Q1 2020 Earnings Call
This time all participants are in the listen only mode. A question and answer session will follow the conclusion of formal remarks. During the question and answer session. We would ask for limit of one question and one follow up question per person.
As a reminder, a live audio webcast at the call is available on the Investor Relations section of Green Thumbs website and will be archived replay I'd like to remind everyone that today's call is being recorded.
We'll now turn the call over to Jennifer duly Chief strategy Officer. Please go ahead.
[noise] seems chair.
Afternoon, and welcome to Green from first quarter 2020 earnings call I'm here today, with founder and Chief Executive Officer, Banco learn and Chief Financial Officer, Anthony George on it.
Today's discussion in responses to questions May include forward looking statements, which are subject to be read you uncertainties that could cause our actual results may differ materially when do you see [laughter]. These risks and uncertainties are detailed in the company's reports filed with the United States Securities and Exchange Commission and Canadian Securities regulators.
Including the annual report on form 10-K, which was filed on April 15th 2020, and their quarterly report on form 10-Q, which we expect will be filed tomorrow.
These reports along with today's earnings press release can be found under the Investor section of our website Green some assumes no obligation to update or revise any forward looking statements to reflect events or circumstances that may arise. After the date of this call.
Dropping discussion green somewhere refer to non-GAAP financial measures, including EBITDA and adjusted operating EBITDA reconciliation of non-GAAP financial.
To the most directly comparable GAAP measures is included in our earnings press release and SBC in seat our filings. Please note all financial information is provided in U.S. dollars unless otherwise indicated thanks, everyone and now you're saying.
Good afternoon, and thank you for joining us on our first quarter earnings conference call.
Well, we're all settling into a new day to day. One thing has remained the same the green some team continues to execute.
Oh, great John will start with team is the team and we truly have a great team at GTR.
I'm proud to share that we get to 100 million dollar revenue milestone this quarter growing more than 30% quarter over quarter.
As you'll see on the results we are beginning to see real operating leverage in free cash flow from our business, we're well on our way to deepening the connection to wellbeing through Canada.
Distributing our brands at scale.
All this while managing in executing through maybe pandemic is a true testament to our team, especially those on the front lines.
During this time, all or stores and facilities across our operating markets have been classified as essential and remain open for business.
We continue to take extra steps to ensure a safe working environment for our team and they see and welcoming retail and digital experience for our customers.
Despite the challenges brought on by Colin you did a truly amazing that I can say our manufacturing capacity expansion projects have continued and are moving forward.
In response to the Pandemics immediate impact on consumer shopping behaviors, we had accelerated the development of our omnichannel infrastructure, including our E commerce customer service delivery and curbside pickup platforms.
This accelerated expansion of our retail capabilities not only better serves our customers. During these unprecedented times, but importantly, bolsters our existing platform.
Turning to progress and cold isn't impacting our key markets.
Illinois, just completed its first full quarter of adult you sales, even with the stay at home and social distancing requirements that were impose a mid March consumer demand for Canada's remains alive and well.
The quarter had approximately 200 million industry wide sales, which equates to a run rate of about 800 million.
This would be more than three X 2019 sales.
And it wasn't just pantry loading we saw strong momentum continued in April when it was a former is an increase over March.
We see the potential the Illinois market to be at least $3 billion and that means that even with this year's dramatic growth, there's still $2 billion of opportunity up progress.
With our successful rollout will be adult program and our leading position in the state. We see Illinois is one of the highest return opportunities. We have seven stores open our license for three more and remained very active in expanding the manufacturing and production of our brand portfolio.
Pennsylvania continues to be growth driver and a top priority.
With a large medical program and the potential to transition to adult views. The market continues to be supply constrained, but is performing steadily. Despite cobot 19, we like our position and see solid growth opportunities as we continue to strengthen our vertical platform.
In April we opened our 10th Pennsylvania retail location and rolled out curbside pickup to provide patients with additional options for safe access.
Strong growth in Illinois, Pennsylvania, that's helped offset some of the cold and regulatory driven softness in Massachusetts and Nevada.
At its core, Massachusetts is a growing in high potential adult market.
In response to covert beginning March 24th the Governor issue a temporary hold on a don't you sales, citing issue of Cie, social distancing from out of state consumers.
At this time only medical sales were allowed based on this order, which is effective through May 18.
Operationally, we continue to produce and distribute our brand portfolio to third party retailers in a rise M resort remains open for medical customers.
We believe this is a temporary disruption and expect that don't you sales to return once the restriction is lifted.
Well the same lives regulators in Nevada required adult used to century to transition to a delivery only model beginning March twentyth.
We quickly adapted and ramped up our vehicle fleet to provide incremental support to our third party delivery service recently on me first misstate expanded access to allow curbside pickup and late last week the state reinstated in store sales with limited occupancy.
With our earlier curbside implementation in Illinois, we were among the first to be approved and rolled out curbside service to our Nevada stores, essentially overnight, which provided a nice uptick.
The temporary challenges in both states underscore the importance of our market diversification.
