Q3 2021 Green Thumb Industries Inc Earnings Call
At this time all participants are in a listen only mode. A question and answer session will follow the conclusion of 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 and will be archived for replay.
To remind everyone that today's call is being recorded.
I will now turn the call over to Grace Bondi Corporate Communications. Please go ahead.
Thanks, Matt Good afternoon, and welcome to Green <unk> third quarter 2021 earnings.
I'm here today, with founder and CEO, Ben <unk>, and Chief Financial Officer and Anthony.
Today's discussion and responses to questions may include forward.
We're 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 our earnings press release issued today, along with our reports filed with the United States Securities and Exchange Commission and Canadian Securities regulators, including the annual report on 2020 Form 10-K, and quarterly report filed on Form 10-Q, which we expect.
And final Friday, when the SEC reopened after veterans day. This report along with today's earnings release can be found under the investors section of our website green.
Green thumb assumes no obligation to update or revise any forward looking statements to reflect.
Our comes down because that may arise after the date of this call.
Discussion greenbaum will refer to non-GAAP financial measures, including EBITDA and adjusted operating EBITA.
A reconciliation of non-GAAP financial measures to the most directly comparable GAAP measure is included in our earnings release, and SEC and SEDAR filings.
Please note all financial information is provided in U S dollars unless otherwise indicated thanks, everyone and now here's Ben.
Thank you Bruce.
Good afternoon, everyone and thank you for joining our third quarter 2021 earnings call.
Green thumb team delivered strong results this quarter, reflecting solid execution and continued positive momentum in 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 our seventh quarter in a positive cash flow from operations and adjusted EBITDA grew 53% year over year to $81 million.
That brings the year to date revenue and adjusted EBITDA through three quarters $650 million and $232 million respectively.
We ended the quarter with cash cash equivalents of 286 billion.
Which gives us flexibility to invest with an eye towards long term returns for all of our stakeholders.
Now I'm going to tell you about some exciting developments inside the business recent M&A execution, and our thinking on brand and the overall industry.
And they will then discuss the financials and we will hit the Q&A.
On September nine we broke ground on our would be our cultivation and production facility.
And are you building in Canada cabinets on the ground. This former federal prison that locked up people for Canada.
Not lost on any of us.
When the proving shuttered hundreds of jobs were eliminated in the community.
We're planning to reverse the cycle by creating high paying jobs in the legal cannabis business that will reinvigorate the local economy. So I think we've done before in our communities in Illinois and Pennsylvania.
October 16, we celebrated the grand reopening of our write Monoline store, which was greenhouse first retail store opened back in 2015 and in fact yesterday was the six year anniversary for RASM underlying and the Illinois candidates program.
But the reopening we believe right on the line is now the first location east of the Mississippi River to offer onsite purchase and consumption of candidates.
It is also the first store in Illinois to offer rolled through car service for medical patients to pick up their orders and 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 Green thumb family has grown.
Strategic M&A and strong execution brought new folks to the team.
In July Virginia became our 13th market with the close of <unk> Pharmaceuticals.
Lovely investment into Virginia, given their population of $8 5 million people and a path to adult use regulation.
We look forward to working with the newly elected Governor Glenn Younkin and its administration to drive growth and opportunity for the people of Virginia.
We currently have two stores open by having different right stable with four more in the works.
We plan to allocate capital to production in the coming quarters.
<unk> us to serve the growing consumer demand for rhythm Incredibles, and dog walkers and the great State of Virginia.
In August we entered Rhode Island, our 14th State and welcome 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 <unk> and the great team at Green Star hurdles, Massachusetts licensee that operates two adult use retail locations one in bracket and the other in Maynard with a third expected to open soon in Chelsea, which was less than a mile from Encore Boston Harbor.
On September 15th we opened rise Greenfield, 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 at scale for American consumers, who are choosing candidates for <unk>.
We believe in our brands and their ability to connect to consumers and create loyalty over time.
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.
See the copycat brands and remind everyone that we are all in this together.
We continue to believe in the first mover advantage and surfing ahead of the wave.
Our growing scale combined with 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 those dates.
Third quarter legal cannabis sales in United States were $6 billion was flat to the second quarter.
Illinois, and Pennsylvania are each a $1 billion to $2 billion market and we think both have the power to more than double over time.
