Q3 2020 4Front Ventures Corp Earnings Call

Greetings and welcome to support the interest third quarter 2020 earnings conference call at this time all.

All participants are in a listen only mode. A question answer session will follow the formal presentation from the watch require operator systems on the call from please press star zero on your telephone keypad. Please note. This call is being recorded I would now like to turn the conference over to your host Mr. Andrew. Thank you you may begin.

Thank you operator, and welcome everyone to four front ventures earnings call for the third quarter of 2020.

I'm joined today on the call by the entire four front management team.

We have Leo carmaker, CEO or CFO nickel, Dorothy Jake wouldn't argue VP of finance.

Karl Scotto strategy on operations, and Joe FFELP loans, joining on as well.

Our newly appointed Chief operating Officer.

[music].

Again, I'm obligated to remind everyone that during the course of this conference call management may be making some forward looking statements that are based on current expectations on are subject to a number of risks and uncertainties from may cause actual results to differ materially from expectations.

These results are outlined on the risk factor section of our filings on artists water Metairie.

Any forward looking statement should be considered and weighted these factors.

Please also note a safe harbor any outlook, we presented data at the day management does not undertake any obligation to revise any forward looking statements in the future.

So with that out of the way I'll, Let me give you a very quick overview of the call today, we have a lot to get through on where we're pretty excited about some of the things we have going on on our business.

Oh, it's always I'm going to start with reiterating our thesis on strategy.

Then I'm going to provide some color on our third quarter results and an update on the significant progress we've made in the business.

Ill, then hand, the call over to Leo will go into a more detailed review on the operational trends along with highlighting some milestones were achieved.

Hitting 2020, as we step as we set the table a.

Four step function growth and operating leverage from 2021.

I will conclude with a question and answer session, where the entire man from Sci team will be available for any follow.

So with that let me begin I know we have many investors on the call today that are newer to the forefront story Oh sure. So I'll start again I outlined in the forefront pieces.

And what we as investors are planned for.

The business fundamentals of U.S., Canada continued to be the robot in the face of a global pandemic and that has caused a lot of economic uncertainty.

With additional states voted overwhelmingly to approve cannabis loss on this month election.

Industry momentum just continues to build.

And what we're witnessing here is the emergence of a massive secular growth industry, that's still very much in its nascent stage.

At four from a we believe a sweet spot in the value chain for outsized value creation on this industry is really around low cost production and distribution of consumer Canada's consumer package goods.

For the past six years for front facilities have created a dominant position on Washington State.

Hold on a products, which are distributed over 260 retail location from the state.

Our facilities are the number one edibles manufacturer and then number two flower producer with overall number true market share on Washington, outperforming over 600 license holders and one of the most competitive cannabis markets on the world.

We've achieved all this while maintaining very attractive margins and profitability.

So our thesis as I always say, it's very simple we're replicating these tried and true production capabilities supported supported by our read our retail stores and large a nascent recreational markets, Illinois, Massachusetts, Michigan in California.

All in we serve an addressable market of over 76 million people.

So we're pleased to be able to share to day important developments as we execute on this deal.

We are seeing we internally refer to as a maniacal focus on execution on taking hold on our business.

Q3, 2020 system wide pro forma sales was 22.3 million an increase of 18% sequentially over the second quarter of 2020.

Our revenue growth was primarily driven by our recreational sales launch in Massachusetts during the quarter on the reopening of our mission South Chicago store in late July.

Continued strength out of our Washington facility.

The company generated positive operating cash flow on the month of August.

Well within our stated objective keeping us on the second half of the year operating.

Even this was ahead of our expectations.

We also had our first positive adjusted EBITDA quarter, posting a 3.7 million on adjusted EBITDA. After a based on what was basically a breakeven the second quarter.

Our tight cost controls on accelerating revenues I've driven strong operating leverage as we move into the back half of this year positioned us incredibly well.

As a company, we're feeling great about where our balance sheet, that's leaving 2020.

Last week, we closed on oversubscribed bought feel led by Beacon securities for $13.2 million.

Yeah.

On the company also announced that its entered into a definitive purchase and sale agreement with innovative industrial properties, providing for a sale and leaseback of our cultivation of production facilities and Tom water, Washington at Georgetown math.

The $30 million sales on track to close by mid December and will be used to use by the company to pay down outstanding senior debt to the affiliates of GAAP and brand partners.