While the pandemic created headwinds in markets like Massachusetts in Nevada, I could not be more proud of our teams problem solving and commitment to serving the needs of our customers and partners, while keeping one another safe.
Right now there's no such thing it's business as usual.
That said, we want our customers and team to know how much we valued dumb pipe or by providing the safest environment superior products and highest level of service regardless of challenging times.
Digging into our first quarter results revenue was 103 million is 35% increase from the fourth quarter 2019 growth was fueled largely by the expanded production and distribution of our brand portfolio, new store openings and increased foot traffic to our retail stores, especially in Illinois in Pennsylvania.
With the revenue gains, we see meaningful improvements in our operating leverage yesterday was essentially flat to last quarter, so with 35% growth in revenue RSU nay improved significantly as a percent of sales, excluding depreciation and amortization and stock based comp improvement is even more pronounced as you'll hear from.
Anthony.
Adjusted operating EBITDA for the quarter improved 85% from the fourth quarter last year to 25, and a half million and we're proud of that number as it produced positive free cash flow after taxes.
Turning to our operations.
Our activities during the quarter really set the stage for continued progress on our 2020 initiatives.
On the consumer products side branded products sales grew 21% growth basis, and 13% men quarter over quarter, with Illinois, and Pennsylvania, delivering especially strong Roe.
Greens on branded products are now sold and over 700 retail stores in the United States, including our fleet a rise in essence stores.
We have been very busy with the distribution and expansion of our product portfolio and are excited to share the latest developments.
As you May know, Massachusetts is ban on beef was lifted at the end of the fourth quarter. We were pleased to see RV algorithm based resumed sales in the state throughout the first quarter in Maryland with our newly adopted newly added cultivation capacity, we launched rhythm flower and all walkers. We also launched soft lozenges within the field collection.
In Florida subsequent to the quarter, we launched our big dogs line extension underdog walkers as well as Dr. solvent capsules.
It is also important to note that despite Tobin 19, we have not seen a meaningful shift in product mix away from four available product categories like flower invade.
Our branded products business continues at a nice clip even ahead of the completion of capacity expansion projects in Illinois and Pennsylvania.
In addition, new Jersey, and Ohio are on track to begin production over the next few months.
Our retail business also delivered solid results for the core.
Same store sales were again strong this quarter, they exceeded 75% of a comp base of 14 stores open for at least 12 months sequential quarter over quarter same store sales grew approximately 24% on a base of 33 stores.
First quarter revenue included sales from 42 opens doors and was driven by increased transactions and ticket size.
During the quarter, we opened three new stores to win Illinois rise Joliet and rise Quincy. The states first two adult used only stores, bringing our total opens doors in Illinois to seven.
In Pennsylvania during the pandemic, we opened rise cranberry, bringing the total pounds to attend in that state and subsequent to the quarter in April we opened rise linked wouldn't Detroit in Ohio brings Daytona five stores and Justice, We open essence, South Rainbow R. Ford store in the Las Vegas area and 44 store.
Across the country.
To open three stores across three states in the face of cold. It is a testament to the strength of our team.
On the capital front, we continue to be prudent and disciplined capital allocators.
In the first quarter, we completed two sale and leaseback transactions with IP for our Toledo, Ohio, and old would be Illinois facilities, which provides us with about 57 million of non dilutive capital.
Given the industry in especially at this time, we believe it is a wiseman for shareholders during the sale leasebacks without happy.
Our growth plans are funded and we believe the best use of capital is reinvesting back in our business and in our platform.
There isn't a there is an abundant opportunity within our 12 stayed network to deploy capital and we should generate solid shareholder returns for the foreseeable future.
I'm more excited than ever about our business.
With that I'll turn call over to Anthony to review, our financial results for the first quarter.
Thanks, and Hello, everyone.
To reiterate we can't think our team enough for all their hard work this past quarter. It was quite emotional roller coaster.
On one end, we've had the excitement of adult in sales in Illinois.
On the other overwhelming fear of the unknown as easy the pandemic spread.
Looking back to those dark days in March I'm proud with our team reacted.
Well we perfect.
No.
We make some mistakes absolutely.
We continually aloft evolve and adapt.
Matt.
The strange way if you had to write the biography upgrade them up at this point obsessive focus on getting better every day would be a key part of the story.
Before I jump into the numbers I want to remind everyone that we are now a U.S. domestic filing with the FCC.
All reported financials are now in U.S. gap.
Tire accounting team at HQ is been extra busy these past few months to make this transition to reality, so special shout out to their hard work in the midst of Cowen.
As you just heard our Q1 revenue finished over 100 million, representing a 35% increase over Q4.
Compared to Q1 of last year up 268%.
Looking back we probably should have issued new seatbelts all team members on new year's day.
It's been quite arrive.
Having nine digits a quarterly revenue is another major milestone for the company one we hope to never look back on.
Our Q1 growth was primarily driven by increased product distribution across our footprint, especially in Illinois.
Onset of adult you sales and the Pennsylvania, where demand for medical cannabis continues to be robust.
On a sequential basis gross revenue for our consumer package goods segment grew by 8 million were 21%.
