Q2 2022 Green Thumb Industries Inc Earnings Call
[music].
Good afternoon, and welcome to Green thumb second quarter 2022 earnings conference call.
At this time all participants are in a listen only mode.
Yeah.
A question and answer session will follow the conclusion of formal remarks.
During the question answer session, 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.
I'd like to remind everyone that today's call is being recorded.
Now I'd like to turn the call over to Shannon Weaver director of internal Communications. Please go ahead.
Thank you Betsy and good afternoon, and welcome to Green thumb second quarter 2022 earnings.
I'm here today, with founder and CEO , Banco Blur and Chief Financial Officer, Anthony Georgia.
Today's discussion and responses to questions may include 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 our reports filed with the United States Securities and Exchange Commission and Canadian Securities regulators, including the 2021 and annual report filed on Form 10-K.
This report along with today's earnings release can be found under the investors section of our website.
Green thumb assumes no obligation to update or revise any forward looking statements to reflect events or circumstances that may arise. After the date of this call throughout the discussion greenbaum overburden non-GAAP financial measures, including EBITDA and adjusted operating EBITDA on.
A reconciliation of non-GAAP financial measures to the most directly comparable GAAP measures is included in our earnings press release, and I think you're fine.
Please note all financial information is provided in U S dollars unless otherwise indicated thanks, everyone and now here's Pat. Thank you Jen good afternoon, everyone and thank you for joining our second quarter conference call.
We reported another quarter of solid results, which feels particularly good given the current economic environment revenue.
Revenue increased 15% year over year, and 5% quarter over quarter $274 million, we had positive GAAP net income for the eighth consecutive quarter of 24 million or 10 cents per diluted share.
<unk> 22 per share so far in 2022.
Both adjusted operating EBITDA of $79 million were 31% of revenue for the quarter and $146 million year to date.
Finally, our cash flow from operation is positive $40 million year to date.
Before I get into more details about the quarter, it's important to acknowledge the challenging market conditions that are putting macro pressure on the economy and consumers.
While the market will continue to fluctuate based on various economic factors. It doesn't change. The fact that candidate is a growth industry with strong demand tailwind.
As we sit here today the cannabis market is at a run rate north of $26 billion. In fact last quarter was the largest quarter of revenue for legal cannabis in the U S at over $6 6 billion yeah.
Yes, it is still illegal to purchase cannabis for adult use in more than half of the states in America.
Transition to adult use in key markets presents a massive growth potential.
Had the opportunity to watch that movie in real time this quarter in New Jersey.
With Rhode Island, and Connecticut coming later this year to markets, where green thumb is well positioned to serve the pent up demand.
In the second quarter, we had a greater than 300 basis points improvement EBITDA margin versus last quarter, bringing us back above the 30% level.
Gross margin was 49, 5%, which represents an improvement over the first quarter when normalized for reallocation of certain expenses.
Our cash flow from operations was negative for the first time in 10 quarters and minus $15 4 million. However, this was not a surprise for us and something we knew was coming.
There are three key drivers first to large cash tax payments in the second quarter compared to zero in Q1.
Inventory build primarily in Maryland, and Ohio, and finally, the timing of 2021 compensation bonuses for our team.
I think it's helpful to reiterate the tax schedule for U S. Corporations tax estimates are due on the 15th of the month in April June September and December .
Therefore, we had two payments this quarter, which totaled $65 million and cents.
Section two <unk> of our tax code is our current reality and we take the position of paying taxes in full and on time we.
We have trained ourselves to think of free cash flow and an after tax or no pathway.
Given the nature of the cannabis industry the punitive tax code in the capital markets. We continue to be focused on cash at green thumb.
We believe operating cash flow is the best measure of the company's financial and operational health and we're not alone with the prospects of a bear market and recession. We've noted wall Street is paying close attention to the fundamental attributes of our business such as cash flow balance sheet and earnings quality, all of which support our company's health and the ability to weather whatever comes its way.
When youre out of cash or out of options and Optionality is very important to us regardless of any volatile external environment over which we have little or no control.
What we can control is our capital allocation decisions that our balance sheet, both of which are strong competitive advantages and why we constantly evaluate our business to ensure we are operating as efficiently as possible.
We ended the second quarter was 312 million in current assets, including cash and cash equivalents of $145 million, which supports our ongoing by ongoing financial and operational health.
