Earnings Call: Q1 2021

May 12, 2021

Earnings release

Good day, and thank you for standing by. Welcome to the Greenstone Industries First Quarter 2021 Earnings Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer Please be advised that today's conference is being recorded. I would now like to hand the conference over to Ms. Jennifer Dooley, Chief Strategy Officer, please go ahead. Thank you, Lee. Good afternoon, and welcome to Green Thumb's Q1 2021 earnings Call. I'm here today with Founder and Chief Executive Officer, Ben Kovler and Chief Financial Officer, Anthony Georgiadis. 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 statements. These risks and uncertainties are detailed in the company's Company's report was filed with the United States Securities and Exchange Commission and Canadian Securities Regulators, including our quarterly report on Form 10 Q, which we expect will be filed tomorrow. This report, along with today's earnings press release, can be found under the Investors section of our website. GreenChem assumes no obligation to update or revise any forward looking statements to reflect events or circumstances that may arise after the date of this call. Throughout the discussion, Greensam will refer to non GAAP financial measures, including EBITDA and adjusted operating EBITDA. A reconciliation of non GAAP financial measures The most directly comparable GAAP measures is included in our earnings press release and SEC and SEDAR filings. Please note all financial information is provided in U. S. Dollars unless otherwise indicated. Thanks, everyone. And now here's Ben. Thanks, Jennifer. Good afternoon, everyone, and thank you for joining our Q1 2021 earnings call. Since we were together less than 2 months ago, I will keep my remarks Relatively brief and relevant to what we see ahead in 2021. Strong momentum in our business continued into the Q1 of this Following a solid Q4 in 2020, our Q1 revenue grew almost 10% quarter over quarter to more than $194,000,000 or a 90% increase year over year. We posted our 3rd consecutive quarter of positive GAAP net income of $10,000,000 adjusted operating EBITDA of $71,000,000 and free cash flow from operations of $40,000,000 We are pleased with the quarter, but we know we are building something for the long term. Today's cash balance is over $300,000,000 As a result of our successful debt raise, which follows the Q1's equity raise, this puts our balance sheet in excellent position to play offense. We're off to a very strong start in 2021 and we are even more excited about the opportunity ahead for the balance of the year. We have said it many times, but it is worth repeating. We believe cannabis is the peak next great American growth story. Many of the classic American themes over the last 250 years exist in the story of cannabis in America In the mid century, we believe things are changing in America and Green Son is well situated to take advantage of that change for our stakeholders. Rest assured, as large owners of the business ourselves, we are aligned with shareholders. As we look at the map of the U. S, we see a lot of opportunity. Top of everyone's mind is the position in New York And how we will leverage the adult use opportunity. In a full circle moment for the industry, Green Dot is turning a former federal prison Once incarcerated people for cannabis into our New York cannabis facility, we see this as a self contained economic stimulus package Fueled by the demand for cannabis. When completed, it will create hundreds of jobs, generate a lot of tax revenue, Enable well-being and continue to remove people's assumptions on cannabis. In New Jersey, we are expanding production capacity. We have 2 open stores in Paramus and Paterson and a third store opening in the coming months. This is in addition to the potential along the East Coast in places like Pennsylvania, Connecticut, Rhode Island, Maryland and Massachusetts to name a few. Tourism is coming back to Nevada as Americans crave experience and connection. Our Cookies on the Strip grand opening this Friday is well positioned and nicely timed. At the end of this week, we'll be on the Las Vegas Strip with Werner and the cookies We celebrate and we anticipate a lot of excitement with this flagship opening. Looking again at the map, While it became common sense in 2020 to say cannabis is essential, there is still a large part of the country that does not have access, The business is changing. In April, Virginia became the 16th state of asset health use. And just over a week ago, Great Film announced the acquisition of Darmah Pharmaceuticals. Darmah operates a cultivation facility, 1 dispensary and was a first mover in the Virginia market. Following the close, this license gives us the ability to open 5 additional stores. We are bullish on cannabis demand in the Southeast. Our track record in Illinois serves as a roadmap for how to capture the opportunity ahead. Our business strategy has not changed. We enter highly desirable markets with large potential and then open the scale through methodical execution That means we open retail stores, cultivation and production capacity at the pace to support the market, We take careful planning and capital. Most importantly, we listen to what our consumers want. Our core objective has always been to be a leader in endless products that create real relationships and real experiences With the consumer, we believe it is fundamental to our long term success. It has always been about quality over quantity for us And this has never been more important than it is today. We are seeking high quality at scale, delivering the best, We are pleased with the momentum in the P and L and the revenue contribution from retail and CPG production, which we expect will continue to accelerate. The beauty of creating high quality, honest, trusted products is several fold. 1st, great brands and products drive people to stores, Whether it's our dispensary to support others, Credo's Brownie Scouts flies off the shelves and dog walkers are sought after by name. 2nd, there are so many ways to continue to grow our portfolio through form factor, flavor and experience. A recent example is our introduction of snusberry under the Incredibles brand, which was specifically developed to help consumers looking for a better night's sleep. We have a robust innovation pipeline across the portfolio and our team is always looking for ways to delight the consumer with new ways through their Last quarter, we announced our partnership with CAN, California's number one cannabis beverage. We are excited to expand our beverage offering and we'll begin to roll out canned across our markets. We launched Canton, Illinois ahead of 4 20 to an awesome reception by consumers seeking an alternative to alcohol beverages. We are pleased with the consumer momentum and believe this is a glimpse into the future. For those of you 'twenty one and over and in Illinois, give it a try. You can do it. We have a