So as of November Thirtyth 2020 pro forma for the close of the pending a sale leaseback transaction, including proceeds from the recently closed bought deal. The company will have approximately 16 million of cash and 43 million of long term debt on the balance sheet that doesn't come due until may 22.

Before.

[laughter] sets us up with an incredible amount of flexibility on the balance sheet.

In keeping with our strategy of going deeper into large nascent adult use markets. We're sharing this afternoon. The company is finalizing plans to exponentially expand its cultivation and manufacturing presence in Illinois.

We're obviously incredibly excited about the.

The company is looking to bring it scaled cultivation on production that comes with one of its 20 cultivation licenses in the state that allows for 210000 square feet of flowering cannot be and we're currently acquiring acreage to construct the cultivation and state of the art manufacturing facility.

Which significantly adds to the blue sky of our of our already established presence in Illinois.

And we all will be on will go into the more of that later, we on car worked on more on that later on.

Our focus on execution is also manifesting itself not only on sales trends on expense controls, but also on keeping our expansion projects on time and on budget.

This is critical these projects set the stage for future growth.

Destruction of our fully funded expansion plan for Illinois, or current Illinois, and Massachusetts cultivation facilities is largely complete.

Well construction on for a second, Illinois, dispensing Calumet City, which is scheduled to open by mid December of this year.

Furthermore, we were able to announce last week yeah.

Dissipated timing for the completion of our manufacturing facility in Commerce, California.

Which we expect to open in Q2 2021.

For front of successfully introduced its products and brands at the Massachusetts, and Illinois and soon to be a entering the $3 billion, California market.

The automated state of the art Commerce facility incorporates unprecedented capacity for finished goods manufacturing.

Similar to the scale seen on the traditional consumer packaged goods industry.

Congress will have the ability to produce over 10 times the current capacity.

For front 40000 square foot, Washington production hub, which is currently the number one producer of derivative cannabis products in Washington State.

We look forward to the first product sales in California retail sales in May 2021.

So very quickly [laughter] speaking, specifically to the second quarter, our Massachusetts revenues grew by more than 47% over Q2, which included partial quarter of adult sales on the state.

Our strategy of introducing our successful brands and products from Washington at the new markets.

Demonstrating we gaining traction.

On the feedback we've gotten from our customers and math and Illinois has been fantastic.

In addition, our Ann Arbor, Dispensary showed 15% sequential growth as the market there continues to mature on.

Our Washington, a system wide revenue grew 12% in the quarter.

And continues to benefit from improving pricing its capacity leaves that market.

Our revenue in Illinois declined 11% quarter over quarter, owing largely to losing a month of the quarter in July and mission South shore ramping back up after we are reopened in late July after it was closed during the riot.

Illinois will have additional tailwind, leaving this year with our second retail location open in December.

On the opening of our expanded capacity in l. growth hitting hitting a tail on early early part of next year.

So to finish up along with a solid sales trends. We've also seen the benefit of our operational focus on the rightsizing of our cost structure since late last year, we've reduced our go forward corporate overhead expense by over 50%.

Through reductions of headcount and streamlining of the operations. The company has generated positive operating cash flow in the month of August.

As I said it was several months ahead of our internal plan.

Our adjusted EBITDA on the third quarter of 3.7 million versus what was basically breakeven in Q2.

And also as compared to a loss of $2.8 million in the first quarter of this year and a loss of 5.8 million in the fourth quarter of last year.

All of this debt to suffer step function operating leverage as we leave this year and move into 2021.

So having set the stage I will now turn the call over to Leo or look on make our CEO, who will delve a bit deeper into our assets by state and provide additional color on our near term and medium term plan.

Yep.

Thanks, Andrew Andrew.

Andrew did a terrific job of updating you on the strength from you see in the industry and our business the summer as being particularly strong sales trends, including a meaningful uptick from Washington and Massachusetts.

Spend a little over a year since fourq, but close this merger we cannot company on Opus I founded in Washington.

Eight months ago, our board appointed a new CEO, because my deep understanding of Canada's business operations as well as business building capabilities intersected with their desire for this to be an operator led company.

I'd now brought that role and a culture to that as we say internally isn't that I always focused on execution doing what we say we're going to do since March Weve made tremendous progress as a company right sizing the cost structure streamlining our business and pushing deeper into our core states on leveraging our structural cost advantage, we develop in Washington in the rest of on.

