Q4 2020 Green Thumb Industries Inc Earnings Call
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Ladies and gentlemen, thank you for standing by and welcome to the Green Thumb Industries, Inc. Q4, 2020 earnings call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press star one on your telephone.
And we ask that you limit yourself to one question and one follow up if you require any further assistance. Please press star zero and I would now like to hand, the conference over to your speaker today, Jennifer Dooley Chief strategy Officer. Thank you. Please go ahead ma'am.
Thanks, David and good afternoon, and welcome to Green Dot on the fourth quarter 2020 earnings call I'm here today, with founder and Chief Executive Officer, and cooler and Chief Financial Officer and forgotten.
Today's discussion and responses to your questions may include forward looking statements, which are subject to various risks and uncertainties that could cause actual results to differ materially from these statements.
These risks and uncertainties are detailed in the company's report filed with the United States Securities and Exchange Commission and Canadian Securities regulators, including our quarterly report and annual report on form 10-K, which we expect will be filed tomorrow.
And your board along with today's earnings press release can be found under the investors section of our website green.
And just on assumes no obligation to update or revise any forward looking statements to reflect and adverse circumstances that may arise. After the date on this call.
Throughout the discussion GTI referred to non-GAAP financial measures, including EBITDA and adjusted operating EBITDA and a reconciliation of non-GAAP financial measures to the most directly comparable GAAP measures is included in our earnings press release and <unk>.
Let me be and SEDAR filing. Please note all financial information is provided and U S dollars and otherwise and again, thanks, everyone and now and then.
Thanks, John.
Good afternoon and.
Thank you for joining our fourth quarter and year end 2020 earnings call what day.
Yeah.
While we kicked off 2021.
Up with incredible optimism I'd be remiss not to acknowledge what a test 2020 was on <unk>.
So many fronts.
But the essential business designation of candidates by local governments and communities across the country with a strong vote of confidence amid great uncertainty.
It said.
Cannabis is for the people.
Candidates and job creation is meaningful.
And communities benefit from candidates tax dollars.
2020 was also a test and adaptability as America's it's found new ways of living and learning.
And businesses across the country Green thumb included innovated rapidly to meet customer needs and a dynamic marketplace.
From the first day of 2020, when we kicked off Illinois adult use and nearly every day and between our team was there for our customers when they needed us most.
In 2020, we completed almost four.
And transactions.
<unk> or million one on one consumer interactions.
That's more than double 2019.
We opened 11, new stores last year, plus several remodels and expansions.
We acquired a third store on kinetic.
And I've already started in 2021 with three new openings, making 54 stores open across the country.
We are investing in new ways to strengthen our customer relationships and reinforce what consumers love about our product and retail experiences.
And we continue to build our team.
And support our growth.
Hiring throughout the pandemic.
With 1300 people joining the team in 2020.
All the while our commitment to our communities remains steadfast.
We have several active programs and partnerships.
One example is the dog walkers animal rescue and shelter support funded by purchases of dog walkers brand pre rolls.
We also have a program, where we dominate our first day profits to community organizations with each day dispensary openings.
We're thankful for the support of partners like community shelter services and Erie, Pennsylvania.
On our rights coalition and restoration and Kendall, Florida, and most recently Paramus Children's Health Foundation with our opening this week in New Jersey.
We are privileged with the opportunity to have a seat at the table and a new industry unfolds.
And it is my special privilege to say 2020 was a very productive year and delivered outstanding results for our shareholders and.
And more candidates to more people across the country.
Fourth quarter revenue increased 13% over third quarter from $177 million and for the full year reached 557 million more than double 2019.
So we are pleased with over $550 million.
We delivered $22 million of positive GAAP net income and the quarter and achieved our second consecutive quarter of positive EPS, 11% in the fourth quarter more than double Q3.
Increased scale and operating leverage from expanding production capacity and drove 66 million of adjusted operating EBITDA, that's 26% above third quarter.
And stepping back fourth quarter, and a fourth quarter. We grew revenue of $100 million on the core business were 134%, while we grew EBITDA $52 million or nearly buybacks.
It's pretty amazing, it's a pretty amazing situation year over year.
We continue to make disciplined high return investments into the business.
The outlook for U S candidates remains strong and we are pleased to be riding the waves.
We are still let me early innings of the Great American candidates gross story as.
As the consumer social capital and political landscape line up for change.
So political stage is set for action with the new administration and committed to advancing comprehensive cannabis reform.
And the capital markets there was over $1 billion raised across U S operators and just January alone.
And Green thumb, we remain focused on driving down our cost of capital and to start the year, we completed our U S IPO and sale of SEC registered shares directly to U S investors.
This is an important milestone and review with US one step closer to the listing on a major U S exchange, giving.
And given us equal footing to our Canadian peers.
We completed the financing without any fees, so gross equals net and $156 million go straight to the balance sheet.
This transaction was a big win for two reasons.
Our shareholders and.
And the industry.
For shareholders it as dry powder for green thumb to invest and capitalize on high return growth opportunities and drive shareholder value.
And for the industry, we see it as a leading indicator of strong institutional appetite for the U S Canada.
There are a lot of ways to both grow and slice the pie simultaneously.
And we like our position as the Green wave unfolds.
We believe what is happening and Illinois.
With over $1 billion in year, one adult use sales and nearly 200 million and tax revenue.
And there's actually a preview of what's to come across new England.
Southeast.
And the Midwest.
And if you think about it Illinois is just started in fact, our start of the day.
Yes.
The state of Illinois collected more tax dollars from candidates and alcohol. This February the lines Cross, Illinois candidates contributes more tax dollars and Illinois alcohol.
