Q4 2020 Cronos Group Inc Earnings Call
Ladies and gentlemen, this is the operator today's conference is scheduled to begin momentarily until that time your lines will remain on music hold thank you for your patience.
[music].
Good morning, My name is Ursula and that will be your conference operator today.
I would like to welcome everyone to the Kronos groups Twenty-twenty fourth quarter and full year earnings Conference call today's call is being recorded.
At this time I would like to turn the call over to Shayne Laidlaw Investor Relations. Please go ahead.
Thank you Ursula and thank you for joining us today to review Kronos group's 2024th quarter and full year financial and business performance today I'm joined by our President and CEO, Kurt Schmidt, our CFO, Jerry Barbato, our executive Chairman, Mike Gordon, Steve and our EVP of legal and regulatory Affairs Zooming Sham furnace group issued a news release announcing the.
These financial results. This morning, which are filed on our Edgar and SEDAR profile. This information as well as the prepared remarks will also be posted on our website under Investor Relations before I turn the call over to Kurt I would like to remind you that of discussion. During this conference call will include forward looking statements that are based on assumptions that are subject to risks subject to risks and uncertainties that.
Could cause actual results to differ materially from those of those projected in the forward looking statements, including as a result of the factors described in the cautionary statement and risk factors included in the company's earnings release and regulatory filings the cleaning of the company's most recent annual report on form 10-K filed today by which any forward looking statements made during this call are qualified in their.
Entirety. In addition, during this call of certain financial measures may be discussed that are not recognized under the U S. Generally accepted accounting principles referred to by the Securities and Exchange Commission as non-GAAP measures. We believe these non-GAAP measures assist management in planning forecasting and evaluating business and financial performance, including allocating resources reconciliations of these non.
Non-GAAP measures to the closest reported GAAP measures are included on our earnings press release furnished to the SEC, which is available on the press room section of our website. The Kronos group Dotcom. These non-GAAP measures may not be comparable to measures used by other issuers I'd also like to note that we're conducting our call today from our respective remote locations as such there may be brief delays.
Stock or minor technical issues. During this call. We thank you in advance for your patience and understanding will now make prepared remarks, and then we'll move to a question and answer session with that I'll pass it over to Kronos group's president and CEO Kurt Schmidt.
Thank you Shane.
As we turn the page to 'twenty 'twenty, one and reflect on 2020, the accomplishments of the Kronos team achieved especially given the complex operating environment were impressive.
Credibly excited to see what we can accomplish in 2021 at the yeah.
Want to take this moment to recognize and thank our global team for persevering through the challenges the world faced in 2020 and continue to face in 2021.
I'm going to start this morning's call by reflecting on a few highlights from 2020 and to discuss our strategy to win in 2021.
Since joining kronos six months ago I've made it my focus to help accelerate growth and plan for our future strategy.
With the help of Mike and our passionate senior leadership team we've honed in on the areas, we want to concentrate on as an organization.
In 'twenty and 'twenty, one we plan to focus on four main pillars to drive business results and growth across the organization.
The first pillar is to ensure we're continuing to build a winning team.
I plan on supporting our employee base by fostering collaborative performance focused culture that strives to win.
We know that this burgeoning industry require talented and driven employees and I plan to continue to instill a spirit of winning and collaboration to enable our teams to execute as we grow in existing markets enter new markets support our brands and continue our R&D work in 2021.
The second pillar is having a keen focus on building disruptive technology and innovation.
Which has always been of core strategy priority for Kronos.
We continue to believe that investing in innovation and breakthrough research wasn't locked the potential of cannabis and provide us with the long term competitive advantage.
The third pillar as I mentioned on our previous call. It's the bill great cannabis brands on the market at my core and in 'twenty and 'twenty. One we plan to continue to innovate with our brands with the goal of meeting the needs and exceeding the expectations of our consumers.
I'm incredibly proud of how we are developing our brands across our markets.
We'll be focused on robust marketing strategies, and new retail partnerships to reach more consumers in 2021.
The fourth pillar is to strengthen our ability to compete with the supported by the first three pillars we.
We will focus on building competitive advantage through our D capabilities strategically placed global infrastructure and engaging in the legislative process and the markets that matter to us.
