Earnings Call: Q1 2021

May 5, 2021

Earnings release

Good day, and welcome to the Lowell Farms Incorporated First Quarter 2021 Earnings Conference Call. All participants will be in listen only After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I'd now like to turn the conference over to Bill Matoulis. Please go ahead. Mr. Matoulis, please go ahead. Pardon me, Mr. Matoulis, your line is now live. I believe we've got some pre recorded notes. Good morning, and welcome to the conference call to discuss Lowell Farms Incorporated Financial Results for the Q1 of 2021. Before we begin, please let me remind you that during the course of this conference call, Lowell Farms Management may make forward looking statements. These forward looking statements are based on current expectations that are subject to risks and uncertainties that may cause actual results to differ materially from expectations. These risks are outlined in the Risk Factors section of our listing statement filed on SEDAR. Any forward looking statements should be considered in light of these factors. Please also note that any outlook we present is as of today and that management does not undertake any obligation to revise any forward looking statements into the future. This call has been prerecorded with George Allen, Lowell Farms' Chair of the Board Mark Ainsworth, Chief Executive Officer as well as Brian Schur, Chief Financial Officer, who will go into the detail about the company's financial results for the Q1 later in this call. The Q and A portion of this call will be open to analyst questions to provide further insight into the company's performance, operations and go forward strategy. For those of you who may happen to leave our call before its conclusion, Please be advised that this conference call will be archived on the LoRa Farms Investor Relations website page. With that, I'll now hand The call over to George. George, please go ahead. Good morning and thanks for your time this morning. We have a lot to cover, so let's get at it. This was a transitional quarter for us and I don't want investors to think for a minute that we were satisfied with our financial results for Q1. We're not. But I do want to convey to our investors that we have turned the corner on cultivation and our integration of the new brand is going extremely well. I'm confident in our ability to deliver a solid Q2 that will demonstrate our capabilities. The acquisition of the Loal brand has proven to be immensely positive for our company, despite some early hurdles. We have been able to improve sales of that brand to new levels with tremendous early success and I'm optimistic that we have chosen our flag Chip brand well. Before I talk about the future, I want to briefly discuss the Q1. Our operating losses during the quarter were driven by 2 primary factors. Number 1, a lack of cultivation output from the greenhouse and number 2, the increased operating drag from the Lowell acquisition. Now Mark and Brian will go into more details on both, but I'll touch on it briefly. On last call, we forecast that we would harvest between 4,000 and £4,500 during the quarter. Our actual output was £4,724 Being our estimate, but unfortunately the improvement in yields came mostly at the very end of the quarter and we spent much of the Q1 with inadequate flower supply forcing us to source flower externally. Additionally, when we acquired Lowell, we inherited 2 Southern California facilities and 121 members that we needed to rationalize. Woll was non profitable. It was essential that we address the excess immediately. In early April, we shuttered both facilities and eliminated 99 positions. This is tough medicine all around as many of Team members were extremely talented and have been loyal members from the of the family since the beginning. But we're not a company that is large enough to be spread across multiple locations. I'm really proud of our combined manufacturing team as they answered the call and have Completely migrated the full production of all Lowell SKUs to our Salinas facility without any supply interruptions. Now this was better than any best case scenario that we could have planned for. Great work team. As to sales, I'm pleased to say that we are off to a great start with MOL after integrating 2 sales forces last month. In April alone, we had sold MOLLE into nearly 234 accounts, a substantial improvement from the footprint we inherited from around 110 regular customers. While some of the momentum has occurred from the substitution of packaged flower from our legacy brands into the Lowell brand, We have seen a substantial improvement in loyal sales doing nearly $2,000,000 in branded product sales in the month of April alone. Now this is a very positive sign about the brand's health and potential. We have a lot of work to do however. This is a fraction of what we think the sales potential is of this brand. But we don't get there by standing still. New product launches and brand evolution are critical to grabbing and keeping wallet share in the California landscape that is forever changing. Now before I turn the call back over to Mark, I want to talk about our progress with respect to cultivation expansion and strategy. We continue to evaluate several properties for expansion. We're