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 we ask.
That you limit yourself to one question and one follow up if you require any further assistance. Please press star zero 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 of 2020 earnings call I'm here today, with the founder and Chief Executive Officer, Dan Hoffler, and Chief Financial Officer.
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.
These risks and uncertainties are detailed in the company's report filed with the United States Securities and Exchange Commission and Canadian Securities Line later, including on a quarterly report and annual report on form 10-K, what can we expect the we filed the Lora.
The sort of work along with today's earnings press release can be found under the investors section of our website.
Based on assumes no obligation to update or revise any forward looking statement to reflect the Bachelor of circumstances that may arise. After the date of this call.
Throughout the discussion I will refer to non-GAAP financial measures, including EBITDA and adjusted operating EBITDA of reconciliation of non-GAAP financial measures to the most directly comparable GAAP measures that are on.
In the press release and have made the emptied out of Ireland. Please note all financial information is provided in the last dollars otherwise at the end base every one of them getting out of balance.
Thanks, John.
Good afternoon.
Thank you for joining our fourth quarter and year end 2020 earnings call one of.
A year.
Well, we've kicked off of 2021.
With the incredible optimism I'd be remiss not to acknowledge the test 2020 was on 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 job creation is meaningful.
And community benefit from Canada tax dollars.
2020 was also of the test of adaptability as America's it's found new ways of living and learning.
And the businesses across the country Green thumb included even weighted rapidly to meet customer needs in a dynamic marketplace.
From the first day of 2020, when we kicked off Illinois adult use and nearly every day in between our team was there for our customers when they needed us most.
In 2020, we completed almost 4 million transactions.
That's all of million one on one consumer interaction.
That's more than double of 2019.
We opened 11, new stores last year, plus several remodels of expansions.
We acquired a third story on kinetic.
And I've already started on 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.
To support our growth.
Hiring throughout the pandemic.
With <unk> hundreds of people joining the team in 2020.
All of the while our commitment to our communities remains steadfast.
We have several active programs and partnerships.
One example is the dog walkers animal rescue the shelter support funded by purchases of dog walkers brand pre rolls.
We also have a program, where we dominate our first day of profit to community organizations with each day dispensary openings.
We're thankful for the support of partners like community shelter services in Erie, Pennsylvania.
All of the rights coalition and restoration of 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 as a new industry unfolds.
And it is my special privilege to say 2020 was a very productive year of delivered outstanding results for our shareholders.
And more candidates the more people across the country.
Fourth quarter revenue increased 13% over third quarter of $177 million and for the full year reached 557 million more than double of 2019.
For those of you on the call that we met along our road show in May of 2018, we estimated back then that our 2020 of revenue would be just under $400 million.
So we are pleased with over $550 million.
We delivered $22 million of positive GAAP net income in the quarter and achieved our second consecutive quarter of positive EPS of 11 cents in the fourth quarter more than double Q3.
Increased scale of operating leverage from expanding production capacity drove 66 million of adjusted operating EBITDA of 26% above third quarter.
And stepping back fourth quarter to fourth quarter, we grew revenue of $100 million on the core business were 134%.
We grew EBITDA of $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. Cannabis remains strong and we are pleased to be riding the waves.
We are still let me early innings of the Great American candidates growth story.
As the consumer social capital and political landscape line up for change.
The political stage of set for action with the New administration is committed to advancing comprehensive cannabis reform.
In the capital markets, there was over $1 billion range across U S operators in just January alone.
At Green Zone, we remain focused on driving down our cost of capital and the start the year, we completed our U S IPO and sale of the SEC registered shares directly in the U S investors.
This is an important milestone and review of the one step closer of the listing on a major U S exchange.
Giving us equal footing to our Canadian peers.
We completed the financing without any fees, so gross equals net and of $156 million go straight to the balance sheet.
This transaction was a big win for two reasons.
Our shareholders.
And the industry.
For shareholders, it's dry powder of green thumb to invest and capitalize on high return growth opportunities and drive shareholder value.
And for the industry, we see that the 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 Greenway unfolds.
We believe what is happening in the Illinois.
With over $1 billion in year, one adult use sales and nearly $200 million of tax revenue.
It's actually a preview of what's the 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. The alcohol. This February the lines Cross, Illinois candidates contributes more tax dollars of Illinois alcohol.
More growth of Illinois candidates that the Illinois alcohol ahead.
The momentum in markets like Connecticut, New Jersey, New York, and Pennsylvania makes sense.
Because there are a lot of consumers, who live there that want a lot of candidates.
As of the details of these programs are worked out we hope the lessons from the Illinois adult use rollout of our noted.