More growth and Illinois candidates that is Illinois alcohol ahead.
Momentum in markets like Connecticut, New Jersey, New York, and Pennsylvania makes sense, because there are a lot of consumers, who live there and want a lot of candidates.
And the details of these programs are worked out we hope lessons from the Illinois adult use rollout are noted, especially.
Especially regarding social equity licenses, it's still remain on issue.
And that is not good.
The industry is in a way that it can enable new well and new opportunity for those that did not have access to it before.
And green thumb wants to help make that happen.
And that Green Dot, we're actively studying planning and building our boat because.
And I hope you can see by now the title wave is real.
We opened our first California store and Pasadena, this month, and giving us firsthand experience inside the country's pioneering cannabis market.
From our recently announced partnership we're expanding access to California, and number one cannabis beverage can by bringing it to Illinois. This spring.
This isn't entirely familiar format sparkling beverages, yet totally untapped and candidates.
And we're excited to invest and the nation's leading cannabis beverage and to introduce a compelling alcohol alternatives.
Tens of millions of Americans.
The green thumb team loves the white space opportunities to connect with consumers with safer alternatives, such as and incredible news, Barry instead of and ambien.
Dr. Solomon's rescue lotion, instead of icy hot.
A bong hit a rhythm brownie scout instead of Xanax.
And vivo pass steel instead of a y and hangover.
And now it can instead of a white claw.
Above all we have a solid foundation it really fantastic team excellent products.
Very high quality flower, which really is the startup at all and a proven track record of doing what we say we will do.
Theres no exact blueprint for how the world country on the industry and will evolve and a new post Covid world.
But the American consumer guides us and the Green thumb team remains as energized as ever to serve them.
With that I'll turn the call over to Anthony and dig into our financial results for the fourth quarter and full year Anthony.
Thanks, Dan and good.
Afternoon, everyone.
And you just heard we're incredibly proud of what the team accomplished and the fourth quarter and throughout 2020.
In addition to generating record revenue and profitability the team showed tremendous grid.
None of the accomplishments and the last year would have been possible without the hard work dedication and personal sacrifice every member of the Green thumb family.
And while the successes in 2020 were significant and we remain steadfast and focused as ever on the future.
But we'll get to that later.
For now let's have some focus on numbers starting with revenue.
And 2019, the company generated $216 million and revenue.
And 2020 $557 million.
2.5 ex growth in the middle of the pandemic certainly day for and interesting here.
And Q4 alone and the company generated $177 million of revenue.
13% increase over Q3, and 100 million greater than our Q4 2019 revenue.
Given our limited M&A activity in 2020 nearly all of this growth was driven the old fashioned way we.
We made more and we sold.
For the quarter gross CPG revenue grew by 23 million and 31% over Q3.
On a net basis accounting for intercompany revenue, our quarterly growth approximated 11 million from 25 per cent.
Over and retail revenue increased $9 million or 8%, primarily driven by same store sales growth.
On a gross basis, our revenue split for the quarter was 55 per cent retail 45% CPG.
On a net basis, 68% retail 32% CPG.
It's exciting to see the impact of our Capex dollars and work as our CPG and retail revenue ratio continues to tilt towards CPG.
As a reminder, the difference between gross and net and intercompany revenue, which approximated $42 million and Q4 and 30 million and Q3.
The company's robust revenue performance as a result and the following.
Number one more legal consumption demand is big and growing.
<unk>.
Quality product our goal from day, one has been to produce and sell great cannabis products products that we ourselves and want to purchase.
Last execution.
We cultivate manufacture and we retail.
The fundamentals and this business are similar to any other.
Pushed our team to consistently choose simple over complex.
Yeah.
Turning to profitability. The company continues to perform posting gross margin for the quarter and year in the mid fifties and.
In fact, Q4 was record and just under 57%.
As I've said before our intrinsic goal is to keep this very important metrics at or above 50%.
On the SG&A side expense for the quarter approximated 53 million or <unk> 30 per cent of revenue.
Excluding D&A and stock based comp normalized operating costs totaled $38 million compared with 34 million last quarter.
While operating leverage didn't quite have the Verde County, and it did in previous quarters. We have made a conscious effort to deepen the companys bench and the pace of regulatory change.
Total other income from the quarter approximated $3 4 million largely driven by the mark to market of our investment portfolio.
The counting for everything about and Q4, the company generated over $65 million and adjusted operating EBITDA close to 37 percentage of revenue.
It also produced just shy of $51 million and pre tax income and $22 million and net income.
This provided green thumb with its second consecutive quarter of positive Etfs, and 11 cents a share and a nice increase over the four reported and Q3.
For its fiscal year, 2020, the company generated approximately $180 million and adjusted operating EBITDA.
Six times more than the 28 million we generated in 2019.
In summary from <unk>.
<unk> thousand 19 to 2020 two.
<unk> grew its revenue by $2 five ex and its EBITDA by six ex.
Pretty good.
Turning to our balance sheet, we ended the year with just under 84 billion and cash and continue to keep a tight leash on the company's working capital notwithstanding a tremendous growth and such.
Subsequent to quarter, and we raised $156 million and additional equity capital.
No no, but it's notable about the raise was first himself conducted meaning we did not use and intermediary and instead.
And simply said gross equals net.
Second the equity and we sold was registered with the FTC and.
Early February and the FTC deemed our S. One affected major accomplishment for the industry.
On our public float over 80% of our shares are freely traded and.
We continue to believe that liquidity breeds confidence.
Net net we are extremely proud of our Q4 and 2000 Twenty's and financial results.
