Q2 2020 Harvest Health & Recreation Inc Earnings Call
forecast in such statements
these forward-looking statements speak only as of the date of this conference call and should not be relied upon as predictions of future events. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information future events, or otherwise except as required by applicable law additional information off the material factors and assumptions forming the basis of the forward-looking statements and risk factors can be found in the company's filings and press releases with the Canadian Securities Exchange and c e r
During today's conference call Harvest will refer to certain non-ifrs measures that do not have any standardized meaning prescribed by IFRS such as a custody battle, which are defined in the earnings. Press release. We issued earlier today.
Reconciliation to IFRS measures are contained in the press release and our filings, please note all financial information is provided in US Dollars unless otherwise indicated.
I'll now turn the call over to Steve White Harvest founder and chief executive officer, please go ahead thank you Christine. Good afternoon everyone and thank you for joining. I appreciate your continued support and interest in Harvest in the opportunity to provide you with an update on our organization today. I'm very pleased to be able to report continued progress towards reaching our goal to return profitability second-quarter results. Exceeded expectations revenue is up significantly we quickly and meaningfully reduce costs are adjusted ebitda turned positive earlier than expected and we haven't seen a single one of our core markets expand to allow recreational sales yet.
Before diving into second quarter results. I'd like to welcome Deborah Keeley to the executive team as our Chief Financial Officer. I'll speak more about Deborah little later.
I also want to take a moment to recognize our teams continued work 2020 has left an indelible mark on our country and the world and its profound impacts are likely to persist for quite some time. Despite all the twists and turns presented during the sun unexpected and unprecedented year and it continued challenges of operating within a rapidly emerging and yet still federally illegal drug industry. Our team is performing like their work is as it has been designated essential.
And those are second-quarter results demonstrate. These ongoing efforts are bearing fruit as we move closer towards our primary organizational goal of returning to profitability. People are a valued in a component of our success and essential to our plan to return to profitability now turning the second quarter results.
As I've said many times before Harvest has a plan that we were executing during this call. I'll provide an update on our progress and discuss recent developments including an overview of investments in our core markets and ever will present more detailed Financial results in guidance.
Overall, I'm pleased to report that our performances tracking according to and in some cases ahead of our plan improving quarterly Trends demonstrate the considerable progress. We've made over the past few Quarters off on an absolute basis revenue and gross profit or increasing while overhead is decreasing resulting in improved and now positive adjusted ebitda for the second quarter off.
Second quarter sales of almost fifty six million dollars represents a 109% increase year-over-year and a 26% increase from the first quarter higher Revenue sequentially was driven by gross an existing operations in our retail and wholesale segments and full quarter contributions from recent acquisitions. Although we are opening and acquiring fewer retail locations in 2020 compared to 2019 Dodge a second quarter results demonstrate that growth from existing stores remain strong wage.
Now turning to costs since the end of 2019 Harvest is returned to Our Roots. That means a focus on operations and expansion and core markets. You mean streamlining of business or greater efficiency and it means implementing stringent cost controls.
We still believe that we have additional opportunities to further reduce costs while growing the business and we expect to demonstrate further progress in the future. We're also actively managing our liquidity Harvest end of the second quarter of 2020 with approximately $62 in cash and $291 in debt. We have sufficient Capital to service our debt in 2020 and 2021 and we have the flexibility to accelerate or delay Capital expenditures as our Capital position changes. We will make necessary adjustments to our plan to ensure that we meet our obligations while continuing wage pursue profitable growth.
And lastly we've had.
a few developments at Harvest since our last call on the
First in April, we hired Deborah Kelley and in June we elevated her to Chief Financial Officer. Deborah is a seasoned executive with a proven track record in both public and private private growth companies off her skill set and experience is an operationally focused leader aren't excellent match for Harvest is the company continues to evolve and focus more acutely on execution. She's been working diligently and has already made impactful contributions to the organization as we continue to refine and Implement our plan. We're excited to have her onboard second with respect to the on Thursday covid-19 pandemic. We have not experienced the unmanageable disruptions to our operations to date admittedly. We've had some instances where we experienced staffing issues resulting in some wage retail hours and Manufacturing challenges.
