Q3 2021 Green Thumb Industries Inc Earnings Call
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[noise] good afternoon, and welcome to Green Thumbs third quarter of 2021 earnings Conference call.
At this time all participants are in a listen only mode. A question and answer session will follow the conclusion, a formal remarks in an effort to keep the duration of the call to one hour, we would ask for a limit of one question per person.
As a reminder, a live audio webcast of the call is available on the Investor Relations section of Green Thumbs website, who will be archived for replay I'd like to remind everyone that today's call is being recorded.
Will now turn the call over to Grace Bondi Corporate Communications. Please go ahead.
Good afternoon, and welcome to Green thumb third quarter of 2021.
I'm here today with founder and C E O.
Financial.
Anthony Georgia.
Today's discussion responses to questions named and forward looking statements, which are subject to various risks and uncertainties that could cause our actual results to differ materially from these statements.
These risks and uncertainties are detailed in the earnings press release issued today, along with the report filed with the United States Securities and Exchange Commission and Canadian Securities regulators, including the annual report on 2020th Form 10-K.
K and the corner of the report filed on Form 10-Q, which we expect to filed Friday when the S. E C reopened after veterans day.
This report along with today's earnings release can be found under the investors section of our web site.
Green thumb assume no obligation to update or revise any forward looking statements to reflect the events or circumstances that may arrive. After the date of this call.
Rather discussion greenbaum will refer to non-GAAP financial measures, including EBITDA and adjusted operating Utah, a reconciliation of non-GAAP financial measures to the most directly comparable GAAP measures is included in our earnings release.
Peter Island please.
Please know all financial information is provided in U S dollars unless otherwise indicated thanks, everyone and now here's done.
Thank you Chris.
Good afternoon, everyone and thank you for joining our third quarter of 2021 earnings call.
[noise] Greenbaum team delivered strong results this quarter, reflecting solid execution and continued positive momentum our business.
Revenue for the third quarter was 234 million up 5% sequentially and 49% year over year.
We posted our fifth consecutive quarter of positive GAAP net income are seven quarter of a positive cash flow from operations and adjusted EBITDA, 53% year over year to $81 billion that bring the year to date revenue and adjusted EBITDA through three quarters.
$650 million and $232 million respectively.
We ended the quarter with cash and cash equivalents of $286 million, which gives us flexibility to invest with an eye towards long term returns for all of our stakeholders.
Now I'm Gonna tell you about some exciting developments inside the business recent M&A execution, and I was thinking on brands and the overall industry.
And they will then discuss the financials and we will hit Q&A.
On September 9th we broke ground on a war with your cultivation and production facility.
I already have one building in Canada campus on the grounds of this former federal prison that locked up people for cannabis is not lost on any of us.
When the prison shuttered hundreds of jobs were eliminated in the community of Warwick, We're planning to reverse the cycle by creating high paying jobs and the legal cannabis business that will reinvigorate the local economy, something we've done before in our communities in Illinois and Pennsylvania.
Tobar 16, we celebrated the grand reopening of our rise Mundelein store, which was green thumbs first retail store opened back in 2015 and in fact yesterday was the six year anniversary for rise Monday line, and the Illinois cannabis program.
With the reopening we believe rise on the line is now the first location east of the Mississippi River to offer onsite purchase and consumption of cannabis.
It is also the first store in Illinois to offer rolled through car service for medical patients to pick up their orders, we look forward to continuing to enhance our patient and customer experience and bringing these new concepts to other retail locations when regulations permit.
We've been busy on other fronts as well since the last call the Greenbaum family has grown.
Strategic M&A and strong execution brought new folks to the team.
In July Virginia became our 13th market with the clothes of Darva Pharmaceuticals, We love the investment into Virginia, given their population of $8 5 billion people and a path to adult use regulation.
We look forward to working with the newly elected Governor Glen Younkin and his administration to drive growth and an opportunity for the people Oh, Virginia.
We currently have two stores open fries, adding didn't rise stable with four more in the works.
We plan to allocate capital to production in the coming quarters to position us to serve the growing consumer demand for rhythm Incredibles and dog walkers in the great State of Virginia.
