Earnings Call: Q2 2021

Aug 12, 2021

Earnings release

Good morning, and welcome to the Green Thumb Industries Second Quarter 2021 Conference Call. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the Conference over to Jennifer Dooley, Chief Strategy Officer for Green Thumb Industries. Please go ahead. Thanks, Andrea. Good afternoon, and welcome to Green Thumb's 2nd quarter 2021 earnings call. I'm here today with 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 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 section of our website. Green Thumb 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, Greenstone will refer to non GAAP financial measures, including EBITDA and adjusted operating EBITDA. A reconciliation of non GAAP financial measures to the most directly comparable GAAP measures is included in our earnings press release and SEC's PR filings. Please note all financial information is provided in U. S. Dollars unless otherwise indicated. Thanks, everyone. And now here's Ben. Thanks, Chad. Good afternoon, everyone, and thank you for joining our Q2 2021 earnings call. Strong momentum in our business continues. Our revenue for the quarter was 222,000,000 Up 14% sequentially and up 85% year over year. To give you a sense of the growth, this quarter's revenue exceeded our Higher annual revenue in 2019 just 18 months ago. We posted our 4th consecutive quarter We continue to have positive free cash flow from operations and adjusted EBITDA grew 11% sequentially to $79,000,000 more than double the level from a year ago. During the quarter, we raised $217,000,000 in a non brokered private placement of senior debt, and we feel very comfortable with the balance sheet. We ended the quarter with cash and cash equivalents of $360,000,000 which gives us significant financial flexibility to invest for the future and strong returns for our shareholders. We continue to attract new U. S. Institutional investors who are aligned with our long term vision to create cannabis experiences that connect people and improved communities. To enact our vision, just last month, we launched a new brand called Good Green and announced the LEAP Takeoff, both initiatives dedicated to creating more opportunity for underserved communities in the areas of education, employment and expungement. In addition to high quality products and authentic brands, our team's passion for these projects is real And I am proud it is part of Green Thumb's DNA. Regardless of the current barriers limiting access to capital markets, U. S. Institutions are demonstrating an appetite for greater access to cannabis investments and we are excited about the momentum. The first half of the year felt very solid and we continue to focus on execution. We are looking beyond the current year to optimize the tremendous potential when adult use sales begin in New York, New Jersey, Connecticut and our recently entered market of Virginia. In each of the new adult use markets Coming online over the next few years, we anticipate a surge in demand that will mirror What we've experienced first in Nevada, then in Massachusetts and most recently in Illinois. History does not repeat, it rhymes. Our home state of Illinois continues to book record sales every month and our team is preparing for the next few chapters. Demand remains strong across the country. It has been a busy few months for us as we expand and enter new markets. In addition to Virginia via Dharma, We closed on the acquisition of Liberty Compassion, a Massachusetts based cannabis operator, adding greater capacity for us to serve a growing East We also expanded into Rhode Island with the acquisition of a vertically integrated Summit. This broadens our footprint to 14 states and 62 retail locations and puts us in solid position in the highly desirable northeastern market where we now have operations in the contiguous states of Connecticut, New Jersey, New York, Massachusetts, Rhode Island and Pennsylvania. We love the math. We accomplished this by remaining committed to our disciplined strategy On a personal note, I'm excited that our acquisition partners chose Green Thumb. They didn't have to. They did so because of our reputation as and proven operator and a shared alignment of vision, principles, people and community. I am committed to making sure we deliver on that. I am also very proud of what our team accomplished in the 90 days since our last conference call. As you can imagine, negotiating critical M and A deals and then integrating people, culture and systems requires considerable time and effort. Ahead of schedule in Oglesby, Illinois. Moving forward with our site in Warwick, New York, which is transforming a former prison to a cannabis campus and building out capacity in states like New Jersey, Ohio and Pennsylvania. We are also optimizing brand distribution, including canned beverages, which continue to perform very well. Cookies on the Strip had a rousing opening as it becomes a top tourist destination in Vegas. Within our own brand portfolio, we seek to create some of the highest valued, Most wealth brands and cannabis experiences that bring well-being to people and communities. We have brands distributed in 12 states, and we continue to scale our capabilities. There is still tremendous potential to build depth and breadth of brand distribution. We are also enjoying success with limited seasonal offerings like canned pineapple jalapeno and the incredible SkorStar. At the core, we believe that Find Your Rhythm is a means to more well-being for America. We know Americans want edibles but are a bit nervous. That is why Incredibles, the credible edible, can build trust and help lay the path. And we know that Good Dream can help anyone be good, feel good and do good. Together and over time, we can actually make things better. As I mentioned before, we are pretty close to parity between our retail and CPG businesses on a gross basis. And over time, CPG growth will continue to accelerate as distribution meets the demand ahead. That is our focus every day. We have many levers for growth that will expand access to well-being through cannabis. Strong execution for our customers and disciplined capital allocation Our shareholders remain our top priorities as we continue to deliver sustainable growth and returns. I have been saying that for a long time, so let me try to quantify it a bit for you. Legal U. S. Cannabis sales are currently on a run