Q4 2020 Curaleaf Holdings Inc Earnings Call

Good afternoon, and welcome to the cure of leaf fourth quarter and fiscal year end 2020 earnings conference call. All participants will be in listen only mode should you need assistance. Please see the will of conference specialist by pressing the star key followed by zero.

After today's presentation there'll be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad to withdraw your question. Please press Star then two please.

Please note this event is being recorded.

I would now like to turn the conference over to Jacob Feinstein, Vice President of Investor Relations. Please go ahead.

Good afternoon, everyone and welcome to securely holdings fourth quarter and fiscal year end 'twenty 'twenty conference call. Today, we are joined by Boris Jordan Executive Chairman, Joe Lusardi Executive Vice Chairman, Joe Barron, Chief Executive Officer, Neil Davidson, Chief Operating Officer, and Mike Carlotti, Chief Financial Officer earlier today, we issued press releases.

Our results for the fiscal fourth quarter and full year ended December 31, 'twenty 'twenty as well as care at least attempt to acquire E back of life Sciences Group. These press releases are available on our website under the Investor Relations section and filed on SEDAR before we begin I would like to remind you that the comments on today's call will include forward looking statements within the meaning of.

In the United States security laws, which by their nature involve estimates projections plans goals forecasts and assumptions, including the successful integration of acquisitions and are subject to risks and uncertainties that could cause the actual results or outcomes to differ materially from those expressed in the forward looking statements and certain material factors for some.

That were applied in drawing a conclusion or making a forecast in such statements. These forward looking statements speak only as of the date of this conference call and should not be relied upon as predictions of future of that we undertake no obligation to update or revise any forward looking statements, whether as a result of new information future events or otherwise except as required.

By applicable law additional information about the material factors and assumptions, forming the basis of the forward looking statements and risk factors can be found in the company's filings and press releases on theater and the Canadian Securities Exchange.

During today's conference call purely from referred to non iron for the rest of measures that do not have any standardized meaning prescribed by EIOPA Russ such as pro forma revenue adjusted EBITDA of managed revenue the definitions of which may be found in our earnings press release. Please note that all financial information is provided in U S dollars, unless otherwise indicated with that I'd like to turn the call over to exec.

The chairman Boris Jordan.

Good afternoon, everyone and thank you for joining us today, we once against the announced record breaking results for the fourth quarter and the full year as well as purely for some time to acquire E. Mac Lifesciences group Europe's largest independent kind of his company.

Acquisition makes us the first U S. M S O to meaningfully enter Europe. This is very exciting news for us and a true inflection point in our growth and long term strategy.

Upon closing of the Mac will provide true strategic growth platform into the European market, where the population of 748 million people more than twice that of the U S population, while the current size of the European market for medical of wellness cannabis is estimated at over 1 billion analysts indicate it will surpass.

<unk> 5 billion in the next three years over.

Over the long term based on consumption habits, we have seen in the U S. We believe the Europe will grow to a more than $120 billion total addressable market opportunity.

This is all in addition to our current leadership position in the U S cannabis market, which had another breakout year. According to BDSI legal sales of cannabis in the U S and hit a record $17 5 billion in 2020 up 46% from 2019 with purely growth for.

Outpacing the market.

By 2026, B the SA predicts the legal U S candidates market will reach 41 billion of annual sales representing a.

The carve out of a 15.3 per cent.

We remain committed to being the largest global player in the industry and the <unk> acquisition is our first step towards engaging world markets.

We'll get to the more detail on this deal at the moment.

I want to take a moment to thank all of our team members for their hard work perseverance and unwavering commitment to our patients and customers. Despite the increased challenges in the fourth quarter brought on by the second surge in Covid that impacted the lives of our employees customers and communities and the operations, we still had a record quarter and year.

This is a testament to our team's dedication on behalf of the entire management team and our board of directors. Thank you everyone.

As someone with extensive experience in the emerging high growth businesses across the large new addressable markets I can tell you I have seen global paradigm shifts before and I truly believe the test is where the cannabis industry is today.

The acceleration of states and countries.

Putting cannabis legalization on the agenda continues and the 'twenty 'twenty, one I believe will be a transformative year the.

For the future of kind of the best it will be won by those who are investing aggressively in growth and scale, where today purely is leading the pack.

With the fresh political support from the Whitehouse, both houses of Congress and increasing momentum around the adult use at the state level the prospects for federal legalization and transformational benefits from purely from the industry are very encouraging in the near term.

Accordingly, we are planning and investing across multiple time horizons, ensuring purely is well positioned to leverage every opportunity today, while setting us up for tomorrow. As we look ahead, we are laser focused on executing on our strategy, which is centered on three key areas for.

First of extending our U S leadership by continuing to build out of national platform and winning brands.

<unk>.

Building the foundation of infrastructure to rapidly capitalize upon the federal.

The utilization.

And the third taking the strategy to the rest of the world as the global leader in catalysts.

The strategy to build national scale of National brands is on track and is being led by Joe <unk>, our newly appointed CEO, who brings an extensive career of top tier consumer packaged goods experience for the L. G.

Joe will go into more detail on our national platform, our brands and building out our capabilities to support our U S growth strategy and I'll talk in a moment about our global expansion.

Regarding our financials in the fourth quarter, we generated record managed revenue, which surged, 186% versus last year, the $233 million and 21% higher versus the third quarter.

All of this was achieved despite some softness primarily due to a larger than expected COVID-19 outbreak in the fourth quarter underscoring the overall resiliency and strength of our business as well as industry demand.

2020, we generated record annual net of revenues of $653 million up 161% from 2019, and they were all kind of record pro forma revenue of $767 million, our growing scale and operating efficiencies also allowed us to drive record adjusted EBITDA per.

The ability in 2020 with our adjusted EBITDA rising an impressive 456% year over year to $144 million. We achieved these remarkable results by aggressively investing in growth across our business from cultivation to manufacturing and distribution of innovation.

And brand building all backed by research and science.

The support our long term growth strategy and the further strengthen our balance sheet, we moved opportunistically to leverage the momentum of the capital markets in January successfully closing of equity capital raise for approximately $250 million of growth proceeds. We also successfully completed the new $50 million revolving credit facility at an interest rate that was 200.

75 basis points below the cost of capital from the debt raise we completed just the year earlier, we have the right to refinance all of our debt in January of 'twenty 'twenty, two and we fully anticipate that we will refinance those facilities at much lower interest rates than we have today.

In aggregate, we raised $290 million of net proceeds of these significant capital infusions of directly support our ability to further extend our leadership position in the U S cannabis market through high return organic growth initiatives as well as opportunistically through potential strategic acquisitions.

As I've said before we are playing the long game and I believe that when creating an industry leader management and the board need to make bold strategic moves for.

Perhaps most importantly purely for is now well positioned for the opportunities that will be created by the potential U S federal legalization for them.

Credit sweep of the presidency of Bolthouse as the Congress represented a seminal moment for accelerating the path to liberalizing. The U S. Cannabis policy I believe this new green wave of political momentum will pave the way for passage of the Safe Act. This year opening up of critical banking services to the kind of the sector increasing.

Access to liquidity lowering the cost of capital and potentially offering a pathway for a major stock exchange uplift things for the U S cannabis companies as well as the potential for 280 <unk> tax relief.

It's also worth noting that with the.

The recent developments toward adult use legalization and Mexico combined with the current status of cannabis in Canada. The U S will be literally sandwiched between two large countries moving forward increase the liberalization of cannabis use.

Regarding the third phase of our growth strategy with the announcement today of our intent to acquire the Mac for $50 million in cash and approximately $17 3 million subordinated voting shares we are creating a strong European presence and an international growth platform for our operations and brands further differentiating purely from its peak.

This highly strategic acquisition provides the transformational launching point and for the European cannabis market building on our market leading position in the U S and establishing purely of the global pure play cannabis market leader by revenue and geographic reach.

For context, this transaction of similar to buying into the footprint equal to cure the U S presence back in 2017 at a similar valuation, but he Mac is twice the revenue of purely for at that time and as I mentioned as the larger potential addressable market in the U S. This transaction as of yet another represents.