lot of growth in the portfolio by leveraging our current assets. And based on market conditions, M and A can be an attractive option. I'm not talking about acquiring trophy assets, but rather opportunities for geographic reach, our brand portfolio or our infrastructure. At the end of the day, Green Dot is an execution driven, consumer focused, resource oriented team. And that high standard puts guardrails around all of our decisions. As I said many times before, everything is on the table if it makes sense for our stakeholders. And while we're in a fortunate position to have a strong balance sheet, you also know that every dollar we invest must have the potential to deliver strong returns for you, our shareholders. With that, I'll turn the call over to Anthony for his financial review and always engaging commentary. Anthony? Thanks, Minh, and hello, everyone. Welcome to what is now our 12th earnings call as a public company. As David has highlighted, Our team delivered record 1st quarter financial results, generating 194,000,000 in top line revenue and over 71,000,000 in adjusted operating EBITDA. Total net revenue grew 10% quarter over quarter, with current CPG and retail revenue both growing by 8%. As a reminder, the difference between gross and net is in our company revenue. The key drivers to our continued strong revenue performance: 1st, strong and growing demand for cannabis. While we are seeing an upward trend in cannabis consumption across the country, There is no doubt that this is particularly true in the markets within which we operate. The strategic bets we placed several years ago appear to be paying dividends. 2nd, our CPG product portfolio. We are cultivating flower and producing products that people are choosing to buy with their hard earned dollars. Our efforts on facility design that focuses on quality over quantity as well as our product strategy that leads to the consumer We're starting to establish true differentiation in the market. 3rd, execution. This We have been asked consulting with patients, consumers, making an entirely vivid to another team. 2, let's go to simple route, Particularly in Starrett, this business and industry has enough complexity already. 3rd, embrace the team. We've said it before that our team is our greatest asset. We have passion, a thirst for knowledge and the competitive spirit that runs through the halls. Said differently, we'd like to win. Back to financial speed, in addition to strong top line performance, The company continues to post robust gross margins with Q1 coming in at 57%. I know folks are probably tired of doing this sale, Our intrinsic goal is to keep this metric at or above 50% over the long term. On the SG and A side, excluding DNA.com, Globalized operating costs totaled $42,000,000 a $4,000,000 increase over $38,000,000 because of last quarter. A key goal of launch for this year is to build the company's infrastructure. So I would anticipate our gross SG and A spend to continue to increase in the coming quarters. Total other expense in Q1 approximated $9,000,000 largely driven by non cash charges and interest in the warrant expense associated with our senior debt. As a result, the company generated over $71,000,000 in adjusted operating EBITDA close to 37% of revenue. In addition, we generated over $10,000,000 in net income, our 3rd consecutive quarter of positive EPS. On the capital front, we continue to leverage our balance sheet in a way that maximizes operational flexibility. Being that spot is not there, it's our version of a triple threat. With the sizable cash balance and positive cash flow from operations, we have the ability to buy, build or sometimes our favorite move Net of the $156,000,000 of equity we raised in February, we ended the quarter with over $275,000,000 of cash. As you work your way down our balance sheet, you see the following: low relative accounts receivable, approved inventory balance and the payables number of sub $10,000,000 for the first time since 2019. New technical accounting quotes have put to our current ratio in good news. So before the quarter end, the company completed a $217,000,000 self conducted debt raise, adding over $100,000,000 of net cash to our balance sheet and interest rate. The bank and branch and cohort continue to be creating substantial value for shareholders And the fees is 0%. The amount rate is fantastic. On a pro form a basis, the company has netted $300,000,000 in cash. We're looking forward to putting these dollars to work as we aggressively invest in our market to advance significant regulatory change. And while we are proud of our Q1 results, we can't help but focus on the future. As we tell the 2 earning buyers, we are still in the very early innings of this industry. So buckle up, hang on tight and remove all assumptions. In the meantime, for all of our stakeholders, We will continue to run our math and math and execute our growth plans into a tighter way of demand for U. S. Service. Back to you, Ben. Thank you, Anthony. We are off to a great start and excited about 2021. We've spent the last few years building a strong foundation brick by brick and our position today is stronger than ever. As the Green Wave continues to sweep the country, there is more optimism around state and federal legislation. It is still day 1 at Green Dot. So we'll keep taking a hard and fresh look at every opportunity to strengthen our business And to find innovative and new ways to delight our customers on their journey to well-being through cannabis. We are very privileged to participate in this industry. It is one of the fastest growing industries in America today We continue to donate 1st day profits to every community when we open a new store. We have expanded our dog walker donation program to include the daily legacy funds to support animal rescue organizations. In our home state of Illinois, we have been advocating to get Illinois' social equity program started I look forward to the potential lottery for new dispensary licenses soon. The delay in the licensing process has created substantial financial burdens for Saudi Rugby candidates, Many of whom have been hardest hit by the pandemic. Hopefully, this process is beginning to move forward in Illinois. And in New York, We believe NeurIPS can lead in this respect by starting adult use on January 1, 2023, Not only with the incumbent operators, but also by issuing new licenses in a timely manner to new licensees, Who, per the law, shall be heavily weighted for social equity entrepreneurs. Finally, We are committed to outstanding corporate governance and are especially pleased to welcome Swathi Malivarupu to our Board of Directors. Swathidy is the trustee of the Rollins Trust, a world renowned educational charity that supports exceptional students to study at Oxford University. She is also a Board member for vote.org, that is increased voter turnout and strengthened American democracy. We are clearly aligned on our core principles. In