In August we entered Rhode Island, our 14th State and welcomed summit medical Compassion center to Green thumb.
Summit is one of only three dispensaries in the state of Rhode Island.
And in September we partnered with Tom Morris and a great team at Greenstock, Herbals, and Massachusetts license fee that operates too adult use retail locations one in drackett and the other and Maynard with a third expected open soon in Chelsea, which is less than a mile from Encore Boston Harbor.
On September 15th we open rise Bloomfield, our third store in New Jersey, bringing our total store count to 65 at the end of the third quarter.
And subsequent to the quarter, we closed on the acquisition of Maryland Health and Wellness Center, a single retail site in Hagerstown.
Bringing our total store count to four in Maryland, and 66 nationwide.
We continue to execute on the thesis of building brands that scale for American consumers, who are choosing cannabis for wellbeing.
We believe in our brands and their ability to connect to consumers and create loyalty overtime.
While the industry is still in the first chapter of the brand building book, we are learning from early successes and mistakes in order to optimize our playbook for the future.
We've seen a copycat brands and remind everyone that we are all in this together.
We continue to believe his first number advantage and surfing ahead of the wave.
Our growing scale combined with the information as we have developed will set us up to make high probability bet and informed decisions to optimize long term value for all of our stakeholders.
In terms of the state of the states third quarter legal Canada sales in the United States were $6 billion, which was flat to the second quarter.
Illinois in Pennsylvania are each a $1 billion to $2 billion market and we think both have the power to more than double overtime.
California continues to be a three and a half to $4 billion market, Colorado is north of $2 billion.
We believe the future for New Jersey, New York, Connecticut, and Virginia will Ryan with those experiences and we'd like green thumbs position in each of those markets ahead of adult use.
Based on this setup, we will allocate capital appropriately and prudently.
We will continue to build branded products to meet consumers, where they are and satisfy the demand.
That consumer demand gives us conviction in high end indoor premium flower and create a simple goal that is anthony likes to say tank at scale, which really means high quality consistent flower and available nationally.
Our flagship brand in flower is called rhythm and we are pleased with the product quality across the country with more room for improvement and growth.
Find your rhythm is a universal message that connects with American in their daily experiences and special occasions.
Is only the beginning.
Last quarter, we introduced the launch a good dream across five States, Illinois, Maryland, Massachusetts, New Jersey, and Pennsylvania and sales are strong.
Quality popcorn flower at a value price has a spot in the market and we think aligning that to a brand that is dedicated to investing and nonprofits fighting the harm created by the failed war on drugs is a good plan.
To accomplish this we made an initial commitment of $1.3 million fund grants from good green sales and.
We were excited to have received over 80 applications in the first round from nonprofits that supported on a good dreams core pillars education employment and it's fundament.
Just recently, we announced our three inaugural winners received unrestricted grants of $75000 each.
<unk> lawyers for social equity that helps eliminate criminal records blocking people from employment.
Innovation works Baltimore, whose mission is to close the racial wealth devised in neighborhoods and why not prosper, which helps incarcerated women successfully transition from prison to re enter into society in Philadelphia.
Our second round of applications is now open. So if you know someone who is involved in a nonprofit that has a mission that is aligned with repairing some of the arms created by the war on drugs. Please encourage them to apply at www dot good dark green.
We continue to thoughtfully execute the business plan to distribute brands at scale.
Proud of what we have accomplished to date, but feel we are just getting started.
We liked the positive cash flow from operations net of the punitive taxes.
We sleep well at night, knowing that regardless of when the federal government takes action on People's Freedom to choose cannabis, we have built green thumb to prosper.
We plan to stick to our core playbook, which includes tuning out the noise.
Prudently allocating capital.
Obsessing over the consumer.
And focusing on execution.
We are having fun and continued to believe it is still day, one four candidates and the United States.
With that I'll turn the call over to Anthony for his financial review.
Thanks, Ben and good afternoon, everyone. Thank you for listening.
As he gestured, our momentum continue during the third quarter with the business generating record revenue EBITDA and our fifth consecutive quarter of positive EPS.
