Q2 2021 Trulieve Cannabis Corp Earnings Call
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Good morning, ladies and gentlemen, and welcome to the truly cannabis Corporation's second quarter 2021 financial results Conference call. My name is Sarah and I will be your conference operator today.
As a reminder, this conference call is being recorded.
I would now like to introduce your host for today's conference Ms. Lynn Ricci director of Investor Relations for Shirley you may begin.
Thanks, Sara good morning, ladies and gentlemen, and thank you for joining us on the call with me today are Kim Rivers, Chief Executive Officer, and Alex D'amico, Chief Financial Officer. Following our prepared remarks, we will open the call to questions before we get started I would like to note that today's call is being recorded for the benefit of investors individual shareholder.
The media and other interested parties. Please remember statements we make during this call that are not statements of historical fact constitute forward looking statements and that these statements are subject to risks uncertainties and other factors that could cause our actual results to differ materially from our historical results or from our forecast <unk>.
The risks and uncertainties described in the company's periodic reports filed with the Securities and Exchange Commission and those related to the completion of our transaction with harvest.
Although the company name voluntarily do so from time to time and it takes no commitment to update or revise these forward looking statements.
Whether as a result of new information future events or otherwise, except as required by law during.
During the call management will also discuss certain financial measures that are not calculated in accordance with United States generally accepted accounting principles or GAAP.
We generally refer to these as non-GAAP financial measures. These measures should not be considered in isolation or as a substitute for <unk> financial results prepared in accordance with GAAP.
A reconciliation of these non-GAAP measures to the most directly comparable GAAP measures is available in our earnings press release that is an exhibit to our current report on form 8-K that we furnished to the SEC today and can be found in the Investor Relations section of our website lastly at times in our prepared comments or responses to your questions.
They often metrics to provide greater insight into the dynamics of our business or our quarterly results. Please be advised that we may or may not continue to provide these additional details in the future.
This morning, we reported results for the second quarter of 2021, a copy of our earnings press release may be found on the Investor Relations section of our website <unk> Dot Com. In addition, a webcast of today's conference call will be available on our website. Later today now I will turn the call over to our CEO Kim Ruben.
Thanks, Lynn and good morning, everyone. It is an exciting time here at truly achieving a number of birth and records for the company with 14 consecutive quarters of profitability crossing the half million Mark in customer served becoming the first medical cannabis operator to start planting in west, Virginia and positioning the company to enter at seventh stay.
With the win in Georgia, we exceeded consensus achieving revenues of approximately $215 million and adjusted EBITDA of approximately $95 million, representing an EBITDA margin of 44% on the back of our Q1 results, which represented a 15% quarter over quarter increase our Q2 revenue reflects an increase of 11%.
And demonstrates strong continued growth yesterday harvest shareholders, but it is support the transaction and we are now fully focused on the next steps towards regulatory reviews and approvals. The closing of the harvest acquisition will be a transformational event for Trulia harvest strong Q2 performance as reported on August 10th demonstrates the potential of the <unk>.
<unk> company.
On a combined basis second quarter revenues would have been $317.6 million and an adjusted EBITDA basis truly been harvest would have generated $122.9 million in the quarter. These combined results for Q2 would be the strongest performance of any public reporting U S. Cannabis company. In addition.
Today truly been harvests together would stand at 140 stores, which represent almost 30% more stores than our closest competitor with 40 of those stores located outside of Florida in order to support that footprint on a combined basis, we would have over 3 million square feet of cultivation over a million square feet more than our <unk>.
This competitor exceeding their cultivation footprint by 50% this capacity solidifies our position as a leading operator with true scale in the U S. The harvest deal will be the next step in the evolution of our organization as we execute on our regional hub strategy. The transaction will transform our southwest hub in a very real and exciting way.
Most notably with substantial expansion into Arizona additions to our northeast hub with Maryland, and an increased market presence in Pennsylvania, as well as supplementing our southeast hub in Florida.
Neither company has slowed down since the May announcement, we continue to open stores in some of our strongest respective markets complete tuck in deals and win applications.
Since the time of our May announcement, the store footprint outline for the deal has increased by 14 stores, including harvest opening at 16th store in Mesa, Arizona, Congratulations to harvest on the excellent quarter. We look forward to their continued strong performance in the back half of the year as it remained focused on operational efficiency and delivering profitability.
Second quarter was also meaningful virtually celebrating the five year anniversary of our first sale on July 26, 2016, we've accomplished more than just incredible revenue in a profitable growth trajectory. During those five years to name just a few we have grown from approximately 50 employees. When we opened our first dispensary to approximately 7000 employees today.
<unk> expanded cultivation from our original 20000 square feet in Quincy, Florida to over $2.2 million square feet across the country growing our patient base from under 800 to over 575000 and increased our store footprint from our first store here in Tallahassee to 96 stores across the country. In addition, when looking.
At sales during our first six months of operations compared to the first six months of 2021, we were selling two four milligrams of oil.
$2.4 million milligrams of oil in 2016 compared to $2.2 billion with a b milligrams are approximately 900 times more in 2021 for flower. We sold 72 ounces of flowers vaporizer cuts in 2016 compared to 781000 ounces or approximately 11000 times more.
Sure in 2021.
We have a generational opportunity in front of us and we believe this next chapter will be an exciting one bringing our inability to leverage our national scale and diversify across our combined platform to accelerate our growth trajectory and enter into additional adult use recreational markets more to come and feeding them more to come. This morning, I have Georgia on my mind as well.
Recently announced the state of Georgia notified us of its intent to award truly one of only two class one production licenses available in the state as the eighth most populated state in the nation GA is an ideal location. In addition to our southeast hub.
This license will allow us to grow and manufacturer cannabis oil products and we will also be authorized to open five dispensaries across the state. The registry is quickly growing with over 18000 patients in the state already it was a highly competitive licensing process with around 70 competing applicants. The trillium success speaks volumes, we are thrilled to be Brazil.
Tend to enter our neighboring state to the north and are prepared to break ground and rapidly provide much needed relief to patients in Georgia.
Much like in other states truly thoughtfully selected a majority or minority community the city of Zelle as a site for our production operation working closely with the city workforce development partners and other stakeholders will bring hundreds of promising new jobs and meaningful community investments to a dell in the surrounding South Georgia community. We also have established beneficial partnerships.
With higher education institutions like Morehouse school of medicine organizations like the greater Georgia, Black Chamber of Commerce, and the Georgia minority supplier development Council and workforce development centers like the wire <unk> Technical Institute at little of dozens of small and diverse businesses given our close proximity here in the Panhandle, we already employ a number of Georgia resident and we look.
Forward to broadening our job creation in the states our ability to act quickly to build our operations in Georgia has been demonstrated by our execution in our home state of Florida, and Florida, We continue to add dispensaries and aggressively add indoor cultivation capacity each month to stay ahead of the continued patient growth expected in this space that patient growth has been explosive.