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 dreams on wants to help make that happen.
At Green Dot, we're actively studying planning and building our boat because as.
As I hope you can see by now the tidal wave is real.
We opened our first California store in Pasadena, This month, giving us firsthand experience inside of the countries pioneering cannabis market.
Some of the recently announced partnership we're spending at the California. The number one cannabis beverage can by bringing into the Illinois. This spring.
This is an entirely familiar format sparkling beverages, yet totally untapped and candidates.
We're excited to the best in the nation, leading cannabis beverage and the introducing 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 an incredible smoothed berry instead of an ambien.
The Doctor Solomon rescue lotion, instead of icy hot.
Of all hit a rhythm brownie scout instead of the center.
If you go past the deal instead of the wind 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 start of it all and a proven track record of doing what we say we will do.
Theres no exact blueprint for how the world the country or the industry will evolve in a new post Covid world.
But the American consumer guides us and the Green thumb team remains of energized as ever to serve them.
With that I'll turn the call over to Anthony dig into our financial results for the fourth quarter and full year Anthony.
Thanks, Dan and good.
Afternoon, everyone.
As you just heard we're incredibly proud of what the team accomplished in the fourth quarter and throughout 2020.
In addition to generating record revenue and profitability the team showed tremendous growth.
None of the accomplishments of the last year would have been possible without the hard work dedication and personal sacrifice of every member of the Green thumb family.
And while the successes of 2020 were significant we remain steadfast and focused as ever on the future.
But we will get to that later.
For now let's have some form of the numbers starting with the revenue.
In 2019 of the company generated $216 million of revenue.
In 2020 $557 million.
$2 five ex growth in the middle of the pandemic certainly day for an interesting year.
In Q4 alone the company generated $177 million of revenue.
13% increase over Q3, and the $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 than we sold.
For the quarter gross CPG revenue grew by 23 million of 31% over Q3.
On the net basis accounting for intercompany revenue, our quarterly growth approximated 11 million from 25%.
Over in 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% retail 45% of CPG.
On the net basis, 68% retail 32% CPG.
It's exciting to see the impact of our Capex dollars of work as our CPG and retail revenue ratio continues to tilt towards CPG.
As a reminder of the difference between gross and net of intercompany revenue, which approximated $42 million in Q4 and $30 million in Q3.
The company's robust revenue performance is the result of the following.
Number one more of legal consumption.
Man is big and growing.
Quality product our goal from day, one has been to produce and sell great cannabis products products that we ourselves one of the purchase.
Last execution.
We cultivate we manufacture we retail.
The fundamentals of this business are similar to any of them.
Pushed our team to consistently choose simple over complex.
Yeah.
Turning to profitability. The company continues to perform posting gross margins for the quarter in the year in the mid fifties and.
In fact Q4 was a record of 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 from the quarter approximated 53 million or 30% of revenue.
Excluding D&A and stock based comp normalized the operating cost totaled $38 million compared with $34 million last quarter.
While operating leverage didn't quite have the verdict cavity as it did the previous quarters, we have made a conscious effort to deepen the company's 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 common for everything about in Q4 of the company generated over $65 million and adjusted operating EBITDA close to 37% of revenue.
It also produced just shy of $51 million of pretax income of <unk>.
$2 million and net income.
This provided great them with the second consecutive quarter of positive EPS.
In terms of share of nice increase over the four cents from reported in Q3.
For its fiscal year 2020 of the company generated approximately $180 million and adjusted operating EBITDA of six.
The times more than the 28 million we generated in 2019.
In summary.
2019 to 'twenty 'twenty the.
Company 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 million of cash and continue to keep a tight leash on the company's working capital notwithstanding the tremendous growth.
Subsequent to quarter end, we raised 156 million of additional equity capital.
Which none of US. It's notable about the range was first of self conducted meaning we did not use an intermediary.
As Dennis the sync, we said gross equals net.
Secondly, the equity we sold was registered with the S E C.
The February the FCC deemed our S. One affected major accomplishments of the industry.
On our public float over 80% of our shares are freely trading.
We continue to believe the liquidity breeds confidence.
Net net we are extremely proud of our Q4 of 2020 financial results.
During our last call I indicated the 2021 would be a year, where many things we changed many would stay the same.
Simple principles, such as the leading with the consumer focused drive excellence market optimization prudent capital allocation.
Investing in the team and playing to win will remain our North star.
The only difference is we know the well stock word chest.
And with that war chest, we not only plan to build the bigger boat.
But normal.
In closing I'll leave you with the quote from the Oracle of the law.
Every decade, or so dark cloud that will still the economic skies and they will briefly rainbow.