During our last call I indicated that 2020, one would be a year, where many things would change yet many would stay the same.
Simple principles, such as leading with the consumer focus drives excellence market optimization.
Prudent capital allocation investing and the team and playing to win will remain our north star.
The only difference is we know that we're well stocked word chest.
And with that war chest, we not only plan to build a bigger boat.
Norm on.
And closing I'll leave you with a quote from the Oracle of the law.
Every decade, or so dark cloud that will still be economic skies, and they will briefly rainbow.
And down tours and that sort of occur it's imperative that we rush outdoors carrying washed hubs not two students and that is what we would do.
And then there's how did your store and we call prohibition to point out we're going to bring other people along with us and take advantage of the greatest economic and cultural opportunity for generation has ever seen.
Back to EBIT.
Yeah.
Thanks Anthony.
And the dynamic comments from the CFO and I appreciate it.
This is our third year and calls since we went public in 2018 and when I look back at what our team has accomplished in this short period of time.
And both humbled and grateful.
We have built a very strong foundation to continue our growth trajectory.
But that's only part of the Green thumb story.
Each day is a new day and green thumb.
And we expand access to well being.
Serve our customers and communities better.
How might we provide more opportunities for our team.
And manage capital more efficiently.
I'm, especially proud that our team continues to dedicate time to support our communities and one another during COVID-19 and beyond.
Given international women's month.
I want to give a special shout out to the women and the green thumb team and today.
Green is day of the year.
And for me personally.
I feel lucky and be part of the team and this industry.
We still have a lot to learn and I expect and hope will continue to have a lot of learning.
From the consumer perspective, and the cannabis industry product and access will only improve.
And that means 2020, one as a new beginning for all of us.
We wake up every day here energized by that idea.
Still day one.
Operator, we will now open up the line to take questions.
And as a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound or hash key we ask that you limit yourself to one question and one follow up please standby, while we compile the Q&A roster.
Your first question comes from the line of Matt Mcginley with Needham Your line is open.
Thank you My first question is on the on the.
CPG business.
And the sequential increase in revenue and this quarter was impressive given that most of your production assets would've been operational for most of the third quarter.
And I think your big cultivation project. This year don't really become operational until later on later in the year.
And as with the increases and production assistant efficiency would be enough to sustain your CPG revenue growth and the first half or does that become more muted until later in the year.
Hey, Matt and this is Anthony I'll take that one so the team did an excellent job at bringing forward some of the some of the future CPG revenue that we had projected.
Construction projects and then early we got the plans plans and early and then subsequently we're able to get net revenue flow through the P&L share than we initially anticipated obviously will continue to focus on efficiencies, but that was one of the drivers of the growth that we saw quarter over quarter.
Got it and on the on the cash.
Capex I didn't hear anything with regard to a capex plan for the year and I think he spent around 100.002 million 19, and I'm not sure at the very end of the year was for for this year, but it was around probably 110 hundred and 'twenty, how does that look for next year and and.
And this year and would you.
Expecting you sale leasebacks or would that primarily come from the cash that you raised and cash from ops.
And in 'twenty one.
Excellent question, Hey, Matt its been.
Yeah, I think you're right to focus on that because I'm going to spend and leading indicator of what's to come as we tried to.
Sort of continuing to preview over the last 18 months or so and we turned on and some things in 2020.
Youre exactly right 110 to one point on the Capex and see that tomorrow.
With the filing of the K and and I would say really and in 2020, one we're going to go bigger and 2020.
It's a little hard to handicap exactly what's going to happen and where we'll continue to try and be as transparent as possible source of funds to your question you know.
It's a very interesting time to be thinking about cost of capital.
And the sale leaseback market and the expense of money.
And what that's looking like it's a changing curve, it's not static and you know and asset for a long period of time at a fixed rate much higher you no longer own is not as attractive win additional mortgage.
It is available.
Or that rates as we've talked about are going down and so everything we look at it the lens of shareholder value and you know.
We wouldn't.
Spend more than we need to have the money and we need to execute the plan, we're obsessed with driving down cost of capitals and were pumped about 2020 one.
Okay.
Your next question comes from the line of Camilo Lyon with <unk>. Your line is open.
Thanks, and good afternoon, everyone and create jobs on the quarter.
Thanks.
2020 was a fantastic year for.
Your gross margin expansion that really continued obviously here in the fourth quarter.
Can you give us some insights into the key drivers of that margin expansion and the fourth quarter and how we should think about those influencers and into 2020, one, particularly on the price. These guide and your expectations for that input.
H B O Anthony here so.
And look yes, obviously incredible year on the gross margin front, we saw a nice gross margin expansion I think the biggest driver was operating leverage, particularly on the wholesale side and the business.
Retail gross margin was relatively static.
Depending on the market depending on the time, but what you really saw throughout the year was we grew into the facilities that we built out and as the teams effectively on.
Operating longer and we become more efficient and it's one of the things that we focus.
We felt we saw on daily and it's just continuous improvement.
It's hard to have a crystal ball to see where that kind of goes and the future.
No.
Do I expect margin to stay where they are and it's really tough to say and that's why internally, we really focus on you know.
Keeping that number at or above 50%, if we can do that and the long term, we should win and so that's really what we're focused on them and as we look ahead.
That's really kind of the benchmark that we tie ourselves to.
Got it and.
And then my second question is on the cultivation side.
And really from understanding where you're at in New York and and the build out of the new facility.
And that and I think he broke ground on and in Warwick, Warwick and New York and also just an update on the progress of the New Jersey, Pennsylvania I believe.