<unk> of our board and management team, making bold moves to drive shareholder value.

As Europe's largest independent cannabis company EMACS brings a wealth of experience combined with existing vertical platform of cultivation, EU GMP processing distribution and R&D operations across several key European medical cannabis markets, including the United Kingdom, Germany, Italy, Spain, France.

In Portugal.

Europe's medicinal cannabis market has been growing steadily in the past three years with multiple jurisdictions, introducing medical cannabis programs and key European countries, beginning to show signs of strong acceleration.

The U K has seen 40% month on month growth in the number of patients and prescriptions since June 2020, Germany, Europe's largest medical cannabis market has over 100000 active patients, Italy has more than doubled the importation of medical cannabis between 2019 and 2020.

With regards to advanced cannabis product development enacted at the forefront of scientific innovation and has established research partnerships in place with world renowned institutions, such Imperial College of London designed to provide more clinical data to underpin the growing medical cannabis market.

The consumer and political liberalization trends around cannabis that are sweeping the U S are increasingly taking hold across Europe, an estimated 90 million people are consuming candidates in Europe with prevalence rates.

Above 10% and some of the larger countries. This reality is pushing governments to reconsider their policies strengthen support to reduce the pulse of these burden of enforcing the marijuana related crimes and increasing taxes from legalized production.

The Netherlands, and Switzerland are planning for launch recreational pilot projects by the end of the year. Israel is also expected the legalized recreational use in early 2022, and Luxemburg and 2023.

In Spain, Italy, and Germany, and France of Malta political initiatives, including in some cases draft laws are being discussed and could soon unlock the full potential of wider European market.

We believe Europe will evolve to become a candidate the marketplace that will eventually rival the U S. It also provides the foothold for future expansion into eastern Europe, where cannabis legalization is well established in Poland, and Croatia, and it's being discussed a new credit. It also paves the way for entry into South Africa, Morocco, which are both exploring propose.

To introduce legalization.

<unk> is also leading the industry in terms of cost efficiency for production of medical cannabis flower and has established a pharmaceutical grade supply chain all led by best in class management team.

I want to stress that this acquisition will not detract from our U S strategy, given we have plenty to do in the U S. The Mac. The management team will continue to lead the company while purely for executives continue to focus on our U S expansion strategy Antonio Comstock book, <unk>, founder and CEO will become the CEO of our European entity and a senior.

Member of our management team.

We expect to close the <unk> acquisition early in the second quarter based off the occurring of all required regulatory approvals of normal closing conditions, while the <unk> balance sheet can comfortably handle this transaction. We're also in discussions with strategic partners regarding a potential investment of the EMACS European subsidiary level to provide further.

<unk> to expand our new European business, a key differentiator of the European market is the lower level of capital intensity anticipated the fuel growth with the ability to operate the impact of European business across country borders, we can deploy a capital light model with one or two cultivation sites and one.

From incentive to serve the entire region in most cases compared to the U S, which requires we've been fully vertical integrated and each state the <unk>.

Difference is enormously positive implications for our ability to quickly and efficiently scale the business across Europe as such we do not anticipate raising any additional capital to fund our European expansion beyond the targeted outcomes of the affirmation strategic partnership talks.

Looking forward, we expect 2021 to be highlighted by further record breaking financial performance with total <unk> revenue in the range of one two to $1 3 billion representing year on year of growth of 84% to 99% versus our 2020 reported revenues and adjusted EBITDA continuing to scale.

Higher as 'twenty, one progresses with full year 'twenty, one adjusted EBITDA margins rising to approximately 30% in.

In closing I couldnt be more pleased with the performance of our team and what we achieved in 2020 of securely as well as the growth opportunities that lie ahead with that let me turn it over to Joe Bear.

Thanks, Boris and good afternoon, everyone.

I'm thrilled to be taking the helm of clearly at this pivotal moment within our history in our company and extremely encouraged with the progress we've made in 2020.

We're continuing to build our teams ability to execute against our strategy and to scale what is already the largest retail cannabis presence in the United States.

With today's announcement, we are embarking on the next phase of achieving our ambition to become the global leader in cannabis.

Look forward to working with Antonio and the rest of his management team as we build out clearly the international presence.

Since it's the first time I'm speaking he was the CEO of thought it'd be helpful. The share why I feel theres never been a better time to be at Kearl leaf or part of the global cannabis industry.

Like most people I think the current political landscape will certainly lead to acceleration of growth and I believe purely for is uniquely positioned to win due to for fundamental reasons.

One clearly everything we've built has been focused on a singular purpose.

To build brands people love and products that meet the needs of our consumers better than our competitors.

Two we have an unparalleled platform to build on in the U S and now in Europe as well.

Free we have an incredibly talented and experienced management team and a highly motivated work force and for we have an incredibly supportive shareholder base with the long term perspective required to build the industry, leading businesses as well as the experience of helping to change industry and societal paradigms.

I believe that over the next few quarters, we will see tangible evidence that our strategy is working.

Moving forward, we will continue to focus on six strategic priorities to continue to build sustainable competitive advantage.

One is to build out our national distribution platform and completion of the rebranding of our retail footprint.

Two to increase our investment in research and development and product commercialization three.

Three to scale of cultivation to prepare for a national cultivation model.

For to drive efficiencies across our national manufacturing footprint.

Five to build out of our technology platform, including E Commerce marketing analytics and transaction processing infrastructure.

And six develop world class expertise by continuing to attract train and retain the best talent in cannabis.

So how are we doing.

Let me take you through a few details on how we're executing against these initiatives.

We continue to build our footprint in the United States from both the strategic retail and wholesale presence.

This robust geographic foundation serves as the platform for our national distribution and brand marketing strategies.

On the retail side, we started 2020 with 51 dispensaries across the U S. And we ended 2020 with 96 dispensaries in the 88% increase.

In the early days of 'twenty, one we have opened an additional five dispensaries, bringing our total today to 101 with an additional 37 licenses available to us for further development.

In 2020, one we anticipate opening an additional 23 dispensaries across our national footprint.

This allowed us to move from seeing approximately 85000 unique patients per month in January of 'twenty 'twenty, two almost 178000 patients per month today.

All like expanding our average order value from $80 to $135.

As we move into 2020, one our footprint now covers over 190 million Americans and we continue to invest in best in class consumer retail experiences with more of our locations offering a more contemporary and welcoming environment.

The fast growing wholesale side of our business, which includes a national lifestyle brands select.

He was a key driver in expanding the size of our total addressable market.

Supporting our nationally recognized brand strategy and lengthening an already impressive runway for longer term growth.

The work is now distributed in over 1700 retail outlets nationwide.

From 800 at the start of 2020, 116% increase.

We expect wholesale distribution to surpass 2000 locations in the second quarter.

As we continue to build the first now international cannabis brand.

We remain intensely focused on launching select and all of our U S markets and preparing for its launch into Europe.

Introducing new consumer prefer preferred form factors and attracting new consumers to the candidate of segment.

And realize of course, the cost synergies by integrating select supply chain within Kelly's fast production infrastructure.

During the fourth quarter, we introduced select two Ohio, Illinois and Pennsylvania.

And in February we launched in Utah, making select available coast to coast and the total of 17 states.

On the R&D front, we are seeing consumers actively look for forms of consumption beyond flower.

Which aligns with our focus on developing a broad and deep portfolio of formulated offerings across product categories.

Early data from our first national consumer segmentation study supports that the majority of new consumers entering the category are doing so for either medical or health and wellness related reasons and those consumers are less likely to adopt flower as the primary form of consumption.

Overtime, we believe that smokable flower will dropped to roughly 25% to 30% of of the overall market with 70 to 75 per cent of the market moving to highly formulated products, which will further drive new customer penetration and adoption.

That's where we see the future and that's why we're significantly increasing our investment in research and development in 2021.

This investment will be focused on cultivation and extraction technologies development of proprietary emulsion technology to increase the absorption and bioavailability of formulas into the body.

Flavor systems to form the basis for new product development and commercialization of new products.