Downpours of that sort of occur it's imperative that we rush outdoors carrying washed hubs not to students.
That is what we would do.
And then there's how did your store we call the prohibition to point out we are going to bring other people along with us to take advantage of the greatest economic the cultural opportunity of our generation has ever seen.
Back to you then.
Yeah.
Thanks Anthony.
So the dynamic comments from the CFO of I appreciate it.
This is our third year end the call since we went public in 2018 and when I look back at what our team has accomplished in the short period of time.
And both humbled and grateful.
We have built a very strong foundation to continue our growth trajectory.
That's the only part of the Green thumb story.
Each day, the new day of Green thumb, how do we expand access to well being.
Served our customers of 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 the international women's month.
I want to give a special shout out to the women on the green thumb team on <unk>.
Day the.
Greenest day of the year.
And for me personally.
I feel lucky to be part of the team in the industry.
Still have a lot to learn and I expect and hope will continue to have a lot of learning.
From the consumer perspective, the cannabis industry product and access.
Only improves.
That means the 2021 is a new beginning for all of us.
We wake up every day here energized by that idea.
It's still day one.
Operator, we will now open up the line to take questions.
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 seat.
CPG business the the sequential increase in revenue in this quarter was impressive given the most of your production assets would've been operational for most of the third quarter.
I think your big cultivation project. This year don't really become operational until later on later in the year. So the question is would the increases in production of business efficiency be enough to sustain your CPG revenue growth in the first half or does that become more muted until later in the year.
Hey, Matt This is Anthony I'll I'll take that one so the team did an excellent job of bringing forward some of the some of the future CPG revenue that we had projected.
The construction projects ended early we've got the plants plant in early and then subsequently we're able to get net revenue slowed from 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 Capex I didn't hear anything with regard to of Capex planned for the year I think he spent around $100 million in 2019 and I'm not sure at the very end of the year was for for this year, but it was around probably 100 1000 'twenty how does that look for next year and.
Rather this year and would you.
Expecting you sale leasebacks or would that primarily come from the the cash that you raised and cash from ops.
In 'twenty one.
Excellent question, Hey, Matt its Ben.
Yeah, I think you're right to focus on that because I think the spend is the leading indicator of whats the comments we tried to.
Sort of continue the preview of over the last 18 months or so as we turned on and some of things in 2020.
Youre exactly right 110th of one point on the Capex and see that tomorrow.
With the filing of the K and I would say really of in 2020, one we're going to go bigger in 2020.
It's a little hard to handicap exactly what's going to happen on where we'll continue to try to 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 the money.
And what that's looking like it's the changing curve, it's not static and.
An asset for a long period of time at a fixed rate much higher you no longer own is not as attractive win additional mortgage.
Is available on.
Or debt range as we've talked about are going down so everything we look at it the lens of shareholder value and you know it.
We wouldn't.
The spend more than we need to have the money we need to execute the plan, we're obsessed with driving down cost of capitals and were pumped about 2021.
Yeah.
Your next question comes from the line of Camilo Lyon with <unk>. Your line is open.
The.
Thanks, and good afternoon, everyone great job on the quarter.
Thanks.
2020 years of fantastic year for your gross.
Margin expansion that really continued obviously here in the fourth quarter.
Can you give us from attaching to the key drivers of all of that margin expansion in the fourth quarter and how we should think about those influencers into 2020, one, particularly on the price. These guide and your expectations for that input.
H B O Anthony here so.
Look, yes, obviously incredible year on the gross margin front, we saw a nice gross margin expansion I think of the biggest driver of this operating leverage, particularly on the wholesale side of the business you know the <unk>.
Retail gross margins relatively static.
Depending on the market depending on the time of.
What you really saw throughout the year was we grew into the facilities that we built out and as the teams you know effectively operate longer where we become more efficient and it's one of the things that we focus.
We felt we saw on daily is it's just continuous improvement.
It's hard to of a crystal ball to see where that kind of goes in the future.
No.
Do I expect the margins to stay where they are it's it's really tough to say and that's why internally, we really focused on keeping.
Keeping that number at or above 50%. If we can do that in 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 of the benchmark that we tie ourselves to.
Got it.
Then my second question is on the cultivation side.
Really from the understanding where you're at in New York and the build out of the new facility.
On that.
He broke ground on and Woolrich or like New York and also just an update on the progress of the New Jersey, Pennsylvania the leads.
That you just started carrying on some of your own the rhythm product in your stores. So any update on on those to.
Assets and their ability to start to supply them here on the stores would be fantastic.
Hey, great. Thanks.
Thanks for the questions. Good question I'll take the Europe is very very early on in a.