At a high level and Q3, the company posted $234 million a topline net revenue.
$81 million adjusted operating EVGA.
Total net revenue increased 5% over Q2 with growth CPG revenue growing 3% and gross retail revenue growing 7%.
Prior to accounting for intercompany revenue. This left our gross CPG to retail revenue breakdown at 43% and 57% respectively about.
About flat with last quarter.
Please note that 100% of our CPG revenue consistent branded products sold to retail stores as the company does not currently wholesale any bulk biomass to other operators.
Consistent with previous periods and despite the overall industry being flat quarter over quarter, we attribute our revenue growth to successful execution high quality differentiated product and strong consumer demand across our market base.
On the profitability front, the company's gross margin percentage performance equals Q2 at 55, 4%.
And just to reiterate something I've said in the past our goal remains to keep this very important metric at or above 50%.
As time evolves, we anticipate our scale and diversified market base will help support us and continuing to achieve this goal.
And the SG&A side, excluding depreciation amortization in stock based comp normalized operating costs approximated 52 million.
$5 million increased over the $47 million incurred in queue too.
Consistent with the growth experience from Q1 Q2 milks at this increase was payroll related.
That differently, we're executing on our previously stated goal of accelerating our investment in our team and infrastructure.
Are both now has approximately 3400 on board and the journey continues.
In the coming quarters. The company will continue to closely watched SG&A spend relative to its top line growth.
Other income for the quarter approximated 800000, which primarily reflects non-cash gains associated with our investment portfolio as well as interest expense from our senior debt facility.
None of these expenses the company generated $22 million in net income.
In addition, the company generated over $81 million and adjusted operating EBITDA close to 35% of revenue.
Moving onto our balance sheet and cash flows we ended the quarter with approximately $286 million cash.
During the quarter the company made healthy tax payments uncle, Sam and invested over $85 million in gross capex, when including to spend associated with our cell leasebacks.
On our last call I communicated our plan to increase our best and a number of key markets and we believe will help drive the next phase of growth for Green thumb.
Subsequent to quarter and we raise the remaining $33 million a capacity, we had under our $250 million debt facility.
Consistent with our additional raised this was a non brokered offering led by long term investors.
We remain bullish on our east of the capital and the cash on cash returns we can generate in this next phase of prohibition to point out.
As we had in the late Q4 of 2022.
Thanks to our team our investors and other members of the extended Green thumb family.
Without their trust and dedication none of our accomplishments, thus far will be possible.
In addition, an advanced the veterans day, we must recognize all those you serve and the sacrifices they have made to protect our freedom.
In closing I'll leave everyone with this.
As the world around US continues to have all our strategy largely remains the same with a few unique but simple things.
Number one b the consumer.
People's connections to candidates are personal and real.
Continue to believe that our success is directly correlated with our ability to thinking that if I can consumer every step of the way.
Two quality matters.
As a competitive spirit and each marketable we're confident that our ability to cultivate and produced premium flower and other candidates products scale with the consumer pocketbook in mind will set us apart from others.
Last no matter what challenges present themselves, we can't forget that our opportunity is built on years of sacrifice by many before us.
We have an obligation to try to write some of the wrongs created by the war on drugs.
We hope everyone enjoys the upcoming holiday season with their loved ones and look forward to speaking with you all the new year.
Back to you then.
Thank you Anthony.
In closing the headline for this quarter and the remainder of 2021 is that we're laying tracks for growth in 2022 2023 and beyond.
In the third quarter are gross capital expenditures, which includes sale leaseback transactions exceeded $85 million, which brings year to date grows capex to over $150 million.
And as we all know it's not how much you invest is what the investment will ultimately return.
Something we never lose sight of and it dominates our capital allocation discussions I'm proud that we have earned a reputation for thoughtfully allocating capital.
For focusing on strong execution and for doing what we say we're going to do.
It's what we live by each and every day and knowing that none of this will be possible without your support and of our amazing Green thumb team.
Special Shout out and thank you to all of our team members across the country. We appreciate everything you do for our patients and our customers every day.
As I've said many times before we are still in the early innings in this great American candidates growth story we.
