Q1 2020 Earnings Call
Line, if you play some French any background noise. After the speaker's remarks, there will be a question and answer session. If he'd like to ask a question. During this time simply press star and the number one telephone keypad, if you'd like to try your question press the pound Keith. Thank you Katie Turner you may begin your conference.
Good morning, everyone. We appreciate you joining us to discuss the French Inc.'s financial results for the first for ended August 31st 2019 on todays call or Irwin Simon.
<unk>, Jim Meiers will also be available for Q and.
By now everyone should have access to the earnings release financial statements and DNA and Investor presentation, which are available on the Investor section on the free is website at <unk> Dot com the financial statement, having filed with Peter an anchor.
<unk>. Please remember that during the course of this call management may make forward looking statements. These statements are based on management's current expectations and beliefs and involve area known and unknown risks and uncertainties, but you may prove to be incorrect and actual results could differ materially from those described these forward looking statement.
Please refer to the Jackson to freeze earnings press release and financial filings issue today for a discussion on a restaurant uncertainties associated with such forward looking statement.
And now I'd like to time turn the call over to Irwin Simon.
Thank you Kt and good morning, everyone.
We appreciate you joining us today to discuss our first quarter financial results. Our team has accomplished a significant amount to start the year, both in Canada and internationally.
For the first quarter our results were in line with our expectations and we're on track to achieve our annual guidance. We believe our financial results truly sets us apart from our peers in the cannabis industry.
Don't use cannabis net revenue increased 8% with a fourfold increase in consolidated adjusted EBITDA as compared to the fourth quarter.
We ended the quarter, what a strong balance sheet, and a cash position, including $464 million of cash and marketable securities as they say cash is king our cash position and balance sheet, well continue to differentiate us in the candidates industry.
We remain focused on the highest return priorities for growth our first quarter results demonstrate our emphasis on sustainable profitable growth.
Since I joined to free up our focus has been on profitability, a strong cash position for growth and focusing on or assets that we believe will create the most value as we invest in them to grow demonstrate buyer performance and these strategies are working.
We have assembled a strong team with cannabis consumer package goods beverage and broader operationally supply chains experience that will fuel our growth this year and years to come well into the future.
Most recently birdie I'm joined Us as Vice President sales. He is a dynamic executive with significant experience in the cannabis and the alcohol industry. He is already hit the ground running at a free up with compelling insight and perspectives that helped further our growth as we consistently enhanced Arkansas.
Got it positions in both the adult use and the medical cannabis industry.
In addition, Denise faulted check has joined our team, bringing a tremendous depth of consumer package goods experience, particularly in the natural organic industry over her career. She has led teams to compete complete over 50 acquisitions, why accelerating topline growth profitability and generating value for sure.
Holders. She will work me on our global strategic alliance, including future strategic partnerships in both the U.S. and international She will also oversee our quality control and our assurance teams as well as the medical and international businesses. We're excited to have these two talented executives onboard and.
Look forward to their future contributions.
More than well under team members worldwide are delivering on their key initiatives to appeal to fulfill our mission to be a premier global cannabis company with our medical and adult use Canada's brands.
We continue to build upon or existing business fundamentals and capabilities streamlined processes through technology with our new ERP systems and greater automation in our facilities, all with an emphasis on consistent execution and to drive profitability in quality.
At a free up we strive to be better and all that we do so weaken further our industry leading position.
We have compelling brands for patients and consumers across broad demographic and her team is always working to further brand development.
We believe we can increasingly connect with consumers through our brand positioning them to drive growth through innovation and return value to our shareholders.
As a cannabis industry continuously evolve globally.
At a free up we're also evolving that rapid pace to ensure we stay ahead by leveraging our core capabilities.
In Leamington, we enhanced our operations team to generate improved quality and higher yields at lower costs.
We have a great vidigo video available on our website to illustrate the increased automation at or state of the art facilities.
At a free of one we are fully licensed and plant that would nearly 600000 plans.
Our 100 acre a free a diamond premier greenhouse feature 1.3 million square feet up production.
The facility is fully constructed and ready to be operational we.
We had been working proactively with health, Canada secure licensing for the facility.
The team at Health, Canada has gone above and beyond to work through a free of diamonds license process, particularly since the end of June .