We've also seen minor delays in permitting and construction due to covid-19 to this point. We have been able to manage these issues as they arise all of our facilities have remained online with modified operating procedures to safeguard employees patients and customers in accordance with state and local guidelines. We've also resumed in-store purchases at all of our retail dispensaries. We continue to monitor. Our faith friends are impacted by covid-19 and its macroeconomic repercussions.
Finally, we announced the completion of the divestiture of eight planned and operational California retail assets of High Times Holdings. The agreement with High Times includes the potential sale of two additional retail Assets in California pending completion of closing conditions. We may complete additional divestitures of non-core assets where practical in order to free resources to focus on our court Market as we've met before part of our strategic plan includes making targeted Investments of fast and favorable returns in our core markets.
During the first half of 2020 we spent approximately $18 on Capital expenditures with 77% of those Investments made in Arizona, Florida, Maryland and Pennsylvania.
Those four core markets are medical markets with limited license regulatory structures continued patient growth and future potential upside from adult use consumption. Each of those core markets has continued to pack. Well, our home state of Arizona is one of the fastest growing medical markets in the US.
The number of qualified patients as of May 2020 was over 245,000 up 23% from a year earlier total. Marijuana sold year-to-date through May 2020 was almost eighty two thousand pounds up 30% from the same time period in 2019 Harvest has the largest retail presence in the state with 14 open retail dispensaries supported by Foundation facilities in Camp Verde, El Mirage Phoenix and Wilcox and processing and Manufacturing facilities in Flagstaff and Phoenix following the acquisition of Arizona Natural Selections off first quarter. We've been able to streamline our distribution and warehousing operations in Arizona to improve Logistics and better meet our needs.
In 2020 we are.
Sending indoor cultivation and processing at the Phoenix facility as well as the greenhouse cultivation at Wilcox.
With new capacity expected to be completed during the first half of 2021. We also expect one additional retail location by year-end given the strength of the current market conditions and potential upside from the expected roll out of adult used cannabis consumption in 2021.
In Arizona the ballot Initiative for for cannabis for adult use continues to achieve important Milestones ahead of the November 2020 election in early, July the campaign submitted almost four hundred and thirty-seven thousand signatures and supported the smart and Safe Arizona initiative that was about two hundred thousand more than what was required last week the campaign survived the legal challenge based upon the proposed hundred word ballot summary less than 24 hours ago. The Secretary of State actually confirmed that enough signatures were validated to qualify the educational Initiative for the palette The prohibitionist Who challenged the hundred word summary recently filed an appeal of the lower Court's decision. And once that appeal is rejected, the recreational initiative will officially be on the ballot prop 207.
We are today. We are more confident than ever that it'll pass the initiative gathered signatures faster than any initiative in the state's history and the polling both what's been published in our own internal polling shows strong support for recreational marijuana in Arizona. This Catalyst will be a very significant event for our organization.
The Florida Market has been strong in twenty-twenty with approx 20% patient growth through the month of June in Florida. We operate six open retail dispensaries an indoor cultivation and processing facility. I'm in a secure outdoor cultivation and processing facility product from cultivation expansion at the end of 2019 continues to ramp resulting in higher sales and margins at a retail locations dead. Another cultivation expansion is currently underway with new product and store openings coming into the market in 2021. Maryland has been a solid limited license market for several years and took it over 100,000 certified patients as of July 2020 total dispensary sales for the state reached over a hundred and ten million during the second quarter up over 20% sequentially wage in Maryland. We currently have three open retail dispensaries and a cultivation and processing facility in Hancock Harvest is Annette wholesaler in the state of Maryland with strong sales outside of our retail operation.
We have completed some upgrades and expansion to our cultivation and processing facility in Hancock to increase Supply to our own retail locations and support overall continued market growth.
