Earnings Call: Q2 2020

Aug 20, 2020

Good morning, everyone. Welcome to TerrAscend Second Quarter twenty twenty Conference Call for the three month period ending 06/30/2020. Listeners are reminded that certain matters discussed in today's conference call or answers that may be given to questions asked could constitute forward looking statements that are subject to the risks and uncertainties relating to TerrAscend's future financial or business performance. Actual results could differ materially from those anticipated in these forward looking statements. The risk factors that may affect the results are detailed in TerrAscend's annual information form and other periodic filings and registration statements. These documents may be accessed via the SEDAR database. I'd like to remind everyone that this call is being recorded today, Thursday, 08/20/2020. And I would like to introduce mister Jason Ackerman, chief executive officer of TerrAscend. Please go ahead, sir. Thank you. Good morning, everyone, and thanks for joining us today. With me, we also have Jason Wilds, our chairman, and Keith Stouffer, our chief financial Officer. I'd like to take a few minutes this morning to review our strategic priorities and some of our recent successes, and then Keith will go over our financials. And afterwards, we look forward to taking any questions. As we announced during our Investor Day earlier this month, we generated $47,200,000 in sales for the second quarter, which represents an increase of 36% sequentially. I'm also proud that we are again reporting positive EBITDA adjusted at $11,400,000 or a 24% EBITDA margin. This represents $6,500,000 quarter over quarter increase in adjusted EBITDA and $12,000,000 increase in sales. And this really demonstrates our focus on growing sales, expanding our margins while controlling our overhead costs. I'm also very happy to report that we generated our first quarter of positive cash flow from operations of $10,400,000 This is a testament to our model of continuing to scale our investments and bearing fruit as we have put a lot of work into scaling our business. It's also a testament to the quality and talent of our entire team. And I can't emphasize enough how proud I am. We've worked really hard to get the right people in the right seats with a common set of core values, and the team is really working well together. Our U. S. Operations represents the single greatest growth opportunity for our business. And in the quarter, they accounted for approximately 90% of our revenue for the third consecutive quarter. We've developed a solid foothold in The United States by investing in high growth limited license states, which enable us to go deep and build scale. We are focused on vertical integration to ensure we build an efficient organization that can produce strong margins and reduce reliance at retail and third party products whenever possible. Geographically, our current areas of focus are Eastern and Western hubs located in Pennsylvania, New Jersey, and in California. We will continue though to look for opportunities to expand in other East Coast states. Moving over to our Pennsylvania operations, as you know earlier this year we completed the tripling of our Alara cultivation facility capacity and have already begun to see the benefits of that expansion drive our sales in the current quarter. We expect to see a continuation of this growth in sales and profitability throughout the rest of the year as we have now finished and have planted the additional capacity of 25 which will be coming to market in the fourth quarter. We also have opened our second and third Apothecarum dispensaries in Pennsylvania, one in Lancaster in April, and the other one in Thorndale in early July. And both are doing great. I was also excited to hear that the latest data report from PA Department of Health early this week, which indicated that the retail market for cannabis in the state of PA is now approaching $1,000,000,000 in annual run rate on the latest five months of sales. And there's been a lot of debate in the size. It's good to see that number come out from the state because there's really incredible strength in the marketplace. And given that strong growth in demand, we expect a continuation of the overall stability and pricing of our margins. Moving over to New Jersey, we are in the process of building out our cultivation facilities. Subsequent to quarter end, we did announce that we received approval from the New Jersey GOH to commence cultivation at our New Jersey facility, making our 37,000 square foot greenhouse the first approved for medical cannabis in the state. Currently we began planting of this facility and expect the first harvest to occur during the end of the fourth quarter of this year. We are also under construction of a larger indoor growing processing facility as part of our Phase two plan, which will be completed in the fourth quarter of this year. This will be fully operationally in market in the first quarter of next