currently evaluating a handful of properties as well as continuing to refine a new build facility that has been hampered with delays due to rising construction costs and permitting delays. There are several properties in contention, but we're being patient as the market for new cultivation has been bolstered by 18 months of high bulk prices. In Monterey County alone, we see a pipeline of new licenses that will more than double capacity in the very near term. And we're watching the land grab as other counties recently reluctant to embrace cannabis are now getting in on the action. Now I continue to believe that California will become America's cannabis garden and it will happen very soon. The cost of growing cannabis in other geographies is having a massive environmental tax on our country that I believe we won't be able to hide from the consumer for much longer. We are using approximately 1% of electricity in America for indoor as And the only way to reverse course is to allow interstate commerce. When that happens, I believe California Weed will reign supreme. Having said that, the idea that California cultivation market can be cornered by any single grower or facility is growing increasingly unlikely, Especially in this market, which has been bolstered by years of strong bulk prices, luring in a whole new crop of Thousands of woody growers eager to get in on the action. Winning by virtue of having the lowest marginal cost only works When you have exhausted the supply of folks who are willing to lose money. And I appreciate the patience from our investors on our expansion plans. I want to be clear that the greenhouse that with the greenhouse performing, we currently have all the flower we would need to be the largest flower and pre roll vendor in the marketplace. As we evaluate additional facilities, we are extremely focused on getting the right Tax structure in place before we commit to a property as cultivation taxes vary widely in the state and will someday make the difference between winners and losers. Now we are also carefully watching a couple of To invest in key choke points in the value chain that are structurally constrained in the California market. While our plans are not finalized, we see a unique opportunity to access a virtually unlimited supply of flower without the requisite expense or risk. Lastly, I want to thank Mark and his team for all their tremendous efforts that they have put into this business over the past year. It has been 1 year since I've joined this company and over that year we have added, we have subtracted and what remains today is one of the most capable and loyal teams in the business and I'm very proud to be partnered with them. With that, I'm going to turn it over to Mark. Thank you, George, and good morning. For the Q1 of 2021, the management team continued to focus on getting the farm Back to good health and yield levels back to our expected outlook. The recent April harvest data tracker, which is posted on our website, confidently shows All the hard work paid off and all systems are go. Through extensive data within the cultivation, Our team was able to identify what our biggest biological issues were at the farm. 1 by 1, we implemented SOPs to eliminate The threat and prevent a reoccurrence. Our efforts are really taking hold. April has been extremely positive for the team as we have harvested nearly 60% of the weight we harvested in the entire Q1. If the current trend holds, we should see harvest output of between £8,500 9,000 of flower for the Q2, a record level and a massive improvement from last quarter. As George mentioned, During the Q1, our leadership team undertook the task of merging Woll and Indus. Our objective To combine the 2 teams and put the best athletes on the field. We closed the acquisition on Thursday, 25th February and immediately commenced integration. By the following Monday, a low inventory had been relocated and onboarded into our system to be available for sale statewide. Within 2 months of the acquisition, we successfully transitioned all of roll products to our Solenis facility. Using our own feedstock run on our farm, We are now making the entire product line at our Salinas facilities. The actions we took to centralize production and Operations in Salinas allowed us to eliminate 105 positions with an annual savings of $3,900,000 and salaries and approximately $1,500,000 in facility related OpEx. The integration of the combined sales force was extremely important to get right and we delayed the initiative for 30 days in order to plan appropriately. Cannabis sales are very relationship based and it was imperative that we kept as many relationships intact as possible. We took this opportunity to revisit territories, commission structure and quotas across the board, and I believe now we have one of the best go to market teams in the business. April was the 1st month under the newly federated sales organization and the team sold nearly $2,000,000 in mold products for the period, a threshold that the brand had not seen since 2019. Since the integration, the combined sales team added 124 new customers increasing distribution by 33% within the 1st 2 months as one sales team. You will recall that a critical piece of the plan to acquire Lowell was the improvement