Largely driven by strong performance in the two markets I just mentioned.
On a net basis, which accounts for your company revenue our growth approximated 3 million was 13%.
On the retail side quarter over quarter, while revenue grew 45% largely driven by don't you sales in Illinois, new store openings and steady growth across our retail platform.
Same store sales exceeded 75% for the quarter.
Our metal segment revenue split for Q1, and that 74% retail and 26% wholesale.
This is up on the 69% retail 31% wholesale ratio we reported in Q4.
As we've highlighted on previous calls the segmented revenue split nets out intercompany revenue against our wholesale revenue, which understates the two sides of our CPG business.
In Q4 of the company generated 15 million of intercompany revenue.
In Q1 20 million.
Both cases this intercompany revenue represented 19% of total revenue.
Predicting the future of where the snack mixes had it remains challenging, particularly given the number of variables at play.
On the construction front, we continue to make solid progress in our wholesale facility expansions.
Through today, we have completed wholesale projects in Illinois, New Jersey, Massachusetts in Ohio.
The only facility not yet operational as our Toledo, Ohio processing facility, which just passage regulatory inspection yesterday.
In Illinois, you're now underway with additional expansions at both our rock Islander, noble's be facilities.
He Pennsylvania, we are few months away from completing our latest expansion.
Well cobot Gerard construction in engineering team quite a curve ball, we're proud to say that the net impact as a matter of weeks not months.
So then for working some real magic here to minimize the impact on the business.
On the gross margin line performance continues to be solid.
To give up 200 basis points of gross margin compared to Q4, well hesitant to jump to any immediate conclusions given the impact our GAAP conversion had on our Q4 numbers.
As a team we continue to watch this very important metric closely and are pleased with the facility level trends, we are witnessing as our wholesale revenue scales.
In addition to revenue another important story of the quarters operating leverage and our ability to spread our fixed costs across a greater number of revenue dollars.
If you want pack or do you want to ask DNA of 45.4 million you'll see the following.
10 million of DNA.
5.1 million and stock based comp.
30.3 million in operating costs.
Essentially 15, the 45 or 33% is noncash non operating.
These figures compare favorably to our Q4 machine a of 46.7 million, which went broken down shows 13, two of DNA five of stock based comp and 28 and a half an operating costs.
You touched on the noise on a sequential basis cash operating cost went up by approximately 2 million, while our revenue went up by 27 million.
Said differently.
Every incremental dollar revenue generated or operating costs increased by 7.4 cents.
Now that the simple math, that's fun for the entire greed bump family.
It is also the results of successful execution of one of the key plays in our enter open scale playbook.
Other income for the quarter approximated 1.8 million, which represents the net effect at the mark to market of our strategic investment portfolio as well as interest and other expenses associated with the debt raise completed last month.
The impact from these operational and financial highlights the company generating 25, and a half million in adjusted operating EBITDA in the first quarter.
A new company record.
The bridge from EBITDA to our internal metric of adjusted operating EBITDA is a total add back at 5.3 million.
5.1 for stock based comp and 200, K for M&A and other nonrecurring costs.
We continue to think adjusted operating EBITDA. It is the most important metric for our shareholders. As it provides the pace of operating cash flows the company needs TEGNA keyed on its strategy of distributing brands at scale without the need for outside capital.
Turning to our balance sheet, we ended the quarter with approximately 71 million of cash and 93 million in long term debt.
During the quarter, we completed sale leaseback transactions in Ohio, and Illinois, with IP, which once construction is complete we provide our shareholders with a total of 57 million in Nondilutive capital.
As I mentioned a month ago, we continue to take a closer look at all capital projects, knowing that all construction projects for the remainder of 2020 a fully funded.
As we look ahead to the balance of 2020 as much as things change they stay the same.
On the CPG side of our business, we will continue to invest in capacity and brand expansion in key markets.
And the reach outside the will continue to be aggressive with new store openings, where we think it makes sense.
We also continue to accelerate our omnichannel strategy, so that if and when consumer buying patterns fundamentally shipped for cobot or otherwise we are ready.
In summary, we will continue to invest most heavily in markets, where we have edge all the while maintaining our consistent prudent approach to capital allocation.
In addition, we will continue to do our part to protect our team our customers in our communities from this terrible pandemic.
With that I'll turn the call back over to them.
Thank you Anthony.
Stepping back our thesis is proving out.
Owning licenses unlimited and limited license markets is a very good thing and we have an entire portfolio of that.
Well, there will be things, we cannot predict it sets up very well for our shareholders. We believe that our strong fundamentals and solid financial position will help us navigate through these challenging times, and we will emerge even stronger and more resilient.
We continue to be bullish on the industry and you prohibition 2.0 as inevitable. We are actively monitoring the intersection of coated the upcoming presidential election, and the role cannabis in providing much needed tax revenue and new jobs.
I want to thank all the key stakeholders in our business our over 1700 strong team members our customers partners and you are shareholders for your continued support in green dumped growth.
Stay healthy unsafe everyone take care.