year. In addition, if we look at the overall plan for New Jersey, we do have the ability to build up to 240,000 square feet on the existing New Jersey property. So overall, we feel really good about our ability to take advantage of the strong growth opportunity that the state of New Jersey represents. We plan to open up our first Apothecarium branded New Jersey dispensary in the fourth quarter with an expectation that two additional sites will come online during the first and second quarter of next year. I also remained optimistic but cautiously optimistic regarding the potential rec ballot in November for New Jersey. We know that there is popular support for it. And if the bill passes, we are, we, you know, being an existing operator in the state, this should enable us to quickly capitalize on the expected strong demand. New Jersey also allows for a very strong full range of products in the market place, actually more extensive than Pennsylvania, which doesn't allow edibles and pre rolls. So I'm really excited about the extensive product line. We will be coming to market, in New Jersey. And, you know, when you look in inside our business, one of the great strengths of our team is the quality and speed of our product development and innovation. They do an amazing job. Moving over to California. We are focused on driving organic growth in the Northern Region where we opened an additional location in Berkeley in quarter three, bringing our total dispensary footprint in the state to four. We have another location under development in Capitola, which we plan to open in the fourth quarter. Our West Coast team has been very successful in applying for licensing, winning and opening up stores in really great locations. And we expect that to continue. We have also recently, completed the expansion of our California state flower cultivation facility as well as our Valhalla branded gummies and chocolate manufacturing facility, which enables further integration, of our West Coast operations, which will drive stronger margin over time. We expect the state flower cultivation expansion to hit the market in the fourth quarter. And given the really outstanding unique high quality of the product, it's really off the charts. We expect to continue receiving a price premium in the marketplace. In addition, we will be rolling out our BajaLA branded edibles into our New Jersey market in the first quarter and in the Canadian market in the fourth quarter. Since our last call, we have continued to see strong demand across our business in total despite the current pandemic. And we'd like to reiterate that all of our facilities and dispensaries have implemented strict protocols to protect the health of our employees, customers and patients during these trying times. We have also introduced drive thru and curbside pickup options at selected retail locations across. And across the company online revenue at our retail locations since the beginning of the year is up 4x. And it is really clear that online ordering and delivery will be a very important part of the industry's futures. Customers will expect us to be there at every touch point of their choice in a consistent, intelligent, and seamless way. Of you may know that I spent the last twenty years building a very scaled Internet and delivery business myself. And I'm really excited about our future path to build a world class omnichannel personalized retail experience for our customers. During the second quarter, we closed on our oversubscribed $37,000,000 private placement, which has positioned us with a strong balance sheet to complete our investments in our U. S. Operations, which are propelling the growth in our business. Some of these planned initiatives include the completion of construction of our New Jersey facilities and continue to expand our retail footprints in New Jersey and California. I continue to focus on building a world class management team. And I'm very excited to have recently announced Jason Marks as our new Chief Legal Officer. Jason has more than two decades of legal experience and over a decade of global experience with deep experience in the life science industry. And we're thrilled to have him join our team. He's got a real unique perspective and he's a real rock star. In closing, I am really excited about the second half of the year and expect to see demand to be strong across all of our businesses. I would now like to turn over to Keith who will discuss our financial highlights for the quarter, then we'll open it up to questions. Take it away, Keith. Thanks, Jason. Good morning, everyone. As a reminder, the results I'll be going over this morning can be found in our financial statements in MD and A and are all in Canadian dollars. We finished another very strong quarter financially with continued robust growth in net sales, while also significantly improving profitability and gaining scale and operating leverage. Net sales increased 169% to $47,200,000 in Q2 versus year ago and 36% versus Q1. This