Q3 2021 Terrascend Corp Earnings Call
Good morning, everyone I'll come to Paris, and the court that 2021 conference call for the three months period, ending September 30 F. 2021.
Listeners are reminded that certain matters discussed in today's conference call and does that maybe give them to questions asked could constitute forward looking statements that are subject to the risks and uncertainties relating to paragon future financial or business performance actual results could differ materially from those anticipated.
Forward looking statements the risk factors that may affect results are detailed in Paris.
All information form and other periodic filings and registration statements. These documents may be accessed via SEDAR database I'd like to remind everyone that this call is being recorded today Tuesday November 16th 2021 I would now like to introduce Mr. Jason Wild Executive Chairman.
Parison. Please go ahead Mr Weil.
Good morning, everyone. Thank you for joining us today.
Since we withdrew our full year 2020 one guidance in August we've made huge strides in our cultivation facility in Pennsylvania and continue to build inventory ahead of adult use in New Jersey.
Both had the expected impact on our results during the third quarter, we still reported solid year over year revenue growth and EBITDA profitability.
We are building this business for success over the long term and we will continue to make decisions with that mindset.
Fourth quarter, we expect to return to sequential revenue and adjusted EBITDA grew up with these positive trends accelerating into 2022.
We couldn't be more excited about our acquisition of gauge one of the most influential and innovative brands in cannabis and a market leader in Michigan, our shareholders overwhelmingly approved this acquisition last week.
The regulatory approvals are moving along and we are hoping that we can close the transit action early next year ahead of our earlier internal projections.
Upon closing the acquisition.
It will provide access to cages sought after brand a proprietary library of genetics as well as their exclusive licensing partnerships.
Michigan with cookies that other top brands, including slang worldwide Blue River pure beauty and Khalifa crush some of the country's most recognized the highest grossing candidates lifestyle brands.
The combined company will operate seven cultivation facilities, including three large scale facilities in Michigan and again in addition to gauge it nine contract gross.
Combined we will operate a retail network expected to reach 34 stores over the coming months.
This includes 23 currently open dispensaries across five states with gauge operating tenant Michigan. In addition to tariffs and 13 stores in key markets, including California, New Jersey and Pennsylvania.
We expect to open our 14th store in December in Lodi, New Jersey Walk age is expected to open an additional 10 stores across Michigan in the coming months.
Gauges award, winning retail stores generate industry, leading retail metrics, including significantly above the average basket size is up $152 in the second quarter of 2021 compared to the Michigan average of $85 and premium pricing for its flower products, which is 40%.
Higher than the average price of flower in Michigan.
We expect to leverage <unk> portfolio of over 40 proprietary flower strength. In addition to its brand and marketing capability across all of our core markets.
The acquisition combined management teams with similar core philosophy is strong track records of execution and operational expertise.
Pre closing integration work is already well underway and we expect to hit the ground running upon closing.
This combined talent pool, along with several high caliber external candidates in our pipeline will create the dream team required to execute on our robust expectation we have for the combined company.
I would now like to provide an update on each of the states in which we operate.
Starting with Pennsylvania, we have made significant progress with improvements at our cultivation facility incorporating proven best practices from our operations in New Jersey, Maryland, and California to ensure the highest quality flower and manufactured products.
For example, we are leveraging data to optimize our profit planning process and have further dialed in our post harvest production processes.
As a result, the quality of our recently harvested flower is already way ahead of where we were previously.
The ratio of quality flower trim has increased dramatically and we have seen THC and turpin potency reached all time high for this facility.
These improvements have all been made without bringing any new genetic diversity into the market at the Pennsylvania Department of Health recently announced new plant genetics will be allowed imminently, which we believe will enable us to offer the most desirable selection of strength to our Pennsylvania patients.
On the retail front, our fixed Pennsylvania stores grew 14% quarter over quarter, largely driven by a full quarter impact from the acquisition of <unk> in Q2.
Average revenue on basket size per store remained healthy.
Our focus on customer acquisition and retention has led to recent milestones such as the introduction of our loyalty program.
Essentially increasing the frequency at which patients shop our stores.
