Q3 2020 Curaleaf Holdings Inc Earnings Call

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Good afternoon, and welcome to cure a lease holdings third quarter 2020 conference call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.

After todays presentation, there will be an opportunity to ask questions to ask the question. You May Press Star then one on your Touchtone phone to withdraw your question. Please press Star then two.

Please note this event is being recorded.

I would now like the turn the conference over the Vice President of financing. They are Daniel Foley. Please go ahead.

Thank you good afternoon, everyone and welcome to securely Holdings third quarter 2020 conference call today, I'm joined by Boris Jordan Executive Chairman, Joe was already Chief Executive Officer, Joe Bayer and President Neil Davidson, Chief Operating Officer, and Mike Carlotti, Chief Financial Officer earlier.

Earlier today, we issued a press release announcing our results for the fiscal quarter ended September Thirtyth. The 2020. The press release is available on our website under the Investor Relations section and filed on SEDAR.

Before we begin I would like to remind you that the comments on today's call will include forward looking statements within meaning of Canadian and secure United States Securities laws.

By their nature involve estimates projections plans goals forecasts and assumptions, including including the successful integration of acquisitions and are subject to risks and uncertainties that could cause actual results or outcomes to differ materially from those expressed in the forward looking statements on certain material factors or assumptions that were applied in drawing the conclusion or.

Making a forecast in such statements. These forward looking statements speak only as of the date of this conference call should not be relied upon as predictions of future events. We undertake no obligation to update or revise any forward looking statements. When there was the result of new information future events or otherwise, except as required by applicable on additional information about the material factors and assumptions for.

On the basis of the forward looking statements and risk factors can be found on the company's filings and press releases on SEDAR and the Canadian Securities Exchange During today's conference call purely from refer to non eye of for US measures. The Dod have any standardized meaning prescribed by half for us such as pro forma revenue adjusted EBITDA and manage revenue the definitions of which may be found in our earnings press release.

Please note that all financial information is provided in us dollars unless otherwise indicated with that I'd like to turn the call over to executive Chairman Boris short.

Thanks, Dan Good afternoon, everyone and thank you for joining us I am pleased to report the curative delivered another stellar quarter posting record pro forma revenue managed revenue and adjusted EBITDA I want to take a moment to thank all of our team members patients on customers from their unwavering support through these unprecedented.

The targets.

Clearly the submission this to improve the lives of all of our patients from customers with safe access to a variety of innovative and trusted products and we continue to deliver on this promise.

We take our leadership position very seriously for our shareholders and our team members, but also with our customers on the communities we serve.

Before I provide a deeper overview of our record third quarter results I want to comment on the CEO succession plan, we announced today and our views on the recent on election and its expected impact of the kind of this industry purely.

As detailed in the press release issued concurrent with our earnings today, we announced the transition of clearly President Joe Bear to his new role as Chief Executive Officer of purely the effective January one 2021.

Joel This already has been working closely with Joe bear over the past year. We will continue on this capacity through your AD to ensure an effective leadership transition.

Joe Lusardi will remain on the currently board of directors at the elevated to executive Vice Chairman of the board on January 1st 2021.

I want to personally thank Joel the Saudi for his strong leadership as CEO of purely over the past five years.

Joe as the pioneer and the U.S. kind of this industry and that's been driving the has done a driving force securely from nationwide expansion.

Led purely of through a period of significant growth from mid single state operator of New Jersey to a publicly traded vertically integrated multistate, operator that has the largest pure play kind of his company in the world.

Joe oversight on Unprecedent period of growth that included several new State license awards numerous capital raises including our listing in Canada moving one of the best teams in cannabis and closing on several transformative acquisitions, most recently select the grass roots.

With the successful integration of both of these powerful assets largely complete and as part of the boards of regular long term CEO succession planning process now is the right line for Joe the transition from day to day CEO role on the leverage is considerable skills as executive Vice chairman of the board.

Joe will continue to play an integral role in the company's strategy the vision going forward.

On behalf of myself from the board I'd like to congratulate Joe Baird on his new role as CEO on.

Over the past few months of many of you have gotten to know Joe at various industry and investor of Us yes.

He has over 20 years of the executive leadership experience in top consumer packaged goods companies.

As president.

He has been responsible for driving overall operational excellence and the revenue growth securely and has done an exceptional job in leading the integration of select the grassroots please.

He has also been instrumental in helping us navigate and adapt to the considerable challenges the cobot 90.

Prior to the cure all the of Joe spend 20, plus years fuelling top line growth and profitability for several large scale CPG businesses.

As the achievements included a turnaround the voss water that nearly quadrupled sales position the company into a global breadth the creation of the 6 billion dollar Dr. Pepper Snapple group and the transformation of Cadbury into it so you're really focused confectionery leader.

Purely focuses on driving national brands across our expanded platform and the evolving our CPG focused business model. We believe the experience of marketing brand building information technology and business process efficiency make kind of the ideal CEO for purely on a tremendous moment in our history.

Surely has been at the forefront of advocating for this industry from the beginning and the.

The 2020 election results, which I've called a green landslide is clearly an undeniable inflection point for kind of us Eric.

Arizona, New Jersey will be adult you States next year, the governors of New York, Connecticut, and Pennsylvania are all now seriously talking about adult use legalization and soon the.

Voters of spoken and we are witnessing the mainstream and bi partisan acceptance of candidates use nationwide.

Our unwavering strategy has been to invest widely of strategically the capitalized of this national truck and we expect 2021 to be your outstanding growth procure at least as the result, more importantly, we will continue to play the long day.

Investing on the national strategy, where our distribution and brands of the most widely available in the country.

Unlike other industry pioneers of gone before us most notably in the technology and media sectors. We believe a focus on growth is the right strategy you cannot create national brands of touch millions of new customers without a national platform and that is what we're building here a true.

Moving on to our record financial results.

This is yet another terrific quarter procure leave with managed revenue of $193 million of 164% year over year, and 59% sequentially and adjusted EBITDA of $42 million up 305% year over year, and 51% sequentially with our major deal.

The behind US, we expect that our margins will improve as we realized incremental synergies and continue the scale.

With the closing of our current acquisitions, the fourth quarter will be the last quarter in which we will provide pro forma revenue.

The 2021, we expect to report only on for US total revenue, thus greatly simplify our financial reported.

Our balance sheet remains healthy with approximately 84.6 million of cash on hand at the end of quarter three we.

We expect the raise approximately 65, the $75 million of proceeds from asset dispositions related to the grassroots transaction over the next several months as well as put in place and up the $50 million revolving credit facility, which expected to close by mid December giving the company ample resources to execute on our growth.

Strategy at the take advantage of new adult use markets in short our balance sheet strength and liquidity coupled with expected strong cash generation from operations uniquely positions currently of to capitalize on the hugely transformative opportunities and 2021.

Turning to our operational outlook.

Our expansion of cultivation capacity across the key.

The markets. The is expected to reach full scale in first half of 2021, and we will nearly double new capacity in the key supply constrained States of Arizona, Florida, Illinois, Maryland, Massachusetts, New Jersey, and Pennsylvania, where demand continues to be to substantially exceed available supply.

We'll also continue to roll out additional dispensers in key markets, such as Florida, New Jersey, Pennsylvania, and Arizona and introduce select products into existing as well as new markets.

Taking the above into account we expect the finished the year on another high note and generate approximately 240 million of balance revenue and 250 million of pro forma revenue in the fourth quarter.

We are expecting to enter 2021 with a 250 million dollar quarter under our belt and we anticipate significant for the growth of the business through 21 based on the current landscape.