California continues to be a three 5% to $4 billion market, while Colorado is north of $2 billion.
We believe the future for New Jersey, New York, Connecticut, and Virginia will rhyme with those experiences and wed like Green SUNS 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 then as Anthony likes to say think 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 commenced with American and their daily experiences and special occasions.
It is only the beginning.
Last quarter, we introduced the launch of good treatment 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 in 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 billion fund grants from good Green sales and.
And we were excited to have received over 80 applications in the first round from nonprofits that supported on a good Green's core pillars education employment and it's fundamental.
Just recently, we announced our three longer winners receive unrestricted grants of $75000 each <unk>.
Philadelphia lawyers for social equity that helps.
To eliminate criminal records blocking people from employment.
Innovation works Baltimore, whose mission is to close the ratio well devised in neighborhoods and why not prosper, which helps incarcerated women's successfully transitioned from prison to Reentering Society in Philadelphia.
Our second round of applications is now open.
Someone who is involved in the 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 doctoring.
Yeah.
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.
Well at night, knowing that regardless of when the federal government takes action on People's Freedom to choose candidates, 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're having fun and continue to believe it is still day one for candidates in 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 you just heard our momentum continued during the third quarter with the business generating record revenue EBITDA and our fifth consecutive quarter of positive EPS.
At a high level in Q3, the company close to $234 million of top line net revenue.
$81 million adjusted operating EBITDA.
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 growth CPG and retail revenue breakdown at 43% and 57% respectively.
About flat with last quarter.
Please note that 100% of our CPG revenue consistent branded products sold to retail stores.
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.
Strong consumer demand across our market base.
On the profitability front, the company's gross margin percentage performance equaled 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 in continuing to achieve this goal.
On the SG&A side, excluding depreciation amortization and stock based comp.
Normalized operating costs approximated $52 million.
$5 million increase over the 47 million incurred in Q2.
Consistent with the growth experienced from Q1 to Q2 most of this increase in payroll related.
That differently.
<unk> on our previously stated goal of accelerating our investments in our team and infrastructure.
Are both now has approximately 3400 onboard and the journey continues.
In the coming quarters. The company will continue to closely watch 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.
Well as interest expense from our senior debt facility.
Net of these expenses the company generated $22 million and 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 of cash.
During the quarter the company made healthy tax payments uncle, Sam and invested over $85 million in gross capex.
When including the spend associated with our sale leasebacks.
On our last call I communicated our plan to increase our best number of key markets that we believe will help drive the next phase of growth for Green Dot.
Subsequent to quarter end, we raised the remaining $33 million of capacity, we had under our $250 million debt facility.
Consistent with our initial range. This was a non brokered offering led by long term investors.
We remain bullish on our uses of capital and the cash on cash return we can generate in this next phase of prohibition to point out.
As we head into late Q4, and 2022 to one and we give 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 would be possible.
In addition, we advanced the Veteran's day must recognize all of the new Sterne 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 evolve our strategy largely remains the same with a few unique but simple themes.
Number one be the consumer.
Seamless connections to candidates are personal and real.
We continue to believe that our success is directly correlated with our ability to think and act like the consumer every step of the way.
Two quality matters.
Competitive spirit in each market of all we are confident that our ability to call to being produced premium flower and other canvas product in scale with the consumer pocketbook and nine will set us apart from others.
Last matter what challenges present themselves, we can't forget that our opportunity is built on years of sacrifice by 90 for 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.
Forward to speaking with you all in the new year.
Back to you then.
Thank you Anthony.
In closing the headline for this quarter and the remainder of 2021 does that were laying tracks for growth in 2022 2023 and beyond.
In the third quarter, our gross capital expenditures, which includes sale leaseback transactions exceeded $85 million, which brings year to date gross capex over $150 million.
And as we all know how much you invest is what the investment will ultimately return.
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.
We're 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 would 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 cannabis 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 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 come.
But what kind of market capital that create.
What will that do for the American consumer experience and how can we position greenbaum to take advantage of that for our stakeholders.
Finally, tomorrow is veterans day, and honor the men and women in uniform sacrifice so much to protect our freedoms Green thumb has partnered with happy for Veterans' mental health.
This is one of the organization is dedicated to connecting best with mental health support as well as overcoming harmful stigma around treatment for those who need it.