This includes our new R&D facility in Massachusetts, where we have 15 scientists working on roughly 600, new product variations currently under different stages of development.

We are the only kind of as a company that will have the platform to enable national product launches. This year launches that will look much like other large national CPG companies typically do.

That's never been done in candidates, but we believe this will be the key to capturing market share overtime.

Well, bringing highly differentiated products and breakthrough technologies to market.

We'll start to see some of the benefits over the next several months.

For the value consumer of the Vape category. This week, we launched select the essentials of proprietary blend of great tasting products based on the top selling strains across our portfolio and our new proprietary gravity cartridge.

For the new Vape consumer later this month, we will launch in select fresh of lighter smoother product and our new proprietary go hardware.

And I'm pleased to announce that in April we will do our first system wide launch around the product called slack squeeze.

And nano emulsion based THC beverages enhancer that we believe will be instrumental in making candidate of successful to all as the discrete.

Portable fast acting products for a number of different usage occasions.

We believe this product is a game changer for accessibility to a wide variety of consumer segments.

From the kind of soar to the kind of just curious.

So like the essentials fresh and squeeze along with the existing elite lie vape and nano gummies enable us to drive growth across a multitude of consumer segments and usage occasions.

In addition, we are planning to release the number of new products in both the THC and non THC formats in the second half of 'twenty. One is the direct result of our investment in R&D and consumer insights.

But obviously you can't develop world class products without world class quality cannabis in 2020, we invested heavily in our cultivation capacity to help prepare for new adult use legalization.

The legalization driven demand in a number of key states.

Total cultivation capacity across our 23 state footprint increased by about 450000 square feet to total of nearly 1.8 million square feet as of year end of 33 per cent increase in.

In 2021, we currently expect to bring online 275000 square feet of new flowering canopy with key expansions in Arizona, Florida, Pennsylvania, Illinois, and New Jersey among others.

We are also actively building our capabilities regarding large scale of outdoor cultivation to bolster our footprint of indoor and greenhouse facilities.

Expansion of our outdoor cultivation will help reduce our overall cultivation cost.

It is a key component to our of longer term strategy and readiness for federal law change.

And it's not only in cultivation, we were realizing efficiencies of scale.

Across our manufacturing footprint, we've done a lot of work to centralize and managed several initiatives in order to ensure quality standards scalability and consistence across all markets, including the important implementation of lean manufacturing principles the for.

Asian of of New manufacturing engineering team to help commercialize products more efficiently and the expansion of our national product quality team.

On the technical capabilities front, we're continuing to improve our technology platform, including implementing a new e-commerce solution.

Ramping up our marketing analytics capabilities and transaction processing infrastructure.

We're also expanding of our data and analysis teams and upgrading digital reporting and CRM tools to meet our marketing needs to understand all of our consumers better.

On the talent front I'm pleased to say that our growth strategy includes a commitment to recruiting and retaining the best people in the cannabis industry at every level.

In 2020, we brought in over 2400, new people and we expect to of hire another 1500 this year.

You can't develop high quality products without high quality science, and you can't build a world class company without World class talent.

And as you know the cannabis industry is creating new jobs and new opportunities and we're proud to be leading that growth.

With operations in 23 states, we have too many exciting developments for this call, but I thought it would be helpful to highlight some initiatives from a few of our key strategic markets.

In Arizona.

Moved quickly to enact adult use following the successful November ballot initiatives.

On January 22nd we began serving new adult use customers across our eight instate dispensaries with a ninth dispensary targeted for opening in the second quarter of 2021.

While it's early days, we have seen our average revenues in Arizona increased by 75 to 125 per cent depending on the location.

We expect this to continue throughout the year and we recently completed construction on a 50000 square foot indoor cultivation expansion that will double our kind of be to prepare for that growth.

We expect that New Jersey, which also recently approved adult use cannabis and has the one five times the population of Colorado will exceed the $2 2 billion in sales, Colorado saw in 2020.

Pure leaf already has over 30% medical market share. According to most recent public data.

We anticipate the state will open for adult use sales by fourth quarter of 2021, and we are investing heavily ahead of the launch to help meet expected demand.

By the end of the second quarter, we will double our canopy square footage and opened two additional dispensaries.

Giving us the maximum allowance of dispensaries in the largest grow capability in the state with the only 12 current licensees.

As expected New Jersey appears to be creating the domino effect, we anticipated triggering a wave of potential adult use legalization across the highly populated northeast market, with New York, Pennsylvania, and Connecticut, and Maryland likely to follow suit.

These states represent of projected $6 billion worth of new addressable market opportunities and clearly if as the only M. S O with a leading retail and wholesale presence in all of them.

And we will have the largest retail business in Pennsylvania with 18 stores opened by the end of 2021.

Notably New Yorks Governor Cuomo announced the proposal on January 6th to legalize and create an equitable adult use cannabis program is part of the 28 21 state of the state.

And we're seeing very positive momentum towards establishing of use in New York in 2021.

We also continue to see impressive growth in our key states of Florida, Massachusetts, and Illinois, where we continue to expand our capacity in the range of products offered to our consumers.

In Florida, the productivity of our of 50000 square foot indoor grow is hitting the market. We recently completed construction of a new 100000 square foot Hoop house on our Homestead campus and we plan to add an additional 50000 square feet of indoor cultivation capacity in late 2021.

In Illinois, we're in the process of completing of new 55000 square foot greenhouse by the fourth quarter of this year. In addition, we now have nine operational affiliated dispensaries with the 10th and final location expected to come on light online later this month for the maximum number of retail licenses permitted by a single.

Operator.

As I said, there are too many exciting initiatives across our company address on this call, but I'll be happy to address specific questions as part of the Q&A section.

Finally, I'm also pleased to report progress on our corporate social responsibility platform rooted in good which made some significant commitments and diversity equity and inclusion social equity and social partnership programs of.

All of which are increasingly important as our industry moves towards broader mainstream acceptance.

Through our rooted in good initiatives truly aims to do business with 420, new candidates brands suppliers and advocacy organization from underrepresented communities and the cannabis ecosystem by 2025.

We've also launched the robust Mentorship program with our executive Roundtable commitment.

The important at least 10 per cent of all of 'twenty 'twenty, one new hires from communities directly impacted by previous cannabis legislation and have committed to contribute at least $1 million to community programs that address the collateral consequences associated with marijuana related offenses.

I'm very proud of our team for leading these initiatives.

As I said, there's never been a better time to be in the cannabis industry or better time to be part of care of leaf we have a lot of to the excited about and I'm proud and energized to be part of this great team.

Now I'll turn the call over to Mike Carlotti.

Thanks, Joe.

2020 was a tremendous year for <unk> and our financial performance reflects that I'll start with the summary of our financial results followed by our guidance for the first quarter and full year of 2021.

We once again posted record quarterly results as we remained focused on generating strong topline revenue growth as well as posting our seventh the seventh consecutive quarter of record adjusted EBITDA all as we focus on driving long term value creation for our shareholders.

Pro forma revenue for the fourth quarter, which includes the full quarter of the recently acquired grassroots assets net of assets held for sale was a record $238 8 million.

Fourth quarter Ifr S revenue was a record 233 million of.

205% over last year and up 26% sequentially driven by strong revenue growth in Florida, Massachusetts, New Jersey, New York, Michigan, Illinois, and Pennsylvania.

During the quarter, we experienced some weakness relative to expectations in certain markets driven by holiday spikes of COVID-19, substantial disruptions and along the supply chain due to a meaningful increase in employee COVID-19 cases versus the third quarter as the U S experienced a resurgence in the infection rate.

The delay of additional stimulus checks and continued high unemployment.

We believe that these impacts will be short lived as the vaccine rollouts continue to scale of higher leading to an expected reduction in COVID-19 cases, as well as of the revamping of economic activity, particularly in areas that had been negatively impacted by the pandemic related shutdowns.

That said retail average spend per patient per month increased 5% from the third quarter and Kelly of patient growth increased 10%.

<unk> revenue for the year was a record 626 million of 184% versus 2019 for.