The Pennsylvania Market is experienced rapid growth in a supply constraint Harvest currently operates five open retail dispensaries in Pennsylvania, and the recently-acquired cultivation and processing facility and reading off service has five retail licenses allowing for up to 15 potential retail locations. We are currently expanding cultivation and Manufacturing operations to alleviate product Supply constraints off-chance margins and support the opening of additional retail locations in twenty-twenty and twenty 21% We firmly believe that investing in markets with favorable regulatory Frameworks and liquor licenses to operate afford the company the best opportunity to return to profitability in the near-term. We look forward to demonstrating further progress with respect to our overall plan and our goal to return to profitability Thursday. We remain very confident about the long-term trajectory of the industry and we believe Harvest will continue to be a strong and focused operator in the US cannabis industry.
we're highly encouraged by the
Increasing level of discourse regarding the importance of the regulated cannabis industry as an essential business and we look forward to contributing to the advancement of the industry as layers of prohibition or removed over time without I'd like to turn the call over to Deborah. We will discuss our specific Financial results and updated guidance.
Thank you Steve. Good afternoon. Everyone. I'm going to provide an overview of our second-quarter financial results and updated guidance for 2020. Please refer to the press release and slide presentation for full details as you just heard Steve mentioned. We had a great second quarter are strong performance in the second quarter was driven by a combination of Revenue growth operating leverage cost productions for the second quarter. Revenue was 55.7 Million representing an increase of 109% year-over-year and 26% Sequentially wage growth was driven by the full quarter contribution of Acquisitions completed in the first quarter in addition to growth and existing retail and wholesale operations.
Discontinued operations for the second quarter include revenue and cost associated with the sale of retail Assets in California the closure of the Michigan retail location and inventory associated with discontinued product lines, their earnings presentation includes first quarter 2020 results that reflect the changes with discontinued operations.
Approximately 84% of our second quarter Revenue was derived from our core markets, Arizona, Florida, Maryland and Pennsylvania Revenue mix during the second quarter was 76% retail 13% wholesale and 11% licensing and other as of August 11th, 2020 Harvest owned or operated or manage thirty-five retail locations in Seven States including fourteen open dispensaries in Arizona Harvest owned and operated dispensaries exclude retail Education Service through Interurban.
For the 13 stores that were open in Q2 of 2019 same-store sales increased by 49% year-over-year as one of the oldest operators in the US cannabis industry off some of our stores have been operating for many years despite the long operating history for our stores. We are still realizing strong growth in our retail base for the 31 stores are open in both the first and second quarters of 2020. Same store sales increased by 29% sequentially during the second quarter. We realized a 4% increase traffic and 24% increase in basket size compared to the first quarter.
Gross margin before biological asset adjustment during the second quarter was 42.1% compared to 25.1% in the second quarter of 2009 and 41% during the first quarter of 2020.
Margins in our retail business range between upper 42 Lower 50% and we expect those margins to improve over time as we increase our retail presence in states with higher wage opportunities, and we leverage more of our internally produced product and we continue to focus on reducing costs the margin contribution from wholesale and Licensing Revenue can vary significantly due to the product mix market and contract terms the sequential Improvement and gross margin in the second quarter was driven by a greater percentage of higher-margin retail Revenue partly offset by lower gross margin drive from wholesale and Licensing Revenue. We remain focused on expanding the most profitable components of our business and we expect our margins walk-in you to Trend upwards overall with some quarterly fluctuations due to mix and Market changes.
Second-quarter sg&a was 22.7 million or 41% of Revenue compared to 56% of Revenue during the first quarter. We expect sg&a as a percentage of Revenue will continue to decline over time as our Revenue growth outpaces increases in expenses.
No loss for the quarter was 18.3 million compared to a loss of twenty million during the first quarter of 2020 second quarter adjusted ebitda, excluding the impact of biological acid adjustments was positive 4.1 million and Improvement compared to the first quarter adjusted ebitda of -3.6 million. The sequential Improvement was due to a combination of Revenue growth economies of scale and additional reductions and operating expenses. I am so proud that again, we reported positive adjusted am reaching the Milestone ahead of our prior guide. I really appreciate all the efforts from our team to achieve this milestone.
Turning now to guidance. We are increasing our 2020 full year Revenue Target to approximately 215 to 220 million up from our prior Target of two thousand million the revised Target reflects the strong performance in the second quarter while taking into account the lack of visibility given the current macroeconomic environment the revised Revenue targets includes the the completed divestment of retail assets to High Times, but does not contemplate any additional divestitures in the event that additional asset sales are completed. We would provide an updated Revenue Target at that time. If warranted the revenue forecast includes continued growth driven by retail dispensary openings same-store sales growth and you and expanded cultivation and Manufacturing operations.
