capital that's really the way to win over several cycles in several different industries. If it changes and this passes and the things in the nuance and you know Probably better than I do how the sausage is made in the details, which we do not have a lot of edge in. But when we do have edge in, it's optimizing with the facts So if capital markets open up and say we're in a leading position to list on the U. S. Exchange, the SEC registered and they sold stock to U. S. It's GAAP. We're here. We are ready. But it's not my call. It's not Anthony's call. So we're playing the system. We're just putting ourselves in a position, like I said, optionality maximization machine, and that's what we're doing. Appreciate your time. Thank you. Thanks, Howard. Your next question comes from the line of Michael Lavery with Piper Sandler. Your line is open. Good afternoon. Thank you. Can you give us an update on your strategy in California? You've Obviously, just opened a store there. Just maybe some of what your enthusiasm is in terms of seeing that market improve or what its outlook is And just what will help us understand what to expect looking ahead? Sure. If I had summarized the California strategy in one word, I would say learning. We're there to get smarter. I said before, Mainly, California is the best way to lose money in cannabis. And I said that affectionately to all the people that have lost money there, but it's a tough setup. So I don't want to swim upstream, which is the hardest poker table or anything like that. I like when the odds are in our favor. But there's a lot to learn and there's a lot of respect for what's happened out there and who the players are and what goes on. It would be foolish of us to ignore. But I don't mean to allocate a lot of money if we don't think it can turn into more. But I think product, You said pioneering in the prepared remarks, innovation, chatbots kind of everywhere, branding, consumer trends, whether it's cannabis or otherwise, Really important, we'd like what we're doing there in order to position ourselves. Like I mentioned, the last question was optionality. It's really the whole strategy everywhere is optionality. So we think we're in a pretty good position there to watch, Learn, get better and at the right time, take advantage for shareholders, if it makes sense. Okay. That's helpful. And just on the consumer, can you get a sense of how much you're seeing Learning behind the brand equity, which brands maybe stand out more than others or anything that helps you in Markets that are new or you've got wholesale in California, but just maybe pushing that further or How to think about the traction behind the brands and how sticky it can be? Yes. We've brought 2 brands in the country. I mean, Same exact thing, saying it was an honest, consistent product. I mean, before you get into marketing campaign and the colors and everything, There's a few people able to do it. I think there's a national launch here recently. Availability, Simply having consistent product that's favorable, it's a monstrous feat. That's how you can build a brand. That isn't good. But if one day, like somebody said, the wilder was surprised orange, it's not even going to work so well. So we just need to be We think we're on to something to connect to the consumer, who is the user of the product and the use case, form factor, happy, healthy, comfortable in the deck. That's the game. It's like not more complicated than that. And the consumers are everybody here around. I'm around multigenerational, Suburban, rural, urban and from all walks of life who are curious about an alternative for this. So that's what we do. And we can then get pretty instant feedback on what Brands are working on what might not resonate. But we can tell right away and then somebody else consumers are loving Rhythm Brassica, like winter. They are following incredible winter, and we can tell that. We know that that's happening. We know people don't sleep very well. We know Snusbury gets a better night sleep. We don't have FDA studies. Things are beginning to unfold broadly, but we're offering well-being in an alternative and a consistent brand. That's kind of like what America has been about for a long time, land of the brand for 120 years or so. So we're happy to play right into that Great color. Thanks so much. Sure. Your next question comes from the line of Aaron Grey with Alliance Global Partners. Your line is open. Hi, good evening, Anna. Thanks for the questions and congrats on the quarter. So just quickly, I know you guys aren't giving guidance, but just to kind of give us a better sense in terms of maybe some store openings you guys might have planned Over the next couple of quarters, I know you still have some stores you could open up. In states like Pennsylvania, California, you 2 more, forward you could open up some more as well as the other noise. So just if you can give us any sense in terms of plant store openings you might have, I think it would be helpful. Thanks. Sure. I can answer that. Thanks, Aaron. Yes, sure. We can give you a long call there. So 54 opened today, 3 that have opened this year, 7 back, 19, we said 15 to 20, we did 20. In 2020, we opened 11 with some remodels. The remodels can really drive business. Obviously, if you go same site for medical and adult use, it's effectively a new store, but it's a remodel we don't add it to And I mentioned the acquisition in Connecticut. So 2021, 3 open so far this year, the Pasadena and Paramus And one in Pennsylvania. And there are more in the pipeline actually. I don't mind giving guidance, but things align here. You can get 1, maybe 2 more over this quarter or April. We got cookies in the pipeline, 2nd quarter situation in Vegas. And most people are going to come back to Vegas if you believe the flight numbers now and Vaccine penetration and tourism and things like that, so we're pumped about that. And there's more to go. You mentioned a few in the states. There's a third store in New Jersey. There's no store in Illinois, Pennsylvania, Nevada. So it's like where we're not maxed, we're going and where we have access to product, we're open to the store to serve the consumer. Great. Thanks. Appreciate that color. And then second one for me. I know you guys talked about some investments you made in the management bench. So you had a little bit less SG and A leverage this than you had in some prior. So just want to get a better sense of where you feel you are today in terms of additional investments seen on the SG and A side and how To expect maybe incremental