Suicide is a massive problem in the veteran community with numbers approaching 7000 per year or <unk> 20 per day.
We applaud the house VA Committee support of research in the medical cannabis as a viable treatment option for veterans.
Over 19, and amplified mental health issues in the United States broadly, especially in the bedroom community.
Our team is proud to partner with us happy to support this much needed endeavor to provide adequate resources to our bets. So on this veterans day, let's all remember just how much we all of those who answered the call of duty.
And with that I'll turn the call the operator and we welcome your questions.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
If you are using a speakerphone please pick up your handset before pressing the keys.
If at any time. Your question has been addressed and we would like to withdraw your question. Please press Star then two.
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 Camilo Lyon with BTG. Please go ahead.
Thanks, and good evening everybody.
Really nice job on the consistency.
Especially in light of a fairly.
Competitive environment.
I wanted to dig into the.
The capex spend that acceleration in Capex <unk> got a lot of opportunity there is definitely more than youre spending on.
I'm curious to know spin.
Specifically what are the projects one or two projects that really took a bulk of that incremental capex I'm guessing. It's the newer facilities since you broke ground on that.
If it is how does that what are the plans and timelines for when that will go lives, particularly now that the state allows the sale of whole flower.
Yes, Thanks, Ben I appreciate the question.
And I think we use the analogy last quarter, we have conviction on where cannabis demand and the size of the marketed 24 go into $80 billion is going and we really 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 use the golf cart to jam on the gas sometimes it turns a little later, so where new York has broken ground not a huge piece of the capital from a cash flow standpoint, obviously committed to that we have the capital ready to go up but from a casualty the balance sheet is sometimes not totally aligned.
I'd say high level of those four markets continued to dominate.
Dominate our conviction on where cabot's growth is going to come.
Our next question will come from <unk> <unk> with Cantor. Please go ahead.
Thank you.
Then just just in general I mean, when you talk about when we've seen these are supposedly pressure in New York and New Jersey seems to Commoditization could you talk about whether that's something you're seeing in your business and whether that's in any way impacting the overall profitability of the business clearly those margins were stable.
But just talk about if there's been a negative effect from.
They can organization diesel sales for you in New Jersey, and New York.
Hey, Pablo it's Ben can you repeat the beginning of your question.
There was something wrong with the line no. So other companies have talked about that since <unk> been on inflation started in New York and New Jersey does that has boosted the illicit trade and affected sales.
Legal stores right.
And I'm just wondering.
Pretty good retail sales growth, 7% sequentially. So I'm just wondering if you saw a decline in New York and New Jersey sequentially that you can highlight.
Got it got it yes, I didn't hear you on the legal market sorry totally understand the question no major 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 how states figure out enforcement of the regulation of turning on adult use not enforcing illegal stores.
Six years ago, I don't think that existed in some markets about the beginnings of existing.
There are products there is other things marker testing potential consumer dangers and things like that.
But it has not impacted our P&L, there's a huge amount of demand in New York is going to find its way it or is there is a massive market. There. We're excited to bring the product and the brands that we know how to do and deliver to those markets.
Our next question will come from Vivien <unk> with Cowen. Please go ahead.
Hi, Thank you Anthony I have a question for Neil.
You guys don't offer guidance, but I think that's absolutely appropriate.
But you have posted two quarters of sequential contraction of 100 basis, <unk> adjusted EBITDA and well explain in terms of the head count there is certainly going to be ebbs and flows as you expand into new markets.
If you could just maybe help us think about it.
The major driver is that we should be tracking in terms of forecasting your adjusted EBITDA levels or any other helpful kind of.
Without offering guidance that you could provide would be very helpful. Thank you.
Yes, it's a great question Damian so youre.
Youre right in my prepared remarks, I mentioned that payroll was the biggest driver of cost of $5 million SG&A, our normalized SG&A increase.
We anticipate that continued continuing to be the case I mean, obviously, what we're doing is we're closely watching the top line and as we head into 2020 to throttle up and down the SG&A spend accordingly based off of demand in the business.
Yes.
That's really where we're seeing the biggest kind of growth. Obviously, we have some marketing spend against top line growth will have to continue to kind of feed as well, but looking ahead I will say that payroll will continue to be a hefty portion of any of the SG&A expense increase will occur.