That and you just started carrying on some of your on the rhythm product and you.
Your story, so any update on on those to.
Assets and their ability to start to supply and your own stores would be fantastic.
Hey agree on spend here. Thanks for the question. It's a good question I would say in Europe is very very early and a.
A lot of action to come there.
It's a day to day news cycle there.
And at the highest of high levels and New York has a lot of people that live there and then very immature early medical market.
Astronomically so.
So and so we're thinking long term not thinking next quarter or even next year. We're building a business of 'twenty three 'twenty four 'twenty five for U S cannabis.
And I think we're excited about where that's headed in.
New Jersey, Youre exactly right.
Net and shine on the shelf.
Medical only market right now as the rules come out and gets forums and we're excited to be able to launch rhythm, which is a higher quality and premium products. It's great for the patients and as we have more of it will go and get all around the state and really hopefully satisfy those that are interested and premium cannabis flower because that's what we're about and I think we feel pretty good job.
But we're going to let the consumer tells us.
And in terms of just the scale, there and it's never enough and.
And we're just going to be tight on supply for a while we have some we will have a little more on that level a little more it's a.
Dennis market up there and northern New Jersey for Us, but we found a way to invest capital into a facility that can produce the kind of flower, we need and other products and as we've talked about particularly on Iraq, even though the rules are fully out I don't want to jump the gun and we think there'll be a.
Expanded access and different form factors of product.
And we're excited to be in that market.
And I think things for the color good luck. Thank.
Thank you.
Your next question comes from the line of Baby and answer with Cowen. Your line is open.
Hi, Thanks, very much for the question and so my first is on can you know recognizing that the.
Average category broadly on it.
Still Nathan and the U S. I was hoping that you could kind of articulate the rollout plan and you called out you know, Illinois and beyond when you announced the agreement shall we expect to see beverages, and Illinois and other states in 2020, one and as well can you on potentially articulate like how we are and you should think about the pea.
And what impact thanks.
Sure David.
So the last question I don't think it would be a major P&L impact I think it's been a major consumer impact.
<unk>.
The this is a new form factor into a market that is 100%, 99% plus off Prem.
And just based off premises.
Slowly and the world, but the U S. We're really evolve.
And beyond means the east coast markets that are adult use where we can target this product certainly new Jersey.
Yes, I don't want to over promise.
And other markets out there.
We're excited about bringing the products to Chicago to the Midwest to a lot of I'm curious Canada's consumers or soon to be consumers or unsure exactly on it.
Concept is simply said, it's sharing and gummy with a friend is not as familiar sharing.
Awesome sparkling beverages, and just say, so refreshing and suddenly you want a few of them and then youre not overconsuming.
And the key factor here on this form factor and dosages and non over consume.
Set up but we're gonna go slow and we practice a crawl walk run and.
The supply chain is new the size and the market is new but we'll be watching and studying and we want to come with the best brands and our products differentiate it and it has huge momentum because everybody to try and it seems to love it.
Yeah that sounds that sounds great.
And any attractive product and do my follow up question is on your same store sales growth on which looks so decelerated sequentially. It was and it was very high.
In the third quarter and since I'm deceleration and it's not necessarily unexpected, but if you could expand on that please I'd appreciate it. Thanks.
Yeah.
Celebrated.
Yeah I believe your same store sales growth was 18% last quarter on that 40 to 42 store base and this quarter. It was fixed on 48.
Yeah, and like 6500, 60, yeah, I wouldn't read much into that it's a bigger base more is coming on to the base certainly like as you anticipated and if you're modeling our first quarter, Illinois, lapping, Illinois to do not on the step up that you did on a big base like last year, just anticipating how this works, but the boxes are good and there's a lot of demand from the Prada.
And again, the best leading indicator of the state data and it's pretty transparent on a state by state basis.
And it's pretty easy to see the penetration level into the markets, where we can invest capital feels pretty good.
Alright, thank you.
Sure. Thanks.
Your next question comes from the line of Eric Day Laurier with Craig Hallum Capital. Your line is open.
Great. Thanks for taking my questions and congrats on yet another very impressive quarter.
So given this the siloed nature of state markets and the active M&A environment and the space integration is a vital yet often overlooked aspect of the industry.
No integration is something that you guys have always been focused on with you.
Your one GTI strategy.
And recently, we've been seeing and hearing reviews on improving flower quality from rhythm.
And obviously investors are seeing continual improvement and your financial results. So.
Can you talk a bit more about your one GTI strategy.
How do you seek to drive continual improvement at GTI, you know, whether it's financials or our product quality and sort of how you expect that to and <unk>.
Maintain your leadership position going forward here.
Thanks, Eric I appreciate the kind words and.
Yes, seeing or that you're telling some momentum on the rhythm flowers and make the grocery and British sites and the whole team.
That's what this is all about two things you said the team and.
And with the team and deliver for the consumer which is the product and that product and the recent experience.
And if we can deliver that experience everywhere and get consistency and elevated.
And we win.
We believe and the product.
And it seems that it can offer wellbeing to consumers across America, and we're sticking to the playbook.
And then he said it all went and out too simple.
And so we're learning we're focusing on refining and did not have it right and you do not know the perfect mix.
But we're in a unique position and forget.
And we get we get some of the product right.
And they tend to happen because it's all about the consumer and that experience.
So hopefully that answers your question.
Yeah, that's definitely helpful. Thanks for that and then just as a follow up.
So.
From an investor point of view, we've certainly seen the impact of.
Depth over breadth within markets.
And you guys have clearly demonstrated.
And some lead and capital allocation scale can.