strong growth was driven by our U. S. Business, which delivered 42,500,000 in revenue, representing about almost 90% of our total consolidated net sales revenue and reflecting TerrAscend's continued focus as a leading US MSO with depth in highly attractive states. The increase in US revenue was driven by a full quarter's realization of the expansion of our Pennsylvania cultivation capacity as well as by the opening of our new retail store in Pennsylvania that Jason highlighted. Gross margin before gain on fair value of biological assets was 56% compared to 9% in q two of last year and 45% in q one. This improvement in gross margin is the result of the shift to higher margin revenue opportunities, particularly in our high margin business of Pennsylvania, as well as the ongoing initiatives we have taken to optimize our Canadian operations to the current market opportunity. Operating expenses for the quarter were $15,700,000 representing 33% of net sales as compared to 42% of net sales in q one and sixty five percent of net sales in q two of last year. This significant improvement reflects the the strong operating leverage and tight cost control that we're driving across the company. With that being said, we do expect to continue to strategically invest in acquiring the talent and developing the appropriate infrastructure and capabilities that we deem necessary to ensure continued growth, and we will do this in a very disciplined manner. Adjusted EBITDA for the quarter was $11,400,000 compared to negative $8,600,000 in Q2 of last year and a positive $4,900,000 last quarter. Adjusted EBITDA margins expanded significantly from 14% in Q1 to 24% in Q2 as a result of the strong gross margin expansion and operating leverage on SG and A expenses. Cash flow from operations in the quarter was a positive $10,400,000 the first quarter of operating cash flow positive for the company as compared to negative $22,000,000 in Q2 of last year and negative $1,300,000 in Q1 of twenty twenty. We continue to invest CapEx dollars to build out our existing footprint in the high growth markets of Pennsylvania and New Jersey. We spent approximately $14,000,000 of CapEx in Q2, mainly related to those build outs, but also partially related to our retail footprint build outs that we've mentioned. We expect the peak of this CapEx spending to ramp down by the end of Q3 as we substantially complete these projects. We ended the quarter with $75,000,000 in cash and equivalents, including restricted cash, compared to $17,000,000 as of June 30. As Jason noted, in q two, we announced a $30,000,000 non brokered private placement, which was oversubscribed and subsequently upsized and closed at 37,000,000. Importantly, we anticipate that the cash that we currently have on hand will be sufficient to fund our current operating needs through the end of the year. And finally, I'd like to outline our financial guidance for the remainder of the year. Driven by our investments in Pennsylvania, additional cultivation expansion, and ramping up of our new retail locations in Pennsylvania, California, and New Jersey, we anticipate full year net sales of at least $192,000,000 and adjusted EBITDA of at least 45,000,000 We also expect to see continued improvements to gross margin, operating leverage on SG and A expenses and expanded EBITDA margins. We expect the phasing profile of the second half to be more weighted towards Q4, mainly driven by the additional cultivation expansion in PA, which is expected to begin to translate to revenue in Q4. We also expect to continue to generate positive cash flow from operations through the back half of this year. So to close, we're incredibly proud of the results achieved once again in Q2, and we're excited about our plans for continued robust growth in the second half of this year. I'd now like to ask the operator to open the call for questions. Thank you, sir. And your first question will be from Kenric Ty at ATB Capital Markets. Please go ahead. Just quickly, I could, following up, Keith, on the commentary with respect to the outlook. Obviously, $45,000,000 plus guide on EBITDA. That's a further increase versus consensus and a nice to have. You've outlined a broad number of initiatives that sort of give you that conviction and support that outlook. But how much of that, if you were to have to wait it, really is driven off just how strong Pennsylvania is and goes to Jason's comments with respect to the sizing of that market opportunity perhaps being even bigger than you thought it was or would be as recently as a couple of weeks ago. Could you walk us through, you know, through that? I mean, it's a nice nice problem to have, but just better understanding sort of the the biggest of the drivers there and the sensitivities to those drivers for that 45,000,000 plus in EBITDA for the year. Sure. So yeah. I mean, it it it's definitely largely driven by by Pennsylvania. We're we're seeing very robust growth. We have our 25% expansion that's that's coming online as