closing, your company is stronger than ever and committed to becoming better every day. With that, we welcome your questions. Yes, hello, presenters. I'm here. Your first question comes from the line of Vivien Azer. Your line is now open. Please go ahead. Thank you. Good afternoon. My first question, Anthony, is for you. It's a little bit more of a housekeeping item. Thank you very much for the commentary around your expectations for continued growth in SG and A as you invest behind the business. Can you please clarify whether you were talking about SG and A in absolute dollars or as Great question. So I was referring to gross spend dollars, not a percentage. We'll see how much we can grow the top line, but we'll anticipate over time kind of maintaining the nice operating leverage in the business. I think the gross SG and A dollar spend will even increase over the coming quarters. Understood. That's very clear. Thank you for that. And then my follow-up question then is for you and it's a little bit more of a strategic one. Clearly, on the flower side of your business, brownie It's been a home run. We've been hearing about that for a number of quarters now. I recognize that the U. S. Business and the way you guys run your business Very, very different than Canada. But one of the kind of unfortunate learnings out of the Canadian marketplace is that the consumer Preferences in terms of flower strains can pivot. So and pretty quickly or at least it seems like it caught some of the Canadian operators off guard. So I'm just curious, how do you guys keep your finger on the pulse in terms of strain preference? And then if you could offer any kind of Sense of the percentage of your overall flower sales that BrownieScout accounts for, that would be helpful. Thank you. Sure. Yes, great question and insightful. And you're right. Taste evolved and strength evolved and things like that. We're very heavily invested in breeding, evolving strain portfolios to move our into our consumers, essentially invest strains around. And so while we don't talk about a lot of the other trades out there, whether it's the Sotiva portfolio, Jack and Orange and Sour Diesel, which right now are doing great Or the White Durban that we recently released to the East Coast. There's a lot of great things in the portfolio. We just like to talk about loans since it does so well. In The percentage of revenue is not huge. I mean, not a significant piece that I even know it offhand. Certainly want more. Consumers want more. Certainly, the effect for the medical patients and for the relaxed effect of the unit because it delivers is 1 of a kind. That's why it stands out. We're not betting the company on any single strain and it's nice that the Canadian markets realize it, but California has been told that for the last couple of decades. Strains matter and genetics matter, and it's a very important nuance in the space. Okay, great. It's Thank you. Your next question comes from the line of Matt McGinley. Your line is now open. Thank you. On the CPG business, it looks like the growth value of product you sold in wholesale increased nicely sequentially, but the amount you sold internally Decreased modestly. And we hope that you sell the product in your stores that the customer wants and not necessarily what you produce. But is there a geographic factor or something with product mix that It caused that sort of mix shift or slight decline in product that you're selling internally. Hey, Matt. Anthony here. Yes. It was relatively flat actually kind of quarter over quarter. But given kind of the nuance, once you have that, there's a lot Hold on within each of the state markets that we operate in. It's really not a number that we kind of target or manage towards. We're trying to see natural developments in the business. And so while we didn't kind of see their company kind of revenue grow at the same clip that we have Okay. On capital raising and cash balances, between the equity raise and the debt, you brought another $250,000,000 year to date and You're proving you've been able to generate cash and I would expect that that would only improve. But even as you spend more on CapEx and if you get a lot more M and A, Almost all the deals we've seen this year, including this Virginia deal of yours, is very heavily weighted to equity consideration. So The question now is, how much cash you need to run this business? And are we reaching the point with the company or the industry where you just sit on bigger and bigger balances because you don't know Where you may need to pivot next, kind of like a tech company where they just sit on these big balances and you don't know when they deploy them, they'll have these larger balances. So just Holistically and safely, what's the right amount of cash that you need to run this business and drive? Sure. Thanks, Matt. It's Ben. We found the exact time to sleep really well with the 4th fiscal balance sheet in Canada being federally illegal with the lowest cost of capital against others in federally legal domiciled locations, and we think the opportunity is immense. So we're seeing annualized numbers crossing $20,000,000,000 We see the number going way over $80,000,000,000 And it would make a lot of sense to have the capital on the balance sheet. We're investing aggressively into the business. I mean, look across the state opportunities, Illinois, Ohio, Pennsylvania, Maryland, New Jersey, New York, Connecticut, All of them have significant growth based on the size of the market, even if you take your conservative assumption and cut it by 20% or 30%. So we're not really managing the business to an amount of capital, the cash equity split. People want to own our stock. We're Flattered by that. We're happy with that. We don't want to give it away. Obviously, it's the treasure here, but we're comfortable with the share count we've got. We're managing that carefully and we believe we can create very significant accretive value on whichever part of the income statement you want to measure and put a multiple on Through the M and A, otherwise, we're doing. We've doubled or tripled out of the business, which we're doing as well. So we like the cash balance. We don't know where the capital markets are going. Sure, one day listing and safe and other things are going to happen and it will change, but The business is pretty fantastic currently, and we want to continue to invest in that. And I have to tell for a moment that we have too much cash given the current situation. Okay. Thank you very much. No problem. Thank you. Thank you. Moving on, your next question comes from the line of Eric De LaRouiere from Craig Hallum. Your line is now open. Congrats on another impressive quarter here. So a bit of a follow-up To Matt's question here. You have done a great job lowering cost of capital through these non brokered institutional capital raises. And yet at the same time, your Canada stock in general continue to be negatively impacted by the