Adding Arizona, and New Jersey adult news and the potential for neighboring states. The follow suit will further accelerate our already robust growth.

Each of these new states as a multibillion dollar opportunity and pure lease is the only on the salt with a leading presence in every one of the.

Given the magnitude of these opportunities and as we await better clarity on timing for the launch of adult use in the states, we will be in the better position to provide 2021 revenue expectations on our fourth quarter earnings call.

In closing the Canada's industry's growth prospects of unmatched by any other U.S. industry.

As new consumers into the regulated market and more states legalized. This is the beginning of the only going to get more exciting for those of US on the journey. We've spent the last few years building, our footprint and deploying capital across the footprint to prepare for the small, but there's a lot of hard work behind us.

Now it's Showtime.

The futures and the Green and we remain unmatched and our exposure to these multi billion dollar opportunities.

I'll now turn the call over the Joe Bear.

Thanks bars and good afternoon, everyone.

As far as said I've been fortunate to have spent the past 20 plus years contributing to some incredible incredible business growth turnaround and transformation projects, but I can honestly say those experiences tail in comparison to the opportunity before us right now in the kind of this industry.

I'm truly excited to work with bars, Joe and the rest of our team to not only build great brands and a great company.

The help pave the way for the most exciting consumer products segment to emerge in the past 20 years.

I see tremendous opportunities ahead to continue advancing our mission of providing clarity around cannabis incompetence around consumption.

With an estimated 5% to 7% of the U.S. population engaged in legal kind of his consumption today.

Clearly and the U.S. industry.

We're still in the early stage of development of a large and compelling consumer product category.

Which could easily grow to 75 or $100 billion in size over the next decade.

And with our focus on using the science behind the plant.

To create truly differentiated products and leveraging our unparalleled national footprint.

Surely is uniquely positioned to lead this growth.

And address the roughly 93% to 95% of consumers yet to experience cannabis.

That's an amazing opportunity.

I also want to echo bars, the sentiment and take a moment to express my deepest gratitude for the Tyler's tireless work of our team members and the loyalty of our patients and customers over the past year.

I know, it's been incredibly challenging on the professional and personal level.

But we have to remain diligent and steadfast in our efforts to prevent the spread of this horrible virus.

By working together, we will continue to get through this.

As I assume the CEO position.

Credibly proud of the role clearly continues to play and addressing our customers' needs.

And in paving the way towards being stream of the acceptance of.

Of how can of his can help improve the lives of millions of Americans.

My focus moving forward is relatively simple.

The create nationally recognized brands that people of.

And offer products that meet the needs of our consumers.

Hi, staying focused on these priorities. We believe we have the opportunity to not only be the top kind of his company in the world but.

The one of the worlds, leading consumer products companies.

I will now turn the call over the Joel this already.

Thanks, Joe and congratulations on the new role as CEO.

I'm excited to continue to work with you in my new role as executive Vice Chairman of the board as we continue to securely apart as the leader in Canada.

Before I cover on my prepared remarks, I want to thank board for his trust and Mentorship over the last five years.

We have built something truly historic and it's been an honor to work with you on.

One of the thank our employees too many to name the they've come to work every day in support of our mission.

The last five years, there's going to the incredible journey, but good founders know when it's time to hand over the ratings.

I'm confident that Joe the management team and all of you will continue to make this business the smashing success.

You, our investors and analysts listening I look forward to continuing to see many of you at industry.

The conference is in the future.

I'd now like to dive into some strategic and operational insights from the third quarter.

Our significant investment in existing assets and acquired assets has yielded strong growth.

These investments give us unparalleled depth and breadth across the country.

According the Bbs analytics total cannabis revenue generated across our 23 state footprint the.

Is projected to conservatively grow to nearly 30 billion. The 2025 of Kehrli of having a leading presence in every one of the top 10 market.

I'll start by talking about Arizona.

Already a nearly $1 billion medical market. According the videos.

Right around the start of adult you sales on April 2021, we expect to complete the expansion that will double our canopy and to open on nights during much of Phoenix.

We already have the second largest share of the retail medicine the market.

The next is currently the number to be from the state and combined with our cultivation expansion. We believe we will capture a significant share of adult you sale.

Arizona will be a big part of our growth story and 2021.

In New Jersey, clearly says in a strong position to capitalize on the impending adult use opportunity and the meet the demand of the existing medical market.

The Jersey is the state of nearly 9 million residents one of the 1.5 times the population of the Colorado.

New Jersey will generate around the 170 million of sales the share according to bts compared to over $2 billion for Colorado.

Given its rational tax strategy, we believe the conversion of the listen the market will occur rapidly and easily exceed 2 billion of annual sales in the coming years.

Clearly of currently as the number one market share in an anticipation of adult use sales we are doubling our production capacity.

In addition, we expect to open a new dispensary on board in town and Q1 of 2021 and the third location in Q2 of 2021.

This will give us the maximum allowance of three dispensary from the largest grow capability and they stayed with only 12 currently from Ziv.

We are investing heavily in the garden state will be creating jobs and tax revenue as the fuel a massive growth cycle and regulated cannabis.

In Florida, the medical program continues to grow beyond expectations.

Over 15000, new patients are registered for the program per month and based on current growth trends, Florida has the potential to be a 2 billion dollar plus market and 2021.

We are investing heavily in cultivation to expand our share of the market grows.

In mid October we of the first harvest from our new indoor cultivation of facility on on Madora campus will be adding additional cultivation capacity in 2021.

We currently of 33 centuries, which usually located across the state and a lot of at least 39 stores opened by early next year.

As our supply chain continues to improve we believe our business will continue to thrive on the Sunshine state.

Moving on the Massachusetts, we were pleased to see the about the the temporary Q2 adult use closures rid of the COVID-19.

With statewide September annualized revenue sales over 1.1 billion.

Massachusetts continues to see some of the highest wholesale prices in the nation. According to cannabis benchmarks and clearly the is uniquely positioned the capitalized on the wholesale market.

We recently increased our indoor cultivation of capacity on our Webster facility and recently acquired etiologies fully built out into a cultivation facility.

We believe we of the largest operational indoor called the vish capacity of any operator of Massachusetts, which combined with our leading dispensary gives clearly a leading edge in the state.

Following the acquisitions of grassroots we immediately gain the strong presence in Pennsylvania, and Illinois, the fifth and sixth most parts of the states in the nation and two of the fastest growing kind of its markets.

The opportunity here again is huge.

Illinois as you know has gotten off to the extremely strong start with the Doe you sales it will be around 1 billion market in its first year based on current true.

We acquired a fully built out into accommodation facility and we will be expanding our capacity in the state.

Illinois currently has the highest wholesale prices of the nation. According the cannabis benchmark.

In addition, grassroots now has operational nine affiliate of dispensers with the 10 and find the location expected to come on line soon for the maximum number of single opera the retail licenses permitted.

Based on the number of operational licenses grassroots group is currently the number three player in Illinois, and we look forward of continuing to wrap up the ramp these assets.

Pennsylvania has demonstrated the equally impressive growth.

With over 370000 registered patients nearly 3% of the state's population.

After acquiring grassroots in July we immediately became a market leader with nine operational dispensers from the state when they fully built out indoor cultivation facility and will be expanding our past capacity in the state.

Grassroots has the right the open an additional three dispensers the public media and clearly there was kind of cool registrant license can open six more dispensary and additional cultivation capacity.

Pennsylvania is seriously considering the don't use legislation and clearly the is well positioned for this potential development.

Although I'm only highlighting the six states of my prepared remarks, I could spend as much on more time, highlighting the strength in each of our markets.