A feedstock that was used in the brand. Historically, margin pressure had forced the brand to put inferior products into their packaging. This hurt the brand with busenders and we did not want to waste a minute addressing the issue. Historically, it would not have been uncommon for Lowell pre rolls to shift the THC potency levels of between 14% 17%. After we closed the acquisition, we set a minimum potency level of 21% on pre rolls and 22% on jarred flower. Our average potency from our farm in April was just below 27%. So we have plenty of high potency feedstock to feed and restore the brand. Everyone may not agree that potency levels are the best measure of flower quality, Potality is a number that consumers understand and can use to compare brands and we respect that. I try to get as much direct feedback from stores as possible. If you are willing to listen, they are willing to tell you exactly what they think. The end result is that our customers have received the renewed Lowell lineup very favorably. The move to Lowell as our hero brand Have a meaningful revenue impact for our organic output. Jarred Apes that we're selling for $12.50 under the Cypress brand are now selling for an average price of and $40 on the Bill O'Grady, giving us approximately $2.20 more for every pound we produce. The difference is even greater in pre rolls, where the pre rolls that have previously sold for $13 are now selling for a list price of $20 Having said all that, we still have work to do addressing our product lineup. Lowell has missed a few critical opportunities to keep pace with evolving consumer taste and we are actively preparing for some product relaunches to address these holes in our lineup. In early Q2, we will reintroduce Klix into the low smokes, a 0.3 gram pre roll and shortly thereafter, we hope to launch ultra high Potency infused pre roll and blunts into the market. Lastly, as promised, when we announced the acquisition, We are using licensing arrangements to bring Lowell to more consumers. The team has begun the operational planning to bring Lowell Smokes to at Illinois through a partnership with Ascend Wellness. Our operations team have begun working well together on all of the steps and anticipate a launch of this nature And I'm very excited to bring our product to both markets at some point this summer. Our license arrangement with Ascend is based on a 50% royalty asset on the wholesale price. Finally, I want to tell you how proud of the team's performance over the last quarter with all of the challenges we have faced. I can promise you that there has been no lack of urgency by me or anyone on this team to bring the fullest potential to this company. With that, I turn the call over to Brian, who will take you through our financial results for the Q1 of 2021. Thank you, Mark, and good morning, everyone. Before I begin, please note that we are reporting our Q1 results in U. S. GAAP. Previously, we reported on an IFRS basis. However, we are completing the process for registering our shares with the SEC and going forward, We will report on a GAAP basis. For loan farms, the primary difference between U. S. GAAP and IFRS is the requirement under IFRS to report Biological assets at projected fair value, while GAAP records agricultural assets on a cash basis. Additionally, a portion of my commentary will be on a non GAAP basis. So please refer to today's earnings release for a full reconciliation of GAAP to non GAAP results. We report all figures in U. S. Dollars unless otherwise indicated. I would also note that our quarterly report will be filed with the CSC and the SEC by mid May. As Mark highlighted, We reported Q1 revenue of $11,000,000 up 17% from Q1 2020. As noted earlier, Q1 revenues included over $900,000 in Lowell branded sales, resulting from our acquisition of the Lowell brands effective February 25. Revenue in the quarter continued to be impacted by lower yields experienced from cultivation as a result of plant stress from extreme temperatures in late summer. But recent harvests have begun to exceed pre stressed yield, which is encouraging for Q2 and beyond. I should also note that revenues were impacted by the decision to significantly reduce lower margin third party agency and distributed brand sales and focus primarily on higher margin owned brand products. As we've discussed previously, we segregate our brands into 3 categories: Owned, Agency and Distributed or 3rd party brands. For the Q1, owned brands were 88% of revenue compared to 83% in the prior quarter and 55% in Q1 last year. Agency brands were 11% of revenues, down 18 percentage points from Q1 last year. Our focus Is on supporting those agency brands that are more strategically aligned with our drive to profitable growth. Distributed brand revenues were 1% of revenues compared to 16% in Q1 last year. We anticipate revenues in Q2 of $14,000,000 to $16,000,000 driven by contributions from low farm products for a full quarter and increased output from cultivation. We exited Q1 with cultivation yields getting back to or exceeding levels we experienced in Q3 last year. We expect agency and distributed brand revenues to continue to decline as we focus on driving our more profitable own brand portfolio. Turning to gross margin. Gross margin as reported