The market in Pennsylvania remains competitive and the latest headset data show slower growth for the overall market in recent months.
However, I have every confidence that our quality products and genetics will enable us to regain leadership and there is still a vibrant market with adult use on the horizon.
In New Jersey, we had our first of all quarter of contribution from our Maplewood store, which is our second dispensaries in the state.
We're seeing a steady rate of revenue growth in the store as well as our first store in Phillipsburg.
Our third New Jersey location in Lodi.
If on track to open in December of this year.
This 5000 square foot store is located in a high traffic area of Iab and route 17 and is built for high throughput and also has ample parking.
Oh, sorry ample parking in addition to our planned drive through we believe the store has the potential can be our highest revenue generator nationally.
As mentioned on our last call in anticipation of a dramatic increase in demand once adult use goes into effect. We made the strategic decision to increase the allocation of our branded products to our own apothecary in dispensaries in New Jersey as a result, we believe that our dispensaries will be among the best supply to the state upon adult use implemented.
<unk>.
Yeah.
There are currently a limited number of dispensaries opening in the state only 23 actually and we are not expecting a significant increase in the near term.
With adult use around the corner, we think our three stores have the potential to exceed $40 million each annually.
With one of the largest combination footprints in the state we are prepared to fully supply our own stores at that level of medical and adult use demand.
300 locations are the exclusive candidates establishment in the town, which they are located and we believe this will be the case for some time.
Also fueling this optimism is the exclusive licensing agreement, we signed with cookies one of the most recognized brands in the world with a reputation for quality exclusive genetics.
We will be cultivating manufacturing distributing cookie products in New Jersey, and also plan to add cookies corners.
There are within a store concept to each of our retail dispensaries in the state.
Having seen the success of cookies in Michigan, we expect to be attracting customers from across the region as well as realizing above the average basket sizes.
We expect to launch countries in the first quarter subject to regulatory approval.
As you can see we set the stage for our New Jersey brisk business to have a breakout year in 2022.
We believe adult use will most likely go into effect during the first quarter of the year and we are fully prepared to meet this demand once the program goes live.
Turning to Maryland, we are excited to have entered this pre adult use limited license market that is currently on a $550 million plus revenue run rate.
Since the closing of our HMS acquisition earlier. This year, we have been focused on expanding our capacity to cultivate high quality indoor flower and produce a broad portfolio of manufactured products.
As announced this morning, we closed on the acquisition of a facility in Hagerstown, Maryland.
Work has already begun on the build out of a state of the art 156000 square foot cultivation and processing facility and we expect to commence operations at the new facility in the first half of 2022.
When completed this will dramatically increase our capacity similar to <unk> in New Jersey positioning us as one of the leading producers in Maryland.
We also see the opportunity to further expand our operations in this attractive state by vertically integrating up to the four dispensary limits in the state.
We have multiple acquisition opportunities in our pipeline at attractive valuations and hope to get at least one of them over the finish line by year end and Merrill Lynch.
Turning to California overall, the business has been stable, while we saw an increase in R. Berkley location when students return to Capex the ramp up at the store was partially offset by the latest wave of Covid, which affected foot traffic at our three stores in downtown San Francisco.
Our Super premium State Flower brand has performed very well in the face of an oversupplied flower market.
Full capacity of state flower product is committed through the end of this year at consistent pricing levels.
In Canada, the quarterly sales trends tend to be choppy given that multi tier go to market structure. Following a strong Q2 of sell in to the provinces. The performance in Q3 was weaker which was expected.
We have had some top selling strains, including retro grade I needed to go days, but our supply cannot keep up with demand. Our team is working on diversifying the base of suppliers to ensure more consistent supply going forward.
We made significant changes to the Canadian business over the past year, particularly with respect to our cost structure and our commercial and product portfolio initiatives are expected to drive better results in the coming quarters.
It is also worth noting that with the closing of the gauge acquisition tariffs had a lot of the exclusive right to operate cookies retail dispensaries in Canada.
Next I'll briefly comment on another initiative that we have underway and it's something that we have not previously discussed.
A key focus for the company as the continuous development of our E Commerce platform and digital experience.