Based on license operations. We currently of the number one market share in New York, Connecticut, Maryland, North Dakota and drum on.

The potential for New York adult use of load a state of 20 million residents would represent another game changing catalyst for care of it.

This has been a single example of of our strategy of playing the long game is about the pay off we are prepared for the sea change happening in the industry and we are very bullish on our prospects for 2021 and beyond.

Turning to select on.

Our goal of select is unchanged to create a national lifestyle brand the consistently resonates with consumers through its value proposition and innovative product offerings.

Weve been intensely focused on launching so like the new markets, introducing new end of and form factors and this like product suite and realizing cost synergies the integrating select supply chain with the cure at least past production infrastructure.

As part of our initiative to expense Flex presence, we've now introduced select the nine new states, including Ohio, Illinois, and Pennsylvania, and the past two months, making select available coast to coast and the total of 16 states.

Year to date select has already generated almost 10 million in incremental sales and legacy clearly state.

In states, where we of existing wholesale businesses, we continue to see higher average unit sold and higher average revenue per week in aggregate when compared to prior periods, where on the Kehrli brand of products were sold.

This proves that as we roll select out across the entire platform. We can expect to see additional revenue gains without cannibalization.

We started the year with 51 is pantries across the U.S. and we now have 96 and.

And we of licenses for over 135.

We will nearly double our called the vision capacity in the coming year and our select brand is now distributed over 1000 retail outlets nationwide.

We've been busy and we're delivering on our vision.

In summary, I am beyond I'm pleased with our progress as we move through 2020 and look ahead the 2021.

Despite the pandemic and temporary shutdown, we experienced in Q2, we of minutes to whether the situation extraordinarily well and we view the clearly is without a doubt the single best position I Miss out on an industry poised to the kind of exclusive industry growth that we see once in a generation.

Now I'll turn the call over the my Carlotti to review our financial.

Thanks, Joe.

Once again, we posted record quarterly results as we remain focused on generating strong revenue and adjusted EBITDA growth. The we believe will drive long term value creation for our shareholders.

Most of our sixth consecutive quarter of record adjusted EBITDA driven by strong revenue growth in Florida, Massachusetts, New Jersey, New York and Connecticut. The addition of grassroots on July 23rd also contributed to a strong year over year and sequential growth delivering 45.7 million of revenue to third quarter.

The managed revenue.

It is important to note. The one time costs, primarily associated with fees the close the grassroots transaction and unrealized corporate synergies of grassroots impacted our margins the.

The $17.8 million of one time costs included extraordinary legal fees of 4.1 million and acquisition related costs of 9 million, both primarily related to the grass roots acquisition.

In addition.

One time charges included 4.3 million of cost primarily related to the licensing and startup markets.

One time costs are expected to significantly declined in the fourth quarter the.

Additionally, when we close the grassroots transaction, we inherited certain of corporate overhead costs.

The impact of the third quarter, but are now being harvested the synergies.

We expect to achieve full cost synergies from grassroots in early 2021.

Our gross margins from Canada sales increased nearly 320 basis points to the 50% as compared to the third quarter of the prior year the.

The increase was primarily due to the higher operating capacity of the company's cultivation processes processing facilities in several states as.

As mentioned on previous calls, while we expect our gross margin from Canada sales the trend upward the will continue to fluctuate quarter to quarter based on the investment cycle on processing and cultivation as we continue to expand and bring new facilities online.

Overtime, we expect this fluctuation the moderate as our investments continue to ramp on the capital intensity of our investments getting to cool.

From the third quarter, we delivered record of managed revenue of the 193.2 million in line with our guidance range. This represented managed revenue growth of 164% over the last year and up 59% sequentially driven by organic growth and the partial benefit of grassroots for the period of July 23rd.

The September Thirtyth.

So from a revenue for the third quarter, which assumes grassroots closed on July one with all licenses approved including Illinois net of assets held for sale and now the then Ohio to meet Nachtmann license requirements was 215.3 million above our previously provided guidance.

Total revenue for the quarter was a record 182.4 million of 195% over the last year and 55% sequentially.

This was driven by strong growth in both our core and manage the business operations as well as the acquisition of grassroots.

It's important to note that the delta of $10.9 million between managed revenue and if our EPS revenue in Q3 can largely be attributed to the longer than anticipated close of the Massachusetts, 80, G. acquisition, which occurred in Q4 versus Q3, and a strong rebound on their operations during the quarter.

[noise], we recorded record adjusted EBITDA of 42.3 million in the third quarter of 51% sequentially and more than four full of as compared to 10.4 million of the third quarter of 2019.

The increase year over year was primarily due to the continued scaling of operations and higher gross margins across several states, notably in Arizona, Florida, New York, and New Jersey, as well as the partial.

The quarter country of contribution from grassroots.

Our retail on wholesale revenue more than tripled to $180.3 million during the quarter as compared to 50.7 million in the third quarter of the previous year.

Management fee income declined to $2.1 million in the quarter versus 11.1 million.

In the comparable prior year period due to the conversion of the previous we manage and the two wholly owned consolidated entities.

The increase in the retail and wholesale revenue was primarily due to organic growth and new store openings in Florida, Massachusetts, Arizona, and New York the impact of select grassroots surely from New Jersey Arrow lucrative and main organic therapy acquisitions as well as the acquisition related growth in Arizona.

Due to the addition to to dispense raised in the third quarter of 2019, and Nevada due to the addition of acres in late 2019.

Our retail footprint combined.

93 operating expense are used as of September Thirtyth 2020, and is up from 49 on September Thirtyth 2019 as of today, we operate 96 dispensers across 23 states.

As DNA for the quarter was 72.7 million as compared to $33.5 million in the prior year period and $40.5 million in the prior quarter. The increase was primarily due to the addition of grassroots and of the 17.8 million of onetime charges adjusted for onetime charges Sta for the.

Quarter was 54.8 million as compared to $36.3 million in the prior quarter or 28% of managed revenues a decrease of approximately 150 basis points compared to the prior quarter.

As we identify additional synergies, particularly from grassroots cost savings and continued to scale overall operations. We expect our SGN eight to continue to decline as a percentage of revenue, resulting in significant operating leverage.

During the quarter income tax expense was driven by increased deferred taxes associated with the increase in biological assets.

Net loss attributable to carefully of holdings for the third quarter was 9.3 million as compared to a net loss of 6.8 million in the third quarter of 2019 due to our acquisitive acquisitive nature, we believe adjusted EBITDA. The still the best measure of our performance as it excludes the impact of the 56.1 million.

The of non cash charges related the biological assets, depreciation and amortization and stock based comp as well as $17.8 million of one time items, primarily related to extraordinary fees and integration costs associated with the closing of the grassroots transaction and startup costs.

We have provided a reconciliation of GAAP net loss to adjusted EBITDA in our press release.

Moving on to the balance sheet.

As of September Thirtyth, 2020, we had $84.6 million of cash on hand.

There were a lot of moving pieces in the third quarter. So to eight of modeling the following as of bridge of our cash position from the second quarter to the third quarter pass.

Cash decreased from 122.8 million in Q2, the 84.6 million in Q3, primarily due to 27.4 million of cash acquisition expenditure payments net of cash acquired $23.2 million of capital expenditures of $7.5 million for the Ohio grown therapy license.

Transfer and a 26 28.6 million use of cash from operations.

This was partially offset somewhat by 41 million of Riet proceeds and 24 and a half million from the July private placement.

Cash flow from operations was negatively impacted this quarter due to the 19.5 million of cash taxes paid for 2019 during the quarter and $17.8 million of one time.

Cash expenses largely related to grassroots.