Our next question will come from Matt Mcginley with meet him. Please go ahead.
Thank you.
Wholesale business grew only about 1% in the third quarter, but the.
The acquired assets you haven't.
Actually been additive to that segment is there anything of note here in terms of market weakness by state and with the CPG growth, primarily volume growth or did you see any declines in realized pricing.
That's a good question so.
In terms of the CPG growth. So the facility that we acquired in Massachusetts, We have some work to do there.
In terms of the terms of the flower production. So it really didn't show up on the P&L as of yet.
That certainly kind of one of the reasons why you did see greater CPG growth.
But overall, we didn't have any additional facilities really turning on so as you know.
Our CPG kind of revenue works Kerry stair step function in terms of as we bring on new capacity. So if we don't bring on new capacity in that facility is already operating.
At Max capacity and the number just can't really get any higher.
But it's certainly something that we're that the team is working on and as we look ahead, we're focused on improving.
Yes, I'm going to jump.
And Matt.
In those states, a teeny bit of color, Rhode Island, there's really no net outside sales and these are in Virginia. So simo 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 versus where we think it will be in 24 36 months.
Our next question will come from Eric <unk> with Craig Hallum Capital. Please go ahead.
Alright, thanks, taking my questions.
That's on a very solid results here.
So pricing, obviously, a popular topic in the industry now and share.
It will be for a long time here.
Can you talk about some of the pricing trends that you guys are seeing from a product category perspective.
Is it similar across the board are you seeing any categories bearing better or worse than others and then how should we think about how that all fits in with your brand portfolio here. Thanks.
Yes, great question Eric.
So look I think what we're seeing when we talk about it internally is more price settling than compression, yes, because really when you Peel back the onion.
Gone are the days when we call out in the market like Pennsylvania, where every eight the flowers sales were $55 to 68.
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 flour kind of premiums seem to be holding price and then as you work down the different kind of other value level that thats really where youre seeing some of the some erosion, but obviously something we're watching very closely and just as a business we're very focused on.
And just maintain.
Our next question will come from Ireland Bennett with Jefferies. Please go ahead.
Good evening guys. This is actually Derek calling in for Owen.
That's in the quarter.
Quick question excited to hear about the consumption site.
Under this facility can you just dig deeper into the different objectives, you have within your consumption site strategy, maybe different states you're targeting for that.
And then also maybe some additional color on.
Central.
Alternative monetization opportunities.
That strategy kind of comes to fruition.
Sure. Thanks for the question.
I would say in terms of state regulatory environment. I think we are really only have clarity on one additional state, which is Nevada, which is crystallizing what those mean to the few people have talked about those who plan to bring allowance. There obviously massive amounts of tourists coming special events special occasion 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 there around tourism casinos that prevent a lot of that so it's only a matter of time.
And there is not another state that's really right on the radar, but again, putting our best foot forward until the leading by example of how this sort of sub sector of new things can be regulated on safely continuing to just leave with education and sort of self rules that we think are based on experience of being pretty conservative I will set us up to win.
Our North Star continues to be the consumer the consumer is consuming the product.
That said so why are we not offering an environment thats great half of the alcohol as on Prem roughly pre COVID-19. So that makes a lot of sense to us from a P&L and monetization standpoint, too early not factor, we're willing to invest and learn but.
Not a material impact either.
Either way on expenses or revenue uptick.
Our next question will come from Aaron Grey 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 that you received from the acquisitions on the retail side you gave some nice color there on the CPG side, and then more specifically on the comparable sales.
Sequentially, 1% could you provide some detail whether or not that was more driven by transactions or basket size I know year over year was more transactions in the PR.
Very helpful. Thank you.
Sure. Good question I'll get the second one first its transactions versus basket size driving it.
We're seeing more people buy more often in a bigger audience.
Versus incrementally growing the basket, where if you zoom out on the basket saw big change with <unk> about 18 months or almost two years now coming back to where we were.
And our first question, we're not going to comment on any specific store performance.
Our next question will come from Scott Fortune with Roth Capital. Please go ahead.
Good afternoon, and thanks for taking the questions you've been very active kind of more M&A side of things.
Outgoing third detail in the market.
Youre seeing more favorable value are you seeing more favorable valuations and looking at operators or brands and potentially 10.
Valuations from a private side to continue your M&A activity going forward here how are you.