Can you talk about any insights that you guys have gained over the past months or years.
Our capital allocation strategy.
And as potentially evolved.
And then with these two large raises year to date and now reports of safe banking being reintroduced tomorrow.
How might that and capital allocation strategy change with increased access to capital markets.
Yeah, I mean, the short answer is no change and same game.
And then and we're investing on behalf of shareholders and to create.
Great returns and we think and distribute at scale is how to win with great brands that resonate with consumers and we can.
And build those brands across markets. So we said safe table, we have the same conversation.
And there could be and extra zero.
It would be a different state, but we have a team that can handle it now not that we're perfect but.
Different kind of game, you sit in and and reallocating the capital and driving and returns because we can believe and the spend.
That's a six seven years.
And we made plenty of mistakes and you try and make things take twice and if we do and make it less expensive.
But that's what we're up to and it continues to be investing $1 $32.
And as a growth business and cheap price. So it's like a $52 and we're pumped about the game, but we're not going on.
Change it so everybody with a lot of cash that came in at the right price and the industry is dynamic and there are tens of millions of consumers across the country.
They're curious are interested and we just wanted to and part of the experience of opening this up for folks as they have alternatives.
Your next question comes from the line of Pablo and Swanwick with Cantor Fitzgerald. Your line is open.
Thank you Dennis.
It's a bit of it maybe philosophical question, but theres more and more and missiles, providing guidance and some of them with a lot of detail is that something you are thinking of doing or did you don't see value for you guys to do that.
Thanks Pablo.
And Ben.
I was around and hearing the trends and watching people talk about pro forma and then deals break.
Has the guidance been helpful for you and the investment community and it's very hard to handicap when these things open and how they go.
And we're trying to be as transparent as possible about the business, where there's growth and really what's happening until the best leading indicator to the business and really the best guidance Spanish.
And as transparent as possible about that because that's going to drive the business and the market is high level, where there is more demand and supply and as that evolves and what that Capex is doing to reported by the moat drive down on the marginal cost of production and continue to lead the business. So I'm not sure, which kind of guidance to give you based on which markets.
I Couldnt tell you what months, New Jersey turns on and how that works or what's going to happen when Illinois is going to get out of its own way and issued 75, new licenses I wish I did that would be fine, but we have to play with the facts, we have and share Messi com.
That's fair and then just a second one.
Other companies are talking about making contingency plans on having contingency plans for day, one so there'll be interstate trade and the future I know again, that's very hard to predict if that will ever happen and when it will happen.
What does that corner to your plan and so we're expanding capacity and are in New York, New Jersey, New Jersey, or Pennsylvania, what he does not at all and you just go after the opportunity and those states pretty much state by state.
Thanks.
And it's certainly a factor at the tables were focused on allocating capital to build the brands.
And we studied the map a lot.
And we're watching what's happening not big Interstate is coming tomorrow and be surprised I think business will be in great shape is.
And the thing that many miss with this question when it comes up all the time is what else would be happening in the game gifts that were to occur and.
And you know that's an interesting thought exercise on a whiteboard for folks.
And it's not simply just interstate.
So we're about building the brands for the consumers and anticipating what we don't know even though we don't know and we don't know and everything we know is what we know we love what's going on.
And therefore, we will continue to wait and as Anthony said to the team all the time expect the unexpected.
And so therefore, it is that the way to play or not and I think you know this week alone look what's happening with New York book was potentially happening.
Congress and D C.
There is action and then like we said and in the remarks, we're prepared for it and we can change is happening and where.
Set up well.
Got it thank you.
Sure. Thanks Pablo.
Your next question comes from the line of Howard Penney with <unk>. Your line is open.
Hey, Thanks, very much for the question I'm, not sure how to us and especially but take a state where you're building cultivation and how many years does it take to get your return your dollar return on that and.
<unk> and I asked that and the context of Interstate commerce and that's.
And that's five years down the road, where you have gotten payback on those assets you're putting on the ground.
And that's something we're not worried and we spent any money we're spending to be sure that whatever happens we're going to be good just core answered and so that's a thought a lot but zooming out.
And.
Between permitting and getting set up and we've talked about at the highest level of six months to build and six months to grow to be six 810 months, depending on which jurisdiction or sooner.
Plants can be sped up or slowed down and they are what they are and as we and roll that and then you can make some assumptions on prices based on the market and to figure out the returns on.
And the yields.
And it's an attractive enough investment where we're not worried about what will happen. If we can simply as I've said many times execute.
And I think we continue to execute well, there's always room for improvement, but it's if.
We execute with the dollars and in terms of great fantastic.
Raising the cash and one ex right and a dollar's, a dollar and and investing in for the EBITDA and that that dollar creates and trading at a multiple of you make it up.
Creates a lot of shareholder value, which is exactly what we're up to which is why.
To Matt's question like the Capex is the situation and.
And it's why because the demand curve and it's around and around and we go and the consumer loves the product. So that's the whole deal here.
And then if I could just ask and another one and how important and a capital markets component to the safety.
And the access to the financial system and all of that safe brings it but there's another element that I think is also important so just curious of how important items.
I think you said, it and I'm sure know how and.
And what are the capital markets and the Safe Banking Act.
Our capital market's aspect to it yeah, but besides just access to banking and the financial systems, There's a capital markets component that allows you to.
So its exchanges.
I mean, there's upside.
And <unk>.
Way, we run the business and sort of day and Optionality machine right and so we're fine with the way. It is now and if things get better and it'll be better if the cost of capital goes from where it was in the rearview mirror, which was a double digit rate with warrants are these sale leasebacks and double digit rates to where it's going to be very soon which is single digit.