This includes sharpening our strategic focus on Canada, Israel and the U S can share, we're driving long term value and preparing the company for new opportunities as they arise in 2021 and beyond.
It was a busy year, but we're excited to continue delivering on our strategy and drive long term value for shareholders.
'twenty 'twenty. One is also shaping up to be an important time for U S cannabis legislation.
I want to share a few thoughts on legalization efforts and how Kronos has taken part to ensure that we have a seat at the table.
Legalization in various forms continues the spread across the U S.
The vast majority of Americans now living in states, where cannabis has been legalized in some form whether medical adult use for Paul.
As many Americans express support for cannabis legalization in some form the staff the election momentum continues to build at both the state and federal level.
We believe candidates should the legal at the federal level and that of comprehensive and reasonable federal regulatory framework should be put in place for the industry.
We think the framework to create product and safety standards for the industry and address critical societal considerations, such as youth access prevention and social justice issues.
Part of our focus and approach our participation on these efforts it was announced a few weeks ago that Kronos is joining industry colleagues as the.
Founding member of the U S cannabis Council or U S. C C.
With representation from leading cannabis and social Justice organization from North America. The U S. C. C will be the Premier Trade Association for cannabis thought leadership innovation and social responsibility in the U S.
We look forward to partnering with our industry peers to advance cannibalization cannabis legalization in the U S.
As previously discussed might go on Stiens priority in his role as executive Chairman as looking at U S opportunities and the best way for us to participate.
As commission of team internally to analyze the various opportunities in the market and different potential strategies for our standard.
We are confident that our balance sheet existing CBD infrastructure and our strategic investor We will be of best in class cannabis company in the U S.
Jerry will focus on the fourth quarter results, but I wanted to take a moment to highlight the annual performance in.
In fiscal year 2020 on a consolidated basis, we increased revenue of 97% year over year to $46 7 million.
With strong performance across all regions.
Our rest of World segment recorded net revenue in fiscal year, 2020 of $37 2 million, representing an 83% increase year over year.
And lastly, the United States segment in its first full year of operations under the Kronos umbrella reported net revenue in fiscal year 2020 of $9 5 million.
After a modest third quarter. The U S team came back strong in the fourth quarter and executed.
Although our U S <unk> business continuous to navigate turbulent times due to retail closures and other impacts due to the COVID-19 pandemic. We are confident the team will continue to successfully operate in this environment.
A critical component to our U S. CBD business results was the successful launch of happy that our new skin care and personal care brand in partnership with Kristen Bell.
Today, we announced an exciting expansion for happy day by securing its first major U S retailer Ulta beauty, making the brands first brick and mortar retail rollout.
Happy to and features an easy to use line of cleaning and cruelty free hemp derived CBD bath and body products.
The bulk collection expected to launch in the coming weeks on Ultra Dotcom, followed shortly thereafter in store at over 550 ultra locations across the U S.
We're incredibly excited to be partnering with Ulta and look forward to bringing the brand to a broad audience through also the retail network.
Our distribution capability is an important next step in the evolution of this brand, which will be the followed by additional product launches to expand variety for our consumers.
In Q4, Lord Jones, our prestige positioning U S. CBD Green launched the new whole plant Formula CBD lip balm, which has been well received by consumers.
Introducing entry level products to the Lord Jones portfolio improves the accessibility of the brand and increase the trial.
The Lord Jones acid mantle repair cream was awarded the prestigious refinery 29 Beauty award in Q4 2020 the.
The self care and beauty segment offers the respite from daily stressors, we are fortunate to be able to continue to bring high quality products to consumers in the U S. During this time.
We plan to continue to expand our innovative product portfolio in 2021.
In Canada, we continue to broaden our distribution across the retail landscape.
We like the consumer insights driver of decision, making while leveraging our robust R&D and innovation teams to bring products to market the consumer's desire.
Our innovation funnel is the absence of top but it sort of consumer insights that enable us to focus on what the consumers want to day, while keeping an eye on what they may want in the future.
To that point at segments of the industry of grown and consumer adoption increases we are excited to tackle these additional opportunities with innovative products in 2021.
Our Spanish brand continues to perform well on this past quarter's expenditures dancehall strength was awarded best hybrid dry flower of the year by time magazine.
