Q2 2021 Green Thumb Industries Inc Earnings Call

At our web site.

Green thumb assumes no obligation to update or revise any forward looking statements to reflect events or circumstances that may arise. After the date of this call.

Throughout the discussion, Greece, I will refer to non-GAAP financial measures, including EBITDA and adjusted operating EBITDA if I can.

Conciliation of non-GAAP financial measure to the most directly comparable GAAP measures is included in our earnings press release and SEC filings. Please note all financial information is provided in U S dollars unless otherwise indicated thanks, everyone and now here's Ben.

Thanks, John.

Afternoon, everyone and thank you for joining our second quarter 2021 earnings call.

Momentum in our business continues.

Our revenue for the quarter was 222 billion.

14% sequentially and up 85% year over year.

To give you a sense of the growth this quarter's revenue exceeded our entire annual revenue in 2019, just 18 months ago.

We posted our fourth consecutive quarter of positive GAAP net income we 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.

Lines 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 that as 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.

In Massachusetts.

Most recently in Illinois.

History does not repeat it runs.

Our home state of Illinois continues to both record sales every month and our team is preparing for the next few chapters.

Demand remains 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 a vertically integrated summit.

This broadens our footprint to 14 states and 62 retail locations and.

And puts us in solid position in the highly desirable northeastern market.

Where are we now have operation in the contiguous states of Connecticut.

In New Jersey.

Your 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 offers tremendous potential as we scale distribution of our candidates products and retail experiences.

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 they did so because of our reputation as a trustworthy and proven operator and a shared alignment of vision principles.

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 growth critical initiatives like the.

The first expansion harvest ahead of schedule in <unk>, Illinois.

Moving forward with our excited more with New York, which is transforming a former prison towards Canada's 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.

Within our own brand portfolio, we seek to create some of the highest value most loved brands and candidates experiences that bring wellbeing to people and communities.

We have brands distributed in 12 states.

And we continue 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.

Over time <unk>.

<unk> growth will continue to accelerate as distribution meets the demand ahead.

That is our focus every day.

We have many levers for growth that will expand access to well being through candidates 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.

Today really is day, one for the Great American campus growth story.

And there is so much opportunity for so many people and communities to wind 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.

<unk> 24 billion is very big.

But it is just the start.

We think it's 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.

Colorado, and 25% and seven year illegal adult use sales.

Baked like New York, Virginia.

Tayo maturity are not even in the $24 billion number.

58 million Americans.

Green thumb has a nice position in each of those states.

Because of the 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 legal sales to come.

We have confidence in those legal sales in United States, regardless of the federal policy.

And we will and we believe that will lead to at least $100 billion.

New market cap.

That's $100 billion of new.

New wealth creation.

It's an unbelievable setup and honestly very American.

But the real questions are how do we handle it.

Who participates and we'd be pleased in 10 years looking back.

I'm focused on that for Greentown 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 Anthony.

Thank you Ben and good afternoon, everyone. We appreciate you joining us today.

Before we 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 green thumb family.

Those that have been with us since the early days, we've shown that if you plan guidance youre going to harvest win.

For those who get derived <unk>.

Right on the Grease on 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 and <unk>.

$79 million adjusted operating EBITDA.

Total net revenue increased 14% over Q1 with gross 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 execution.

Number one the tidal wave of demand for candidates is real.

Across the board in 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 Green Zone, we want the buyer and more of it.

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 working.

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 investment in our team and our infrastructure.

We need a bigger boat and more team, helping us operating income.

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 income.

Was it 36% of revenue were $20 million and net income or.

Our fourth consecutive quarter positive earnings per share.

Moving onto the balance sheet, we ended the quarter with approximately $360 million of cash.

Is it 80, probably even greater than last quarter that was supplemented by the 217 million non brokered debt raise we completed in April.

With this cash we intend to double and triple down our best in a number of key markets.

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 reading these businesses and teams provide as we continue our expedition into proficient to point out.

You'll never going to generate the balance of their summer.

Forward to speaking with you again in a few months back.

You bet.

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 personal three income 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 92 zero.