We do not believe the U S market will look like Canada, given the current regulatory environment.
The U S legal cannabis market is already a 24 billion dollar industry and as new states, new products and new consumers come into the market. We believe the market will triple over the next decade.
That means at least $50 billion more legal sales to Carl.
So what kind of market cap will that create.
What will that do for the American consumer experience and how can we position green thumb to take advantage of that for our stakeholders.
Finally tomorrow is veterans day, and the honor the men and women in uniform, who sacrificed so much to protect our freedoms Greenbaum has partnered with happy for Veterans' mental health.
This worthy organization is dedicated to connecting best with mental health support as well as overcoming harmful stigmas around treatment for those who need it.
Suicide is a massive problem in the veteran community with numbers approaching 7000 per year or 20 per day.
We applaud the house VA Committee support of research into medical cannabis as a viable treatment option for veterans.
COVID-19, and amplified mental health issues in the United States broadly, especially in the veteran community.
Our team is proud to partner with I'm happy to support this much needed endeavor to provide adequate resources to our beds. So on this veteran's day, let's all remember just how much we all those who answered the call of duty.
And with that I'll turn the call the operator and we welcome your questions.
We will that'll begin the question and answer session to ask a question you May Press started then one on your Touchtone phone if.
If you are using a speaker phone please pick up your handset before pressing the keys.
If it anytime you question that's been addressed and you would like to withdraw your question. Please press Star then too.
In an effort to keep the duration of the call to one hour, we would ask for a limit of one question per person at this time, we will pause momentarily to assemble our roster.
Our first question will come from Camillo Wyatt with B T. I G. Please go ahead.
Thanks, and good good evening, everybody really nice job on the consistency.
Especially in light of a of a fairly.
Competitive environment.
Uhm I wanted to dig into the Capex spam that they think that acceleration capex, you've got a lot of opportunity there's definitely more they're spending on I'm curious to know specifically what what were the project one or two projects I really took a bulk of that incremental capex I'm guessing it's sending <unk>.
<unk> since you broke ground on that.
If it is how are the what are the plans and timelines for when that will go lives, particularly now that the state allows the sale of whole flower.
Yeah. Thanks, both been I appreciate your question.
And I think we use the analogy last quarter, we have conviction and where cannabis demand and the size of the market at 24 go into $80 billion is going and we really have put the chips on the table in the markets, where we see a lot of growth coming so high level. The new Capex focused on New York, New Jersey, Connecticut, Virginia or markets, where adult use is coming.
When the cash leaves the balance sheet is always a little different views of golf carts jammed the gas sometimes at church a little later, so where in New York is broken Brown, it's not a huge piece of the capital from a cash flow standpoint privacy committed to that we have the capital we're ready to go but from a casualty of the balance sheet, sometimes not totally lying but I would say high level of those four markets continue to.
Dominate our conviction on where Canada's growth is going to come.
Our next question will come from <unk> zoo at so a Nick with Canton. Please go ahead.
Thank you up.
Just in general I mean, when you talk about when we've seen these are supposedly pressure in New York, New Jersey. If she can she communitization can you talk about was whether that's something you're saying you're enjoying business and whether that's seen any way impacting overall profitability Dubiousness clearly those margins were stable fortunate imported would just talk about if there's been a negative.
[noise] effect from the conversation do some shelves for you in New Jersey, and New York. Thank you.
Hey, Pablo spend will can you just repeat the beginning of your question.
There was something wrong with the line no. So I'll go to companies have talked about that scenes. They keep it on the station started in New York and New Jersey. So there has Ah boosted illicit trade in effect at a sales of over legal stores right and I'm. Just wondering you know you're a pretty good retail sales good old 7% sequentially. So I'm just wondering.
If you saw a decline in New York, and New Jersey sequentially that you can highlight like other got it yeah I didn't hear you on the illegal market sorry totally understand the question no maybe really impact our business as you know those are small for us in the scheme of things, but I think it's a good point and I think.
Figure out what women regulation of turning on adult used not enforcing illegal stores.
Five six years ago, I don't think that existed in some markets is now the beginnings of existing theirs.