we mentioned in in q four, and so that's that's gonna drive a lot of additional revenue. And, as we've indicated in the past, that business is highly profitable. So, to a large degree, the EBITDA that we're that we're mentioning is is driven by Pennsylvania, and, and it's also driven by growth in our retail stores that we're opening as well. So those are the key drivers through the back half of the year. Right. Appreciate that. And then, Jason, if I could just switch to you for a second, just on Pennsylvania, I guess it's a two part question. One being the increase in capacity into that market, both yours and a number of your competitors had a number of people pausing earlier this year in terms of concerns around that supply demand balance and how supply constraint could or would the market remain with the additional capacity being brought on. Could you sort of speak to that dynamic? And then the second question or the second part would be in terms of competitive intensity. I mean one of the one of your major public competitors obviously recently just closed on the acquisition of the largest private player in Pennsylvania. Could you speak to how or if that changes the competitive intensity for you? Does it require you to sort of have to be rethinking how you go to work in Pennsylvania? Or is it really a little bit of carry on with respect to what they can do in the short to medium term or how confident you are in what you're doing? Yes, sure. Yeah. So we we've always been saying that this what we see at our retail level and our customers that Pennsylvania just continues to outpace all expectations at a demand level. So which is why we you know, we've had the conviction to continue to expand the operation because we have full confidence that the market can absorb the additional capacity even as additional competitors are coming on. And as you recall, I believe there's now roughly, you know, 80 to 90 dispensaries open in the state. The state has 150 plus licenses. So, you know, we still have quite a runway of additional stores coming online to enhance and continue to grow retail demand. So with that amount of dispensaries coming online over the course of the next twelve to eighteen months, we think that and with a strong just natural growth in patient counts because the patient counts continue to accelerate. A combination of that, we believe that the the market really still can sustain the increased capacity from us and all of our competitors. So we're we're fairly bullish that the overall supply demand balance will will sustain itself for a bit of time. So we have pretty good confidence on that. You know, in terms of competition, you know, I'd say that I spent most of my life just saying to my team that we just have to be the best in the marketplace, and we're super focused on our customers and understanding what they like and what they don't like and continuously innovating products. And so our approach to the marketplace has really been simple. With our retail, partners, we're always gonna be there on time. We're never gonna miss a delivery. We're always gonna, we're never gonna short our customers, and we're gonna meet or beat their expectations. And with respect to the quality of the product, the team is just relentless on making sure that we're making the best products we can. We're constantly innovating on a regular basis. So in terms of stepping up the competition, you know, we're gonna judge ourselves against ourselves, and and their you know, continuous improvement is is embedded in our DNA. We do look at competitive sets to bring it in, but I I really have tremendous confidence that we as an organization will continue to up our game on a regular basis as a matter of course. So I feel good about that, and that also gives me confidence in our ability to compete in New Jersey, which, as you know, is roughly the same set of partners and competitors in that marketplace as well. So, yeah, we feel we still feel very good. Thanks, Jason. That's great. Great. Great. You saw some great color. Just one final quick one for me before I get back in the queue. Form factor evolution, is is there a a how how would you think about the form factor evolution? Is there a chance that we we do see and could see edibles and the like in Pennsylvania ahead of a rec use initiative, or do you think that Pennsylvania is unlikely to have any further form factor evolution ahead of a potential rec or adult use legalization? How should we think about that? Yeah. Well, we're we're not betting on it right now, and I'm not particularly familiar. You know, we are anticipating that rec is a decent probability to come up as as a big conversation. So, you know, us and a number of players in industry are are coming together to to try to, have influence on the states and make sure that's a healthy program. But right now, we're not betting on it. But, you know, the fact that New Jersey is pretty wide open on those products is is really exciting. For us, it just represents an even