We also 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 product will fund grants to nonprofits that supports the brands three pillars.

Education employment and its fundament.

We encourage you or a 500 <unk> three you know.

Or people, you'll know who know with 501 C. III that fits our mission to apply in our website good doctrine.

It gives the program a headstart before actual product sales, we are proactively committing at least one $3 billion over the next 18 months.

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 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.

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 from the Roadshow.

Five years 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 Tim.

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 you are 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 acquired medical dispensaries, and 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.

Sure.

Yes.

Thanks for the question Matt.

I think one quarter is too short to judge last quarter. These numbers could be sure that people say is it too low now is higher I think over time, we're seeing very strong consumer demand, we're seeing in the markets as Anthony said in every single market go up into the right.

And so we're analyzing those were understanding opening the box and really the evolving consumer and what that looks like so we like the retail business and you can see though a majority or a significant majority of our capital going into the production business branded consumer products production.

Sure.

Okay great.

Second question is on the G&A in the back half.

You made a comment it is taken into account.

We'll be investing in G&A in the back half can you help quantify 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 are they 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.

Yeah.

Yes, Matt I'm trying to.

So a lot there I'm trying to understand the root of your.

Question, not just kind of repeating it.

Absolutely.

You made the comment of 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 and 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 operating at such a scale for the rest of the business. It will 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 and.

At the same time, we are ramping down the 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 over time candidly no because I think the top line a lot Ryan.

Now 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 congrats on 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 and the ECB 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 out 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 at which distribution and what's going on with the consumer there is elements of the regulatory structure at which products are allowed edibles not allowed in Ta no pre rolls to Pennsylvania and things like that.

But we focus on full 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 more incredible more star Wars.

Wanted so we got to get its own and we got to get assume with the right retailers.

Which means everywhere.

I think the consumer I think the industry is evolving fast and so we want to play where theyre going to be a little bit.

So sometimes we have the unfortunate decision, where we can't do mass distribution to everybody.

What we're doing strategic things were set approximately in certain places because of limited supply.

Yes understood.

And my follow up kind of along the same lines I was wondering if you can comment on on can at all and as recently at a competitive sensory in downtown Boston.

On display there wasn't any available for sale is noted in your press release.

<unk>.

Expansion beyond Illinois, So, perhaps if you could give us a more real time update is that modest available with those samples in Massachusetts, and how many states could be expect can't Ian by Greg. 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 or the end of year. This year first half of next year, we're thinking a few years out through that consumers, where they are states like New Jersey in Europe, believing that rules for how the rec programs going to go kind of again 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.

That's a high class problem to have and we are scaling operations.

The business I think the business will have a few more states by year end or over the next six to 810 months.

We plan to go pretty big and a few of the states to be ready, we think again the consumer experience and candidates is evolving and can be really a part of that.

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.

Okay.

I'll go 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 long as 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 magic.

Around it so people don't go with square feet of current will be and then also timing I'm just asking that in the context, yes. Your gross wholesale accelerated rate plus 15% 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 get a bunch of your ramp ups continue to drive significant growth so more quarterly.

Thank you Anthony.

Sure Great question, Pavel So, we're not going 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, New Jersey, Pennsylvania, Ohio, We don't currently have cultivation on modest revenue brand, new but we're capping out.

We cannot be state of the state allows us.

We are 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.

<unk> sold and so the guidance that we've been getting at least internally 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.

Then can I ask just one on industrial brands.

Here some companies in Illinois.

One of your competitors licensing cookies and local funds for key roles 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 re brand. The one store or can you serve the cookies brand itself grow short duration stores in Nevada.

Sure Pablo Thanks, great questions.

So the last question first in Nevada.

We have a deal on one store retail and wholesale product cookies as.

As a lifestyle brand that connects in many respects from product to retail to experience to merchandize et cetera et cetera.

Charge offs were one retail experience.

Our 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 T specializes in Europe. Anthony mentioned in his prepared remarks, we think theres edge. There. So that's the Nevada story and that can help drive visa business around the state, but also particularly in the strip.

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 at very hard stake brand nationally.

We've 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.

Our next question comes from Eric <unk> Craig.