was negative 13% in the Q1 compared to negative 18% in the Q1 last year. The margin improvement over the Q1 last year was due primarily to our emphasis on owned brand product sales in the current year, but was still depressed due to reduced flower output from cultivation. Gross margins in Q2 are expected to be positive, reflecting the anticipated increase in flower output and expanded penetration of Lowell brand sales. I should also note that gross margin is impacted by GAAP for finished goods purchased in an acquisition, since finished goods acquired are valued at selling price less sales expense incurred in selling the product. This adversely impacted margins by approximately 2 percentage points in Q1 and will impact margins in Q2 as we sell through the acquired finished goods Inventory. Operating expenses were $4,200,000 for the quarter compared to $5,400,000 in the Q1 last year. Operating expenses in the Q1 reflect the initial impact of new marketing initiatives focused on the Lowell brand and the significant reduction from the Q1 in the prior year reflects to cost reduction initiatives. The operating loss in the Q1 was $5,700,000 compared to an operating loss of $7,100,000 in the Q1 of 2020. Adjusted EBITDA in the Q1 was negative $4,600,000 which approximates adjusted EBITDA in Q1 last year. The impact from lower flower yield in the quarter and its impact on gross margin caused the negative adjusted EBITDA in the quarter. With anticipated flower yields improving in Q2, We expect significantly improved gross margins with EBITDA anticipated to be positive at the midpoint of our revenue guidance. Turning to the balance sheet. Working capital was $22,400,000 at the end of the quarter compared to $30,900,000 at the start of the quarter. And the company had $13,600,000 in cash compared to $25,800,000 at the beginning of the quarter. Cash expenditures of approximately $4,500,000 were in the quarter associated with the Lowell Brand asset acquisition and capital expenditures of $400,000 were incurred in the Q1, which were partially offset by $2,000,000 in net payments received on notes and $1,400,000 in insurance claim receipts in the quarter. We expect to receive an additional $2,000,000 to $2,500,000 in insurance claim recovery in Q2 and to incur approximately $1,500,000 in CapEx over the next two quarters completing our cultivation renovation in Salinas. In conclusion, with our flower yields improving into the 2nd quarter, We continue to expect 2021 to be a year of 2 contrasts. The first half, regaining flower capacity and transitioning the lower products into our portfolio and the second half of significant growth and operating synergies as we leverage our flower supply and drive Lowell brand revenues. With that, I'll turn the call back to Mark. Mark? Thank you, Brian. I cannot say That's enough, but I'm incredibly thankful for George's vision and the team's capacity to execute at the best of their abilities. I'm also thankful for our investors who quarter after quarter continue to double down on their support. The future is bright for Little Farms Inc. And I can't wait to share more with you as we solidify our positioning within the California market and beyond. Thank you. And with that, I turn it back to the operator. We will now begin the question and answer session. And our first question Our first question comes from Jason Sandberg of PI Financial. Jason, please proceed. Thanks very much. I just wanted to touch On the Loafarms and the integration. Just one thing that was pretty Important in developing a Roll brand was their great packaging. Just wanted to know Yes. If you're maintaining that packaging lineup and just in terms of if you can share with us What would the incremental cost be in terms of the packaging for Lova versus some of the other brands? It sounds like you've got quite a bit of a price increase, so there's I'm sure a lot of margin there to absorb the packaging cost, but any comments or color would be helpful. Yes. Thanks, Jason. Thanks. A great question. So I will generally tell you there is a Fair amount of value in the packaging. It's obviously iconic. And I will tell you that our Plans are certainly to evolve the packaging over time, but that the bar there is only to improve it. And I think From our standpoint, it sort of proceed with extreme caution type development. But we do think the consumer expectation is to continue to be delighted by packaging, Especially when it comes to the low band and evolving it over time is something that we think keeps it fresh and alive. Right now, we don't we're currently selling all products under the existing packaging. We've gotten some new packaging that we're developing around a couple of additional SKUs that we're launching. So no change to Existing SKUs in terms of packaging. There is a surcharge in terms of cost On the packaging, there is a surcharge in terms of cost. It generally costs us about A little over $1 for our existing packaging on the pre roll pack and about 3 quarters of that On the flower packaging, we think that's important and certainly not something we're looking to compromise, but we will certainly look to drive costs down there with Volume and sort of intelligent sourcing, but that the lead times on that type of development It's longer than a couple of months. So it will take us a little bit of time to drive cost out there. Okay. And in terms of your partnership with ZenWellness, will they have to adhere to that same packaging Standard, is that the plan? Or and I know that different states have different packaging requirements, but to the best of their abilities, is that the plan to carry on that Packaging to carry the brand in other states as well? Yes, 100%. 