Forecast for 2020 assume no impacts are disruptions that we don't successfully managed including those costs by the covid-19 pandemic Beyond mayonnaise instances such as minor delays and permitting and construction or staffing issues as Steve highlighted Harvest has been streamlining operations and reducing costs for several quarters long. We expect to realize the 24 million annualized savings estimated at the time of our first quarter call. We've identified additional opportunities to further reduce costs and we will provide additional details once those reductions have been implemented.
Harvest Inn
Did the second quarter of 2020 with approximately $62 million in cash and 291 million in debt, as of August 7th Harvest had approximately sixty four million in cash get service for the remainder of the year is approximately 24 million which we expect to be partly offset by incoming Capital. We estimate sources of capital between 10 and fifty million potentially including collection of notes receivable new and extended financing arrangements and divestitures of non-core assets Capital expenditures for the remainder of the year are expected to range between ten and thirty million in addition to the $18 million spent during the first half of 2020. We are actively managing our liquidity wage have sufficient Capital to service our debt in 2020 and 2021 at Steve indicated earlier in the call. We are committed to returning to profitability to accomplish.
You should have targeted Investments operational efficiencies and scale and cost reduction measures We Believe Harvest is well-positioned and will emerge as a stronger company with that. Let's open up the call to questions.
Okay. Our first question comes from the line of Erin Gray with Alliance Global good evening. Thanks for calling and congrats on this phone call and selecting the profitability.
Quick question that I have for the updated Guidance. Just if I look at it, you know what it implies for the back half of the year looks like an implies, you know, relatively easy, you know modest growth for the back half. So can you just talk about the assumptions? They're they're just kind of that you're seeing in the marketplace. Was there something that you kind of boost the second quarter a little bit for the page fifty-six million or just kind of what the reasoning was from there? Cuz I know it doesn't include in the additional divestitures and also does not include the California, you know, which Alaska so any additional car they'll be helpful in terms of those subjects. Thanks. Sure. Thanks. So as it relates to our guidance, we factored in several variables when we Revisited the guidance for 2020 the first name, what we considered was the strong performance that we had in Q2. We had 109% year-over-year growth and 24% Sequentially. Most of our growth comes from retail operations, which wage
About 76% of our revenue and although these were impressive measures. It also creates a high hurdle on a go-forward basis as there is uncertainty and lack of visibility in our current macroeconomic environment specifically around unemployment unemployment benefits the stimulus package So based on those factors, we are comfortable with the same guidance. We provided of 215 to 220 million and as it relates to whether or not the icg revenue was included that Revenue was I not included in our Q2 and it is also not included in our uh-uh revised guidance and neither is any divestitures that we may consider are in. This is Steve couple other little things to consider. I mean this this guidance question or creating this target, which is something that we talked about a lot internally because you know, ma'am.
that an iterative process
So we go through and we're making decisions about Capital allocation. And so there's there are a handful of categories that caused us to be conservative, you know, obviously there's there's the covid-19 situation and and all the macroeconomic consequences of what's happening there high unemployment things like that. We just we just don't have a model to to know what's going to happen in the regulated cannabis in Palm Tree in in a recession or or even a depression. You also have to keep in mind that we divested, you know, some of our open retail stores in California off. The the other thing that is that a lot of people don't fully appreciate or understand is that the the licensing and other category that we report is not a it's not a number that's growing and so when we look at wage growth rates at the retail level you're going to see a really healthy growth rate quarter-over-quarter a year every year, but with respect to licensing and other it's it's going to remain flat.
We also saw in Q2. We saw bumps from bigger National actions, like stimulus checks and things like that which is and we don't know if that's going to happen in Q3 or Q4. We hope it is but we we don't have any idea and then lastly we don't we don't expect to be opening as many new facilities as we had in previous previous years for the back half of this year. That being said, there's there are a number of reasons why you know, their number of you know, basis for optimism as well. So despite the challenges associated with covid-19. We've Managed IT operationally quite well, and I don't think there been any significant impacts to anything that we're doing or to our numbers. Our retail stores are doing really well and growing at a healthy rate. Thus far demand is not been adversely affected by changing macroeconomic conditions.