A lot of action to come there.
The day to day news cycle there.
And at the highest of the high levels of New York has a lot of people that live there and then very immature early medical market.
Astronomically shop.
So on so we're thinking long term not thinking next quarter or even next year of building a business of 23 of 24 of 25 sort of U S. Cannabis.
I think we're excited about where that's headed the Jersey Youre exactly right.
Net and shine on the shelf.
Medical only market right now as the rules come out of it gets for them.
We're excited to be able to launch rhythm, which is the higher quality of premium product grades of the patients and as we have more of it we'll be able to get all around the state and really hopefully satisfy those that are interested in premium cannabis flower.
That's what we're about and I think we do a pretty good job, but we're going to let the consumer tells us.
And in terms of just the scale of their separate enough and so youre just going to be tight on supply for a while.
Some people have a little more of them of a little more.
It's a dense market up there in northern New Jersey for us, but we found the way to invest capital into the facility that can produce the kind of flower, we need and other products as we've talked about particularly on the rec, even though the rules are fully out I don't want of jumped the gun, we think there'll be a expanded access of different form factors of product.
We're excited to be in that market.
A J I think thinks of the color good luck.
Thank you.
Your next question comes from the line of Vivien <unk> with Cowen Your line is open.
Hi, Thanks very much for the question somebody first of on can you know recognizing the debt the.
Average category broadly on it it still Nathan in the U S. I was hoping that you could kind of articulate the rollout plan you called out you know of Illinois and beyond when you announced the agreement where should we expect to see beverages in Illinois, and other states in 2021, and as well can you on potentially articulate.
Like how we on you should think about the P&L impact. Thanks.
Sure David.
So the the last question I don't think it would be of major P&L impact I think it's from a major consumer impact.
The this is a new form factor into the market that is 100% of 99% plus off Prem.
All of us based off premises.
Slowly in the world, but the U S. We're really of ball.
And beyond means the east coast markets that are of adult use where we can target. This product certainly new Jersey, we don't have the rules yet.
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 of exactly.
Concept of simply said the sharing of the gummy, but the friend does not as familiar of sharing.
Awesome sparkling beverages. It just takes so refreshing of the sudden you want a few of them and then youre not overconsuming.
On the key factor here on this form factor and dosages of 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 of the market is new but we'll be watching the study that we want to come with the best brand and the product differentiated the has huge momentum because everybody to try it seems to love it.
Yeah that sounds that sounds great.
On your attractive product indeed on my follow up question is on your same store sales growth on which looks sort of decelerated sequentially. It was the it was very high.
In the third quarter and since I'm. The deceleration is not necessarily unexpected, but if you could expand on that please I'd appreciate it. Thanks.
Yeah, She said decelerated.
Yeah I believe your same store sales growth was 18% last quarter on the 40 to 42 store base and the first quarter. It was six on 48.
Yeah, like 6500, 60, yeah, I wouldn't read much into that as the bigger base more is coming on to the base certainly like as you anticipated and if you're modeling the first quarter of Illinois of lapping, Illinois do not on the step up that you did on the big base like last year, just anticipating how this works, but the the boxes are good there's a lot of demand from the products.
And again, the best leading indicator of the state data, but it's pretty transparent on the 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.
Your next question comes from the line of Eric The 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 in the space integration is a vital yet often overlooked aspect of the industry.
And recently, we've been seeing and hearing reviews of improving flower quality from rhythm.
You know obviously investors are seeing a continual improvement in your financial results. So.
Can you talk a bit more about your one GTI strategy.
How do you seek to drive continuous improvement at GTI, you know, whether it's financials or our product quality and sort of how you expect that to.
To maintain your leadership position going forward here.
Thanks, Eric I appreciate the kind words.
Yes, seeing over the ear, telling some momentum on the rhythm of flowers.
The growth team pretty sites of the whole team.
That's what this is all about the two things you said the team.
And what the team can deliver for the consumer which is the product and that product of the recent experience.
And if we can deliver that experience everywhere and get consistency and elevated.
We win.
We believe in the product.
What are the things that it can offer wellbeing to consumers across America, and we're sticking to the playbook.
And then he said you know what when in doubt too simple.
And so we're learning.
We're focusing on refining.
Do not have the right not the perfect mix.
But we're in a unique position and.
We get we get some of the product right.
Things tend to happen because it's all about the consumer and that experience.
So hopefully that answers your question.
Yeah, that's definitely helpful things of that and then just as a follow up.
So from an investor's point of view, we've certainly seen the impact of the.
Depth over breadth within markets.
And you guys have clearly demonstrated.
Some leading capital allocation scale can.