There is product there's other things lack of testing central consumer dangers and things like that.
But it has not impacted our piano, there's a huge amount of demand in New York, It's going to find its way. It already is there is a massive market there or excited to bring the product and the brands that we know how to do it delivered to those markets.
Our next question will come from the D. N S error with Coward. Please go ahead.
Hi, Thank you Anthony I have a question for you you guys don't offer guidance and I think that's absolutely appropriate, but you have posted two quarters of sequential contraction as 100 basis points on your adjusted EBITDA and well explained in terms of the head count, they're certainly going to be at the enclosed as you expand into new markets, but.
If you could just maybe help us think about it head count the major driver is that what you want we should be tracking in terms of forecasting ear I tested EBITA levels or any other helpful. What kind of color without offering guidance that you could provide would be very helpful. Thank you.
Yeah, that's a great question Vivian so you're.
You're right in my prepared remarks, I mentioned that payroll was the biggest driver of call. It the 5 million dollar SG&A normalized SG&A increase.
We anticipate that continue continue to be the case I mean, obviously, what we're doing is we're closely watching the top line and as we head into 2022.
All up and down the SG&A spend accordingly based off the demand in business.
But that's that's really where we're seeing the biggest kind of gross I mean, obviously, we have some marketing extended as the as the top line growth will have to continue to kind of see as well, but looking ahead I would say the payroll will continue to be a hefty portion of any of the SG&A extent increasingly occur.
Our next question will come from Matt Mcginley with need him. Please go ahead.
[noise]. Thank you.
Net wholesale business grew only about 1% in the third quarter, but the the acquired assets you hadn't <unk> would have likely been additive to that segment is there anything of note here in terms of market weakness by state and with a C. P. G grew up primarily volume growth or did you see any it declines and realized pricing.
That's a good question so.
In terms of the CPG growth since the facility that we acquired in Massachusetts, We have some work to do there.
In terms of the in terms of the flower production. So it really didn't show up on the piano as of yet.
That's certainly kind of one of the reasons why you didn't see greater CPG growth.
But overall, we didn't have any additional facilities really turning on so as you know.
We are CPG kind of revenue works interior stair step function in terms of that as we bring on new capacity. So if we don't bring on new capacity in that facilities already operating.
Max capacity the numbers, you can't really get any higher.
But it's certainly something that where does the teams working on and as we look ahead.
We're focused on improving.
Yeah, I could just jump in Matt.
In those states, a teeny bit of color, Rhode Island, there's really no net outside sales and neither in Virginia, So seeing with CPG from that M&A I understand your question you're right, but when you look at it there's not a lot of wholesale distribution of product yet in those states, particularly Virginia bursts, where we think it'll be 24 36 months.
Our next question will come from Eric Day lawyers with Craig Hallum Capital. Please go ahead.
Alright that is taking my questions and congrats on a very solid results here.
So pricing, obviously, a popular topic in the industry now and I'm sure we'll be for a long time here can you talk about some of the pricing trends that you guys are seeing from a product category of perspective is it similar across the board are you seeing any categories ferring better or worse than others and then yeah, how should we think about how that.
It all fits in with your brand portfolio here. Thanks.
Yeah, Great question Eric.
So look I think what we're seeing what we talked about it internally as more price settling been compression.
Because really when you peel back behind in.
Gone are the days when caught in a market like Pennsylvania, where every eight the flowers sells for $55 60, an aide.
Now the product needs to stand on its own two feet. So.
Obviously, the majority of our brands sit on the premium side of the equation, we think that bodes well for us, but really what we're seeing is that at least in flower kind of premium seems to be holding price and then as you work down the different kind of other value levels, that's really where you're seeing some of the some of the erosion, but obviously something will.
Watching very closely and just as a business we're very focused on.
Just maintaining.
Alright next question will come from Owen Bennett with Jeffries. Please go ahead.
Good evening guys. This is actually Derek calling it for Owen Congrats mcwhorter.
Quick question excited to hear about the consumption site and your modem facility could you just dig deeper into the different objectives you have within your consumption site strategy, maybe different state you're targeting for that and also maybe some additional color on potential alternative monetization opportunities.