In June we strengthened our balance sheet was the innovative industrial properties funding and in July we extended the maturity date of our debt until April 2025.
These are easy decisions for the benefit of shareholders and again buys us optionality.
But where I said I'm bullish on the enormous market opportunity ahead and feel confident that we have the firepower strong brands and team to ride the greenway that the industry doubles triples, and eventually reaches 100 billion in the U S. How.
How do we get there remains fluid and there are a number of factors that when that timing.
As I mentioned at the beginning of current market conditions, and especially high inflation are putting pressure on consumers across all sectors.
Top of that pricing in cannabis products can vary tremendously across markets.
At any time in ways that are difficult to predict pricing pressure may disrupt in individual market that.
That is why we have built a diversified portfolio of states with large vertical optionality, which provides some insulation for near term volatility that we're seeing in certain markets.
We know that the American consumer is demanding this product for wellbeing, we see it every day in our stores across the country.
In addition, we have a major tailwind is coming as new markets turn on adult use sales.
We are putting capital into markets that will generate strong returns, but there may be unexpected challenges along the way.
New York is a great example of a state that has created a lot of excitement upfront.
As regulations that have created more questions than answers.
As such we've tempered our near term expectations for New York, but even so our well positioned in this market and we will be patient.
New Jersey on the other hand began adult sales on April 21, and in the first 30 days there were $24 million of cannabis sold across just 12 open retail stores in the state.
Estimates indicate a $2 billion market in the next few years, which has seven ex the current run rate.
Connecticut, and Rhode Island should want adult use sales later this year and green thumb is well positioned in both.
And in Illinois, our homestay that largest market. We are seeing some positive action after two and a half years of frustration social equity licenses are now being awarded and we expect to see the beginning of new stores opening later this year.
This should provide greater accessibility to well being through cannabis.
More diverse and equitable participation in the industry and an overall lift in the Illinois market.
We believe more than doubling of the store base will grow the overall market, even if there is pricing pressure.
In our newer markets, we're seeing good momentum.
Yeah.
In Minnesota, we opened our sixth retail store located in Mankato. This past April and contributed our first day profits to habitat, Minnesota, whose mission is to bring people together to build homes community and hope.
With this new store, we have 77 retail locations across the nation.
On the product front, we're excited about for edibles to Minnesota patients for the first time as of August 1st and we saw very strong demand a good sign of things to come.
In Virginia patients are no longer required to have a medical cannabis card issued by the Virginia Board of pharmacy as of July one.
The lifting of this restriction is a big win for medical patients in the Commonwealth and we've seen demand pick up.
And the 'twenty 'twenty four adult use retail sales are expected to begin which is another growth opportunity given the state's population of almost 9 million people.
On the federal front.
We are not holding our breath for cannabis legalization.
We're extremely partisan Congress seems blind to the will of the people, which according to a 'twenty 'twenty. One Pew research study found 91% of U S. Adults are onboard with cannabis legalization in some fashion.
Despite the noise, we're doing what we do best keeping our heads down on execution and our eyes on the prize there are too many catalysts for growth to get distracted and we are in a great position to benefit from some key tailwind.
Before I turn the call over to Anthony I want to touch on our consumer packaged goods business.
As you know we are committed to growing indoor high quality flower under the rhythm brand.
Paying attention to the plants is one of the most critical things that we do it's not easy and never entirely predictable the quality and efficacy of the plan is fundamental to a safe and satisfying user experience and that continues to be our focus.
We are proud that rhythm continues to be a leading U S brand according to PDSA data.
We are excited to bring our authentic brand like bibbo rhythm dog walkers and Incredibles two more Americans.
We've also leaned into the expansion of one of our value brands called and Cheyenne, which has seen tremendous growth, particularly in the base and flower.
We remain laser focused on serving consumer needs and look at brand currency as a fundamental catalysts for growth.
Now I'll turn the call over to Anthony for his financial report and I'll come back with a few closing remarks Anthony.
Thanks, Dan and good afternoon, everyone.
As you just heard the company posted a respectable second quarter generating $254 million of top line net revenue just under $79 million of adjusted operating EBITDA.
Total net revenue increased 11 7 million over the previous quarter.
With gross CPG revenue remaining flat and gross retail revenue, increasing approximately $20 million.
