Q3 2020 GrowGeneration Corp Earnings Call
Good morning, My name is Pam and I'll be your conference operator to that today at this time I'd like to welcome everyone to the grow generation corpse third quarter Twenty-twenty earnings call Ah lines have been placed on mute to prevent any background noise. After the speaker's remarks, there'll be a question and answer session. If you'd like to ask a question. During this time simply fresh start then the number one.
On your telephone keypad, if you'd like to withdraw your question. Please press star followed by two thank you Mister Mike or Michael Salomon you May begin your conference.
Thank you good morning.
My name is Michael Salomon cofounder and president of grow generation.
At this time I would like to welcome everyone to the grow generation third quarter Twenty-twenty earnings Conference call. We.
With me. This morning is Darrell Lambert R. C E O and cofounder Monteilh Amaretto are CFO and Tony settled in our Chief operating officer, who will all be participants on our call. This morning. After our C E O CFO and see yellows remarks, there will be a question and answer session.
As always we expect to make forward looking statements. This morning, but I want to caution you their actual results could differ materially from what we say here investors should familiarize themselves with a full range of risk factors that could impact a results and those are filed in our form 10-K, which we filed with the securities.
And Exchange Commission.
I'd also remind everyone that today's call is being recorded and an archived version of our call will be available on our website later today.
Let's begin to call.
And the third quarter wrote generation continue to further its leadership position.
In the hydroponics and garden supply an issue.
We recorded our 11th consecutive quarter, a record revenues and we achieved record adjusted EBITDA and net income for the quarter ended.
September 30th 2020.
Today, we had 31 locations and recently announced the signing of an asset purchase agreement with the nations third largest chain of Hydroponic Garden centers. The Grove is.
In anticipation of legalization passing on October 12th we added or 11 states with our purchase of Hydroponics depot located in Phoenix, Arizona.
In addition, with New Jersey, approving addled use cannabis Roseanne anticipate opening a location in the garden state in the spring of 2021.
With the four new states that passed that'll use legalization there in about 15 states are approximately one third of the country, where consumers can purchase cannabis for recreational purposes, we continue to build out our supply chain and mature markets and open new grow Jen garden centers.
And these new emerging states.
The third quarter, so all sales channels come together and perform extremely well.
Our total sales rep, 153% with commercial sales up 188% any commerce sales up 112% versus the same quarter last year. We successfully launched our website now located a grow generation dot com that is the focal point.
All of our Omnichannel and multi sales channel strategy, our private label product store in full production and we feel very confident that we will achieve our goal.
10% of all sales in 2021 coming from our line of private label problems with.
With the proximately $50 million of capital on our balance sheet today, we've expanded our institutional ownership over 50%.
Our company is executing additional acquisitions securing leases for several new store openings to continue to fuel our growth.
<unk> business model is working well as we continue to scale the business with a relentless focus on execution discipline.
I will now turn the call over to Daria Lampert R. C I O and cofounder, who will present, our third Porter 2020 financial results Sarah.
Thank you Michael good.
Good morning, and welcome to our third quarter 2020 earnings call.
Before I begin my prepared remarks, I would like to thank each and every one of our staff and customers for their hard work dedication and loyalty.
As we continue to monitor the COVID-19 outbreak Guojun is considered an essential supplier to the agricultural industry. So.
Supplying the nutrients and nourishment required to feed their plants accordingly, or 31 garden centres remain open during this difficult time.
We have procedures in place to ensure our customers and employees stay safe.
All of us to grow generation remain committed to the safety and will be of our customers and employees.
We're excited to report another quarter of record financial results and operating performance by our company.
As we continue to outpace her guidance, we are increasing fiscal year 2020 revenue guidance to 185 290 million <unk>.
Increasing adjusted EBITDA guidance for 2022 $19 million to $20 million.
We have set 2020 full year gap pretax net income guidance to $9 million to $11 million revenue guidance for full year 2021 is 280 million to 300 million in full year. Adjusted EBITDA 2021 is 34 to 36 million.
The companies third quarter of 2020 records financial results reflect their continued focused on revenue growth and adjusted EBITDA expansion.
The third quarter of 2020 was the company's 11th consecutive quarter a record revenue growth.
Or continue the ability to attract the best of breed Hydroponic Garden centres is again evidence by the recent signing of our acid purchase agreement with the grow biss that we plan to close before the end of the year.
Grow bids as an additional five garden centers in California, and Oregon to the grudge and portfolio as a nation third largest hydroponic chain.
The grow big business is operating in an annual rug revenue run right in excess of $50 billion founded in 2010 by Rosten Ryan Hayley. The group is team of 60 grow professionals Briggs tremendous experience in commercial relationships to grow gym.