SG and A as you go forward, because obviously you guys have pretty frothy EBITDA margins, you mentioned some of your expectations on the gross margin side. So I would love to get your In terms of where you feel like you stand on the SG and A side? Thanks. Hey, Erinn. This is Anthony. Good question. So You're exactly right, but we're going to continue to invest in the team and it's across the board at all levels, right? And so we one One of the things that we're doing now is we are better capitalized and we have a solid business that's producing nice cash flow We now have the luxury to look ahead, 12 months to 24 months and really see what's coming and prepare for it And learn from the mistakes where, candidly, we may not have been as well staffed as we could have been that would have allowed us to take greater advantage of an opportunity within the market. In terms of where margins will go in terms of the SG and A line, again, it's really hard to say. But I would expect That the gross SG and A number will continue to grow. And then how fast it grows, we'll sit back and we'll throttle it up or down depending on How quickly we anticipate kind of future revenue to even pan out. That's one of the things that we do on a regular basis is just to make sure that we're constantly level setting And stepping on the gas or hitting the brakes on an additive basis. All right, great. Thanks. Your next question comes from the line of Andrew Parfonau with GMP. Your line is open. Thanks for taking my questions and congrats on another great quarter. Thank you, Andrew. Maybe just talking about the production expansions that you guys said you pulled forward in Q4. And obviously, you guys are not going to give guidance, but could you talk a little bit about what states those were in? And for 2021, Now what would your priorities be both near term and both and maybe in the second half of the year in terms of Production expansions on a state basis. Sure. Thanks, Andrew. It's Ben. I can start. I would say if you look at the map, Chung Duling, and you look east of the Mississippi, you got a lot of people in a lot of markets that are underpenetrated, Where our licenses are with 1st mover and access to consumers, where it's medical, if it's potentially going to adult use, but it's already adult use, and that's what we put in dollars. So to give you these big names, I mean, it's not that hard to see where we are, but Illinois, Ohio, Pennsylvania, New Jersey, Maryland, Connecticut, New York, Massachusetts. Every single state in Mississippi where we're operating in currently, and we're very focused on what else is happening around the country. We're not too head down to miss something. And then maybe just switching gears. I think stimulus checks are going to be in people's pockets soon. Last year, we saw that, that could have Triggered increased spending on cannabis, how should we think about it this time around? There's potentially more supply in the market now that things have progressed since last year. But at the same time, There is a little bit of a reopening or reducing of restrictions. So how should we think about the how consumers might be spending their stimulus checks in the near term? Yes, Matt. Literally, it's as simple as they're going to buy more wheat. It's nice that the markets have more supply because This is all well. All right. Well, that seems pretty straightforward. Thanks for that. No problem. Your next question comes from the line of Graeme Kreindler with 8 Capital. Your line is open. Hi, good afternoon and thank you for taking my question. Just a follow-up on that previous question there, the dynamics between Stimulus checks, some states reopening, some others easing the restrictions. I'm just wondering, layering that on with some commentary from peers about we're seeing some seasonality or potential for some seasonality within the industry, some patterns there. I'm wondering what that looks like, How all those forces are acting against one another with respect to what it's looked like for you guys in Q1 to date? Thank you very much. Yes. I mean, 2020 was a strong year. The Q1, most likely, sort of talked about we're going to pull forward to consumer trends. That's hard for me to really say. January had a lot of snow. Nobody can misdise you. You guys just look at what happened in the country, but I can't really comment on any sort of trend. We think demand is strong, getting stronger. Basically, what I strongly urge you to do or anybody really Just look at the state revenue by state and then the population and understand what's going on there. And we're bullish. Your next question comes from the line of Scott Fortune with Roth Capital Partners. Your line is open. Thanks for the questions. I want to go back to your whiteboard there And or thoughts on 3rd party brand strategy, you seem to be adding leaders in the brand space with cookies Enrique can. Can you provide a little more color on your partnerships or kind of the strategy there and big picture long term I think we'll be around and learning all the time from who's had success and what's going on. So it's a mixture of building our own, learning the ones out there, expanding the portfolio, new form factors, It's a build buy decision every day and that sort of thing. At the core, these consumers are going to resonate With a product that is branded, like it's the most simple sort of thing to say, but it really is an important idea that drives us. It's been part of the business thesis since 2014. Got it. And then just a little quick color on Florida. To expand there, you're seeing more supply competition coming aboard. I know you're not allocating much down there. Do you see it as an important state, Even though you haven't allocated much there, how do you look at flow now? Yes. Providing most of people is very important. We like the market a lot. Your next question comes from the line of Andrew Semple with Echelon Capital Markets. Your line is open. Good afternoon, everyone, and congrats on yet another solid quarter. Thanks, Dan. Given the bigger war chest, as you guys put it, I'd like to get your updated commentary on MMA. Has there been any change to the criteria you will employ going forward Or any states that are now standing out that maybe haven't in the past? And are you seeing any movements, meaningful movement on private market valuations given what we've seen in the public markets over the past couple of months. Sure. I'll take it, Ben. I think I've already said this. Everything is on the table that makes sense, and we are Studying