Mike Sims portfolio.

Recall or investment thesis, we believe the sweet spot for outsized value creations industry is really around low cost production and distribution at standard this consumer packaged goods or facilities in Washington State are the number one edibles manufacturer and then number two producer of flower with an overall number two market share in state output from.

Moving over 600 on their license holders in one of the most competitive cannabis markets in the world. We have achieved this while maintaining very attractive margins and profitability.

We're replicating these tried and true production capabilities on the large and they said recreational markets, Illinois, Massachusetts, Michigan and soon to be California. So the question is how the season How's that thesis is playing out front so far.

Due to low cost cultivation and manufacturing methodologies products and brands that we've had such success, we could Washington scaled to other markets.

While it's still relatively early we're very pleased with the results we're seeing one year.

Let's start with Massachusetts, it's been.

On a little over a year since the opening of our cultivation facility to west which was started using growing methodologies as abuse developed over the years in Washington since launch from experience no sales harvests demonstrated annual yields of over 400 grams per square foot in.

In our acquired Georgetown facility, we continue to make improvements to the growing environment and are currently in the process of book rating.

The retrofitting of the Companys Georgetown facility is complete and ready for it stays installation of led lights, which we expect to drive yields in line with what we're accustomed to seeing in Washington, a gallon whats stuff.

We've introduced all over Washington brands to the Massachusetts market as well without exception.

The reception for products has been fantastic and we accepted.

We expect to continue to build momentum as word of mouth spreads we've seen the brands we brought to market.

Pretty quickly take market share from the previous brands and.

In house brands that were being sold out of Georgetown, which is a great sign that we continue to.

Steve the sales force.

Implemented ore extraction methodology, which enables consistent repeatable feedstock for all our products introduced our production in packaging methodologies, which greatly enhanced throughput and reduce labor.

As we.

As we move forward, we look to continuing momentum in Massachusetts as both are whats day in Georgetown facilities continue to ramp up with expected opening of our third retail location for adult use Brookline in Q2 2021.

In Illinois.

As Andrew mentioned, we're finalizing plans to greatly expand something recalling project big debt.

I learned to utilize our super license in the state and begin phase one of our build out.

Myself and our team couldn't be more excited to bring our scale low cost cultivation and manufacturing to the speed and also couldn't be more excited to be able to compete with some of the bigger and I suppose that also hold on one of these relations.

Our Elk Grove facility continues to see progress Joe Epperson from our Washington team took over leadership of this facility in January and since that time, we've seen our yields on from 250 grams per square foot right around 360 grams per square foot as we sit today or.

Our flowers screens and brands have been very well received in the market along with our recently introduced many bugs value brands.

Expansion of Elk Grove.

Which will increase the flowering canopy from 3000 to 9072 square feet is substantially completed on time and under budget.

Our south shore ambition retail store reopen at the very end of July.

Continues to ramp up steadily month over month, and we're pleased with the results for sales.

Last but certainly not least in Illinois. The December opening of our second, Illinois relocation per retail intelligent city, which is approximately one mile from the Indiana border.

Looks to be on time for December 2020, so.

Fortunately Spencer is substantially completed final inspection scheduled for December seven with the Grand opening currently anticipated on December 15th 2020.

California, we're extremely pleased to be able to announce last week the timing of our entrance into the 3 billion plus California market companies fully funded state of the art hundred 85000 square foot manufacturing facility in Congress will be ready in Q2 2021.

Projects on target to be completed in mid April on the company's planning for the full line of its product lines Edibles tinctures and baby products to be on California retail sales by end of May 2021.

This facility will be will have unprecedented automation and a low cost production capabilities.

White label on private label opportunities and overall scale that doesn't exist across the rest of our portfolio, California is the state. We're extremely excited about for multiple reasons and the facility. This year was something that was planned.

Attack on market at this scale.

Which automation thats forward it bodes well.

What we've seen in the industry and across our portfolio in general.

Big project for US, we're extremely excited about that market.

Washington continues to stay steady for us.

On a record quarter in the summer really showed a big uptick.

In general on Washington across the board on flower in derivatives pricing is holding well and as volume has declined we have not had to drop pricing across the board on any of our products.

Which is extremely encouraging because usually.