Ross Aly the form a C E O of Hawthorne Gardening company, a division of Scots Miracle grow will be joining Bob nardelli. The former C. E O of home depot on grow agenda Advisory Board and will be contributing to the company and his role as senior strategic advisor.
And we look forward to working with Ross not only continuing his legacy at the <unk>, but also working with Ross on future acquisitions and other strategic initiatives.
Revenue grew 153% quarter over quarter to approximately 55 million for the third quarter first is 21.8 million in the same period last year.
Two nine months ended September 30th 2020 revenue was 131 million versus 54 million for the nine months ended September 30th 2019 and increase of 142% adjust.
Suggested EBITDA was 6.6 million for the third quarter compared to 2 million last year, an increase of 230%.
Just to D, but if the third quarter 2020 was 14 cents per share basic for.
For the nine months 2020, adjusted EBITDA was 32 cents per share basic <unk>.
They didn't come from store operations group, 156% to approximately $9.6 million to the third quarter compared to 3.8 million for the same period last year.
For the nine months income from operations grew 161% to 23 million from 8.6 million for the same period last year saved.
Same store sales grew 73% in the third quarter when compared to the same period last year and for the nine months ending September 30th 2020 same store sales grew 59% compared to the same period last year.
Grow generation Dot com the online business cause now generating a million dollars per month up 112% to the third quarter versus last year and up 140% for nine months ending September 30th 2019, as compared to the same period last year.
A commercial division is projected to do in excess of 40 million in annual revenue for 2020, and it is $13 million in revenue in the quarter.
This represents 188% increase for the third quarter of 2021st is third quarter 2019, and a 200% increase for the nine months of 2020 verses 2019.
To highlight our market by market growth, Colorado was up 37% quarter over quarter, 27% for the nine months, California's plus 58% plus 41% for the nine months, Michigan, plus 272% of 288% for the nine months and oak.
Go home, plus 288% or 312% to the nine months or commercial revenues for the nine months ended September 30th 2020, with 32.7 million Kinda re commerce revenues finished the first nine months of 2020 at 7.5 million.
We continue to focus on margin expansion strategies that include furthering the deployment of more private label products and driving more efficiencies at the purchasing level as we continue the scale and grow top line revenue or.
A private label program is in full production and we plan to derive 10% of our revenue from a private label product offerings.
We are proud of the reduction in store operating costs that fell to just 9% of revenue down 28% from 12.6% compared to the third quarter of 2019 and.
And corporate payroll and G&A, excluding non-cash compensation and depreciation declined 34% to 5.5% of revenue compared to 8.4% of revenue for the third quarter of 2019.
We expect new acquisition to new store openings to continues to the remainder of 2020 and the first quarter of 2021 to continue to drive and help a cheaper plan 50, plus locations in 2021 across 15 states.
Following the state legalization roadmap grudge, an acquired Phoenix, Arizona basis, Hydroponic depot, and a security leases for New Jersey for a spring 2021 opening of grow Jim locations in the Garden State the New Jersey locations will serve not only the emerging New Jersey market, but also the adjacent states of New York and Pennsylvania.
As we believe both states will follow new Jersey's legalization pet.
Grudge and is a tremendous team of essential please who have made a commitment to accompany and customers and I could not be any prouder I am inspired by their efforts and dedication and they have worked tirelessly to service our customers and communities.
I will now turn the call over to Tony Sullivan, Our Chief operating Officer, who will brief everyone <unk> COVID-19 risk mitigation procedures and key operational initiatives executed in the third quarter and then to see a full monteilh amaretto, who will provide more details on our third quarter of 2020 results.
Tony.
Thank you Darren.
We had another successful quarter with record financial results and we are very proud of our teams continued growth execution and performance in the third quarter.
As stated by Darren our top priority.
Has been and will be the safety of our team their families and our customers.
Currently all 31 of our locations are open and operating efficiently.
We have been really let less and one step ahead with all safety protocols throughout this been debit.
We are classified as in the central business and supply chain for agriculture and medical sectors.
Every city County, and state and Federal COVID-19 mandate, we have been on top of we we monitor all the changes multiple times, a day and we communicate to our team's daily.
We have deployed remote working environment for all non essential store personnel, including.
At our S. S C E com commercial I T in purchasing departments.
Covid as a fluid ever changing situation.
And we continue to manage monitor and communicate daily to maintain all communication.
Safety and cleaning protocols as we work towards our new normal business practices.
We are monitoring and have a significant cleaning and safety supplies and all of our location.
We will continue to stay one step ahead operating with stricter protocols to keep our teams and our customers say.
We are also ready to implement our proven level one through five protocols if for when necessary.
Let me give you a couple of updates on her key operating initiatives and a compliment accomplishments in third quarter.
We have developed a real estate and a two year growth strategy that will strengthen our multichannel supply chain and our state by state ownership.