everything going on, especially in the U. S, bar for the capital remains very high. But there's a lot of dynamic pricing in Capital and different things. How does this fit into the overall thesis? Does it help us distribute brands at scale? Who are the people? And somebody else mentioned integration, Very underestimated skill and invest in this industry. We're proud of where we are with 1 UTI right now. Well, So we're here. We're watching the exact same one that I keep mentioning, which is For shareholders, this is a drive to thesis, is it crazy exciting for us and on several other proprietary matrices Great. Thanks for that. And if I could maybe just go back to the partnership agreement with Can. I just want to clarify, is cannabis beverages completely incremental to your existing product portfolio? And are you seeing anything on the ground that would suggest that consumers are going to respond favorably to this new format Please introduce. Yes. I mean, 2 yeses. Totally incremental. I mean, it's really a new consumer entry, One factor, comfort, dosage. This is the glass supply of the NSAID replacement. This is the white glove replacement. This is the weekend out and about, say, the medical product and when the medical product business is different, right? We're talking about a different consumer, different use base And that sort of thing. And I don't think we would be behind it as much as we are unless we thought that there was adoption and that there was interest and something was going to happen here. Great. Thanks again. Thanks, Andrew. Your next question comes from the line of Glenn Matson with Ladenburg So most of my questions have been asked at this point. Taking a little bit from the bottom of the well, but maybe I would love an update just the new store you opened in California Being an Essence store, can you guys remind us kind of like what the strategy is for having multiple brands on the retail front? I can understand them on the CPG side, but Kind of the high level differences between the two stores and whether or not you consolidate those at some point? Yes. I mean, kind of the best consumer experience in essence in Vegas. This was a license that had an vacation in California incredibly tricky. Our Saskatchewan was one of the more tricky stores to open that we've been a part of with 54. But it's the same promise. We win the service and selection. We treat people extremely well. We make mistakes, and we move on. So we expect to win there and see what happens. Like I said, it's a learning thing and I couldn't tell you exactly what the path is going to be, We're excited. It's right on Palo Alto, and it's a good location in a market that doesn't have a lot of licenses being Pasadena, in a market where the consumer knows the product, to see what's on us, and Great. And the if I remember correctly, I think you had a license for consumption lounge as well. Is that any plans to Move ahead with that. Anything on that front? You're correct and still evaluating diligence, location. There's lots of challenges. Like I said, Pasadena was one of the trickier ones out there. I think in terms of on prem, which is consumption allowance across the country, I think probably in a year from now, when you sit here in 2022, there will be more sites across more states. First one is opening in Illinois, Not always, but I saw a headline earlier. I think that will continue to evolve, right? This is beyond known. This is the Great American Experiment. This is what we do. We invest and innovate, I think on prem consumption will exist. Great. Thanks, Ben. Sure. Thanks. Your next question comes from the line of Matt Bottomley with Canaccord Genuity. Your line is open. Good evening, everyone. Congrats on the quarter. Just wanted to pivot back to the security. One of the sort of inbound questions I get a lot from investors is sort of how to handicap We'll line up the rather limited licenses that are there already, so there's about 12 operators there. And given the retail infrastructure versus The population is still quite modest, even from a medical alone standpoint. Can you give us any color on what you think the strategic Considerations are to get off the ground running there? Is it having enough capacity built up in advance? Is it the actual locations of the Just trying to get some more color on that market, whichever we expect at some point in the next 6 to 9 months here to open up. Sure, Matt. It's Anthony. I'll take that one. Look, I think it's all we love, right? We've got a very dead state, surrounded by a lot of other markets. Certainly, you need the product to open the store. But at the same time, given that the medical program Really didn't get off the ground with any real substance and it took a lot of time. Now cannabis is still a nascent story when you're sitting down with some of these local And so there's a lot of education that has to take place within the town to make sure they understand kind of What we do and how we do it. And so in that regard, that's why I think you probably see even, I don't want to say slowness, but it's taking time for people to Kind of operationalize their businesses. And so for us, just to say, we're very focused on, we can look, we see the density, we see the opportunity. And while having lived to get things off the ground, we think long term, it's going to be a fabulous market. And just a follow-up, and I guess on a market basis. One of the markets you guys aren't in that it wouldn't be material to your overall operations in isolation, but one that has a very favorable Isolation, but one that has a very favorable infrastructure is Arizona. So is that something you guys have considered? I know The multiple for some of these assets have gone have been quite lofty, but again, a market that just sort of opened up for rec. So is that something you guys Have actively been pursuing or have market you're interested in entering at any time soon? Hey, Matt, it's Ben. We've looked at it. We studied it. We know the operators. We give respect out there. Yes. Just to show you the card, I think there are better places for us to put our capital. But if there's something super cheap and super great and They need our brands and our products to break return on invested capital. You have our phone number. That's really the attitude around here, but we think there are for our business, we are what we're targeting, not at the top of the list. Okay. Thanks, all. Thanks, Matt. Thanks, everybody, for joining. We'll be back with the 1st quarter Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.