As previously highlighted the difference between gross and net is intercompany revenue.
And the company sold approximately 9 million borne product to itself in Q2 versus Q1.
During the quarter the company generated gross margins of 49, 5% 120 basis point decline over Q1.
This decline was primarily driven by the company's decision to allocate a portion of its SG&A expenses into its cost of goods.
Dosing in a closer alignment of managements view of the business with its GAAP reporting.
The allocation negatively impacted Q2 gross margins by approximately 150 basis points, but had no impact on adjusted operating EBITDA margins.
Generally speaking pricing headwinds in Maryland, Nevada, Massachusetts, and Pennsylvania, along with inflationary cost pressures were neutralized by strong performance in New Jersey and elsewhere.
On the SG&A side, excluding depreciation amortization, and one time transaction costs and stock based comp our normalized SG&A for Q2 was 57 million.
And approximately $1 million increase over Q1 or two 5%.
Please note that the company has taken steps to limit its SG&A spend through the rest of the year.
Net of these expenses along with its 800 K in other income the company generated approximately 24 million and net income were 10 cents a share our eighth consecutive quarter of positive earnings per share for the business.
Yeah.
Moving to our balance sheet. The company ended the quarter with $145 million of cash.
In late June we drew down an additional $55 million of funds via our Danville sale leaseback with IP.
As previously disclosed the terms and cost of this capital was negotiated last late last year, which.
Which allowed the company to avoid the increase in capital cost our industry and the broader U S environment as experienced since then.
During Q2, we invested approximately $69 million in gross capex, when including the spend associated with our sale leasebacks as the company continued to make investments.
Intuit's infrastructure in New Jersey, Virginia, New York and Florida.
We anticipate these investments to drive substantial returns for shareholders in the coming years.
In addition, the company paid $65 million in cash taxes, which brought our year to date cash flow from operations down to 40 million.
As Ben mentioned the company is current on its tax bill.
Subsequent to quarter end at zero cost the company exercised its right to extend the maturity of our senior credit facility for one year until April 2025.
Other positive move for shareholders.
Net net our conservative balance sheet combined with our strong operating performance should help all of our shareholders sleep well during these uncertain times.
We remain incredibly bullish about the long term macroeconomic impact candidates will have on this country as well as the brand's strategic platform and distribution capabilities, we built over the last eight years.
Last quarter I left you all with a few simple comments as a reminder, there were the following.
One two not to do it.
To.
B the consumer three.
Three.
Watch our cash and four be ready to be opportunistic when others are fearful.
While we still hold true today, the consumer remains our North Star is our ultimate success will be determined by how well we address the consumer differentiated and unique products.
One part is our team of approximately 4000 strong eat your own cooking and knows we all play a pivotal role in helping them achieve this goal.
Yeah.
In closing at the end of summer approaches you can't help but think about what's brewing in the northeast.
Connecticut, Rhode Island, and New York, It's your time to make history.
And we'll be right there with you.
Back to you Ben.
Thank you Anthony.
One of the most important aspects of our culture is giving back to our communities. There is so much work needed to help repair the damage caused by the war on drugs and this is a passion point amongst our team.
To invest in this space through our good Green program, which supports non-profit working at black and Brown communities impacted by the war on drugs in June we opened our third round of good Green Grant applications and are on track to donate more than $1 million by the end of this year.
I'm proud of what this industry has achieved thus far we are making positive contributions in so many ways. According to leave. Please job report 428000 full time equivalent jobs are supported by legal cannabis as of January 2022.
Industry created an average of 200 and the 80, new jobs per day last year.
In 2021 states earned over $3 $7 billion in tax revenue from recreational cannabis.
Economic value create economic value creation inaction.
We believe the Great American growth story is alive and well Americans are continuing to choose candidates for wellbeing.
Given the potential of the cannabis industry I know, it's frustrating when the market sentiment turns negative.
As I've said before we're playing a long game, one that requires patience and discipline to reap big rewards in the Green zone. We are confident in our strategy. We believe in our brands and we are committed to promoting wellbeing through the power of cannabis for the American people.
Now well open the call to questions operator.
We will now begin the question and answer session.
I 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 key.
If at any time your question has been addressed and he would like to withdraw your question. Please press Star then two please.
Please limit yourself to one question.
At this time, we will pause momentarily to assemble our roster.