Can you talk about any insights that you guys have gained over the past months or years, how your capital allocation strategy.
Has potentially evolved.
And then with these two large range this year to date and now reports of safe banking being reintroduced tomorrow.
How might that capital allocation strategy change with increased access the capital markets.
Yeah, I mean, the short answer is no change the same game.
I mean, you know we're investing on behalf of shareholders is created.
Great returns.
The branch distributed at scale is how to win with great brands that resonate with consumers.
Can build those brands across the market. So we said at the same table, we have the same conversation.
And there could be an extra zero debt.
It would be the different state, but we have a team that can handle it now not the perfect, but it's a.
Different kind of the game, you're sitting on and reallocating the capital of driving the returns that you can believe in the spend.
The six seven years.
When we made plenty of mistakes in the traffic things take twice in the we do would make it less expenses.
But that's what we're up to and it continues to be in the $1 of $32.
And as a growth business as the cheap price. So it's like a $52 and we're pumped about the game, but we're not gonna like true.
So every of our 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 they are interested and we just want to be part of the experience of opening this up for folks as they have alternatives.
Yeah.
Your next question comes from the line of Pablo the Swanwick with Cantor Fitzgerald. Your line is open.
Thank you Dennis.
It's a bit of it maybe a philosophical question on but theres more to more of the missiles, providing guidance on some of them with a lot of detail because that's on.
You were thinking of doing or you don't see value for you guys to do that thanks.
Thanks Pablo.
The spin out around the hearing the trends of watching people talk about pro forma and the deals break.
His guidance been helpful for you.
The investment community, it's very hard to handicap when these things open and how they go.
We're trying to be as transparent as possible about the business, where there's growth and.
What's happening until the best leading indicators of the business and the really the best guidance the Spanish.
As transparent as possible about that because that's going to drive the business and the market is high level, where there's more demand than supply and as that evolves what that capex is doing to reported by the moat drive down 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.
On how that works or what's kind of happened 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 of Messi com.
That's true and then just the second one.
Other companies are talking about making contingency plans of having contingency plans for the oil instead of Interstate trade in the future I know again, that's very hard to predict if the will ever happen and when it will happen.
How does that corner of your plan. So we're expanding capacity in the New York, New Jersey, New Jersey, or the Pennsylvania, what he does not at all on you just go after the opportunity in those states pretty much state by state.
Thanks.
It's certainly a factor at the tables were focused on allocating capital to build the brands.
And we studied the map of law.
And we're watching what's happening.
Not big Interstate is coming tomorrow, I'd be surprised but I think the business will be in great shape.
The thing that many missed with this question when it comes up all the time is what else would be happening in the game gifts that were to occur.
That's an interesting thought exercise on the whiteboard for folks.
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 what 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 as Anthony said to the team all the time expect the unexpected.
So therefore, it is that the like the way to play or not and I think this week alone.
Look what's happening with New York look what's potentially happening Congress of D C.
There is action and the like we said in the remarks, we're prepared for it we can change is happening.
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 of how to ask the question, but take a state where you're building cultivation. How many years does it take to get your the turn your dollar return on that.
And I ask that in the context of Interstate commerce and that's.
It's five years down the road, where you have gotten the payback on those assets you're putting on the ground.
Yeah, that's sort of if there were not worried if you're spending the money we're spending to be sure that whatever happens we're going to be good as the core answer because that's the thought of a lot but zooming out.
Sure.
Between permitting and getting set up and we've talked about at the highest level of six months the build in six months to grow to be six 810 months, depending on which jurisdiction or sooner.
The plants can be sped up or slowed down they are what they are of as we on the role that and then you can make some assumptions on prices based on the market to figure out the returns on.
And the yields but.
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.
I think we continue to execute well, there's always room for improvement, but if.
We execute with the dollar of the terms of great fantastic, but raising the cash of one ex right. The dollars of dollar and investing in for the EBITDA that that dollar creates of 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.
The mask question like the Capex is the situation and the.
Then, it's why because the demand curve and its around it around we go and the consumer loves the product. So that's the whole deal here.
And then if I can just ask another one how important is a couple of markets component to the safety of fact.
I appreciate the access of the financial system on all of the safe brings it but there's another element that I think it's also important so just curious of how important the better.
I think you said the Howard I'm sure the.
Our board of the capital markets of 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.
Switch exchanges.
I mean theres upside.
The.
Way, we run the business as sort of day Optionality machine.
And so we're fine with the way it is now and if things get better it will be better if the cost of capital goes from where it was in the rearview mirror, which was a double digit rate with warrants for the sale leasebacks with double digit rates to where it's going to be very soon which is single digit.