For clarity now that we have successfully consolidated all of the remaining managed revenue operations into our Ifr Rais total revenue reporting metrics there would be no need to report managed revenue going forward, which will greatly simplify our revenue reporting.

In addition in fiscal 2021, we intend to change our accounting reporting standard from EIOPA rest of the GAAP. We believe that this will make it easier for investors to understand our results as well as compare them for other companies who report in GAAP. This step will also further position us for an eventual lifting here in the U S.

Retail revenue accounted for 71 per cent of total sales in the fourth quarter and wholesale accounted for 29 percentage of total revenue for the full year retail revenue was 68 per cent of total sales and wholesale was 26% with management fee income representing 7% of total sales.

Our gross margins on cannabis sales in the fourth quarter increased 970 basis points to 47, 8% as compared to the fourth quarter of last year.

The increase was primarily due to higher operating capacity of the company's cultivation and processing facilities in several states.

So as mentioned in previous calls while we do expect our gross margin from cannabis sales to trend upward. It will continue to fluctuate quarter to quarter based on our investment cycle in processing and cultivation as we continue to expand and bring new facilities online.

Overtime, we expect this fluctuation of moderate as our investments continue to ramp and the capital intensity of our investments begin to cool.

SG&A for the quarter was $68 3 million as compared to $36 2 million in the prior year period, and $72 7 million in the third quarter the.

The decrease from last quarter was primarily due to lower onetime charges incurred during the quarter.

Adjusted for onetime charges SG&A for the quarter was $65 4 million as compared to $54 8 million in the prior quarter or 28, 4% of Ifr S revenues, a decrease of approximately 160 basis points compared to the prior quarter.

As we identify additional synergies, particularly from grassroots and continue to scale. Our overall operations. We expect our SG&A to continue to decline as a percentage of revenue, resulting in additional operating leverage.

Income tax expense for the quarter was driven by an increase in gross profit of subsidiary of subject to AE increased deferred taxes associated with the increase in biological assets lower management fee income higher non deductible stock compensation expense and unrecognized deferred tax assets.

Current year losses.

We reported record adjusted EBITDA of $53 8 million in the fourth quarter of <unk>.

289% year over year, and up 27, 2% sequentially adjusted.

Adjusted EBITDA for the year was a record $144 1 million up 456% from 2019.

The improvement of adjusted EBITDA was primarily due to continued scaling of operations and higher gross margins across several states, notably in Arizona, Florida, New York, and New Jersey, as well as the contributions from select and grassroots.

As anticipated fourth quarter adjusted EBITDA margin was 23, 4% of Ifr S revenue roughly flat as compared to the third quarter, primarily due to the conversion of atg for managed revenue to consolidated entity or in <unk>.

Early October.

Additionally, when we closed the grassroots transaction, we inherited certain corporate overhead costs that impacted the fourth quarter, but are now being harvested as synergies we expect to achieve full cost synergies from the grassroots in the first half of 2021.

Net loss attributable to <unk> holdings for the fourth quarter of 2020 was $35 3 million compared to a net loss of $26 6 million in the fourth quarter of 2019.

Due to our acquisitive nature, we believe adjusted EBITDA is still the best measure of our performance as it excludes the impact of the $60 million of noncash charges related to biological assets, depreciation and amortization and stock based comp as well as $2 9 million of one time items incurred during the quarter.

<unk> based compensation expenses of $16 one.

$1 million in Q4 was elevated due to increasing options and restricted stock grants during the period as well as the catch up of share based comp expense related to the fair value of options rolled over from our select the acquisition.

We expect share based comp expense to return back to the third quarter levels in the first quarter.

Net loss for the year was $61 7 million versus $67 2 million in 2019.

Please note we have provided a reconciliation of net loss to adjusted EBITDA in our press release.

Moving onto the balance sheet as of December 31, 2020, we had $73 $5 million of cash on hand, our fiscal yearend cash balance does not reflect the recent debt and equity raise completed in early January.

Cash decreased by $11 million in the fourth quarter, primarily due to $56 1 million of capital expenditures offset by $19 2 million of cash from operations cash from operations was negatively impacted in the fourth quarter by $43 million each of the noncash forgiveness of the note.

Receivable from New Jersey at acquisition.

Moving onto our outlook for growth in our financial guidance.

For the first quarter of 2021, despite tough weather conditions in several of our markets and the continued impact of COVID-19, we expect to generate ifr less total revenue.

In the range of 250 to 255 million representing year over year growth of 138% to 143 per cent.

Based on our confidence in our outlook. We are also introducing full fiscal year 2021, Ifr S. Total revenue guidance of $1 2 billion to $1 3 billion representing year over year growth of 84% to 99% versus 2000 Twenty's reported managed revenue.

This guidance does not include any contributions related to the proposed and pending E Mac acquisition.

Our full year of growth will be fueled by a number of key drivers, including additional cultivation capacity coming on line in key states, such as Arizona, Florida, Pennsylvania, New Jersey and Illinois.

Our expanding retail dispensary presence, particularly in Florida, Pennsylvania, New Jersey in Maine, and the strong pipeline of new product offerings.

From a margin perspective, we expect improvements in gross margin is driven by increased cultivation capacity increased fixed cost absorption and additional synergies from grassroots to drive improved adjusted EBITDA margins in 2021.

We expect that our adjusted EBITDA margins will improve each quarter during 2021 with full year adjusted EBITDA margins, reaching approximately 30%.

Our weighted average shares outstanding was $660 4 million as of December 31st.

Following the closing of our previously announced stock offering in January of 2020. One we issued approximately 19 million shares and as a result shares outstanding as of March eight 2021 was $684 2 million.

With that I'll turn it back to the operator to open the line for questions.

We will now begin the question and answer session.

To ask a question you May press Star then one on your telephone keypad.

If you were using a speakerphone please pick up your handset before pressing the keys to withdraw your question. Please press Star then two.

Our first question comes from Matt Mcginley with Needham. Please go ahead.

Thank you. My first question is on the retail productivity in 2021, you'll you'll be adding stores in lower volume states like Florida, but also in what I assume will be much higher volume stores in states like New Jersey.

I guess can you can you give us any color on what that unit productivity would look like over the course of 'twenty. One would you. What's your revenue per unit growth over that mix on new units keep productivity from expressing much upside.

Yeah, Hey, Matt its Joe Barron as you know it you know the the metrics vary by state and as you pointed out adding stores in Florida isn't going to have the same impact of potentially adding or of states stores in new Jersey, but one of the things we've been I'm pretty.

Pretty pleased with is we're seeing a progression of not only the number of new patients were adding into our dispensaries in the average order of volume, but we're increasing our average ticket value as well and we've gone from 80 to 135 throughout 2020. So we fully expect to continue to see progression of our average order values now.

Because we're adding states, which have higher average higher ticket prices like Chicago, like Illinois, and Pennsylvania, but we're also finding the people are trading up on on different platforms. So instead of just buying flower of the binding flower with pre rolls or the planning buying a vape and edibles. So we're continuing to.

Our our volume by adding incremental sales of every every patient visit and we.

We expect that to continue in 2020 one.

Great.

On the Capex side of it I didn't hear of number for for our.

Guidance for 'twenty, one capex can you.

Frame, what that should roughly look like this year and.

Do you of any sense of what the maintenance capex for ongoing capex spend would be relative to the growth Capex that I think was more dominant in your and your spending in prior years.

Yeah. So Joe this is Mike we are we spend about 126 million in Capex in fiscal 2020.

Expect that number to be roughly similar in 2021 maintenance.

Maintenance Capex is really small relative to growth capex. It's it's a fraction of of what we're spending so most of that capex that we spent in 2020, one will be for growth initiatives.

Okay. Thank you and Matt Hey, Matt. This is John Yeah. The only thing yeah. The I'd add to that does that sort of see the can change you know the changing landscape in the U S legislation landscape, we might accelerate some of the backend of projects and some of the 'twenty two projects, we might be able to pull into 'twenty. One I mean, obviously how quickly you know the states like New York.

Mark pass adult use and what the parameters of our for when they can get the program started will dictate.

Some of the investment, but we'll continue to try to invest.

Net of those programs wherever we can to try to accelerate growth.