rate of $24,000,000,000 That's because the Q2 2021 sales were $6,000,000,000 That's a new record. Dollars 24,000,000,000 is very big, But it's just the start. We think it more than triples in the next decade. As an example, California grew 9% quarter over quarter on a phase of about $1,000,000,000 as the legal regulated market grows. Colorado grew 25% in its 7th year of legal adult use sales. States like New York, Virginia, Ohio, New Jersey are not even in the $24,000,000,000 number. That's 50,000,000 Americans. Greent Thumb has a nice position in each of those states. Because of this top down and bottom up analysis focused on the data and the consumer, We think our $80,000,000,000 industry size is too low. But even if you think it's around $80,000,000,000 that means there's about $60,000,000,000 more of legal sales to come. We have confidence in those legal sales in the United States regardless of the federal policy. And we believe that will lead to at least $100,000,000,000 of new market cap. That's $100,000,000,000 of new wealth creation. That's an unbelievable setup and honestly very American. But the real questions are, how do we handle it, who participates and will we be pleased in 10 years looking back. I'm focused on that for Green Thumb and for the industry, and I am excited about the days ahead. We understand the privilege and we understand the responsibility of this position. With that, I'll turn the call over to Anthony for his financial review. Anthony? Thanks, Ben, and good afternoon, everyone. I appreciate you joining us today. Before I begin, I'd like to give a special thanks to our team and shareholders for all their hard work, dedication and trust. We delivered yet another record quarter, none of which would be possible without our extensive and growing Green Thumb family. For those that have been with us since the early days, we've shown that if you plant ice, You're going to harvest wind. For those that just arrived, the ride on the Green Thumb Rocket ship is just getting started. So buckle that seat belt. Today is day 1 for all of us. In the Q2, the company generated $222,000,000 of top line net revenue and $79,000,000 of adjusted operating EBITDA. Total net revenue increased 14% over Q1 With gross CPG revenue growing 13% and gross retail revenue growing 15%. As a reminder, the difference between gross and net is intercompany. Similar to last quarter, there are 3 primary drivers to our top line trajectory growth: Robust consumer demand, high quality differentiated product and execution. Number 1, the tidal wave of demand for cannabis is real. Across the board, In every market we operate in, consumer demand for legal cannabis is going up and to the right. Number 2, Our differentiated product offering continues to resonate in our respective markets. We believe in quality over quantity and leading with the consumer. No everyday message for our crew. Here at Green Thumb, we want the fire and more of it. Last, operational execution. We've said since our first call as a public company in 2018. Enter open In the face of tremendous growth in a myriad of complex regulatory environments, the team makes it look easy. The net result of everything above is another highly profitable quarter where the company generated gross margins in the mid-50s. While this figure slightly declined over Q1, when we unpack the numbers, it made sense given ramp up costs related to our CPG expansions. I would assume that the business will continue to incur these sorts of expenses, while still maintaining our intrinsic goal of keeping gross margins atorabove50%. On the SG and A side, excluding D and A and stock based comp, Normalized operating costs approximated $47,000,000 a $5,000,000 increase over the $42,000,000 incurred in Q1. As we head into the second half of the year, we plan to continue to accelerate our investments in our team and our infrastructure. We need a bigger boat and more team helping us operate the boat. In Q2, Total other income approximated $2,400,000 primarily driven by non cash gain through losses associated with our investment portfolio and the refinancing of our senior debt facility. As a result, the company generated over $79,000,000 in adjusted operating EBITDA, Close to 36 percent of revenue and over $20,000,000 in net income, our 4th consecutive quarter positive earnings per share. Moving on to the balance sheet, we ended the quarter with approximately $360,000,000 of cash. This is $80,000,000 plus greater than last quarter that was supplemented by the $217,000,000 non brokered debt rate we completed in April. With this cash, we intend to double and triple down our bets in a number of key markets. Our patients and consumers have spoken. They want more Rhythm, Dogwalkers and Incredibles and our capital spend should help address this. In closing, we wanted to welcome the Liberty, Dharma and Summit teams into the Green Thumb family. We're excited about the additional reach these businesses and teams provide As we continue our expedition into ProVision 2.0. We hope everyone enjoys the balance of their summer. Look forward to speaking with you again in a few months. Back to you, Dan. Thank you, Anthony. Before we go, I want to share a little more about the programs I mentioned earlier and our efforts to expand access to opportunity And well-being in underserved communities, especially those harmed by the war on drugs. In this country today, there's a 90 percent racial wealth gap between white and black Americans due to systemic inequality. There is not a person at Dream Thumb who is in trouble by Shocking disparity. And so in July, we joined forces with 90 to 0. This group is developing a roadmap to advance racial equity by Growing Black talent and increasing capital to Black businesses. With the support of leading CEOs from companies like Starbucks, Goldman Sachs and the United Way and with the help of 2 time NBA MVP, Steph Curry, We are honored to be the 1st company to represent cannabis in driving this change with 90 to 0. We also announced the upcoming launch of our new brand called Good Gri. To advance our mission of expanding access to well-being through cannabis, sales of Good Dream Products will fund grants to nonprofits that support the brand's 3 pillars: education, employment and expungement. We encourage you Or a 501c3 you know or people you know who know a 501c3 that fits our mission We are proactively committing at least $1,300,000 