The first question today comes from that there'd be an adder with Cowen. Please go ahead.
Yeah.
Hi, good evening.
Yeah.
So top line better than we expected I think broadly better than than everyone expected.
Just curious how it came in relative to your internal expectations, Dan and Anthony and just on an underlying basis any call out I know speaker idiosyncratic, but for core markets any key states that were better or worse than you would expected. Thank you.
Yeah. Thanks for the question Vivien.
Good one I think on.
On the margin as expected, maybe better a little better than where we were you know two weeks four weeks into the quarter, what we would have predicted.
And in terms of a state by state breakdown I mean, you know the hero of the portfolio is in New Jersey with a turn on you saw a material step up but we continue to like where that market is going and continues to grow and it needs more stores.
Going to be continued growth, we've seen that movie before that would need to call out on the upside.
Thank you.
The next question comes from Matt Mcginley with Needham. Please go ahead.
Thank you your retail business did great this quarter, but the CPG sales to external customers dropped around 12% quarter over quarter and before that your CPG business really hadn't grown at all in over a year.
That drop in revenue more reflective of a price compression or are you, losing shelf space in retail and it's I guess bigger picture if that CTG segment. It is smaller or just less profitable than you had envisioned in the past that it still makes sense to deploy so much capital into cultivation production.
Hey, Matt Anthony your I'll take that.
Look it's a great question.
Look I think if you zoom out you know what's happening in a number of these markets that as they become more competitive the Burton county is increasing and so.
So you know what I would tell you that we've made a conscious decision to push more of our wholesale goods through our own retail channels.
And that's by choice and by design.
That's one of the ways that we've kind of combating some of the pricing compression that we've seen in some of these markets.
You know in terms of losing shelf space I think it's a little premature to say that because I think that you know.
We're not alone in what we're doing is it's pretty widespread throughout the throughout the industry at this point.
The next question comes from Andrew personnel with Stifel. Please go ahead.
Good evening, Thanks for taking my questions and congrats on the quarter.
Talking about <unk>.
Capital allocation.
Your balance sheet is among the least levered in the industry.
How are you thinking about.
The opportunity to potentially raise more debt capital and accelerate organic capex investments given your a lot of.
A lot of catalysts, rec conversions, and Minnesota as well our head.
Or are you thinking about.
Potentially more M&A.
Where the market is headed.
Just thinking about you know how do you.
How do you prioritize your capital allocation and if you could give any detail on when states as well could could be useful. Thanks.
That's great. Thanks, Andrew I'll take that it's been.
In terms of the second part first in terms of M&A. So it's really the same script here everything is really on the table, but we're very measured pretty disciplined and the current investment in the business, especially with equity prices make the bar on M&A. So much higher so we're highly biased to invest in the business. We like the Capex plan that we have we continue to exam.
<unk> constantly we're confident with where the money is going not where it's been and where it's going Places like York, Virginia, Florida, Minnesota and that's in the plan.
Feel like getting more levered.
Don't really use our peer set as a measure for where we gain comfort, we really looked at our own cash and want to sleep well on what we have going here are we like where our debt on our balance sheet is but we're very excited about the growth coming from those places, where we're putting capital in the future and I really measuring ourselves on a return on that invested capital and what that will produce for sure.
Shareholders and as we look out to those states those are big population states with major catalyst for growth, they're highly immature underdeveloped early part of the growth curve. So that's the best place, we can put shareholder dollars to build that capacity and so the last question. It doesn't mean, we're making less stuff, that's just where we're selling it how it shows up on the income stay.
And at what margin.
So we like the Capex plan and don't particularly have appetite to accelerated do you want to get it right.
The next question comes from Spenser <unk> with Wolfe Research. Please go ahead.
Great. Thanks for the question I just wanted to zoom in on New Jersey for a minute could you talk about the cadence of sales in New Jersey during the quarter and and as we looked at the second half are you confident that you'd be able to get the product you need for your new Jersey stores.
Hey, Spencer Anthony here.
Look.
It's a great question the market just turned on right. So we're you know.
Call it getting close to four months into this I guess, three and a half or I guess, a little over four at this point.
It's still very early I will tell you that we have not seen any major supply issues up to this point we are.
Selling a lot of our own product. That's one of the reasons why you saw kind of the CPG revenue do what it did.