Coming into Q4, and outdoor harvest you see a little bit of a dropping a little bit of slowdown in sales. So we're extremely excited about that trend and I don't going into 2021, we'll be able to hide prices a little bit more and hold steady.

In Michigan, we launched delivery in Q2 and expanded or hours from three days a week to seven in Q3, we continue to keep Michigan in our pipeline that the state that will lift and are on the production processing side down the road.

The pure ratios wellness brand is one we continued off the balance after supply chain issues. In Q1 early Q2 impacted sales Q3 showed healthy results gross 50 per cent quarter over quarter, we continue to tweak the business model to increase the consistency and visibility to growth in this business.

Our goal was to leave 2020 in a position to drive significant revenue growth and operating leverage in 2021 with all five states are pure ratios business contributing to improved financial results consists.

Consistent with our mantra of maniacal focus on execution, we've set up operational bogeys in or not.

Our hard work over the years put us in a position to initiate guidance for the year 2021.

In the coming year, the company expects to drive system wide pro forma revenues of 170 to 180 million and adjusted EBITDA of 40 to 50 million. This.

This guidance is fully funded and contemplates only current operations on projects that we have a clear line of sight on completion, including the December opening of the talented senior retail location the opening of our retail in Brookline, Massachusetts, and the commerce production facility in May 2021.

With projects fall into place it seemed a good time to frame for investors will replace.

Corporate believes we have at least a 650 million revenue opportunities on the 250 million adjusted EBITDA opportunity, bringing our low cost field operations. The only our current footprint with that I'll now turn the call over to the operator to open the lines for June.

At this time, we will conduct a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad a confirmation. So indicate your line is on the question queue. You may per start you. If you will look to remove your question from the Q from.

Participants using speaker equipment, and maybe that's true to pick up or handset before pressing on the Sarkies. One moment. Please as we call for questions.

Our first question comes from a lot of Neil Gillmor with Haywood Securities. Please go with your question.

And Neil how are you doing good.

Good how are you doing.

Good man.

Congrats on the quarter. Thanks for the questions maybe start on Illinois, and your announcement with respect to.

Further build out there obviously I guess, you're just exploring options right now it sounds like but is there any sort of preliminary time line that you can sort of give a ballpark range or is there anything that we're going to see on 2021 is more of a 2022 story you know your initial thoughts on a on a phased approach or sort of a large build out just any sort of further color you could.

Provide on Illinois there.

Yeah, I'll I'll turn that over to Karl on Leo Karl do you want to take a crack first and then Leo work or other way around either one.

Sure I'm fine.

Finally on Leo will be able to speak to the phasing if needed in more detail, but yes, our anticipation is probably to lock up some land within the next couple of weeks hard.

And.

Start the the Predevelopment process with a view of how the phase one completed by I think at the end of Q2 2022. So about an 18 month experience. We would think the initial phase were looking at right now 65000 square feet canopy with 75.

With a 75000 square foot manufacturing facility on the.

Total square footage of building that out would require phase one is probably somewhere in the 275000 square foot range as I recall from now as we go through that process, depending upon where the market's at depending upon the.

You know the need and the opportunity we could definitely anticipate starting to phase two earlier the pieces of land that tracks of land that we're looking at are.

Or easily developable to take on sales to immediately and either create a campus style environment or one larger interconnected buildings. So really I would say that we're looking and Jake you can correct me if I'm wrong, but I'd say, we're looking at end of Q2 2022 to actually.

On harvest.

I would second that I think in the.

This sort of big build out and just one addition, there would be 65000 square feet of flowering canopy and a total 91000 square feet of total came to be and the processing building would be set up in a way that once we get to the full 210000 square feet.

Why werent canopy that were loud the 75000 square foot building to be able to handle the throughput from that plus some more.

Okay. Thanks, very much for that maybe sticking on Illinois, you just.

I think Andrew your comments just that it was down 11% over the prior quarter on the seed due to the shutdown. So you know are you back now above sort of that pre shutdown levels on sort of the the month could be lost.

And then with the opening of the second dispensary in Illinois.

I know, it's fair to assume that you guys from got your sort of inventory build out a built up and that's sort of the the part of why you're the timing of bring that on in mid December is that you know on a good position to support those to what sort of whole product build though they had to go to 2021.

Yeah, So Neal I'm going to turn that question over to Joe fell from who is our COO and you can fill you in on what the current trends on what we're thinking in Illinois.