over the next 18 months and the application process is now open. The application process is a means to figure out who and where to give the money in order to generate the largest impact. This builds on our existing social impact program, Growing for Good, which is committed to advancing diversity and inclusion, Restorative justice and social equity within the cannabis industry. Our entire team's dedication to these important social I am also excited Green Thumb is landing in the number 2 spot of Crane's Fast 50 list of rapidly growing companies in Chicago. We feel the growth and we are ready for more. In terms of COVID, we can only hope that the Delta variant will not lead to a repeat of 2020. Based on the data, we encourage Americans to get vaccinated to protect yourself, the elderly and our kids. While it's still too early to determine the ultimate impact of COVID this time around, we have learned how to live with the pandemic And we fully appreciate the essential role cannabis and our industry plays in providing well-being and comfort To tens of millions of Americans, rest assured that your company is stronger than ever and committed to becoming better every day. And finally, I want to say thank you to Jennifer Dooley. Many of you remember her from the roadshow. 5 years Tantalizing brands, 1 IPO, 13 conference calls, lots of laughs, lots of learning and lots of good fun. So on behalf of the shareholders, we appreciate your contribution and wish you well in your next chapter of life. Thank you, Jen. With that, I'll turn the call over to the operator for questions. We will now begin the question and answer session. To one question and one follow-up. At this time, we will pause momentarily to assemble the roster. And our first question will come from Matt McGinley of Needham. Please go ahead. Matt, your line is open. Are you muted on your end? My question is on retail. I'm impressed with the sequential growth in the retail business. I think most of the new unit additions in the back half will be the acquired medical dispensaries and I think new medical units in Pennsylvania and Florida. Would you expect this to impact the average retail productivity or is there still enough momentum with the rising productivity on your overall store base where You could sustain your average unit volume into the back half. Yes. Thanks for the question, Matt. I think 1 quarter is too short to judge. Last quarter, I think the number was 2% and people said, hey, is it too low? And now it's higher. I think over time, we're seeing very strong consumer demand. We're And as Anthony said, in every single market, go up into the right. And so we're analyzing those. We're understanding opening the box and really the evolving consumer and So we like the retail business and you can see though a majority or a significant majority of our capital is going into the production business, Branded Consumer Products and Production. Okay, great. And my second question is on the G and A in the back half. You made a comment, I did Anthony made a comment that you'll be investing in June and the back half. Can you quantify what type of increase we should expect from that $47,000,000 core number that you had in the 2nd quarter. And then additionally, I would think that most of the recently acquired assets would likely be lower margin, Yes, they just operate at a lower scale than what you do at GTI Consolidated. Would that have an impact on the margins in the back half? Or is it just kind of small enough for the rest of the system is just Operating at such a scale, it just sort of gets mixed up and wouldn't really have a margin impact. Yes, Matt, I'm trying to you said a lot there. I'm trying to understand the root of your question. Do you mind just kind of repeating it? Yes, absolutely. So you made the comment of the core G and A in this quarter was $47,000,000 but you also said that you would be investing in the back half. Can you help us understand how much of an increase we should expect to see on G and A investment into the back half. And then the second part of that was you've recently acquired these Assets across these several different states, presumably those are all lower margin businesses than what you have with core GTI today. Would that have an impact on margin in the back half or is it they just not are they just small enough it wouldn't really have an impact on overall GTI consolidated just because you're dropping at such a Scale for the rest of the business, it would just get washed away and not have an impact. Sure. Okay. I totally follow it out. G and A, I Just got jumbled. So look, I think we've said it before, as the business continues to grow and what we're seeing, we're building the team in advance of the title wave that's coming. And so our foot is on the gas in terms of the infrastructure that we're building here. At the same time, we're ramping up CapEx in the back half which will be at or above where we spent to date. And so, we anticipate that G and A number to continue to increase. Now, Do I think that's going to result in some margin dilution kind of over time? Candidly, no, because I think the top line will operate. The second part of your question on the retail margin dilution of the acquisitions, you answered it correctly, it's not a factor. We're looking out at what these assets mean and the touch points with the consumer, what it means about our brands in those markets, State tax revenue, state jobs, we like those assets. We're not thinking about margin dilution of acquired retail boxes. The next question comes from Vivien Azer of Cowen. Please go ahead. Hi, thanks very much. I wanted to dive in on your consumer packaged goods business. Clearly, nice quarter on that and appreciate the desire to Continue to invest behind that as you build a portfolio of brands. 