And lastly, it's it's also true that the further we go down this road the the more pleased we are with with the team and how they're performing under these circumstances. So there's a lot that sucked into this discussion and that's how you kind of put that in in a, you know, big bowl and mix it up and that's how we come out with with the new Target. Hopefully, that's helpful.
Absolutely. Thanks for calling that's helpful. Just one more for me and then I'll jump back into queue. It just says we look at the the margin profile, you know like to see that, you know, come out Splinter the 42% you know, if you look at the the revenue mix with 76% retail, you know, can you help can you help kind of decipher between how much of that resale revenue is from your own product versus third party because obviously, you know being birthday and one that comes from your own product help capture more margin. So just let you know how much of that is within your own versus third party and how that's kind of evolved as well. Thanks.
Thanks Aaron. It's a good question. But it's a tough one to answer and it's a tough one to answer because state-by-state the answer is completely different and so in Florida, for example one hundred percent of our revenues from our own products, whereas, you know, we can point to a number of other states where that percentage is much lower. And and so what we've always targeted wage in a state that allows vertical integration where we have where we have cultivation. We have manufacturing we have retail is about A $64 mix or something in the range of 60% of the products that we sell are are are manufactured by us. That number is seriously going to ebb and flow though with with market dynamics. And like I said in stock markets, it's just it's either not possible to have that kind of balance or there are other conditions that don't allow it.
I great. Thanks for going back into.
Thank you.
Your next question comes from the line of Vivian.
Hi, good evening. Thank you to follow up on Aaron's question is you guys think about how did the balance of the Dynamics between full vertical integration and not what comes to life for me is the potential Catalyst a meaningful one in Arizona, and I'm looking at this slide back very helpful, and just curious how you think about disarming in particular because if I think about your life as a market share leader you have, you know a unique purview into thinking about how pricing might have all been the marketplace given changing Dynamics in terms of like industry supply of cultivation capacity. So you've kind of laid out your your current footprint to kind of wrap it up. And so I'd love to hear how you're thinking about what twenty twenty one might look like you're thinking about your capex profile and balancing wholesale versus retail in this very important Market specifically. Thank you.
Thanks for being yeah, so Arizona, obviously, I mean it's no secret to anybody that that that market has been a market where you know, we've we've had the largest presence out for you know for quite a number of years now and so for us as we we look at that, we we compare we think about Arizona going wreck and you know, you can look at examples of other states that when track and and how that changes numbers how that changes margin profiles how that changes pricing and you start making comparisons to other states and there aren't dead. You know, it's it's not an exact science to know exactly how that market is going to change in March when we expect to start seeing recreational sales and largely, you know, we saw last year, Illinois was the the big splashy Market that everybody talked about but we we had in Illinois was we had a week Medical Market turning into you know, really strong rep.
National Market and so you saw a significant Supply constraints in Arizona, you don't really have that because you have vertical licenses. So you have even in the medical market up to $130,000 and up to a hundred and thirty manufacturers. And so you're not going to see what you saw in Illinois where people are running out of product as a result. You you don't have to look at it quite the way that that people do in Illinois where where it is helpful to be a cultivator a manufacturer and and therefore a wholesaler in Arizona a lot of different the way that the licenses are set up a lot of people cultivate their own product it helps with their margin profiles, but it also means there are less wholesale opportunities in the state of Arizona than they are some others for us. What we see happening is increased demand for regulated cannabis sales. We expect that to happen in March and we expect it off.
ramp over probably
We the the following 24 months from there. We anticipate we look at the market as a two billion dollar market at maturity when we reached that maturity will depend on a whole lot of factors that were not exactly certain up.
That was a really robust. And so I appreciate all the details. Thank you. And I would assume that the decency to California probably plays a role there too just to follow up and then I'll get the key myself March is an interesting call out. I believe the fastest transition from medical to adult youth was Nevada and that took eight months. Um, so can you just offer a little more specificity around what she comfort in March? Thanks.