This award is the especially appreciated as Bud tenders across our Canadian retail network nominated on.
Although COVID-19 limits, our ability to engage face to face retail marketing opportunities would be an area of focus for our adult use brands and we are excited to meet more consumers and retail spaces in 'twenty and 'twenty one as our marketing strategies are expected focus heavily on this channel.
Moving to the Israeli medical market. We are excited to see the market continue to expand now with roughly 80000 medical patients in the country.
And Q4, Kronos, Israel began selling peace naturals branded oil along with the previous launched flower products to the medical patients the.
Successful launches have enabled Kronos Israel to quickly build their distribution network and brand awareness through on growing network of pharmacies.
In February of 'twenty, 'twenty, one Chronos, Israel signed a distribution agreement with the largest pharmacy chain in Israel Super Farm, which has over 250 branches in Israel.
As we grow our share of the size of the pie is also expanding with the number of pharmacies in Israel wanting to carry medical cannabis products, increasing which presents a great growth opportunity for the industry.
The peace natural brand has already been recognized on the Israeli marketing Association for its successful marketing strategy at launch in 2020 to generate exposure for the peace natural brand the patients as well as for differentiating and highlighting the brand's high quality amongst the competitors, we're incredibly pleased to see the sales volume.
And residents amongst patients from this region.
A critical components of our R&D and innovation initiatives continues to be our biosynthesis work taking place at Kronos fermentation in Winnipeg and partnership with Ginkgo buyer works.
Following the successful implementation of CPG and our Winnipeg R&D labs at research scale in the second quarter 2020. The team is continue the optimized for scale and downstream processing and prep preparation for commercialization.
Kronos is prioritizing rare cannabinoids such of C. B G over common one such as THC and CBD and plans to sequence of commercial production and subsequent product launches based on this approach.
Canada is an important platform for us to develop innovative products to be ready for other markets such as the U S and Israel as regulations low we look forward to leveraging our R&D innovation and consumer insights to drive the creation of differentiated products through consumer learnings as part of the commercialization path.
<unk> plan.
On the innovation side, we believe providing rare cannabinoids at a meaningful scale could elevate and differentiate the consumer experience. We look forward to leveraging current insights and building future one on consumer acceptance of these innovative products overtime.
In short this past quarters of some the summation of the hard work our teams have put into the past year plus.
As we look to 2021 I'm incredibly excited about the team we are supporting our brands and all of the R&D innovation and exciting claims we have in store.
With that I'll turn the call over to our CFO Jerry Barbato Jerry.
Thanks, Kurt and good morning, everyone.
Before discussing our financial performance allow me to briefly touch on the change in the metrics of the are reporting on.
We are shifting away from reporting segment level operating income results in favor of reporting adjusted EBITDA at the segment level.
We believe this is a more representative view of our business and AIDS in management's review of performance and capital allocation.
We also hope it further helps the investment community evaluate our business performance.
We review these results on an adjusted basis, which excludes certain noncash items that may be highly variable unusual or infrequent and can distort underlying business trends and results.
For more details regarding our calculation of adjusted EBITDA. Please refer to our earnings press release, which is available on our website. The Kronos group Dot com on the investors page.
Turning to our financial results. The company reported consolidated net revenue in the fourth quarter of 2020 of $17 billion of 133% increase from the prior year period Red.
Revenue growth year over year was primarily driven by the growth in the adult use Canadian cannabis market.
Sales in the Israeli medical market and growth in our U S hemp derived CBD business.
Partially offset by non recurring wholesale revenue in the Canadian market in the fourth quarter of 2019 and strategic price reductions on various adult use cannabis products in Canada in the fourth quarter of 2020.
Consolidated gross loss for the fourth quarter of 2020 was $14 $9 million of $5 2 million dollar decrease in losses from the fourth quarter of 2019 the.
The improvement versus prior year was primarily driven by lower inventory write downs and increased gross profit contribution from the U S segment.
This was offset by an increase in cost of sales, primarily driven by third party purchase flower and a decline in wholesale sales in the Canadian market.
We may incur further inventory write downs due to pricing pressures in the marketplace.