As best strategy kind of comes to fruition.
Sure. Thanks for the question.
I would say in terms of the state regulatory environment I think we don't really only have clarity on one additional state, which is Nevada, which is.
Is crystallising, what those mean to the few people I've talked about those we plan to bring a lounge. There. So obviously massive amounts of tourists coming special events special occasions huge opportunity I think to grow that business. We think there's about a total size of market can be so much bigger others, particularly unique regulatory structures, they're around tourism in the casinos the.
Rent a lot of that so it's only a matter of time.
And there is not another state is really ripe ripe on the radar, but again, putting our best foot forward and sort of leading by example of how this sort of sub sector or new thing can be regulated unsafely continuing to just leave with education and sort of self rules that we think are based on experience of being pretty conservative helped set it up to win.
Our norstar continues to be the consumer consumer is consuming the product.
Upset so why are we not offering an environment that's great half of the alcohol is on prom roughly pretty COVID-19. So that makes a lot of sense to us from a P&L monetization standpoint, too early not factor, we're willing to invest and learn but it's not a material impact.
Either way on expenses or revenue update.
Our next question will come from Aaron Gray with Alliance Global Partners. Please go ahead.
Hi, good evening and thank you for the question.
So I'm just curious if you could provide some color in terms of maybe some of the contribution they received from the acquisitions on the retail side to give some nice cold there on the <unk> side, and then more specifically on the comparable sales.
Sequentially, 1% could you provide some detail whether or not those more driven by you know transactions or basket size. I know you over here was more transaction and the PR that would be very helpful. Thank you.
Sure. Good question I was having second one first is transactions versus basket size driving it.
We're seeing more people buy more often than a bigger audience.
Versus incrementally growing the basket or if you zoom out on the basket saw big change with television about 18 months or almost two years now coming back to where we were and on the first question, we're not going to comment on any specific store performance.
Our next question will come from Scott fortunate with Roth Capital. Please go ahead.
And thanks for taking the questions you've been very active kind of more emanate side of things without going third detail in the market.
And you are seeing more favorable evaluate are you seeing more favorable evaluations and looking at operators their brands and content to 10 evaluations from a private tied to continue your M&A activity Concord here, how do you how do you view the market anymore.
Tried to take that Hey, Scott Thanks for the question.
Not not a lot of new for me on that like Everything's on the table. If it makes sense, we're really thinking about how to drive long term shareholder value business plan of enter open scale helps us think about that landscape.
How pricing is affected in the private market versus the public market things are mark to market every day and really susceptible to the capital market flows and supply and demand, whereas private company valuations are moving like that.
But the capital markets are thin and we're watching it's an unbelievable opportunity the investment inside our business like I mentioned in New York, New Jersey, Connecticut, Virginia, It's hard to find kind of better opportunities in Iraq dollar there to the production given the demand coming and the regulatory set up so it's a very high bar and at the same time as you saw a few what we consider very high value.
Very strategic M&A makes sense so.
Taking a look I would continue to say that.
We don't think we're in the business of a transformative.
Transaction within the industry in the us at the moment, but everything's on the table, we like to answer the phone and we also like to say no.
So we're here.
Our next question will come from Glen Matteson with Ladenburg. Please go ahead.
Yeah, Hi, Thanks for taking the question the rest of the quarter. So.
Part of the story with G. T. I has been like finding the best markets and then kind of executing the heck out of him and and so that's been the driver of you know solid margin throughout but I'm. Just wondering if you think about the business and a national footprint in in building brands on a national scale not every market is going to be as good as you know, Illinois.
Or or Pennsylvania, and and and you have a runway.
<unk> number a good market is yet to come but the longterm would you be willing to you know what's more important would you sacrifice margin to build brand presence in some other markets or.
[noise] <unk> or or would you just skip those generally speaking and then just trying to execute on the best market as possible.
Thanks for them yet good question was a little hard to answer it.
Simply like we're making decisions on capital allocation, we have a pretty good norstar, what we're trying to do and there's a trade off in those two kinds of things that you're suggesting in different towards to spend like I said, it's the early innings of the brand building game and what brands and essentially meant in Canada, probably.