Credit is probably investment grade and yet we have to pay more but it's still single digit and then it's going to go even lower.
Got it.
The people that have access to lower cost of capital can't put it inside of our moat. So we're very comfortable with the current setup with low that we do lead the industry with the lowest cost of capital that's really the way to win over several cycles and several different industries and if it changes and this passes and things and the nuance and you know probably better than I do how the sausage is made and the <unk>.
Sales, which we.
We do not have a lot of engine, but when you do have edge and is optimizing with.
The facts on the table, so if capital markets open up and Safeway and leading position to list on the U S exchange, whereas you see registered and we sold stock to U S. GAAP and we're here we are ready.
And it's not my pulse on entities call.
So we're playing and system and we're just putting ourselves in a position like I said Optionality maximization machine.
And that's what we're doing.
Appreciate your time and thank you.
Thanks Howard.
Your next question comes from the line of Michael <unk> with Piper Sandler Your line is open.
Good afternoon, and thank you.
Can you.
Can you give us an update on your strategy and California, you've obviously just open a store there.
Just maybe some on what your enthusiasm is in terms of seeing that market improve or what its outlook is and just help.
Help us Oh come on.
And what do you expect looking ahead.
Sure.
To summarize the California strategy is one word I would say is learning.
And we're there to get smarter.
And I've said before and my way of California, and the best way to lose money and cannabis and I say that affectionately. So all the people that have lost money there, but it's a tough sell.
So I don't want to swim upstream on the hardest poker table or anything like that I like when the odds are and our favorites.
But theres a lot to learn and Theres a lot of respect for what's happened out there who the players are and what goes on and it would be foolish of us to ignore but I don't need to allocate a lot of money. If we don't think it's and turn into.
More and.
But I think product you said pioneering and the prepared remarks innovation chat and it's kind of everywhere branding.
Consumer trends, whether it's Canada or otherwise are a really important and when we liked.
What we're doing there in order to position ourselves like I mentioned on the last question with Optionality and it's really the whole strategy everywhere as Optionality. So we think we're on a pretty good position there.
And to watch and learn get better and you know at the right time to take advantage for shareholders. If it makes sense.
Okay, that's helpful and.
Just on the consumer can you give a sense of.
How much youre seeing.
Learning behind the brand equity, which brands, maybe stand out more than others or.
Anything that helps you in that.
Markets that are new or Scott.
Scott wholesale and California, but just you know maybe pushing that further or.
How to think about the traction behind the brands and and how sticky that can be.
Yeah, just broadly brands and the country I mean same exact things and saying this is an honest and system products.
Before you get and the marketing campaign, and the colors and everything and just few people able to do it and I think theres a national launch here recently.
Availability.
Simply having consistent product that they were all is a monstrous feet.
That's how you can build the Brent.
And is it good.
But if one day, but somebody said that while the spread is orange and I'm really going to work so well.
And we just need to be consistent and available we think we're onto something to connect to the consumer who is the user of the product and they use case form factor happy healthy comfortable in the deck.
That's the game.
Not more complicated than that and the consumer to have everybody here around I'm around multi generational.
Suburban and rural and urban and.
And from all walks of life, who are curious about and alternatives from this.
And so.
That's what we do and and.
We can then get pretty instant feedback on what brands are working on and you know what might not resonate.
But we can tell right away and then somebody else consumers are loving rhythm and Brian and Scott, but winter.
They are loving Incredibles winter and we can tell that we know that that's happening and we know people don't sleep very well. We know she was very good and better night sleep don't have SBA studies things are beginning to unfold broadly.
And we're offering well being and and alternative and a consistent brand.
Kind of like what America has been about for a long time with land and the brand.
And for 120 years or so so we're happy to play right into that.
And offer an alternative for the consumer that really drive on the economy, which is really going to drive this decade growth story.
Oh, that's great color. Thanks, so much.
Sure.
Your next question comes from the line of Aaron Grey with Alliance Global Partners. Your line is open.
Yeah.
Hi, good evening and thanks for the questions and congrats on the quarter.
And Sir.
So just quickly I know you guys arent, giving guidance, but just to kind of give us a better sense in terms of maybe some store openings you guys might have planned over the next couple of quarters and I know you still have some stores that could open up and states like Pennsylvania, California, you have two more 40 could open up some more and as long as on and why so just if you can give us any.
In terms of planned store openings, you might have I think would be helpful. Thanks.
Sure. Thanks, Sarah and yes, sure. We can give you a little more color. There. So 54 open the day three that have opened this year stepping back 19, and said 15 to 20 minutes <unk>, Inc.
And in 2020, we opened 11 with some Remodels Remodels and really drive business. Obviously, those same site for medical and adult use effectively and new store, but its remodel job added to the cash.
And I mentioned, the acquisition and Connecticut, So 2021 and three opened so far this year is Pasadena Paramus.
And one in Pennsylvania.
And there are more of the pipeline actually it's you know I don't like.
Not giving guidance, but as things a line here, we can get one maybe two more opened this quarter or April we got cookies and the pipeline that second quarter situation and Vegas and look people are going to cut back. The Vegas. If you believe the flight numbers now and vaccine penetration and tourism and things like that so were pumped about that.
And there's more to go you mentioned a few of the states. There's a third store in New Jersey.
And so there's another store in Illinois.
Our Pennsylvania, Nevada.
So it's like we're we're not Max were going on.
And where we have access and product will open a store to serve the consumer.
