Q2 2021 Green Thumb Industries Inc Earnings Call
Our revenue for the quarter was $222 million.
14% sequentially and up 85% year over year.
To give you a sense of the growth this quarter revenue exceeded our entire annual revenue in 2019, just 18 months ago.
We posted our fourth consecutive quarter of positive GAAP net income.
Continue to have positive free cash flow from operations and adjusted EBITDA grew 11% sequentially to $79 million more than double the level from a year ago.
During the quarter, we raised $217 million and a non brokered private placement of senior debt.
And we feel very comfortable with the balance sheet.
We ended the quarter with cash and cash equivalents of $360 million, which gives us significant financial flexibility to invest for the future and strong returns for our shareholders.
We continue to attract new U S. Institutional investors, who are aligned with our long term vision to create candidates experiences that connect people and improve communities.
<unk> mentioned just last month, we launched a new brand called good grief and announced the leap bake off.
Both initiatives dedicated to creating more opportunity for underserved communities in the areas of education employment and its fundament.
In addition to high quality products and authentic brands our team's passion for these projects is real and I am proud and it's part of Green thumb DNA.
Regardless of the current barriers limiting access to capital markets U S institutions are demonstrating an appetite for greater access to candidates investments and we are excited about the momentum.
The first half of the year felt very solid and we continue to focus on execution.
We are looking beyond the current year to optimize the tremendous potential when adult use sales begin in New York, New Jersey, Connecticut, and our recently entered market of Virginia.
In each of the new adult use market is coming online over the next few years, we anticipate a surge in demand that will mirror, what we have experienced first in Nevada.
Is that in Massachusetts, and most recently in Illinois.
History does not repeat it Ron.
Our home state of Illinois continues to both record sales every month and our team is preparing for the next few chapters.
Demand remained strong across the country.
It has been a busy few months for us as we expand and entered new markets.
In addition to Virginia via Dharma, we closed on the acquisition of Liberty compassion, a Massachusetts based cannabis operator, adding greater capacity for us to serve a growing east coast.
Consumer base.
We also expanded into Rhode Island, with the acquisition of vertically integrated summit.
This broadens our footprint to 14 states and 62 retail locations.
And puts us in solid position in the highly desirable northeastern market where.
Where are we now have operations in the contiguous states of Connecticut.
New Jersey, New York.
Massachusetts, Rhode Island and Pennsylvania.
We love the map.
We accomplished this by remaining committed to our disciplined strategy to enter markets that meet our supply demand requirements.
These are highly covenant space that offer tremendous potential as we scale distribution of our candidate products and retail experiences.
The flower and the service keeps getting better and better.
On a personal note I am excited that our acquisition partners chose Green zone.
Didn't have to.
So because of our reputation as a trustworthy and proven operator, and a shared alignment of vision principals piece.
People and community.
I am committed to making sure we deliver on that.
I am also very proud of what our team accomplished in the 90 days since our last conference call. As you can imagine negotiating critical M&A deals and then integrating people culture and a systems requires considerable time and effort.
The team get this done while completing other.
Both critical initiatives like the.
The first expansion harvest ahead of schedule in <unk>, Illinois.
Moving forward with our exciting more with New York, which is transforming a former prison to a candidate campus and building out capacity in states like New Jersey, Ohio and Pennsylvania.
We are also optimizing brand distribution, including canned beverages, which continued to perform very well.
Luis on the strip had a rousing opening as it becomes a top tourist destination basis.
We've got our own brand portfolio, we seek to create some of the highest value most well brand and candidates experiences that bring wellbeing to people and communities.
We have brands distributed in 12 states.
We continued to scale our capabilities.
There is still tremendous potential to build depth and breadth of brand distribution.
We are also enjoying success with limited seasonal offerings like canned pineapple jalapeno and the incredible sports bar.
At the core we believe that find your rhythm is a means to more wellbeing for America.
We know Americans want edibles, but are a bit nervous.
That is why incredibles, the credible edible can build trust and help lay the path.
And we know that good dream can help anyone feel good feel good and do good.
Together and over time, we can actually make things better.
As I mentioned before we are pretty close to parity between our retail and CPG businesses on a gross basis and over time.
CPG growth will continue to accelerate as distributions meets the demand ahead.
That is our focus every day.
We have many levers for growth that will expand access to well being through canvas strong execution for our customers and disciplined capital allocation for our shareholders remain our top priorities.
As we continue to deliver sustainable growth and returns.
Today really is day, one for the Great American canvas Pro story.
And there is so much opportunity for so many people and communities to win along the way.
I've been saying that for a long time, so let me try to quantify it a bit for you.
Legal U S. Canada sales are currently on a run rate of $24 billion.
That's because the second quarter of 2021 sales were $6 billion.
That's a new record.
One 4 billion is very big.
But it is just the start.
Think it more than triples in the next decade.
As an example, California grew 9% quarter over quarter on a base of about $1 billion.
As the legal regulated market grows.
<unk> grew 25% and seven year illegal adult use sales.
Baked like New York, Virginia, Ohio, New Jersey.