We believe that having a one of a kind shopper experience, whether that's in our stores or on our E. Commerce platform will be a key differentiator.
As part of this effort, we have been developing an app for our <unk> stores, which is expected to go live in the coming weeks, we believe they will offer a shopping experience to our customer base. Unlike any other in the industry, we have begun exploring new payment options as well, including the ability to accept bitcoin and other.
Crypto currency as a means of payment.
In closing 2022 is going to be a breakout year comparison, we will complete the <unk> acquisition. The state of New Jersey will turn adult use we will introduce cookies into that market and what we will see further benefits of the actions more recently undertaken in Pennsylvania.
We will continue to have the financial capacity to execute on our organic and inorganic growth initiatives as well.
I would now like to turn the call over to Keith to provide our financial update.
Thanks, Jason and good morning, everyone. As a reminder, the results I will be going over today can be found in our financial statements and MD&A on SEDAR.
In Q1, we transitioned our reporting currency to U S. Dollars. So all figures discussed this morning are in U S dollars unless otherwise noted.
Net sales increased 29% year over year and declined 16% sequentially to $49 1 million.
This significant year over year growth was driven by 2020 cultivation expansions in Pennsylvania and California.
The initial ramp up of both wholesale and retail sales in New Jersey.
The continued growth and ramp up of our three apothecary in dispensaries in Pennsylvania, and two newer locations in California.
As well as the acquisitions of HMS in Maryland, and Casey are in Pennsylvania.
The decline sequentially was primarily driven by the yield declines at our <unk> facility and a planned for a sequential decline in our Canadian business.
As discussed on the last quarterly earnings call. The Ta facility impact was most pronounced in the third quarter.
Began to see a recovery in Q4 as the first harvest of high quality products from each of the converted rooms have begun to hit the mark to market.
Regarding net sales by channel our branded manufacturing business was down 33% sequentially and was roughly flat year over year.
The sequential decline was driven primarily by lower yields, but also impacted by our decision to build inventory in new Jersey.
During the lead up to adult use and a quarterly decline in Canada that I mentioned previously.
Retail sales grew 11% sequentially and 100% year over year.
The sequential increase was largely driven by a full quarter of the <unk> acquisition and the continued ramp up of our two new Jersey stores, partially offset by some softness in our core San Francisco stores related to the latest wave with Covid.
The doubling of retail revenue year over year was driven by the increase from seven stores in Q3 of last year to 13 currently opened stores as of this last quarter.
Adjusted gross margin for Q3 was 46% compared to 61% in Q2.
Note that adjusted gross margin is a non-GAAP measure, which excludes fair value of biological assets and other nonrecurring adjustments.
The 15 points of sequential decline in adjusted gross margin was primarily driven by a full quarter's impact of the lower yields in Pennsylvania.
Solving and lower absorption of fixed costs, and a larger percentage of retail versus wholesale revenue.
We expect gross margin to improve in Q4 as the PAA operation begins to sell product from the newly planned to their groups in the second half of the quarter.
In the midst of these revenue and margin challenges, we have maintained our strong focus on cost control with SG&A spending flat quarter over quarter.
Q3, adjusted EBITDA was $10 5 million, representing a 21% adjusted EBIT margin.
The sequential decline in adjusted EBITDA was.
It was primarily driven by the lower yields at the PAA operation and secondarily driven by our decision to build inventory in New Jersey in preparation for adult use in early 2022.
We've reported a positive net income for the quarter of $62 million.
Mainly driven by a gain on fair value of warrant liability of $69 million.
Turning to the balance sheet.
We ended the quarter with a healthy cash position of $103 million.
This level of cash positions us well to further invest in the business both organically and through M&A.
In Q3, we used $17 million in cash from operations, mainly due to a 21 million tax payment made in the quarter.
During the quarter. We also made a 25 million payment related to the partial buyout of our New Jersey partnership taking our total ownership up to 87, 5% from 75%.
Final payment also $25 million in cash will be made before year end.
Capex spending during the quarter was 16 million, mostly related to the ongoing build out in Pennsylvania, and the completion of work at low diet.