significant capital and trading restrictions. So I was just wondering if you could provide some color on the type of institutional demand that you're seeing beyond The public markets here and whether you're seeing any broad changes in compliance risk appetite, whether institutions are shying away or warming up to the idea of taking on U. S. Cannabis exposure? Yes, Ben. I'll take that. That's a great Cycle question because that's really part of the core issue here. And I would say, the folks that are putting their name in press releases, there's more attention. Things are not simple. However, what you've seen DreamCloud do literally in every single way is bring new capital to the space. And Matt, you know us and others too. We are literally bringing in the capital of these 20 2 raises, not out of other Cannabis companies, but new high quality long term alignment with management institutional capital. And that's where the supply is going. And we're bringing it in, but it's a slow movement. There needs to be more clarity. Things are very gray, whether it's custody, prime broker, different relationships, still can't buy CNBC still doesn't cover it properly or talk about it. And I feel like it's a very tricky situation. I think it continues to be the PMs and the investment analysts are unbelievably excited and cannot Those who see it are sort of surprised by the, what should we call, structural direct clarity or market inefficiency that seems to be sort of in slow motion. At a time when the business on the ground bottom up is in accelerated fast motion and in fact accelerated. I mean, you have New York, you have New Jersey, New Mexico, there's more and more happening. And then you got Georgia, hopefully they issued licenses in Virginia just legalized, In Mississippi, you're just talking other places. So we see an absolute dichotomy between capital margin, the efficiency slowdown And on the ground deceleration. So that's why we won business with tons of cash with very, very aligned shareholders and we're bringing in new capital. I can't speak to the other companies and the other So, whatever else is happening, people are doing it differently. Not everybody it's not a one size fits all situation. We're building a business Long term for shareholders, investing capital can be really market opportunity in the U. S. That we think is somewhat unprecedented. We're fired up about it And we're aligned with the shareholders. So we're not having a hard time bringing in the right kind of capital. We feel very sort of privileged in the spot we're in. I think broadly, the capital markets are in their nascent stage. Okay, great. That's helpful. Great color there. And then, as a bit of a follow-up, with that cash balance being the largest spend and you guys continue to increase your cash flow generation, Could you just provide some insight or some color on sort of how you guys decide whether to sort of increase the scale of your projects Or sort of spread that cash around and start to take on new projects, new geographies, maybe some smaller scale projects. Can you sort of Help us understand how you guys think about that trade off there? Thanks. Yes. We think about it like I mean, this is the ultimate gain, right? The capital allocation and how we put capital and where we put it in, what kinds of returns for what the business is going to be when and what the Board will look like. And it really is kind of a multi dimensional situation with lots of different states and markets and things. So, look at our cards. Fortunately, you can see everybody else's cards. And when we make the bets based on the most basic principles possible, I think on this call, another one where we talk about 4 gs formula and the Kelly principles of how you We caught up that and the way we think about wagers on behalf of shareholders that this is our money and these are chips. And we're planning at a table where we're trying to take 1 plus 1 to make 4, We're putting $100,000,000 to create $500,000,000 And the simple math of it, I'll make it up, say, dollars 100,000,000 investment to create $50,000,000 or $75,000,000 of EBITDA at whatever multiple you think the market is going to trade EBITDA at 20, make it up, $1,500,000 of market value creation, where can we put that under to work? Well, guess what, there's many, many places we can put it to work Because there's tens of millions, in fact, over 100,000,000 Americans who are really, really interested and want and have demand for product. So it's about as simple as a setup as possible. So we just want to play where we have the highest probability of success based on the chips that are out there. Thanks. Yes. All right. Thank you. Moving on, your next question comes from Camilo Lai from BTIG. Particularly in light of how difficult February was. So I'm curious to know after putting up a, call it, a 10% sequential growth in Q1, What was the exit rates coming out of the quarter relative to that 10%? And Any color of EBIT share as to the momentum that you've seen thus far into Q2 would be very helpful. Yes, it's a great question. It's insightful. I would say we sat here literally in the same seat in, I think, it's March 17, Wednesday, St. Patrick's Day. The day the stimulus check came out, the business you've heard from others you've seen in the data, things changed in the back half of March So the market woke up. So I wouldn't say that it elevated above and sort of caught up February being low. Take the Illinois market data, 8880, even in fact, popping up above. You can see it state by state, and you really track the state data to show it. So I think your run rate exit is more of a first quarter flat situation versus some kind of dramatic acceleration. 420 is a nice holiday and everything, but under the coverage, usually March is a little stronger than April. Not being done specific, but look at the markets, just Every state gives you the data and you can see that. It's not a few things which stores are opening, what's happening. There's no material change really in price. And our for Greenbelt purposes, we have more skill coming on the back half of the year. We talked about that towards the end of the year, Particularly Illinois, some of these come in the beginning of 2022. Thank you, Ben, for that. And that actually leads to my second question about The back half expansion plans, if you could just remind us what progress are coming online in the second half in the States. That would be very helpful. And how we should think about the really robust margin that you delivered in this quarter, Understanding what you said, Anthony, about maintaining kind of like a 50 plus sort of baseline, but it really seems to be that As more cultivation and harvesting comes online, particularly in the back half, you have an ability to at least maintain the starting point of this 57% margin rate through the balance of the year. If I'm keeping that thing correctly, please correct me where I'm at. And I think that's right. On