With over 134000, new patients in Florida, So far this year, our commitment to serving the needs of every patient as evidenced by our dispensary additions. We currently have 87 dispensaries in Florida, which represents approximately 24% of the dispensaries across the state while providing an average over 45% of the medicine our patients need.
We have maintained our market share in the face of tight labor markets due to Covid factors increased waiting periods for construction permitting and nationwide shortages in building materials, we've been very fortunate over the years to build a company in Florida, our dedication to the production of state quality products, coupled with the authentic connections with patients we've nurtured and the state has.
Earned us the strong customer retention rates and store outperformance numbers. We continue to experience. We look forward to continuing the strong performance in our northeast hub, where theres been a flurry of activity.
Spanning the Metropolitan Philadelphia area commencing operations in West, Virginia, welcoming, Connecticut to adult use and opening our doors in Massachusetts, Let me briefly touch on each of those markets in Pennsylvania, I would like to highlight the strong performance of our peer Penn as Levo operations peer Penn wholesales to 100% of the Pennsylvania market and was the.
Number four wholesale operator during Q2, achieving this with flower only making up 5% of sales our mckeesport, Pennsylvania cultivation and processing facility continues to grow and has recently more than doubled its capacity to 80000 square feet.
We are bringing more high quality flower to the state positioning us for increased market share as in Florida. Our goal is always to be number one.
We also closed on the previously announced acquisition of Keystone shops in early July Keystone shops immediately adds three dispensary in the greater Philadelphia area to the Trulia family, Pennsylvania as a state we remain excited about and is a key piece of our national expansion in West, Virginia, We executed a rapid cultivation build out and were first to get plants in the ground in the state.
We are ramping now building out our teams and moving forward with our first dispensary sites patients in the state continue to grow and we look forward to opening our first dispensary and providing access to medical cannabis before year end.
As many of you are aware, Connecticut signed a bill in June to legalize adult use our store in Bristol has given us great insight into the patients and brands in the state and our existing operations will allow us to take advantage of the grandfathering provisions of the new legislation not only will we be able to begin adult use sales when it launches in the state sometime in 2022, but we will.
If they proceed cultivation and production opportunities.
We began our dispensaries operations in Massachusetts in June with a ribbon cutting at our North Hampton store and we look forward to opening our brand new Wister Dispensary. This Saturday with a block party, we will be closing the street for the majority of the day and we'll have music food trucks and partner tables as a way to meet the community and start to quickly build relationships with consumers.
In the area Westar is the second largest city in Massachusetts, and we are looking forward to branching into this new community. We're also looking forward to opening our store in Framingham, which will be our largest store in the base state and in launching wholesale operations. We're quickly scaling up wholesale with a goal of matching our outperformance in Pennsylvania, our wholesale.
<unk> will allow us to spread the truly brands in Massachusetts thinking of brands. We've recently introduced new product lines momentum for wellness Muse for creativity, Sweet talk which is our edibles line of chocolate and gummies and a fan favorite from Florida or cultivar collection, which is premium Ham from flower released and unique small batch streams with the.
Cana curious to the Cana corner store in mind. These brands offer a variety of options to serve a spectrum of consumer motivations and need States Trillions brand center around the opportunity for customers to unlock their own potential through cannabis to live their best life with that let me turn the call over to Alex for more details on our second quarter results. Thank you Cam.
And good morning, everyone. Our focus in the first half of the year has centered on execution expansion and integration and we will continue to do so throughout the remainder of the year and into 2022.
This spans across our external strategic initiatives as well as internal priorities such as our continued preparation for Sarbanes Oxley readiness. We are excited about launching in Massachusetts, expanding our footprint in Pennsylvania and ramping our operations in West, Virginia and of course, Georgia.
As we enter the second half of the year, we remain highly focused on ensuring the successful integration of our recently closed acquisitions and supporting the strategic vision for <unk> and the anticipated major integration of harvest. We believe the harvest acquisition will be transformational for both companies and the industry. We look forward to leveraging the combined.
Capabilities of both organizations and setting the stage for an exciting year ahead.
As Kim covered at the top of the call. We had record revenue of $215.1 million, an increase of 11% sequentially over the $193.8 million of revenue achieved in the first quarter, our quarterly revenue was $94.4 million higher than Q2.2020, an impressive 78%.
Year over year.
The company achieved gross profit of $144.4 million or gross margin of 67% in the quarter compared to $135.3 million or 70% in the first quarter of 2021 absent macroeconomic events related to pricing and tight labor markets gross margin would have been approximately 71.
Percent our margins in our core operations are in line with our plan in the first half of the year as we have shared in the past our gross margin in all markets can fluctuate a few basis points in either direction from quarter to quarter, depending on inventory flowed through and product mix. In this regard we benefited in Q1 by finishing the quarter with the <unk>.
Largest volume of finished goods on hand that we ever had at the end of the quarter. During Q2, we capitalized on our leverage and scale to set market prices and maintain customer bases in our core markets. The leveraging of our ability to strategically increased discounts when necessary led to an approximate 2% reduction in margins in the quarter.
As a result, we moved through finished goods at a faster rate than in Q1, ending the quarter with a higher amount of product and work in process, which carries a lower cost of finished goods.
The timing of inventory flow through impacted margins by approximately 3% in the quarter contributing to this dynamic was the impact of tight labor markets with demand outstripping available candidates, which we experienced primarily in our processing centers. As you know this is not specific to truly spanning a number of companies and industries we have.
Responded and adjusted our hiring initiatives Accordingly, and look forward to improvement in the back half of Q3.
These reductions were offset by an approximate 2% pickup in our new markets as cultivation and production ramped in the quarter.
As a reminder, in general and not specific to a quarter or a time period. There is downward pressure on gross margin as we enter new markets without full vertical integration as we have in Pennsylvania through the earn out period in 2021.
Similar to the Massachusetts process, we are now ramping our infrastructure in West, Virginia, and carrying expenses in advance of revenue.
I will now turn to expenses SG&A expenses in the second quarter, excluding depreciation and amortization were $61.5 million or 29% of revenue compared to $67.3 million or 30% in the first quarter of 2021.
We expect increases in the back half of the year as we ramp integration efforts in Pennsylvania and prepare to welcome harvest as a reminder, we typically add back transaction and integration costs in calculating adjusted EBITDA.
Our operating income for the quarter was $76.3 million, a 5% increase over the $72.6 million earned in the first quarter net income was $40.9 million for the quarter compared to $30.1 million for the first quarter, we generated earnings per share of 31 on a fully diluted basis.
Keep in mind that go forward net income and EPS will be impacted by transaction and integration costs. The increased depreciation on our aggressive capex capex ramps increases in share based compensation the fair value flow through of inventory from acquisitions and the amortization of intangibles from acquisitions.
While these get added back to adjusted EBITDA.
A downward impact on EPS.
Turning now to adjusted EBITDA, We believe adjusted EBITDA, a non-GAAP measure provides valuable insight into our performance adjusted EBITDA excludes from net income as reported interest tax depreciation amortization noncash expenses covid related expenses share based compensation acquisition and transaction cost.