Also of note over the course of the coming months, we expect to receive approximately $40 million of proceeds from in the money warrants that will expire in mid January of 2022.
And approximately $50 million in proceeds from warrants that will expire in August of 2022.
Lastly, before turning the call over to questions I'll take a minute to discuss our outlook.
On a year over year basis for full year 2021, we expect to deliver solid growth in revenue and adjusted EBITDA, while continuing to expand both gross profit and adjusted EBITDA margins versus 2020.
For the fourth quarter, we expect to return to sequential revenue and adjusted EBITDA growth and we anticipate these positive trends to accelerate into 2022.
Finally I'm.
I am pleased to report that on November 2nd we filed a form 10 registration statement with the SEC to convert from a foreign private issuer to a U S. Filer effective January one 2022.
As part of that filing we converted from Ifr S to U S GAAP.
Our year end 2021 filing we will be a Form 10-K with the SEC.
The company is now prepared to less on a U S exchange once permissible.
This ends our prepared remarks, I'd now like to ask the operator to open the call for questions.
Thank you ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press star followed by the one on your Touchtone phone.
We'll have three children from acknowledging your request on your questions will be polo to new order. They are received should you wish to decline from the cooling process. Please press star followed by the number too.
If you are using a speaker phone please lift the handset before pressing the comp.
<unk> has requested an analyst asked one question followed by one follow up question and rejoin the queue. If you do have another one.
One moment for your first question.
Your first your first question comes from Andrew <unk>.
Stifel GMP.
Were he was speaking on behalf of Andrew.
Just wondering if I could get.
Your updated thoughts on when New Jersey, Rec sales could start and how do you see your position in competitive environment with the new medical and Rec licenses being issued.
Hi, Good morning. So we are I mean this is not.
Not a highly scientific view of when retro is going to start in New Jersey, but we believe <unk> will start in the first quarter.
Hopefully.
Towards the beginning of the first quarter of next year.
Terms of the competitive positioning versus the other licenses that were awarded a few weeks ago, we actually felt like they were very pro incumbent.
The thing that makes us think that is the canopy limit on the new cultivation facilities is 30000 square feet. While the original licenses that were part of had 150000 square foot canopy limit. So obviously, we can get to five times.
Canopy in the state and we think that that's going to serve us service very well and that we're going to need to.
Every bit of that of that canopy.
Other thing that we think was pro incumbent is that since the state is very focused and rightly so on making sure and ensuring that our medical patients have access to product.
All of those new licenses.
We are only allowed to sell into the rec market.
After they have sold into the medical market for a full year.
So we are looking at a figure it.
From the from the date of the award of a cultivation license figure it takes about a year and a half or so.
To bring the facility online.
Then another year for those facilities to be operated for for medical patients. So we're talking about two and a half years or so before we see any further product.
In the market selling them to interact.
Okay, great. Thank you.
My last question for gauge prior to closing our consensus estimates had a meaningful ramp up in revenue and margins now that you've closed on the transaction. How do you see that progress and can you give any color on the magnitude or cadence. Thank you.
Yes, sorry, we havent, we havent closed on gauge yet we will be we'll be closing I gauge early in 2022.
Okay. Thank you.
Yes.
And it's a business.
Very happy to report it.
Correct.
Okay.
It sounds like we have another call on that.
Yeah.
Your next question comes from Ken Mackay ATB capital Kenneth.
Thank you good morning, Jason.
Speak to good morning could you speak to Pennsylvania, specifically was there any sort of.
Further challenge or perhaps degradation, either a market or in your ability to ramp through the back end of the quarter I'm just trying to better understand sort of how we got from where we were perhaps when you reported Q2, so where things sort of settled out in terms of margin compression, but also sort of the revenue headwind I think the better we can triangulate that tomorrow.
Or is it a constructively, we can try and looked at the fourth quarter.
Sure we have Ryan Macwilliams, who is our EVP of the northeast maybe Ryan would you like to answer that.
Yeah, sure Hey, Kenrick, Yes, I think I think we touched on this during last quarter's call, but I think the most important thing for us to keep in mind is that it requires anybody not just harrison, but any of these cannabis operators about three or four months the truly recognize the benefits of any worker change thats been.