Hi, Neil so.

Probably the only a silver lining to the shut down was it.

It did lead to the opportunity for us to stockpile for two months. So we.

We feel really well positioned with our inventory levels for the two stores.

Really for the next the first couple of quarters of 2021 today and then when you add on the expansion we'll.

We're just going to debt that can lead us more opportunities in the wholesale markets and so and this first that's what we're really excited about as well with Calumet City is launching the funky monkey and legend brands.

Into the Illinois market. So we brought some of the Washington flower brands to the Illinois market and we've kind of timed the launch of some other brands with the store opening off so we're hoping to get momentum from that we're actually launching a couple strange tomorrow and then hoping that that will then carry us well into the new year.

Yes.

Okay.

Thank you maybe.

Maybe one last one from me and then I'll pass the line on on California with.

That launching in Q2 of 2021, no the brands and products years sort of launching into that marketplace is are you bring that down sort of from Washington state sort of further expanding the that's sort of brand awareness and leveraging that are you looking to introduce new or different brands in the California market.

We are bringing in brands from Washington State and we're introducing one new brand.

We'll be called Dabble, which will be on high end wax brand that we currently don't make in Washington, just because of the pricing structure, there and the lack of volume per expensive product.

All the other non brands that we're bringing our strongest brands from Washington and ones.

We felt we could automate most.

Okay, great. Thanks, so much growth appreciate the questions.

Thanks Neil.

Our next question comes from the line of Graham Carla with <unk> Capital. Please proceed with your question.

Hi, Graham how are you doing hi, good afternoon, Hey, good How're you Andrew Thanks for taking my questions. This afternoon, just wanted to follow up over on the subject of a the Illinois is there any expected budget for that expansion project I guess, maybe we can focus on non phase one for the time being thanks.

[noise] call.

Sure on high.

Hi, Greg Yes, there is.

We're looking at roughly let's say between four and six for land acquisition and a another 45 or so for the phase one build out.

Okay understood and appreciate that any sort of expectations with.

Finding that project now I know, that's a that's a bit on ways out and more so on that the phase one building is that something that the company would expect you financed internally from cash flow now that youve reached that milestone as of August or is that something you book to get more external funding to support.

Yeah, I wish we were Bourbon out enough cash to take care of that Graham, but we aren't and yes. We all I can say is I'm incredibly confident in our ability to be discussing that financing in the near future [noise].

Okay. Understood then just switching topics here.

With respect to the revenue growth in the quarter on looking at the restart of retail operations in Illinois.

And do you know additional approvals that were.

Perceived in Massachusetts during the quarter. There can you provide any color in terms of the cadence of that revenue growth or perhaps.

Operating at the end of them. They ended the quarter there in September on where a run rate revenue might stand.

Yes, hi, Graham on into <unk>.

You know how each month sort of ended but.

Certainly something we could take off line, Joe do you want to speak about sort of chat trends in general on the business or across the business or or or Leo.

So why don't you take a shot at that.

Yeah sure so we.

We said internal growth so from our internal kind of goal and benchmarking perspective on like Andrew said without getting into all the details.

With our team and GAAP Leo on Coral, we think we said pretty aggressive monthly goals for the team and we have a cadence and reporting fucking Graham.

Jim teens high teens.

Monthly growth rates and things like that for a we understand what a new store in a wreck markets should look like for us of and we set aggressive growth rates around that initially that first 45 days and sat rates around the twenties, and then phase that into the teens and.

Really we have been able to hit that NR to stores in Massachusetts, we were able to get back to those levels in Illinois.

Some of it is adjusted a little bit with the lack of stimulus, we think and we've seen that a little bit. So we've we've done a little bit adjusting.

For that but.

Another goal that we set for self is just how many brands. We launched we have just awesome portfolio in Washington to tap into we set pretty aggressive goals of Blanche launching four to six brands so quarter in new markets and so for US that's kind of a K.P.I. odd that we look to Whit, it's hard at day.

This stage in the industry to look to real net revenue numbers or trends for what Mormons is doing since we launched that 120 days ago, when Massachusetts, but all of that anecdotal is really strong and we feel as long as we're hitting our goals for launching new brand.

Hands on time that right now that's a good indicator for us.

Okay I appreciate the color. Thank you very much.

Our next question comes from the line of Eric the allowance with Craig Hallum. Please state your question.