It's a good idea of Joe and that's that's one of the reasons. We did the capital raise in January so that we have sufficient capital on hand to take advantage of any new opportunities that may arise in 2020, one because of all of the changes in you know who's running the country of these days.

Yeah, Okay very helpful. Thank you.

The next question is from Pablo <unk> with Cantor Fitzgerald. Please go ahead.

Boris One question, obviously, you are preparing for the Interstate trade right, you're going to operate without it everybody in the state of being an island and unless you described you're going to operate we have interest day trade. So in your opinion and he said something that happens pretty soon as we begin to get for legalization. Other people have for the interest they trade it would take awhile even.

And if we get for it on legalization. That's the first question and secondly, unrelated to that and all of these are the crystal ball questions, but you know once you get the federal legalization and do you have the Interstate trade you know, what's the need for more stores. If you call. Most of these allow then you can ship of growth States you know how does the corner of Youre thinking about it.

Investing in stores. Thank you.

Thank you Pablo let me start with the first question I think our view on Interstate traffic sorry, Interstate Commerce is probably closer to the end of the current administration rather than the beginning we think the if the Republic, if the Democrats could gain them, but.

The majority of the Senate other than the likely to be able to get that legislation through we don't think of it happens in the next two years, we think we get something.

Addressing social equity issues and safe banking over the next 12 months I don't think though that we get full legalization in this period of time. They just don't have the votes. That's what our lobbyists are telling us we do though however think that they can hold onto the their majority of its going into the second term and popularity of the more states continue to move to adult use.

Like New York, and Pennsylvania, we think that there'll be forced to address the issue in the second half of this administration.

And so at that point in time.

We think that it would probably pass now what we're starting to do now because this is the process that takes time as well.

Starting to plan for that we think it's inevitable, it's kind of happen and so what we're doing is we're starting to pick up.

Based on water tables based on weather based on everything we're starting to pick locations around the country, where we would cultivate and working also on of genetics to make sure that we can bring our average cost of cultivation down substantially.

And so you'll hear from us over the next 12 months.

On both of the joint venture initiatives as well as acquisitions, where we're going to be focusing on that area of of of cultivation in order to bring those costs down dramatically and prepare for the Interstate commerce situations. So that's what we're doing there on the issue of the stores.

None of us really know, how they're going to legalize the distribution of cannabis when they get to it I still think that the.

Early law that will get passed will be quite restrictive only because it's an early while we've seen that medical we've seen that in the states. So what they do is they pass the restrictive law and then they start to liberalize. The it as time goes on I suspect the stores in dispensaries are going to be the most probably prevalent way that they will be distributing the pass the distribute cannabis.

Because they want to control of that it doesn't get into the hands of minors and so I think the stores will still play a role I also think direct to consumer like in California, and other places will play a role of them. So purely because also preparing itself for that model and were building out a very robust direct to consumer model and you'll start seeing us rollout of that model and Barry.

In many states during 'twenty, one going into 'twenty. Two so we want to be prepared on both fronts, but I do think that the brick and mortar stores will still play of prevalent role of at least over the next five to seven years and the distribution of cannabis and that's why we continue to invest however, obviously the bigger part of the investment is definitely going up to the whole.

Sales side with select where we're starting to really focus on product development and more importantly on distribution towards many possible stores as we possibly can so today, we do capture a lot more margin by selling of our own stores, but obviously the future is going to be in and national distribution on the wholesale basis, and so that's where the company is focused.

Thank you that's really helpful can I squeeze one last one you know what the hell of a.

Subject of brands I mean, we hear you know Seth Rogen and J C. We hear about all the celebrities right from my point of view select and clearly if there was sort.

Just the two main brands that you have it seems like you need a lot more to be a national player you are coming out with us very interesting extensions of select but do you need more brands in the portfolio and what do you think of what celebrities are back brands. Thank you that's it.

Well I I have of double I've I've of mixed view on that I think the.

Celebrities of definitely helped certain brands.

Around the different fields in the world, whether it would be.

There are certain consumer brands et cetera, but I you know at the moment, the that's a very high cost.

The only watch the the value of every dollar that I spend in this company.

I think that although we are talking to.

We are keeping our eyes open to making sure that we do the right thing, but I think we're going to approach it a little bit definitely the some of the other companies did.

Sales of product Pablo is quality and if you have the best form factors and you of the best quality people will come and buy your product.

And Apple wasn't sold the originally by any.

By any celebs.

Celebrity Apple the sold by the fact that it was the most innovative the best product on the market and so that's where Joe and I are focused on is making sure that we've got the best quality formulations and the best products.

The most innovative products that we can sell and broaden the consumer base and that's really where our dollars are going today.

Got it kind of if you don't mind I'll just elaborate this is Joe there and I mean today, we have two brands because that's where we believe the consumer landscape is today, they're broadly to usage occasions and the market. There are people, who are consuming for health and wellness and their people are consuming them on adult use in and lifestyle as the landscape.

Changes in as it develops and emerges in different segments of emerge, we'll think about creating brands that are appropriate for those segments, but today, there's really just two broad segments of the marketplace and we wanted to have the number one brand in each of those segments. It's very simple. So that's why today, we have two cornerstone brands. We also have grass roots, which is a.

Another brand that would you know, it's obviously important to us which is focusing on flowers and concentrates but as the market develops you'll start seeing the proliferation of brands and into bar at this point, what we've seen so far is people, taking celebrity names and slapping on products without a lot of differentiation doesn't see.

To be working out of space. So, we're very focused on efficacy and functionality and quality of the product because that's what's going to drive consumer demand at the end of the day.

Thank you.

The next question is from Devin Asia with Cowen. Please go ahead.

Hi, This is Gerald Pascarelli on for Vivien, Thanks, very much for taking the questions.

So my first question is on the E Mac.

The announcement today.

<unk>.

It seems like from the press here.

They're going to expand considerably in Portugal, and so can you just provide some color on.

Going back to Capex on the overall levels of Capex, that's going to be needed for this expansion any color you could provide there would be helpful. Thank you yeah. So the.

The <unk> business was very the European business very different from the U S business.

We do we do not have the silo in every single country, we can build centralized manufacturing and grow operations and distribute throughout the whole continent because of its a federally legal business in Europe. Unlike what we're doing one thing that I. The states. So because of the that we were going to use the term of Verde platform N and local.

<unk> and Portugal to continue to expand the cultivation operations as well as Spain, where they have built pharmaceutical grade.

Manufacturing capabilities, because Europe demands of much higher grade products are much more formulated product because it's a pharmaceutical model. One many people don't understand that the European cannabis market is very much at the moment of pharmaceutical model. So the the standards of of manufacturer of very very high and we will be using though.

The facilities and we will continue to invest in those facilities now, but because of the system. The the capex to be honest, it's not meaningful it's not something that's very substantial and as we said.

We are in negotiations with the strategic partner that will invest at the European level.

And into our business and we will use that capital in order to continue to expand the business both on a organic basis, but also on an M&A basis, we intend to be very very aggressive in Europe on the M&A front in order to continue the build out our footprint both in distribution.

And.

Mainly in distribution, but also in some strategic partnerships with a variety of different companies in Europe that are working on different products in the area of of wellness.

In that market. So we are very excited about the opportunity, it's a slightly different business than what we have here today, but clearly for us not.

Purely used to be a bar roots of grounded and medical I mean up until recently, we were largely of medical distribution of cannabis company.

You know obviously the Mac is all medical at the moment.

So we're working very closely with them to build this out and so I don't think the numbers of gonna be particularly meaningful in a couple of weeks when we announce our partnerships and the capital well.

We'll get into it but it's not meaningful to the overall purely platform compared to what we're spending in the U S.

Got it.

Thanks for that makes sense I mean, I guess, that's a good segue, maybe youre going to be providing more information in the coming weeks part of it was on your blended margin.

If the deal does close in <unk> 'twenty, one I guess any high level color you can provide on how that impacts.

The organization the.

The margin at the overall organization going forward I think again.

Will be there will be obviously, we'll give more detailed bolt on analyst calls.