In the <unk> in the area of Omnichannel as Michael and shared with you. Our new website is up and running we are currently testing boltbus kick pack and ship and curbside pick up solutions as we wrap up the final development and launch our new site.
In the area private label, our newest product offerings are exceeding our expectations and phase two expansion is well underway.
In the area, a few rationalization and new store planner Graham project.
We have selected one of the top industry partners in the space, we anticipate significant learnings and data to improve our inventory turn and optimization of inventory and profit.
With our new brand reset and refresh we've started our re-grand strategy.
Where we will rebrand resign and developing consistent customer experience across our multichannel sites and stores.
Throw generation West Lassie, we consolidated and relocated in two 815000 square foot Super Garden Center.
With outstanding results today.
Wrote generation Grand Rapids, we completed the relocation and expansion and two over at 22000 square foot Super Hydroponic Garden Center.
And a Midwest fulfillment center in early September.
On August 10th we closed our 28th location.
<unk> City Garden.
Located in Concord, California, and it's doing fantastic.
On October 12th we closed our 29th location Hydroponic depot located in Phoenix, Arizona, but.
Companies 11th state.
On October 20th we closed our 30th and 31st locations with the acquisition of Big Green Tomato located in Battle Creek and Taylor, Michigan.
In October 27th resign D E P. A with the Grub is the third largest chain of hybrid hydroponic garden centers in the U S.
And with that said I will turn it over to Monty hour CFO to review the financial highlights Monte.
Thanks, Tony.
Net revenue for the three months ended September 30th 2020 was approximately 55 million compare to approximately 21.8 million an increase of 153% sales.
Same stores contributed revenue of 33.4 million for the quarter ended September 30th 2020, compared to revenues of 19.2 million for the same period last year, a 73% increase.
Gross profit was approximately 14.6 million for the three months ended September 30th 2020, compared to approximately 6.5 million for the three months ended September 30th 2019, an increase of approximately 8.1 million or 124%.
It.
Gross profit as a percentage of revenues was 26.5% for the three months ended September 30th 2020 compared to 29.9% for the three months ended September 30th 2019. The decrease in the gross profit margin percentage is due to a greater percentage.
Age of our revenues coming from commercial and E Commerce revenues as a percentage of our overall revenues in the third quarter of 2020 commercial and E. Commerce accounted for approximately 29.3 per cent of our overall sales for the quarter ended September 30th 2020.
Compared to 27.3% for the quarter ended September 30th 2019, resulting in a margin reduction of approximately 1.3 basis points.
For the nine months ended September 30th 2020, the company has maintained a consistent margin of 27% throughout all of 2020.
Operating the <unk> operating expenses are comprised of store operations, we'd we're primarily payroll rent and utilities and corporate overhead.
Operating costs, where approximately 9.5 million for the three months ended September 30th 2020, and approximately 5.4 million for the three months ended September 30th 2019, and increase of approximately 4.1 million or 76%.
Store operating costs were 5 million for the three months ended September 30th 2020, compared to 2.7 million for the quarter ended September 30th 2019 and increase of 81%.
Store operating costs as a percentage of sales were 9% for the three months ended September 30th 2020 compared to 12.6% for the three months ended September 30th 2019, a 28% reduction.
Store operating costs were positively impacted by.
The opening of new an acquired stores throughout 2019 in 2020 that have lower operating costs to revenues due to their larger size and higher volume and a 73 per cent increase in the same store sales.
Corporate overhead comprised of general at administrative cost share based compensation depreciation and amortization and corporate salaries was approximately 4.5 million for the three months ended September 30th 2020 compared to $2.6 million for the three months ended September.
30th 2019.
Corporate overhead was 8.2% of revenues for the three months ended September 30th.
2020 at 12.1% for the three months ended September 30th 2019, a reduction or 32%.
Sure based compensation for the three months ended September 30th 2020 was 1 million compared to 553000, but the three months ended September 30th 2019, sure based compensation as a percentage of revenue decrease from 2.5% for the three months ended sept.
[noise] timber 30th 2019 to 1.9 per cent for the three months ended September 30th 2020.
Corporate salaries and related payroll costs as a percentage of revenues were 4% for the three months ended September 30th 2020 compared to 4.7% for the three months ended September 30th 2019.
General and administrative costs as a percentage of revenues were 1.6% for the three months ended September 30th 2020.
And 3.7% for the three months ended 2019.
Depreciation and amortization was 443000 or 0.8% of revenue for the three months ended September 30th 2020 compared to 247000 for the three months ended September 30th 2019.
Ah just net income for the three months ended September 30th 2020 was approximately 3.3 million compared to net income of approximately 1 million for the three months ended September 30th 2019, a positive change of approximately 2.3 million the increase in net income for the quarter ended.