the ground, what I would say is, like Anthony mentioned, we're kind of we're not turning that 57% how do we get to 59% where we have to turn that we feel like we're comfortable with that. The gross margin is We said we're more like 50, and we're okay investing into the business to scale this. We think there's a lot more production coming Simply because there's a lot more demand. And if there's a lot more demand, people want a lot more of our products, we're probably thinking about it in that way. So We're very comfortable making investments in the business that if it means the margin goes down fine. It's not a core focus. And so we're trying to put the infrastructure that will hit the SG and A line more with the revenue decelerating and the gross margin scale is an amazing thing. And also you start to work on yields and you start details and sometimes we don't talk about the exact details inside the business and that's not a coincidence because we're really working on that. We believe we have a national model. We believe we can bring premium indoor flower to consumers across the country who want it. It's as basic as possible. And there's more upside to go, the next quarter, I don't know. But in 2023 2024, where this business is and the We have based on the capital we're putting in, based on the demand we see in just maybe about New York and Virginia and New Jersey, that's as big as Canada alone. I think there's only 30 or 25 licenses there currently. And it's only a first mover. And then we think there's got to be a lot more people in the industry. We've got the access to capital and hopefully, D. C. Gets around to doing a few things. But it sets us up pretty well. Your next question comes from the line of Michael Lavery from Piper Sandler. Your line is now open. Thank you. Good afternoon. Hi, Mike. Just wanted to follow-up a little bit. The industry certainly is At an accelerating point with so much legalization momentum and your balance sheet obviously sets you up really well. Can you just give us a sense of how you're thinking about CapEx and any ability to quantify what to think about For this year and maybe a range for something for 2022? Michael, Anthony here. I'll take it. So in 2020, currently, Kurdistan is selling $1,000,000 which is currently before the sale leaseback reimbursement. We spent about $113,000,000 last year. In Q1, our gross spend was about 32,000,000 So I would anticipate our growth CapEx spend this year to certainly be greater than it was last year. As you know, we're not in great variety of talking specifics. But with the balance sheet that we have and the markets that we have and the regulatory changes coming, The CapEx should accelerate from that 32 number. Okay. That's helpful. And a somewhat related follow-up. Can you Tetra, obviously, you've got the debt at 7%, which is by far the best cost of capital among any in the industry. But Can you just give a sense of that is there still improvement from there? Is this Kind of where you expect to stay, what would it take for that to move the needle again? How do we just think about What settled into sort of a maybe baseline type run rate? Yes. I mean, for our purposes, that's not a thing you can just play around with based on the day where the pricing is. For us, it's more aligned with the debt providers, where we think that cost of capital was on year end, I talked about 6%. But 7%, If we get 5%, we're not really like looking to refi quickly. The way the structure is for us on our balance sheet is 3 years we have an option For 4th year, we think the next time we'll be fighting when we're exposed to the sort of more normalized capital markets. We've been told business performance and the P and L looks investment grade, and if you look at the S investment grade, you're sub 4%, 3%. If you look at the debt characteristics of the business, the trailing 12 months is like 1.9 percent EBITDA plus or minus. And even if you say the taxes are wonky, then it's 2 times. We're pretty under levered for the growth we've seen. So We're super well with it and we just like where we are. Certainly more interest, we can flex it up to 2.50. We We don't need to pay the interest on more cash sitting on the balance sheet. It just doesn't make a lot of sense. We have a year to fill out the rest of it. We have the opportunities. I think I'm hopeful for everybody else in the industry to be able to continue to drive down their cost of capital also. That should happen, but the capital markets are thin, As we've all seen, so we like our position. There's no need for us to do the equity and debt, now we're going to work. We did the same thing in 2019. We're a little surprised what happened in 2020, and we plan to be back in on 2023 talking about where the world is with cannabis. That's really helpful color. Thanks so much. Sure. Thank you. Your next question comes from the line of Aaron Grey from Alliance Global Partners, your line is now open. Hi, good evening. Congrats on the quarter and thanks for the question. So first hey, how's it going? So first question for me is a little bit around M and A, great CZ acquisition in Virginia with the In on Virginia with Adobe is coming online there in the next couple of years and flower starting, but would love to get your perspective in terms of how you think about potential Additional M and A, particularly through the lens of the chance of there being some changes to the federal level or your thoughts on that. There's been Some peers or others out there who have started to make some moves in anticipation of there might be any change at the federal level and how you guys think about that in the near term in your acquisitions? Thanks. Sure. This is Ben. I'll take that. So M and A, look, I mean, at the high level thesis is everything is on the table that makes sense. We We're pretty aggressive in knowing what's going on in the space. We're very U. S. Focused. We think the action is here in the United States. This is an American story, and we think that as the U. S. Execute this in the industry and the country, the world will walk what we have. Capital markets and Spider Man are first efficient here. So we're comfortable with that. If you just look at our history, we raised debt. We invested In the business, we're looking at what's happening in the cycle of capital markets. The fun part about cannabis is it's at hyperspeed. So we've got cease and famine, ups and downs, and we're comfortable with that. I would say that you should look for us to do M and A that's accretive to shareholders based on the exact thesis we've talked about. So whether it's going to be an enter Like the Virginia or scale, like, whatever the last year we bought a store in Connecticut, it just scales the business. And other strategic plays like that, we've been active for 5, 6 years. Sometimes, like Anthony said, we do our favorite, which is do nothing and We do a lot. We think we're following what's going on in U. S. Cannabis pretty