All right on.

Good how are you in.

Good.

Well congrats on the strong results guys.

Very impressive operating leverage and great to see that you pass through profitability I'm really excited for what's to come in 21 and beyond here. So as far as I can tell you guys do have industry, leading cost of production and yields per square foot. We've we've seen a yields can be difficult to me.

Chain as companies go from smaller craft cultivation to large scale cultivation.

Can you help those on the line I understand the factors that contribute to yields going down as scale goes up.

And what you guys are doing to address those factors ultimately wondering how you expect your yields per square foot to shake out in Illinois.

If those yields per square foot are achievable and Illinois at 210000 square feet.

Yes, sure how do we take that one so for per scaled Colton.

Cultivation, it's really you know environment and how you make your split once you get bigger you have.

Higher chance of.

Pest infestation or something I can ruin the harvest and and really you see yields go down because when someone scale as they potentially lose one or one and a half of their harvests and not having that would drastically dragged down that grams per square foot number I think on also on the perpetual harvest in the net.

Good day of people in the schedule to make sure you're harvesting day.

On the weekly versus every two months, it's something that it's harder to enrich harder to keep on track as steel gets bigger.

That's something that we've done a good job of building a system on and thinking or sheets correctly. You said that were made it as simple as possible and keeping our people very clear direction on how to make sure. We stay on top scheduling which is in my opinion one of the most important things in the growth outside the <unk>.

So so for US you know looking at something like 210000 square feet in Illinois since its going to be phased starting with 65, that's basically just a little more than we have in Washington. It between our two facilities. So we feel confident we can build it into value added in a way where it'll be 25 to 30000.

Basically replicating what we have in Washington, just multiple sections inside the building or multiple buildings.

All right great. That's that's very helpful. I appreciate that color and then maybe one more for me just kind of a little bit more color on the location.

The Brookline Dispensary, that's that's set to come on line here.

I think it's a.

On a pretty heavy foot traffic area. So if you could just help help us understand just a little more color around the location there and.

I guess, it's sort of what to expect from now on.

So Joe well I I believe so Eric being to be an a b you Guy it's about 300 yards down the street from the U.S Hockey Arena, So right in the middle of the Bu campus and you know.

Yeah on that in that Kamath Austin area.

But they obviously, a brookline dispensary, but the front sidewalk.

He is on his Boston proper.

And so in terms of the timing on what we expect I'm going up I'm going to turn it over to Joe and give you a little bit more granularity there.

Sure. So yes, Andrew hit the description correct and location, we're really excited about its next to other retail and restaurants on.

We're excited about and we are on.

The agenda in December I believe its December 17 force.

For the kind of next steps with planning and for US. This will be a relatively quick buildout, maybe about three months. So if all goes well here in mid December with Brookline that should allow us to start construction early in the year and hit a spring.

Spring opening.

And that we're really excited for and that's something that we've been planning for from a cultivation and production standpoint, and timing some brand launches around the brookline opening as well.

That's great sounds like an a plus location and looking forward to it congrats again guys.

Our final question comes on line of Doug Cooper with Beacon Securities. Please proceed with your question.

Hey, guys. Thanks for the time Starwood, the Big Daddy, and 650 million ramp opportunity to 52 million adjusted EBITDA opportunity from your current footprint is on the full build out a deal.

The Illinois facility that Youve.

Talked about and so what kind of timeline timeline, what would that be sort of a 2023 24 25, what worked what do you think that.

Yeah, I mean, I think you know first beyond just the big build out in Illinois to the fold to 10, we're talking about a fully mature markets in California, we're talking about a more mature market in Massachusetts and opportunity to expand there as well, but as far as Illinois goes I think it's a combination of.

How much square footage is built out in the state versus what the demand isn't just keeping an eye on the market and making sure that we're we're adding.

Square footage basis correct Mark.

Mark you did and if that's right away.

Your Jude on the line networks also but forward looking maybe something like 2025 to the full 210 2024 2025.

And again index that could change the market dynamics.

Yeah, Doug on Leo I I was going on I was going to flip it over to Jake Wootton, our ATP of finance did.

Just sort of give you the construct around that because it is a it is a number that we put out on the guidance and <unk> were purposeful and putting it out there to kind of frame the opportunity for folks and so let's turn it over to Jake for a second get up and get a little bit more granular yeah.