On Friday, we were advised by health, Canada that they're in the process of expediting the issuance of the license. We're excited about their tremendous growth opportunities. We will have as result of expanding our total annual domestic production capabilities in Canada to 250.
255000 kilograms.
We look forward to addressing industry wide supply constraints with our expanded production capabilities.
In addition, we remain confident we will obtain or you GMP certification for bulk and finished product in the first half of this fiscal year, enabling us to export product to meet the growing demands of the European and South American markets.
Today, a free ahead five high quality brands, including so late really good supply broken coast and our free of medical brand a.
A free a success will continue to be driven by our differentiation portfolio brands and products. He aimed at delightful distinct consumer segments.
In fact, our adult use brands continue to receive industry wide recognition.
A free of brands continued to gain momentum in the Canadian marketplace. According to O C. S data, we've reached a 12% marketshare that is excellent we were able to gain a significant amount of shared during the quarter from our competitors driven by brand awareness nationwide.
Distribution and the quality of our products now that birdie is started just stick what else we're going to achieve.
Broken coast, our industry, leading premium craft products continues to be among the only brand consumers consistently asked for my name in the industry.
We believe overtime are broken post brand has the potential to be the number one premium brand in Canada to lay continues to appeal to new consumers. It ranks number three in the non flowered category and so lazy CBD oil chalet free is consistently grow.
Ranked as a top seller according to the Lcs.
Good supply entered the market later and despite a smaller skew count has already shown great momentum for the enthusiastic heavy user looking for great product at great great value. We expect momentum to continue with these brands. We believe the quality of our brands remain on matched in the industry.
We put patient and consumer needs at the forefront of our strategy as regulations change, we will be proactive on our portfolio brands and products to this point our entry into new product markets will be done in a strategic and thoughtful manner. We're the best.
Opportunities exist for differentiation.
This includes dates as I previously mentioned as well as edibles cheese beverage and Topicals.
We believe the expected legalization of AIDS and concentrates will create a significant opportunity in the Canadian market, providing more choice and new experiences well open the door to range of new consumers and new products in Canada.
We're excited to bring our premium cannabis extracts to disposables by tens and the tax air device and platform.
I want to address some of the concerns surrounding babes.
The news coming from the U.S. is something we're continuously monitoring our number one priority is always to protect the health and safety of our patients and consumers by ensuring we only sell high quality candidates products. It's our understanding that these illnesses are linked to products.
Coming off the illicit markets, specifically, how do you need jeans and other additives in the oils as well as faulty hardware versus the cannabis itself.
This is why a continuous education and having a regulated market is so important.
Patients and consumers need to be confident the products and the brands, they're consuming comply with quality and safety regulations, and we will ensure that is happening.
In addition for quality assurance and our management process, we've taken appropriate appropriate precautions, including wholly working with reputable suppliers launch applied for mandate to provide education to Canadians about all forms of cannabis that are available now and in.
Sure.
Health, Canada has shown great leadership in establishing a regulated market that puts safety first and we'll continue to work closely with regulators as regulations evolve.
We will continue to collaborate with a growing roster of strategic innovation partners, such as Pat metabolic tier signs rapid dose therapeutics as we pursue new technologies and delivery systems that will change the way patients and consumers interact with cannabis in the future.
Internationally, we're very pleased with the process, we've made since being rented the maximum number of lots within the German tender process.
A free yet is the only license producer in Germany with permission to grow all three strains of medical cannabis approved by the German authority.
In Colombia, we are in the final contact state contracts stages for greenhouse facility that will have GNP cultivation and processing capabilities.
This will soon enable us to play a leading role in the local market as well as a developed low cost export opportunities across the Latin America region.
We're also committed to supporting and enabling the medical community through our exclusive partnership with Columbia Medical Federation, a highly respected organization with direct access to over 70000 doctors and medical professionals.
We plan to host our first event with speakers from the medical cannabis industry worldwide in November .
With more than 650 million people in Latam, We believe there's an incredible opportunity and Buena salaries were working on hospital Guerard Guerin in the region to collaborate on a clinical study focused on children would epilepsy, we're honored to work with them as we learn more together about how.
CBD based products could become a large part of patients health care regime.
In the U.S., we're focused on building strategic partnerships and alliances for growth with an emphasis on the CBD market until medical cannabis is fully legalized we believe a free can generate strong growth in the U.S. overtime.