Not even in the $24 billion number.
At 58 million Americans.
Green thumb has a nice position in each of those states.
Because of this top down and bottom up analysis focused on the data and the consumer we think our $80 billion industry size is too low.
But even if you think it's around 80 billion that means theres about $60 billion more a legal sales to come.
We have confidence in those legal sales in United States, regardless of the federal policy.
And we believe that will lead to at least $100 billion of new market cap.
That's $100 billion of new wealth creation.
That's an unbelievable setup and honestly very American.
But the real questions are how do we handle it who.
<unk>.
And we'd be pleased in 10 years looking back.
I'm focused on that for green thumb and for the industry and I am excited about the days ahead.
We understand the privilege and we understand the responsibility of disposition.
With that I'll turn the call over to Anthony for his financial review.
I think.
Thanks, Ben and good afternoon, everyone. Appreciate you joining us today.
Before I begin I'd like to give a special thanks to our team and shareholders for all their hard work dedication and trust.
We delivered yet another record quarter.
None of which would be possible without our extensive and growing greenbaum family.
Those that have been with us in the early days, we've shown that if you planned guidance youre going to harvest win.
But those are just arrived.
Right on the Green thumb rocket ship, just getting started so buckle that T cell.
Today is day one.
For all of Us.
In the second quarter, the company generated $222 million of top line net revenue was $79 million adjusted operating EBITDA.
Total net revenue increased 14% over Q1 with growth CPG revenue growing 13% and gross retail revenue growing 15%.
As a reminder, the difference between gross and net of intercompany.
Similar to last quarter. There are three primary drivers to our top line trajectory growth.
Robust consumer demand.
High quality differentiated product and.
And execution.
Number one tie.
Tidal wave of demand for candidates is real.
Cross the board.
Every market we operate in consumer demand for legal candidates is going up and to the right.
Number two our differentiated product offering continues to resonate in our respective markets.
We believe in quality over quantity and leading with the consumer.
No everyday needs for our crude.
Eric Greenbaum, we want the buyer and Maura.
Last operational execution.
Since our first call as a public company in 2018.
Enter open scale.
In the face of tremendous growth and a myriad of complex regulatory environments. The team makes it look easy.
The net result of everything above is another highly profitable quarter, where the company generated gross margins in the mid fifties.
While this figure slightly declined over Q1, when we unpack the numbers it makes sense given the ramp up costs related to our CPG expansions.
I would assume that the business will continue to incur these sorts of expenses, while still maintaining our intrinsic goal of keeping gross margin at or above 50%.
On the SG&A side, excluding D&A and stock based comp normalized operating costs approximated $47 million.
$5 million increase over the $42 million incurred in Q1.
As we head into the second half of the year, we plan to continue to accelerate our investments in our team and our infrastructure.
We need a bigger boat and more key in helping us operator.
In Q2 total other income approximated $2.4 million, primarily driven by non cash gains and losses associated with our investment portfolio and the refinancing of our senior debt facility.
As a result, the company generated over $79 million and adjusted operating EBITDA.
36% of revenue.
Were $20 million and net income our fourth consecutive quarter positive earnings per share.
Moving on to the balance sheet, we ended the quarter with approximately $360 million of cash.
$85 million greater than last quarter that was supplemented by the 270 million non brokered them right and we completed in April.
With this cash we intend to double and triple down our best in a number of key markets.
Ah patients and consumers have spoken.
And one more rhythm dog walkers and Incredibles and.
And our capital spend should help address this.
In closing wanted to welcome to Liberty Dharma summit teams into the Green downtown.
We're excited about the additional reach new businesses and teams provide as we continue our expedition and the prohibition to point out.
You'll never one enjoys the balance of their summer and look forward to speaking with you again in a few months.
That can do that.
Thank you Anthony.
Before we go I want to share a little more about the programs I mentioned earlier and our efforts to expand access to opportunity and wellbeing and underserved communities, especially those harmed by the war on drugs.
In this country today, there's a 90% racial wealth gap between white and Black Americans to the systemic inequality.
There is not a percentage breakdown was in trouble by the shocking disparity.
And so in July we joined forces with 90 to zero.
This group is developing a roadmap to advance ratio equity by growing black talent and increasing capital to black businesses.
With the support of leading Ceos from companies like Starbucks Goldman Sachs and the United way.
And with the help of two time NBA MVP Steph Curry.
We are honored to be the first company to represent candidates in driving this change with 90 to zero.
We also.
<unk> announced the upcoming launch of our new brand called country.
To advance our mission of expanding access to well being through cannabis sales of good Green products will fund grants to nonprofits that support the brands three pillars.
Education employment and fundament.
We encourage you or a 500 <unk> three you know.
Or people, you know who knows 501 phase III that fits our mission to apply in our website good doctrine.
To give the program a headstart before actual product sales, we are proactively committing at least $1.3 billion over the next 18 months.
The application process is now open.
The application process is a means to figure out who and where to give the money in order to generate the largest impact.
This builds on our existing social impact program growing for good which is committed to advancing diversity and inclusion restorative justice and social equity within the cannabis industry.