Also inventories are higher in the quarter due to increased capacity operational efficiencies and better harvest.

We continue to build inventory in select and in certain of key states, such as Florida, and New York to avoid products sell outs of meet incremental demand, we expect our cash flow from operations to materially improve from the third quarter.

Looking ahead, the acquisition payments are expected to be materially lower and all of our outstanding acquisitions of closed milestone cash acquisition payments due in the fourth quarter estimated to be 3.2 million another estimated $7.8 million due in the second quarter of 2021.

Beyond these payments, we have no additional cash acquisition commitments remaining.

We also expect onetime cost the materially declined in the fourth quarter and grassroots synergies to permanently benefit our operations going forward. Once the integration is complete we expect the benefit from the additional synergies as well.

Moving on to the guidance.

We expect the generate fourth quarter managed revenue of approximately 240 million and pro forma revenue of approximately 250 million, which includes the full quarter of the recently acquired grassroots assets net of assets held for sale.

Fourth quarter I FRS revenues should be about one to 2 million below managed revenue accounting for the eight days that we did not consolidate 18 GE in the quarter.

As Boris mentioned, we expect the exit 2020 with approximately 250 million already under our belt.

We expect additional synergies from integrations and increased fixed cost absorption to drive improved adjusted EBITDA margin starting in early 2021.

We also expect to see strong revenue growth from additional capacity in retail stores in high margin states as well as incremental revenues from new adult use states overall, we're expecting a very strong revenue growth and margin improvement in 2021.

Weighted average fully diluted shares outstanding were 625.2 million as of September Thirtyth the.

This includes the approximately 116.3 million shares issued in the grassroots transaction and the 4.4 million shares issued in our July private placement.

Post close of grassroots and private placement the unweighted amount of fully diluted shares outstanding was 654.2 million.

With that I'll turn the call over back to the operator to open the line for questions.

We will now begin the question and answer session.

To ask the question you May Press Star then one on your Touchtone phone.

If you are using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then too.

At this time, we will pause momentarily to assemble our roster.

Our first question comes from Matt Mcginley with Needham. Please go ahead.

Great. Thank you first congrats to a new Joe and the best wishes the old Joe in your future endeavors.

My My first question is on the on the capital spend the you mentioned doubling cultivation and into 2021, how should we think about the pace of the dollar spend around that you walk walk us through the cash balances and assets.

Asset sales and potential of getting a revolver put in place, but is that sufficient to fund the growth in the into 2021 and what out line should that take into in the next year.

Mike do you want to take that yeah, yeah sure. So.

Yes, we ended with 84.6 million in cash we have 65 to 75 million of asset sales, we've already announced a few of them, including HMS, which should close probably in early 2021.

So we'll have that cash coming in on.

Also with respect to capital expenditures, we expect Capex to go up a bit in Q4, and then probably remain at similar levels in Q1 and start to decline thereafter, so from a cash perspective I certainly.

Certainly what the revolving credit facility as well as of the asset sales on cash flow from operations, we feel comfortable with our current cash position and our liquidity going forward.

And you do you have any sense, Mike on what the dollar spend would be into the 2021 yet.

How much capex on 2021.

Correct.

Oh, it will probably be similar to where we end up in 2020, but we'll we'll talk more about that on our Q4 call.

Okay, great. Thank you very much.

The next question is from Pablo Zuanic with Cantor Fitzgerald. Please go ahead.

Thank you Morris I guess, it kind of a two questions on maybe out of it too Big picture for this type of calls moving the or what are the asking anyway number.

Number one I understand the logic of being the largest in the industry, but.

But most of the states have caps.

The store level on cultivation of level of you actually you know leverage on debt scale I mean, the Massachusetts is the worst except the right went south on square feet the of kind of be a Dutch im actually won and done only for the stores. So the maybe you answered on the first but again.

If most states of caps on the reach of stores cultivation.

You're not able to leveraged on scale on what am I missing there. Thanks.

So I think it's a good question I think the first of all day.

Now a lot of these states the demand is still growing dramatically on the so those of.

A massive on lack of supply of product. So in states like Massachusetts for instance, although we're only allowed to have three rack stores and on three medical stores.

We have a huge wholesale opportunity, which is why we increased our growing capability to the maximum allowed by the state of which puts the suit the largest grower in Massachusetts in other states for instance, like New York you cannot the restrictions of <unk>.

Of store restrictions, but that's obviously going to adult you as you can imagine that with all of my from says about the Massachusetts also has an on little bit of out of licenses for the Spencer is that are going to be issued over the next few years.

There is no restriction on the amount of the sponsors the can be had by player they can but not by arguing the large so we can become the largest wholesaler to those operations of don't forget that's why we bought select we want to be able to be able so that's true as many possible stores as we <unk>. The as we can but we want to have the vertical integration on the books.

After the market. So we're seeing a huge opportunity, Massachusetts, Obviously, New York, We think is going to be the second biggest market of to California on at.

The Ngos adult use in New Jersey for instance of there is no limits at the moment from what the amount of the cultivation capacity it looks as though we'll be allowed the build up quite substantially for the adult use market on bell. We've already we're almost finished with the new growing facilities should be completed by February early March and harvesting of.

The second quarter on so.

So they are we already are the largest wholesaler in the market and we want to continue the wholesale to the point so I'm not going to go from every state, but I think what you're seeing is but as of the states move from medical to adult use standard.

Moving multiple stores open.

We want to be the largest provider not only of our own stores, but what the future of pure leaf is as the wholesaler, we want on products to be on everybody's shelves and we want our products to be the leading brands and so that's what we're doing and that's what we'll scale.

Yeah. It's out of my question, Yes of course, Thank you and just one quick follow up. So maybe this is obvious to you, but I guess do it on the people that I talk to me the it's not all of us.

The the state side is the Lady foot. Another 40 years, if the Republicans you know get control of the Senate I know that's it on hypotheticals, there, but the fact that cetone for the miscibility may still be 40 years away, it's actually great news for the muscles like yourselves right. Because you don't have to be competing for the assets in the U.S. are we the Canadian companies sort of CPG again, maybe this is over.

As to you, but I find it's not all of you most of what other people have talked on the investments. So can you tell me what am I missing there. Thanks, yeah listen I I'm not going to be honest I think this whole Canadian thing has been blown out of proportion of I think the Canadian companies have no position in the U.S. market.

And I don't understand what the what what are the so excited I guess, because they trade on the U.S. exchanges.

The as liquidity the around the but the fact is is that they have no entrance and even as we move the states that even if we move to the more act I think the U.S. government is going to limit on international entrance into the U.S. market I think there's going to be a bit of a much around the U.S. market and even if the results we feel comfortable that we can compete on.

I've said many times on much less concerned about other kind of those companies.

About bad tax policy, which will lead to a proliferation of the illegal cannabis industry in the United States, where our biggest competitor is the drug deal on the street knocks the other kind of those companies and.

Even if we move to a fully deregulated market.

We believe the the price limits to get operation on going it's going to take the substantial amount of time from people who get into the market. We believe the existing on most of those have at least two years, it's not of the fourth years. The continued to build our brands of the continued investment on continue the build out our infrastructure, which is why pupils taking with the.

Listen to the house, but we're not just throwing money at a bunch of cultivation of facilities that are going to be obsolete. We have the major projects in the company working on creating systems, where are the <unk> division operations can be used in a brand new format, whether you would not have.

And the kind of limitations on sound between states and so we're very very focused on making sure that every dollar spent the bulk of it can be used the term.

Current situation.

As we move forward into the deregulated kind of the smart.

Understood. Thank you.

<unk>.

The next question is from Scott fortunate with Roth Capital Partners. Please go ahead.