The last 10 years of being available being there eventually getting consistent.
And then it's the beginnings of what is chapter too honest way to many more chapters so.
We're all will put more dollars into it for sure.
Watching the 24 billion go to $80 billion are allocated capital, where we need to be weighing the things like first mover brand equity competition and differentiation.
Really about the relationship with the consumer that can lead to the aspirational pricing power that gives a brand something we look towards most simple commodity sold products that we don't think canvases, but water is it wise pricing power there how does that work pretty good rhyme for us.
And we're just sort of conscious of where we are in the cycle of the decade of growth.
Not wanting to get too far over our skis.
But we have a lot of cash we're willing to spend so it's like we sleep really well and we're watching it evolve I think it's a very exciting next three to five years for brand building and candidates unbelievably exciting actually.
Our next question will come from Andrew Parthenia with Stifel. Please go ahead.
Hi, Thanks for taking my question and congrats on the results here Uhm.
Maybe just talking about Big picture then you know you talked about how the U S is not Canada, there's definitely a lot of focus on price right now could you walk us through.
What makes you so confident in that assessment.
What.
What about the regulatory structure is different where we won't see that result, and you know how do you see yourselves in your brands being positioned.
Uhm advantageous in that situation.
Sure I think that's a great question.
And there's a couple of key things I would reiterate in sort of an unlimited competitive market in the U S. In any consumer products. There are brands that exists there is differentiation and people pay pricing power for whatever reason across brand. So we think the concept of a brand exists because we see it every day to the regulatory structure, Canada's so fundamentally different from where we sit with unlimited.
Amount of license or essentially that lack of quality product on the market, although that maybe is changing in a regulatory environment where.
Maybe the people on the following no more than I would but the government is heavily involved in some of the supply chain distribution channels branding is quite a limited product sets are quite limited really can't compete with things that are going on to the consumers want quality of flour and form factor.
So that course setup, which is the legal cannabis market in the United States is often producing some of the best most innovative forward thinking branded product form factors and different things.
Second.
With legality in Canada, the amount of capital a falling price of capital and the dynamics of the Canadian capital markets setup unlimited capital flowing into the space to build Taj Mahal cannabis.
And we can see where that Atlanta. The case is not the same here and I think that rational capital allocators with higher cost of capital of a federally illegal business that we see continuing.
Are unlikely to massively overspend to them tip over it just seems a little less likely though the capital markets are ruthless and move and people get greedy and they swing. So we're watching it you can see it in micro markets, but with an overall if the industry is gonna go from $25 billion 80 billion necessarily like four times on this call because that's our course.
Thesis and we get that if you look at Colorado, regardless of the pricing and you look at California, and even though they're more mature ish pockets, Oregon, Washington give us a real conviction at a high amount of demand and product that will move through the legal channel in the us.
So that's the investment has been the same thesis really since 2014, when we started and we continue to check our map pretty regularly.
So far so good and just look the money's, where our mouth is look at the cash flow moving into the capex into the states because I just believe New York is going to be a multibillion dollar market I'm very short, Virginia is going to be a multibillion dollar market New Jersey. The list goes on.
And that's what we think we can do the best interests of all stakeholders.
Our next question will come from Andrew simple with echelon capital markets. Please go ahead.
Good evening and thanks for taking my question. My question here is on the 85 million gross capex spending within the quarter.
I'm sure you guys were excited to publish that number because we all know what time to follow.
I'm just wondering on the allocation between dot.
Dot contacts between your new markets.
Virginia, Rhode Island, and the additional assets in Massachusetts.
Compared to your existing.
And also on the Capex, how many quarters.
We're going to be at this more elevated spend.
Spend right.
Good question, just bad I started handing filling up I Miss anything.
Again, the timing of the cash when the market is coming out and how we make the decisions you heard of software longtime on Illinois, MPA and the dialogue is beginning to change to New Jersey, and New York, Connecticut in Virginia, just kind of going to say the same thing, which dollar went where doesn't matter. So much we have a very.