Our entire team's dedication to these important social issues is inspiring.
I am also excited green thumb landing and the number two spot of Crain's fast 50 list of rapidly growing companies in Chicago.
We feel the growth and we are ready for more.
In terms of Covid we.
We can only hope that the delta variant will not lead to a repeat of 2020.
Based on the data, we encourage Americans to get vaccinated to protect yourself, the elderly and our kids.
While it's still too early to determine the ultimate impact of Covid. This time around.
We have learned how to live with the pandemic and we fully appreciate the essential role candidates and our industry plays in providing well being and comfort.
Tens of millions of Americans.
Rest assured that your company is stronger than ever and committed to becoming better every day.
And finally I want to say, thank you to Jennifer Dooley.
Many of you remember her from the Roadshow five year's Tantalizing brands, one IPO 13 conference calls lots of laughs lots of learning and lots of good fun.
On behalf of the shareholders. We appreciate your contributions and wish you well in your next chapter of life. Thank you Jen.
With that I'll turn the call over to the operator 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 youre using a speakerphone please pick up your handset before pressing mckeith.
To withdraw your question. Please press Star then two.
In the interest of time, we ask that you. Please limit yourself to one question and one follow up.
At this time, we will pause momentarily to assemble the roster.
And our first question will come from Matt Mcginley of Needham. Please go ahead.
Okay.
Okay.
Matt. Your line is open are you muted on your end.
Okay.
Okay.
I apologize for that my question is on retail.
I'm impressed with the sequential growth in the retail business I think most of the new unit additions in the back half will be.
Medical dispensaries, and epic New medical units in Pennsylvania, and Florida would you expect this to impact the average retail productivity or is there still enough momentum with the rising productivity on your overall store base, where you could sustain your average unit volume in the back half.
Yes.
Thanks for the question Matt.
I think one quarter is too short to judge the last quarter. The numbers, 2% of the people say hey is it too low amount is higher I think over time, we're seeing very strong consumer demand, we're seeing in the markets.
Anthony said in every single market go up into the right.
So we're analyzing those were understanding opening the box is really the evolving consumer.
That looks like so we like the retail business and you can see though a majority or a significant majority of our capital is going into the production business branded consumer products production.
Okay.
Second question is on the on the G&A in the back half.
Maybe.
You made a comment I think Anthony.
We'll be investing in G&A in the back half can you quantify what type of increase we should expect.
From that $47 million core number that you had in the second quarter and then Additionally, I would think that most of the recently acquired assets would likely be lower margin.
This operating leverage scale in what we do at GTI consolidated would that have an impact on the margins in the back half or is it just kind of small enough where the rest of the system is operating at such a scale just sort of gets mixed up it wouldnt really have a margin impact.
Yes, Matt I'm trying to.
You said a lot there I'm trying to understand the root of your.
Question, not just kind of repeating it.
Absolutely so.
You made the comment of the core G&A in this quarter was $47 million.
But you also said that you would be investing in the back half can you help to help us understand how much of an increase we should expect to see on G&A investment into the back half and then the second part of that was.
These recently acquired these assets across several different states, presumably those are all lower margin businesses than what you have a core GTI today would that have an impact on margin in the back half or is it just not just small enough. It doesn't really have an impact on overall GTI consolidated just because youre dropping at such a scale for the rest of the business. They would just get washed away and not have an impact.
Yeah.
Sure Okay.
Totally about G&A.
Scott Jones, So look I think we've said before as the business continues to grow and what we're seeing we're building the team in advance of the tidal wave that's coming.
Our foot on the gas in terms of the infrastructure that we're building here.
At the same time, we are ramping up capex in the back half of the year, which will be at or above where we spent to date.
No.
We anticipate that G&A number to continue to increase now do I think thats going to result in some margin dilution kind of overtime.
No because I think the top line a lot Ryan.
On the second part of your question on the retail margin dilution of the acquisition.
You answered it correctly, it's not a factor.
We're looking out at what these assets being in the touch points with the consumer and what it means about our brands in those markets state tax revenue state jobs, we like those assets, we're not thinking about.
Margin dilution of acquired retail boxes.
Okay perfect. Thanks for the answers and that revenue a great quarter.
Thank you.
The next question comes from Vivien <unk> of Cowen. Please go ahead.
Hi, Thanks, very much I wanted to dive in on your consumer packaged goods business.
Clearly next quarter on that and appreciate the desire to continue to invest behind that as you build the portfolio of brands.
The traditional metrics that we talk about in CPG as ACD rate as a measure the distribution.
Well I think for you guys. It's not just about getting one SKU in a competitor door and you're calling that a win so how do we think about kind of distribution opportunity is kind of over the medium term in terms of kind of what percentage of your portfolio is well represented in third party doors and how much runway you have there. Thanks.
Yes, good question and something we're looking at and obviously tracking which states, which brands of which distribution and what's going on with the consumer there is elements of the regulatory structure of which products are allowed animals not allowed in ta no pre rolls to Pennsylvania and things like that.