bigger consumption opportunity. But right now, we're not planning in our plans that that is going come to market yet for Pennsylvania. Right. Thanks so much. Congrats, and I'll leave it there. Thank you. Thank you. Next question will be from Eric Delovier at Craig Hallum Capital Group. Please go ahead. All right. Great. Thanks for taking my question, and congrats on a great quarter. Great execution. Good to see the operating leverage flowing through. I'd like to focus on M and A. You guys have made clear you'd like to operate in hubs. So somewhere near Pennsylvania or New Jersey, clearly on the radar for you guys. Could you give us any color around maybe timing of M and A or any other insight into the kind of business you'd like to buy? Does it need to be cash flow positive? Is that really where you're looking? Does it need to be EBITDA positive? Do you prefer a more mature business or maybe even buying undeveloped licenses? Any additional color around, M and A as it relates to timing or operations would be really helpful, I think. Yeah. Hi, Eric. Good morning. Obviously, as you can expect, since we have nothing to announce, I can't, make a comment on the timing. What I would say, is that, we are actively looking. We have an extraordinarily talented team in the Alara Group that is and has the capability to take on multiple states. We've added a lot of great talent that we're super psyched to have. So I believe our capacity to run additional states is there. With respect to what we're looking for, you know, it's always a combination of of not just what you're buying, but what you think you can do with the asset. We've said over and over again that we believe that scale and size is going to matter over time, And that we're going look for opportunities where we think we will be able to achieve a certain level of scale to have extraordinarily high rates of returns in the marketplace that we operate. And as things may or may not get more competitive over time, that we will be the low cost operator and quality operator in the state. So we're pretty disciplined about that. So when we think about acquisitions, we're gonna, you know, stick to that and and have a view that we can be a meaningful player in wherever, we go. So that's that's our criteria. And and if we don't believe that we can accomplish that, we we won't go into a state. Okay. That's helpful. That's a good segue into my second question. You know, you mentioned great talent you have on the EYLEA team. What do you think has really enabled, you know, you guys and the EYLEA team to achieve, that number one market share in Pennsylvania and such great margins? You know, is it really just kind of getting there with the scale before everyone else? Is it the focus on great products? Is it focus on on, you know, low cost? Can you just kind of give us some, you know, some insight into what makes the Alira team so special, and why do you have confidence, you know, in in places like New Jersey or just, you know, as you expand with the Alira team into additional markets, what gives you the confidence and and and what should investors feel confident in that we can get, you know, similarly impressive operations as you expand beyond Pennsylvania? Thanks. Yeah. Well, look. I you you we all know that, businesses are nothing more than their people and what they're capable of doing. So and I've run teams for over, you know, twenty years as a CEO, and, yeah, it really, really makes a difference, the difference between an a player and a b player. It could be 10 x, the quality, with the right people in the right seats. So what gives me confidence, and why are we doing well? I'll go back. It's it's just the people. I think you heard from Greg, at the last meeting. You know, Greg is a great innovator, but excuse my French. He's cheap as shit. And, he really runs a very tight we don't care how big our margins are. He runs a very tight ship. And one of the great things about the team, not only they're very cost conscious and financially conscious, but they also have a great edge with respect to customer and product innovation. I've had the opportunity to spend a lot of time with the team, and I will just tell you flat out, and I've run a merchandising organization for a long time, and product innovation is something I know really well. And just the passion of the team to constantly improve and to make great ideas and the number of ideas are coming out. I just know what a good CPG activity looks like. And, you know, having been in grocery, one of the most competitive things, we carry 15,000 products. We manufactured a thousand of our own products. I know what it looks like, and, you know, they're good. And, you know, the question is why? You know, focus on a players, common set of values so the team works well together, be really, really focused and organized on what matters to the customers, and just be relentless. And and that's what the team does. And so, you know, and I and I know all the talent, and they're just