Adjusted EBITDA loss for the fourth quarter of 2020 was $53 $1 billion, representing a $1.5 million increase in losses from the fourth quarter of 2019.
The increase in losses year over year was primarily driven by increased general and administrative expenses and an increase in R&D spending.
Turning to our reporting segments in the rest of World segment, We reported net revenue in the fourth quarter of 2020 of $13 $5 million of 193 per cent increase from the prior year period Rep.
Revenue growth year over year was primarily driven by the continued growth in the adult use Canadian cannabis market and growth in the Israeli medical cannabis market.
Partially offset by non recurring wholesale revenue in the Canadian market in the fourth quarter of 2019 of strategic price reductions on various adult use products in Canada in the fourth quarter of 2020.
Gross loss for the rest of the World segment for the fourth quarter of 2020 was $16 $7 million of <unk>.
$4 8 million dollar decrease in losses from the fourth quarter of 2019.
The improvement year over year was primarily driven by lower inventory write downs offset by an increase in cost of sales, primarily driven by third party flour purchases and a decline in wholesale sales in the Canadian market.
As we work to create an efficient global supply chain through 'twenty 'twenty, one and beyond for our rest of World segment.
We anticipate the gross margins will continue to fluctuate as price and mix change from quarter to quarter.
Adjusted EBITDA loss in the rest of World segment for the fourth quarter of 2020 was $36 $4 million, representing an $11 million decrease of losses from the fourth quarter of 2019 improve.
The improvement was primarily driven by a decline in gross loss reduced sales and marketing costs and a decline in general and administrative expenses.
Turning to the U S segment, we reported net revenue in the fourth quarter of 2020 of $3 $5 million of 30% increase from the prior year period.
Revenue growth year over year was primarily driven by the growth in existing product lines introduction of new hemp derived CBD products and strength in our direct to consumer business driven by holiday promotions.
Gross profit for the U S segment for the fourth quarter of 2020 was $1.8 million of 400000 dollar increase from the fourth quarter 2019.
Adjusted EBITDA loss in the U S segment for the fourth quarter of 2020 was $11 $8 million, representing a $10 6 million dollar increase of losses from the fourth quarter of 2019.
The increase in losses was primarily driven by increased sales and marketing costs in relation to brand development and increased general and administrative expenses.
Overall Kronos group reported a decrease in net income versus the prior year period, primarily due to the change in fair value of the financial derivative liability associated with the Alpha is investment which is described in more detail in the 10-K.
In the fourth quarter of 2020, the company recorded a noncash loss of $53 $5 million related to the change in fair value of these financial derivative liabilities from.
<unk> continues to expect there may be significant reported earnings volatility, primarily driven by the fair value of quarterly adjustments related to the movement of Kronos group stock price.
Turning to the balance sheet.
<unk> ended the quarter with approximately $1.3 billion in cash and short term investments, which held relatively flat from the third quarter of 2020.
Capital expenditures for the quarter were $11 million. This spending includes investments related to Corona experimentation the peace Naturals campus, our Israeli facility and our new ERP system.
We remain committed to deploying capital in a disciplined manner and only in ways that align with our strategic priorities.
I continue to be encouraged by the work our teams are doing globally.
With that I'll turn it over to Kirk for closing remarks before Q&A.
Thank you Terry what's clear is that our products of winning with consumers and our brands continue to resonate in the markets we operate.
This past year has offered opportunities of growth. Despite the unprecedented effects of the pandemic and we're incredibly motivated to continue that growth from 2021.
With the focus on continuing to build successful teams perfect and regional strategies supporting our breakthrough technologies and R&D projects and building leading brands I know, we can continue to win as an organization and lead the global candidates the nutrition industry into its next phase of growth.
With our strong balance sheet of best in class strategic partner on the team that is built to win I'm excited about the opportunity to lead Kronos in the next chapter with the.
Let's now open up from the line of questions.
If he would like to ask a question. Please press Star then the number one on your telephone you will be allowed one question and one follow up question.
Your first question comes from Andrew Carter with Stifel.
Hey, Thanks, Good morning, I wanted to start off with asking about the gross margin on the gross margin side I understand the expected continued fluctuations, but excluding the charge. The margin would have showed progress. So first of all of kind of where do you think your inventory levels are but then also throughout the year you do have internal supply for growth kind of coming on line.