The 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 but.
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 lead the industry with lowest cost of capital that's really the way to win over several cycles on several different industries.
The changes in this passes and the things on the nuance on you know probably better than I do all of the sausage is made and the details of which we do not have a lot of engine, but when you do a vegan as optimizing with the facts on the table. So if capital markets open up in Safeway and leading position to list on the U S exchange, whereas you see registered and we saw.
The stock the U S.
GAAP, where here we are ready but.
But it's not my talks on Anthonys call, so what sort of playing the system and we're just putting ourselves in a position like I said, the Optionality maximization machine.
And that's what we're doing.
Appreciate the time 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.
Can you give us an update on your strategy in California, you've obviously, you just open the store there.
Just maybe some of what your enthusiasm is in terms of seeing that market improve or what its outlook is and.
And just whats helped us the commerce and what to expect looking ahead.
Sure.
Kind of summarized the California strategy of one word I would say is learning.
Were there to get smarter.
I've said before my way of California's of the best way to lose money in Canada, and I say that affectionately so all of the people that of lost money there, but it's a tough sell.
I don't want of swim upstream of the hardest poker table or anything like that I like when the odds of R&R favorites.
But theres a lots of learning there's a lot of respect for what's happened out there from the players are and what goes on it would be foolish of us sort of ignore but I don't mean to allocate a lot of money. If we don't think of it can turn into you know.
More.
But I think product you said pioneering in the prepared remarks innovation chat on its kind of everywhere branding consumer.
Consumer trends, whether its candidates or otherwise are a really important than we'd liked.
What we're doing there in order to position ourselves like I mentioned on the last question with the Optionality, It's really the whole strategy everywhere as Optionality. So we think we're on a pretty good position there.
To watch and learn and get better and you know at the right time to take advantage of our shareholders.
If it makes sense.
Okay. That's helpful.
Just on the consumer can you give a sense of.
How much youre seeing.
Turning behind the brand equity, which brands, maybe stand out more than others or.
Anything that helps you in the.
The markets that are new or Scott.
Couple of sale in California, but just you know maybe pushing that further or.
How to think about the traction behind the brands and how sticky it can be.
Yeah, just broadly brands on the country I mean, the same exact thing we've been saying this is an honest and system products I mean before you get on the marketing campaign and the colors of everything just true people able to do it at the gross national launch here recently.
Availability simply having consistent product that they were all as of mobsters feet.
That's how you can build the Brent.
That is good.
But if one day, but somebody said the while the spread is the orange I'm really going to work so well.
So 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 the use case foreign factor happy healthy comfortable in the deck.
That's the game, it's like not more complicated than that and the consumer sort of everybody here around I'm around multi generational.
Suburban rural urban and.
And from all walks of life, who are curious about on alternatives for this.
So.
That's what we do and.
We can then get pretty instant feedback on what brands are working on them you know what might not resonate.
But we can tell right away and then somebody else consumers are loving rhythm of Brian Scott, but winter.
They don't loving incredible winter and we can tell that we know that that's happening we know people don't sleep very well. We know she was very good of a better night sleep you don't have the SBA studies things are beginning to unfold broadly.
We're offering wellbeing of an alternative to the consistent brand.
Kind of like what America has been about for a long time land of the brand.
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.
Hi, good evening and thanks for the questions and congrats on the quarter.
Sure.
So just quickly I know you guys arent, giving guidance, but just the 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. I know you still have some storage of could open up in the states like Pennsylvania, California, you have two more 40 could open up some more of it as long as on the white. So just if you can give us any.
In terms of planned store openings, you might have I think it'd be helpful. Thanks.
Sure. Thanks, Sharon Yes, sure we can give you a little more color. There. So 54 over the day three that have opened this year stepping back 19, you said 15 to 20 of it at <unk>, Inc. In 2020 of your opened 11 of some remodels. The Remodels can really drive business. Obviously, the same site for medical and adult use effectively of new store, but it's the remodel job of added to the cash.
I mentioned the acquisition, Connecticut, So 2021 three of them and 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 giving guidance, but as things. The line here. We can get one maybe two more opened this quarter or April we got cookies in the pipeline that the second quarter situation in Vegas, and look people are going to cut back. The biggest if you believe the flight numbers now and vaccine penetration tourism and things like that sort of pumped about that.
And there's more to go you mentioned a few of the states of the third store in New Jersey.
Uh huh.
On the store in Illinois.
Pennsylvania, Nevada.
So it's like we're we're not Max we're going on where.
We have access of product will open the store to serve the consumer.