Fair value step up of inventory from acquisitions and other income we reported adjusted EBITDA to help investors assess the operating performance of our business for the second quarter of 2021, adjusted EBITDA was $94.9 million or <unk>, 44% compared to $90.8 million or <unk>, 47% for the first quarter.
2021, where we exceeded plan.
This is reflective of the margin dynamics discussed earlier, but is in line with first half expectations and guidance absent. These macroeconomic margin impacts adjusted EBITDA would have been approximately 48% for the quarter.
We ended the quarter with a cash balance of $289.2 million bolstered by our cash flow from operations through the first half of the year.
In the quarter, we paid approximately $80 million in federal taxes as a reminder, cash flow from operations in the second quarter is typically impacted by a double tax payments as such is best to view cash flow from operations on a year to date basis, where we generated $49.2 million through the end of the second quarter, our strong cash position.
Allows us to quickly leverage the foundation, we have built to capitalize on expansion opportunities organic growth and to go deeper in the states where we operate.
At the end of the second quarter, we had a total of $112.6 million of inventory. This compares to $103.9 million of inventory at the end of Q1.2021.
Companywide capex spend for the quarter averaged just over $22 million per month inclusive of all markets and was in line with the plan. We continued to build out stores in cultivation facilities and invest in new markets. We planted our initial cultivation in west, Virginia, and we will be building out our facility there throughout the year and in Georgia.
We expect that we will be breaking ground in ramping up investments in that market Capex investments will continue to ramp throughout 2021, and 2022 to support our expansion efforts and at depth in the southeast and northeast hubs as we capitalize on the positive patient trends, we are experiencing and prepare for future tailwind.
In closing I would like to note that I am proud of the flexibility we have shown across all functions of the organization over the past year, allowing us to quickly adapt to changing market conditions and capitalize on opportunities. We see a lot of the same strengths into teams at harvest and look forward to closing the acquisition and continuing our integration efforts and our <unk>.
<unk> expansion as a combined organization I would also like to recognize and welcome Mark <unk> as our new auditors as previously announced in July we think our previous auditors MMP and want to note that our move to Markham reflects their substantial audio experience with U S reporting companies MMP served as well and mark them as <unk>.
Ready to take on our accelerated growth profile, particularly in anticipation of the harvest acquisition.
With that I will turn the call back over to Kim Thanks, Alex as a company we have experienced tremendous growth over the last five years, we've developed from a small startup founded by a few nursery men and a recovering lawyer to the most profitable publicly traded multistate operator in the U S through hard work strategic forethought financial discipline.
And skilled execution truly vis position as one of the leaders in our industry, but it is as I said earlier. Our story is just beginning we are in the midst of tremendous change the recent political movement to decriminalize marijuana with the candidates administration, an opportunity at draft and cry from business leaders and politicians to move forward with the Safe Banking Act.
<unk> signals the readiness in this country to create a clear and supportive path forward for the cannabis industry. The American People's voices are getting stronger and regardless of what happens at the federal level. The states are not slowing down and neither is cannabis growth across this country with this backdrop the completion of the harvest acquisition on the horizon.
<unk> was operating at an unmatched scale today truly is well positioned and financially prepared to leverage and execute on the changes coming truly with a story about future growth strategic vision execution and building shareholder value together, we're uniquely positioned to define the future of cannabis. Thank you so much for <unk>.
Joining us today and as I always say onward.
Operator, we can now open it up for questions.
Sure.
Thank you.
We will now begin the question and answer session.
To ask a question you May Press Star then one on your Touchtone phone.
If youre using a speakerphone please pick up your handset before pressing the keys.
Withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
Okay.
Our first question comes from Derek <unk> with Canaccord Genuity. Please go ahead.
Yes, hi, good morning, everybody congrats on a strong quarter.
Tim I just wanted to follow up on a comment you made there just regarding pricing I mean, it was pretty widely speculated that there were some aggressive pricing tactics by by some of your competitors this quarter more so than in previous quarters. This changed the mix the product mix or skew it more towards the value side or the premium side and was this aggressive pricing across.
All.
All categories.
Yeah. Thanks Derrick.
We saw some increased.
Very aggressive pricing.
Pricing.
From the competitors and I would say that strategically.
We are very thoughtful in terms of how we approach and how we approach our product portfolio and how we think about brand and integrity of brand.
Over the short and of course long term and so.
And we certainly did not nor would we want to match for example, weeklong 50% off and.
Discounts et cetera, what we did do though is that we did become and I think this was a great exercise for US right. We were able to look across our product portfolio really analyze on a SKU level.
There are products, where that had one of course demand and to depth and also of course, good margin to really be more thoughtful in terms of how we were responding to those pressures in terms of product mix. It was interesting we really did not see large swings and from from on a category basis.
Can you talk about from value to premium so we saw approximately.
Same from on a percentage basis sell through in both premium and value that we saw in the <unk>.
And the.
And those categories in the previous quarter.
<unk> remained stable, we certainly are continuing to see the barbell effects that we've been talking about quarter over quarter that remains true we are seeing strength in both value and in premium categories that remains true and and.
What I would say is that and I.
Think that look the market share numbers and our strength speaks for themselves in terms of just last week, we had our strongest flower.
They ever right and with about 53% of the market and flower. We also over the quarter had a record day in oil sales. So I think that our brands are maintaining our strength in maintaining integrity. We did as we mentioned have a couple of points more on the discount front, but certainly nothing near.
Or what what our competitors felt like they needed to do as they try to.
I think unsuccessfully quite frankly by a long term market share in the state of Florida.
Yes, okay that makes sense.
And actually just one more if I could just in terms of you mentioned that the truly brand and how strong it is and you called out cultivar in particular, but when we think about Massachusetts, and Pennsylvania to markets that are that have wholesale obviously.
I guess, it's a two part question. One are you still seeing a big sort of under supply in those markets, where wholesale prices are quite robust and two what is your target or what is your plan in terms of the mix within your own stores.
Truly branded products versus third party products.
Yeah. So it's interesting you know and I think that other folks.
Has have commented right on.
Just really how it is absolutely challenging given the checkerboard of regulatory regimes across the country.
To achieve continuity of brand from market to market I mean, thats certainly what were all attempting attempting to do.
Where those challenges are of course therein lies the opportunity as we like to say and so.
With the with the launch and that recent press release of these core brands that we will be looking to launch across the country and that will of course also be true in Pennsylvania, and in Massachusetts with interested interesting in Massachusetts.
We have already launched and so the cultivar collection for example is available in Massachusetts now we're <unk>.
Really excited about having a full suite of those products available at our new Grand opening the Saturday I can put a quick plug in and wister, if youre in the area come join us it's going to be a lot of fun being block party and and so we're able to launch a full catalog of products in Massachusetts of course with also having some shelf diversity with with buying in other.
Our key brands in that market as well in Pennsylvania of course, a little bit of a different story, because we purchased a company that already had really strong brand affinity and was successfully wholesaling products across the state the opportunity there is it.
We've been very successful there in the oil category Gray.