With that I'll turn the call over to operator for questions.
To ask a question. Please press star one on your telephone keypad. Please limit yourself to one question and one follow up. The first question comes from Lee Cooperman Omega family Office. Please go ahead. Sir your line is open. Thank you first let me congratulate you weren't outstanding performance very nice to see.
It's a small question are minor question, we have debt of under 100 million I notice interest expense in the quarter was touch over 5 million.
What's in that interest expense number and is that really are in excess of what the run rate will be going forward.
You have newly obviously entity here so embedded in that number is a cash interest expense, which is a little over 3 million as well as.
Some interest expense that runs through that line item that is noncash that's related to the other Warren issuance. It was part of the debt I want to go forward basis.
The cash interest expense should continue to be little over 3 million.
Thank you and again, congratulations an excellent performance.
Thank you Larry.
Your next question is from Eric.
Of Craig Hallum Capital. Please go ahead your line is open.
Alright, great. Thanks for taking my questions and from my congrats as well really impressive quarter.
And wondering if you could talk a bit more about.
Sites, you guys have gains on the digital E commerce side of things with curbside pickup and delivery mandates in your markets and what we might be able to.
From Omni channel for you guys going forward.
Sure. Thanks for the question.
You know, we're not breaking out.
The different channels, but what we see like everywhere as people want the assistance of the digital menu. They want preorder and curbside people were not going into retail at the moment. So this was already a priority for us in its continued investment continued development of that.
But were essentially able to handle a similar number of transactions or more at transaction sides of equal or greater value in less hours to be candid with you.
There is shorter times as baskets are prebuilt and whether its pick up delivery curbside.
Or otherwise, we're able to take advantage that they've got to meet the customer where they are we believe in the full scale relationship.
With them and frankly with the national retail platform.
We can build that.
Okay, Great. That's that's great to hear and then last one for me.
Could you give us an update on the timing around your production facilities in Illinois in Pennsylvania, I'm not sure if you've disclosed those yet but.
Any kind of.
Sense on on the timing of those being completed would be helpful. Thanks.
Sure is examining let's start with this Illinois, so we have.
Two facilities here. They both have construction projects currently taking place onsite in rock island that should be completed at some point in the third quarter and he knows me that should be completed.
Near the end of the third quarter Slash early fourth quarter.
In in Pennsylvania, we expect to be finished with that that expansion by the end of the third quarter.
Your next question comes from Matt Mcginley of Needham and company. Please go ahead. Your line is open.
Thank you my question is on the CPG revenue growth. Your your growth in revenue overall has been fantastic, but the net revenues in a wholesale segment had been in a kind of mid $20 million range for a couple of quarters.
No you're selling your on product through your own stores, but is there something it is limiting the growth in that segment relative to retail.
Should we kind of expected to stay in that and that sort of range, excluding any covenant pack in the second quarter until the production facilities up and up later in the year and those key states.
Sure Matt This is Anthony here.
Thank you nailed it.
One of the challenges that we have is.
Obviously, we have capacity issues in a few markets where demand currently exceeds supply and so as that as the capacity.
As a construction projects are complete we anticipate a step function up in terms of revenue across the wholesale channel.
The one thing that will continue to temper that is intercompany revenue. We're we're supplying our own stores with product and so that's why we made the decision to break it out separately here on the call just so folks could see it because while on a net basis, it's hard to see a lot of growth we can certainly feel it within the.
Within the facilities themselves that are producing and shipping more units than the.
You would necessarily think when looking at the.
At the performance on a net basis, but.
Again, it's the way the capacity works its instead of being linear its step function up once that capacity is ready plants going underground and make it harvested men effectively the.
Additional revenue turns on.
Great and on the gross margin side, what drove the gross margin down by that hundred 90 basis points sequentially I would think that selling your own product or your own stores are very high gross margin sale, but that you.
You did have some compression there that lease expense related or is there some component of mix seasonal or seasonality that would have driven that that down I'm just trying to deconstruct what happened with that with that rate in the quarter.
Yeah, it's a tough comp over Q4, just given kind of the.
The number of things that were in the gross margin line in Q4 related to our GAAP conversion one of things when we did unpack. It we did see while we don't have the biological asset treatment now with gap, we are still capitalizing some cultivation costs and if you look at the total number of plants in the facilities and the age of those.
Plants, what we notice is that in Q1 they were much younger so we capitalize less costs. In addition, we did operationalized some number of assets in the fourth quarter.
That resulted in increased depreciation cost in Q1, and so this is something we'll be watching closely over the next few quarters.
But I think just given the noise, it's tough to do I direct kind of apples to apples comp.
Your next question.
Cohen. Please go ahead your line is open.
Thank you good afternoon, I hope everyone is.
Healthy.
Just sticking with the gross margin question Anthony.
New Jersey in Ohio.
On line.
Should we be expecting some operating leverage at the gross margin line as you scale that.
Thanks.
You know, we'll see the reality is that.
The scale of the facilities in Illinois, and Pennsylvania, I wouldn't be surprised if that if that counters kind of the what you've just described with the upfront costs and getting those facilities operational.