1 of the traditional metrics, Ben, that we talk about In CPG is ACV, right, as a measure of the distribution. But I think for you guys, It's not just about getting one SKU in a competitor door and you're calling that a win. So how do we think about kind of distribution Opportunities kind of over the medium term in terms of kind of what percentage of your portfolio is well represented in 3rd party doors and how much runway Yes, good question and something we're looking at and obviously tracking which states, which brands at which And what's going on with the consumer. There's elements of the regulatory structure of which products are allowed. Edibles not allowed in PA, no pre rolls Pennsylvania and things like that. But we focus on full brand distribution. We want to meet the consumer where they are. And so we're looking at 100% distribution in many of the states we are in. That's Illinois, Pennsylvania, Maryland. As we scale product in Massachusetts, a lot of the catalyst behind the acquisition was more rhythm, more incredible, More dog walkers. Consumers want it, so we got to get it to them, and we got to get it to them at the right retailers, which means everywhere. I think the consumer and I think the industry is evolving fast, and so we want to play where they're going to be a little bit. So sometimes we have the unfortunate decision where we can't do mass distribution to everybody or we're doing strategic things where certain products go in Yes, understood. And my follow-up kind of along the same lines, I was wondering if you could comment on I was recently at a competitor dispensary in downtown Boston. I saw products on display. There wasn't any available For sale, you've noted in your press release, the aspiration to continue expansion beyond Illinois. So perhaps if you could give us a more real time Is that product available for those samples in Massachusetts? And how many states could we expect can be in by year end? Thanks. Great. Yes, we're going to scale on the East Coast. If you think about some of the markets that we're really targeting, again, it's not about This quarter, the end of the year, the first half of next year, we're thinking a few years out who that consumer is and where they are. States like New Jersey and New York don't even have rules For how the rec program is going to go, we see Connecticut moving forward pretty quickly. Massachusetts is an unbelievable opportunity and your experience is the I hear about often, which is I want more can and I can't get it. That's a high class good problem to have and we're scaling operations of the business. I think the business will have a few more states by year end or over the next 6, 8, 10 months, and we plan to go pretty big in a few of the states to be ready. We think again the consumer experience in cannabis is evolving and can be really a part of that. 2 milligram social experience Reduces the fear of entry into the product and we open ourselves up to a brand new consumer base. It's Thanks. Appreciate the color. The next question comes from Pablo Zuaneck of Cantor Fitzgerald. Gerald, please go ahead. Thank you. Anthony, I think in your prepared remarks, you said something about doubling capacity in Sylvania, New Jersey, Ohio, you also mentioned that in Illinois, it's just completed an expansion there. Can you give more color in terms of the timing when that kicks in? And did I hear you right about doubling capacity in those 4 states? Again, if you can put some metrics around it, some people took out square feet of canopy and also timing. I'm just asking that in the context that, Yes, your gross wholesale accelerated, right, plus 13% this quarter compared to 6% in the first. But in the second half last year, each quarter, you were up about 30%, Right. So those capacity ramp ups continue to drive significant growth. So more color there would help. Thank you, Anthony. Sure. Great question, Pablo. So we're not delving in tripling capacity obviously in every market. We're doing that on a market by market But the big capital projects that we have going on right now that we anticipate will be completed by the end of the first half 22 are in the places that you just indicated, Ohio, New Jersey, Pennsylvania. We don't currently have cultivation online, so it will be brand new. So we are capping out the canopy space that the state allows us. New Jersey, we are certainly doubling capacity and then PA, approximately that amount as well. So in terms of timing, look, we all know that these projects take a long time. And even when they're finished and the plants need So the guidance that we've been giving, at least internally and externally, is that those projects should be completed by the end of the first half of next year. Got And Ben, can I ask just one on in terms of brands? When I hear some companies in Illinois, one of your Competitors licensing cookies and local farms for pre rolls, right? How do you think about that? Companies that are relying either on celebrities for brands Or use or licensing brands from other vendors to operate in their states. I suppose you are happy with your brand portfolio and need to rely on that. And related to that question, in the case of a cookies agreement in Nevada, that's just to rebrand one store or can you sell the cookies brand itself So the last question first. In Nevada, We have a deal on one store. There's retail and there's wholesale product, right? Cookies is a lifestyle brand that connects in many respects from product to retail to experience It's a merchandise, etcetera, etcetera. So our deals for 1 retail experience, we are distributing the product. There's other product in the state, And we think that there is edge in growing high quality indoor premium product, which is really what our team specializes in. I heard Anthony mentioned in his prepared remarks, We think there's edge there. So that's the Nevada story, and that can help drive retail business around the state, but also particularly in the Strip, cookies on the Strip. And we're excited to welcome you out there. I don't know when you're coming. In terms of Illinois brands, we just think consumer were first. So if consumers love those brands, they should be here and they should win. The quality issues, the production issues, the distribution and the brand promise, it's very hard to take a brand nationally. We've seen bits and starts and we've seen things go very, very well. So we're excited because the consumer gets more choice, to be candid. Okay. Thank you. The next question comes from Eric DeForest of Craig Hallum Capital Please go ahead. All right, great. Thanks for taking my questions, guys, and congrats on you had another strong quarter here. One theme that You guys keep hitting on is faster than expected growth in U. S. Cannabis really across the board here. My question is if you're seeing that on the beverage side with Cam, it's good to hear you guys building up more distribution assets for beverages. But this has been sort of 1% of the market or Maybe even lower historically. Is this