Great reputation for.
The higher end or premium oil oil sales there and now we're looking to layer in and really plus that up with the addition of additional flower, which you heard me mentioned on the call I shouldn't I should note that we're not done growing in Pennsylvania, We've got additional expansion projects underway, there and that we will see our market share increase I believe during the back half.
Of the year with the Onboarding of additional capacity in that flower category, particularly and again, particularly focusing on.
That higher end cultivar collection in Pennsylvania, as well and so we.
We do believe that it's very important to have expertise in both product segments in both branded derivative products in oil as well as flower and we don't think that especially on the high end.
Again that cultivar collection premium flower, we don't believe that that's going away anytime soon and that that really is our quality, calling card for our customers and plan to have planned to have that that calling card available in the states that we operate and so where we can and so we're excited about doing what we can to roll those.
<unk> across the across the platform and certainly once we get harvest integrated will also be integrating some of their top brands into our portfolio. So that our combined our combined portfolio of products I think really will be second to none.
That's great I appreciate the color all the best.
Thanks.
Yeah.
Our next question comes from Russell Stanley with Beacon Securities. Please go ahead.
Good morning, and congrats on the quarter first question just around the harvest transaction in.
Obviously, great to see the shareholder approval yesterday I think the one of one of the recent filing service indicated an anticipated close.
About.
By February end of February next year, just wondering.
Your thoughts as to whether Thats.
Conservative timeline might we see it get done earlier in which which approvals. So you're saying you could say, which accruals are likely to prove the most time consuming especially.
Covid World.
Yeah. Thanks, Thanks Ross.
We certainly as I as I mentioned on the call are very focused we're all very focused on getting that transaction closed.
And of course are very excited about the strength of the combined the combined company.
It's it's definitely difficult to pin down exact timing I can tell you that we absolutely have had.
Successful communication with every single one of our regulators in each one of the markets that will be operating in.
We don't see any major roadblocks in any of those markets. However, we do have to go through each states very exacting profiles to make sure that we have all of course all of the regulatory required regulatory approvals in place.
To get to closing and as many of you know part of the transaction in Florida is the selling of a license in Florida that harvest is.
And harvest is.
Quarterbacking that process.
Going through an auction process right now so.
So there is a couple more steps involved in the Florida, and the Florida transfer again positive positive momentum on that front, though.
And there are just some markets that take longer than others. So and as you mentioned with kind of the second wave of Covid.
We are of course not.
Not sure how that may or may not impact impact how we how quickly we're able to get those approvals to move forward. So we're all focused on it I can assure you of that.
And we're working very diligently on it and it's all of our intention is to get us to get the deal closed as quickly as possible.
That's great. Thanks for that and maybe if I could just wasn't a crystal ball question I know I know their favorites, but new.
Jersey, obviously expected to open its adult use market either late this year early next depending on who you ask just wondering with.
They were in Pennsylvania.
Sure So far has been.
Im reluctant or opposed to even discuss so just wondering what your thoughts are on the potential for movement on that front.
Obviously, there are some tax dollars at stake so any any thoughts on the possibility is there would be great. Thanks.
Yeah.
Yeah.
Your guess is probably aggregate as mine Ross I mean, certainly in Pennsylvania as I've mentioned is a key market for us.
And we are kind of I'll call. It truly proper. If you will is continuing to invest dollars. There. We just opened another are closed on another three dispensaries the Philadelphia area.
We are very bullish on Pennsylvania, as a market as it stands today.
We are looking forward to.
Two combining with harvest all sales for for really not footprint can be.
A significant footprint and in our portfolio and so and like I said, we're going to we're going to continue to invest there. So we do believe that Pennsylvania has a lot of growth ahead.
And it will be working.
Eligible lead to ensure that we are in a pole position to take advantage of that growth and certainly in sometime in the future. We believe it's a matter of if it's not a matter of it's a matter of when not a matter of if we will be we will be well poised to take advantage of a switchover to two adult use when the time comes.
That's great color, thanks, and congrats again thank.
Thank you Ross.
Our next question comes from Andrew parts of the year with Stifel.
Stifel GMP. Please go ahead.
Good morning, Thanks for taking my questions and congrats on the great quarter.
Hey, thanks.
Maybe starting off on Pennsylvania, and continuing with with.
A previous question on some comments you had around that.
You mentioned that.
Sure.
Market share capture in the quarter.
It was mainly on extracts that jives with our headset data.
Yeah.
But you also had a pretty big expansion.
In that state and just wondering.
Okay.
When could we see.
Some movement on flower obviously.
That's that's an attractive category for you that you guys haven't really tapped and yet you also talked about some some future expansion plans in that state should we be thinking about.
This first expansion was mainly to bolster your offering around around extracts and then flower could come afterwards in the next expansion cycle or or should we still be expecting some some incremental movement on flower with.
With your doubling.
City here recently.
Yes.
Lower the flower expansion is coming through now so.
Should we should begin to see that come through in the numbers and I can tell you in.
Reality.
That is coming through now.
And has been very well received and as you mentioned there is I think a lot of demand around flower and so we're going to continue to push to push more right through that channel I think one thing we have to always be cognizant of right. There is a demand on both for both so it's all about making strategic.
Decisions in terms of what to put in what category right.
But.
We're seeing and we're seeing a lot of strength and which is look it's a great degree and it's a great problem to have right. So.
But certainly as I've said and pretty consistently here for gosh I don't know six months and that certainly has been a focus of ours is to get more.
More volume through that flower category and that is beginning to beginning to happen.
Definitely a good incremental opportunity for you given that you've grown so much just with extracts.
Maybe switching gears and taking a step back thinking about overall strategy.
You guys have done a couple of tuck ins.
You've got the large harvest transaction, which is obviously transformational.
But you are still looking at organic license wins.
Yes.
So just thinking about.
And what you guys are already you have now.
How do you think about what markets you want to be.
You wanted to be targeting.
Honestly, Georgia kind of looks like Florida at the beginning of it.
Medical program.
So just thoughts around that would be helpful.
Yeah, I mean, we are really excited about Georgia.
Looks very very familiar.
To us.
And very similar to Florida when it when it started actually I think we're maybe in a little bit of a better a better space.
In Georgia than Florida, many fixed don't remember that Florida started as a CBD only.
State and truly was first awarded our license it was as a CBD license and then it moves to a very very limited.
End of life program under underwrite to try and say it was.
In Georgia already as I mentioned has.
Has patients that have been building up over 18000 patients that are already registered and in Georgia program and and.
It's going to be a great I think a really strong strong strong market as it develops over time and we.
We continue to be very focused on executing on our hub strategy.
And we evaluate market based and through that strategic lens.
And we look at synergies to other markets, we look at our ability to leverage expertise.
As it relates to other markets and then of course, we look at the licensing structure and.
The profile of an individual program. So certainly we remain very very focused on continuing our dominance in the southeast.
And then our continued and also of course on the northeast as we as we think about how we can leverage that that hub that we've been very focused on over the last year.