100%. The brand and the pack are iconic. So The only product that we've launched with Ascend out of the gate is our hero product, the pre roll pack. And that simply wouldn't exist without the pack itself. So 100%. And the way we're doing that is Right now, we're in the acceptance process in both Massachusetts and Illinois for the packaging. Once we get that Packaging approved for compliance, then we will modify our existing packaging to comply with whatever Feedback we get and the good news is on pre rolls, the packaging hurdles and requirements are far less onerous than they are and other more dangerous types of products like edibles. So we feel pretty good about the time line there and the way packaging works in that relationship As we're responsible for packaging, we sell the pack to well. So we have complete control over what the external look and feel of the product is. Okay, perfect. I will get back in the queue. And our next question comes from Bobby Burleson of Canaccord. Please proceed. Yes, good morning. So just curious on the licensing effect of the licensing Opportunity, what should we be thinking about there in terms of margins, given that you're selling through some of the packaging? What's the kind of all in blended margin you guys are looking further. Yes. It's a great question. And I think we're sort of still trying to flush out where pricing ends up. So The way it works is I think we have a cost plus arrangement on the packaging. So that's a pretty narrow margin profile, but not necessarily Likely to generate a lot of the top line revenue. Most of the top line revenue will come from the royalty arrangement with Ascend, which we said on the call, but I'll repeat because it's important. The royalty arrangement we have is we get 15 points On wholesale sales from Ascend. So and either if it's sold through their own dispensary, We use the list price and if it's sold to a third party, we use the transaction price in wholesale. So for the basis and that top line, the only cost that we incur against that would be additional headcount costs we have on our side as well as whatever marketing support we're lending to the brand activation. And that level is yet Mass. It is undetermined. We're stepping through this. It's the first time we've done this. We certainly had Other offers to do this in other states. My instinct here is that Ascend is a highly confident and friendly partner to us and we know them well, they know us well. And so we're trying to learn what's important in this activation, got to brand them in another market before we rinse and repeat in too many other geographies. And so this is really about our learnings and what we can take away from it. I do think it's going to have a meaningful financial impact, But exactly how much is sort of undetermined right now. Great. Thanks. And congratulations on doing the yields up at the greenhouse. Curious, what you guys are doing? If you maybe can just walk us through, This is a little bit of review, but what you guys have done to protect against future losses of a similar nature. I saw that we're entering fire season potentially early this year. So curious what mitigates this kind of an issue going forward? Well, I'll start and I'll give it to Mark to see if there's anything I missed. Obviously, There are only so many perils that you can run into with cultivation in the form of pests and viruses and foreign contaminants. And I think we've actually had a fair amount of run ins with each of them over the last 12 months. And the genesis of what happened here, I think is something that is coming more into focus as time evolves, But it all certainly was the sound of it was certainly the heat stress that we experienced last year during the wildfire season. It certainly impaired our plant health in our nursery, which is once you have challenges in the nursery, it will take a very long time to work its way through. So I think what we've done is we created SOPs that are far more rigorous than we had for And staffing frankly that's far more acute and specific to each type of apparel out at the greenhouse. And that allows us to maintain vigilant watch for each one of the issues. Now with respect to the wildfires, I think we I said this earlier in the year. One thing that we have actively worked on is our environmental controls at the greenhouse, which are far more reactive in terms of mitigating heat and humidity inside the greenhouse, which are your enemies during the summer season and can be really exasperated by the wildfires as you shutter the greenhouse vent. And so that's something that we've implemented. It's no longer a mechanical system. It's now fully automated. And the team has been working to program that in advance of a wildfire season to make sure that we have controls in place. And I think it's important to note last year's