And I think the operators from what we can tell.
Got decent trade going and feel pretty good about where things stand from an inventory perspective. So.
No.
It's hard to say, where it goes from here, but I'll tell you at this point, we feel pretty good obviously additional capacity is being built out there'll be more stores that open.
A number of us you're building out additional capacity to kind of support that and right. Now we're just taking it one day at a time, but I'd say so far so good.
Okay, great. Thank you.
The next question comes from Erik Bass Loria with Craig Hallum. Please go ahead.
A bit of a follow up to Matt's question here on the wholesale market here.
Wondering if you could talk a bit more about the volume dynamics within the wholesale market others are.
Certainly increasing vertical sales as well in response to pricing I'm, just wondering if youre seeing any real volume changes in that wholesale market or if it's really kind of just a.
Price dynamic here, and then sort of within volumes in general are you noticing any.
Difference between premium and value products.
As other companies are also sort of increasing that mix of vertical products.
Sort of wondering how the dynamics are changing for that remaining third party branded shelf space. Thank you.
Sure. Yeah. This is Matt I can take a crack at it. It's a good question I think you've seen the business right.
We're not seeing a material downtick in units or anything like that as Anthony mentioned, you know we're seeing other it depends on its a very per state situations on a place like Massachusetts, where you've seen over whatever four years its been since it's been going when there was a backup with the CPUC and then all of a sudden all the applications came in a year goes by and a lot of the independent operators could go vertical based on the.
Tori environment there.
So I think it's really a per stage play on those units, but we're not worried about the unit count in terms of the trade down yeah, we're seeing strength in the value segment, where our consumers are pressured at home or in the power bill or the capable or whatever the case may be but theres not a decrease in the demand for candidates, we see trade down into value orientation larger.
Serving size larger units in order to get more product at a cheaper price and that's reflected in the data Bds and other things sort of across the market.
Thank you.
Sure.
Your next question comes from Pi, calling with eight capital. Please go ahead.
Hey, Thanks for taking my question, maybe just a follow up to the last question. There you know.
Obviously, we are in a challenging economic environment consumers starting to tighten their belts.
How would you kind of characterize the risk of consumers actually returning to the illicit market to seek.
To seek out lower prices I'm thinking, particularly in markets like Illinois, and New Jersey, where prices are taxes remain relatively high have you seen any of that gone today.
It's a good question and something we talk about a lot.
The end of the day, we don't feel like the legal market product prices that much of a premium you are paying for branded product. You've got test results. You know the ingredients you have the safety and yet theres product at all kinds of different price points and different illegal markets in different places. So in general sometimes thinking hey, the illegal market is much cheaper than the legal market isn't totally accurate.
It's not the case in places like New York or other places it depends whether you're accessing them aware that product's coming from California, Colorado, Oklahoma being often the top three states, but we don't see the trade down from legal to illegal.
As a major factor here you know you take a place like Illinois, just real time data, we saw $136 million in sales in July 2nd best months ever growth over June so.
So we don't see consumers shying away from this product.
Alright, Thanks, Dan.
Sure.
The next question comes from Camilo Lyon with T. I C. Please go ahead.
Thanks, Good afternoon, everyone.
And nice results here in a tough environment.
Can you help us think about the margin differential if there is one when thinking about the value.
Rand in the value end of the portfolio, that's seemingly gaining more traction in the environment that we're in and maybe any offsets that you have or are thinking about from the production side.
As it relates to maybe automation or greater efficiencies that you can drive to maintain the overall margin structure of the business.
Yes.
Hey, Camilo Anthony here, Great question, I would say you know if you zoom out there really isn't a material difference.
And margin when you go from premium to kind of value now you know obviously as you know as we saw some changes we made some adjustments on the wholesale production side to kind of you know to really.
The decrease the decrease in price.
And that's why I really on the value side, and you see kind of larger format sizes and whatnot, but you know when we unpack the data as you know we have not seen a material difference between you know products that sell at premium versus products and sell at value at least at the current time now you know that's not always consistent market to market.
It can vary by market based off of supply and demand within that market you know for US our focus is high indoor premium I think if we were in the greenhouse game or something else. It's probably you know so it would maybe have a different answer but from our side.
Our value is still as good if not better than someone else's kind of premium if they're if they're growing under glass. So.
We just haven't seen an impact yet on the on the business.