We focus on co brand distribution, we want to meet the consumer where they are and so we're looking at 100% distribution in many of the states. We are in Illinois, Pennsylvania, Maryland, as we scale product in Massachusetts, a lot of the catalyst behind the acquisition was more rhythm board incredible more <unk>.
Number one so we got to get its own and we got to get it to them at the right retailers.
Which means everywhere.
I think the consumer I think the industry is evolving fast and so we want to play where they are going to be a little bit.
Uh huh.
So sometimes we have the unfortunate decision, where we can't do mass distributions to everybody.
We're doing strategic things were approximate on certain places because of limited supply.
Yes understood.
My follow up kind of along the same lines I was wondering if you can comment on on can at all and as recently in a competitive dispensary in downtown Boston.
On display there wasn't any available for sale is noted in your press release.
The operation.
<unk> expansion beyond Illinois, So, perhaps if you could give us a more real time update is that not available with those samples in Massachusetts, and how many states could be expect can Ian.
Thanks.
Great Yeah, we're going to scale.
On the East Coast. If you think about some of the markets that were really targeting again, it's not about this quarter than the year. This year first half of next year, we're thinking a few years out because consumers are where they are states like New Jersey in Europe building without rules proud of that program's going to go get moving forward pretty quickly.
Massachusetts is an unbelievable opportunity in your experience is the experience I hear about often which is what more can I can't yet.
It's a high class problem to have and we're scaling operations of the business.
The business will have a few more states by year end or over the next six to 810 months and we.
We plan to go pretty big and a few of the states to be ready, we think again the consumer experience of candidates is evolving and can be really a part of that too.
Two milligram social experience reduces the fear of entry into the product and we open ourselves up to a brand new consumer base.
It's big.
If any of you were in Chicago will give us a call back.
Thanks.
Thank you Kelly.
The next question comes from Pablo <unk> of Canaccord Cantor Fitzgerald. Please go ahead.
Thank you.
Tony.
As you and your prepared remarks, you said something about doubling capacity in Pennsylvania, and New Jersey, Ohio, You also mentioned that in Illinois, just completely unexpected there could you give more color in terms of the timing when that kicks in and did I hear you right about doubling capacity in those four states and again, if you can put your mix.
Surrounded some people to go with square feet of current will be and then also timing I'm just asking that in the context of that yes. Your gross wholesale accelerated rate plus 13% this quarter compared to six in the first but in the second half last year. Each quarter, you were up about 30% right. So so let's do a bunch of your ramp ups continue to drive significant growth so more quota.
Thank you Anthony.
Sure Great question Pavel.
We're not doubling and tripling capacity, obviously in every market, we're doing that on a market by market basis, but the big capital projects that we have going on right now that we anticipate will be completed.
By the end of the first half of 'twenty two.
In the places that you just indicated Ohio.
Yearly, Pennsylvania, Ohio, We don't currently have cultivation on modest revenue brand new so we are capping out.
We can be state of the state allows us.
Jersey, where certainly double your capacity and NPA approximately that amount as well. So in terms of timing look we all know that these projects take a long time and even when they are finished and the plan is to get to a point, where they can be harvested packaged and sold and so the guidance that we've been getting at least <unk>.
Terminally and externally is that those projects should be completed.
By the end of the first half of next year.
Got it. Thank you that's helpful.
And then can I ask just one on industrial brands.
I hear some companies in Illinois.
One of your competitors licensing cookies and local funds for pre rolls right.
How do you think all of the companies that are relying a little celebrities for brands or user or licensing brands from other vendors.
To operate in those states I suppose you are happy with your brand portfolio need to rely on that.
Related to that question in the kitchen with cookies agreement in Nevada, That's just to rebrand one store or can you still be cookies brand itself grow short duration stores in Nevada. It. Thank you.
Sure Thanks, great questions.
So the last question first in Nevada.
We have a deal on one store retail and wholesale product right Cookie is a lifestyle brand that connects in many respects from product to retail to experience.
Merchandise et cetera et cetera.
So our deals were won retail experience, we are distributing the product or other product in the state.
And we think that there is edge and growing high quality indoor premium product, which is really what our team specializes in Europe. Anthony mentioned in his prepared remarks, we think theres edge. There. So thats the Nevada story that can help drive visa business around the state, but also particularly in the strip on.
Understood and we're excited to welcome you out there I don't know when they come.
In terms of Illinois brands, we just think consumer reversed so consumers love those brands disappear and ashwin because of quality issues with production issues of distribution of the brand promise is very hard to take brand nationally.
We have seen fits and starts and we've seen things go very very well so.
We're excited because the consumer gets more choice to be candid.
Okay. Thank you.
Okay.
Our next question comes from Eric.
Craig Hallum Capital Group. Please go ahead.
Alright, great. Thanks, taking my questions guys and congrats.
We had another strong quarter here.
One thing that you have.
Guys keep hitting on is faster than expected growth in U S candidates really across the board here.
My question is if youre seeing that on the beverage side with can.
Good to hear you guys building out more distribution assets for beverages.
But that has been.
1% of the market or maybe even lower.