wildfire. It's never this year's wildfire. Obviously, what's likely to burn this year as is forest land that wasn't sort of burned down last year. It's pretty logical and obvious. But And so I think we are watching where the state has declared our high risk areas and we feel relatively comfortable at this stage, but we'll keep everybody posted as the season evolves. Obviously, there's a fair amount of anxiety everywhere in California around A repeat of what occurred last year and no shortage of that on our team. Mark, is there anything you want to add to that? No. I mean, I think you addressed it really well. I mean, the team I mean, we're testing for vibroids in house now that we're cutting off the mother. So Things don't even move into production if they have any issues. So I mean, we really we got to the bottom of everything and We now plan every harvest like it's going to come in contact with our worst enemy. So we've taken mitigation risk from day 1 in the nursery All the way through the last few weeks of Flowering. So I mean, I think as a team and a program, I don't know. I think we've seen every play that could have been thrown our way. And I think now we have a system in place to catch it before it's even going to happen. Great. And then just one last one. It seems like things are opening up in terms of Yes, more localities allowing cultivation and production. But there's also a lot of capital that's been raised and is being deployed to build out footprints in California. I'm wondering with lumber prices doing what they're doing and Yes. Issues maybe getting lighting from overseas. What's the latest prognosis on Being able to get a greenfield operation up and running or find existing facility That's relatively easy to retrofit. Has that gotten a lot tougher and more expensive? So, Bah, I will tell you that like if it was just about announcing square footage and getting Footprint under the belt, even footprint under the belt that could work in the near term, I think That would be something that we would have no problem doing because there's no shortage of licensees who are willing to sell licensees who Had similar issues that we had that busted the bank who on the cell. The challenge that we are facing is cannabis Cultivation is certainly a cycle in California and will be a cycle. We've just seen very strong Bulk prices over the last 18 months to 2 years and that has created a sort of bumper crop of capital expansion In California. And we're watching very cautiously as we think through that about how to make sure our facilities have a cost structure That's enduring over the long run. And one critical ingredient there that we've been deploying is really the negotiation on taxes. So each city Or each incorporated city or county has their own cultivation tax that they deploy depending on whether or not you're in an incorporated city or the county. It's really imperative to use your negotiating leverage with a large scale operation at the outset. We've seen A number of large operators walk into big facilities with taking the rack rate tax deal. And we think that that's A little bit more of a treacherous path. So we've seen we see a couple opportunities out there to negotiate with with some jurisdictions and to get tax rate to be a huge advantage. If you don't get your tax rate right, it can be It can be nearly double what your rent is In a facility. So it's a major contributor and certainly would be a major contributor to losses should the cycle turn. The other thing we're starting to see is a trend towards outdoor and sort of modified hoop house greenhouse Construction was sort of a low cost environment. We've seen counties that were really reticent to embrace that type of cultivation are now starting to embrace it. But what that creates is a massive choke point in the production in sort of post production processing. And that is an opportunity that we are evaluating really closely. I can't speak specifically about it yet, but I do think It potentially affords us a way to get access to a large quantity of feedstock, But in a way that protects us from future price movement and in a way that gives us a substantial advantage to our competitors in Unit Economics. So that's something that we're very focused on right now as well as the cultivation Expansion, I want to reiterate something that's also really important to understand. Our brand today produce we produce Just shy of £3,000 in the month of April in terms of flower. That's obviously great for us and we Look forward to putting that number in the rearview mirror as the team is confident in their ability to march upwards. But I just want to be clear, Our ambitions in terms of where we want to take our brand, we have all that we need from our greenhouse today From to build the largest brand in California, cannabis. Our output is Substantially higher per square foot than most greenhouses because of the investments that we've made into it. And the unit economics at full throated output are superior. And what that allows us to do is build, I believe build everything we want in terms of branded products. We could take the number one position In pre rolls and the number one position in packaged flower in California with the cultivation That we're seeing from our farm today. So