30th 2020 was primarily due to revenues, increasing 153% while store operating costs increased only 881%.
Net income from store operations, which was approximately 9.6 million for the quarter ended September 30th 2020 compared to approximately 3.8 million for this Puerto ended September 30th 2019 grew 5.8 million or 155%.
Net income was also impacted by income tax expense, which was approximately 1.8 million for the three months ended September 30th 2020 compared to no income tax for the three months ended September 30th 2019, and prior year's the company was able to offset taxable income.
With net operating loss carryforwards, those carry forged we're fully utilize this year and as such we commenced recording a provision for income taxes.
Ah just it EBITDA adjusted EBITDA was 6.6 million for the third quarter 2020 versus 2 million for the third quarter of 2019, the increase in adjusted EBITDA year over year was due to an increase in net income of approximately 22.3 million non-cash add back.
Primarily depreciation ensure base compensation, which were 1.5 million for the third quarter of 2020 versus 801000 for the third quarter of 2019 and income taxes, which were 1.8 million for the third quarter.
Of 2020 compared to zero for the third quarter of 2019.
Suggested EBITA as a percentage of revenues was 12% for the third quarter 2020, compared to 9.1% for the third quarter of 2019 adjusted EBITDA per share was 14 cents for the third quarter of 2020 versus six cents for the <unk>.
Third quarter 2019.
Working capital as of September 30th 2020, we had working capital of approximately 83 million compared to working capital of approximately 36 million as of December 31st 2019, an increase of approximately 52.4 million the increase in working capital from disk.
Remember 31st 2019 to September 30th 2020 was primarily due to.
Proceeds from public offering of common stock, resulting in that proceeds of 44.6 million the exercise of warrants totaling approximately 1.1 million for the nine months ended September 30th 2020 and three.
The increase in net cash provided by operations.
At September 30th 2020, we had cash and cash equivalents of approximately 55.3 million. Currently we have no demands commitment or uncertainties that would reduce our current working capital or core strategy continues to focus on expanding on geographic reach across the United States.
Through organic growth and acquisitions.
I would like to now turn the call over to Darren for concluding remarks before the Q&A.
Thank you Monte.
Grow generation recorded it's 11 consecutive record quarter of increased revenue. We achieved record earnings. We believe that our company is tremendous growth momentum built into the remainder of the year and into 2021.
Our store acquisitions, and new store openings continue to drive growth and we continue to deliver double digit the same store sales results quarter over quarter.
We plan to own and operate over 50 locations in 15 states during the year 2021 today, we own and operate 31 locations 36. If you include the Grill <unk>.
Grow generation has built a national scalable supply chain, so the agricultural in cannabis industry.
Our leadership position is driven to a corporate mission statement to be the largest chain of hydroponic garden centers in the United States.
We continued to invest in our supply chain and technology, creating more efficiencies across all departments X.
Execution of our financial goals and guidance is evident with the third quarter of 2020 numbers, we reported with revenue up 153% quarter over quarter, and adjusted EBITDA, earning $6 $6 million or 14 cents a share.
We completed a 48 million dollar institutional follow on public offering led by Oppenheimer.
Which was oversubscribed three times, our stock is now 50% institutionally owned our balance sheet as strong with approximately $50 million in cash, which allows us to continue to execute or internal growth initiatives. While we continue to purchase the best debris operations and open new grill generation locations we've increased.
Fiscal year 2020 revenue guidance 285, 290 million adjusted EBITDA guidance for 2020th 19 to 20 million in full year gap pretax net income guidance to nine to 11 million revenue guidance. A full year 2021 is 280 million to $300 million just it EBIT guidance for that.
Full year, 2021 is $34 million to $36 million.
We look forward to continuing to provide guidance as need be and we're excited to share our successes with a shareholders. Our management team and partners now we will turn the call over for questions.
Thank you ladies and gentlemen, we will now begin the question and answer session. So did you have a question. Please press star followed by one on your Touchtone phone, you'll hear three time prompt acknowledging a request and your questions will be pulled any order. They are received should you wish to claim from the pulling process. Please press star followed by too.
If you're using a speaker phone please lift your handset before pressing any keys one moment for your first question.
Your first question comes from Brian Mcgough with Oppenheimer. Please go ahead.
Good morning.
[noise] garage, congrats on a great quarter.
Very nice we're done.
Thank you Brian.
So my first question is what was the question I get a lot <unk>, we're talking to our clients on on the grocery store near the guidance. Once again lifted guidance. Your congratulations that is we could particularly with the the 21 guidance you could you give us more.
So to say color on the on the on the buildup of that revenue guidance goes how how you were thinking about potential acquisitions relative to that guidance comp store sales is it.