Historically.
Is this something that you see sort of increasing.
And share here or is there something that you expect to move the needle in the near term or should.
We continue to think of this more as a sort of a.
A longer term bet customer acquisition tool.
Comment on the.
Growth Youre seeing on the beverage side, specifically would be great. Thanks.
Sure Yes, great question. Thanks, Eric.
The short answer that again no.
Don't see outsize growth there something maybe we see major growth in U S, Canada and core products. This flower pre rolls edibles Vapes concentrates.
95% of the basket.
And that's where we're really investing for the.
Time versus impact time is that in the short and medium term is mismatched with beverage versus portfolio.
Yes.
But we like to understanding what's going to happen out there. So did I answer the question correctly. It was it's a longer term play customer acquisition I don't even know it's understanding the customer understanding the product and being able to be a leader understanding first mover and sort of making the mistakes along the way so that we can win.
As the game enters.
A larger larger states.
Yes that makes sense.
Alright, and then Dan you also mentioned in your prepared remarks, seeing increased appetite from U S institutions.
I'm not sure if that's just referring to some of the purchases that you've done over the past few months here.
But with the feedstock seemingly trading more on sort of capital dynamics than fundamentals.
Could you elaborate on that comment anymore, just provide any more detail on that increased appetite.
Any color would I'm sure it'd be helpful to anyone on the call here.
Sure.
<unk>.
Let's set the stage a little bit here, we are three years after going public and being part of really the first.
The first group of Msos to go public and bring U S cannabis.
In the public markets for the investor sophisticated or not to try to get access to this.
Theres been a lot of work and getting that many of the people on the call. It around in a road show then and people were interested they've heard of adopting the product their tree, there's been issues in Canada.
And people having to understand what's going on in the U S that appetite is growing.
So the comment there is there is there is no $24 billion brand, new consumer products industry, Thats going to $80 billion to just isn't one.
Don't see same store sales like you do in the cannabis industry don't see the returns on invested capital and the business fundamentally and quite exciting people are interested in growth. This is American capitalism and things trade on those sorts of metrics. If you go down to where we are as green thumb, you see $500 million, plus or minus with new capital coming into the.
Space, we do without a bank.
We do have a gross equals net on behalf of shareholders because the return on that invested capital is so dramatic into this kind of growth and what were the fruits of today are what we planted from basically the debt the 2019 and now with the balance sheet flushed with cash the photo on the gas.
Capital investment ramping we are excited about where this is don.
But that's basically what we said.
That's great. Thank you.
Sure.
The next question comes from Camilo Lyon of BTG. Please go ahead.
Thank you good afternoon.
I was hoping to get a little more color on <unk>.
Anthony on your comments around gross margin.
And in particular, the ramp up costs in your CPG expansion.
And then how to think about.
When you start to see the return of those increased investments through either greater TPG growth, which would probably have some sort of offsetting margin benefit.
You can help US bridge those two that would be wonderful.
Sure. So that's a.
<unk> impossible question to answer just given the number of variables right.
So obviously as we bring on additional capacity there is a ramp up period.
And during that ramp up here is you've got.
<unk>.
You're onboarding expense before you're bringing on revenue material nature and these facilities. After a couple of harvest they really start to produce kind of the yields that you. Initially underwrote when you invested the capital now what's interesting with our business. If we were just doing one or two of these.
The payback on that will flow through the P&L, rather rapidly, but effectively what youre going to start to see as well.
We'll finish one and then we will start another so and given kind of the exposure that we have a number of states, where we have capital projects.
They are started today or that will start over the next 12 months, it's a very difficult question to answer because.
Secondly, we're going to continue to keep our foot on the gas we said before so I would expect that we're going to continue to run expenses that gross margin line on at the same time generating kind of additional scale from the capacity expansion that that were recently completed so.
I think the net kind of answer your question is it's really hard for me to kind of telling you where that number is going I can tell you again and again.
I've said this a number of times I apologize.
It's not redundant, but our goal is to keep our gross margin line at or above 50%. If we can do that we can drive massive operating leverage and scale into the business down to be down to our EBITDA line and that's going to produce great returns for shareholders.
So just to be clear outside of the cultivation expansion projects are there any other costs that went through in Q2 that affected the gross margin.
Nothing material in nature.
Okay perfect.
That's what I was going to try and get out.
And then just shifting gears to Virginia.
I'd be curious to hear what your thoughts on how that market is developing.
Now that Youre in inefficiently.
The extended ramp up how do you see that the consumer behavior, if any if any at all different from other markets and it's not.
Any sort of views on the plans.
Rollout through the back half of this year the expansion rollout into the back half of this year.
Sure.
Yes.
Drives a lot with the other markets. We have seen this is a medical program, where there's access.
The product offering is limited flowers is not available yet.
And we are seeing big demand I think theres five slowed although the safest mines, we opened the most recent levels first.
Remote stores Standalone stores, not connected with one of the cultivation sites.
And this is in its infancy.
There is eight 5 billion people plus or minus in Virginia.
And.
The story on the demand is pretty simple story on the supply capex.