Effectuate, a downstream and the upstream in the production cycle right. So this includes the lifecycle of the plant from cone to harvest all of the post harvest processes, such as drawing occurring than distribution.
Our selling to our wholesale partners and then how that product sells through to the patients right. So youre talking about four months minimum to really see that type of progress show up.
On the P&L or in some of this external headset data for example, what I can tell you anecdotally because I'm looking at it.
Hour by hour minute by minute is we're starting to see we've seen a couple of those what we believe the truly.
Changed our greatly improved harvests come down over the past few weeks and at least the visibility that we have in our own stores.
And keep in mind. There is also a ton of optionality on everybody's menu in terms of flower options. We've seen some of this more recently harvested flower testing at.
At DHT potencies in the low to mid thirties, and being our best sellers in our stores by a long shot. So I think that that will definitely begin showing up in our Q4 results and then even more so as we get into 2022.
That's great color and sort of almost answer, but I'll push it any way the discussion around brand any potential sort of read through or contagion. There with respect to layer in Alere is positioning do you think that what you've done here on this reset, but not only youll be able to mitigate.
Some of the.
Sentiment, perhaps or some of the challenges around the name in the last quarter or two and they have some good momentum not just through the fourth quarter, but as you said building into 2022 this will be more.
Small hiccup in pause in terms of the <unk>.
Brand and brand positioning.
And the cachet around the lira.
Yeah, Yeah, absolutely I think that and I think part of our overall strategy as we kind of go back to the integration subject is really.
Having the entire market not just Pennsylvania I understand that this is.
No longer a layer that this is a parasite operation and we're looking at things through a completely different lens and I think that based on the strategy that we have to to.
To go and redefine ourselves in the Pennsylvania market, starting with our relationship with all of our third party distribution partners in the Bud tenders at each of <unk>.
Those locations right I think that we will absolutely be able to win that back and then in addition to that I think that we're going to have all of this new opportunity with some of the.
Brand equity from.
M&A light gauge right that's going to be also in our product roadmap as we as we look further down the field.
Great. Thanks, I apologize if I get back in queue.
Thank you.
Your next question comes from Noel Atkinson Laura.
Go ahead.
Hi, good morning, adjacent and Keith Thanks for taking our calls this morning.
First of all in Pennsylvania on the expansion.
Are you still planning for a 60% capacity increase with your ongoing expansion there and is it still expected to kind of be done late Q4.
Keith you want to take that.
Hey, Noah.
<unk>.
We are still planning and expansion.
Of that size and its.
And the expansion is complete in terms of it will be completed on the timing that we talked about and and then it's really just a matter of.
Kind of dialing up the the volume as as as necessary.
And as we see following along with.
With the market. So so yeah, I think Ryan outlined.
Some of the dynamics, there and everything's on track in terms of the new rooms.
Two to be completed on the time that we talked about before.
Okay, Great and then secondly, now.
In New Jersey, so you're talking about having supply to be able to.
Ensure $40 million a year.
Sales per store, which sounds amazing.
Does that provide supply for wholesale as well in 2022 or do you need to do the expansion that you folks have been talking about in order to start doing some meaningful wholesale.
Yes, I'll take that.
We think we could fully supply those stores at that $40 million or so run rate with our own wholesale but in reality.
We are going to buy other wholesale brands and start them on our shelves as well we are believers that people that come into our stores should be able to choose the products that they want to buy and not just the products that we want to sell them because we can make the most profit upon them. So if you assume that there will be a decent percentage of it.
Percentage of other products on our shelves.
That will free us up to sell products.
Wholesale to other dispensaries in the state.
But we could deploy we're making as we could fully supply our own stores, if we needed to.
Okay, great alright, thanks very much.
Thank you. Your next question comes from Matt Mcginley from Needham.
Thank you.
Thank you.
Pennsylvania I appreciate the commentary on how long it takes to effect change and cultivation, but the state has better supply and prices come down. There are you actually seeing product from that capacity expansion currently being sold in the market at present are you banking on that on that recovery. I guess, we're critically are you seeing recovery in the trends that you saw from a few weeks ago or are you just waiting for that.