Good afternoon, thanks for taking on the call on can you just have to kind of the day as select rollout of the stores and are taking in the uptake there and then the I'm not sure. If you talked about the margin improvement due to kind of the internal sourcing that's going on there, but just what's the growth of select the quarter over quarter.

Going forward now.

So I'll, let Joe answer that question, but I'm, just going to start up of thinks the line.

We don't have branded stores, we only have purely of stores. So we have the strategy of just keeping all of our stores in the the breadth of Kimberly.

All stores that we acquire are also we brands of the into true earlier, so we of Mano branding of purely for our retail operations, but the selective the as part of the wholesale strategy.

And today, we are we only closed the transaction February selects the present in force space.

Now present, the 16 states around the country.

And obviously in those states where of purely of had substantial vertical operations.

We're getting all the cure all the margins no states, where we don't have walked vertical operations are still building on like California, We're still having some margin pressure on.

But we think that that's what we've always said in 2021, the we will rectify the the.

The select the margins will start to come in closer to the cure of these margins, but they'll always be a little bit different because of the currently the product is largely a product. The so it's on our own on distribution. So captures the full margin from cultivation through to retail, whereas the slight product is one of your wholesale product to do lose.

A portion of the margin still potentially of well not potentially there is a very very profitable market. We're seeing select the most states we're vertical achieving very similar type of Oh.

Margin of the currently products, the and I don't know Joe you want to expand on that yeah. I'll. Just say you covered a lot of ground the Airbus, but I think the team build on some of the other concepts I think as far as said, we're now in over 16 states I'm rolling it through our existing footprint than we expect to be really in all of our markets.

On the first quarter of 20 or 21.

And what gives us a lot of optimism around select is that in each market as we launch. This we've actually built incrementality into our category. So we're seeing that it its not just cannibalizing or is the existing the business, it's actually bringing new users into the category and growing the overall VVIP category for us. So we're really really excited about our progress.

On select and I think we have seen on a lot of obviously runway left for 2021.

And I think just the to build on on something that Pablo mentioned before I think the.

No being available on 23 markets give us gives us the national footprint and so we believe that the long term value is going to be created by bringing new users into our category and to do that we need to be able to create brands and products that the trusting and so that's really the cornerstone of our strategy is building brand awareness building brand Trust.

And building products that meet the needs of our on apart from new consumers coming into the category 'cause, that's where we think the real growth.

It was going to happen in the marketplace, Yes, we're going to shift people from the illicit market to the to the legal market and we're going to grow the existing base, but I think the real value long term. It is converting you know somewhere around where.

We're about of 5% to 7% penetration level on U.S. households, being being attracted to the other 93% of the U.S. population, that's where the growth is going to come from and in order to attract those people into our category, we need to create brands that they can trust and products that meet their needs. So that's the overarching strategy for free cash.

At least so that's why it's really important that were out there now I'm moving selecting to all of our markets and building out purely.

With that said you know we don't talk about the specific revenue targets on individual brands, but I can tell you that you know on to reinforce Boris is really a point.

Select isn't over a thousand dispensers across the U.S. So we're not limited by the number of dispensary securely of has and that's that's the hope the whole purpose is the is to be a.

Like any other consumer part of company, where we try to create omni channel of distribution for our brands and whether that's in our dispense freeze or otherwise.

The other third party dispensers and eventually direct to consumer you know we want to make sure that our products are available on every channel available to us. So again early on with with select the we're very very optimistic about the progress so far and we're really excited about 21.

And just to add a little bit on that [noise].

We did say on the call that you almost $10 million of sales have occurred in Q early markets for select products with the substantial portion of that occurring in Q3 because of the addition of Florida, Connecticut, Massachusetts. The main in New York in October and November Weve added, Ohio, Illinois, and Pennsylvania. So.

The next obviously growing in its core markets, but you know we're seeing a nice lift in the cure leak markets as well from introducing select into the chain.

I appreciate the color and then one quick follow up for me is kind of you mentioned margin expectations of can we focus on the EBITDA of side.

What type of improvement can we see on on the grass roots side, the get up to the cures margin, what's the delta there and kind of the timeline as the as you look out.

For getting the those margins similar to the to the cure the steepening of margins.

Yeah, I mean, there is surely the sorry grassroots EBITDA margins are not too far off of ours, we expect that they will get to.

Currently you know San select margins within the next quarter or two as they continue to ramp up, particularly in Illinois, and Pennsylvania by adding cultivation in stores. So yeah as we head into 2021, we expect the EBITDA margins of increases we continue to scale the business.

And realize further absorption of our fixed cost I think for Q4, I would expect EBITDA margins to be somewhat similar to Q3 as we absorb 80 g.

Offset by continued improve margins you know throughout the rest of the company.

I appreciate it I'll jump back in the queue. Thanks, guys.

The next question is from Matt bottom line with Canaccord Genuity. Please go ahead.

Hi, Good evening also congrats on the quarter and congrats Joe on a job well done in the last five years I'm just wanting the maybe pivot he yeah no none of them just wanted to see the Arizona and New Jersey. So obviously the two balance date the of note in the election day I'm just commentary on.

On each one for Arizona, I would've thought that that market will see a higher degree of consolidation at this point considering the how there's only I think 130 or 40 license cap there and I think you guys have been the most active in doing that but I'm. Just wondering if there's any more dynamics that you can give us an overview on explaining you know why maybe that hasn't been as fast in that market on.

Maybe that's the calm and then the New Jersey, you know there's the.

On some of your peers that has a of release results already and it seems like there's not really any communication yet from the state with respect on what this market might look like in timing. So I'm just curious if that's consistent with the what you've heard and if there's any of you know been any update from the last few weeks here.

Let me, let me cover and so on the quickly I know on some of those on the right out to the honest the price. So you know the because of of of what we found generally as the states go from medical the recreational.

On the adult use of prices for assets tend to go on Sky high until people realize you know how difficult the list actually balance the business of rather they see when they come in so I think.

The does mark the very high expectations on price for hours on the licenses I think that that's put us on the tempur on on M&A. We've seen the couple of deals happened recently, but I'll give an example of we bid on some of the licenses. The only recently bought by one of our competitors on top.

The the that we bid half of what the competitors of paid for those licenses. So you can see how and Weve been you know maybe three months ago. So you can see how prices have gone.

And people are paying very very high price since we got into Arizona, we feel pretty comfortable alright.

That's true we're opening up our non store on the top one coming in the second quarter. So that's that's really where we are right now we feel.

All the light sweet populated areas, particularly of in Phoenix.

Without the cultivation and placed on obviously with <unk> being.

Moving on to Brad.

Trying to build on that and New Jersey.

Oh, you know we on a go into more detail, but on the state is communicating.

At the companies that are involved and obviously weve been in that state from the very very early on the get go we don't relationships with the regulators I can tell you the we're very much.

The of act and the conversations around one of the program.

What was going on we have to complement the state on the fact that but the other they are taking a very rational approach to it and we think that the there's likely to be some more high going back and forth over some of the tax proceeds and stuff like that we think the program will get launched probably sometime the next year.

Great very helpful and just one more for me is there any other color you can guys give on on maybe same store metrics or what you're seeing in basket size is the consumer preferences. Obviously every state is different but you know weve seen a pretty attractive numbers in almost every market you know really since the onset of cold dead. So just wondering where that's trending and if you can give any day now.

Index for stores that have been open for a year or something like that.

Yeah, I mean, we haven't historically provided the same store sales, but we will likely look to do so in the future, but that being said on average spend per patient per month increased 6% in the quarter and our patient growth was up 11% on quarter over quarter.