All right great. Thanks, I appreciate that color and then second one for me and you guys talked about some investments you made and the management bench. So you had a little bit less SG&A leverage this quarter than you had some prior so just want to get a better sense of where you feel you are today in terms of additional and Benjamin investments seen on best.
And a side and how.
Do you expect maybe incremental SG&A as you go forward because you guys have a pretty frothy EBITDA margins you mentioned some of your expectations on the on the gross margin side. So would love to get your perspective on in terms of where you feel like your standard on the SG&A side. Thanks.
And this is Anthony good question, so you're exactly right, but we're going to continue to invest and the team and it's across the board.
At all levels right. So we.
One of the things that we're doing now.
Are better capitalized and we have a solid business that is producing nice cash flow is we now have the luxury to look ahead.
12, 24 months and really see what's coming and prepare for it.
And learn from the mistakes, where candidly, we may not and as well staffed and we could have been that would have allowed us to take greater advantage of and opportunity within the market.
In terms of where margins will go in terms of the SG&A line again, it's really hard to say.
But you know I would expect that the gross SG&A number will continue to grow and then how fast and grows we'll sit back and we will throttle it up or down depending on.
And how quickly we anticipate kind of future revenue and hitting the P&L and that's one of the things that we do on a on a regular basis is just make sure that were constant level setting and stepping on the gas were hitting on hitting the brakes on and as needed basis.
Alright, great. Thanks.
Your next question comes from the line of Andrew parts and now with G. M. P. Your line is open.
Yeah.
Thanks for taking my questions and congrats on another great quarter.
Thank you Andrew.
Maybe just talking about.
You know the production expansions that you guys said, you pulled forward and Q4 and and.
And you know obviously you guys are not going to give guidance, but.
Could you talk a little bit about you know what states those were in and for 2020 one.
Would your priorities be both near term and and both and and maybe in the second half of the year in terms of production expansions on on a state basis.
Yeah.
Sure Thanks, Andrew and it's been I could start.
I would say if you look at on a map, which I'm doing and you look east of the Mississippi, you got a lot of people and a lot of markets that are underpenetrated, where our licenses are with first mover and access to consumers, whereas medical and it's potentially going to adult users already adult use and that's a real per $1.
And so to give you the state names and it's not that hard to see what where we are but Illinois, Ohio, Pennsylvania, New Jersey, Maryland, and Connecticut, New York, Massachusetts.
And as every single state interest, Mississippi, where we're operating and currently and we're very focused on what else happens around the country.
And then we're not to head down.
Michelle.
And then maybe just switching gears.
Stimulus checks are gonna be in People's pockets soon.
And last year, we saw that that quota.
Trigger and increased spending on cannabis.
How should we think about it this time around you know there's.
There's potentially more supply and the market now that things have progressed since last year, but at the same time.
There is a little bit of a reopening or reducing of restrictions.
And.
So how should we think about that you know how consumers might be spending their stimulus checks and the near term.
Yeah I mean.
Literally it's as simple as theyre going to buy more wheat.
And it's nice that the markets have more supply because businesses will grow.
Alright.
It's a pretty straightforward and thanks for that.
No problem.
Your next question comes from the line of Graeme Kreindler with eight capital your line is open.
Hi, good afternoon, and thank you for taking my on my question on just a follow up on that previous question. There you know the dynamics between the stimulus checks and states reopening on.
Some others are.
Easing the restrictions and I'm, just wondering layering that on with some commentary from from peers about we're seeing some seasonality or potential for some seasonality.
And the industries and patterns, there I'm wondering what that looks like.
And how all those forces are are acting against one another with respect to what it's looked like for you guys and Q1 to day. Thank you very much.
Yeah I mean.
On the 20th was a strong year.
The first quarter like we sort of talked about we were able to pull forward and consumer trends.
Our from me to really say.
February and had a lot of snow and nobody can miss sizing and he goes and just look at what happened and the country, but.
I can't really comment on any sort of trend, we think demand is strong and getting stronger and basically what I strongly urge you to do or anybody really is just look at the state revenue by state and then the population and understand what's going on there.
And we're bullish.
Understood. Thank you.
Your next question comes from the line of Scott Fortune with Roth Capital Partners. Your line is open.
Thanks for the questions one and go back to your whiteboard there've been or thoughts on third party brands strategy, you seem to be adding leaders and and the brand states with cookies and rethink can.
Can you provide a little more color or on your partnerships are kind of the strategy.
There and big picture long term to partner with or J D U K and some of the larger CPG brands out there potentially.
Sure. Thanks, Scott Yeah, we're really just studying the consumer and what spreads and I know you don't want to be around and learning all the time from who's having success and what's going on.
And so it's a mixture of building our own learning from what's out there expanding the portfolio and form factors.
They'll buy decision every day.
And I sort of things at the core.
Others are going to resonate with a product that is branded.
It's the most simple sort of thing to say, but it really is an important idea that drives us that's been part of the business thesis since 2014.
Got it and then just real quick color on Florida.
And there are you seeing more supply competition come and aboard I know, you're not allocating much down there do you see it as an important state and even though you haven't and allocated bites there how do you look at Florida.
Yeah.
And people is very important and we like the market a lot and <unk>.
And where there was limited high cost of capital and it didn't make a lot of sense.
So you have some argument and may not hold much water.
Got it thank you.
Thanks Scott.
Your next question comes from the line of Andrew simple with Echelon capital markets. Your line is open.
Good afternoon, everyone and congrats on yet another solid quarter.
Thanks and.
Given the given the bigger war chest.
You guys put it.
I'd like to get your updated commentary on M&A and.
Has there been any change to the criteria you will employ going forward.
Or any states that are now standing out that maybe haven't in the past.