The market.
Sure I'll take that Scott Thanks for the question.
Im not allowed to do 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 businessman and 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.
The capital market flows and supply and demand, whereas private company valuations aren't moving like that but.
But the capital markets are thin and we are.
Watching it's an unbelievable opportunity investment inside our business like I mentioned in New York, New Jersey, Connecticut, Virginia, It's hard to find kind of better opportunities than a raw dollar there into the production given the demand coming and the regulatory setup. So it's a very high bar and at the same time as you saw.
What we consider very high value very strategic M&A makes sense. So.
Look I would continue to say that.
We don't think we are in the business of a transformative.
Transaction within the industry in the U S 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 Glenn Mattson with Ladenburg. Please go ahead.
Yes, hi, thanks for taking the question congrats on the quarter.
So.
Part of the story with GCI has been like finding the best markets and then kind of executing the heck out of them and so thats been.
Driver of.
Solid margin throughout.
But I'm just wondering as you think about the business and our national footprint and building brands on a national scale not every market is going to be as good as.
Annoy or Pennsylvania, and you have a runway still are a number of good markets yet to come but the long term would you be willing to.
What's more important would you sacrifice margin to build brand presence in some other markets or.
Or would you just skip those generally speaking and then just trying to execute on the best market as possible.
Yes, good question little hard to answer is.
Simply we're.
We're making decisions on capital allocation, we have a pretty good northstar on what we're trying to do and it's a trade off in those two kinds of things that you're suggesting and different sorts of spend.
The early innings of the brand building game.
And essentially meant in Canada is probably <unk>.
The last 10 years being available being there eventually getting consistent.
And then at the beginning the blood is chapter two honest way to many more chapters. So overall, we'll 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.
That can lead to the aspirational pricing power that gives a brand something we'd look towards most simple commodity sold products. We don't think canvases, but water is and why is pricing power. There how does that work pretty good run for us.
And we're just sort of conscious of where we are in the cycle of the decade of growth.
And not wanting to get too far over our skis.
But we have a lot of cash for a lot of expenses like we played really well and we're watching it evolve I think it's a very exciting next three to five years for brand building in cannabis unbelievably exciting actually.
Our next question will come from Andrew <unk> with Stifel. Please go ahead.
Hi, Thanks for taking my question.
And congrats on the results here.
Maybe just thinking about big picture, Ben 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.
That assessment.
What.
What about the regulatory structure is different where we won't see that result.
And.
How do you see yourselves and your brands.
Being positioned.
And.
Advantageous in that situation.
Sure I think that's a great question.
And Theres a couple of sort of key things I would reiterate in sort of an unknown and competitive market in the U S. In any consumer products. There are brands that exist differentiation that people pay pricing power for whatever reason across brands. So I think the confidence of a brand exists because we see it every day.
The regulatory structure in Canada is 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.
And the regulatory environment we're in.
Maybe the people on the phone know more than I would but where the government is heavily involved in some of the supply chain distribution channels branding is quite a limited product sets are quite limited and really can't compete with things that are going on to the consumers want.
The flour and form factor.
So that core set up which is the legal cannabis market. The United States is often producing some of the best most innovative forward thinking branded product form factors and different things.
Second.
Legality in Canada, the amount of capital all in price of capital and the dynamics of the Canadian capital markets setup unlimited capital flowing into the space to build Taj Mahal candidates.
We can see where that lands is that the case is not the same here and I think that rational capital allocators with higher cost of capital in a federally illegal business that we see continuing.
Unlikely to massively overspend then tip over.
So it seems a little less likely though the capital markets are we're supposed to move and people get greedy and a swing. So we're watching and you can see that micro markets, but.
Overall, the industry is going to go from 25 billion to $80 billion instead of like four times on this call because that is our core thesis and we get that if you look at Colorado, regardless of the pricing and you look at California, even though they're more mature markets, Oregon, Washington gives us a real conviction and a high amount of demand and product that will move through the legal channel in the U S.
So thats the investment it's been the same thesis really since 2014. When we started we continue to check my math pretty regularly and so far so good and just look the monies where our mountain does look at the cash flow moving into the Capex of the face because I believe New York is going to be a multibillion dollar market I'm very sure of Virginia is going to be a.
Market, New Jersey, the list goes on.