we have everything we need. That doesn't mean that we don't want to continue growing and we are, but we're just going to be judicious about it. And I look forward to walking our investors through our next step and why we think it was the right next step. Great. Thank you. Our next question is going to come from Doug Cooper of Beacon Securities. Doug, please proceed. Hey, good morning, gentlemen. Just on the capacity at a greenhouse output for Q2, you gave a range of £8,500 to £9,000 Is capacity at the facility yourself, I think, £45,000? So would you get there kind of run rate in early Q3, is that or mid Q3? So I think we've always said between £40,000 £45,000 I certainly don't think we've learned anything That suggests we can't get to that output. I think we still the team is confident that a couple of measures that they've taken Can have more step function improvements in output. We'll see. I've got we've got Another piece of a couple of pieces of data coming in this quarter as to how we've transitioned in Plant Media and then a couple of other changes that we've made to see what kind of step function we can get out of those. I will tell you that Mahesh? I feel good about that number. I still feel good about our ability to get upwards of 40,000 tons. What that will require is That will likely require that we're running at a higher monthly output over the months of Usually about May through October when we see peak output from our greenhouses, we'll probably see about a 15% to 20% decline That's seasonal from the greenhouses, but I'm still highly confident in our ability to achieve that number. Okay. Revenue of $11,000,000 in the quarter, 88%, which was your own brand, which puts it around $9,700,000 You said the low was $900,000 was that for the quarter or was that for March? No. That wasn't for the quarter. That was just for the March and the sub period In February, what you think was 2% to 8%. Right. So that was the entire contribution of LoL in the quarter, right? Yes. Yes. $16,000,000 in revenue for Q2, we'll call it $900,000 in low for March $2,000,000 in April. So it obviously doubled, give or take, dollars To $16,000,000 in revenue, how much of that is estimated to be low? Is it be around 50%? I think 50% is an aggressive number there. And I'm not 100% Comfortable yet giving guidance on the breakout in wool. I think a lot of we've got some product launches this month that I'd like to see Naz. How those go? Obviously, we think we've got a lot more stores to get penetration into Mads, in terms of footprint and the team is actively working on that. So I do think it's got a lot more revenue potential than where we were in April. But I think it's going to be I think it's going to take a little bit of time for us to grab that kind of share. Okay. I guess the proof is sort of in the plan of reorders. So you had your initial sort of sell in to some of these new stores. Have they started to reorder yet? Sure. 100%. Yes, we've definitely seen some reorder volume, something we watch closely. 420 was a big volume clear in Clear out for a lot of stores and we saw some replacement ordering and it's something that we're watching now and sell through is critical. I mean we watch sell through through all the tools that we have to make sure the products that they're moving. A big part of sell through is making sure we have our brand ambassadors who are visiting stores, making sure the products merchandised favorably and making sure that If there's a demo day where customers want to learn about the farm or learn about the product, we're in front of customers doing that. This is it's obviously It's a battle for eyeballs and tension and that's where our own captive distribution network and our sales team really It's an advantage to us. Most of our competitors are using 3rd party distributors, but there's a lot of work that has to get done in order to generate that kind of sell through. So I think we should be better at being able to report our sell through volume and velocity at the end of next quarter. Okay. And just sticking on the pre roll. The pre roll market, the last sort of I saw maybe that was out there is roughly 10% of the California market. Do you have any update on there and where in April based on the $2,000,000 of Sales where Lowell stood in market share? Yes. I would say Lowell is probably 3rd or 4th in market share, that's a little deceptive because some of the players above us have Product SKUs that we don't have, namely the infused and many pre rolls. So I will in terms of The non infused pre roll pack were higher up than number 3 or number 4. I don't know exactly which one it is, but I think it's probably number 2 in the market. But I will say that I'm optimistic about Our ability to climb that chart. I think the other thing that we are very focused on right now and I think this is something that's coming into focus Is how to drive substitution from flower into pre rolls? And I think there's probably an analog that you could go back and make to the sort of To the tobacco industry where loose tobacco outsold cigarettes for a great number of years. And I think from our standpoint, The consumer is inclined to make more of a substitution towards pre rolls if you get the offering right. And I think that's a combination