Okay. Thanks, a lot.

The next question is from Vivien Avram with Cowen. Please go ahead.

Hi, Thanks, good evening.

Congratulations outgoing.

Income in jail, so income John a question for you. Please on your background in non alcoholic drink beverages I'm I think it's really interesting and I'd love to hear of philosophically. How you think about running a portfolio of brands. Yes, certainly you know our experience covering coke Pepsi end of the like that.

Of course on you know suggests that the more than two brands are are necessary to build out and adequate hopefully on so I'd love to hear your impression that there. Thanks.

Yeah I think the my perspective is you know were in early stages in the development of the cannabis industry and today. The market is broadly segmented into two major segments of consumers the health and wellness segment and the lifestyle segments on today, we have a a brand strategy.

Focus on two of those two major segments purely because obviously, our health and wellness brand and and select as our on lifestyle brand. So I think over time as the market matures consumer segmentation will happen in this marks on like a dozen any other consumer product market and they'll be different brands then meet the.

The needs of different consumers and resonate differently with consumers I see overtime, our brand portfolio might or might emerge.

And develop but today I think the of the market itself is really fundamentally broken into two segments and so we're very focused on each of those segments through different brands on our portfolio.

Understood reasonable enough and a follow up please during the prepared remarks on.

On the commentary around Pennsylvania was on perhaps a little bit more constructive than I would've expected given that it seems like on the standard family has remained in the Republican control I recognize of course that the Governor Wolf you know has been the you know the whole proponent for adult use but it seems like historically the Republican control the state legislature had been a sticky.

The point to if you could just expand on your on construction commentary there I appreciate it. Thank you.

Yeah, Vivien I'll, just you know with regard to the president and CEO Lusardi, I think that <unk>, New Jersey, because they're going to pass a a an adult use program and get it operational fairly quickly it's kind of a massive pressure on Pennsylvania. So we you know we can appreciate that so that's the Republican controlled by just fight your but frankly the true.

<unk> revenue like and then the other market is going to be very hard to ignore I mean, we expect that will ultimately prevail. You know you are aware the Kelly of how the dispensary right across the border from Philip Philadelphia.

10 minutes from downtown Philly and so I think that you know, while while Pennsylvania figures. It out we stand to be a huge beneficiary frankly about the way on because those people are just kind of truck across the bridge the New Jersey.

And when when Pennsylvania does go adult use we'll be right on the other side of the the border West you know 15 stores and growing so from our perspective, I think where we're well hedged and well prepared to take advantage of the opportunities as they come.

I understand thank you very much.

The next question is from Graham Chrysler was a capital. Please go ahead.

Hi, good afternoon, and thank you for taking my questions I had a question from Boris and I just wanted to expand on your earlier remarks about some of the the developments we have coming out of the election more so with respect to the federal level I mean, the of the way you look at it Boris It should we really be looking for mid term elections in 2022 to potentially the.

The next big regulatory catalysts for some of these larger build to the pad the pathway that to pass here or could we potentially be surprised here between now and that point. Thanks.

So.

I think the first thing we need to do is the Oh consult on the presidential election and congressional on some of the like from we still have numerous races, Inc.

Moving on the presidential election were tracking the officially called by the various agencies it needs to do that on the U.S. government.

And so I think we got final results before I think it's going to be easier to per day, but it's certainly I mean, if we take the hypothetical but.

[laughter].

I see now we Oh.

Because of the price then we're going to have no [noise].

Oh the true.

[laughter] very very narrow majority for for a.

Republicans in the sense of.

I think the what we probably.

Feel very comfortable saying on the first time.

[laughter].

So we're kind of get the banking.

Hi, good to get some guidance from the new Treasury Department, if everybody remembers the cold on Wednesday.

[laughter], DLJ, which [laughter] consent on treasuries, the ability to get banks guidance on what they found its kind of too.

<unk>.

Oh, the Johns Hopkins.

[laughter] from sub.

Let's see I had.

The therefore, the treasury and sounds on remove the guidance.

So I think we're going to get that that's pretty.

It's an issue the both the Democrats the bipartisan issue.

Okay.

At the route and the will likely come either [laughter].

The Heroes act on separately.

Separately.

The year after the creation of the new President of.

So I think we'll get that going beyond that I think the there's going to be a lot of the initiatives is going to be a lot of activity.

But I don't expect there to be full risk on.

I do think that you could get on pay state that but that would probably be in the second.

Oh, Oh, Oh, the index administration on.

I think it will happen right away because I think if we get feedback from a car.

[laughter] exhaustion.

[laughter] likely to push on the stands on but I do think the space I suppose the compromise the could be between.

The MACOM.

The Senate, especially with all of the pressure coming from the space.

Could be.

Total legalization I don't think Youve got until the next the administration the.

Oh, so from a.

Securely of again.

From a crystal ball.

Sort of ARPU on freight.

And from what we're hearing in Washington <unk>.

Pretty much operation there, we're seeing the dots on the way the developing but anything can happen.

No, but we've already seen roll back a little bit it didnt.

[laughter] the so should the issues.

We don't.

On our pushing on.

The banking law and I think the the huge step because that would bring down the cost of capital.

The safe Harbor language, and the which would allow a very broad group of investors to participate in the kind of this market. So that's really our perspective at the moment, but you know we don't have of critical.

Okay I understand I appreciate the insight on and then just one other question here I wanted to follow up to to Joe Bear just with respect to you know the the track record and experience you have the building brands across the country on from scratch. The do you look at if you look at building brands and within the candidates in the street to have an out of line.

Our of complexity or is your approach really a similar approach to what you've done to write your career and you know there's really yeah. Some basic first principles that apply no no matter what happens I'd. Appreciate your insight there I imagine your as you transition into the new role in the hands on what your approach is going to be through that TPG transition for Carolyn. Thank you very much.

Yeah, I think the the essence of brand building is the same whether you're talking about you know kind of asked for soft drinks or any other consumer product, which is you have to meet the needs of the consumers are very specifically and you have to be able to do that in the way that they relate to.

Through brand representation of what the brand represents on what the company stands for the authenticity of the brand and the and the quality of the quality of the products. So I think those are all very similar and that's we're very focused on accurate leaf is who is developing products that actually very specifically meet the needs of Arkansas.

Of course.

And do that better than our competitors and if we can do that we think we're going to be successful. There are obviously some hurdles in the U.S. kind of its industry because of the structural component of of how kind of Mrs. Evolve so not being able to have a national supply chain. Obviously is a bit of a challenge I'm not being able to you know ship products across state lines of.

The challenge the the outlets for communicating with consumers is somewhat challenging.

You know there are some things that are structurally different but I think the essence of of building. A brand is is very similar which is Wendy we need the understands where consumer is the understand well needs of not being met by other people on the industry. The gold products that meet those needs and the communication you know those needs through through the brands.

So that that's very very similar.

Okay I understand I appreciate that thank you very much.

The next question is from Aaron Grey with Alliance Global Partners. Please go ahead.

Hi, congrats on the quarter and thanks for the questions on first one from me is on Florida. You name you mentioned some constipation expansion you have planned there.

Just once you get some of commentary on the degree of that and then also any commentary you have on in terms of animals and the planned rollout and ramping up of that now and the spin on made available within the state. Thank you.

Yeah sure. We just completed as I said in my prepared remarks, we just completed.

The first harvest out of our 50000 square foot on new endorsed the Sodi and does that flow will literally hit the product shelves here in the late.

Late November I'm, so we're definitely bringing a lot of <unk> of high quality indoor flower online and the market will be doubling our indoor capacity again in early Q2 to keep up with the demand for that product format and so I think you know in Florida. In addition, the opening of our stores, we're going to be adding a lot of capacity and.