We're really bullish on what the demand will look like both with flower and with adult use.
And the math is just like as basic as you do.
Your July Liberty work a lot of the sup.
That simple for us.
But we've got to build the infrastructure.
Master these figure approaching nine figure Capex projects combined with the state from all the operators I believe it's the largest capex project industry.
The industry in the state.
Supply chain global supply chain.
Issues, we're able to wrestle through those in order to put the infrastructure here, but there is a.
Progressive thought to put this infrastructure in place. This is going to create hundreds of millions of dollars to state tax revenue grew unemployed thousands of people.
And it's going to be a net positive.
For the community and for the.
For the economy. So we're positive on it we're excited to be there we love the new team, we love the product coming out of it and really the consumer.
I'd say it a little bit last week 10 days ago or so.
Rousing reception people are very excited as we can bring the right consumer experience to people in Virginia, We're really excited about that we're going to learn and get better along the way. So look for it to go up into the right.
Good luck with the answer to your question.
Hi.
The next question comes from Michael Lavery of Piper Sandler. Please go ahead.
Thank you good afternoon.
Just following up on in particular.
Hey, there.
Quick question on your trajectory.
It looks like you are in health service areas three.
Is that geographic limitation intact still and if so will that change when bracket regional use comes onboard.
So it's not going to comment on the rules aren't written but we have the geographic situation based on the current rules and medical there is delivering there are stores consumers or move around product is moving around there is limited supply limited product set but for it to evolve over time, but that has been.
On the details to give you any guidance on that again I think the state will see up into the right and I think everybody understands versus about patients.
And then it's about the adult use market safety regulated 21 and over.
Rating productive jobs massive state tax revenue.
Okay, Great and then just following up on a comment you made earlier when you were given some of the industry color.
And then pointing to the momentum at the $24 billion now.
Your first date you called out.
Part of that was California, what does it take to get that more interesting for you to be directly involved there.
It's a good question, it's really the same script here.
Setting it there's a lot of consumers are you seen market in California go 90% like I said quarter over quarter to $950 million to $1 billion was $40 million quarter over quarter.
That's a tremendous growth.
What's happening what it was born out of the supply chain what is our return on invested capital to collect their standalone and then.
However, you want to think about it we call it.
Optionality maximization of weighted probability of other things against everything else happening in the business, what's our cost of capital is our access to capital and whats the best move for shareholders based on where we think this is going to be.
Being in our position kind of in the wave out where we are so it's very much on the table, we're constantly evaluating it.
We really like whats happening east of the Mississippi, and we'd like to set up and we like participating in California being close to the consumer understanding the participant there shouldnt be seen as due to significant things with brands out of California, and we think we're very close to the consumer there and it hasnt cost shareholders any money, so we like that setup.
And we continue to really invest in it and be a part of what's happened. There I think I think timing candidates has really accelerated so I think youre seeing several turnovers in the market I think youre seeing accelerated consolidation or whatever capital market cycle, you want to call. It eventually there will be profitable entities that capital will go to the strength.
That's where.
John we're ready watching and kind of waiting for that to go down.
Okay, great. Thanks, so much.
Thanks, Michael The next question comes from Aaron Grey of Alliance Global Partners. Please go ahead.
Good evening, thanks for the questions and congrats on the quarter.
Sure.
Absolutely. So first question for me I wanted to dive back a CPG. So it looks like the percentage of your products flowing through your stores or at least looking at percentage of retail come down the past few quarters. So I understand part of that it looks to be because of supply, but as that supply kind of comes up for you guys. Just wanted to kind of think about how you.
Look to allocate product.
Either between your own stores, where obviously, it's near term higher margin or the argument to kind of maybe bring about more brand awareness and contributing to other stores. So that's how best to think about that when you're in this kind of supply constraints stay with their CPG brands.
And Anthony here.
Not really silver bullet to answer the question.
I think the way we approach it is on a market by market basis.
And so certain markets really require us to supply more of our own product to our own stores. Other markets. There is a hell.
The amount of available supply out there and that provides better a better offering for the consumer than then we go with that.
Revenue and optimize the situation in each market and sometimes.
What we're looking to optimize different if we were just looking to kind of optimize the top line. Thank.
Maybe one thing in the market and we're looking to optimize profitability with you. Another so for US, it's really kind of looking at each market on a market by market basis and then.
Really each week that goes by.
And the allocation decisions that have to get made when products coming out of wholesale and thats something that.
And a lot of time looking at and looking to optimize because of this important business.
Okay, great thanks for that color.
And then second question for me is on M&A.
You guys have gotten a little more active this year.
In terms of new state of Rhode Island.
It seems to be on the precipice of adult use legalization.
So just let me give some color you talked about really like in east of the Mississippi, So kind of going forward. How do you think about other new markets, especially you know looking at Delaware. That's another small one main which recently legalized. So just maybe where you guys are thinking today in terms of the M&A landscape, where you guys are seeing values.
Evaluations in the marketplace and how you think about it thanks.
Thanks Aaron.
That's super keen to show too many cars.