Going forward, but there we know this business pretty well the.

The margin.

You know it will be in line with what Mike said for the overall company early answer of what we're targeting of 30% EBITDA margin in the European business is almost profitable solid its very but don't forget we don't have <unk> issues in Europe.

And so that business is definitely going to be net income positive into 'twenty two.

And I'm very close to breakeven in the.

The 21.

Got it Super helpful color. Thank you very much.

The next question is from Matt Bottomley with Canaccord Genuity. Please go ahead.

Good afternoon, everyone. Thanks for taking the question I just wanted to stay on <unk> for a second can.

Can you give any more color of description on sort of the classifications of revenues that currently exist.

Exists on a trailing basis is it mainly exports out of Portugal or are there other sort of ancillary business units. There just anything that give some color on what the revenues are.

How the revenues are being generated yet currently regardless of their modest or not.

So the Mach E Mac exports today from Portugal, and from Spain to Germany to Israel.

To England and to.

Ah the Italy.

They just also got selected and the development program for medical in France.

All the all of their product has grown in Portugal manufactured in Spain, and then distribute it out to these countries.

And the.

Yeah. That's that's that's that's basically what they do they the distributed.

Markets that they currently distributing to the Theyre looking.

At both Holland.

Switzerland, the sheer looking at adult use model and all of us.

The Mac is looking at.

Entering both of those markets of Switzerland, They already have certain agreements on Harlem, they're working on.

Order to be able to acquire licenses in that market to get into the adult use market, but we anticipate continuing to use the Portugal and Spain.

Paint facilities for both cultivation of manufacturing was the probably an expansion of the cultivation facilities in Portugal.

Helpful. Thanks, and just one other follow up for me on New Jersey. So you can give any more color on how that factors into your guidance from some positive news flow there the other week.

And if you have been more conservative with the one that might come online or if that's kind of why you have the $100 million range in your guidance.

Well I mean, we have of $100 million range because of its over the next four quarters. We're not currently factoring in adult use in New Jersey, just because of the.

The timing is still not crystal clear yet I mean, we're optimistic that by Q4, we will start to see New Jersey adult use revenues, but again, we haven't factored that into our guidance range.

Okay. Thanks again.

The next question is from Aaron Grey with Alliance Global Partners. Please go ahead.

Hi, good evening and thanks for the questions.

First one on me I wanted to ask on specific state of Florida, right. You guys had some correlation of expansion there as well of some recent retail rollout of someone asked about you know kind of the initial harvest and how those sort of harvest kind of come from that and how youre kind of looking at that overall market as you kind of continue to look to expand.

The overall kind of market position within that state.

Yeah.

Yeah, I mean, I think Florida continues to play an important role in our portfolio. It's obviously a big market is continues to grow in and probably most exciting for US you know, we think that adult use on the horizon sometime probably in 'twenty. Three so we wanted to make sure. We're prepared for that because we could think we think that's going to be one of the most compelling.

In the U S. When the adult uses is available but until then we continue to build up our capacity we've been capacity constrained in 2020. So I don't think the results that we've shown in 2020 or a fair representation of what we think we can do in the marketplace and we're launching new products, but as you said we brought on new.

Cultivation. This is the second round of flowers through our indoor grow and I was there last week and I can honestly say, it's it's some of our best looking flower and today. So we've gotten through the initial startup phase in and.

The commissioning phase of those buildings and I think we're starting to see you know just across our platform just better quality and better quantity of flower coming out from our grows on a month over month basis. So we're excited about that going into 'twenty one.

We're looking for a step change in the marketplace.

Because we have been capacity constrained and I think we're gonna have a lot of product available in the market. This year and we're looking to bring innovation into the marketplace through the through the launch of all of the products, we talked about on the call, including fresh in essentials, and squeeze and other innovation.

We have in the pipeline so.

You know we have a lot of exciting news in Florida, where we're looking forward to being able to.

Grab substantial market share over the next 12 months.

Alright, great. Thanks for that and then second question for me you mentioned some disruptions in supply chain during the fourth quarter also delay and stimulus checks.

Just wanted to know if could you quantify or potentially talk about some of the specific states, where you saw some of the disruption during the quarter.

And then kind of going forward you know how does that kind of play into your guidance in terms of you know stainless now coming in kind of the overall kind of consumer purchase habits. Obviously, we saw a lift last year from Covid in terms of average ticket. So wanted to know how that's kind of baked into your guidance and then in terms of the top of high end. The low end in terms of timing of cultivation expansion how of that.

Plays into that thanks.

Yeah, I could talk on the qualitative, but we don't really we're not really quantifying the impact I think it was just you know you know.

We've seen a little bit of softness in the fourth quarter.

But we think that's going to rebound and in 2021 and it doesn't dampen our enthusiasm for 'twenty, one and all of them.

Even though we did see some softness we continue to grow our business. We continue to do as we reported on the operating metrics get better across the board on all of our metrics I think the supply chain disruption for US where you know, it's just harder to find trucks, it's harder to get supplies. When people are out on COVID-19 and it's harder for us.

To be able to ramp up and hire people when we've when we've got of Covid in our supply chain and you know when they're there we're trying to hire people in key states.

Like Arizona, we had I think we were trying to hire 100 of 100 different people getting ready for adult use.

But you know it was hard to get them back because the <unk>.

The regulatory body you know it wasn't working at full speed.

We had constraints on.

Supply of <unk>, and our manufacturing sites, because we had to keep spacing and we had people calling out sick. So.

I think most of that is kind of gone behind us.

Feel pretty good about.

Where you know not to get too too macro level, but I feel pretty good about turning the corner in the U S. On the Covid front and I think I.

I think 'twenty, one is gonna be a really good year for us and for a lot of other industries, but I feel really positive about 'twenty one.

I'll, just add a little bit Joe to say that you know.

If you take a look at the Bds analytics numbers Youll see that California definitely had a slowdown in the fourth quarter, Arizona, Nevada, Massachusetts. These were states that were hit, particularly hard, particularly on the unemployment side. So it definitely hit the consumer and we saw it not only in our business, but I investing a lot of businesses for my family office.

And we saw a slowdown for a lot of these locations.

I think that the the stimulus check the in December of $600 helped a little bit and I do think that this current check is going to help quite a bit and I'm very bullish still for the second half of the year I think we're going to go into the explosive growth environment in the United States with potentially 10 plus percent growth rates going into the end of the year and so I think you know the.

You know 12 months I think the the first quarter still has got some level of of Covid still in but I think with vaccinations of economic activity in the employment numbers, we're showing the tremendous strength in the last number that we just saw I do think that we're going to see much.

Much more activity on the consumer side going into the second third and fourth quarter. So all in all we're pretty happy with the way. This thing is heading but Theres no question Theres no denying that in the fourth quarter and early the early part of the first quarter that was definitely.

The people that are struggling in the country and unemployment rates in some of the states where over 25%.

And these are a lot of those people are people that use kind of it. So there's no question. We saw some softness I think you thought the Illinois with flat growth over a couple of quarters over a couple of months, but now everything seems to be picking up so we're reasonably bullish about the rest of this year.

Alright, great. Thanks.

The next question is from Scott Fortune with Roth Capital Partners. Please go ahead.

Good afternoon, and thanks for taking the call maybe for some of the clinical level.

You discussed about the industry as far as the.

Interstate.

E Commerce, though what's the strength of the lobbing growth versus kind of the alcohol tobacco or of pharma group, that's getting in there with the Senate and with the humor leg.

But simple here of Interstate commerce coming on board earlier, and kind of the pharma influence on the Kansas Wells in the segment, becoming more of an FDA regulated <unk>.

G&P pharmacy model in the U S is that kind of as part of the thinking of the acquisition side. The rest of the GNP medical products in and you just kind of of your thoughts around kind of Kansas, We pointed out that moving to more of a gene the medical side of things I think I think the first let me give you the political landscape of the political landscape of the Alka.

The whole and tobacco are absolutely for legalization and are lobbying for legalization and I can tell you. The tobacco companies are out talking to cannabis companies.

Alcohol companies are out talking to candidates companies they are.