great. Not to say and and not just the focus. We've got great talent across the whole organization. While we're sitting here focused on Alera, there's talent all over the country. But, yeah, they're just they're just great. And I I think as you know from my perspective, you'll hear me talk all the time that, you know, talent, talent, talent, core values, and we just focus on making sure that every seat is filled with the right people. Alright. Great. That's helpful. Certainly, has shown so far and, looking forward to what else is on the table. Thanks, guys. Thank you. Thank you. Next question will be from Glenn Matson at Ladenburg Thalmann. Please go ahead. Please unmute your line, Glenn. Sorry. Can you hear me now? Hello? Yes. Okay. Sorry, yes, great. Thanks for taking the question. So trying to, you know, begin to look out into 2020 a little bit, I realize New Jersey is quite a wild card. Leaving that aside for a minute, I want to just kind of think about California and Pennsylvania. So first off, on Pennsylvania, obviously, it's been a great historical growth rate, and you're coming into the next year with a full head of steam given the capacity expansions. But can you just talk to some of the data or the underlying statistics that gives you confidence that the growth rate can continue? I mean, it's at a $1,000,000,000 run rate now, becoming a little bit of a more mature market. But maybe what you're seeing as far as like, you know, how many new doctors are available to write scripts or, you know, where the demand for patient count is growing and coming from. So maybe just a little bit more color there on Pennsylvania would be great. Yeah. So I think if you look at the patient counts, it's in the high 300 plus, which I believe is a 60% growth rate in patient counts. And if you look at the nature of the market, in reality, it's really becoming a rec state within a medical context, in terms of the growth of the patient counts. The average age of the patients over the last year has dropped about ten years. So we're really seeing rec based users, you know, gain cards. And so what again, what I'll say about the state, if you look at really strong patient growth, the ability to get cards for a wide range of reasons is very strong. You have retail access. You know, you look at the state, very successful at rolling out, you know, 80 plus stores. And, again, you know, we always look at very simple things, which is supply and demand, you know, demand being. We know that on a per capita basis Pennsylvania is a very robust state. But continually opening up stores closer and closer to the entire population and where they live in the close drive is just allowing that access. And again, if you look at the 80 plus dispensaries going up to a 150, there is still a lot of room, for growth and continuing to create access closer and closer to people's homes, for the dispensaries. So, you know, those facts with the patient growth, you know, we just we just have confidence. And you can feel it in the business too. Just the you know, you can see the robust growth month after month in the dispensaries with more and more customers and new customers coming to the marketplace. So, you know, all that is just giving us continued confidence that the there's the the headwinds that the tailwinds are really there, and and we feel that they're there for for a period of time. And remember, you know, rec rec is hasn't come yet, but we do believe when New Jersey turns as a neighboring state, will put some pressure, that will further increase, you know, the opportunity, you know, on top of the great med market that it is. Great. Thanks. And then in California, maybe, could we talk about the market there given the COVID shutdowns and things? And then as far as the new store in Berkeley, believe the school is starting out virtual in the fall. So what do your expectations are there? And then maybe just kind of like how assuming that things get back to normal, say, in early twenty twenty one, what you could think about as far as what that asset base can do next year? Yeah. So, you are correct. California and Northern California has had, you know, across our system, the most meaningful impact overall, with COVID being in the city. You're correct. Berkeley is virtual. So, it's a bit of a you know, I'd say, it'll be a slower start for that store coming out given that the population, isn't there. But it's important for us to get into market and get our brand, known in the Berkeley marketplace as our first kind of moving across the bay. So as you think about our plan, we've got five stores that will be open, by the end of this year. We have our expansion of our manufacturing. We have our state flower operation coming on, and we expect that, between the gummies and the and the flower that it represents a very strong percentage of our shelf would be our own products, where and you've heard me say our intention is not to be a large wholesaler in that marketplace given the competitive nature, but