something that you see sort of increasing in share here? Is this something that you expect Move the needle in the near term or should we continue to think of this more as sort of a longer term bet Customer acquisition tool. Any comment on the growth you're seeing on the beverage side specifically would be great. Thanks. Sure. Yes, great question. Thanks, Eric. The short answer to the beginning is no. We don't see outsized growth there. We see major growth in U. S. Cannabis in the core products. This flower, pre rolls, edibles, vape, concentrates. That's 95% of the basket, I think. And that's where we're really investing. The minute time versus impact time in the short and medium term is mismatched in the beverage versus Portfolio, if that makes sense. But we like understanding what's going to happen out there. So you answered the question correctly, it's a longer term player, customer Acquisitions, I don't even know. It's understanding the customer, understanding the product and being able to be a leader, understanding first mover and sort of making the mistakes along the way So we can win as the game enters a larger and larger states. Yes, that makes sense. All right. And then, Ben, you also mentioned in your prepared remarks seeing increased appetite from U. S. I'm not sure if that's just referring to some of the purchases that you've done over the past few months here. But with these stocks seemingly trading more on sort of capital dynamics than fundamentals, could you elaborate on that Any color would, I'm sure, be helpful to anyone on the call here. Thanks. Sure. Let's set the stage a little bit. Here we are 3 years after going public and being part of really the first CLAS, the first group of MSOs to go public and bring U. S. Cannabis into public markets for the Investors, sophisticated or not, try to get access to this. There's been a lot of work and we met many of the people on the call and around in our roadshow then. As people were interested, they heard of it, obviously, another product, they're intrigued. There's been issues in Canada And people having to understand what's going on in the U. S, that appetite is growing. So the comment there is There is no $24,000,000,000 brand new consumer products industry that's going to $80,000,000,000 There just isn't one. If you don't see same store sales like you do in the cannabis You don't see the returns on invested capital and the business fundamentally is quite exciting. People are interested in growth. This is American capitalism and Things trade on those sorts of metrics. If you zoom down to where we are as Mean Thumb, you see $500,000,000 plus or minus of new capital coming into the space. We do it without a bank. We do have a gross equals net on behalf of shareholders because the return on that invested capital is so dramatic into this kind of growth. And what were the fruits of today are what we planted from basically the debt to 2019. And now with Balance sheet flush with cash, the foot on the gas, capital investment ramping, we are excited about where this is going. That's basically what we said. Okay. Thank you. The next question comes from Camilo Lyon of BTIG. Please go ahead. Thank you. Good afternoon. I was hoping to get a little more color on, Anthony, on your comments around gross margin, and in particular, the ramp up costs And your CPG expansion, and how to think about when you start to see the return of those increased investments Through either greater PPG growth, which would probably have some sort of offsetting margin So if you can help us bridge those 2, that would be wonderful. Sure. So look, that's a near impossible Question and answer just given the number of variables, right? So obviously, as we bring on additional capacity, there's a ramp up period. And during that ramp up period, you've got your onboarding expense before you're bringing on revenue, Material nature and these facilities after a couple of harvest, they really start to produce kind of the yields that you initially underwrote when you invested the capital. Now what's interesting with our business, if we were just doing 1 or 2 of these, the payback on that will flow through the P and L rather rapidly. But essentially what you're going to start to see is we'll finish 1 and then we'll start another. And so given kind of the exposure that we have in the number of states We have capital projects that have either started today or that will start over the next 12 months. It's a very difficult question to answer because We're going to continue to keep our foot on the gas, as we've said before. And so I would expect that we're going to continue to run expense in that gross margin line, While at the same time generating kind of additional scale from the capacity expansion that were recently completed. I think that kind of answered your question is it's really hard for me to kind of tell you where that number is going. I can tell you again, and I've said this a number of times and I apologize if I just sound redundant, but our goal is to keep our gross margin line at or above 15%. If we can do that, we can drive massive operating leverage and scale into the business down to our EBITDA line, And that's going to produce great returns for shareholders. So just to be clear, outside of the cultivation expansion projects, Are there any other costs that flowed through in Q2 that affected the gross margin? Nothing is material in nature. Okay, perfect. That's what I was really trying to get at. And then just shifting gears to Virginia. I'd be curious to hear what your thoughts have been on how that market is developing now that you're in it officially, Trying to ramp up, how do you see that the consumer behavior, if any at all different from other markets and assuming it's not? And any sort of views on the planned rollout through the back half of this year, the expansion rollout through the back half of this year? Sure. It rhymes a lot with the other markets we've seen. This is a medical program where there's access. The product offering is limited. Flower is not available yet, and we're seeing big demand. I think there's Five stores opened at the state plus from Mayans. We opened the most recent one, which was the first remote store, standalone store not connected with one of the cultivation sites. It is infancy. There's 8,500,000 people plus or minus in Virginia And the story on the demand is pretty simple. The story on the