Same deal everything's on the table if it makes sense.
Lot of phone calls, we're very active in the industry, we want to put capital to work for shareholders. If it makes sense.
Although we're not looking to reach too much we love our portfolio.
Ohio, Pennsylvania, New York, New Jersey, Connecticut, Virginia.
All monster this opportunity and we're pretty head down focused on executing there.
At the same time, we are paying very close attention to everything else going on so the number of stages that many have an opinion on what's going on.
<unk> is high in order to go there. It's the same thing I've said for each one of these deals setup is meeting that kind of criteria.
It's not even that complicated math for us.
Does it make sense or don't we're happy to say no. We do a lot as always but really everything's on the table if it makes sense.
And we're here for the long term.
Okay, great. Thanks.
Thank you.
The next question comes from Scott Fortune of Roth Capital Partners. Please go ahead.
Good afternoon, and thanks for the questions.
Quake and liner.
Modest sequential growth.
June and reporting so we think it has been since groups here in the second quarter, what's the exit rate coming out of the quarter relative to the 14% any color on the momentum.
From July in third quarters going forward would be helpful. And then are you seeing consumer shifts purchasing more.
Reopening kind of traffic to the stores and helping out average ticket size.
When you look at Canada consumption that consumers from a basket sizes.
Yeah, we're not we're not seeing that kind of stuff we saw in <unk>.
March April may with.
Covid changing consumer behavior, we continue to see increased demand in consumers finding candidates. We continue to see I mean, Anthony said it every state is up into the right.
To go week by week, and which happened this weekend versus that weekend is not our style.
I think quarter to quarter $6 billion you'd go through every single state and looked at what happened in every single state.
EBIT monthly it'd be one had nothing in that screams to us if theres any issues, which is sort of I think at the core. We think this thing is going to go up and to the right. That's both the same state sales same store sales being state Theyre already opened at least a year, where theyre going to come out and then the states that open like a store our new stores coming online.
States coming online and literally the horses in the stable that having got off track yet are big strong and going to run really fast their names or like New York and Virginia.
And then we like our position there, we're putting capital to make those forces really work for shareholders or for the market worked with state.
That's just as simple as we look at it so no cause of.
Of any worry.
Which I think.
We hear about.
If you're worried coming out of any of the stores ours or otherwise in any of these states and I think he can feel of a few days.
Okay. Appreciate that and then really big picture, you know glad to see Youre initiative towards social equity with Nike to zero Green in the program and you can now spoken about moving forward in Illinois to enforce licenses, we're starting to see that unlock and also in New York as more states come on board.
What do you see is key to accelerate and implement these equity programs.
Is he thinking at the federal level critical and really hopeful to gain or to jumpstart the cause.
Mike.
Okay.
I believe from that standpoint, how do you look at that from a federal level and kind of accelerating this linked to equity partners.
Yeah. Thanks, Scott Good question.
First of all we don't think it's a federal move to accelerate this.
Louie answer to the core of your question, which is how do you get state governments to move along the line of logic and common sense it's difficult.
We're learning along the way, we're trying to be proactive honest here to talk here to meet here to move Paul we have a very unique perspective, because we're active in so many states that we understand the mistakes we can learn from them and we can try to put them in place and the new state and so how is New Jersey, Connecticut, and New York for example, which all three governors signed lease.
<unk> going to implement social equity are they going to learn from what happened in Illinois, which was slow but now here. We are we've had two rounds of moderate and 110, new licenses great group with many different people, we're going to do a bake off other operators are very <unk>.
In order to make sure Theres new successful people in the industry.
But I don't know how to get state governments to move faster and function on the decision tree that we do but I'm open.
Two suggestions along the way.
I appreciate the color. Thanks.
The next question comes from Andrew personnel of Stifel. GMP. Please go ahead.
Hi, Thanks for taking my questions and congrats on the great quarter.
Maybe.
Talking about consumer behaviors and trends that youre seeing.
Obviously during COVID-19 there wasn't a lot of.
Tourism happening, but now with <unk>.
With Covid restrictions easing could you give a little color on what you're seeing.
With regards to the tourism front.
We've got some pretty good data out of Illinois on out of state sales, but.
Hard to put a finger on some other states.
<unk>.
Any color on that could be useful.
Sure I think the Best example of the tourism bid comes from Nevada, Youre seeing records out of there seeing big operators there.
Vessel and growing and so just looking at the data here and obviously this public the interesting numbers around $80.87.
In March 'twenty, one was $97 million in Nevada, obviously, the weather was cooler it's 108 degrees outside there.
In these few months.
More tourist is going to be more candidates spine, we think thats pretty basic going underneath to see what's happening in the states, it's pretty difficult youre seeing the out of state bid in Illinois like you mentioned, which is created by the state provides that kind of transparency I would just tourist versus people over the border not really clear.
But.
That's something we Super focus on again, we see a huge amount of consumer demand for the product we want to operate safely and finally.
And in a way that creates better experiences for consumers.
Thanks for that color and.
Maybe following up on a previous question around M&A I. Appreciate you want to keep your cards close to your chest.