to continue to grow our retail sales base, which will leverage more vertical integration for our own shelf in order for us to optimize the profitability in our marketplace. So when we think about California, it's not gonna be as large as the East Coast operations, but the intention is a very slow methodical growth, and increasing our profitability by making sure we're more vertical. And, that will allow us to have, you know, above average industry margins by ensuring that we've got our own production. And we're going to stay in Northern for now to keep focused on scale. Thanks for that, Jason. Thank you. Next question will be from Andrew Paffermeux at Stifel GMP. Please go ahead, Andrew. Thanks for taking my questions, and congrats on the strong guidance here. Maybe just to follow on that, one of the qualifiers I think you guys mentioned on the guidance is that it could be at least $192,000,000 in sales and at least $45,000,000 in EBITDA. Just wondering what necessarily would it take in order for you guys to beat your own guidance? Keith, do you want to take that? Yes. Sure. So good morning, Andrew. It's really so we don't want to get ahead of ourselves. So we're being cautious in terms of run rates on retail stores, for example. And, while they're ramping and we see them ramping week to week and month to month, we we don't project forward. So if if retail stores continue to do better, across the network, that could help us. So that that's one key driver. And, also, we we have a new store opening in in q four as we talked about in New Jersey. So that's kind of a, you know, key variable that is difficult to to predict exactly the opening there. We just talked about Berkeley. It's difficult to predict. So there are some, unknowns out there that we're we're cautious about. And if things all turn in the right direction, we we could have some upside, but we were just careful about how we we wanted to guide with all of that. Thanks for that, and, congrats again. Thanks. Thank you. Next question will be from Noel Atkinson at Clarus Securities. Please go ahead. Good morning, Jason, Keith, and thanks for taking our questions and well done again in the quarter. I just have a few questions here. So just following on some of these other questions, on New Jersey. So, your first dispensary opens q four. Have you sourced supply? Do you have supply in place to be able to stock the shelves, in q four from third parties? And, also, will you have some product from your own facilities in your store at opening? Yeah. Great question, Noel. As you know, supply is very tight in New Jersey. And so, we you know, part of kind of opening in the middle of the fourth quarter was really to make sure that we did have supply for that store. So it's not gonna be the most robust opening. We do and have and believe we'll have some, products, from, from third parties available for us. And then we hope to quickly have, by the end of the quarter, our own products, for the first time in marketplace. So, yeah, we do plan to have a combination of both. Great. And, you know, as you said as you said on your investor day, you know, the Pennsylvania market continues to grow robustly and, you know, you you you know, TerrAscend has done an incredible job, sort of keeping up with demand there and growing. So what do you see in terms of potential for further revenue expansion in Pennsylvania in '21 now that you're done this 25% expansion? Can you buy additional retail stores? What's what is the what's the plan for '21 there? Yes. So as you do know, 15 licenses is the allowable amount, we currently have three. We have nothing to announce, but we do have a desire to continue to look at how to get up to that 15 over time. So, you know, that is definitely on our radar. And, you know, obviously, we were very bullish on the continuation and particularly if if, you know, rec becomes a reality in that state. So we are we are exploring and looking at ways to increase capacity even further. Nothing to announce and nothing I could I could say today. But, you know, given just how robust the market is, we we will definitely continue to think through how we could create even more capacity. But at the moment, we have nothing to announce and nothing we could say on that. Are you able to acquire another production licensee in Pennsylvania? No. We are, right now, the limitation is, won't grow license per licensor, at the moment. But we do we do have a lot of land, and so we'll we'll see what what what what we can or can accomplish. Okay. And then and finally, sir, I might have missed this part on the CapEx, Keith. What's the outlook for the CapEx spend for the second half of twenty twenty? Hi, Noel. We we, we're not giving specific numbers, but I would just to, I guess, reinforce, my prepared remarks. Like I mentioned, we we spent 14,000,000 approximately in in q two. It's more or less a similar number in in q three as we complete the mainly the build out in in New Jersey, and then it, significantly subsides from