Thanks, Andrew and thanks on the question Doug.

To frame that 650, it really boils down to you know our Keysafe there were on right now on the Illinois project is by far our largest long term blue sky opportunity and we think that that the revenue potential from that fully built out facility, it's somewhere in the 300 million to $350 million range.

That's that's wholesale sales so exclusive of what we would be doing to our captive retail locations.

On the California market, we believe that that facility. Despite the fact that its production capacity will be will exceed revenue potential of $200 million to $250 million.

To see that as a $150 million a longer term opportunity.

When you add in 50 million from Washington.

You added 100 million from both wholesale and retail sales in Massachusetts, and then any incremental revenue that we can generate from our Michigan operation as well as the Curations business, that's really how we frame up that that's on $650 million channel opportunity.

Sorry on them asked on the sensor coming from.

100 million from Massachusetts standard Okay.

Okay, and you said it was a you're even though the production capacity is true 50, I think in California, you're talking 100, <unk> hundred 50.

Correct.

Okay and.

Just for those net you know just to help me on that and if its 210000 square true to canopy in year 300.

But I'm just square foot as other companies number to use.

63 million brands.

Five bucks per Gram was up you know.

That's the sort of math on it we should be talking what.

70% of those grahams will be actual flower and 30% would be in the form of trim per derivative goods.

Mhm.

Okay.

Maybe just sticking on California for a second and I think Andrew said, the 10 times. The GAAP sorry go on Doug If you don't mind I just want to clarify that the numbers that Jake was the this is Carl the numbers. The Jake we're speaking to when we looked at the capacity of both Illinois on California from what we've done in the past.

And do currently in Washington.

The number on the came out to us were little unreasonable.

So you know putting into place not only price degradation, but also.

The percentage of the market that we see being there that would be represented by what we can make.

And on reasonable so we gave it serious hair cash. So that's expense is coming at a plus 45 per cent haircut on each of those.

Illinois and.

And California, So when you do that now you're going to get a bigger number yes.

Yeah, that's just on sort of come out from you know for sure Yeah No economic on.

[music].

[laughter] from the California, just to stick their per second Andrew I think you said in your preamble that it was 10 times the capacity of Washington.

Leo can you just give us an idea of what kind of throughput you're doing in Washington right now.

Yeah, absolutely. So we're currently selling about 100000 finished 10 cros are edible brands and about 60 to 70001 grandbaby cartridges per month.

And our production capacity in Washington per the 10 toxic edibles with a 23 person staff is 3500 finished 10 packs per day.

The automation for the full kitchen line that we haven't commerce can produce 33000, just finished and per day in an eight hour shift utilizing only four people.

We're looking at 10 X production capacity and a specific.

The group.

Sometimes the production 20% of the cost of the overall labor anyway.

Of labor for sure and based in general on something that is extremely scalable when needed.

We can feel more based on we currently so in Washington, and we've seen or.

Our market share in that quantity grow month over month, and we haven't had to add any labor as we scale debt.

And what's the what's the pricing differential right now between California, and Washington for a similar product lines.

The pricing is actually not that far off, California, being higher in some categories and beating even with Washington in other categories.

Really not too much price differentiation I think the biggest the biggest difference in prices on flower.

On the sector that we're competing on initially aside from per year olds. So we feel pretty good about the pricing structure and about our ability to produce a lower cost than we do on Washington take advantage of that from a sales strategy in California.

Right. So you guys have obviously done a ton of work there in terms of the market opportunity from.

From a pricing strategy perspective.

Do you plan to go to go in that a you.

Sort of 20% discount, 30% just kind of like what is the pricing strategies to gain shelf space right on that get you.

The pricing strategy is a discount I think it varies product by product depending on how saturated.

Category is the top players are and what their pricing looks like but I think in between 20 and 40% below who we believe our competition is per product is a fair number.

You don't think there's any issue getting the raw material.

In California, your raw material is definitely not a problem, especially in the form of finished just do it which you know both store advantage, because we can buy oil and start producing right away.

Book to source relationships with the rate from Peter arms for the future. We want to use you file a bio mass versus finished goods are finished oil she's done.

But based on where disciplined pricing isn't based on sort of going into the between 20 and 40% disk on what kind of gross margin would you anticipate for this product line.

It's 50% plus across the board.

Moving to a yields the on your debt yields moving.