Yeah, it's a very good question and it was something that we thought a lot about when when the initiative was being created and frankly what it does is it places an incredible burden on the regulator here in Arizona to make sure that their rules are ready and they're ready to start accepting applications and start regulating these businesses earlier. So there there have been the campaign has kept the regulator informed of the page. It's as talk through what some of their responsibilities would be under that initiative and the regulator is is prepared to move at warp speed when when that commitment was made to work at warp speed was before they were also handling this thing called.
And it wouldn't surprise me to learn that, you know when when events occur like signature validation that they aren't starting to prepare, um in drafting rules early.
So they can meet those deadlines.
Understood. Thanks very much.
Thank you.
Up. Next is Kendrick t with a TV Capital markets. Thank you and good evening. And if I could quickly see just follow up first on Arizona garnering increase interest from a number of players and obviously with the most recent positive developments one would expect that to increase that's a my mind with that money into recreational use one could reasonably expect to see some, you know, a marked increase in competitive intensity in the Arizona Market. How how do you think about the evolution of of of the market compared with intensity and how well-positioned do you are to continue leading in that market? It's a good question. I I think for whatever reason Arizona has been a great marriage Market, but it's been very underrated and and not talked about enough and and part of that has to do with the fact that there hasn't been a lot of MSO activity in Arizona. It also dead.
Happens to be true that that none of you handle this live in Arizona, so that might have something.
Two of it as well. But the it is a a place where you you've have seen another company build up Assets in Arizona that being curaleaf off. You've seen Cresco move into the market. So it wouldn't surprise me to see other start moving into the market. What is underappreciated about Arizona is
the operational depth of the existing operators here the non-m even some that are just Arizona specific operators. You have a lot of very good very strong operations here and you've also had um cultivators and product manufacturers from other states creatively get into the Arizona Market without actually getting licenses themselves. It is a fairly well-developed Market already. We are confident that that we are going to continue to perform well in Arizona we've been as as you know, walk over the past few years. We've been continuing to make investments to prepare for for you know, the the November and ultimately March dates when when record sales begin, so we're just really looking forward to and for us it is obviously a very big deal.
That's that's exactly thank you for that and I'll maybe just don't want to belabor the Arizona one too long and I'll switch to Pennsylvania quickly. Now that that's the market is difficult for us to track on the outside. Obviously. It's been surprising, you know, everybody in terms of its growth and growth trajectory through this year. How much of these surprise in in court are both your top-line and gross margin were reflective of the the the strength in Pennsylvania. And so how that market has been tracking and then I think the second piece of that would be, you know a number you'll large competitors of completed some big capacity expansions in that market. You know, how long do you think the market is today? You know, how is Pennsylvania business tracking versus your expectation given the amounts of the Dynamics?
So we well we haven't provided specific information on on what the individual states themselves are doing. I can tell you that we are seeing in our core markets pretty consistent growth over time. Pennsylvania is a market that I frankly a couple of years ago wildly underestimated and it is it is grown on everybody's um, really expectations and for us that means um, a big part of that is the fact that it is Supply constrained in a position of that that Franklin Franklin Labs a cultivation of manufacturing facility was a very important acquisition for us in q1. And so you are seeing you will seek a contribution or at least a full quarter contribution from that acquisition in Q2. We don't call out specifically what it is. But but this was the first quarter where you saw the full quarter contribution
We we plan on continuing to invest in that facility.
Ramping up flower production and ultimately product production so we can supply our own stores and and eventually the wholesale Market there as well. But it is it's a great Market.
Thanks so much. Dave great color. I'll get back in the gear. Thank you, sir.
Your next question comes from the line up with Steve.
My questions and grants and record your exposure to your form and how that will change over time with the Investments that you guys made for right now, especially in your home. You see any kind of changes as you guys expand motivation in terms of getting growing rooms online and harvesting them. Could you give a little bit of color on Thursday timing or or magnitude on on your your core state or any additional color in that respect?
Thank you Andrew. And and welcome. The question was related to the specific Investments that we're making in the core Market wages being Arizona, Florida, Maryland and Pennsylvania. We haven't specifically broken out and haven't provided any information related to the very specific Investments. We are making sure what we can tell you is that we are making investments in capacity and each of those four markets and those you know, there are opportunities Thursday. We look at opportunities to make investments. One thing that we consider is the market itself the market opportunity because we're looking at you know, when we when we make Capital expenditures were looking at three things.