Craig Hallum Capital Group. Please go ahead.

Alright, great. Thanks, taking my questions guys and congrats.

Had another strong quarter here.

One thing that.

You guys keep hitting on is faster than expected growth in your best candidates really across the board here My.

My question is if youre seeing that on the beverage side with Cam.

Good to hear you guys building out more distribution assets for beverages.

There has been.

1% of the market or maybe even lower.

Historically.

Is this something that you see sort of increasing.

In 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 has essentially it would be great. Thanks.

Sure Yes, great question. Thanks, Eric.

The short answer at the beginning no.

Don't see outsized growth there still committed we see major growth in U S, Canada and core products as flower pre rolls edibles.

Concentrates.

Is it 95% of the basket I think.

And that's where we're really investing.

Minute time versus impact time, and in the short and medium term is mismatched the beverage versus portfolio.

Yes.

But we live in understanding what's going to happen out there. So did I answer the question correctly was it the longer term player 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 Daniel 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 <unk> done over the past few months here.

With the destock seemingly trading more on sort of the 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. Thanks.

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 class. The first group of Msos to go public and bring us candidates.

In the public markets for the investor sophisticated or not to try to get access to this.

There's 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 it I've seen the product they're treated.

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 is it one.

You 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 is quite exciting people are interested in growth. This is American capitalism and.

Things trade on those sorts of metrics, if you drill down to where we are as green thumb, you see $500 million plus or minus of new capital coming into the space, We do without a bank.

We do have 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 plan to visit from basically the debt the 2019 and now with the balance sheet funded with cash flow.

On the GAAP.

The capital investment ramping we are excited about where this is going.

<unk>.

But basically what we said.

Okay. That's great. Thank you.

Yes.

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.

Anthony on your comments around gross margin.

And in particular, the ramp up costs and your CPG expansion.

And then how to think about.

When you see the return of those increased investments through either greater CPE.

TPG growth, which would probably have some sort of offsetting margin benefit.

So if you could help US bridge those two that would be wonderful.

Sure. So that's a.

Thats a near 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.

You're onboarding expense before youre, bringing on revenue material nature and these facilities. After a couple of harvest they really start to produce kind of a yield that you initially underwrote when you invest 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.

Essentially what youre going to start to see is we'll finish one and then we will start another and so given kind of the exposure that we have a number of states, where we have capital projects that have either started today or that will start over the next 12 months.

It's a very difficult question to answer because effectively 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 expanded that gross margin line on the same time generating kind of additional scale from the capacity expansion that that were recently completed.

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.

I've said this a number of times I apologize.

Just some 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.

Down to our EBITDA line.

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 our long term guidance.

And then just shifting gears to Virginia.

Yeah.

I'd be curious to hear what your thoughts on how that market is developing.

Now that youre in a inefficiently.

Extend the ramp up how do you see that the consumer behavior, if any if any at all different from other markets.

And any sort of views on the plans.

Rollout to the back half of this year the expansion rollout through 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've slowed over the safest month, we opened the most recent loans first.

Remote stores Standalone stores, not connected with one of the cultivation sites.

And this is in its infancy.

There is eight 5 million people plus or minus in Virginia.

And.

The story on the demand is pretty simple story on the supply is the capex.

We're really bullish on what the demand will look like both with flower and with adult use in.

And the math is just like as basic as you do.

You do a lot of great work in a lot of itself.

That simple for us.

But we've got to build the infrastructure.

Massive eight figure approaching nine figure Capex projects combined with the state from all the operators I believe is the largest capex projects.

The industry in the state.

Supply chain global supply chain.

Issues, we're able to wrestle through those where to put the infrastructure here, but there is a.

Yes.

<unk> thought to put this infrastructure in place. This is going to create hundreds of millions of dollars of state tax revenue through unemployed thousands of people.

And it is going to be a net positive.

Both the community and for the.

For the economy so.

Positive order, 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 over the last week 10 days ago or so.

Reception people are very excited as we can bring the right consumer experience to people in Virginia.

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.

Operating income.

Hi.

The next question comes from Michael Lavery of Piper Sandler. Please go ahead.