If we look to the future. We continue to believe a free you will be a consumer package goods company and with that comes plenty of options for us in the us market, which we know greatly.
Last but certainly not lease as we continued to deliver to deliver on our commitment to get back to both people and the planet we launch planted positivity, a new component of our corporate social responsibility strategy plant positivity champions the incredible power the plants have.
Overall, wellbeing and provide great access to green spaces for communities.
A free up is increasingly well position with the right team global infrastructure strategic initiatives production capabilities and capital.
To support our growth in fiscal 2020, and well into the future.
We have great momentum in Latin America, including Colombia, Argentina, Paraguay, and Jamaica, as well as Germany and across our international markets as we continue to strengthen our global footprint.
Together the team at a free as entrepreneurial culture that is grounded into accountability.
We're all working together towards our corporate objective of generating 1 billion Canadian run rate by the end of calendar year 2020.
And with that margins will continue to improve to fuel profitability and cash flow.
We believe the opportunities for long term shareholder value creation are very strong both in Canada, U.S. and internationally.
I would like to thank our board of directors as some of them will not be seeking reelection at our next AG am I also like to think my leadership team and my direct reports for all their help getting us to where we are today and their continued dedication to moving this company forward.
With that I would now like to turn the call over to car.
Thank you earned and good morning.
Please note all financial references are in Canadian dollars, unless I mention otherwise.
As Irwin discussed in the first quarter, we continued to execute on our growth initiatives and Prioritise profitability as we continue to position our business for long term growth and success.
We are pleased with our financial results, particularly our cannabis revenue growth sequential positive adjusted EBITDA and our ability to maintain a strong balance sheet and cash position.
As a result, we remain on track to achieve our fiscal 2020 guidance.
This speaks to the strength of our team.
And the strategic initiatives, we are working together to execute everyday at a friend.
Focusing on our capacity.
Our free a one facility is fully licensed implanted and as Irwin mentioned, we've been advised that health Canada is in the process of expediting the issuance of a free of diamonds license keeping us on track to achieve our annual production capacity.
Moving to our financial results, we're pleased with our first quarter results, particularly our continued increase in Canada sales and our profitability improvement.
Net revenue in Q1 increased 849% over the prior year period to $126.1 million.
Compared to Q4 canvas revenue increased 30.8, sorry increased to 30.8 million from 28.6 million.
Distribution revenue was above our expectations for the quarter, but showed a slight decrease from 99.2 million to 95.3 million in the quarter.
The slightly lower distribution revenue for Q1 from Q4 is associated with a conscious change we made in cc farmers business strategy to maximize profitability. After recent changes in the German governments medical reimbursement model.
As a result, we're pleased to report Cc pharma has successfully navigated the change in that reimbursement model increasing its gross margins in EBITDA in spite of the governmental changes.
The entire Cc pharma team is working to further implement the change in strategy as well as preparing the business for the importation of E U GMP certified candidates from Canada.
Facility yard additions are well underway and they already have pharmacies, reaching out for preorders.
We look forward to supplying Germany's first domestically grow in medical cannabis in late calendar 2020 from our new cultivation facility in Norman Sir.
The entire free a team in Germany is focused on position in a free up with the most comprehensive license in the country as a dominating force in the German cannabis market.
In Canada, we experienced a small fire at our broken coast facility in British Columbia that impacted cannabis revenue during the quarter by approximately $1.5 million that what we made up in the balance of the year.
Our team led by Granville field did a tremendous job to act swiftly and quickly resumed full operations in just a few short weeks.
The amount of effort that went into reopening the facility was phenomenal.
We continue to believe we have tremendous runway for growth with our broken coast brand of cannabis products.
The company sold 5969 kilogram equivalents of candidates in Q1 up 7% compared to 5574 kilogram equivalents.
Adult use cannabis accounted for 3317 kilogram equivalents.
And medical cannabis accounted for 1354 kilogram equivalents.
Adult use net revenue increased 8% from the fourth quarter of 2000 $19 million to $20 million. Despite the fire it broken coast.
The average selling price of adult use cannabis inclusive of excise tax increase the $6 in two cents per gram in Q1 compared to $5.73 per gram due to a more profitable product. Thanks.
The average selling price a medical cannabis inclusive of excise tax.
Decreased to $7.56 per Gram in Q1, compared to $7.66 primarily related to a higher percentage of total medical sales coming from a free up.