First were looking at whether or not we are need to spend money to preserve a license to we're looking at the return on that investment capital and three were looking at how quickly we're going to see that returned home. And so we've identified those those four core markets. Those are those are not markets where we need to spend money to preserve licenses, but they are markets that we've identified as being the best opportunities for us the big returns and see them quickly as as as we continue to proceed to profitability. And so what I can tell you is those will be the for Mark we continue to invest in quarter-over-quarter. You've seen us give additional information as it relates to our business. Um, you can expect next quarter for us to agent in you to give more information so that you can better understand some of the Investments were making but with respect to specific Investments and timing in those markets we are we are dead.
Being specific information at this time.
Okay, thanks for that may be on the other on the other side of the equation on your cost really good cost control here even in the face of adding a positions. Your sg&a base has has come down nicely wondering uh, you know, as you guys, you know have your Investments and your various markets, how do we see that sg&a base change also in the face of the savings that you guys have already realized I think in the past you've mentioned something about 24 million dollars in on your life savings. Could we see any more than that? Then how much of that have we seen in this quarter?
Sure. Thanks for the question. So as we communicated in our q1 call, we would identify 24 million and annualized cost savings and we will achieve those cost savings month. We also believe that there are opportunities for additional cost Savings in the future. We're continuing to evaluate a lot of processes and streaming line streamlining our operations and really looking under the hood of everything looking at all of our cost contracts if we can renegotiate contracts. So we do believe that there are further opportunities in the future to continue to reduce our cost.
And and Andrew the the the 24 million was those were cost savings that we identified last quarter as Deborah mentioned we continue to evaluate we cannot get to squeeze on some of the operational expenses that we have. We have realized some additional cost savings, but it isn't to the degree of the previous one. So we may actually called it out specifically we anticipate that in Q3 or key for that. We may do that, but we have continued to see some additional cost savings. We anticipate them. We will continue into the future to see more cost savings, but we'll and we'll we'll give you more detail on that in future calls, but it's nothing to the degree of the bigger cock got that we announced previously and and we started the cost reductions in q1 and then continued into Q2, but the full cost reductions that we've outlined will happen in, New Jersey.
Thank you for of this year.
Thanks for that additional color and congrats again.
Thank you, sir.
Next up is Matt. Bottomley. Good afternoon. Everyone. Just wanted to Pivot back to Pennsylvania. It's a market, you know, a lot of your peers yourself are are are really cheerleading gear and it seems like there's there's really good grilled. So given that you have one of the leading retail exposures there. And now with Franklin in the mix are you opening of retail is fast as reasonably possible based on the locations that you want or is there a reason that you might be tapering off exactly how you're opening up giving the supply constraint nature and then just a second to that if you can get some sort of range of what might plausibly open the remainder of the year in terms of retail for you guys in that market good. Thank you Matt. It's so we are off you identified it. It is Supply constraint. So we have not been opening stores as quickly as we possibly could we do anticipate that we will yep.
Store openings. Um
Potentially in the back half of this year and into twenty Twenty-One and that will coincide not coincidentally with what we expect to see with increased capacity coming out of that cultivation of manufacturing acquisition. We made in q1. So the sequencing of that is, you know, we we acquired that asset, uh, we built of asset increased capacity as we can as we start producing more and more product out of it. We will feel much more comfortable opening those retail stores. And so that's what you'll see from us. Perfect and just one other question for me just on the sequential growth several you had mentioned a metric and an apologies. I think I might have missed it. But in the 29% sequentially on the retail, can you just break down number just so I understand a bit better between what was actually same store growth quarter-over-quarter versus, you know, timing for Acquisitions like ANS, which had a full. You know this quarter versus last month.
Yeah, absolutely. So we said that our same-store sales, was 49% year-over-year and 29% sequentially and that 29% sequentially was based off of 31 stores. And as I said the California icg Revenue that is not included in q1 or dead in those numbers.
Okay, so predominately retail driven there. Okay. Great. Thanks guys. Yeah, absolutely. Thank you, sir.