there. Clearly, not down to zero because there's always gonna be CapEx spend, but in in q four, it it it will be a much, less significant number. So that's kind of the shape of things, and we're still building out a couple of our stores. So we have some some money behind Capitola, some money behind the the finalization in Pennsylvania, and that's kind of the picture on CapEx. Okay. Great. Alright. That's it for me. Thanks very much. Thank you. And your final question is from Chris Damas at BCMI Research. Please go ahead, Chris. Well, thanks for taking my call my question. We often see that adult use legalization dilutes medical limited license valuations. How do you expect the New Jersey adult use licenses to be distributed, especially with social equity, that sort of thing going on. And do you expect much out of state business, especially New York? Yeah. Two good questions. So on the rec bill, it is our belief that as a existing vertically integrated medical provider, that the rec bill will provide for an immediate conversion to rec license. Unlike Mass that has had some known challenges on that conversion, we haven't received any indication that would suggest that we wouldn't be able to easily move. And given the retail landscape, we are also focused on any property that we move into has approval in advance for both MET and REX. So that as we think about the right locations, we don't run into any challenges around, that transition. So, we feel actually pretty confident on, that move, hand in hand moving right to rec across our business. Yeah. Great. How many dispensaries are there licensed in New Jersey in the moment, please? Well, there are, 12, large vertical integrated license that have been issued for each region, believe. And each group has the right to open three. So there's 36, I believe, and I could be wrong so you have to excuse me if I'm quoting something off, of which a third of it is open and they're coming online. So that gives you that count. There were a a series, you know, two dozen or so licenses that were planned being issued as nonverticals. That as you probably recall, we're caught up in this recent losses that occurred regarding the application process, and there were some issues. And so we anticipate that, you know, by the end of this year, we hope that those will be released, which could add, you know, another 20 or 30, into the market as nonvertical. And I do believe that once rec is is announced, there will be a series of license applications as well, for dispensaries. I think I've heard loosely that the state, has a desire for 75 to 100, location, as the amount that I've heard discussed without any official, announcement. So that's kind of our expectation of of where over the next twelve to twenty four months, the number of licenses will be issued for the state for retail. Do you expect a lot of New Yorkers to come across the tunnel and buy in a Vulcan? I mean, they're gonna be Well, you know traffic? A lot of New Yorkers, buy our food, across the New Jersey at at places, so that that wouldn't be uncommon. I can't tell you which are the right locations. But, yeah, definitely. I mean, look. You've got MED in in New York. We all know that because they don't have FLOWER in the New York MED program, you know, FLOWER drives traffic. And without the FLOWER, you know, nobody really engages as heavily, though there are some successes. So, yeah, I do anticipate for sure. And even, you know, we've got a Phillisburg location, which is on the border of Pennsylvania. So if that goes wreck, we we think that there's a there's a lot of population at Pennside that might, you know, come over as well. So definitely, for sure. That's great. We're really focused on on the on the towns that are commuting into New York, as well in terms of in the North where our stores will be positioned. Are those Penn stores on the border vulnerable at all to people just saying, I'm gonna go over to New Jersey if I can't get a script? You say it's not correct? Yeah. Not now, but I do believe in New Jersey. I can only speak to the one location where we have in Phyllisburg, which is on the border. There's a quite a large population in Pennsylvania on the other side. And so if New Jersey goes wreck before Pennsylvania, I'd, I'm suggesting it just might be a a further, you know, opportunity for that store to, to pull people from Pennsylvania prior to them going wreck, but we'll see. Okay. Great. Great quarter. Good job. Thank you. Thank you. At this time, I would like to turn the call back over to Jason Ackerman for closing comments. Great. So I wanna thank, everyone for joining the call today. And, most importantly, I wanna thank the entire TerrAscend team. Really proud of you guys. It's been great working with everyone. Everyone's killing it, and, these results a of all your hard work. So thank you, everybody, and we look forward to speaking to you again. Have a great day. Thank you. Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines. Enjoy the rest of