During the quarter, our cash cost per Gram increased from $1.35 last quarter to $1.43 as we continue to ramp production in our facility.
Included in this figure is 20 cents, a gram related to the strategic decision to allocate flowering space to mothers to facilitate the ramp up of our free a diamond expansion.
We expect this temporary increase to continue until the a free of diamond expansion is fully planted.
Our all in cost per Gram increase from 235 Gram to 250 to a gram largely for the same reasons.
Adjusted cannabis gross profit increased slightly to 15.3 million from 15.2 million.
Adjusted kind of as gross margin was 49.8% in Q1 compared to 53% to.
The decrease was primarily due to lower sales of higher margin items due to the broken coast fire and temporary higher cost program.
Adjusted distribution growth gross profit decreased slightly to 12.2 million from 12.3 million in Q4.
Adjusted distribution gross margin increased to 12.8% compared to 12.4% in Q4.
Escalating costs in Q1 decreased approximately 20 million compared to the prior period.
The decrease in has seen a was primarily due to the prior quarter, including $19.5 million and transaction costs, primarily associated with the issuance of the senior convertible debenture.
A decrease of 3.9 million of general and administrative costs.
All partially offset by an increase in share based compensation amortization.
Our first quarter was profitable for the second consecutive quarter.
Net income of 16.4 million or seven cents per share.
Compared to net income of 15.8 million or five cents per share in Q4.
Net loss of nine cents per share in Q1 last year.
The consolidated adjusted EBITDA in the first quarter increased 5.8 million to $1 million.
Based on adjusted EBITDA from cannabis operations of 1.3 million.
Adjusted EBITDA from distribution operations of 3.9 million.
Both partially offset by an adjusted EBITDA loss from businesses under development of 4.2 million.
The increase in adjusted EBITDA is primarily attributable to cost containment strategies employed at our businesses under development.
And was our second consecutive quarter of positive adjusted EBITDA.
Our team remains intently focused on future profit growth.
Moving to liquidity, we continue to have a solid cash position in strong balance sheet.
As of August 30, Onest 2019, the company had near cash of $464 million available for use.
And over 500 million of pro forma cash when including the receivable related to our settlement with GGB.
This amount is more than sufficient to fund previously announced capex working capital and strategic investments.
In the first quarter the company used approximately $100 million of cash in the business.
This amount was unusual and is not representative of future quarters.
Cash outflows in the quarter included approximately $35 million for the final earn out related to RCC farm acquisition, an important part of our German strategy.
$5 million, a onetime payments on our long term debt.
$30 million of Capex.
And a 15 million dollar increase in working capital supporting our increased production capacity.
We anticipate a much lower capex in the second quarter somewhere between 20, and 25 million, depending upon the timing of delivery of equipment purchases.
Further we expect lower working capital requirements beginning in Q2.
Going forward, we expect to generate solid cash flow.
We believe this future cash flow when combined with our existing cash position and strong balance sheet will support our growth initiatives in both Canada and internationally.
Turning to our outlook for fiscal 2020, we continue to expect to report net revenue of approximately 650 to 700 million with distribution revenue representing slightly more than half of the total net revenue.
In addition, we expect to report adjusted EBITDA of approximately 88 million to $95 million.
[noise] applying our average selling price to our future production capacity, we continue to expect annualized revenue of 500 million and Canadian cannabis sales once all facilities are in full crop rotation.
And to annualized revenue of 1 billion in Canadian Canada sales by the end of calendar year 2020.
Both of which strengthen our position as a leading global cannabis company.
In summary, I had a freia, we have the greenhouse space.
Cultivation expertise.
Extraction capacity.
Automation technology.
Differentiated brands product innovation, and raw materials position us for success.
And as we gain scale, we will gain efficiencies in Canada.
Those efficiencies will allow us to build out international distribution for our medical and adult use cannabis.
We're pleased with our financial results this quarter and we continue to execute on our strategic priorities to be a stronger more profitable company.
A free has a long runway of growth ahead, we're confident in our ability to create long term shareholder value.
That concludes our formal remarks.
When I Irwin and I are now available for your questions.
Operator back to you.
Thank you as a reminder to ask a question. Please press star, but the number one and the telephone keypad to withdraw your question press the pound Keith Please limit yourself to one question and one follow up question.
Okay.
Okay.