Yeah, Brian I'll I'll answer that for Ya first first and foremost you know there there is a P. I N as App isn't COVID-19 is in in in in full force right now so like like <unk> like each quarter. During Covid, we are very very conservative with guidance on when we moved to the emerging markets.
It's six months to a year conservatively to get to get states organized to get business up and running so certainly when looking at new markets. You know that's gonna be a latter part of 2021.
So on the new store openings in emerging markets, where we're forecasting you know very little sales and those new markets and certainly we will see how they unfold during the year.
Right now same store sales this year I've been up 59% you. Your date, you know last year mid to high thirties, we certainly do not expect that to continue but as of now we certainly don't know when they're gonna start slowing down you know our stores are getting more mature and states that were in all we're starting to see tremendous efficiencies in our purchases.
So we're looking at purchases from grudge and you're usually looking out you know at least six months to start gathering deficiencies and the new stores that were purchasing so you see tremendous growth. The following year from grows in on those stores right. Now we have about $35 million you know out of our $55 million in sales, they're coming through same store.
Sales and you'll see the rest of our stores.
<unk> to come on next year at the same store sales calculations, so really what you're looking at right. Now is a combination of growth within you know a current stores for next year, new acquisitions, a new store openings and it's a combination of all three like anything else. Brian you know, we do update date guidance on a quarterly Bay.
<unk> dependent upon what we're seeing in the industry and a sore contention the industry is in such as early growth state that is really challenging during these times to really forecasts and forecast properly Oh. So what are you looking at forecasting from <unk> you know, it's still it's still our position and understanding but these are the low parts of when we.
Guide, we certainly do feel that we will be quarters right now with a growth in this industry.
That's very helpful. During thank you and then just one really quick follow up now and again relative to the guidance but.
Let's see here I guess, we're now called several weeks into the fourth quarter any comment on just how big business has has has performed during the fourth quarter relative to what we saw results for two three.
Your fourth quarter is tracking is tracking well you know a month and a half into the corridor. We say, we're seeing no issues no slowdowns as of as of today and customarily are fourthquarter. Usually is is the is our slowest quarter of the year. So we're certainly seeing those slowdown as of today.
Congrats again, thank you.
Thank you Brian Thank you bye.
Okay.
Your next question comes from Eric is Laurie with Craig Helen Capital Group. Please go ahead.
Alright, Thank you and congrats on you had another strong corner and impressive gods and great execution guys.
So they'd be a bit of a follow up on that first question. They're just on on M&A verses you know Greenfield opening. So you know obviously unit growth is vital component of your strategy can you help us understand how you guys think of M&A versus Greenfield openings, you know basically the the Bible code decision.
What drives those decisions for you guys Uhm and what are the differences in economics <unk>, Yeah, Yeah, Eric I'll take that and then I'm gonna send it over to Tony to finish up the question, we've been pretty consistent so we purchase an emerging we've we've purchased stores.
In mature markets I'm markets that have been you know again that are up running and have consistent numbers too you know markets like California's market's like Michigan, Colorado, Oregon, and we opened stores in new emerging markets. All Oklahoma was an emerging market for us you'll see us opening stores in New Jersey in Illinois.
Massachusetts and states of that nature, Hopefully, Pennsylvania, New York a unit economics, you were buying anywhere from two to five times EBITDA halftime sales opening stores right now I think we've gone through unit economics, you know, it's it's it's usually costing us about anywhere from a quarter of a million to a half a million to to greenfield.
The store plus inventory dependent upon the size of the store is really dependent upon how much inventory of stopped and those stores next year and as of now right. Now we have a very full acquisition pipeline that will continue until the beginning of next year, and then you'll probably see grudge and shift into new store openings into new emerging market.
It's a new Jersey, you know hopefully, Pennsylvania, and New York.
You'll see it's probably greenfield any stores in Illinois, Missouri, and again still waiting you know like anything else you know the elections has been very important and just starting to wait to see you know how they shake out in the future.
Okay, Great. That's that's very helpful and then as a bit of a follow up to that one for the stores that you do acquire can you help us understand how you guys think about cash for stock. What's your ideal mix why is that and how might that change that forward.
Yeah. The mix has been pretty constant through the five years that we've been in business, we usually pay cash for inventory and we're very resilient and and certainly inventory counting with Obsoleting slow moving inventories. We then then we split the goodwill usually between stock.
<unk>, it's usually a 50 50 split most transactions were doing and the reason for that is we want the the prior owners of these stores to sharing the successes of grow Jack and we think it keeps them much focus so the larger transactions you usually seeing you know again, a 50 per cent stock component to it some of this.
<unk> transactions the material transactions to grow Jen you may see an all cash deal you know from time to time.
Alright, great. That's helpful. Congrats again, guys and good luck going forward.
Thank you I hate you.