They've bought into this trend they think of it that's a huge market. They want it. So there is no problem there the working together with the cannabis lobbies in Washington, you know the.

Ill.

Opposition is definitely pharma pharma right now is very powerful due to COVID-19.

Pharma is still not found the way to manufacturers of synthetic cannabis.

And so they are not necessarily pro cannabis and so theyre very powerful they have a huge hold over the F. D. A.

Holding back of full legalization of at this point in time, plus you have you do have.

Certain members of Congress and the Senate as well as the administration that come from the the war on drugs zero, the 19th Seventy's and Eighty's, that's still can't get the pattern around the about the fact that the they spent the bulk of their career fighting against cannabis and here we are even though it's legalized in the country very quickly I do think however that the.

The trend is in our direction of the polling is very strong if there's one bipartisan issue in this country that everybody can agree honest the legalization of cannabis and we've seen that in the lot of the ballot initiatives that took place in November so I do think that we'll probably get.

Some kind of both banking as well as the Interstate commerce legislation at the end of of of of the Biden. The term probably the that's what we anticipate.

I appreciate that the real quick one last one for me and you know he loves the club.

The only five two times the population gauge and legal cannabis.

Kind of of what product format now are you seeing or our brands the segments of the category of for Canada is really starting to resonate pretty.

Pretty quickly it seems like edibles is moving up pretty quickly from the standpoint and you.

The kind.

Kind of keep saying that you'll get down in the 20 to 30 per cent flower you did a high premium flower option that you guys are looking at Lau of growing indoor cultivation for it and then kind of the outdoor if more of NT <unk>.

I guess you don't see came.

From a brand and from the standpoint.

Yeah, I think just to be clear for you know for the foreseeable future flower is still a big part of our category I think you know the the latest BD estimate of showed it over 50 per cent.

So it is you know, it's it's declining but it's still a very important part of the segment, but to your point I think people will be for switching to a different form factors like edibles and beverages are too easily identified for factors that already part of the consumer.

Consumer.

Experience of how people consume products in the other segments and you know we're looking to bring those consumers into into the cannabis segment. So I think you know we will continue to build out you know efficacious products and products that are specifically formulated to meet different need states.

As a way to attract new consumers into the into the category and to your point you know I think on the flower and you will get you know a bifurcation of flower and that's grown for consumable flower that will be probably.

More.

Batik oriented or niche oriented high end enduring growth and then outdoor would be used as as raw material for formulated products.

So that's how we see the you know the market evolving over time.

Okay. Appreciate the color Inc.

The next question is from Andrew portion of his Stifel GMP. Please go ahead.

Yeah.

Hi, Thanks for taking my questions.

Maybe just.

Just.

Talk about a little bit of the organic growth in the quarter could you could you discuss.

Or give any kind of metrics on same store sales growth.

Traffic ticket sales.

I think you mentioned a little bit about basket growth in during the call, but you know any more details around that especially considering you know a little bit of softness that you guys spoke about the and the potential revamp of the demand in 2021.

Sure. This is Mike. So if you look at managed revenue in Q3 was $193 2 million versus the 233 in Q4.

Keep in mind, though the grassroots closed on July 23rd So had it closed on the first of the.

Month of July our managed revenues in Q3 would have been about 13 of $14 million higher so that kind of gets you a little bit of a sense of organic growth and really where we saw the organic growth was in several states, Florida, Connecticut, Massachusetts, Nevada, New Jersey, New York.

And several others, Pennsylvania, Illinois.

On the same store sales from you know, we we haven't gotten to that metric yet I think we will do so in the future, but like we said on the call you know despite all of the challenges we saw in the fourth quarter.

Average order value per patient did increase by 5% from the third quarter of patient growth was up about 10 per cent.

Thanks for that additional color and maybe switching gears, a little bit more big picture.

We've previously talked about.

Where the cannabis industry is in the stage of the lifecycle.

Basically you know just.

Do you need to you know build.

Build out the capacity because every market essentially it is capacity constrained.

And then the next stage would be to the to have.

The innovation in and compete against the black market and the third phase would be the bringing new consumers.

The vast majority of Americans that have not yet tried cannabis could.

Could you discuss a little bit you know.

Given that we're still in the first day here how long do you think of that for page of of you know large production expansion from the lives and and obviously you guys are are already starting to innovate them. When do you think that that would be a bigger.

The would contribute a bigger portion to growth going forward.

Yeah.

I think the from our perspective, theres not going to be a clear line of delineation of them. When the transition starts happening. It's it's it's going to kind of evolve at the same time, but if you think about the size of the marketplace. Today I think you know by some estimates the the.

The illicit market is four times the the size of the legal market. Today. So just just grabbing share from the from the illicit market is a long runway of growth of market size in the U S cannabis industry.

Then if you think about bringing consumers in from other other consumer segments and bringing in people, who are currently consuming alcohol or some of it or or using products in the health and wellness market for things like sleep for anxiety, Oregon, all the way to the prescription drug market in the U S. A.

For the use of opioids for chronic pain relief I mean that is a huge addressable marketplace. So when you think about when we talk about an estimate of $75 billion to $100 billion that might actually be conservative. If you if you factor in steel.

Stealing share from other of those other large growing consumer segments. So we intend to try to do all of those things we want of not only you know grabbed share against the competitiveness of our existing.

Legal marketplace, we want to continue to grab share from the illicit market place by offering new form factors and higher quality products.

And bringing people into our category and as you know we just did are for us consumer national consumers segmentation study and it's clear that new consumers coming in and even the existing consumers looking to move the other form factors rather than smokable flower in the future. So bring in products that meet their needs without have.

The smoke flower is going to be another big growth growth area. But then we're also looking at omni channel distribution of all of our products. So if we have something that works really well for sleep. We might have a version of that is T. H C. M. That's sold in the dispensaries, but we may also be formulating products with 90 Chi versions for health and wellness.

And that could be distributed through national drug changed. So you know we see you know.

The the path is very clear in our mind on how we start building out our revenue.

Growth across multiple paths hum against different areas of the market segmentation. So you know again it won't be a clear delineation of you know we moved from line. You know version one of her into the version three it's really about building capabilities across all of those so as these consumers coming to the.

Market place, we're able to capture them.

Thanks, and and if I could just sneak another one in here on the EU market.

Obviously, you know very different dynamic from from the U S market.

Is it fair to say that.

You guys are thinking more about you know of.

Tableau Singh of footprints early so that when these markets do open up eventually.

You guys are going to be well positioned and in that sense. You know that's that's why are you guys were talking about you know having strategic partners on the EU level two to minimize your your investments there for the time being until the markets become a little bit more meaningful that and.

Of the context of the the entire truly platform.

I'll take this one I think.

We are very excited about Europe, and I wouldn't do it if I wasn't.

I've been looking at Where's the growth accurately gonna come in 'twenty, three 'twenty for 25 substantial growth triple digit growth and as I started to look at Europe I realize the Europe is literally where we were in 2017 and that's the status of the European market.

Right now and every country is reviewing legislation the liberalizing the cannabis market further than where it is today.

We're starting to see a pickup in demand and then when we started to do studies about how many people use kind of as we realize the candidates usage in Europe is at least as good if not more than in the United States.

Countries, like Spain, Portugal, and Italy are massive cannabis users and so we realized that we need I mean, Germany is an 80 million person market because the 740 million person market and so I said there is no way the purely cash.

<unk> not be in Europe, and do I want to pay $6 billion for a company in three years or do I want to get in on the ground floor now by the largest best run operator in the market and that's what I did I bought the best largest best run operator in the market and we are going to raise capital at their level.

Because of the partners that we're talking to no Europe and know the middle East.

And so we really want to have a foothold there and we think that when you look at it you know if you bought at the Kimberley, which some people did of the $300 million market cap in 2017, Theyre very happy with their investment today, and I think that investors need to look at it that way purely for is just we have an eight country footprint.

With the very strong management team, a built out infrastructure and a legal market non federal legal but legal market, where we can operate and finance on the.