[laughter].
Your first question comes from the line Oh, one Bennett with Jefferies. Your line is open.
Morning, guys.
Well you know it.
And yeah, just a couple of questions from me first of all on the guidance, so capacity and looks like and coming online on the expected him with health, Canada expedite and Diamond now I was just wondering and well show of industry growth do you need a well you planning on those assumptions to hit 657.
Good.
Maybe if you could give it that call I mean, Tim's is how you see the mix between flat and can you give me the two products and not take 50 to 700 and then my follow up piece just stand anymore color around the U.S. CPC mentioned partnerships and alliances the crowd.
And kind of.
We expect it to hear something around the U.S. and anytime soon thank you.
Okay. That's I like the a multipart question, so let's deal with it in the steps in terms of the split between dried flower and the new derivative products. We've been on record multiple times, we think that dried flower remains.
A predominant share of the market going forward, but.
But that the VVIP category and the new derivative products start to take significant amount of market share fairly quickly.
Our internal models are really based around 60%.
Market share for Ford dried cannabis.
20% to 30% for vapor and the remainder being split between drinks edibles and the other new product format.
In terms of have growth within the the industry itself and our ability to meet.
Our our guidance, we see a couple of different things one we see.
Our ability over the last few quarters to steal significant amounts of share.
In this space driven by the strength of our brands we're consistently hearing from.
The individual store owners more and more people come in and asking for our individual brands and the sales capabilities. We have today are really be we're really driven by the amount of supply we have and as supply frees up we see being able to steal more space on the shelf and be able to steal more share.
We do have some growth.
Forecasted dinner number for new store openings. We recently saw that Quebec has made an announcement, we see Ontario has got some new stores coming on.
Obviously, the those new stores and their their ultimate opening will will impact that but as of today with the information we have we believe.
Those.
Willis help drive that number as well.
No one just on that.
Our brands have only been around less than a year and.
The awareness team has built and this is an industry that's tough to build brands because you're not allowed to advertise the brands. So it's getting to consumers to try and repeat sales. So I can back and say, we just think of our brands around for five years consumers and start to newer brands now the quality of or.
Brands and why it's much better to be buying our brands at retail outlets and be buying products in the illicit market and that's the biggest opportunity 25% of sales only comes today.
From recreational products that are sold stores.
Big opportunity for US is how we continuously take away sales from your listing market, So and as Carl said, Canada expects to have over 3000 stores within the next three to five years.
1000 year in Ontario, So just by additional store expansion.
Additional products.
And us with our brands out there, creating brand awareness in educating the consumer.
Value buying brand in the stores as the listen Mark driver sales also theres, a big focus here on medical with Denise joining us and taking over our medical business.
We think theres a lot of patients that we can add to our medical data base there so the opportunities there.
Regardless of our U.S. growth.
Spending 25 years building consumer products company in the U.S.
We are talking to multiple partners in regards to strategic opportunities.
Is that strategic opportunities now with products that we would look at today that have the potential to be converted CBD or THC or medical and ultimately becomes legal.
What I've seen as this year.
There's a lot of partners that want to jump into it and what I want to make sure is.
The partners want to join a free our partner up with a free because they come back and they look at our facilities.
They look at what we're doing in regards to Vaibs. They looked at what we're doing in regards to Incent edibles and all that research has been done so thats kind of partners. They want to do so theres going to be a lot of opportunities for us I think the wrong strategy was jumping into soon because when you jumped into soon.
No one legalization is going to happen you don't nobody is going to be medically don't goes Rick and they're still out there with the FDA and the with FDA trying to figure out in regards to CBD. So I want to make sure we do with.
We got to plan, we know what products, we know was legal and we know if it's all the U.S. certain states or we just medical so absolutely the opportunities there and we're working on it.
Cool Thanks, guys very helpful. Appreciate it.
Thank you.
Your next question comes from Brett Hundley with Seaport Global your line is open.
Hey, good morning, guys and congratulations on this quarter.
Carl Thank you for giving the expectations on working capital and Capex for Q2.
If I can press you a little bit.
Can you give us a sense of how your cash burn might trend beyond that so I guess at a high level.
We would expect cash burn to drop down in Q2 relative to Q1 at a high level would you expect it to flat line for a couple of quarters, there or should we see continued drops thereafter.
Hi for the next few quarters I think the flatline plays out more we still haven't investments to make.