carefully. And we think we understand what's going on, on the ground. And therefore, gives us a little bit of an edge with information by which to make decisions, whether that's data driven Or personality driven or legislative driven, whatever, that's the recipe by which we use. Last on the point, Yes. That's all part of the Board that we see about how to bet and where it's going. The business is very good under the current situation. So not likely to put a lot of capital into something that might happen later. We like where it is right now. We think there's opportunity to change, not threat, We're excited about that. We want to play a lot of offense. But at the moment, we feel tens of millions of Americans want cannabis and don't have it. So We need to make it really fast, really good, and that's what we're up to. Okay. That's super helpful color. And then second question for me. So just given strength in balance sheet, we talked about Florida Couple of times more recently, obviously, there's been some action there in terms of some acquisitions this year. Hasn't been a ton allocated down there for you guys where you had some other high priority But just given your strength in balance sheet, you've often talked about you like the market longer term. So does that kind of give you some capital to maybe put towards that market And looks to grow there, especially with the potential of those being on the ballastair in 2022? Thanks. Yes, I think that's insightful. Yes, as we have more cash, exactly right. We looked at it through that line, and that would lead you to think that conclusion. Yes. We're not going to just sit with a lot of cash for a long period of time and see 20,000,000 Americans who have a high interest in a very nice market. People have done a very good job down there. So it's an interesting market that we're studying in. All right. Great. Thanks. I'll jump back in the queue. Sure. Thank you. Your next question comes from the line of Pablo Dronic from Cantor Fitzgerald. Your line is now open. Ben, can I ask about I understand this is a growing industry and you have a lot of levers, but the 2% same store sales growth sequentially, Can you help give some context around that number? I mean, I could interpret that Pennsylvania maybe too many stores. I know that market is growing, Can go back eventually, but or other stage, Illinois, new stores have opened only recently. I'm surprised about the 2% same store sales number. Can you give some Sure. Pavel, it's Ben. I can start. We don't see any issues in There hasn't been any major new turn ons or things like that with whether it's adult shoots or just door openings or conversions that sometimes give tailwind there. The other thing I would do is look at state over state, what's happened Q4 to Q1 or Q3 over Q4 by state. We don't seriously giving up a lot of market share These are the flows of the market. First quarter was pretty slow until March 17. Like no doubt about it, February was pretty rough in the country. There was 4 days of snow and I think like Ohio, Pennsylvania and New Jersey had multiple feet in the snow and nobody wanted to go out and throw the snow in every day and it's going 8 day month. So I don't see any real read through there. March came strong, but 82% 48 stores, the other big thing is it's a big base. So the numbers, you now have a comp base over a year of 40 and a sequential of 48. So you're not moving the needle, 48 stores, 30% across 10 states. That's tough. The business is much bigger than it was before in The amount of retail business we're doing on a daily, monthly quarterly basis, I mean, if they pay barge and big market share, yet the market is going to quadruple in front of all of us. Right. Thank you. And then just a follow-up on New York. How are you thinking about the potential there to open to have 8 medical stores? Do you have a view on that timing And your views in terms of when the state can start selling flower, if you have some insights on that? Thank you, on the medical side. Sure. I can take that also. It's Ben. Look, New York is an awesome market. We've been the structure of the margin sets up well and now it's about execution. We've seen a good intent for our stumble and execution in Illinois yet still has a chance to emerge We believe to just put a dart out there that Onetwenty 3, January 1, 2023 It would be a date that New York could open adult use and we can do so where it's not the current incumbent of which GTI is one of them Only, no grandfathering. And instead, based on the timeline and based on the laws and the creation of the commission and all the things that New York is doing and they're pretty focused on doing a nice job, They could get new licenses and applications. Those licenses would have a focus on social equity. And day 1, you could have new people enter the industry, new entrepreneurs with We think that's a big part of it. There's no real product rules yet in terms of the market, the law. Obviously, you said yes to flowers. We've heard others who are We're really carrying the load and we're appreciative of that pushing this forward because obviously the medical patients shouldn't have access to flower for well-being. It's common sense yet. We were tough, regulators are in need of the space. There's a lot of education and hard work that has to go on to bring that about. But in any way, it's likely to be New York to be a great market, to be plenty of demand. We'll go for our in stores, 3 of which can be dual, really next Your next question comes from the line of Graeme Kreindler from 8 Capital. I wanted to follow-up on some of the earlier comments you made, Ben, with respect to the potential setup in the event the market has an interstate commerce element to it. The early days of the GTI story really talked about branded distribution at scale. And I'm wondering if you could elaborate a little bit more. There's been significant adds and diversification across the brand portfolio at GTI over the last little while. But when you talk about the distribution at scale, how does your potential work after your existing asset base Factor into a situation where you're looking at distribution coast to coast. The existing cultivation coming online, That's very much served to expand on the existing state markets and the demand coming on there. But do you see opportunities to leverage any of that infrastructure From a regional basis, would this really require some large greenfield type of investment or potentially using more third parties in the supply chain? Thank you very much. Sure. Hey, Graham. Yes, I mean, it's the same story. What the truth is, there's huge demand within the markets. And like we talked about on the last call And we said on this call, business is very good under the current situation. We think there's an opportunity more than a threat with interstate, certainly going to need more, but you You got to think about the supply chain becoming more fragmented and there's more opportunities