That's really helpful. Thank you Anthony and if I could follow up with one more you.
You mentioned that there should be a are you expecting to have more limited spending throughout the rest of the year can you help us quantify how that should look and maybe the areas that you plan on reducing that spend.
Sure Yeah, I mean look that's that's really targeted towards.
SG&A and so we've taken as I said in my prepared remarks, we've taken steps to kind of curtail that growth.
We do anticipate kind of minimal growth from here through the end of the year, but again it is very focused on SG&A and our real focus is just making sure that we don't see any negative inverse leverage on the SG&A line relative to relative to revenue we want to continue to be able to drive solid operating leverage and so you know.
We continue to watch that line very very closely.
Understood Best of luck. Thank you.
Thanks.
As a reminder, please limit yourself to one question.
Next question comes from Aaron Grey with Alliance Global Partners. Please go ahead.
Hi, good evening and thank you for the question.
So just looking at some factors like pricing pressure in some key markets more difficult capital market environment, particularly for small operators and then operator selling more products in house to insulate from margin pressure you know how do you think that might drive some potential you know for shake out for some of those operators that might not be vertical in these market.
And aren't able to access capital. So how do you think that might impact the competitive environment and some of the larger more vertical players you know insulate themselves.
And those without might find themselves you know a hard time selling that product do you feel like that might impact kind of environment for some more rationalization on the pricing or for some shake out being accelerated particularly if there might not be some change at the federal level in terms of the St back or otherwise I would love to get your commentary on that.
Yeah, Erinn, it's a great question and something we talk about a lot because.
No. That's a great question, that's going to determine kind of where the returns on capital go how long in the capital environment, especially with the stress in the overall market where capital go into something to lose money.
It's unclear, but some of them are working dynamics in the industry, particularly the tax structure lack of water quality and access to expensive capital make a startup business in Canada is much different than it was five years ago.
And you need to look no place other than Massachusetts, and see what's happening some of the new grows and what that return on capital looks like with the delay in the regulatory we can explain that went out and we'll have to see what happens.
But we're going to watch and we feel very good about our position I'm not sure what will go on but we like what we can do for shareholders. We like the Optionality and we feel good about our balance sheet and our cash we're certainly not wishing and youll will on anybody but add supply overgrowth price comes down margin pressure increases taxes don't change cash gets tight.
<unk> seen the movie before and so we're watching carefully.
Alright, great. Thanks.
Thank you.
The next question comes from Scott Fortune with Roth Capital. Please go ahead.
Good afternoon, and thanks for the questions.
Real quick on the rental.
On the retail side sequentially, what metrics what drove those recent traffic.
Uptick or is it more normalized seasonality that you saw and how you kind of see seasonality kind of going forward here. How are you feeling overall transactions coming from new.
New consumers you know primarily from New Jersey, or you know a little bit from the existing patient and consumer side of the things and just kind of follow up on the pricing stabilizing.
Stabilization, we starting to see the reset in some of these key markets on the pricing side or it's still a lots of pressure there.
Hey, Scott Anthony here another great question so.
Let's just zoom.
New Mountain Holistically, you know what we saw throughout the quarter was more transactions and a slightly lower ticket.
Okay. That's across the aggregate portfolio I think you know your comment about you know where is the actual you know where is the growth kind of coming from and look the reality is we continue to see new people enter the space each and every day.
Something we're tracking closely.
And there's very few markets, where if anywhere we're not we're not seeing that when we analyze the data.
Now where is where is pricing within each of these markets again. This comes back to a market is on a market to market basis, I will say that we have seen some stabilization in some places and in others, There's probably still some room to go.
This quarter, Maryland kind of popped on our radar as a new market that's starting to experience some compression we're watching that close.
On the other on the flip side to that.
You have to question how much lower pricing is going to go in and perhaps a place like Nevada.
But you know look as you know we're still in the early chapters of this book, it's hard to really kind of predict the future.
Time will tell.
Thanks for the color.
The next question comes from Howard Penney with hedge I. Please go ahead.
Alright, thanks, very much Pat I was wondering if you might be able to expand on your comments on New York.
And what you're seeing and why you're holding up let's hope.
Sure. Thanks, Tom.
New York's a tricky one to comp.
Complex environment and has the regulators and the rules have taken shape.