Your next question comes from Andrew Carter, which differ please go ahead.
Hey, Thanks, good morning, not to beat a dead horse, but I do want.
Two previous guidance ink.
<unk> and the name is.
Yeah. It is well below what once you had your outstanding for 2021 and I get the.
I flew it makes acquisition new store openings et cetera.
Looking at the updated range.
One more organic number with which you can do with the business and now versus no incremental and a more of a concern. This tour opening kind of can you hold just kind of understand how you're thinking about.
You know once again, it's a combination. It's certainly includes acquisitions that will be going on throughout the year also new store openings and and certainly same store sales included in there.
Once again, you know new industry. It takes a six months you know to to really get the stores up and running that were purchasing it takes us three to four months to build stores out. So right now it's just so early in the game and we're still in November of 2021 is a long ways away.
So right now this is our best estimate for 2021, and then as I said earlier, we will adjust guidance as as we see fit you know if we're seeing business sees you know stronger going out throughout the first quarters.
Hi.
Alright, your guidance upgrade higher just email Mars and expectations for next year, so kind of what I understand.
There we had a private label program R. As in Korea, I consumer ecommerce will be a drag high going forward by Josh awesome growing scale.
So how can I help.
I understand the same there and kind of your expectations for the kind of stronger profit.
Let me out here.
Must be would you like to take that.
Monthly you there.
Sorry, I was on mute what are the things. We're seeing is tremendous leverage on all of our operating costs from store operating costs to corporate overheads. So you have a greater percentage of our our dollars are hitting the bottom line in terms of of an adjusted EBITDA number.
And so even though margins have been consistent at 26, 27% basically to 27% level, we're getting tremendous leverage from all the other course, and therefore dropping more dollars to the bottom line.
Alright, that's all.
And you do you have a follow up.
Oh.
Alright.
Your next question comes from Glen Mattson with Ladenburg Thalmann. Please go ahead.
Hi, Thanks for taking the question and nice results on the corner.
So it's good to see that you're opening a store in New Jersey, what I'm curious you know obviously, new Jersey is not a huge market yet for cultivation. So you know likely it will be down the road, but uhm, Pennsylvania, clearly is and I know you've been serving to Pennsylvania market from.
The Rhode Island store I believe so I guess I'm curious if you know you see a bigger pick up in Pennsylvania next year that you're able to service from the New Jersey store, if you're already capturing.
A lot of Sharon, Pennsylvania as it as it stands today.
Michael do you think that please.
Yeah, I'll <unk> I'll take that Glen you know basically the the strategy and right now we are servicing Pennsylvania you know.
Customers.
So the strategy for for next year's to put a fulfillment center, a hub, which will be a larger road generation Garden Center in the South Jersey.
Area, which will not only service the emerging new Jersey market, but it will also allow us to really service the Tri State area Uhm, we'll we'll put us closer to the customers that were already working with and the Pennsylvania market. We certainly believe Pennsylvania and New York are Gonna follow the lead of New Jersey.
<unk>. So we're looking at really the whole Tri state area as a supply.
Center for grow Jen So right now we're looking at New Jersey, but we certainly see you know as the as legalization you know unfolds multiple stores you know between New York, New Jersey, and Pennsylvania, Uhm, but starting in the spring.
We will have a super Hydroponic Garden Center 30, 40000 square feet, you know that gives us the ability to service our current customers that any new customers that are you know obtaining licenses in both <unk>, New Jersey, and Pennsylvania markets.
Oh, great. Thanks, and I guess, you're in 12 states now with Arizona. So you contemplated 15 states by next year. So I'm, sorry, 11 States that Arizona 12, I guess, we'll be new Jersey, what what other.
Markets are you are you contemplating for 2021.
We're looking at Ohio, we're looking at Massachusetts.
Believe it or not Montana, which is past legal legalization.
We're also expanding yeah, our footprint in California, we're looking at a.
New York, and Pennsylvania, certainly, we're keeping our eye on those markets.
I'm going deeper in southern California.
Florida, We think is gonna start moving.
Moving more towards you know and that'll use market. So we're looking at the entire landscape and as we've mentioned earlier, we follow really what's nice is that we're able to follow the roadmap of legalization M. B relatively predictive as these states so from medical.
To adults and our ability to open up a new location.
Once we locate a facility we can have a a new grow Jen facility up and running and operating within 90 days.
So we're very nimble and we're certainly continuing to look at the best of breed of stores that exist. Yeah. We still believe there's another you know good 50 to 100 stores out there that are potential acquisitions in multiple markets for Roger.
Question on the margins quick quick the can you <unk>.
Makes it a ton of sense opposite of commercials lower gross margin then.
The brick and mortar standard, but can you give us a sense of which difference there is between online gross margin versus the.
Versus the retail store the gross margin.