In the back half.
Yes.
Back half of the quarter I should say it more specifically in the third quarter, how much of the sales decline in Pennsylvania was volume versus versus price.
Sure. Thanks, Matt.
Ryan would be the best person to answer that question.
Yes.
Try to break that down a little bit, Matt and happy to happy to talk to you. This morning.
So I think as it relates to the capacity.
<unk> of that question. The most important thing to keep in mind is that.
Just because that capacity expansion is completing on.
On track, we're not going to bring every square foot of that capacity online day, one right, we're going to do it.
In a very sort of intentional and thoughtful manner and we're very much focused on the improvement of that quality and the improvement of our brand recognition and capturing more share in the Pennsylvania market and then we can.
More deliberately bring that additional capacity on as as the trends allow for it right one thing.
And obviously longer term when adult use kicks in it's going to be a very nice to have to take advantage of that that full capacity, but.
Regardless of what the current supply demand dynamic is in Pennsylvania, I think one thing is true in.
Just like every other state in canvas market is that high quality high potency product is always going to sell regardless of the.
Of the amount of flower of the volume of flower that's on the market. So we believe if we can.
Be the best in that area that we can use all the capacity that we have in and then some hopefully.
And Ryan on pricing.
Yeah and on pricing I know, we've talked about this one last week or last week last quarter as well.
From where I sit it's still very much the same where theres been.
Little change on the wholesale pricing side and much more of what you see in terms of.
Of a pricing dynamic or changing pricing dynamic is happening on the retail side through discounts promotions et cetera, right and one way that we think we can combat any future wholesale pricing pressure is by improving the quality right. So if everybody else's continuing to solve the same quality at a let's say 10.
Sent discount if if we're instead going the opposite direction improving quality, then we should be able to protect that price on the wholesale side.
Quite a bit more.
In sales trends in the first half of this quarter are better than what you saw in the third quarter or are there kind of steady state and then you expect that in the next six weeks or so before year end is to begin to pick up.
Yeah, it's definitely been.
We've been looking at the October headset data and it's been a pretty steady state and I think that and our retail locations.
Marginally better than what the overall market is looking like which I think speaks a lot to our retail team and some of the some of the efforts that we're making to promote.
More customer customer loyalty and retention, but but you know in the last month or two it's been steady state and then I think just based on pure seasonality, we see see.
Smaller spike not like we were seeing in around this time last year, but a spike in overall demand in the market as we get into the holiday season.
Okay, Great and my second question is on the on the cash flow I guess, the other broader concern or weakness in Pennsylvania that that state is the primary source of cash flow generation for the company. So weakness here makes tariffs and more reliant upon external cash generation to fund Capex and M&A and all those things can you keep can you provide some color on the <unk>.
Projects you have through 'twenty two.
I guess in terms of Capex and then what other cash outflows can we expect like that $25 million payment you mentioned in new Jersey that would occur in the fourth quarter.
Yes, Hey, Matt.
Sure. So yeah. That's that's the one big payment and we've also noted now several times the warrants so the proceeds from the warrants coming.
Both early and mid next year and then the cash on our balance sheet. So we feel pretty good pretty good about our cash position in terms of the internal projects we have.
Finishing up the project in Pennsylvania, and then we have the Maryland, the Hagerstown project that will start to kick in and those would be the two key focal points and then as we roll into next year well also.
Finalize our plans on how we move forward with additional expansion in New Jersey. So those continue to be the three focus areas.
I don't have specific numbers for you by project, but.
Kind of ballpark I think.
And you can kind of depending on the.
Scope and scale anywhere from from 15 to 20 or so million per.
Her project, but again, the <unk>, finishing up so it's really the focus going forward is Maryland, and New Jersey.
Yes.
I would add there is in terms of cash flow.
Obviously, new Jersey, we think there is going to have a huge positive impact on cash flow starting up starting in the first quarter. So that would help from that perspective also Pennsylvania, we see Q3 as the low point, so, Pennsylvania should start generating significant cash.
And even if even as you looked at even if you look at last quarter.