Yeah.
In Ohio, It's a processing only facility and so really the startup costs are going to be relatively limited because we're going to be buying trim on the market men converting it into.
In the process products.
That's not the case in New Jersey, but that's no we're kind of building our capacity over time, there. So I don't anticipate up a big hit to the PML in any one in any one time period.
Great and I can just squeeze in a follow up.
When you were describing the 13% growth for your consumer.
Business you said.
Gross was being driven by Pennsylvania.
And that makes sense given the velocity in those markets.
That's.
Channels in those markets, which isn't a point of clarification worthier market than outside of Pennsylvania in Illinois.
I would have been.
Thanks.
Sure. Thanks within its then.
And we don't we don't comment specifically on on stage, but I think effectively no.
The other businesses remained strong.
The large numbers moving it up we look at the 21% so the growth which is the amount of new products gross that's happening, which I think is the real way to make this business.
From a gross product.
Manufactured and produce the soul.
No that strength everywhere, but as we put in the capital we can get the growth you saw everything you make every month, it's hard to squeeze more out of that right.
Your next question comes from Michael.
Hyper Sandler. Please go ahead your line is open.
Hi, This is Jeff craggy on for Michael Thanks for taking my question.
How should we think about a potential locations store openings in the remainder of 2020 and.
How much of a headwind disruptor could cope.
Sure. Thanks for the questions Ben.
We opened five stores this quarter.
And we have some visibility on the rest of the pipeline.
We're not really guiding on the back half of the year, because we have the ability to sort of plays a throttle as needed based on the market based on what's going on in the last time, we talk to is March heading into the eye of the storm.
So you will be at a better positioned to really comment on it after we get through June July on where we go but just to give some color with five open we see another Illinois store opening later this quarter.
And with the other two licenses were actively working on we remain flexible, but Pennsylvania, Illinois, Nevada.
We remain really on schedule.
And though working in Los Angeles with coal that you know present some issues but.
No change priorities.
Great.
And then a follow up how has the competitive landscape changed during cold and.
Is this disruption of bigger headwind for operators with less capital could create an opportunity for you to gain share.
No I'd say as this is happening were focus inside on executing there's a lot of demand people are interested in the product medical patients to feel better.
Tumors to handle what's going on and we're just focus on executing we're not really monitoring the details of what's going on with each individual competitor, but we like the supply demand set up in our markets and we're very sensitive to what's going on the capital markets. This is not an easy business is not a cheap business us so broadly defined and economic slowdown industry.
Capital and so makes those with capital and the ability to execute in a better position.
We are 100% consumer focus we're thinking about the consumer everyday and how we make that better and more wellbeing for them across the country.
Just going go execute on the opportunity.
Your next question is from Robert Fagan.
Please go ahead your line is open.
Thanks, guys are taking my question congrats on another fantastic quarter there.
Thanks Robert.
Yeah.
I just ask about the previous guidance range that you guys gave for Q1, obviously, you're well exceeding that and.
Just given the timing of when you issue those numbers can you give us any color on what was the driver of the beat versus your own expectations.
Oh, Thanks, Robert Yes, then I would say coming into the ended the quarter in March.
To remind ourselves, where we were the and lot of uncertainty heading into the ended the quarter.
We saw strong demand.
But you know wanting to put numbers out there we know we feel comfortable with.
I think there was some pantry loading, but I think overall, we've seen strong demand all the way through that you've seen the April sales.
In Illinois comp, 4% better than March.
And I would say just broadly it's nice to get some good momentum into the industry here in United States. Oh. This is a real viable multibillion dollar industry and I think there's good credibility behind it.
Okay great.
So just on a follow up.
I thought that was interesting what you mentioned Ben about.
You know the.
The ability to the curbside service and a more rapid fashion on and off this is something you could the.
Quantified, but the throughput actually increase with curbside service.
Retail stores given like you said baskets are already predetermine, just a matter of running about two or car is that something you guys are saying.
Yeah, we're spending a lot of time and it certainly can be used to move faster if you're moving lots of car simultaneously with runners and Wi Fi outside and debit transactions and at the car service, we're trying to optimize the right experience for the consumer.
But we can certainly run it very.
Throughput oriented.
Side, not quite drive through yet the curbside experience for consumers to get the product that they want that they can engage with digital experience.
Your next question is from Aaron Gray of Alliance Global. Please go ahead. Your line is open.
Hi, Thanks for the questions and congrats on the quarter as well.
Thank you. So I think it's it's good to see strength you guys are seeing NPL in Illinois Spike. It asked about you know the Nevada market not you're going have curbside coming back coming online and the new stores opening as well, but can you speak to potentially or what you saw in terms of impact of sales from your stores. Just when you did not have at.
Just to that and then obviously with tours and being a hits in the back as well just kind of what trends you're seeing specifically in that market. Thank you.
Sure I would say is rapidly evolving right in the last six weeks has been dramatic change.
But primarily what I would say is regulatory driven softness.
Susan can come in store.