And you had the Israel, Israel domestic coming on line. So should we see in rest of world like significant gross margin expansion at least on an underlying basis throughout 2021. Thanks.
Good morning, Andrew Thanks for the question.
I think you're still going to see some fluctuation in that gross margin.
As price and mix change from quarter to quarter, and what that really touch on that.
That mix change is not only the products that we have on the Canadian market, but as you point out the change in the Israeli market. When you think about the R. O W segment and we're in the early innings in Israel. It's just ramping up so I think as you know as that becomes a bigger portion. You'll also have some some mix changes as we launched oil in that category.
And as you know we took some price decreases over the second half of 2020.
On a different products have different different margin profiles of different provinces in Canada, which also leads to some of that mix change.
And while we are buying third party flower every quarter the prices continued to come down.
You need to play through that inventory that you've bought in previous quarters. So we expect that are on a cost per gram on the flower side of the business now depending how mix changes will have an impact of that so I think it's hard to predict what it will be of the future, but we definitely see some volatility in margin going forward.
Understood. Thanks, I'll pass it on.
Your next question comes from Vivien <unk> with Cowen.
Hi, good morning.
Yes.
On that line of questioning on <unk>.
On mine.
On a better sense.
The outlook that you guys are producing now plus plus your inventories.
The hearing like slightly mixed messages around price deflation I think net for the entire category on a weighted average basis, yes, it's deflationary the cause.
You and many of our competitors on introduced value and the value, but I'm not hearing as much price compression.
Premium segment, so I'm just trying to understand.
What you guys are producing now is that it risks of price deflation.
Then what's the incremental risk.
Sitting on the balance sheet. Thanks.
Yeah sure Vivien Thanks for the question.
I still think of the Canadian market is deflationary across all price points, whether it be premium the mid tier or the value play youre seeing that across all of all categories and so you know as we've looked at our brand offerings of both Cove and spinach and tried to make sure that we're at a price point that is competitive with you.
You've seen that we've taken some of these price changes across the second half of the year.
I don't know when that when that ends as for the inventory I think our inventory instead of.
Reasonable place I mean were only slightly higher than we were at the end of 2019, and we have you know as.
As Curt alluded to in his prepared remarks, almost of 100% growth on that revenue channel. So I feel comfortable that the amount of inventory on hand as appropriate for the size of our business.
Okay. Thank you.
Your next question comes from Ray Lewis of Ruger start with Raymond James.
Good morning, Kurt.
Like Jerry Thanks, so much for taking my question so.
Bright lights, you saw it was essentially the doubling of revenue in the U S CBD channel.
Craig you referred to sort of challenges around retail in the us of course.
First of all without having the crystal ball as to what happened post COVID-19.
Can you maybe talk about how you see that trajectory.
Jack do you look at are you looking at the continuing doubling quarter over quarter.
And on you know any more color on on extension of that channel.
Yeah well.
You know I think.
You know the Covid impact of the store restricted store openings.
And the other related thinks of the pandemic of certainly hurt but as the vaccination rolls out we believe things are going to start turning right and we're already seeing.
Green shoots in that area.
It really comes down of the brand strength and investment in core in the U S per happy dance, we're very pleased we just announced the Alta.
Partnership, which is certainly going to be an accelerant to that business and youre going to see investment in marketing on both of our Lord Jones and Ultra brand. So.
Now again, our focus is on growth and as we get through this pandemic.
When it comes to the U S. I think that you know the second half of the year everybody is.
Sealing fairly confident that we'll be.
Well with the vaccine fairly well penetrated so we should see the retail sector continuing to open up and that's a good sign obviously a good sign for us.
Terrific terrific. Thank you very much and instead of the follow up.
One area of as you know that we are quite interested in is the.
Partnership with Ginkgo, and and the bison initiatives, you've talked about focusing on CPG. Mike had previously referred to September being the timeline target timeline for having the first products from from implementation struggling on shelf.
That's still on the timeline that you were looking at.
And what can we think about in terms of product formats and potentially broadening of.
The fermentation based the format.
A lot of the noise.
On to your products.
Yeah, well yeah. We currently expect the chief commercialization by the third quarter of 'twenty and 'twenty one.