If you adjust for taxes or you take out the $21 million tax.
Tax payment that we made in the quarter, we were actually cash flow positive from operations. Obviously, we can't just disregard the boxes, but at least it shows.
From an operating perspective that the business is in pretty good shape and would have generated I think about $4 million in cash.
If it wasn't for those tax payments.
The other thing to point out is we do have between.
The warrants that needs to be exercised by January of 'twenty, two and then the $50 million or so of warrants that will be exercised need to be exercised by the middle of next year.
That will.
To do a good job in terms of helping to replenish our.
Our balance sheet.
The second that second amount to $50 million in the middle of the year. Those are warrants that my firm owns and we will not be we will not be out there selling selling the stock on the market.
We also have in addition to all of those are in addition to those warrants there are over another $200 million worth.
There were some warrants that are that are in the money that will be exercised stuff.
Probably in the next.
A couple of years, so we don't see any need for any.
Capital raises or anything like that unless we found a very large acquisition that required a big big cash payment.
Okay. Thank you very much.
Your next question.
Comes from Eric Delorme.
Please go ahead.
Great. Thanks for taking my questions.
Can you remind us where you are in new Jersey, right now from a production capacity standpoint, and then kind of walk us through.
The various expansion phases that you guys are contemplating at this point thanks.
Sure Keith.
Yep.
So yeah, just just maybe to level set on on our current footprint, we have 140000 square foot facility.
80000 square foot indoor cultivation and processing and then <unk>.
40000 square foot grew.
Greenhouse and so that's our current footprint.
And we're.
Still in the process of evaluating exactly how we expand from there in New Jersey.
And the timing, but we're progressing along and as we start to see more clarity around adult use and then how that's all kicking in we're going to start to.
Refine and finalize those expansion plans and and pull that trigger to pull the trigger here and there in the coming in the coming months to get that project started.
Okay and should we think of that.
80000, indoor and 40000 square foot greenhouse as.
Yeah, basically being fully up and running.
For.
This potential Q1 start or would there be sort of a space.
A phased ramp up into kind of full production with that footprint.
Oh, Yeah, that's our current operational footprint, so that's all fully up and running already.
Okay, Great that's helpful.
And then I guess similar question as you look towards Maryland with this new.
This new facility you guys are getting into any kind of commentary there on <unk>.
That good pace of expansion or pace of that coming online.
Okay.
Keith I'll take that I can take that we will be bringing on where we're going to be bringing that online in the first half of next year.
The demo and construction.
Is already well underway and we believe that we will have the best.
So there will be operational in the first quarter of the year.
We'll open our first to make our manufactured products and then cultivation will.
Come on.
Most likely in the second quarter of next year.
Alright, Thanks, I appreciate the color.
Sure.
Your next question comes from Glenn Mattson lung, it's Allison. Please go ahead.
Hi, Yeah, thanks for taking the question.
So I think they've gauge announcement was made after the last earnings call. So perhaps this is the first time you could broadly speak to and I realize the acquisition hasn't closed yet, but you mentioned that integration work is underway. So.
Clearly you have a more in depth knowledge of the company now than you did a few months ago and just so I'm curious about your early take on on on the new acquisition and just the market in general and the idea of competing in a limited license market I realize it's a it's a it's in it.
Extremely attractive market, but it's been a tough spot for a lot of people to really succeed there. So just your general thoughts on that.
The acquisition in the market in general would be great.
Sure. Thanks Glenn.
We are more I'm more excited than ever about the <unk> acquisition, we've been interacting a lot more closely obviously since the since we signed.
Since we signed that deal several months ago.
Many of the senior members of the team have gotten.
No.
Many of the senior members of <unk>.
And in the last few months and everybody is.
Everybody is getting a lot of really well it is really really excited.
The.
The Michigan market is is a it's obviously a large market.
And if you can compete and do well, there, which I think your cages amongst the best operators in Michigan with one of the best brands. If you can do really well in Michigan than our view is that you should be.
It should be.
Not.
Very difficult to compete in these limited license states, where the larger operators are in that position not necessarily because they are the best competitors, but because they were the best at either winning licenses or they built the largest capacity the quickest. So our view is we take the.