It's harder to shop, so delivery was ramped up quickly and then curbside as as a big uptick and then in store from our business to the you know the tourist economy right with the strip essentially shut down.
We're fortunate position, where most of our in a vast majority is I think we've talked about is a local.
Traffic local consumer not tourist.
But at the same time housing economic recession, or congressional major downturn going to impact consumers dollar share into campus, which I think is at the quarter question and answers it's early.
But we're not we're not overly worried or panicky soon certainly other sex sectors that have good resilience in recession as people look for the products and so we're seeing even the stores as a very warm environments, where it will come out of the house itself with over 100 degrees in Vegas.
People like the experience in that and I'd like to product. So for upside is certainly ramped it up and we'll be able to watch the state data as it comes out with it was about 60 plus day delay so we'll be able to see that.
Hi, great. Thanks for that and then just second one on the state of Florida, Obviously, a lot of uncertainty in terms of expanding brick and mortar wise just given cove. It but you guys have done a good job.
Last couple of weeks, but as you look at the next several quarters I understand you don't have lot of.
You know transparency, but is Florida kind of a market that is kind of secondary to some of those other wants and how do you think about kind of expansion in that state as you start six stores today. The capex come off in the markets are you still have some competitors are continuing to expand even that can go go beyond the prior cap. So how do you think about that market and.
Capacity and regional expansion. Thanks.
Sure if one of the gray market.
We love it under the one thing about the Florida market is forced vertical integration.
As we really think through Opportunistically allocating capital.
We have higher priorities, especially weighted against time, and what I really news first mover advantage and several of these other states matters a lot for us and so we prioritize everyday every dollar we.
We have to look to the highest best quickest.
Shareholder returns on the capital is going to fortify our position over the medium and long term.
But that's not to say any bad about the Florida market to your point very robust certain still know edibles, which is on the horizon.
The medical markets with talk both ways about an adult use so it's going to be a bigger market is 20 million people down there as a lot of old people, who would benefit or older generation folks who would benefit from wellbeing through sleep and pain management, the Kansas can provide.
Your next question Glenn Mattson Ladenburg Thalmann. Please go ahead your line is open.
Hi, I'm curious.
Massachusetts, if you could you give us a little more detail as to how it performed.
Shutdown.
Just.
Some color there would help us get a better understanding and maybe what you expect.
Snapped back.
Oh.
Reopens up there thanks.
Given the Massachusetts market made a bulk of medical markets and don't use market and overnight you don't use market was over so it went from full adult used to zero. So you've seen a lot easier incremental more demand on the medical science, we will try to get currencies in little bit strength, there, but essentially it's a it's a full stop for all the adult use product.
In the state we think that.
You know has no impact you to lead to pent up demand actual consumers' needs and so when its lifted.
We're excited about that market, we think it will resume with strikes.
I don't have you ever broken out historically when your mix is there for medical versus.
Versus direct but.
And then our.
We haven't talked about it specifically, but it's not materially different maybe slightly more medical then state numbers with Republic.
That's pretty good gauge stickier pretty good job.
Being transparent with the information in Massachusetts really gets daily sales.
Your next question from Graham Chrysler Capital. Please go ahead your line is open.
Alright. Thanks. This is actually battle going on for Graham I, just wanted to say.
The positive operating cash flow that you guys saw this quarter is this something that you guys expect to persist this year and I guess further to that the cash conversation our capex figures by magnitude kind of expected to hold in at the current level where.
As the schedule going back to buy called it.
Yes, so Anthony here.
We look if we can keep our our adjusted operating EBITDA at.
Around or above these levels in absolutely.
The way we look at it.
You try to keep things pretty simple and we were kind of sitting around the table. We look at our adjusted operating EBIT da Let me take a look at the impact.
Of tax net out our our cash interest expense when we look at the working capital kind of swing, we see from over given time period and our job is you know if we're generating sizable adjusted operating EBITDA, you should be able to drop cash through the operation. So that it can help one kind of future growth.
So that's that's one of the core things that you know at least.
You know RFP, ne and in accounting team kind of focus on its just ensuring that the cash flows regenerate can be reinvested back into the business and that we're generating positive cash flows.
Okay, Great had been on the Capex figure you expect those to hold at the end of the same levels or.
The sale lease back in time improvement.
On schedule issues or co when will that be tempered.
Yes, so I wouldn't break that down essentially had three types of Capex you have maintenance capex.
Not a lot, but its ongoing to relatively nominal number you have wholesale capex, which is.
Very lumpy, particularly kind of quarter to quarter, depending on the progress that Doug Let me make.
Yes.
With the construction projects that we have ongoing those are all fully funded and then you have.
Our retail dispensary build outs and Weve built out call. It 40 40 stores at this point, we've got a pretty good beat on how much they costs and how long it takes to build them out and want to jurisdiction.
You know going forward, there is probably going to be some lumpiness quarter to quarter.
But when you look at that our estimated capex for the year.
It's probably at.
Probably at or above the the annualized number for this for this quarter.
Your next question is from Andrew.
Partners. Please go ahead your line is open.