In Germany in Columbia that or announce.
And then once we once we go through those pieces that you'll start to see the capex component of that number come down.
Don't anticipate any major changes on the financing side in terms of five debt repayments.
And we we will have a little bit of a working capital increase as a as diamond comes online, but the majority of though the working capital increase for a free a one has already been incurred.
Thank you that's helpful. And then following on to own the question about guidance I wanted to dig in on the other part of God and switches EBITDA and really get a sense of how fit.
Afreeza is going forward in coming quarters here you know I know you guys are optimistic so some of us on the other under the phone have become more pessimistic about the Canadian market up ahead. When you look at your EBITDA range of 88 to 95 for fiscal 20.
Can we talk to some of the stress tests that you might have put in place around this guidance. Some of the broad themes are underlying assumptions within this range. So that some of us on the other ended the call can get comfortable of of how you're modeling that range for fiscal 2000, given all the moving parts.
It's around the industry right now thank you.
Yeah.
So I think.
The best way to answer that is.
A big chunk of those increases in EBITDA are being driven by the increased capacity coming online with the free of diamond and the cost expectations. We have for them for growing product in that facility. If you look at all of our expansions.
And have have visited our facility you'll know that we will be a free a one facility is set up in in five different parts and as we've moved from part the part we've we've refined and we've changed how we grow and we've changed how we set up when we build diamond we took the best Ah We took the best that we had and that's how we that's how we organized diamond.
And so you've got big.
Sorry, you've got smaller expectations on costs and bigger amounts of gross margin flowing through that facility as it was as a result.
We are wary, we are sitting at a cash cost of a dollar.
35 in the quarter.
And sorry, $1.43 in the quarter.
We're expecting below a dollar as as we ramp into as we ramp into diamond and get that fully operational scale that we get from our facilities drives out to a number of of costs at a free a one we're still in the process of.
Ramping up that facility.
Its capacity was at 55000, sorry, its ramp was at 55000 at the ended the quarter.
We've built pieces into the model to pass through our EU GMP and our expectations on our ability to transfer product from Canada and started moving that internationally and so as some of the demands in Canada as some people are expressing some some expected slowdown we have the capability of.
Moving that product from Canada to international.
Opportunities at higher prices, that's built into them.
Thank you.
Your next question comes from a crime Cranberry with capital your line is open.
Hi, good morning, and I. Thank you for taking my questions I don't mean to to harp on the guidance points here, but just with respect to the stress test one element.
Typically from the retail side of things I understand it's been a lot of success.
Dealing share at this point in time I'm, just wondering what the thoughts I with respect to opportunities for sell through given the Ontario retail situation's been pushed back a bit I know, there's been some commentary to come back to increase that but just wondering how any bumps along the way with respect to some of these key markets at retail could affect that outlook as well. Thank you.
So high.
Number one I think is back to what I originally said.
You know the opportunities for us in the retail market.
With additional stores opening up his tremendous and I think you know in the Ontario market. It was 25 stores majority year was a lot and sold online I think there's lots of change coming into the Ontario market.
Going to be shipped direct to the stores et cetera, but the key the key to all this is having good products with good brands and good pricing and that's why we've built out on your Bernie the infrastructure in the sales team to get out there and make sure. We got the right displays were placed in the stores.
We got the right products and working with the individual stores and the retailers to ensure that they know the a free of brands, whether solei, whether its risk whether it's broken Cosan I think at the end of the day I mean this industry is just the year old.
And.
The important part for US is that we have supply.
And that's been the biggest challenge we've had all year supply and with a free at Diamond ultimately coming on and having over 600000 plants, we will be able to have supply.
Last but not least is being that.
Producer of quality products.
Is going to be important to us and also that producer of quality products at a lower costs and ultimately for you with his grandsons products its ability to ship its infrastructure with sales organization its infrastructure with marketing group and building brand awareness, we feel good about achieved.
In those numbers and winning over the consumer.
Okay. Appreciate the color there and just for my follow up here.
With respect to be the ramp that on the guidance for the fiscal you're right. There with the average revenue growth and my math correct looking like it needs to be something around 60% of corridor is it fair to say that.
A much more of that growth is expected towards the latter half of your considering where that's yes in terms yes.
And that and that is all with you know diamond coming on board Rowley note on edibles, and Vapours et cetera.