And then of course with harvest, that's going to be a game changer in terms of our ability to have and a true hub in the southeast, which we can then begin to build around and optimize as well and so from US again, there are a lot of factors when we think about expansion.
But certainly we have particular criteria in particular and modeling that we do around ROI and as well as around.
Our ability to execute and execute quickly because we do think that especially in an application environment.
Getting it's not just winning right and it's winning and then absolutely and immediately executing and doing what we've done successfully in the pass through organic growth.
But we think that there are there remains to be which I think some folks maybe lose sight of there is a lot of a lot of white space out there and a lot of opportunities that have yet to be realized that we plan to be.
And you can take a leadership position in those markets as well.
Thank you so much for that detailed answer congrats again and I'll get back in queue.
Okay. Thanks.
Our next question comes from Matt Mcginley with Needham. Please go ahead.
Thank you.
You mentioned macro factors center around price and labor headwinds to gross margin in the quarter can you expand on what youre seeing here and it sounded like in the prepared remarks. It sounded like you thought that would improve in the back half, but if labor rates are structurally higher why would that that change later in this year.
Labor availability actually impacting your inventory position or is it just the cost of the inventory that's being impacted here.
Hey, Matt.
We experienced the labor dynamics mailing our processing centers. So it was really the movement from the work in process into finished goods.
And why would that change in the back half.
We're just trying and bringing more folks right.
Tight labor market.
No.
Increasing hiring practices just to bring in more people say, Matt what we've seen particularly.
In North I can speak to North, Florida, which I understand and appreciate that our dynamics around covid may have been a bit different than the rest of the world.
In some respects and what we saw is we saw I mean, we've got manufacturing jobs and look I think in a lot of industry. Other industries right. There quite frankly were just fix that we're choosing to to not work and take advantage of unemployment as well as.
Federal benefit.
They were they have been receiving and wheat.
Definitely adjusted some of our some of our approaches from a labor perspective, and have seen improvements already in and in our ability to attract and also kind of reengage some of that workforce and that previously decided to maybe maybe not work and spend a lot of reasons right.
Children at home and I mean, it's not I don't want to make it sound like there werent justifiable reasons that fixed made this decision so.
We've already started to see improvement on that Matt and but we definitely had pressure, particularly on with where our processing center was located in in that particular area.
<unk> of our of the states, so and again not unique to US there were a lot of businesses that we're in a similar geographic position also in a similar wage position that face. The same the same issues and I can tell you that proactively also and we have we are opening another production facility in Tampa.
In the Tampa area, which is a completely different labor market, and we think quite frankly and improved labor market for some for a number of reasons.
That facility is coming online actually this month, so again, having some diversification as it relates to and as it relates to where we're pulling labor from there are absolute reasons why we believe one we're already seeing it in <unk>, we're going to have diversity of labor pool, thats going to come through in Q3, and certainly going into Q4.
Thank you.
Debt refinance for harvest one of the big milestones required to advance that deals.
By that debt if you have any thoughts on what if you would retire a portion of that debt or if it makes sense to refi the full amount to keep your cash balance if I'm trying to think through like what your cap structure look like whenever this deal closes.
Yeah, So Ann.
That actually is not a milestone to the deal I think that what you're referring to is that there were some specific callouts in the documents around if harvest choose to do and repositioned some of that debt before closing there would have been an impact to some of the ratios or the specifics in.
In the in the deal which is true.
But that is only again triggered on if harvest took some action prior to closing.
Kind of two different two different things right and I think that that speaks for itself in terms of in terms of the details as the deal documents reflect I think that your your second question is really around what are we going to do.
And how is that going to be positioned as a combined company and what I can tell you is certainly what we believe it's true is that one of our strategic advantages. In this transaction is that of course, the truly financial statements and our our strength as a company, we will be able to reposition that debt on significantly better terms then.
And then what harvest has and then we also have the flexibility of course, if we choose to do a combination of pay downs and or refinances and refinancing or restructuring the debt and so and of course, our goal always is to make sure that we're maximizing.
In the interest of both the company of course, and the shareholders, which we which we fully intend to do youll get more details on that as we as we have more visibility there but.
Obviously, we think that there'll be a positive outcome for everyone as it relates to <unk>.
Our restructuring and repositioning of that debt.
Okay. Thank you very much.
Yes.
Our next question comes from Anne <unk> with Alliance Global Partners. Please go ahead.
Hi, good morning, Thanks for the questions and congrats on the quarter.
Hey, thanks.
So first question for me Kim.
As I talk about loyalty program.
Given some of the <unk>.
And competition that Youre seeing there you had mentioned.
In previous quarters kind of a revamp of the loyalty program. So would love to get some commentary on the progress of that potential timing.
Maybe a mid <unk>.
This competition that Youre seeing maybe some tweaks that you are looking to do that.
End of bolster up some barriers to kind of protect you guys on market share and brand. Thank you.
Yeah sure. So we absolutely are in your guidance.
No.
There are some things that youre going to start to see externally from us here here in the near term and we've been working on and from a systems perspective, and being able to have additional transparency and visibility to segment.
More specifically and make all of our programs, including our loyalty program more personal which I think is a really that's a key strategic initiative for truly again on kind of on the back end. If you will going into next year. So we certainly believe that the folks that are going to win.
In cannabis and really I think CBD in general.
You have to get personal with your with your customer and we're certainly seeing that trend throughout other industries as well and so we have been as opposed to just.
Putting together kind of a lot to get our loyalty program that would be quite frankly pretty easy to do we have taken a time out and have really looked at and been working on implementing systems and backend Tac. So that we are able to make it extremely personal in terms of our offerings.
And targeted today's consumers. So I'm very very excited about what we are what we're developing there and you can look for look for kind of the beginning glimpses of that here.
We're very very soon and the other thing that we've been focusing on is a complete website revamp.
We're also going to be doing some upgrades into our to our Pos systems, which again.
Really lead into that ability to capture at a more granular level. The customer data that is then we will then feed into that loyalty program. So that we can make it meaningful and impactful so.
We are we are working on it but we wanted to do it the right way Erin and.
I think initially we were focused on this tiered approach, which I think still has some validity but within that hearing we again think that it's critical for us to be personal and thoughtful.
And again that stickiness is.
And also the barrier to entry for someone to replicate it.
Is is more of a it's more of a barrier as opposed to just just an off the shelf solution.
Alright, thanks for that color that's really helpful.
So a question for me you guys have you know, Pennsylvania close retina, Massachusetts on the wholesale side, just curious whether or not you could maybe provide some context, how much wholesale contributed to the quarter and maybe how you think about wholesale versus retail mix for the company in the near term excluding harvest coming through.
Thank you.
Yes, Aaron we don't.
I know that.
That Alex has mentioned currently right, we don't segment out.
So we don't report, we don't report that way and we hear you guys we know them.
You all would like breast this thing went out and to report wholesale versus retail and so.
What I can say is that we're going to be looking at how we report on those numbers, particularly as it becomes more meaningful and in particularly as we as we look at kind of truly <unk> post harvest. So.