And you know where price is he said we're as I said in the my opening remarks, where we really are price tourism, the rilke cannibalized cannabinoids because the.
We believe that's going to be of greater ability to innovate and provide consumers with differentiated products.
And so we're really excited about that I don't want to go on the of jackpot product right now.
But.
We're well on our way so.
Again, we are on track and we're feeling very good about it and obviously the rare cannabinoids offer some really unique differentiated consumer products and benefits that we obviously want to focus on.
Indeed, thanks for taking my questions.
Again, if you would like to ask a question. Please press Star then the number one at this time. Your next question comes from John at Sao Paulo with CIBC.
Hi, good morning, everyone.
I wanted to ask about the creation of the internal team looking at the U S markets and specifically do you have levers you can pull of today to deploy capital into the U S. Without a full scale of utilization, whether it's optionality deals or arrangements with CBD brands or potentially partnerships with retailers, just any any thoughts or observations.
<unk> zone on that front would be helpful.
Yeah. This is Kurt.
I'm going to kick it off but I think this is important to hear from Mike. So Mike will comment on on this as well.
As you guys know when it comes to active of really direct investments in the U S.
It's important that we get federal action.
That removes cannabis THC as the controlled substance.
Also on that is the operation side and Theres, a number of targeted builds of of Lafleur really streamlining and they came on the effect of industry.
And again, Mike is looking at a range of entry strategies besides of the active investments.
It would be great that Mike comment on that at this point.
Sure. Thanks Kurt.
Hey, John So when we think of the U S. There's really three phases that we try to think of the first would be the phase that we're in now where the legal regime as Curt noted means that we can't directly and actively enter.
But you know I think there are certain levers that can still be bold. The next phase is really what you hear talked about.
And on the government right now where cannabis prohibition on the U S and and that would allow us to actively indirectly participate in states that are put in place responsible canvas frameworks and then finally of responsible on comprehensive framework that at the federal level that provides the Interstate commerce and high product standards.
When we think about that that third phase, that's really where our strategy is focused on on positioning ourselves right. Now so that we can eventually deliver value there and we still believe it's going to be authentic brands that are built on technology that differentiate the product and that's what's going to ultimately drive terminal value. So.
Any levers or anything that we're looking to pull now is really thinking in the future of how are we best set up to win and that's really where our focus is.
Okay. That's helpful. Thanks, and if I could follow up on that subject.
On the the formation of the FCC.
I would've thought maybe the at first that the goals of those parties might the parties involved might differ a little bit. So what does that say about the fact that American and Canadian <unk>.
Participants coming together to work to work together on this end.
And I guess, what are the priorities of near term in the U S. D C. As it passes at getting something done like the safe banking act or is it more.
Maybe more of a transformative goals on longer term goals.
Yeah. This is Kurt good question that you know our view of it really needs to be a comprehensive approach right and that includes a bunch of areas.
Such as addressing the historic and justice for communities of color which of the.
Fortunately faced in this area.
It could include executive orders.
That we believe should be coordinated between the various departments, which will be very important such as the Doj Treasury FDA and HHS.
<unk> led to the slate of action would provide additional clarity right and there are several of them.
Sky can take.
And through the council and what and through our partnership with Altria.
We are very much focused on being having a seat at the table and being able to deliver on that but in essence, we do need of comprehensive.
Approach in order to really create the right environment for the market.
And for the various issues that are that are happening right now in the U S and we're reasonably confident that is starting to move on the right direction.
Alright Thats helpful. Thank you very much.
Your next question comes from Michael elaborate with type of Piper Sandler.
Thank you good morning.
One of them just.
If you can elaborate a little bit on CPG and.
It sounds like you've got the biosynthesis part down but as far as the consumer.
How much education do you have to do on the benefits of that and how do you plan to go to market with it.
Good question.
We have.
Tremendous capability on and our consumer insights group so in parallel to the.
Developing these rare cannabinoids, we are looking at the product innovation side, and how we're going to talk about it.
What products, we're going to put that in.
I don't want to get into what exactly we're going to do but all of that is well on its way I will say another thing thats interesting about these rare cannabinoids as you can Google these products on.