Hi, everyone congrats on the excellent quarter.
The agenda.
Just on the the strength of the Q1 results.
Obviously set of very high hurdle for growing your business in Q2.
Just wondering what the impact on Kobin 19 on some your key markets and thinking about in particular.
As was Massachusetts.
How comfortable you are in growing your.
Q2 sales over Q1.
At the rate you.
Historically in the double digit range.
Sure This is Ben.
We don't give specific guidance and obviously, it's been a big step function. This quarter. So so I think you'd be closer to plug in the same kind of numbers, but I can tell you that the second quarter. It's still early here, you're halfway through but it's performing at expectations and while we did see like I said before some pantry loading in March.
There's no change cement demand we saw Illinois for example to your question the 4% growth in April over March.
So we remain excited because he heads down focused on business.
And ready to perform we're not really managing encore quarter basis, we're excited about what's going on in our future for later this year.
Okay understood just a follow up to that.
We are heading into a period here.
Economic period.
Just wanted to get your thoughts on where where do you think your in house products stocks up in relation to third party products in terms of pricing levels.
Wondering if you're seeing any notable shifts in demand between your product before your portfolio.
When your various brands.
Yes, we will talk about that a lot inside and you've got to be careful to make.
Blanket judgments on short term data in the supply constrained markets.
It is really the predominant part of our business or the supply constrained markets. So we don't want to pass judgment people like things value obviously is important.
But how's our product rent up in different states for premium quality follower and general we'll know the highest quality follower and several of our states from Illinois, Pennsylvania, Maryland et cetera.
And I can that can take a premium price. So we're fine with that but at the same time to important understand the consumer and understand that there's value offering and a premium offering in several different things in between so it's important to have a portfolio of brands that can appeal to the consumer.
Your next question is from.
Fannie of Canaccord. Please go ahead, Sir your line is open.
Hi, guys. Thanks for taking my call and congratulations on the quarter.
I still like.
You can hear me. So from my first question I was hoping to get a bit more detailed in regards to the Illinois adult use market.
Now I understand that.
Mashing might not want to delve into state by state.
Fixed, but perhaps you can help me sell some gaps.
When I compare your store account to the readily available dot online 65 approved.
Adult use licenses I guess that implies a market share of approximately 10%.
Now I don't think this metric that you guys justice because I mean your results indicate that so I was hoping you'd be able to provide you with a bit more detail on the development of the store openings in the state and perhaps share some comments on whether you know this modeling approach to see how she CCI comparison to competitors is fairly in line.
Before you guys are seeing.
Sure Bill the spend.
So to set the table a little bit the end of 2019 or 55 medical.
Canada's dispensers in Illinois, each one of those has the ability to also offer a don't use product if approved by the state and local and I think 48 49 of those are able to do that plus or minus in addition, each one of the 55 get an additional license open an adult use only storms nonmedical.
And we had been the only.
Company or what are the only company in first quarter open we actually did to those stores 50, 657, Interstate and now there are 58 open stores three of which are adult use only stores. So we have seven stores.
Open now and pipeline on the other three which were excited about as I mentioned one of those coming up later this quarter.
Coupon on market share in what's going on we're not really public with our market share we're talking about that.
So we just like to lead with the numbers.
But I can tell you in any other some publicly available data on that clearly we're over index had been a leader in the space first mover.
It was operating stores serving customers serving patients.
With care in offerings selection and service the people want and they'll come back to.
Especially in the supply constrained market.
So we really like what's going on here in our home state and we think we think it's a set up for many other states to watch what's going on.
Okay, great. Thanks for that are not just one follow up question well separate question. So there's a number of your peers and.
Ms. So pure group, who who seem to be hitting a funding franchises laden have already announced or intentions of monetizing or spinning off assets.
Now I know you guys get a lot of questions on M&A, but with a continual slide of the Canada's change.
You know has has your strategy changed at all are you seeing any interesting opportunities are you still finding more worthwhile to reinvest in your business.
Perhaps higher ROI.
No change in strategy, we continue to look at everything and everything's on the table that makes sense for shareholders are within our business, but I can tell you the bars Hot we've got an amazing business and amazing platform in the early innings.
So the M&A World you know not interested in inheriting other people's problems.
We like our business and we continue to see it is the highest priority and best use of capital.
For what we have today.
Your next question is from Stanley Beacon. Please go ahead your line is open.
Oh good afternoon, Thanks for taking my question.
Right.
First question around.
Well I talked about.
Maybe the processing operations and I guess you just got the final inspection completed congrats on that just wondering what the raw material suppliers like in Ohio, and I guess, what what you've done so far to secure supply.
I guess just to make sure Hey, Ross anybody here just to make sure I heard you right, you're asking about the availability of trim.
Yes.
Strong very strong there there's a lot of product on the market to be candid with you the price and trim was you know when we started chatting with folks.
We were pleasantly surprised and.
So it's clear that some folks are sitting on a lot of weight, particularly kind of material that.
We are not pass kind of a stringent testing requirements in Ohio.
But we don't see any issue with with being able to fill that facility with the plant material to to get things rolling.