And continuously expanding the distribution and more and more stores opening up.
Okay. Thank you.
Thank you.
Your next question comes from John Some pilots have you seen your line is open.
Thanks, Good morning, I wanted to stick with the guidance as well I. Appreciate the color you gave Carl on future expectations as market composition, but can you say what percent of that 80 to 95 million comes from derivative products specifically.
We haven't poker really side.
Okay. I think it's important I think I've got shorten that we're we're committing to.
Our recreational products and growing our distribution and growing our brands in our products, but.
Not to break it down and we haven't broken down by product line our category.
Okay understood. Thanks, as my follow up on the Alithia contract I know you said in your press release this is immaterial.
The clarify though is is none of the original EBITDA guidance, including contributions from that contract or is it that you assume you'll find new buyers and assuming it's the latter what what does it you assume on wholesale versus retail for that product.
So number one the alithia contract was a legacy agreement.
No it was built into our absolutely guidance.
And we expect to replace that with retail customers and other products.
Two.
To support those sales that we wouldn't have got from Malaysia and.
You know.
Better prices and better opportunities out there within both flower in oil prices.
Okay. Thank you.
You're welcome.
Your next question comes from Matthew Finally, with Canaccord Genuity. Your line is open.
Good morning, Thanks for taking the taking the questions just wanted to circle back on sort of the vaping headlines were seeing in the you asked I think a lot of us have at least a high level understanding.
As to what some of those issues are and I know earned you spoke to them, but I imagine this is a bit of a PR issue for health, Canada and the federal government to have to navigate in this launch. So is there any color coming from them with respect to what they might be communicating to the to the public and if they might slow down the potential flow through to the retail stores of these products.
Or are they completely agnostic to the whole issue as it stands right now.
So we have not heard anything from health, Canada, and I think health, Canada has said they'll continue to evaluate but again what I've said. This is here I think you know what we want to ensure is the safety and quality of our products and I think all indications so far.
This is coming from Babe set or purchase through these lists at market. It's coming from products that are adulterated, it's coming from hardware that's never gone through quality testing.
This comes back and just shows why it's so important for regulation. This important and why it's so important to have brands in quality products, because the consumer knows that they're getting a product that is safe that the hardware has been tested and the product. They're getting has been tested. So you know we don't like to see so.
Weakness, we don't like to see illness, and we don't like to see.
Anything that happening from baby, but I think this comes back and just shows why consumers need to be buying products at approved retail outlets and buying this from approved.
Suppliers that have gone through the quality here.
Okay. Thanks, and just a follow up maybe for Carl I'm, just going back to the fiscal 2020 outlook again.
I know there was a lot of commentary given this quarter in prior quarters on where you are in your overall build out over to achieve those numbers, but overall if you were to assume the Canadian retail rollout goes horribly just for the sake of argument how much levers do you have to put that distribution into international channel.
To better hit those numbers. So it gets a simpler way of saying it as if the Canadian market completely a rough sign you how sensitive is your 80 to 95 there.
We have the ability to to move product through international markets through once we have the GMP certification. We have we have significant demand through our operations in Italy, Germany, Colombia, and Argentina and those are just our customers were also receive on a day.
Lee basis emails from people wanting to buy product from us internationally that aren't our actual owned subsidiaries.
We're very confident in our ability to to them for product from Canada to overseas market DNA or a downside scenario, but just on that I think again as we see the rest of the world International being.
Legalized in medical the GMP certification opportunity for us is well within the hundreds and hundreds of millions of dollars and today, we're selling minimal.
Product there so that is a big opportunity, but just to come back.
I am confident with the Canadian market, ultimately and I see the opportunity Canadian market only being legalize for just less than a year and as I said before having these brands that are new to consumers and there is a major market today.
That can be taken away from the listen market.
$4 billion.
That is where the opportunity is and that is where we've invested and that's ultimately where a free it will get to that billion dollar mark we'll be able to generate tremendous amount of EBITDA and be able to generate a tremendous amount of cash.
Thanks, guys.
Thank you.
Your next question comes from Justin King with JMP Securities. Your line is open.
Good morning, and thanks for taking my call just on the a 12% market share I mentioned, what was that up from the prior quarter and how would that rank overall like like is it a first second or third.
So it's up four points from the prior quarter.
And I you know from a ranking standpoint, I'm not sure what you mean.