there. We think our brands win with the consumers. Exactly what the supply chain looks like today is not something that we lose a lot of sleep over. We know what the products are, we're going to make them at scale. We're making them at scale in markets that have 12000000, 13000000 people, 20000000 people, 40,000,000 people are out in California. So those are huge markets and obviously there's regionality and there's other things, but there's other models of consumer products that I've built these sorts of things. So we don't think we're behind in any way, shape or form. We feel like we're in a pretty good spot and like where we are. It was also really crucial is consistency in the product. You can't just make it everywhere and ship it and then you'd like good to go, Especially as you get closer to the flowers, you move further away into the refined products, you get on the vitals, it's easier, but the consistency of the product is very important. Understood. Thanks for that insight. Thank you very much. And then just as a quick follow-up here, with respect to the acquisition of DAMA in Virginia, There's been some chatter about the potential timing of the start of that outages being brought forward. As that relates to your capital allocation decisions and the CapEx Expectations that were outlined earlier in the call. How much of that might get directed to Virginia? Or how quickly could you start Capital based on what JAMA has built or potential plans that they've drawn up for significant expansion. Thank you very much. Sure. This is Ben, Anthony. Don't be shy. What's happening with the legislation, like I said, Like I said many times, we think the legislation in state or federal, federal being more so, but there's a trailing indicator. So we see 8,500,000 people that have a huge amount of demand. So we're putting in the pieces in place to serve that demand. We understand it's medical, we understand it's going to wreck. There's a lot of nuances for how that works. It really doesn't impact the capital decision. We saw like a do not interest sign and then no chance for adult use, we might change the plan. The plan is $8,000,000 people, $1,000,000 plus market with the multi phase approach. We've done this in many states. We know that consumers don't want the branded product and now we know how to make them at scale and it's scaled up at 8,500,000 people. And we're also thinking what states are around, how does this look and what happens in each and every to your question. But Virginia is a great market. It's a pleasure to see Canvas coming through an area of the country that really does not have it. That's a big deal. Got it. Understood. Thank you very much. Sure. Thank you. Your next question comes from the line of Andrew Parson Guo from Stifel GMP. Your line is now open. Hi. Thanks for taking my questions and congrats on the good quarter guys. Maybe if I can Come back to the discussion of dynamics in March and into Q2. Could you talk a little bit about The pricing or promotional environment, people receiving stimulus checks was highly anticipated. And wondering if there was a higher than normal promotion To capture that strong traffic after a tough January February, what does April look like? And now What does May look like after the 4.20 and the stimulus check period? Hey, Andrew Anthony here. I'll take that. So I think what I'm trying to read into the question a little bit, We ran promotions in March to kind of conduct the softness that we saw in the early part of the quarter. It's really not the case. You can just kind of run the business. I'll remind you that Yes. One of the benefits of our business is that we still operate in a number of supply constrained environments. And so Even though our operators don't have a huge appetite to kind of do a lot of commercial activity, Some of the markets are getting more competitive, but that's just natural evolution. And obviously, we're kind of studying that, watching that. But there There's nothing kind of abnormal or anything that we did. We had a discussion asking them to take us and say, hey, we will do something about this. So As I mentioned during our last call, they purchased more product. And I think we probably weren't really beneficiary of that. Thanks for that. And Maybe just talking about New York a little bit more. The regulations haven't been out yet. Within the law, it gives the regulator a lot of power to place any kind of caps or restrictions. And yet you've already secured your platform for production there. Just curious if you could give us a little bit more color on your thoughts on how you think the regulations will play out, Whether you think there will be any production caps and how your strategy With your production footprint that you've already acquired plays into that. Sure. This is Ben. I can take it. We talked about it, not challenge. The good news there is, we think there's going to be an immense amount of demand. We want to build the high quality products we know we can make. We have an aggressive capital spend plan. State has not Issued the rules, yes, the committee, they were pretty early on. You can go to the website. I think that's a strong side. There's a lot of intent to make this work and make it work well. And we're here as a partner to help. Like I mentioned, some of the current arrows have worked pretty hard on getting flower out and we're all kind of in it together Along with the new entrants, so similar to what we did in Illinois, we did a LEAP program, which is an application assistance program, it's hard to apply for a license. And So as we can educate folks on coming into the space, we're going to make products, have our stores, we hope others have stores, like I mentioned, the total start on 1,123. That's not based on any exact science and 0 lobbying. It's just based on what we think would set up well for the industry, for everybody who's invested in this going really, really well. It was 3 to 6 months earlier, 3 to 6 months later, you can make it work. But when I said someone with a pretty lofty goal, like bring others in day 1, And we're going to aggressively build what we know how to make. We think that we've had version 1, 2, 3 and 4 and made a lot of mistakes and hopefully we can Not make the same mistakes in the arts. Thanks for that. Congrats again. I'll get back in the queue. Sure. Thank you. Your next question comes from Scott Fortune. Your line is now open. I'll be brief. Real quick thoughts on California then. You opened up the Pasadena store. I know it took a while, but you're there. Any Color on kind of trends there, momentum and faster around building at California and all? Thanks, Scott. Yes, I've seen a moment. We see a lot of COVID restrictions still going on in California. We think that's opening up. So it's off to a nice start, good momentum up and to the right. As we say, we'll continue to refine menu selection, build loyalty in the state. We're aggressively looking at what's going on in