And are you seeing any movements a meaningful movement on private market valuations.
And given what we've seen and the public markets over the past couple of months.
Yeah.
Sure I'll take it.
And then.
Yeah, I think I've already said it but.
Everything's on the table that makes sense.
And we are studying everything going on especially in the U S bar from the capital remains very high.
But there's a lot of dynamic pricing and capital and different things.
How does it fit into the overall thesis and does it help us distribute brands and scale, who are the people and somebody else mentioned integration very underestimated skill and lift and this industry and we're proud of where we are with funding and Ti right now.
Uh huh.
So.
We're here, we're watching and it's the exact same lens that I keep mentioning which is a good for shareholders and drive the thesis is it crazy exciting for us and on the.
And several other proprietary matrices that we brought on.
Great Thanks for that.
And if I could maybe just go back to the partnership agreement with can.
And just wanted to clarify is cannabis beverage is completely incremental to your existing product portfolio and are you seeing anything on the ground that would suggest that consumers are going to respond.
Favorably to this to this.
This new format.
Produce.
Yeah, I mean, two yeses are totally incremental and it's really a new consumer entry form factor comfort dosage.
And as a glass of wine on the other day replacement.
This is the way forward placement. This is the weekend you know out and about.
Sales of medical products and one on the medical product businesses different right. We're talking about a different consumer different use case and that sort of thing.
And I don't think we would be behind us as much as we are unless we thought that there was adoption and that there was interest and something that's going to happen here.
Great and that's again.
Thanks, Andrew.
Okay.
Your next question comes from the line of Glenn Mattson with Ladenburg Thalmann. Your line is open hi.
Thanks for taking the questions and great quarter. So you know most of my questions have been asked at this point so.
Digging a little bit from the bottom of the well, but maybe a living up they just new store opening and California.
And in essence stores and you just remind us kind of like what the <unk>.
Strategy is for having multiple brands on the retail front and I can understand them on the on the CPG side, but.
And kind of the high level differences between the two stores and whether or not and you will consolidate those at some point.
Yeah I mean.
And all the best consumer experience and that's once and Vegas.
This was a license that out and application and things in California are incredibly tricky that's attached to and it was one on one of the more tricky stores to open that we've been a partner with 54.
But it's the same promise, we win with service and selection and treat people extremely well and we've been.
Mistakes and we move on.
So we expect to win there.
And and see what happens and like I said, it's a learning thing and I couldn't tell you exactly what the path is going to be up and we're excited and it's right on Colorado and it's a good location and a market that doesn't have a lot of licenses being Pasadena, and a market where the consumer knows the products to keep us honest and we're excited about the opportunity there.
Yeah.
Alright.
And if my math is correct me I think you had a license for consumption lounge as well is that right.
Any plans to move ahead with that and.
And anything on that front.
Youre, correct and still evaluating diligence location and Theres lots of challenges like I said passed and it was on one of the trickier ones out there.
And I think in terms of on Prem.
And labs across the country.
And I think probably on a year from now and we sit here and 2022, there will be more sites across more states at the first one is opening and Illinois, not ours, but I saw a headline earlier and that will continue to evolve right and this is the unknown and this is the great American experiment is what we do invest and innovate and I think on Prem and assumption.
Will exist.
Great. Thanks, Ben.
Sure. Thanks.
Your next question comes from the line of Matt Bottomley with Canaccord Genuity. Your line is open.
Good evening, everyone. Congrats on the quarter just wanted to pivot back to New Jersey, one of the sort of inbound questions I get a lot from investors and it sort of how to handicap or or line up the rather limited licensed et cetera are there already and still about about 12 operators, there and given the retail infrastructure versus the <unk>.
<unk> is still quite modest that even from a medical alone standpoint.
Can you give us any color on on what you think the strategic considerations are to get off the ground running there is it having enough capacity built up and advance is it the actual locations and your retail versus your peers and just trying to get.
Some more color on that market whichever and expect at some point and the next six to nine months year to open up.
Sure, Matt and Anthony I'll take that one look I think it's all of the above right you've got a very dense state.
Surrounded by a lot of other markets.
Certainly you need the product open the store.
But at the same time given that the medical program really didn't didn't get off the ground with any real substance and it took a long time and candidates is still a nascent story and when you're sitting down with some of these local local regulators.
And so there's a lot of education and has to take place and these towns and make sure they understand kind of what we do and how we do it and.
So in that regard to try I think you've probably seen I don't Wanna say slowness, but it's taking time for people to kind of operationalize their businesses.
And so for us to say that we're very focused on because what we see the density we see the opportunity and.
And.
Well, it's a heavy lift to get things off the ground.
And we think long term, it's gonna be a fabulous market.
And just a follow up then I guess on a market basis.
One of the markets you guys aren't and that it wouldn't be material to your overall operations and isolation, but but one that has a very favorable infrastructure at.
Arizona. So is that something you guys have considered I know there are.
Multiples for some of these assets have gone up and quite lofty, but again a market that just are opened up for Iraq and noise. That's something you guys have actively been pursuing or a market here and bring it anytime soon.
Hey, Matt and then.
Yeah, we've looked at and we study that we know the operators with respect out there.
Yeah, just just I'll just show you the target I think there are better places for us to put our capital, but if there's something super cheap and super great and they need our brands and our products and it's a great return on invested capital.
You have a phone number.
And that's really the attitude around here, but we think there are for our business and who we are and what we're targeting not on top of the list.
Alright, Thanks, Paul.
Thanks, Matt.
Thanks, everybody for joining moving back with the first quarter results and met.
Bob.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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And.
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