In a ranking standpoint.
Well like as far as the total market share like would that be like second third or would that be like first as far as leading market share.
You mean as a company as a brand as a product I'm not sure what you're asking me.
So if it's 12% of the market like who would hold of the the first market share what we like would that comprise a 15%.
So.
As you heard we only have access to Ontario data, we don't have national data, Okay, but area being the biggest market is a good indication for the rest of can.
All right maybe just another question what percentage of market share do you assume in your guidance.
It's a it's still growing from the 12% in Ontario.
Right. So right now we only have data on the Ontario market and again as I said before.
With that is number of stores that are open today with a number of stores that will open.
You know, we should only increased market share.
Over the next.
Three quarters for us or do not quarters.
Okay and in your guidance do you have a a target a number of stores that you anticipate to be opened by then.
We do have a certain amount of stores do we havent down to assigned by timing and Dave and stuff like that no.
I think Theres couple ways, we're looking at it we're looking at our supply and supplying our current stores new store openings and new product lines that were role of during the year.
Okay. Thank you for taking my questions.
Thank you very much.
There are no further questions kept this time a call back over to diminishment.
Thank you very much everybody for listening to our call today.
As you heard our last two quarters.
Theres a lot of things happen at a free.
And with that we'll continue to do that.
Im excited in regards to our execution I really got to come back and say thank you to our team members of 1200 around the world that have been working in this lead together as to where we are.
I want to thank our board of directors for their support as I said some of the mobile, leaving us at our CGM and not rerunning. Thank you very much to them.
Listen this is a new industry, it's like I said, one year old Thursday, and there's been a lot of star stops and starts in a lot of starts and stops and with that Theres a lot of opportunity here I come back as I spend a lot of time on this in coming into the consumer packaged goods in this.
For 25 years I do see a lot of.
Similarities but.
I come back and see there's a market out there $5 billion has sold and both the illicit and the recreational and our big focus and strategy has to be how we gain consumers' confidence and how we gain consumers awareness of our brands that they're going to buy from retail stores and going to buy our.
Brands and products and not be buying from utilization market. Secondly is this here as we expand our product portfolio unfamiliar with new products and quality products and products that are well price is something that we will continuously do in the marketing teams and the sales teams today.
Our working together one of the big things in my old World.
We had Nielsen numbers, we had IRI numbers and we don't have that data at our fingertips today and with that is data and content.
And we are building around analytics, we are building around AI in AI in building our products and.
Porton is the processes that we have in place.
A year from today this will be a totally different industry than it is today.
And that is the packaging that we'll bring into play in regards to sustainability the products that will bring into play, but what I can reassure you.
As our focus is on quality our focus is on safety. Our focus is putting a great products out there our focus is on educating the consumer and ensuring these products are in the hands from a recreational standpoint to the right consumer.
Our focus is to make sure we're putting a beat your dreams are quality products. So with that I'm excited about where free is going I'm excited ultimately to get our license at or create diamond that will give us adequate supply of 255000 deals I'm excited about the opportunities.
At our medical business and that's an area that we had not focused on.
Over the past year and was more on the rexall, but now that will be a big focus for us and I really see the opportunity on a global basis as we bring our medical businesses together.
And we see the opportunities learning from patients all over the world as I said I was down and Buena salaries, two weeks ago and was working with one of the hospitals, where we have been and what we're seeing is young patients, having 300 plus seizure day.
That will EPCI and administrative CBD to them see in their seizures go down to zero. So theres a lot happening both from the medical from the rack from the new product from the growth standpoint, the processing. The other big thing is those that into Leamington.
Certain times, what's happening there from an automation standpoint, and just in our free roles, where we're doing for a minute. We now have automation in that facility. What we're doing 5000 now so we'll continuously.
Evolve on our processes, our automation as we are going through scripts and presentations last night, we are talking to a packaging last year. This time, we're paying three $5 for certain amount of packaging that came out last year when products come out we continuously come back today and are looking at new sustainable package.
I mean that are.
Were purchased for less than a dollar today. So a lot has happened in the year.
There's a lot of movement and tremendous amount of change in free and my objective is with this team.
Free it becomes the number one leading global cannabis company around the world. Thank you very much for your time I hope everybody had a great things getting and we'll speedy again soon.
This concludes today's conference call you may now disconnect.