California. I think it would be prudent not to, but we're not aggressively spending. Things will make sense or they won't, and we'll go there. But the places that we mentioned for aggressive spend are like in the now. So California, we're watching, we're studying like our position, which is Not a lot of capital at risk. Got it. And then 2 other states you mentioned, such as Nevada and Massachusetts. As things open up Here, are you seeing favorable trends from that standpoint in at least 2 states that like the CAN investment Makes sense to move forward into other states outside Illinois. I think you'll watch some other states going forward. Yes. Let me see a little difference between Nevada and Massachusetts. Massachusetts are very strong and they get really transparency into that market. We plan to scale production. We need more of our product there, and we plan to expand retail in the industry. We're sitting with 1, so the traction will come in Massachusetts. In Nevada, we see our business has not been heavily leveraged to tourism. So it didn't soften the way it did. Now you see it surge 60 on 80 on a monthly basis, lot of tourism. Obviously, that's a heavy play of what we're doing with Cochise and Burner, which we think is great. So we'll plan to play that. For both those states, we've been pretty good transparency on a monthly basis, seeing them come back. Pricing is firmed in both states. There's a lot of momentum for our products and others As there's just good growth in both those markets. We have a couple more stores we can open in Nevada. We should have this year, one in Reno and one more in the Vegas area, Thank you. Your next question comes from the line of Andrew Snippel from Exelon Capital Markets. Your line is now open. Hi. Good afternoon, everyone, and congrats on another solid quarter. Ben, I think a couple of months ago, you gave us Your kind of priority list in terms of capital allocation in certain markets where you're looking to Prioritized capital spend. Just given the developments in New York and Virginia since that update, could you kind of swap those in and Kind of give us a sense of where those fits in terms of priorities. Do you think New York is kind of at the top of that list and Maybe a little bit more clarity on Virginia. Yes. I mean, both of them come in strong Tier 1 Capital allocation opportunities, I mean, it's a pretty basic math problem, 20,000,000 people, 8,500,000 people of the current market size, and where it's gone. You've seen the movie before. It's called the L'Olive or Pennsylvania. It's just literally it's not about anything that fancy. It's about How much profit consumers want? No major red flags in legislation, meaning some structural irregularity or like vertical For sure, no product or potency to something wonky. Most of these markets have a pretty set structure for how they're going to enroll. Bigger is right there as well, right? 9,000,000 people are waiting on the rules and waiting for this thing to get going, huge amount of demand. That's great. And just a follow-up, I wanted to ask on the gross margin profile. There's been a very nice trend. The gross margin has been ticking up every quarter since Q1 2020. Just wondering on your thoughts on Where we start to find the kind of normalized gross margin profile going forward, do you think we're kind of approaching that level yet kind of in the Q1 period? Or do you continue to see waiting room for that to move higher as you scale your production and cultivation activities? Yes. Look, it's a great question. It's a really hard question to answer. So part of the reason is because given the current business, We have going on is we're obviously investing heavily on the CPG side of the business. So over time, that should become a greater percentage of the overall business. It will be one path kind of gross margin. The gross margin at retail is relatively static, Right. CPG is where you can get kind of real kind of gross margin leverage in the business. However, these sites take a while to Kind of turn on and give the scale. And so what you have is if you unpack the portfolio and you lay them out, you have a number of facilities right now that are Achieving scale or call it operating in scale and continuing to refine the more efficient. And then in the same breath, So I think it's simple for me to sit here and tell you where I think it's going and where I think kind of the true kind of potential is in that line item. And One of the benefits of the business is that with solid cash flow from operations and a healthy cash balance, we don't have to see your remaining gross margin with a specific number. We can make sense that we don't pay off in 2 to 3 years from now, and we've got the luxury of doing that when we have these other states that are operating with scale. And so that puts us in a really nice position as Your next question comes from the line of Mike Kiki from Benchmark Company. Your line is now open. Nice. Hey, Ben, Anthony, Jennifer, Andy, congrats on the quarter guys. 2 quick ones. Just curious how you think about investment or development of cannabis lifestyle or cannabis media Assets is still a financial area growth opportunity for you. And then secondly, with your canned beverage product Sure. Let's take my second one first. Can, we're excited about the launch. We continue to see like everybody that beverages are not a big part of the category. We talked about off prem versus on prem where all cannabis is off prem and we think that's changing slowly. I want to be a part of that. We've made some plays for that. We're going to launch well. We don't have any Major needs to share except for the product is fantastic. And for those of you who haven't tried it, you shouldn't because it's socially dosed. This is a light 2 milligram. You're not going to accidentally You might accidentally eat 2 gummies and that might be what we're serving, Whereas one can is not going to be over, you're going to have a half. So bringing in people that don't smoke pot, they're not really familiar with that, they don't want to get It's messed up or whatever, ends up a very, very attractive entry. And it's an instant situation where people love the flavor. Good job formulating the product, the brands, it works. That's what attracted us to it. I'll come to your first question on media assets. Well, I mean, I don't know. I would say everything is on the table that makes sense. We're open. There's a lot more conversations happening broadly. It seems like everybody is interested in cannabis. Here we are with a Series of unique assets and perspectives on what's going on. So we're open to lots of conversations. Thank you. Sure. Thanks for the question. Thank you. And there are no further question At this time, presenters, you may continue. Great. Thanks everybody for dialing in. We'll be back in a few months. We'll see you in Vegas and enjoy the ride over the next 90 days. Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.