of Product is a combination of price and merchandising. So those are the three things that we're You're keenly focused on in terms of grabbing substitution. I don't think this is about just taking share from the other pre roll suppliers in the marketplace. I think this is about driving automation to drive down our unit cost, make Preroll is a better substitute, a more compelling substitute for the consumer. Now the one thing that's really great and exciting About the marketplace, and sorry for the long ended answer, but the thing is we are seeing flower and pre rolls vastly When you combine those 2, those 2 are vastly outpacing the growth of the rest of the California cannabis market. And that tells me that the consumer has a desire and a want to smoke cannabis in its natural form. Well, I think That gives us all the jet fuel we need to invest in automation to push pre rolls to be a viable substitute for flower because the consumer has spoken, right? The consumer is already telling you in the most mature market in the world, what they want to do is they want to smoke cannabis in its natural form. Okay. And my final question, I guess, just on the licensing side. Has Ascend given you any indication what they think Lowell could do in Massachusetts, Illinois, part 1. Part 2, do they have a ROFR on other states that they're in? And then 0.3, other states, Which ones would you find most attractive? I mean, there's a huge real estate market, I think. Yes. I think our relationship with them is and I was reluctant to sign a sort of binding long term relationship That couples us at the hip over time. Because one thing you've got to remember about these MSOs, they're supply constrained. I mean they have most of them have indoor grows where they can only produce so much flower. And then they have to optimize their output To make as much revenue from that output as they possibly can. What that means is that product that they built towards our offering has to be Revenue accretive for them. And so one thing that we're going to be watching very closely is how the product moves when we price it at a place where it's revenue accretive to them and absorbs our royalty. I think it's too early to say how successful that is. From my standpoint, I think we're achieving 2 fundamental goals. And the first is learning how to effectively roll out this product in other marketplaces. And the second is cementing Our brand and brand image with cannabis consumers at the moment of discovery in other markets. And we don't want to be Absent from the dialogue with consumers have with bud tenders in other markets and that's really critical. I think it all sort of paves the way towards what we think the long term future here is where the product is essentially manufactured and sent to consumers On a nationwide basis. So it's obviously some time off far off, but it's important for us to plant these seeds now. So just on that, just to if interstate commerce is allowed, what happens to these licenses? So I think by the way, that is a great question. I'm sure there's teams of lawyers who get on the phone. But I think The vision of the future that I think I subscribe to is one where feedstock And or raw products can be acquired can move across state lines, but they need to be sold and distributed by licensed entities within those marketplaces. That's what in my opinion what The future is most likely to look like. How long it takes for us to get to that end state, I couldn't be certain. Okay. And finally, just sort of other states that you find attractive, Will it be Florida? Yes, obviously, yes, the recreational states. I would say Florida is definitely interesting. It's sort of like Michigan. It was when it was a medical market. It's very high penetration in cannabis consumers, very high normalization rate. So I think Florida is probably out there and certainly interesting. Obviously, it's only been a year and a half since they embraced flower. So I think that would be a good time for us to get into that dialogue. The challenge with Florida is you can't when you choose a partner in Florida, you have to choose The partner to be vertically integrated because brands can't be sold wholesale and Florida, what I don't know, if that changes, who knows, but today that's the case. Other markets that are certainly interesting are the sort of are the rec markets of high volume, especially those with a fair amount of tourism. So Nevada is certainly one that we're watching closely and would probably look to be a fast follow Beyond the states that we're in and certainly New York. San Wellness has one of the best retail locations with the MedMen facility in New York City and certainly one that we would want to be a part of. So if the partnership goes well with Ascend, we would certainly hope to take it into New York. Great. That's it for me. Thanks very much. This concludes our question and answer session. At this time, I would like to Turn the call back to Mark Antwartz for any closing remarks. Mark, please proceed. Thank you again for joining the call and taking The time to get an update on our business. We look forward to talking with you on our next earnings call. This concludes the conference. You are now please feel free to disconnect at this time. Have a great day.