supply is the CapEx. We're really bullish on what the demand will look like both with flower and with adult use. And the math is just like as basic as you could do. You do a lot of the great work and a lot of the stuff. I mean, it's that simple for us. So we've got to build the infrastructure, not easy. We've got massive 8 figure, approaching 9 figure CapEx projects combined in the state from all the operators. I I believe it's the largest CapEx project industry in the state. There's supply chain, global supply chain issues. We're able For the community and for the economy. So we're positive on it. We're excited to be there. We love the new team. We love the product coming out of it and really the consumer. I mean, RISE table opened last week, 10 days ago or so. Rousing reception, People are very excited as we can bring the rise of consumer experience to people in Virginia. We're really excited about that. We're going to learn to get better along the way. So The next question comes from Michael Lavery of Piper Sandler. Please go ahead. Thank you. Good afternoon. Just following up on Hey there. Quick question on your trajectory. It looks like you're in Health Service Area 3. Is that geographic limitation intact still? And if so, will that change when recreational use comes on board? I'm not going to comment on the rules that aren't written, but we have the geographic situation based on the current rules in medical. There is delivery. There are stores. Consumers are moving around. Product is moving around. There's limited supply, limited products that look forward to evolve over time, but I'm not interested enough on the details to give you any guidance on that. Again, I think the state will see up and to the right. And I think everybody understands, first, it's about the patient, And then it's about the adult use market, safe, regulated 21 and over, generating productive jobs and massive Okay, great. And then just following up on a comment you made earlier when you were Given some of the industry color and pointing to the momentum at the $24,000,000,000 now, one of the first states you called out As part of that was California, what does it take to get that more interesting for you to be directly involved there? It's a good question. It's really the same script here. We're studying it. There's a lot of consumers there. You see the market in California go 9%, like I said, quarter over quarter, which was $950,000,000 to 1,040,000,000 Quarter over quarter, that's tremendous growth. So what's happening? What is going on in the supply chain? What is our return on invested capital look like there? Stand alone? And then however you want to think about it, we called it optionality maximization or weighted probability or other Against everything else happening in the business, what's our cost of capital, what's our access to capital and what's the best move for shareholders based on where we I think this is going to be being in our position kind of in the way about where we are. So it's very much on the table. We're constantly evaluating it. We really like what's happening east of the Mississippi. We like the setup and we like participating in California, Being close to the consumer, understanding the participants there, certainly you've seen us do 2 significant things with brands out of California, and We think we're very close to the consumer there and it hasn't cost shareholders any money. So we like that setup and we continue to really invest in it and be a part of I think time in cannabis has really accelerated. So I think you're seeing several turnovers in the market. I think you're seeing accelerated consolidation Whatever capital market cycle you want to call it, eventually there will be profitable entities that capital will go to the strength. So I think that's where Yes. We're ready watching and kind of waiting for that to go down. Okay, great. Thanks so much. Thanks, Michael. The next question comes from Aaron Grey of Alliance Global Partners. Please go ahead. Good evening. Thanks for the questions and congrats on the quarter. Good morning. Absolutely. So first question for me, I want to dive back to CPG. So it looks like the percentage of your products going through your stores, at least looking at percentage of retail come down the past 2 quarters. So I understand part of that looks to be because of supply, but as that supply kind of comes up for you guys, just want to kind of think about how you Look to allocate product, either between your own stores, rather you say it's near term higher margin or the argument to kind of Maybe bring about more brand awareness and distributing to other stores. So just how best to think about that when you're in this kind of supply constrained stay with your CPG brands? Thanks. Hey, Aaron. Anthony here. There's not a really silver bullet to answer the question. I think the way we approach it is on a market by market basis. And so certain markets really require us to supply more of our own product to our own stores. Other markets, there's a healthy amount of available supply out there and that provides better, a better offering for the consumer than we go with that. Really what we're trying to do is just optimize the situation in each market. And sometimes, what we're looking to optimize is different, Right. If we were just looking to kind of optimize the top line, we may do one thing in a market. If we were looking to optimize profitability, we'd do another. So for us, it's really kind of looking at each market on a market by market basis. And then really each week that comes by and When the allocation decisions that have to get made when products coming out of wholesale, that's something that we spend a lot of time looking at And let them down and buy because it's important to see the business. Okay, great. Thanks for that color. And then second question for me is on M and A. You guys have gotten a little more active this year. Just entered a new state of Rhode Island, It seems to be on the precipice of adult use legalization. So just let me give some color. You talked about really liking east of the Mississippi. Going forward, how do you think about other new markets, especially looking at Delaware, that's another small one. You have Maine, which recently legalized. So Maybe where you guys are thinking today in terms of the M and A landscape, where you guys are seeing valuations in the marketplace, how you think about