Normal corporate terms and where we don't have to have as much anywhere near the Capex. We do in the U S. So it's a very exciting acquisition and I think you're going to start seeing substantial contribution to purely starting in 'twenty three I think over the next two years, although you're going to see you know 100 plus per cent growth, it's not gonna be book.

That meaningful to the bottom clearly the bottom line, but as we get into 'twenty three 'twenty for I think youre going to start seeing very substantial contribution from Europe and that's what management is supposed to do we're supposed to look five to 10 years out and see where is the growth kind of come from in our business and so this was a very bold strategic acquisition for our growth.

Yeah, and I'll just I'll just add onto that this is Joe that we're also the have the ability to accelerate the growth in Europe compared to what we've done in the U S. Because.

Basically you know, we believe that the the need states and and the consumer preferences that we're driving in the U S will drive consumption behavior in Europe as well, so we'll be able to take the product formulation that we're perfecting here and moving right into Europe to meet to meet those needs without having to go through another growth cycle of the.

Exploration and the innovation in the marketplace. We're also able to take the capability they have around clinical research and GMP certification and deploy that across our business in the U S. So there are a lot of synergies other than just the growth platform, which is substantial that we think is gonna be.

The act as an accelerator and candidly allow us to take advantage of an opportunity and a unique way that other people can't.

Thanks, very much for that color and congrats again on the results in all of these announcements.

The next question is from Russell Stanley with Beacon Securities. Please go ahead.

Hello, and thanks for taking my my questions. The first one relates relates to Florida.

I guess another legislative effort underway to the cap THC content levels I'm just wondering what your thoughts are on the likelihood of the legislation passing this time in the ER.

How much of a risk in the post to your business there.

Because when we always take every piece of legislation or any lobbying effort there can be bad for industry seriously the.

This is not the first attempt to do this.

It's basically the same guy the.

Couple of Conservative.

And there in the in the.

Isn't there assembly that wanted to do this but we don't believe the terms of risk of it and all of the operators are working against that of the regulator has has recommended not to accept this.

Legislation, so we're pretty comfortable won't happen, but.

Not sitting back from.

Doing nothing we're making sure the or on top of it.

Great. Thanks on that and just a follow up notwithstanding your prior comments around the attraction of the European market.

Just wondering around the timing of it does it does this decision entry of Europe now in any way of reflect your view on on valuation multiples from potential targets in the U S.

What's your M&A outlook in the U S. At this point and how do you see.

Multiples.

And in your home market of they have they become a little too aggressive or theres still attractively price targets out there for you well.

Well, we do think of multiples in the U S to become aggressive and it's the reason we were so aggressive in buying early on.

For some criticism from people.

A couple of years ago, but the clear.

Travis was let's get in early and let's get them cheap.

What we did I mean people are paying $30 million of store in Arizona, where we paid $5 million of store. So I think it's it's it's it's important the timing is very very important and obviously our European acquisition is part of the fact that one we see the market developing I'd see a huge opportunity in Europe I like scale the.

The scale is massive.

And you know the barriers to entry are still higher and it's expensive to be able to rebuild the platform like the one that Antonio built with the macros.

Very time consuming very expensive and so we wanted to get in the early when we can get a decent price for the asset before the price from start to go higher on the U S front.

Clearly it will be very careful we are going to make a couple of bolt ons, probably during the year, but they're largely focused on just enhancing the existing businesses that we have in those states and or working into our new Interstate commerce planned.

We're starting to change the structure of our business two of two of adjusted to the fact that at one of the law changes clearly needs to be ready for that so that's the only thing that youre going to see for most of all the other than that you'll see a lot of organic plays where we're bidding for licenses not bidding we applied for licenses in Georgia and for.

Net and a bunch of other places we try to get them as cheap as we can and then investing them on it.

Catholics basis, So that's really what we're doing in the U S.

On the European front, though I do think you'll see a bit of activity from us in consolidating the European sector and growing our footprint there even more.

Excellent that's all for me. Thank you for the color.

Yeah.

Yeah.

The next question is from Glenn Mattson with Ladenburg Thalmann. Please go ahead.

Hi, So I realize it's late in the call so I'll try and be brief and quick.

Question on New York, just can you give us some.

We're on the process and how it's shaping up in terms of legalization there and it did take it up just curious if the.

Governor of being distracted in a potential of weaker position.

It could affect the timeline and the negative way at all of your thoughts around that at all the great. Thanks.

I can't address the.

The governor's per.

Personal issues, there, but what I can say to you is that there is legislation moving very quickly right now.

And we are we are quite hopeful that we're going to get a package of legislation.

For the legalization of adult use of this year in New York So.

I think it could happen.

As early as next month or so it could happen over the next three to four months, but the legislative session lasts until June and we think that during the session. We will get a package of legislation for adult use.

The next question is from Camilo Lyon with B T. I G. Please go ahead.

Thanks, Good afternoon.

Of course, you've talked a lot of out aggressively investing in and that certainly seems to be.

The right strategy to go after right now given the many opportunities and trying to deal as you think about the context of this year's EBITDA margin getting to that 70% level is that what you wanted to settle out and as you think about revenue and revenue generation offset with some investments that you're going to need to.

Put into the business to get that incremental of the messaging.

Revenue for.

Or do you see there there'll be no migration higher teaching all of the drilling of the year.

And where does that EBIT EBITDA margin really kind of set allowed out of some of your perspectives.

Well listen I think that you know, it's it's it's a matter of of of the aggressive the style of investing the purely passed I think that youre going to probably if we look out say 10 years from now I think the canvas.

Canvas EBITDA margins will probably be the same as most CPG companies. So the 20% to 25% margin will be considered a pretty healthy EBITDA margin for for those businesses I do think in the interim period as we scale you could see.

A higher EBITDA margins for <unk> as well I mean, I think they could go higher than 30% going into 'twenty two as our scale gets bigger and we're able to reduce our cost certainly the variable costs. So I think that you can see some upward pressure, but I.

My My goal right now is less focused on EBITDA and more focused on getting brand awareness and getting footprint.

And to the market and having really really good products.

I really can't stress enough. The fact listen I could stop investing tomorrow blow out my EBITDA margin to $40 45 per cent, but that's not my goal. My goal is to build the largest cannabis company and.

And product company kind of a product company in the world and so I am going to be continuing to invest I think it's the right thing to do and so far we've been paid for it.

We've had a very I think investors that of invested with us and of help.

The investments have done very very well and I'm going to continue to to exercise to execute on that strategy until it doesn't work and I think it is working.

And I think our EBITDA margin will potentially have some upward pressure going into 2022, but long term I think most consumer goods companies EBITDA margins level out of around 2025 per cent I think theyre very healthy margins, but I do think in the medium term you could see some upward pressure on EBITDA margin.

Got it and thank you for that color that's very helpful.

More of them.

More specifically on Illinois, and New Jersey, I'm curious to get your thoughts on any movement on specifically, the Illinois with respect to the 75 additional licenses and what's the status of the issuance of the those licenses and with respect to New Jersey and.

Any sort of.

Information that you have or color that you can share with respect to how the plan is going to unfold how the licenses will be issued or they are going are they going to require a new adult use only dispensaries or they're going to yeah sharing facilities like they do in Arizona any color there would be helpful and in terms of.

Helping us understand the pace of the ramping up the we should see in that market.

It looks like we're running a bit of out of time for them enough the quickly ilk.

Illinois, we're all looking for to the additional licenses.

Because that's what's going to drive growth people today, you'd have to travel long distances to get the of Canada stores. So we're pretty excited about those licenses of being issued I can tell you the they've almost put everything else on old to get those licenses out. So in the M&A deals are being held up in approvals and stuff like that because they're very focused on getting the social.

Equity licenses done so and Thats, probably the good thing. So we do think that that will happen pretty soon.

And on the New Jersey, I think that is.

As we've said we think that the program will launch in its current position probably by the fourth quarter sometime and further development in terms of how they're going to distribute the store licenses of everything we're going to wait and see how the regs get developed.

Got it thanks and good luck.

Okay.

This concludes our question and answer session and the conference is also now concluded. Thank you for attending today's presentation. You may now disconnect.

Yeah.

Okay.