Thank you and good afternoon.

Just following up on that.

Hey, there.

Quick question on your trajectory.

It looks like you are in the health service areas three.

Is that geographic limitation impact still and if so will that change when recreational use comes onboard.

Sure.

I'm not going to comment on the rules aren't written but we have a geographic situation based on the current rules and medical there is delivering there are stores consumers are moving around product is moving around there's limited supply limited product set but for it to evolve over time, but not as good enough on the details to give you any guidance on that again I think the state.

We'll see up into the right and I think everybody understands versus about patient.

And then it's about the adult use market safe regulated 21 and over.

Generating 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.

First states you've called out.

Part of that was California.

What does it take to get that more interesting for you to be directly involved there.

Good question, it's really the same script here, we're studying it.

A lot of consumers there is in the market in California go 9% like I said quarter over quarter to $950 million to $1 billion of $40 million quarter over quarter.

Tremendous growth so what's happening where does this go round supply chain what is our return on invested capital looks like they are 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 once 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 but.

We really like whats happening east of the Mississippi, we like the setup 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 happening. 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 entity that capital will go to the strength. So I think that's where.

We are ready watching and kind of waiting for that to go down.

Okay, great. Thanks, so much.

Thanks, Michael.

Question comes from Aaron Grey of Alliance Global Partners. Please go ahead.

Good evening, thanks for the questions and congrats on the quarter.

So.

Absolutely. So first question for me.

Back to CPG, so it looks like the percentage of your products flowing through your stores at least looking at percentage of retail have come down over the past two 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 state what your CPG brands. Thanks.

And Anthony here Theres, not really silver bullet to answer the question.

The way we approach it is on a market by market basis.

Certain markets really require us to supply more of our own product to our own stores. Other markets. There is a healthy amount of available supply out there.

That provides better.

Better offerings for the consumers and then we go with that.

Revenue in optimizing situations 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, 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.

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.

We spend a lot of time looking at and looking to optimize because what's important employment levels.

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 just entered a new state of Rhode Island.

It seems to be on the precipice of.

Obviously innovation.

So just would love to get.

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 looking at Delaware Thats. Another small one main which recently legal acquisition, maybe from 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 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 very active in the industry, we want to put capital to work for shareholders. It makes sense.

But we're not looking to reach too much we love our portfolio.

Ohio, Pennsylvania, New York, New Jersey, Connecticut, Virginia.

All monstrous 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 the bar is high in order to go there at 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.

<unk> 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. Thanks for the questions just real quick and liner.

The modest sequential growth.

Hugh.

And reporting so we think we can 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 quarter, so far would be helpful. And then are you seeing consumers shift purchasing more.

Reopening traffic to the stores and helping out average ticket size.

We look at Congress.

Income from planning and the consumer.

Basket sizes.

Yeah, we're not we're not seeing that kind of stuff we saw in.

March April may with.

Covid is changing consumer behavior, we continue to see increased demand in consumers finding candidates. We continue to see if you have any Senate every state is open to the right.

To go week by week, and which happened this weekend versus that weekend is not our style.

Quarter to quarter $6 billion you go through every single state and looked at what happened in every single state.

EBIT monthly if you want to add something 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 state sales, beating the states that are already open at least a year, what theyre going to come out and then the states that open Mike Stoehr, 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 everybody capital to make those force has really worked for shareholders or for the market work with state.

It's just as simple as we look at it so no cause of.

Of any worry, which I think.

We hear about.

Could you worried coming out to any of the stores ours or otherwise at any of these states and I think you can fill in a few days.

Okay I appreciate that.

And they're really big peaks here glad to see youre initiatives towards social equity with 92 zero Green <unk> lead program <unk>.

<unk> spoken about moving forward in Illinois to enforce.

We're starting to see that unlock and also in Europe, because most of these come on board.

Picture, what do you see is key to accelerate and implement these equity programs.

Is he thinking at the federal level clinical and really hopeful to gain their jumpstart the cause.

Unlike centered broker.

We believe from that standpoint, how do you look at the instruments federal level and kind of accelerating in listening to equity partners.