You only want one of the only one day I think who speaks to yields quite frankly on the ended it the big U.S. guys.

What do you I mean, what do you what do you attribute your better yields to besides experience on understanding and led lights is that something you need to you and your front end, because you're obviously finding that to be a better experience and that's why you're putting the stuff in Washington, <unk> from Washington, and into Illinois, and Massachusetts.

Yeah, it's funny it two years ago, you asked me about Ocean views I would have told you that you're crazy and they are never going to work inside of the growth.

And you know weve used for a while.

And the other income on rooms, and they've been great and Weve continued you know over the past going on six years now to run individual experiments with different sets of L.E.D. lights at a decent scale 35 to 50 lights per room, you know we've been lucky enough to have large scale and.

We'll be able to come to a different companies and companies come to us and basically trade a set of free lights for the data that comes off on those harvests.

In doing that we just continually track and try to work with different partners to tell them, what we're seeing and what we see these lights and need to be successful.

More recently there are some.

More recently that a company that we've been working with for for harvest snow.

We finally felt comfortable enough.

On the data see net.

Mortgage fishing on the power, it's easier to control the age back and we're finally seeing yields numbers.

Moving to or above.

Youre right.

Okay.

Two more quick on balance sheet. So obviously much entirely true he felt very good about.

Moving forward.

Okay. Thanks, though two quick ones to finish your balance sheet, obviously much improved.

Well, Dee <unk>, GAAP and peace be entirely on I see and.

Or the end of the your GAAP, yes.

Yes.

Okay, and so California is fully funded.

Yeah.

Forgetting the major Big Daddy project in Illinois, the rest of the project, you have including Brookline and Kevin that city and.

And whatever else you have to do in Michigan or elsewhere are those all fully funded.

Yes, everything is fully funded dog on and I want to be clear in terms of the.

Inclination of the funding for the Big Daddy I want to be clear that it will be non diluted funding.

But yeah everything else is taking care of on track.

On the buckets.

I'm front.

And my final one just to circle back with the question that was earlier, maybe I can come out a different way in Massachusetts. When you use when you turn them I don't use on what kind of lift did you see.

In revenue versus when it was medical on that.

Yeah, I think Joe I think you can probably speak to the question was originally put it in terms of cadence. If you can kind of speak to the lift that we expected in terms of revenue from our list and Georgetown locations and what we actually experienced and the direction.

In Wichita.

So the.

The biggest expectation.

For take like in Illinois, or a state, Massachusetts, when Rex first happens, we see a four x. medical to adult use pot.

And something like Massachusetts, where when they have a rolling state. You then start working your way back from Forex, we thought to WEX was reasonable for the timing and then odd growth from there and that was essentially what we what we saw we more than doubled that one book.

Haitian we slightly less than doubled on another you add them up together it was kind of right in line with our expectation.

On there.

Yeah.

Okay I think that's it from me guys. Congratulations on so it looks great.

And with that I will hand the book.

Oh got it yeah sort of turn it back to you Leah.

I was just going to add on for Doug that we just had our best weekend ever overall in Massachusetts across the board and retail.

Yeah last two best.

That is correct for the last two best.

And with that we recently on of our question and answer session and I would like to turn the call back over to Leo got my good friend closing remarks.

To wrap up we have a very promising investment thesis incredibly exciting time on or development candidates industry is quickly emerging as a dollar per secular growth industry showing accelerating fundamentals during the pandemic it on certain economic times.

We believe that over the long term low cost production and distribution to candid. This consumer packaged goods is the sweet spot in the industry.

In Washington, we pre when our capabilities in this area has created a dominant position in the state with a full line of products, which are distributed to over 260 retail division.

Our facilities are the number one notable manufacture and then number two producer a flower with an overall number two market share in Washington, We're now focused on replicating are tried and true production capabilities supported by our retail stores that large a nascent recreational cannabis markets, Illinois, Massachusetts, California, and Michigan This constitution to draw.

A couple markets over 76 million people, including Washington State, we're fully funded in our strengthening business fundamentals. We're on pace to show significant operating leverage in 2021 with inside ownership nearing 47% were fully aligned to maximize shareholder value as we execute on the strategy and take advantage of the major opportunity ahead of us.

With that I will turn the call back to the operator to close the wide.

And with that this concludes todays teleconference. You may now disconnect. Your lines at this time. Thank you for your participation and have a wonderful day.

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