Great. Thanks for that if I could follow up on our New Jersey, we talked about this on last call. Just wondering what the latest is on that first dispensary and its performance since the opening and what your latest you is on on the second and several locations if those might be a 2020 of that's that's for me. Thanks.
Yes, I mean, that's the whole that's an accelerated timeline, so when jersey remains a very attractive market.
No nothing we spent a lot airtime on.
The way, we do Illinois, and P.A. that we see a coming up 30 right. There you are very attractive 9 million plus person market medical limited operators huge demand states is looking for the tax revenue has got a lot about in November we opened a store and Patterson. The performance is above expectations and we expect that second store.
Licensing approval, it's a little hard to handicap construction and timeline. So I don't want to give you exact timeline, but it remains a priority as we continue to scale product into a state that is tight on supply.
Your next question from Neil Kilmer.
Please go ahead your line is open.
Yes, thanks very much in good afternoon, none of them and covered off what maybe you obviously.
A number of initiatives with respect to the covert 19 pandemic.
Both to protect obviously employees consumers et cetera.
Is there anything that we should expect in Q2, maybe a slight uptick in whether it be opex or maybe some of the stuff flows through cost of goods sold back.
All those initiatives, maybe necessary weren't necessarily plan three months ago, I'm, just wondering whether they're saying anything there that we might see him in the Q2 results should be world.
Sure Neal so.
Look obviously, it's too early.
I don't think that you'll be able to see it rolling through obviously, we're spending more on PD and other things in some additional kind of processes that maybe adding some incremental labor here and there, but I think just given the scale the business I think it'll it'll it won't be noticeable and we'll look we'll look to other areas to tick.
Back on to make sure that Theres no comment.
Inherent.
Impact on the on the business.
Great. Thanks very much.
Your next question from Scott Fortune.
Well partners. Please go ahead your line is open.
Thank you good afternoon very impressive quarter congratulations.
Real quick I want to follow up.
Disciplined capital approach, because you're taking a lot opportunities within your hearing on markets and state, but what are you seeing you talked about private sector really hasn't come down much as far as a pricing standpoint. There are you trying to see that occurred a little bit more here in.
Hey look opportunistically for many many times.
Something private potentially comes down from that standpoint.
Sorry, sorry. This benefit was your question about private sector M&A.
Yes, and those valuations coming down you know they remain pretty high for some to get up rates are you seeing overall some of that started it starting to come down.
Yeah, really the same lens public or private or whatever is going on pause I public who will take your pick in Kansas.
We'll go into true business in the operations of that business you know the various metrics not not so went public or private I don't have a strong comment on the valuations in the private sector versus public.
About what's going on.
We remain.
Looking at things and that really makes sense.
Hi, this is I'm tables that make sense, but the bar remains high public private.
Or otherwise.
Okay, and then one follow up obviously never transaction to try them strong retail growth here.
In store yet.
I do have delivery are they all producing higher average tickets for you going forward as kind of lower in store volume is offset by curbside delivery, but.
If each kind of.
Channel producing higher ticket sizes for you.
So little hard to comment specifically again as or short term swings in various things, but I can say broadly with cold and people want to go less often so they buy more so using tickets go up a through that and as we enabled the transaction we can enable people to spend so whether its debit curbside delivery.
And other things and I was you're going delivery fees and different incentive programs and loyalty to drive that ticket to scale the business.
People aren't afraid to spend on cannabis.
Such as I know they won.
Your last question is from keep their of Mary Jane stocks. Please go ahead. Your line is open.
Thanks for taking my call.
Interest in trying to break down the Illinois revenues are you, giving any forward guidance on Illinois, and what you're expecting for the year. Thanks. So much.
Sure. Thanks, a question Keith This is Ben.
No we're not providing forward guidance on it but I can talk to the numbers like I mentioned in the state does a pretty good job at disclosing and being pretty transparent about what's going on so you've seen about 200 million dollar sales in the first quarter. So that tracks to an 800 million dollar annualized business and we don't think that that's an accurate measure of demand we didn't do the mark.
Is entirely constrained by how much product is out there.
Got it hits, the stores ours or others and cells as there's big demand.
So we think that the size of the market will be depended on how much supply comes online and as Anthony mentioned, we continue to ramp supply.
Or the other friends in the state continued ramp supply as well and we did the demand will lead that so I'd be surprised if it's flat four quarters in a row.
And we think the net size of the market is in excess of $3 billion and that's a material amount of money that's material amount of tax revenues at some terminal jobs in capex into the state.
It continues to look for jobs.
And other things so we're bullish obviously on Illinois here for the citizens and for the program.
But that's not currently Illinois capacity of you released detailed them out of capacity for Illinois.
We have not doesn't have an acute.
Yeah.
There are no further questions at this time I will turn the call back over to the presenters for closing remarks.
Well, thanks, everybody for joining.
Well, obviously excited and focused on the business here, but everybody out there stay safe, we look forward to talking to you and few months. Thank you.
This concludes todays conference call. Thank you for your participation you may now disconnect.
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