Yeah. Thanks, Scott Good question.

First of all we don't think it's a federal move to accelerate this.

Wish I knew the answer to the core of your question, which is how do you get state governments to move along the line of logic 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 the ball we have a very unique perspective, because we are active in so many states that we understand the mistakes and 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 legalization.

<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 is 110, new licenses great group with many different people, we're going to do a bake off other operators are very even 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 function on the decision tree that we do but im hoping to.

Two suggestions along the way.

I appreciate the color. Thanks.

The next question comes from Andrew personnel of Stifel. GMP. Please go ahead.

Alright, Thanks for taking my questions and congrats on the great quarter.

Maybe.

Talking about consumer behaviors and trends that you're 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.

Any color on that could be useful.

Sure I think the Best example is the tourism bid comes from Nevada, Youre seeing records out of there youre seeing big operators, there be successful and grow into it. So just looking at the data here and obviously this public the interesting numbers around 80.87.

Even March 'twenty, one was $97 million in Nevada, obviously, the weather was cooler it's 108 degrees outside there.

In these few months.

But.

More tourist is going to be more candidates buying 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 based in Illinois, like you mentioned, which is great insights to state provides that kind of transparency, how much tourist versus people over the border not really clear.

But.

Not something we Super focus on again, we see a huge amount of consumer demand for the product we want to offer it safely compliant Lee.

And in a way that creates better experiences for consumers.

Yeah.

Thanks for that color.

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.

<unk> seen public market shares retreating to pre Senate runoff levels.

Wondering if you're seeing something similar on the private side.

Or any kind of color you can provide on that.

Yes, good question.

Publicly public harvest Mark to market every day, there's a bid ask the markets, then or not and 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.

And when 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.

Sure.

The sentiment I think it's a little less on the mark to market of the current public markets and to your comment just on the pricing stability. We focus on much. We just think it's 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 questions 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 opera.

<unk> you potentially advance some spending there that a bit more aggressive or maybe look at that as a growth platform.

Sort of in the two years that situation just 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.

<unk>.

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 <unk>.

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, theres a lot going on there's a lot of capital being deployed there by other operators as well so my guess.

We will deploy the capital T. How see out of this.

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.

Thank you.

At Novartis.

First question here just wanted to see if you guys, having any insights or perspective.

On the New York, and Virginia Medical programs, when we might see timing for multiple dried flower products.

Approved within those medical markets.

Yeah.

Yes.

Core answers is murky.

Obviously, it's been signed into law the former Governor of New York is 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 what seem to be part of the lawsuit.

Somewhat ridiculous to medical patients who would benefit from this amount is the law do not have access profit is 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 say the wrong thing. So we'll have to circle back, but I think it's known.

And that will be coming soon and we anticipate similarly, you've seen in every other market power comes on this increased demand.

Core product of the category.

And obviously, a core part of our focus which is high end indoor premium flower.

Find your rhythm works 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.

Our next question here just wanted to go back to your comments about <unk>.

Significantly expanding your production capacity in several of our 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 broadly or more sales.

And the markets are growing.

Crocs is good people want it doesn't mean every single day every single one of those what we can learn as we go and we develop and innovate on the core four rhythm more incredible more dog walkers or vivo.

As a path to win will.

We will be coming out with good dream and we will be more supply we anticipate after sales there.

As the consumers want.

New proposition of that product into the field to do good.

They buy so again, Paul we have more sales today in Manhattan market, but look at the month over month growth some of our core markets and I think Illinois.

10, 7% last month.

That'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.

Inventory in the system is going to go up and sales are going to go up.

Donal history, so we need more product to serve both of those.

And as it goes in as people say in ammonia market share in retail were down and Thats, an industry vehicles with more consumers more wells to be created more participants.

And we just view that all of that net positive.

That's great color I appreciate your insight.

Sure.

This concludes our question and answer session I would like to turn the conference back over to Ben.

<unk> for any closing remarks.

Sure. Thank you everybody for joining us will be back.

About 90 days with an update on the state of Amazon.

Yes.

The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.

You can sell them.

Okay.

Hi.

Okay.