What I would say is it I mean, you could you know right I mean, obviously in Florida, Theres not theres, new wholesaling allowed in Florida. So when you look at Florida compared to the rest of our current platform and Florida of course is a large part of that contribution so.
Compared to Pennsylvania, Pennsylvania, obviously, if you look at that market as a whole sales a large part of what we do.
In Pennsylvania, and wood wood would be a significant contributor.
But as you know and I know appreciate it varies market by market, but as we have more of a balanced mix again post post harvest will we will absolutely be talking about and also talking about with our with our auditors in terms of how and when we begin to break that out.
Fair enough. Thanks for the color there and congrats again on the quarter pardon me Q.
Thank you Sir.
Our next question comes from Vivien <unk> with Cowen. Please go ahead.
Hi, Thank you good morning.
Tim I appreciated your commentary around kind of the nuances covid dynamics that currently exist in Florida today, Yes, I recognize that things are quite dynamic.
Things really have changed over the last five to six weeks. So I was curious if you could comment at all on how that's impacting the customer foot traffic through your stores and any comment on any evolution in average basket because of the delta outbreaks.
Sure. So I don't know that we haven't seen necessarily changes Vivian.
And in average basket and in Florida, specifically and nor would I say that we've seen.
<unk> has been kind of interesting.
In general and that it really has been constant since the beginning of the year, which is different.
From what we saw previously with Covid right. So that's something obviously that we then.
We've been we've been monitoring.
And.
It's been about a 50.50 split between walk ins and pickup and deliveries deliveries have declined not unusual because people are not staying at home.
In Florida.
Really kind of at all so.
Now we will be we'll continue to watch that right I mean, one of the first things that happen in Covid and 2020 was that we saw that that shift of between Walker walk in pick up and delivery shift dramatically right before covid round, one we had about 70%.
$70 to 80% of our business with walk in and about call it 20% or so with pickup and then the rest was with delivery covid hit and literally almost overnight rate and deliveries increased to 20% we had pickups increase to 60%.
All of a sudden that 70% share of work in was down to 20%. So there was a really big shift in that walk in business Covid around one we've seen that pickup increase really stick so that that business, which is great because I mean in terms of efficiency and pressure on store and throughput. That's a great. That's a great thing for us.
As it relates to how we can optimize our stores, but that pickup business really stuck and we also implemented some technology solutions in terms of being able to check in online and really make it a rapid pick up scenario. So our goal is folks are in and out of the store in five minutes.
So that's been optimized but it'll be interesting to see without walk in.
Walk in percentage of the business hour, if or when that that changes now we have over the last five weeks. So we have done.
We've come back in and re upped Covid protocols.
For our employees.
Re implemented masking we've re implemented every other register in our in our dispensaries, we implemented social distancing sanitizing cleanings.
An hour that we set aside for immune compromised.
And certainly we'll continue to do those things.
As this as this round.
He continues to continues to heat back up but.
Hopeful of course, there's I know, we all are that and that this will start to see a flattening and then a decline.
We'll start this week in Florida so.
Of course, it is it is top of mind for everyone.
Absolutely. Thank you so much for that detailed color just following up then with the <unk>.
Stickiness, presumably at least in the near term.
Around pick up does that change at all the way that youre thinking about like new store acquisitions. One of your competitors called out you know heightened competitive landscape in terms of real estate acquisition cost, but if you're able to improve your throughput by maintaining a 50% mix of the high velocity pick up does that change how you think about expanding your geographic footprint in Florida.
Typically.
Yeah, I mean look we're constantly evaluating our retail footprint in all markets and we have a very dynamic model that we that we look at very regularly.
I can say that we feel very comfortable with that model and the results that it's given.
We're still averaging $9 million of store and we are still in that that's consistent right. So it's not like we're seeing massive cannibalization as it relates to new store openings, which is of course something that we look for as well very closely.
So store productivity on our new store retail basis in Florida is very very strong. It has remained strong.
We have a very robust pipeline that we've developed over a long period of time in Florida, which I would suspect puts us at a bit of a different position than maybe our competitors in terms of.
But just the.
Our systems and processes as well as.
Just the fact that we've been in the market for a significant period of time.
So we're continuing to execute on that pipeline and continuing to add to that pipeline, but our pipeline is.
Nine months to a year out. So this is what you are seeing come to market. Today are properties that were identified in some cases back in 2020, so and that that will remain constant to us also ever over the last five years, but we haven't seen dramatic increases in lead times.
Or any significant additional pressures in that in that area now what we have seen is certainly there have been like for example building materials, which that's going to that's going to really affect us more on the backend right I mean, a lot of our a lot of our stores most of our stores not all of our stores are.
Our renovations they are not.
Ground up builds there.
There have been in some cases, some longer lead times from a permitting perspective, just because of again staff availability and backups in those permitting offices that are still those bottlenecks still working through as it relates to Covid right. We also all know that theres been a housing boom there.
Theres a lot of a lot of activity that has happened over the last year in that.
Just areas of those department served so that's certainly true, but again nothing that's stopping us from meeting our.
Our goals that we've set forth on the retail front.
Understood. Thank you very much.
Uh huh.
Okay.
Our next question comes from Camilo Lyon with <unk>. Please go ahead.
Thank you good morning, everyone.
Wanted to ask first on Pennsylvania.
And maybe if you could help us think about how that market's margin progression should unfold given that youre now going to net now you start with generally flower you've closed on these three <unk> stores.
Philadelphia area stores.
And then just going to be more vertical I would assume that there should be a nice ramp on your margin profile in that state, but just wanted to get some context, if you could provide that.
Yeah, I mean, I think that the Pennsylvania is going to.
We continue to be a mixed market for us right and we're going to continue to have also have as I mentioned, a little bit a little while ago and hope to continue to have a very strong wholesale presence in Pennsylvania and that is going to continue to so.
While certainly there.
Quite frankly could be additional margin pickup as we move.
Our existing.
So levo and now Keystone shop stores into more of a vertical position in 2022.
Keep in mind that we also are going to me Havent. We also will be expanding our cultivation and processing facilities, there and want to continue to move our wholesale market share as well and so of course in a wholesale environment youre not going to have quite the margin that you will.
On a vertical and a vertical scenario in I'll say right keep in mind that it's not going to be 100% vertical in Pennsylvania. That's just not what the market dynamics are and first and foremost it's very important that we listen to the customers.
So certainly there may be some improvement there, but again youre going to also have.
Additional.
Additional increase in our in our wholesale channel as well there.
Again, all all good.
And I think look just to level set here right.
We're at 67% margin.
Yes.
Im pretty sure last time I checked we're doing okay as it relates to the industry.
And we will continue I believe to be in a position to have industry leading margins.
Across across the board.
As a whole.
Got it and then just one final one if I could.
On on harvesting any sort of lending that you are gaining from the Arizona market.
Since you've announced the acquisition I think they also talked about some.
Competitive pressures and promotion Ality in Arizona.
Have you kind of unnerves different practices and how you would go to market.