C B and C b N at TPG, and Youre going to get of well.
<unk> knowledge and a wealth of.
How people are talking about the from the benefits of these products. So.
In some ways.
Consumers are really focused on these and they they understandable understand some of the benefit and the thanks. So that's sort of built in right now so.
But again, it's very difficult, they're called rare cannabinoids because of very difficult to get from scale and that's what we believe we can deliver and we could use our innovation and consumer insights and our innovation teams developed some really unique products to deliver on those consumer promises.
Okay. That's helpful and then just on broker.
<unk>.
Adding capacity of your.
Come on the unique in the industry doing that these days.
Just give a sense of the industry landscape and how you see capacity broadly.
Has it been rightsize of ours, there's still excess capacity on this.
Your initiatives, primarily just to ensure quality products on what some of your thinking on just sort of bring them out on line.
You can think of the kind of a hybrid model. So there's.
The.
We can the source from <unk>, we can source from other third party biomass is so we want that flexibility on it.
Brokaw received their license in 2020 cultivation license. So we expect that facility to become operational in phases.
Beginning in the first half of 'twenty one.
And what they benefit for us as the partner with an eye expert, which you know.
There are an expert in the field and they can provide high quality biomass of the low cost, but it really is managing the hybrid model.
In the Canadian market at this point and it's kind of approach we've taken the taken Israel as well.
Okay. That's helpful. Thank you.
Your next question comes from Matt Bottomley with Canaccord.
Hey, guys. Good morning, Thanks for taking the question just kind of curious if you can provide any more color on any of the dynamics youre seeing in the adult use market with respect to your brand penetration whether that you know the.
Sequential.
I guess movement in how many orders of the provinces from buying from you and then if you have further data on how your products are selling through and consumers this quarter relative to last.
Retail touch points correctly.
Well, we don't give revenue guidance, yeah, Jerry you want to take that sure.
Yeah, we don't give forward looking revenue guidance, but I think some of the impacts of COVID-19 that you've seen.
Especially in Ontario, where they had store closures on go to curbside pickup I think you saw that early on in Covid when it when it first happened that you saw the.
The growth slow a little bit.
And so you saw that in December and January across the categories. We think our brand penetration has been quite good on when you saw the growth sequentially every quarter in 2020, I think we're making great strides in that area.
Perfect and do you have any estimate I know you don't provide us kind of peanut butter.
But any sort of goalposts of where you think your market share in Canada right now on on a branded level.
How that moved in the last year or so.
Yes, there's not a lot of good data in Canada to try to really get that so the normal CPG, there's nielsen data or some other.
Quantitative metric I mean, do we try to monitor ourselves internally, but it's difficult and it's also difficult to look at because of all of these speak value players and larger formats coming into the market.
It's a bit challenging us for us to look at it that way. So we're really focused on growth of those brands and revenue growth.
Okay understood. Thank you.
Your final question comes from D of Wang with Jefferies.
Hi, good morning, I'm asking a question.
On behalf of my analyst.
So just wanted to briefly touch on the price.
Ex because currently the majority of the sales are still from the kind of us flowers.
Very limited the increase.
Sequentially from the extra so I wonder what's your outlook on the product mix and do you expect that the kind of stay at the current trend.
The proportion level going forward. Thank you.
Yeah. Good question this is Kurt.
Well one of the things we're seeing is the trend during COVID-19 right and Jerry just talked about that we have the consumers on the locked down and generally less mobile and so we definitely have seen that preferences have shifted towards the buying more volume in the flower category over base or even pre rolls because of its better to go solution.
And since the unfortunately of the last three months no one's really been going anywhere.
So this has driven our sales as well of the Canadian the Canadian market to be more heavily oriented towards flower category.
However, as things start to get better and we start opening up retail and people have more mobility. We don't expect this the persist long term. So again, we look forward of launching new and innovative products across the two point on spectrum over the course of 'twenty 'twenty. One so we do have plans and.
Again, very hopeful as the vaccination starts rolling out and we start getting back to normal we will start seeing the market develop.
As we saw of pre Covid.
Okay. Thanks, a lot that's very helpful.
Ladies and gentlemen, thank you for participating in today's conference. This concludes today's call you may now disconnect.
Yeah.