Next up is Graeme. Is it Chrysler with eight capital?
Hi, good afternoon. Thanks for taking my questions. Just maybe I can follow up with respect to some of the openings from a bigger picture perspective as we're looking at the revenue Outlook expectations for for 2015 if you mentioned a bit about what you're looking to do in Pennsylvania, but can you give any more details from a portfolio perspective with respect to you mentioned? There'd be some retail openings. What states those might come from or you know how much square footage in a particular state is expected to come online and then the rest of the year here to support that Outlook and
Thanks for him. So so the reason I was a little vaguer on the are a little more bag on the store openings is because we we are shying away from giving specific guidance as to when stores are open because you know, we've we've seen people kind of Thai or or tether their analysis to that. We don't know that that's the best way to evaluate um Harvest as an organization or progress. Um, what we can say is what we did mention is that you can expect this year that will open another store in Arizona and that's frankly because we have an additional license in Arizona without an Associated open store. And so we are you know through largely through the process of getting that built out and open with respect to Pennsylvania. There's a timing issue which makes it challenging for us, which is you know, we we like a lot of people did in the State of Florida. We open stores when we didn't have enough product wage.
Justify the opening of those stores. And so we want to make sure.
Sure that we learn from the mistakes of the past. Um and in Pennsylvania we want to make certain of is that we can supply those stores once we open them. So the sequencing of opening those doors is going to be related entirely to the ramp up in cultivation in Pennsylvania with respect to the actual metrics and production Metrodome state by state. It's not information that we've provided today. Although you can expect as I mentioned before for us to continue to provide more and more information, you know and every quarter going forward.
Okay, understood. Thank you. And then just as a follow-up there with respect to the cap expectation. You've got the range between 10 to 30 million. How much of that cap back office is directly tied to supporting the 2020 Revenue Outlook versus how much of that is is building the foundation for for operations. It's a 2021.
It is largely dedicated to building the foundation for 20 21. There's there's very little return that will see on that investment in 2020. It is largely dedicated Q cultivation and Manufacturing capacity in our core markets under said, okay. Thank you very much. I'll see you soon. Thanks Ram.
Your next question comes from Russell Stanley Securities good afternoon and congrats on the the quarter and the progress. In fact, my first question just avoids to the potential for for some there's some additional non-core divestitures. I'm just wondering are you seeing increased interest in in those assets increase in their given given some improvement in Market sentiment and I guess how how aggressively are you pursuing sales at this point?
I wouldn't characterize our Pursuit as aggressive as we look at it. But what we ask ourselves internally is, you know, when we test your conviction about a market we ask ourselves whether we would want to continue to invest in it. If we have the ability to if the answer is we don't have the ability to or that we can't then seeing the same benefits benefits of of Leverage. We probably would prefer to divest that asset reinvest the cash and another one where we do have operating leverage off. So while we're not aggressively pursuing any divestitures, they are things that we would consider in non-core states where we're not inclined to add additional assets. They're off as far as interest goes we are seeing Capital start to free up for Acquisitions. And so the activity the activity along those lines is in Bangkok.
leasing some
that's great. Thanks for that that color and maybe if I could ask a quick question on Maryland as well. I think you're still in the market. So to speak for for fourth dispensary. That would put you at home. What is that? What is that market like or are there many sellers in our there are a number of one-offs available like that or or you know, I think from a perspective many of us have multiple multiple licenses there. So, how is it how easy is it to find a one-off license for sale?
It's a it's a great question and you probably pick.
Up on the fact that we didn't mention that we were going to add another retail dispensary for the first time in a couple of quarters, which is should signal to you that while we while we still continue to plan to do it took it been as easy to find the right asset as we originally anticipated the frankly the for the assets that we're interested in in the state of Maryland. The prices are a little bit High We are continuing to monitor that state we are interested in adding an additional retail store in the state of Maryland. We do anticipate doing it at you know at some point in life future, but we just haven't found the right acquisition at this point.
That's great. Thanks for me. That's a great color. Thanks for thanks for the additional detail.
Thanks Russell.
And we have no further questions at this time. So thank you all for joining and this concludes today's call.
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