And just how you kind of manage that.
Upon closing.
Yeah, well I don't I think that everyone who is familiar.
Emily or with the Arizona market understands that there is some seasonality as it relates to Arizona, particularly when you're talking about a recreational market and youre talking about tourists that youre talking about folks that are.
Consuming it.
Extremely hot there right now and Youre talking about someone who was born and raised in Florida.
Okay.
There is there is some seasonality.
Two Arizona, so I don't know that thats completely unexpected and I think the EDC.
A bit of a bit Q over Q there normally.
I also would say that and we've been pretty transparent about this that we do believe that there is opportunities in Arizona specifically.
We think that there is absolutely opportunities for investment in both the cultivation and the processing side of the business.
To expand there.
The capacity there.
And to get not only again additional product through owned retail.
First and foremost which of course would lead to you as we just talked about margin expansion that we think theres, some pretty low hanging fruit, there, but I'll say right.
<unk>.
Creative position as a wholesaler.
And you have meaningful brands and in Arizona.
Across across the broader platform.
We definitely think that there is opportunity in Arizona I think all the teams are aligned.
That opportunity exists and are looking forward to to begin executing on that post closing.
Thanks, so much good luck thanks.
Thanks.
Okay.
Our next question comes from Eric Deloria with Craig Hallum Capital Group. Please go ahead.
Great. Thanks for taking my questions.
So I'd like to focus on.
Some of your integration with harvest so integration, obviously, both highly important and highly difficult in this industry.
You're in harvest of both developed strong brands strong consumer loyalty truly I know you guys have made big investments in your ERP systems for example.
With Mark do you have strong hydrocarbon extraction Sop now so I am wondering.
Harvest attractive footprint and brand can you maybe provide some color on what strengths there youre looking to adopt from maybe a systems or Sop perspective, and then which of your systems or S&P that youre looking to implement in their facilities.
Any additional color on the integration plans and maybe how long those might take would be would be great. Thanks.
Sure.
Don't know that youll ever ever finished optimizing so I'll maybe start with that.
I think that and I think one thing I will say in.
And just I'll have to forgive me that I can't help it but I am a recovering lawyer, it's just one of those things that you never quite shake.
So I can't until we close the deal I really am not able to go into specific details around specific plans and that we may have on an integration on an integration.
From an integration standpoint, what I can tell you is that we plan to.
Absolutely adopt best in class SAP. So this is not a.
An area where.
Because we've been doing it a truly that's the way it's going to go it absolutely. This is being looked at through a newco lens and it's being looked at.
Who has got the best the best systems, who has got the best protocols to Who's got.
The best ways of working and that absolutely is what we will be looking to adopt on a go forward basis and in some cases, it's that both companies sit down on share and then it actually is a new a new methodology that is a combined methodologies that comes out of that and that will be applied going forward. So.
It's really been a and we will continue to be I think a very energizing and instructive exercise as we and as we really dive into the details and is creating I think meaningful opportunity on a number of fronts.
That we're looking forward to taking advantage of again post closing, but I'll have a lot more to offer you on that on that question. If you want to maybe keep it keep it in the in your pocket for until the the call that we have.
After after our closing announcement and then I'll have a lot more details that will be able to share with you then.
Alright, great well do.
I'll try and kind of one more on this integration here I'm not sure if I may have missed it.
But.
So in Pennsylvania, you guys will be over the limit for dispensaries.
I'm not sure how the regulators are looking at both production facilities either.
To the extent that you guys have received some color or you do have some idea of what that post acquisition footprint will look like can you just kind of comment on.
What you expect your dispensary count and production facility count to be.
When the acquisition closes thanks.
Yeah, absolutely I'm not going to comment on that.
What I can tell you as I said before we've had very favorable conversations with all of our regulators in every market that we're in and we expect.
Fantastic results from each of those conversations and we do not anticipate any material roadblocks.
Being able to combine our companies and move forward with the closing.
As a as we've outlined in the in the deal.
Alright fair enough. Thank you alright.
Alright.
Our next question comes from Al <unk> with Cantor Fitzgerald. Please go ahead.
Yes, two quick questions I know it's late.
Jim can you comment on the slowdown in patient growth and sorry, just one thing store perspective, I think we're running but also results in a week being others compared to $5.6002 weeks ago.
Just some color on that because we are getting to 30% of formulation penetration rate recently I was four together with a homeless person, but you guys.
Slow down significantly.
Yeah, Pablo it's interesting we look at that and obviously, we're looking at the trends.
On a very regular basis, and so I think what we saw just as a reminder, in Q4, we were at about 2700 patients a week.
Of 2020.
And that's where we are now so theres been a bit of a there was.
Quite frankly, we slowed down in 2020 kind of at the height of Covid when doctors offices were shut down and whatnot. So.
Not sure and obviously this is all speculation because we don't have anything other than the numbers that they print every week, but.
A couple of things one I think folks certainly there was some pent up demand.
Is it related to Covid coming into 2021 two of course, we had continued availability of telemedicine.
An executive order that was an emergency order.
That has now expired and so I think the other thing that you have to look at it and you have to look at the throughput on the doctor's offices.
Telemedicine I believe did allow us to positions to be significantly more efficient with their time.
As they were able to get more patients through.
Through the quote office right.
That telemedicine period.
So we've normalized back to where we were before so.
I don't know that its.
I don't know that I would call out.
Any sort of reason for complete alarm right I think again, you have some pretty pretty reasonable reasons for that for that happening. Obviously, we're going to continue to monitor it though to your point and certainly want to see that number continue to grow I mean 2700 patients a week, though is still.
Extremely strong growth for a market, particularly a market that is now in its fifth year of.
The existence so.
I don't think thats something that necessarily.
Downplay, but yes, we had exceptionally high growth, which I think was your point in Q1 and Q2, Yeah. No. That's good. Thank you and then one last one maybe I misheard, but it gives us to go do you see the ones. The margin goes rigs you'd also be able to.
Start production if would you only have a retail license in and there are smoking gun.
Fathering, it's only for the retail license can you elaborate on that thanks.
Yeah. So.
Thanks, Pablo and so it is our understanding that there will be grandfathering allowance for folks that have retail licenses one of the requirements for before recreational will be officially.
Released if you will is for there to be adequate production in cultivation and one of the ways that that can be achieved through allowing existing retail operators to also have cultivation and production. So while the final regulations are not out we're certainly in touch very much so with that with the regulators there and expect regulations to be coming through.
Through any at any any moment drafts of unreleased et cetera, and feel very very comfortable that and of course that we will be able to participate on the on the cultivation and production side of things. There. We've got some sites identified and once we are able to do that we will be participating in that market.
That's great. Thank you.
Mhm.
Our next question comes from Quebec tie with <unk> capital markets. Please go ahead.
Thank you and good morning.
Tim on the promotion activity and gross margin discussion.
Thickly.
Typically when competitors make those sort of price investments and that don't gain traction.
I end up wearing those investments in subsequent quarters given potential in our collateral damage to brand positioning.