What do you want to take that.
Yeah the <unk>.
There's about there's about a six point difference between the online and commercial and brick and mortar and so that's why you see a the combined margin where it is and and once again, depending on the percentage of E commerce and commercial realm.
Two of the total revenues it has an impact on the margin.
Okay, Great Glen with that all yeah, Yeah, Hey, glad the last thing you know with that yeah. Just so you know we do believe that in 2021, you know we you should see your point point and a half bump in margins based upon our private label offerings that we will be rolling out through the year.
Okay, Thanks, Darren and good good quarter. So thanks again.
Thank you. Thank you.
Your next question comes from Erin Gray with a lank level. Please go ahead.
Hi, guys congrats on the corner and thanks for the question.
So first of all for me, it's kind of on commercial business, though saw real nice muscle growth from from nine to 13 mail and can you just talk about you know some update there and kind of your relationship to happen with the and myself and have that kind of a building outage, that's kind of becoming more and more of.
An important part of your revenue and glossy you guys see especially as those sorts of become the consolidators within the overall kind of a space next.
My favorite and I'll take that course that.
Yeah I'll take that.
And as we've mentioned you know the company has a multi sales strategy where where.
Obtaining customers from walk ins that are coming in to any one of our 31 locations for.
Sure ecommerce site that today gets over 150000 unique visitors that are coming we get leads for commercial business to our website and then the dedicated commercial division that is made up of commercial account managers customer service reps quote or is <unk>.
We have a very white glove customer service approach when we're dealing with the msos.
That approach has created a customer base on the commercial side right now we're servicing over a thousand commercial customers quarter over quarter, we were able to pick up an additional 240, new license commercial customers and.
And the reflection is that our our revenue was drawn up right now we're well ahead of our projection.
We get $13.2 million for the quarter for the nine months Rover 30, 32.7 million, so where we've actually adjusted our internal number.
Which we mentioned will do over $40 million of commercial business and I believe the attraction to grow Jen is our ability to service the customized solutions Uhm to deliver you know you know just in time to provide you know a high level customer service.
Which which is challenging when you're dealing with the multistate operators, but our ability to execute.
At that level, whether it's a single state operator, Erin or a multistate operator, each customer is treated the same way.
And it's the execution of the commercial team that continues to itself and we certainly believe with the combination of the commercial team, which is a very strong team coming out of Grove is with the commercial division that grow again is built you're gonna see commercial revenue.
Skyrocket in 2021.
Oh, that's that's super helpful and kind of you know tag watch that you know one thing I think that's very unique about you know you guys Crazy some of the other players and playful on cannabis as your ability to you know operate and dwell on base latest my environment and I'll take Oklahoma and unlimited license market that has been you know tremendous for Ya.
<unk>. So just curious now we have some new states coming online, Arizona, we can kind of see how regulations are gonna look New Jersey, we're still kind of pending or just wanted to know you know in terms of you know lemonade and a license markets and I know you guys are able to operate well in both but is there one that you guys kind of prefer burst at the other kind of how you look at new regulations and license.
Hang opportunity that is new states come about thank you.
Sarah you Wanna take that.
You could take that Michael.
Yeah, I mean, you know and we we.
You know our revenue Shirley tracks to the number of licenses that are being issue. So you know, Oklahoma as over 5000 licenses. So you know our position.
Grow generation.
Is is you know a proponent of an open market a green economy multiple licenses and we're starting to see that and certainly and talking to some of the insiders within New Jersey and shortly following what's happening in Illinois, we believe that social.
<unk>.
Quality entrepreneurial ship.
<unk> station real estate.
You know value you know increasing with idle warehouses that will be converted into a beautiful cultivation facilities. You know we believe that is gonna be the future of the economy on a state by state basis, and grow jan's business trends and tracked the more.
License is the more business.
So you know we we are you know certainly well positioned to take advantage, whether it's a state like Oklahoma, where today, we have four locations to manage those 5000 licenses or you know, Arizona right. Now you know we put our first location.
Which we're actually gonna be consolidating into a 30000 square foot facility in Phoenix.
Anticipating the growth. So we believe that the the states the new state and certainly the mature states, where there already are you know thousands of licenses grow Jen will be in those markets servicing those customers and continue to execute our plant.
Thanks for calling progressive around the corner I'll pass it on.
Thank you Erin.
Your next question comes from Mark Smith with Lake Street Capital markets. Please go ahead.
Hey, Good morning, guys first one for me just looking at the guidance is it safe to assume that the group is acquisition is built into the guidance.
<unk> it is built into the guidance market.
Excellent and then just wanted to follow up on commercial business and you know the growth. There certainly fantastic you know walk us through how this grow based acquisition kind of impacts commercial holiday trend towards commercial versus kind of your business today.