it? Thanks, Aaron. Not super keen to show too many cards. It's the same deal. Everything is on the table if it makes sense. We get a lot of phone calls. We're very active in the industry. We want to put capital to work for shareholders if it makes sense, But we're not looking to reach too much. We love our portfolio. I mean, Ohio, Pennsylvania, New York, New Jersey, Connecticut, Virginia, All have monstrous opportunity and we're pretty head down focused on executing there. At the same time, we're paying Very close attention to everything else going on. So the number of states isn't even that many. They have an opinion on what's going on. The bar is high In order to go there, it's the same thing I've said, but each one of these deals sets up as meeting that kind of criteria. It's not even that complicated of math for us, if things make sense or don't, we're happy to say no. We do a lot as always, but really everything's on the table if it makes sense and we're here for the long term. Okay, great. Thanks. Thank you. The next question comes from Scott Fortune of ROTH Capital Partners. Please go ahead. Good afternoon. Thanks for the questions. Just real quick in light of The modest sequential growth in kind of May June and reporting 14% since growth here in the Q2. What's the exit rate coming out of the quarter relative To the 14%, any color on the momentum from July and Q3 so far would be helpful? And then Are you seeing consumer shifts purchasing more with COVID or reopening kind of traffic in the stores and helping out average ticket size? How should we look at kind of the consumption side of it from the consumers from a basket side of things? Yes. We're not seeing the kind of stuff we saw in March, April, May with COVID changing consumer behavior. We continue to see increased demand in consumers finding cannabis. We continue to see, and Anthony said it, every state is up into the right. If you go week by week and what happened this weekend versus that weekend is not our style. I think quarter to quarter $6,000,000,000 you go through every single state And look at what happened in every single state, even monthly if you want, and something in that screams to us that there's any issues, Which is sort of I think at the core, we think this thing is going to go up and to the right. That's both the same state sales, meaning the States that are already open at least the year, what they're going to comp out. And then the states that open, like a store, are new stores coming online, new states coming online. And literally, the horses in the stable that haven't even gotten out to track yet are big, strong and going to run really fast. Their names are like New York and Virginia. And we like our position there. We're putting capital to make those horses really work, work for shareholders, work for the And that's just as simple as we look at it. So no cause of any worry, which I think We hear about, but if you're worried, come on out to any of the stores, ours or otherwise, in any of these states, and I think you can feel them in a few days. And then really big picture, glad to see your initiatives towards social equity with 90 to 0, Good Green and Leaf And you've now spoken about moving forward in Illinois to add postal licenses. We're starting to see that unlock and also in New York as more states come on board. But big picture, what do you see as key to accelerate and implement these equity programs? Is Safe Banking at the federal level Critical and really helpful to gain or jump start the cause, unlike Senator Booker I believe from that standpoint, how do you look at that from a federal level and kind of accelerating the social equity part of this? Yes. Thanks, Scott. Good question. First, no, we don't think it's a federal move to accelerate this. I wish I knew the answer to the core of your question, which is how do you get state governments to Move along the line of logic and common sense. It's difficult. We're learning along the way. We're trying to be proactive, honest, Here to talk, here to meet, here to move the ball. We have a very unique perspective because we're active in so many states. We understand the mistakes, Learn from them and we can try to put them in place in the new state. And so how is New Jersey, Connecticut and New York, for example, which all three governors signed legalization, Going to implement social equity, are they going to learn from what happened in Illinois, which was slow, but now here we are. We've had 2 rounds of lotteries, 110 new licenses, Great group of many different people. We're going to do a bake off. Other operators are very in it in order to make sure there's new successful people in the industry. But I don't know how to get state governments to move faster and function on the decision tree that we do, but I'm open Two suggestions along the way. I appreciate the color. Thanks. The next question comes from Andrew Parthenough of Stifel GMP. Please go ahead. Hi. Thanks for taking my questions and congrats on the great quarter. Maybe talking about consumer behaviors and trends that you're seeing, Obviously, during COVID, there wasn't a lot of tourism happening, but now With COVID restrictions easing, could you give a little color on what you're seeing with regards to the tourism front? We've got Some pretty good data out of Illinois on out of state sales, but hard to put a finger on some other states. Any color on that could be useful. Sure. I think the best example of the tourist bid comes from Nevada. You're seeing records out of there, you're seeing big operators there, be successful in growing. So just looking at the data here and obviously this is all public, But you're seeing numbers around $80,000,000 $87,000,000 even March 'twenty one was $97,000,000 in Nevada. Obviously, the weather was cooler. It's 100 and 8 degrees outside there in these few months. But more tourists, it's going to be more cannabis buying. We think that's pretty basic. Going underneath to see what's happening in which states is pretty difficult. You're seeing the out of state bid in Illinois like you mentioned, which is great. It's nice They provide that kind of transparency. How much is tourists versus people over the border? Not really clear, but Not something we super focus on. Again, we see a huge amount of consumer demand for the product. We want to offer it safely, compliantly And in a way that creates better experiences for consumers. Thanks