Alright, great. Thanks, I appreciate that color and then second one for me I know you guys talked about some investments you made in the management bench. So you had a little bit less SG&A leverage this quarter than you had some prior so just wanted to get a better sense of where you feel you are today in terms of additional investment investments on the SG&A.
Syed and how.
The two expect maybe incremental SG&A as you go forward because of 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.
Hey, Ryan This is Anthony good question, so you're exactly right, but we're going to continue to invest in 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 we have a solid business that is producing nice cash flow.
We now have the luxury to look ahead.
12, 24 months to really see what's coming and prepare for it.
And learn from the mistakes, where candidly we may not have been as well as fast as we could have been that would have allowed us to take greater advantage of an opportunity within the market.
Of where margins will go in terms of the SG&A line again, it's really hard to say.
But I would expect that the gross SG&A number will continue to grow and then how fast. It grows we'll sit back and we will throttle it up or down depending on.
How quickly we anticipate kind of future revenue hitting the P&L. That's one of the things that we do on a on a regular basis is just make sure that were constant level of setting and stepping on the gas or hitting on the hitting the brakes are on an as needed basis.
Alright, great. Thanks.
Your next question comes from the line of Andrew parts of now with G. M. P. Your line is open.
Yes.
Thanks for taking my questions and congrats on another great quarter.
Thank you Andrew.
Maybe just talking about the you know.
The production expansions that you guys said you pulled forward in Q4.
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 2021.
What would your priorities be both near term and and bolt on and maybe in the second half of the year in terms of production expansions on on the state basis.
Sure. Thanks, Andrew It's Ben I can start.
I would say if you look at the map.
I'm doing and you look east of the Mississippi, you got a lot of people on a lot of markets that are underpenetrated, where our licenses or was the first mover and access to consumers, whether it's medical it's potentially going to adult users already of adult use and that's the report of our dollars.
So to give you the state names I mean, it's not that hard to see what where we are but Illinois, Ohio, Pennsylvania, New Jersey, Maryland, Connecticut, New York, Massachusetts.
I mean, it's every single states east of the Mississippi, where we're operating in currently and we're very focused on what else happens around the country.
Although we're not to head down.
The missile.
And then maybe just switching gears.
No I think stimulus checks are going to be in People's pockets. Soon last year, we saw that that sort of.
You know triggered increased spending on cannabis.
How should we think about it this time around you know there's.
There's potentially more supply in the market now that things have progressed since last year, but at the same time.
There is the little bit of a reopening or reducing of restrictions.
So how should we think about the you know how consumers might be spending the stimulus checks in the near term.
Yeah.
Literally it's as simple as theyre going to buy more wheat.
It's nice that the market has had more supply because.
Businesses will grow.
Alright.
It's a pretty straightforward 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 question just a follow up on that previous question. There you know the dynamics between the stimulus checks on states reopening on.
Some of those.
Easing the restrictions I am just wondering layering that on with some commentary from from peers about we're seeing some seasonality of potential for some seasonality.
Within the industry some patterns there I'm wondering what that looks like.
How all of those forces are are acting against one another with respect to what it's looked like for you guys. In Q1 to date. Thank you very much.
Yeah I mean.
On the 20th was a strong year.
The first quarter like we sort of talked about with the book.
A word of the consumer trends.
Our from me to really say.
February had a lot of snow nobody could miss that he doesn't just look at what happened in the country, but.
I can't really comment on any sort of trend. We think demand is strong and getting stronger 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 question. So one of the Bachelor of Whiteboard, there'd been or thoughts on third party brands true you seem to be adding leaders and the brand states of cookies in the REIT.
The can.
Can you provide a little more color or on your partnerships are kind of the strategy.
They're in Big picture of long term to partner with or gave us kind of some of the larger CPG brands out there potentially.
Sure. Thanks, Scott Yeah, we're really just studying the consumer of what the president of anything you want to be around and learning all the time from who's having success on what's going on so it's a mixture of building our own learning from what's out there expanding the portfolio of the form factors.
So it's a build by the decision every day.
Sort of things at the core as consumers are going to resonate with the product that is branded.
But 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 coming aboard I know, you're not allocating much down there do you see it as an important state even though you haven't allocated by Sir how do you look at Florida.
Yeah, the only a million.
People is very important and we like the market a lot of work.
Where there was limited high cost of capital it didn't make a lot of sense.
So some of argument of may not hold much water.
Yeah.
Okay. 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, Dan.
Given the given the bigger war chest of.
Put it.
Like to get your updated commentary on M&A 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.
Are you seeing any movements meaningful movement on private market valuations given what we've seen them on the public markets over the past couple of months.
Okay.
Sure I'll take it.