[noise], Michael you know, they're very yeah, they're very strong I mean, certainly it's a five five store chain.
Or four locations in California, Northern California, one up in Oregon, They have a very talented.
Executive that has created a very substantial commercial business. So this this transaction for the company not only does it accretively add 50 million in revenue going into 2021, but the personnel that were picking up.
And the division that they have in terms of their commercial business, which is a significant part of their overall revenue is gonna be completely integrated into grow generations management Corp, Our commercial division.
So when you start to look at it and they're more concentrated you know out West you know we have a lot of concentration back east. They have some of the larger msos, who as we integrate the pie gets a lot bigger.
So it was a big a big part.
Of the of the strategic nature.
Hi, we identify not only the third largest hydroponic uhm chain in America, but they bring tremendous experience Ross Aly you know has been in this business for you know.
15 20 years.
Has tremendous outreach within the cultivation community, where it's currently gonna elaborate.
That relationship.
Oh and he built you build a wonderful company. So it will be completely integrated within our commercial Virginia.
Excellent and then the last one for me just kind of housekeeping a tax rate was a little bit higher here. During this quarter any guidance you can give us on maybe what we should expect for tax rate going forward.
Monthly could you take that close.
Sure. So you know it's the the tax rate is a combination obviously have not only the federal but the state tax rate and also what are the things that can the to consider in the the tax will cruel is that that's a gap number not necessarily the amount of income taxes add that or do so it's you know when you're reversing timing different.
Answers and things like that you know so the tax accrual is <unk> is a combination of a reversal of those timing differences and the actual amounts that you will be paying to the state and federal government.
It is a slightly higher rate. This quarter you have some <unk> not deductible expenses some related to share based compensation and so that has an impact on the text will income for which the the tax rate is applied.
Okay. That's helpful. Thank you guys.
Sure. Thank you.
Your final question comes from Scott Fortune with Roth Capital Partners. Please go ahead.
Good morning, and congrats for your consistent execution over the last six years, you know and just quarter over quarter, but you could have a great job.
<unk> drive in revenue growth here, but kind of a focus on the margins side, a little bit and kind of private label can touch base more on those initiatives you seen a lot of potential upside on on the margins on leveraging the operating side and and those deficiencies, but you said, Sir and I think one to two point bump up potentially.
<unk> on the private label just kind of a step is to the private liberal initiatives looking into 2021 and percentage of revenue kind of tired of getting towards that and just 2021 here.
Yeah, <unk> right now Scott, we're targeting you know approximately 10% of our business next year will come from private label branch you know, we're seeing right now in the industry and really no from our original from our initial launches of our private label Foreseeing margins, you know upward of 50% on on private late.
Well products. So you know if you factor that in you know <unk> at 10% you know it'll it'll come out somewhere you know and and the one to two point range and again, we're pretty confident with our private label products and you know we spent a lotta time. This year, you know certainly testing products and uhm curating products and starting to put them out until.
The market's as we speak and using some of our shelves you know certainly of some of some of our shelf space for our private label Brandon I'm guest.
Uhm.
I appreciate it.
But it just add Darrin set and I think and Tony certainly I think you have some commentary here Uhm selection you know grow generation the position that we've taken in the market. You know is to provide you know all the brands.
That the growers are seeking.
And provide them you know a complete selection of products. So it becomes a turnkey solution and we really believe that we provide an experience between the grow professionals that we've hired uhm that operate at the store level.
You know to the customer service solving problems every one of our our growers you don't have it.
Hello Hello.
I Wonder if <unk>.
I'm not sure.
I'm still seeing Michael connected uhm.
Make them me have you maybe did you meet yourself.
And guys. This is Toni I'll wrap that up when the private label piece. As you guys know look we are we are wanted to offer the best selection best for our best Best Solutions, We went out offer quality products at the right price to our customers and as we work forward with the.
Private label.
We've already tested multiple strategic categories and as we go into 2021, we're gonna put together you know that that offering that will allow us to have the best of breed on the brand side as well as on the private label side. So we're very confident in what we.
Already tested and we're very confident and hitting that 10% of total sales in 2021.
[noise]. Thanks, I appreciate the color congrats again.
Mr. Lampert there are no further questions at this time. Please proceed.
Yeah, I'd like to some of the guys I just want to wish everyone a happy Thanksgiving.
Stay safe during these trying times and we wish everyone you.
You know happy holiday season, that's coming up you know our staff could grow Jane has never been more focused and we appreciate each and every one of your and we certainly pray for everyone's safety and help their in these trying times. Thank you. So much and we look forward to sharing her many accomplishments and successes with with you in the future. Thank you.
Ladies and gentlemen, this complete your conference call for today, we thank you for participating and ask that you. Please disconnect your lines have a great day.