Turning it on feed into that that demand curve, which we expect the continue to on to increase so I'm feeling very good about Florida and the right on the direction that of that attended.

Yeah as far as as far as the product goes you may recall, we've talked on a the discussed on other calls that we actually have the sublingual gel existing of the market today, we had the follow the rules in Florida, So we call it the sublingual jail.

Tablet and but the the launch of Gummies is eminent sort of within the next couple of weeks, we should have products in the marketplace and we think they're going to be.

A really compelling unique we use different technology as far as the emotion that goes into the of them into the gummy somewhere where we're creating an animal models from technology that we're gonna be launching in Florida, very shortly and that's going to have you know very fast onset and the different experiences with the additional gummy and we're following that up with a true.

So I'm kind of mean for traditional consumers in the marketplace. So.

We have the very robust pipeline of innovation in Florida, and cross all 23 States and we're very excited about some of the innovation coming to the market, especially in Florida over the next couple of weeks.

Hi, great. Thanks, and then the second question would be more around product from my specifically vapor, particularly given the acquisition of slack, which had historically and having the reliance on the vapor category Oh, we're a little bit of year removed from you know the bait illnesses and scares we had seen in the fall of 2019, So just curious towards.

What you're seeing in the marketplace today in terms of the overall base category consumer adoption of kind of where it lies right now in terms of a product from that market share on how you see that evolving thanks.

Yeah, I could give my perspective, and and Joe could could add in but you know we're seeing that the VVIP market has responded and rebounded over the past the 12 months and coming back off of the of the VVIP scare I think people generally recognized that what that wasn't the illicit market issue on that the products just weren't tested on weren't.

Hi quality. So I think you know that just as further evidence.

Evidenced that we believe this you know there's there's potential growth in our marketplaces consumers really understand the difference between the illicit market and the legal market, which as you get quality and test the quality products and testing that you don't get the Nielsen market. So that's been very favorable I think what we're seeing in in the VVIP category in general is that we're seeing.

We're actually seeing the consumers of becoming a little bit more educated in the aware of different technologies. So its not as simple as just having playing distillate in the cartridge being able to deliver products like a life resin and our lease life product for select is driving new market penetration of bringing new users into the category.

So I think what you're seeing is kind of a little bit of a bifurcation of the of the category, which is you know in the more educated on sophisticated consumers day on looking for better higher quality products, but.

But there is still a market out there for new entrants, who are basically still looking for just on products and shop on price. So our you know our strategy is pretty simple we want to have products that or will resonate with each of those consumer segments and make sure that we're creating a full lineup of products across both cure of lease and select.

To be able to meet those needs.

All right great. Thank you.

The next question is from Neil Gillmor with Haywood Securities. Please go ahead.

Hi, Good afternoon, just wanted to touch on a couple of the expansion you much of your prepared remarks with respect of Pennsylvania, and the Illinois, I can't give any more color on sort of the magnitude of those expansions on I guess more importantly, when you expect them to be complete in being able to come true some towards Britain.

Yeah sure you know on Pennsylvania on grassroots completed over the summer there their expense under the indoor facility.

We're also because of our clinical registration license clearly she is bringing on a 60000 square foot facility as well you know grassroots has the ability to open 12 stores what their licenses to at least can open six out of the clinical registered program. So we expect to have a true a significant amount of capacity come on line both as true.

Congrats fruits as we head into 2021.

With respect to Illinois grassroots completed the the fit out of their existing 70000 square foot facility I'm, just just recently and that that is plants as we speak and while the harvesting late this quarter and in the Q1 and so we expect to get the benefit of that fully built out facility plus an approximately.

The 46000 square foot greenhouse that is in construction on so we're having a lot of capacity the Illinois as well as you know the demand on both Pennsylvania, and the Illinois shows no signs of slowing down on it. So we intend to seek additional capacity into those markets and see significant growth next year.

The great thanks very much.

The next question is from Andrew personnel with Stifel GMP. Please go ahead.

Thanks for taking my questions.

The maybe just oh.

A follow on on on brand building, a little bit and it seems like there's two dynamics here going on first of taking share from the illicit market, which you know is force mentioned seems to be a the number one competitor right now and the second thing, which which there and I think you spoke to is.

You know the 95% of other people in the in the United States that have yet to.

Try kind of busy so.

I would imagine that there's different strategies that could be adapted to to speak to the both different types of consumers to the extent possible or are you able to give a little bit of color on that you know is the right to think also that you know the illicit market is more near term and the 95% of Americans as more long term.

Yeah, I think that is a good way to think about a week you know that.

Take care of with we're always looking across multiple time horizons [laughter] to develop our growth strategies into them. So we're looking at really three different you know time horizons as we talked about today, we're competing really we're we're really trying to keep up with demand in most cases right. So we're building out the.

Passage of the keep up with our existing demand and we think that's going to continue into the next couple of years of.

Part of that you know, we'll see a conversion from the unless the market to the legal market and I think that will happen naturally overtime on based on a couple of different dynamics. One will be you know people want if they have the opportunity by on the on the legal market for instance, the unless the market the they're going to choose to do that we think that people if they haven't.

The <unk> on the availability of product they won't make that choice.

There's probably a a price in comparison somewhere in there that's not quite lead the quite the fine jet.

But I think they're you know, they're certainly wouldn't be a bias to two parts on the on the legal market of if products available. The second thing of of conversion of the list of marketing and our perspective is you know we need to give the competitive products just like and the other competitor people are only going to switch of they feel like they of getting you know a better product line.

On the exchange and that comes with higher quality product and debt of quality flower, which is easy you know of interim point, but I think longer term, it's about creating products that you know from the at the list of market isn't going to be able to develop were spending a lot of time and energy and resource on on technology around on as we talked about.

White plains, and blending different turkeys and cannabinoids together to create different formulas were working on new devices, we're working on new products, which will meet the needs more specific specifically of our consumer so splitting out some of the cannabinoids like CBN and T.H.C.V. that help.

With Oh sleep or weight loss or energy, so as we get more sophisticated in our in our product assortment of product development of we'll be able to off of products that the analysts and market just can't keep up with the and I think that's going to be the you know the the biggest catalyst for people to move over.

To bring new users into the category, we just have to understand what the existing barriers to consumption are today and we have to remove those barriers and I think part of that is the sticking on within the industry part of it is <unk>.

The the industry is broadly focused around flower today, it's been a big part of the existing category.

And part of it is that people want product to meet the needs that are not necessarily about you know feeling the effects of T.H.C. So as we're more sophisticated in our product development and how we could use of the science behind the plant to to create different products will start getting people in who want to use the product for things like crime.

The pain, but don't want of feel like they're getting high velocity H.C.. So we need to create a different product for that we need people. When you products that we'll be able to meet the needs of people, who want to be able to sleep at night. So.

So that's really you know a primary focus of ours is just making sure. We're getting the is the science behind this plant because the the.

What makes us really really optimistic about the future is that the plant could meet so many different need states of different consumers across the consume the landscape and it's really just about understanding of what needs. Each consumer is looking for and then being able to formula of product to meet the need.

Thank you that's that's very helpful very very thought through answer.

Just switching gears a you know a lot of focus has been.

On the markets in the northeast, but on the West Coast, where we're seeing a phenomenon.

The you know it hasn't happened in quite a while wholesale prices are rising you know there's been the the the wildfires.

That is the records. This year just wondering if you can talk a little bit about that dynamic there on supply versus demand and you know perhaps.