Some of the brands in the genetics and the Knowhow.
And we combine that with what we already have an RFP.
Strong operations in New Jersey, and Pennsylvania, and Maryland, we taken we combine sort of the divested the best and we think we're going to be really really strong competitors in.
All of the states, where we operate we will also be as Ryan mentioned earlier gauge the gauge brand is on the roadmap for us.
In practically every market, which we operate and that will happen mostly in the in the first half of next year, but not only that it's the it's they're exclusive genetics that will also be launching into all of these additional states, it's probably worth noting in Pennsylvania, Pennsylvania is very strict about genetics.
And you can only use the genetics that you brought into the state when you one year license, so our genetics and Pennsylvania are over three years old.
And the state a few months ago announced that they were going to be opening up a 30 day window, we think that's imminent.
The 30 day window will be open and we will go from having <unk>.
Some of the older genetics and the state to having.
The newest and in our view the best proprietary.
In Pennsylvania. So we are really excited we've got we've got that facility is.
Has been.
Really yes, straightened out and as we mentioned we are growing the best product.
In Pennsylvania that we've ever grown not not the best since we spoke.
We had our issues are yield issue starting in the towards the end of the first half, but we are growing the best flower that we've ever grown in the state of Pennsylvania. When you combine that with the new genetics that we will be launching next year.
We think it's going to be there's no reason that we shouldn't be able to go.
I'll go back in and gain a significant amount of the market share that we had earlier this year.
Thanks for that color, Jason Keyes, one more for you if I could just the.
A lot of moving parts with Pennsylvania, coming back online, but the market being a little bit different by the time it does and.
And but then new Jersey kicking in next year just like.
I guess broad base is your expectation, leaving gauge aside for a minute because it hasn't closed yet and there's always some risk perhaps that it does.
Doesn't happen or whatever but so leaving that out for a minute.
You know just in terms of margins like when New Jersey is fully ramped do you expect to be kind of back to the old highs in terms of adjusted EBIT margins or better or or just slightly below just just directionally your sense of where you can get to.
The assets you have right now thanks.
Yeah Glenn.
Yeah without getting obviously without getting specific but I think I think you had the moving parts directionally, so as as new Jersey kicks in in a in a huge way for us in 2022, as we've talked here and we've said before how.
Our margin structure and business in New Jersey, and the pricing environment and our cost structure.
Our scale facility and everything that that is very favorable. So so we'll kind of have like.
P. A like margin profile in new Jersey that starts kicking in and really contributing to the mix in the overall EBIT or gross margin and EBIT the structure and so that that will flow through into 2022 and as that as that ramps up then we'll see.
Margins.
I can't I can't say right now exactly back to where they were before but I can say that that will be heading back.
Towards those those levels fueled by New Jersey, and also fueled by.
The recovery in Pennsylvania.
Yeah, the only thing I would add to that is.
We are in terms of our.
Internal budgets, we are we're using similar pricing per pound in new Jersey that to the Pennsylvania pricing and we think that.
Actuality, we think that new Jersey pricing.
Has the opportunity to be.
Significantly above that if you look at where pricing has been in Massachusetts for for a good deal of a good period of time now ever since that ever since Rec Legalisation if you applied.
That price, the Massachusetts pricing for New Jersey, It would be.
A lot of upside versus what we're what we're currently assuming we don't need that we just you know if we if we assume Pennsylvania pricing.
We're looking at are in New Jersey next year, we're looking at just a massive 2022 from a from a financial perspective.
Great. Thanks for the color guys.
Thank you.
Thank you.
There are no further questions at this time I will turn it back to Mr. Wild.
Thank you so thank you everybody for joining.
The call today.
You can see we're very very excited about.
The accomplishments that we made this quarter in terms of rent.
Rectifying, our issues and in Pennsylvania, and getting ready for to really fully launch into adult use and are in new Jersey.
In the coming in the coming months.
We will see you all on the next quarterly call.
Ladies and gentlemen, this concludes your conference call for today, we thank you for participating and ask that you. Please disconnect your lines.
Thanks.