Yeah, I think I've already said, 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 the dynamic pricing of the capital in different things.
How does it fit into the overall thesis does it help us distribute breadth and scale of who are the people and somebody else mentioned integration very underestimated skill of the lift in this industry and we're proud of where we are on the UTI right now.
So.
We're here we're watching it on the exact same lens that I keep mentioning which is of good for shareholders on the dry.
Out of the thesis is the crazy exciting for us and on several other proprietary matrices that we run.
Great Thanks for that.
And if I could maybe just go back to the partnership agreement with can.
I just wanted to clarify is cannabis beverages completely incremental to your existing product portfolio and are you seeing anything on the ground that would suggest that consumers are going to respond.
The favorably to this new from.
Sure Matt.
The introduced.
Yeah, I mean true yes.
Totally incremental I think it's really the new consumer entry on factor comfort dosage.
This is the glass of wine.
<unk>.
This is the way forward placement this is the weekend.
And about.
And I'll say the medical products on one of the metal of product business is different right. We're talking about the different consumer of different use case and that sort of thing.
And I don't think of it would be behind us as much as we are unless we thought that there was adoption of them that there was interest in something that's going to happen here.
Great that's again.
The tender.
Yeah.
Your next question comes from the lineup Glenn Mattson with Ladenburg Thalmann. Your line is open.
Hi, Thanks for taking the questions and great quarter. So most of my questions have been asked at this point so dig.
Digging a little bit from the bottom of the well, but maybe a little.
On up they just the new store opening in California.
Being in essence stores can you just remind us kind of like what the strategy is for having the boat brands on the retail front I can understand them on the on the CPG side, but.
Kind of the high level of differences between the two stores and whether or not you'll consolidate those at some point.
Yeah, I mean, we're kind of of the best consumer experience that's once in Vegas.
This was the license of that and application of the things in California are incredibly tricky surpass the N was one of the one of the more tricky stores to open that we've been a part of it was 54.
But it's the same promise when when the service and selection of a treat people extremely well.
The mistakes.
So we expect to win there.
And see what happens on like I said, its the learning thing and I Couldnt tell you exactly what the path is going to be of of we're excited and it's right on Colorado and the good location in the market that doesn't have a lot of licenses being pasadena in the market, where the consumer knows of the products to keep us honest and we're excited about the opportunity there.
Yeah.
Alright.
If I remember correctly I think you had a license of our consumption lounge as well is that the ink.
Any plans to move ahead with that of the.
Anything on that front.
You are correct and still evaluating diligence location theres lots of challenges like I said it was on one of the trickier ones out there.
I think in terms of the on Prem.
On labs across the country.
And I think probably on a year from now on we sit here in 2022, there will be more sites across more states at the first one is opening in the Illinois, not ours, but I saw a headline earlier and that will continue to evolve right. This is the unknown is the gray.
American experiment is what we do invest and innovate and I think on Prem consumption.
Will exist.
Great. Thanks, Brent.
Sure thing.
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 is sort of how to handicap or our line up the rather limited license et cetera are there already know about the about 12 of operators there.
And given the retail infrastructure versus the population, it's still quite modest debt even from a medical alone standpoint can.
Can you give us any color on on what you think the strategic considerations of already get off the ground running there is that having enough capacity built up in advance is it the actual locations of your retail versus your peers I'm just trying to get the.
The more color on that market whichever and expect at some point in the next six to nine months here to open up.
Sure, Matt 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 lot of time of candidates is still a nascent story of what you're sitting down with some of these local book of regulators.
And so theres a lot of education that has to take place within the accounts it make sure they understand kind of what we do and how we do it.
So in that regard to try I think you've probably seen I don't want to see slowness, but it's taking time for people to kind of operationalize their businesses.
And so for us at the state that we're very focused on because look see the density we see the opportunity.
<unk>.
Well, it's the heavy lift to get things off the ground.
We think long term, it's gonna be a fabulous market.
And just a follow up then I guess on on a market basis.
One of the markets you guys aren't in debt it wouldn't be material to your overall operations in isolation, but but one that has a very favorable infrastructure. The Arizona. So is that something you guys have considered I know that the the.
Multiples for some of these assets have gone up and quite lofty, but again a market that just sort of opened up for rack. So is that something you guys.
We have actively been pursuing or marketing or bring it anytime soon.
Hey, Matt and Ben.
Yeah, we've looked at it we study it 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 theres something super cheap at the Super Great and they need our brands on 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 as we are of what we're targeting not on the top of the list.
Alright, Thanks, Paul.
Thanks, Matt.
Thanks, everybody for joining moving back with the first quarter results in May.
Uh huh.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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Yes.
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