Perhaps the wildfires, if there's any positive or negative impact on.

On your on namely select I would think given its wholesale presence you know on how long by May of last given there's limited outdoor growth cycles.

[noise], Yeah, I'll give you on my perspective on I guess force jokes. It can chime in as well I think you know we're seeing in California that again as you said wholesale pricing is pretty robust in the marketplace, which is great. I mean, I think it's just an indication that is increased demand in the marketplace and because of stay.

Actual some structural changes in the market with where we're seeing a more rational supply chain in California, So and I think part of that you know might be the wildfires. There was some supply taking out of the marketplace in California. So I think there's going to be a healthy wholesale market going not only to the balance of 2020, but into two.

2021.

For US we were lucky enough that we you know we're not greatly impacted by that because we've locked in on some forward contracts. So one of the things that we are trying to do I'm pretty aggressively is work with different cultivators in different markets to to have a more rational perspective on the supply chain and in California.

We were lucky enough to do that so we we are weve forward I bought some contracts and where we have on supply locked up for not only on the balance of 2020, but into 2021, so <unk>.

Where we are in good shape in California, So we don't see a major impact on select.

But I think you know it is there is the dynamic going on in the marketplace that will continue to see increased the wholesale price and for while because of the increased demand.

<unk>.

Thanks for that and and the congrats again.

Thank you the.

The next question is from Glenn Mattson with Ladenburg Thalmann. Please go ahead.

Hi, Yeah. Most of my questions have been already asked but I'll just chime in with a couple of more than the had so on the.

Grass roots, you know the rather large acquisition I'm sure. The there was a lot of work done before.

It closed and everything else, but you know curious you've seen even so.

Some really good operators find out that after the close this acquisition there is some level of.

The new understanding so I, just I guess I'm just curious if there's anything that surprised you.

You know positively or negatively now that it's under your umbrella.

I'll give you might the stack. This is Joe again, one of the I think it'll be set of site was responsible for the integration of grassroots and I think it <unk> you know I've done a lot of these over the last 20 plus years and I think this is one of the smoothest I've ever seen and I think the basis for that is really we were very complementary businesses broadly speaking they were and you know markets that we were non.

I didn't know it was a little bit of overlap.

So I think the the the transition went very well day was of very complementary companies to begin with and I think we both on understood. The strategic initiative in front of Us, which as you know we need to put our eagle as the side at the door and just get on with the integrating these two companies on I think we did that pretty well.

We gave ourselves the target of trying to integrate the two organizations within the first 30 days and we accomplish that target.

We're on track to deliver alrighty initiatives and our cost synergy so I think from.

Broadly you know broadly speaking it was it went relative you know very very smoothly. You know were always learning from each other I think you know that's one of the things that is one of our keystones is you know where were doing something that really hasn't been done in the marketplace. So we have to the you know big collaborative and we have to.

Respect each other's opinions. So I think you know where we are looking at things like new technologies or I'm trying to bring brands over from from Q relief over its the grass roots and.

I think everybody has been pretty receptive about most of the initiatives because the realize you know where where we're kind of on the mission to do something of that no one's done before and so I think everybody is very excited about that we have a high level of of collaboration I think there's a huge amount of of passion about the opposite.

In the in front of US, which is really unprecedented you know to be able to create not only a great a great company and great brands, but help forge an industry, which we think is very compelling. So that certainly helps I'm kind of some of the the friction from when these things typically occur.

Yeah, great. Thanks for that and then I'll just follow up with the you know the pandemic is getting the is intensifying the little bit as we enter the winter months, so or you have any areas of concern either on your side with the buzz whether it be production or cultivation of retail or or are there any states that are popping up as of the.

So [noise] things, we should think about it for a you know the.

I don't know, but some of the shutdowns or sort of state level of control.

You know the.

Anything on your radar screen the U.S. worried about that's it from me. Thanks.

Yeah, Nothing that's you know major where you know we have done a really great job of managing this pad the and I guess the company and obviously that none of the numbers of concerning but I think we've got really good protocols in place and I think we are going to be able to operate from through the pandemic I'm. So I don't think were terribly concerned about any one particular issue.

Yeah, and I would just add to that I think you know people have seen that we've been able to manage through this and the managed through it in a in the professional and responsible way. So I think you know our perspective is you know the legislators will continue to work with us to react to whatever market conditions occur and are we.

Proving the fact that you know we can we can change on model of quickly to be able to service our customers more efficiently and and more safely. So we you know from as Joe said Weve put on has done a lot of work. This year on Unfortunately, we had to but now we've done it and its behind US we've got new procedures in place. We've got staffing models in place we've got the delivery models.

In place to be able to meet the needs of our consumers so well.

Well just have to continue to leverage those those procedures going you know into the next couple of months.

The next question is from Russell Stanley with Beacon Securities. Please go ahead.

Although on the and thanks for taking my question I just have one at this point it relates to the New Jersey.

There's still a the route of medical licenses, the where to be issued and I think that that has been or not process. It's been stopped by air of paused life by a court order I was just wondering what your view is on how that gets resolved and and how that does that need to be resolved a in order for the for the adult use.

The market the open on what are your thoughts on how that might play out. Thank you.

Yeah, Ross So we know what we know we don't believe that needs to be resolved the adult use the to move forward.

You know the reality is the new Jersey market for for from a definitely use we expect to grow considerably.

On the future as well I mean, there's no we're still at a very low penetration relative to other markets and so I think you're going to see medical care of the best expand but you know the legislature of the governor and really everybody in the state is very focused on getting the adult use program going quickly getting the tax revenue, creating the jobs and so I think we're feeling very optimistic.

That's that's going on that's going to happen.

And the last question is from Eric The lorry was Craig Hallum Capital Group. Please go ahead.

Hi, great. Thanks for taking my questions guys and congrats on the strong quarter.

So you kind of done some really impressive acquisitions to date and I know integration of the big undertaking, especially given the fragment of state markets I could you give us the sense of how you plan to integrate all your acquisitions and take best practices across our cultivation processing and retail and implement them across the unified Kara.

The platform.

Any specifics will be great, whether it's just a matter of training personnel or upgrading equipment and how long that might take to reach a unified platform. Thanks.

Sure I mean, I I think I've lost track of how many deals weve done in the last five years, but that really is a core competency of carefully which is to acquire and integrate and the get everybody on our brands on our procedures and so we've done a lot of that work already you know clearly grass roots in select of the most significant deals we've done.

We've made.

Tremendous progress already with those companies and I think that you know you're going to see the synergies really from come to come to bear and 2021, you know that's where Joe on the team have been working on the share and I think we got really good to get the benefit of the going into next year I'm of course every market is different but I think that you.

We've learned a lot and cannabis and up and down the supply chain in terms of having you know unified so piece around cultivation manufacturing retailing branding packaging and on.

So I think we're feeling very good that 2021, you're gonna see on margins expand.

The expand as we continue to grow the top line.

This concludes our question and answer session I would like to turn of the conference back over to Daniel Foley for closing remarks.

Thank you Gary. Thank you all for joining US today, we would like to invite those of you still listening to join us at upcoming conferences and events, including Cowen kind of company's third annual Boston Conference Roth Capital Partners. Your Valley Consumer Conference in MKM partners of the road ahead of preparation for 2021 conference in December.

The ongoing health effort around covered these conferences, we'll all be held the virtually the latest information on our conference participation participation and links to webcast events. We encourage you to regularly visit the Investor Relations section of our website under these events. We look forward to speaking with you at these events and after the new year on our fourth quarter and year end 2020 results call.

Don't speak to you until then have a happy holiday season, and a happy new year stay safe and well everyone.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

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