With that context would it be reasonable to me looking at your Florida business and the.
<unk> is potentially poised for a little bit of a snapback, we haven't changed the margin profile because you did as good a job as you did defending against the promotional activity or more rational and irrational pricing.
If it works great if it doesn't if people participating in a possible way or how should we think about that evolution.
Just to better handicap the range of outcomes on gross margin through the second half.
Yeah, Ken Great question.
Think that we are we're still say really the I will say that the the and.
Significant increase in.
In discounting really starting to pick up in the back half of Q2.
And I think that Youre still he saw its still a little bit of that it's interesting we've seen kind of a reprieve of it and then now we're starting to see it pick up back again, so it's almost like Theyre going.
Pause to evaluate and then and then youre starting to see it a little bit again and by the way not necessarily always from the same.
So it's.
It's been it's been very interesting to watch them to evaluate for sure.
I say that because I don't know that youre going to see an instantaneous snap back I do think though as we move into call. It back half of Q3 into Q4, I think that Europe should start to see.
To see some of those effects play themselves out.
I think you started to see them in Q2, and if you really dig into some some folks' earnings I think you'll you'll notice that they are there.
But.
I think certainly it's something that we're watching and we're cognizant of and like I said I think that our response is the right one and that we're being very strategic and very surgical in terms of how we approach it maintaining competitiveness of course, but also maintaining.
They're really intrinsic value of our brand.
Which look thats more important to us then.
Trying to force another a couple a couple more points on the top line on a top line for short term gains. So we want to of course grow on the top line, but we want to do it in a sustainable way.
No that's great and then just to close off the discussion and taking my question.
The other piece of it would be is.
Typically that sort of activity will work well either.
Julia recreational market thinking, Arizona or in markets, where you have material supply supply imbalances or all the oversupply, but realistically across a number of your markets. The opposite is true.
Type two relatively tight supply, which to my mind gives it pretty short tail to this level of promotional activity or to people's ability to continue to do it in your more established markets recognizing it could be noisy at some of the newly recreational market is that fair.
Characterization to Oman.
Absolutely.
I also think that it's really interesting that folks.
Have this.
We need to do such steep discounts when you are in a market that has the demand profiles that we have and so I think that the other component of this which we haven't talked a lot about is really one that speaks to quality.
And it speaks to consumer preference right and the question that we ask is.
The why question right why is it something moving why is there whats what's off as it relates to the value proposition and there are many components to a value proposition right.
And of course, it's having the right product the right of the right shelf.
The right price I mean, those are the three basic components.
And again quality is an important component there and so.
And we think that the quality and again, having that consistent and repeat customer who is bought into our value proposition is really the only way to win again again long term and so on.
I agree with you completely.
<unk>.
That's that's really again I think very very short term way to think about the business, but to each their own in.
We're.
Just want to be thoughtful in terms of how we respond and ensure that we.
We continue to produce the highest quality products available at the right the right value proposition to give our customers that are good and repeatable experience.
Sure Hi, Tim Congrats on all these days.
Thank you.
Our next question comes from Scott Fortune with Roth Capital Partners. Please go ahead.
Hey, Good morning. This is Nick stepping in for Scott Congrats on another good quarter. My first question comes on the product innovation side, you guys launched Edibles last September.
Looking to develop powders waxes and other Skus just looking for some color on your upcoming two point out product launches, what you've seen so far on whats been rolled out and kind of what the competitive landscape on the 2.0, sorry, it looks like in Florida.
Yeah, absolutely. So I mean, we have a full line of Edibles. Currently we also have a full line of concentrates which include all of the products that you just mentioned and we've had those products in our portfolio for at least last six months.
So.
Sure.
Certainly strong categories.
We are still waiting in Florida for hydrocarbon rules to come out and we're very excited about that being on the horizon.
Dot.
Extraction methodology has been approved in Florida law, we're just waiting for actual rulemaking to come out we keep hearing that it's.
Right on the cusp of being released so we of course hospital facilities that have been just like we did with edibles already inspected approved et cetera, we have a full product lineup that we're on.
We're excited to launch as another analysts mentioned earlier, we of course have high and hydrocarbon extraction product line in Pennsylvania.
Through our pure pen partnership there that and that does extremely well in that market and so we.
Our anxious to bring that expertise here in Florida.
In addition of course.
Of course in Arizona hydrocarbon production is also allowable. So certainly what I would say is that on truly to point out as you as you picked up on and we will of course have more robust catalog of <unk>.
Concentrate products.
We're looking for that to be a growth category for us. In addition, we continue to innovate across other concentrate products.
<unk> recently launched a refined crem product, we're actually waiting for approvals on some other innovative products and I should also mention that our product lineup with our brand partner Blue River, which is a solvent less company.
He was a national brand partner for US has continued to do extremely well.
And we're continuing to do a lot of innovation on the solvent front, which we do believe is an important category that is a growth category for us.
Moving forward on the final thing that I'll say on innovation, which again I think sometimes gets overlooked is on the genetics front, we continue to invest heavily into our genetics portfolio.
And.
Again, when people think genetics I think folks think only the exotic streams, which certainly it's true as I mentioned with our cultivar collection, but also it's really important as we think about the landscape on a national level, and how that might change or evolve with it.
Like Interstate Commerce for example, in which part of parts of the supply chain.
We may feel it's important to continue to be in control of and.
One of those is genetic profiles for specific products and sustainability of supply chain for genetic profiles for specific products. So what I mean by that is certain strains that have increased chirping flavonoid.
Structure requirements better speed into particular product lines that we have developed and that are made specifically for for those formulations again as well as well as high end genetics from a flower perspective so.
Genetic.
Focus is something that is important to us and that we that we will continue to work on as it relates to innovation as well.
Great I really appreciate that color and then one more from me just kind of switching gears regarding your west coast expansion, specifically, California, you have your dispensary, there and then the brand equity of harvest in Arizona to potentially leverage in that region. What do you think needs to change or happened in California, if were to become kind of a more compelling market opportunity.
Yeah, absolutely I mean, certainly we're watching California, and I thought that what's going on with Glasshouses is interesting I think we're keeping we're certainly keeping an eye on on what's happening in California, as it relates to real scaled and meaningful production and supply chain.
Sure.
I think that and.
It's significantly improving state I would say in California, as it relates to the ability to potentially anyway.
True get to true scale and get true distribution I mean, that's what we're looking for really in any market right in California is no different as the opportunity to have solid and stable supply chain.
Where we can have.
Reliable distribution.
Through through a market that they make sense and that we're not ever burden from a from a tax or a regulatory perspective. So that we can we can run our business and we can.
Again, and provide our customers with quality products at a good value.
Yes.
In a repeatable way so.
I think California looks looks better than it did.
And we're keeping a close we're keeping a close eye on it.
Great I appreciate the color.
Yep.
This concludes our question and answer session I would like to turn the conference back over to Lynn Ricci for any closing remarks.
Thank you for joining us today, we look forward to updating you again next quarter have a great day.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.