On strategy, but maybe.
Looking at valuations.
Scene public market shares retreating to pre Senate runoff levels.
Wondering if you're seeing something similar on the private side.
<unk>.
Or any kind of color you can provide on that.
Yes, good question.
Probably the public market Mark to market every day, there's a bid ask the markets within or not and the moves around it doesn't happen in the private market. So the short term swings of public stock prices and sellers sentiment and what their value is do not correlate one to one in the reaction.
Now whether there have been big droughts in market things are different people understand there is no capital available and they may change a little bit, but it's much more about.
<unk>.
The sentiment I think it's a little less on the mark to market of the current public targets and to your comment just on the pricing, it's not something we focus on much.
Think as different buyers essentially we're building a business of a boat for what's to come out for a while so that's exciting for me and for us.
For this kind of opportunity.
Definitely would agree on that thanks for taking my question and congrats again.
Sure. Thanks, Andrew.
The next question comes from Graeme Kreindler of eight capital. Please go ahead.
Hi, good afternoon, and thanks for taking my question here I appreciate the comments at the top of the call on Q&A with respect to the capital spending and setting the stage for the large projects.
I expect it to come online in the first half of 2022 I was wondering given the balance sheet strength of the company right. Now I was curious what the thoughts are with respect to capital allocation in the state of Florida. That's a market that I think you've been very very strategic in how you wanted to allocate capital there and with the resources that you have is there an office.
Do you potentially advance some spending there that a bit more aggressive or maybe look at that.
Growth platform.
Sort of in a few years that situation just that would be curious on thoughts on that thank you very much.
Sure Graeme Anthony here.
Yes, I mean look we've got a lot of cash on the balance sheet.
And.
I would say that we've got a lot of opportunities to deploy that capital within the business.
We talked about the projects that we have kind of.
Currently.
That are currently underway in Ohio, New Jersey, and Pennsylvania. We also have very large other projects that are contemplated that have not yet started right. So think of a place like New York.
Virginia, we're going to continue to deploy capital in these other markets those projects have not yet started.
Specifically as it relates to Florida.
Given the cash on our balance sheet given the cost of capital. We are going to we are going to start to deploy capital we have a great site calin write off.
Highway 75.
And that'll be a project that should get started here within the next three months or so.
Obviously, there is a lot going on there's a lot of capital being deployed thereby other operators as well. So my guess is.
We will deploy the capital T. How it performs and then revisit.
Okay understood for that thank you very much.
The next question comes from Andrew Semple of Echelon capital markets. Please go ahead.
Hello, and good evening, everyone. Congrats on another solid quarter.
Andrew Thank you.
Just a first question here just wanted to see if you guys, having any insights or perspectives.
On the New York, and Virginia Medical programs, when we might see timing for multiple dried flower products.
Group within those medical markets.
Okay.
Thank you Sir.
Yes.
Core answers is murky.
Obviously, it's been signed into law the former Governor in New York was not a huge fan we now have a new governor fresh perspective.
So my guess is it will be quicker now than it would have been before but I don't really know it seem to be part of the losses.
Somewhat ridiculous to medical patients who would benefit from this amount is the law do not have access across its available in the market.
We know a lot of operators and team are working on this.
In terms of Virginia, I think the timing is I don't want to sit around things that will have to circle back, but I think it's known.
And that will be coming soon and we anticipate similarly seen in every other market power comes on is increased demand.
Core products in the category.
And obviously, a core part of our focus which is high end indoor premium flower.
Find your rhythm worse, and we're excited to bring that rhythm brand to new Yorkers to Virginians and everybody across America.
That's great thanks for that color.
My next question here.
I wanted to go back to your comments about significantly expanding production capacity in several of their core markets I guess it just raises the question about how you feel about your current supply situation today.
Do you feel supply constrained at all in any of your core states.
And as this activity or investment activity kind of.
Proactive move in anticipation of faster growth ahead.
Good question and the answer is both.
We have more broccoli have more sales.
And the markets are growing.
<unk> good people one doesn't mean every single day every single one was what we can learn as we go and we develop and innovate on that.
The core more rhythm more incredible has more to offer more BMO.
As a path to win will.
We'll be coming out with good dream, and we will be more supply we anticipate after sales there.
As the consumers the value proposition of that product into the field to do good.
So again, we have more sales per day in the current markets, but look at the month over month growth some of our core markets and I think Illinois.
10, 7% last month.
It's a serious growth curve and how it is going to be a doubling of the points of sale for consumers to go get the product. So inventory in the system is going to go up and sales are going to go up.
Not a mystery so we need more product to serve both of those.
And as it goes in those people, saying I want your market share in retail were down but that's fine.
Using a growth with more consumers more wells be created more participants.
We just view that all of the net positive.
That's great color I appreciate your insight.
Sure. Thanks.
This concludes our question and answer session I would like to turn the conference back over to Ben.
<unk> for any closing remarks.
Sure. Thanks, everybody for joining us will be back in about 90 days with an update on the.
Statement on this one.
The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.
You can sell it.
Okay.
Sure.