Fortunate relationship on the sale leaseback with IP, we liked the cost of capital, we like the setup and comfortable allocating sort of bottom up and top down and sideways. The way we're doing the capital allocation to make the decisions, but you don't make a decision just to sort of set the table of okay. We're gonna spend $100 million in New York and build a cannabis campus.
Okay $100 million leisurely about leaves the cash flow of the balance sheet next quarter that's built.
So the decision is made zoning happens the cabinets earthwork cash begins to leave over a period. It's occur teams got a great job not a good job a great job of managing the cash flow and we're basically on time on budget and do better the cash flow management at the same time, the flower market when we want our global supply.
Change, we're not immune to various pieces there but.
That's how we are managing.
We're confident I can't tell you what next quarter or anything is going to be but we think 2022 is going to be a similar ish year to 2021.
From a spend standpoint, not back 2018 levels.
Again, if you have a question. Please press Star then one our next question will come from Matt Bottomley with Canaccord Genuity. Please go ahead.
Good evening, Ben and Anthony Thanks for taking all these questions I'm just wondering if we can maybe drill down a bit not into the particulars of anything at the graduate level with with G. T I, but maybe about a higher level with with some segment disclosures I know that that's something that investors are are looking more and more for given that there's more and more states coming online and.
You know everything kind of gets consolidated up and even results. When they are positive it's kind of hard to parse it out. So I'm just wondering if we could speak maybe more holistically to maybe Illinois, and Pennsylvania, which are two key markets and and what you're seeing there at a very high level without getting into too. Many specifics. If you can't with you know the states continuing to regulate and allow for more capacity retail store opening.
If you think there's risks of headwinds in those markets, which are arguably two of the strongest markets in the U S and and I know are very important to certainly you're near term growth prospects. So I'm. Just wondering if you could comment on those two market, specifically or anything else that might be more segment related on a on a state by state basis.
Yeah, Sure Hey man, it's been Illinois, MTA pretty simple story, I think you're right on it Holistically, we think as I said in the prepared remarks, both of our run rate an actual between $1 billion and 2 billion now we think both both easily double overtime why is that not happening more quickly and if you look at the curb.
Hard to see them flattening, Illinois is only 110 stores.
It's incredibly frustrating that the new licences can't get out I've been vocal about it a lot of people have we're still stuck in the courts and we have not heard from the Governor's office or anybody to try to accelerate that is frustrating 110 stores should at least double the market will go up new folks can answer the industry, a new world can be created because $1.5 billion going to two point something and then it's gone to $3.
Something we said the same thing now for a few years.
And in the meantime, the market is going to follow along stores will grow, but it's not going to inflict the way it should meet the demand.
P a little bit of a different story or if you look at that from overtime quickly accelerated or into a 4% to 5% patient penetration rate or run rating. We think billion three to 1 billion five total side that easily going to three to 4 billion same sizes, Illinois as a medical market. So it's open on the medical but we have not gotten rack, there's a lot of.
Discussions, there's positivity coming from the legislature Governor Wolf has been banging the table for adult use.
And just to remind everybody statehood of legalized adult user generating more tax revenue from Canada and they are from alcohol. This as a major revenue growth driver a major job creator.
And we're seeing governors across the country embrace that Republican and Democrat really doesn't matter. This is this is a movement of consumers are demanding it is becoming hard to quantify any sort of material costs.
Some other things except relief.
One of the courts and other things so.
You'll see a big step up, Illinois, when the stores get out you'll see step up.
And in the meantime, things continue positively keep in mind MPA no edibles.
So if you look across the segment across the industry as a look you know.
Mid teens part of the basket, depending a little bit on the market is edibles. That's not allowed there are no pre roles, we cannot sell dog walkers NPA due to the rules.
So those regulatory constraints are temporary and eventually we think the consumer demand.
Materializes and we're we're very bullish on both of those markets.
This concludes our question and answer session I would like to turn the conference back over to Ben Kobler Friday closing remarks.
Well, thanks, everybody for joining us we look forward to giving you a year and update sometime in the first quarter. Thank you.
Conference in Sao concluded. Thank you for attending today's presentation. He may nowadays.