And Thats, what we think we can do the best interest of all stakeholders.
Our next question will come from Andrew Semple 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 spend within the quarter I'm sure you guys are very excited to publish that number.
Melanoma all loan.
I'm just wondering on the allocation between that.
That capex between your new markets.
Virginia, Rhode Island, and the additional assets in Massachusetts.
Compared to your existing business.
And also on the Capex, how many quarters ahead, you think we're going to.
Yes.
More elevated.
The spend rate.
Good question, but I'll start and Andrew can fill in if I Miss anything.
So again, the timing of the cash and when the market is coming out and how we make the decisions you've heard us talk for a long time on Illinois, MTA and the dialog is beginning to change the New Jersey, New York, Connecticut, and Virginia, just kind of going to say the same thing with dollar went where it doesn't matter so much.
Fortunate relationship on the sale leaseback with IP, we like 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 decision, but we don't make a decision just to sort of set the table a okay risks on $100 million in New York and build a cannabis campus, okay $100 million.
All these the cash flow the balance sheet next quarter that's built.
So the decision is made zoning happens the cabinet earthwork cash begins to leave over a periods of curve seems going 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 at the cash flow management at the same time powered at market. When we won a global supply.
And we're not immune to various pieces there but.
It's how we're managing it.
We're confident I can't tell you what next quarter anything is going to be but we think 2022 is going to be a similar ish year to 2021.
From a spend standpoint, not that 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 just wondering if we can.
Maybe drill down a bit not into the particulars of anything at the granular level with GTI, but maybe at a higher level with some segment disclosures I know that that's something that investors are looking more and more for given that theres more and more states coming online and everything kind of gets consolidated up and even results. When they are positive its 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 what youre seeing there at a very high level without getting into too. Many specifics if you can't with the states continuing to regulate and allow for more capacity retail store openings. If you think there is risks of headwinds in those markets, which are arguably two of the strongest markets in the U S.
And I know are very important to certainly your near term growth prospects. So just wondering if you can comment on those two markets, specifically or anything else that might be more segment related on a state by state basis.
Yes, sure Ben, Illinois, EPA pretty simple story, I think youre right on it Holistically, we think as I said in the prepared remarks, both of our run rate and actual between 1 billion and 2 billion now we think both bolt easily double over time.
Why is that not happening more quickly and if you look at the curve and it's not that hard to see them flattening Donlin is only a 110 stores.
Credibly frustrating that the new licenses can't get out I've been vocal about a lot of people have are still stuck in the courts and we have not heard from the governor's office or anybody to try to accelerate that it's frustrating 100 store should at least double the market will go up new folks to enter the industry of new wells can be created because one 5 billion is going to two point something and then it's going to three point something.
We said the same thing now for a few years.
And in the meantime, the market's going to muddle along stores will grow, but it's not going to inflect the way it should meet the demand.
Yeah.
A little bit of a different story, if you look at that from overtime quickly accelerated or into a 4% to 5% patient penetration rate run rating. We think 1 billion $3 1 billion five total side easily going to go three to 4 billion same size as the Illinois as a medical market. So it's open under medical but we have not gotten rack, there's a lot of discussion.
There's positivity coming from the legislature Governor Wolf has been banging the table for adult use.
Just to remind everybody states that have legalized adult use so generating more tax revenue from candidates than they are from alcohol.
As a major revenue growth driver a major job creator.
And we're seeing governors across the country embraced that Republican or Democrat.
Doesn't matter. This is this is a movement of consumers are demanding it.
Kind of hard to quantify any sort of material costs of other things except relief.
From the courts and other things so you.
Youll see a big step up, Illinois, when the stores get out Youll see step up.
And in the meantime, things continued positively keep in mind NPA no edibles.
So if you look across the segments across the industry. It is made.
Mid teens part of the basket, depending a little bit on the market is edibles that not allowed or no pre rolls, we cannot sell dog walkers NPA due to the rules.
So those regulatory constraints are temporary and eventually we think the consumer demand materializes.
Bullish on both of those markets.
This concludes our question and answer session I would like to turn the conference back over to Pat and Cobra for any closing remarks.
Well, thanks, everybody for joining us we look forward to giving you a year end update sometime in the first quarter. Thank you.
The conference has now concluded. Thank you for attending today's presentation you may now.