for that color. And maybe following up on a previous question around M and A, appreciate you want to keep your cards close to your chest on strategy, but maybe looking at valuations, we've seen Public market shares retreating to pre senate runoff levels. Wondering if you're seeing something similar on the private side or any kind of color you can provide on that? Yes, good question. The public market is mark to market every day. There's a bid ask, the markets are thin or not and it moves around. It doesn't happen in the private market. So the short term swings of public stock prices and sellers' sentiment on what their value is do not correlate 1 to 1 and insta reaction. When there's been big droughts in the market and things are different, people understand there's no capital available and they may change a little bit. But it's much more about The sentiment, I think it's a little less on the mark to market of the current public markets. And to your comment just on the pricing, it's Not really we focus on much. We just think it's good for the buyers essentially. We're building a business and a boat for what's to come out for a while. So that's exciting for me and for us for this kind of opportunity. The next question And comes from Graeme Kreidler of 8 Capital. Please go ahead. Hi, good afternoon and thanks for taking my questions here. I Appreciate the comments at the top of the call and then Q and A with respect to the capital spending and setting the stage for the large projects I was wondering, given the balance sheet strength of the company right now, I was curious what the thoughts are with respect Capital allocation in the State of Florida, that's a market that, I think you've been very, very strategic in how you wanted to allocate And with the resources that you have, is there an opportunity to potentially advance some spending there, get a bit more aggressive or maybe That is a growth platform, sort of in a 2 years out situation. Just I would be curious on thoughts on that. Thank you very much. Sure, Graham. Anthony here. Yes, I mean, look, we've got a lot of cash on the balance sheet. And I would say that we've got a lot of opportunities to deploy that capital within the business. We talked about the projects that we have kind of Currently that are currently underway in Ohio, New Jersey and Pennsylvania. We also have very large other projects that are contemplated that have not yet started, right? So If a place like New York, Virginia, we're going to continue to deploy capital in these other markets. Those projects have not yet Sorry. Specifically as it relates to Florida, given the cash on our balance sheet, given the cost of capital, We are going to start to deploy capital. We have a great site, Calla right off Highway 75. And that will be a project that should get started here within the next 3 months or so. Obviously, there's a lot going on. There's a lot Capital being deployed there by other operators as well. So my guess is we'll deploy the capital, see how See how the business performs and then revisit. Okay, understood for that. Thank you very much. The next question comes from Andrew Semple of Echelon Capital Markets. Please go ahead. Hello and good evening everyone. Congrats on another solid quarter. Andrew, thank you. Catherine Thumb. Just the first question here. I just wanted to see if you guys have any insights or perspectives on the New York and Virginia medical programs When we might see timing for smoke bowl dried flower products approved within those medical markets? Yes. The core answer is it's murky. Obviously, it's been signed into law. The Former governor in New York was not a huge fan. We now have a new governor. Fresh perspective, that advice. So my guess is it would be quicker now than it would have been before, but I Don't really know. It seems to be part of the law. It's somewhat ridiculous that medical patients who would benefit from this and now it's a law to I have access to products that's available in the market. We know a lot of operators and team are working on this. In In terms of Virginia, I think the timing is I don't want to say the wrong thing, so we'll have to circle back. But I think it's known And that will be coming soon. We anticipate, similar to what you've seen in every other market, the flower comes on, there's increased demand. This is the core product of the category And obviously a core part of our focus, which is high end indoor premium flower. We think Find Your Rhythm Works, and we're excited to bring that Rhythm brand to New Yorkers, to Virginians and everybody across America. That's great. Thanks for that color. My next question here, I just want to go back to your comments about Significantly expanding your production capacity in several of your core markets. I guess it just raises a question about how you feel about your current supply Good question. The answer is both. We have more products, we have more sales and the markets are growing. Our products are good, people want it, doesn't mean every single day, every single one, there's a lot we can learn as We develop and innovate, but at the core, more rhythm, more incredible, more dog walkers, more Bebo is a path To win, we'll be coming out with Good Dream and we will need more supply. We anticipate Monster sales there as the consumers want The value proposition of that product and to feel good and do good about how they buy. So again, both. We have more sales today in the current markets, but look at the month over month growth in some of our core markets. I mean, I think Illinois was 10.7% last month. That's a serious growth curve and that was going to be a doubling of the points of sale for consumers to go get the product. So inventory in the system is going to go up and sales are going to go up. It's like not a mystery. So we need more product to serve both of those. And as it goes and as people say, you don't want your market share and retail go down, but that's fine. Industry is going to go up. There's more consumers. There's more wells to be created. There's more participants. And And we just view that all as a net positive. That's great color. Appreciate your insights. Sure. Thanks. This concludes our question and answer session. I would like to turn the conference back over to Ben Kovler for any closing remarks. Sure. Thanks, everybody, for joining us. We'll be back in about 90 days with an update. Have a safe end of summer.