Originally we thought timing for the regulated program and sort of the legacy Roes would be at the beginning of 2023.
We think theres going to be a first start by that.
Community to have operations, though the clarity on that remains a little bit tricky.
And the reason the set.
The board is that everything is a little bit slow to come out so where we thought it would be ready to start with stores built we haven't seen that go we've.
We've seen the regular take a pretty proactive approach.
A strong play with an active government building stores in setting up a different kind of program that we've seen anywhere else.
And lastly on a different topic is a robust unenforced ramp it illegal market it looks like California or really L. A.
And Brian with L. A not the same but.
He was walked in Manhattan.
No one on this call we didn't get them. This is legal means to buy the stores did you buy some trucks if you buy it from ice cream sales and it's everywhere.
So all those give us.
<unk> moment for paws were still active in Warwick, we continue with the project. We believe in the inner loop, we have and the products, we're going to build but the vastness of our our expectations are tempered in the near term.
Thank you.
Yeah.
The next question comes from Michael Library with Piper Sandler. Please go ahead.
Oh, Thank you good evening.
And Michael just wanted to follow up on capacity I know you usually don't get into too many specifics, but I think late around late in the second quarter you would've had some additions coming can you just help us understand how to think about the second half and how much lift that might give them.
Just some idea of of you know.
Maybe help us not get carried away with what to expect but just some.
Thoughts about what that could do to give a boost.
Sure My laminate year, so what's your white of what's right a little bit so we recently completed.
Sanctions in Pennsylvania and.
Ohio.
New Jersey.
And in.
And a small one in Maryland.
In terms of the benefit that we're going to see from those assets. It really comes it really comes down to the state by state basis in P. A let's start there.
In a situation, where we're not anticipating really any growth in that business.
Until we see edibles or adult use o'hare.
Ohio, We've got the benefit of the.
Incremental kind of stores that were just worried we think those are operational call Q1 Q2 of next year you know between now and then you know since we didn't have flower in the market will see some small incremental growth that were you know relates to the party. There. So it can take some time to build out those sales channels.
New Jersey, you know look we start to see the benefit in Q2, and obviously, we're pushing a lot of that product or our retail stores and in Maryland, similar story to <unk>.
With regard to adult use you've got a medical market that is a bit stagnant and you know the real need you know near term catalyst is going to be it's going to be adult use.
We see kind of near term growth really comes down to Rhode Island, and Connecticut. When notice turn on for adult use we're nicely positioned to both and Thats really where you know as we look ahead, we anticipate seeing seeing some growth.
Okay. That's helpful color. Thank you.
Okay.
The next question comes from Matt Bottomley with Canaccord. Please go ahead.
Yeah. Good evening, all thanks for taking the questions I just wanted to pivot back to New Jersey and I'm. Just wondering if you can give any color.
Not really guidance related.
Or anything like that but just on the.
I guess the ability for growth just given.
Limited retail and what from what I understand you know the the wholesale channels are pretty competitive and that most people are putting as much as they can through their own stores. So is there any ability to increase overall contribution from that state going into Q3 here in wholesale channels or do you think it's more or less what your stores can pump out given the initial demand in that market.
Sure. Thanks, Matt It's Ben Good question I would say, it's a it's a combo of both but there's not a step function coming until new retail channels open. So we've seen a major step up with the end of April may and June as we get our sea legs and now you're starting to see incremental up into the right as the whole state I don't think we'd get direct monthly numbers, but it is a.
A whole states start to incrementally grow.
So it'll be a balanced growth and I'd say as stores start to grow revenue that doesn't mean, it's all just vertical and theres no opportunity for more wholesale sales as we look at our store. We think the same thing growth comes the makeup a number 10% we're buying a lot from others as part of that 10% growth and I think the same would be true of our customers on the <unk> side.
So we see the whole thing rising as this market grows but the next step function of certainly more retail channels for the dense population that has an extreme amount of demand five to seven X where we currently are now.
Thanks Ben.
Sure. Thanks, Matt.
Your next question comes from Patrick Mulvihill with a bad debt capital. Please go ahead.
And if we take rhythm for example are you seeing the brand to outperform relative to some of its competitors in the wholesale channel.
Okay.
Sure. Thanks, Patrick its been a short answer is yes, we believe in the power of the brand we see consumers relating to the brand, especially as some of these products differentiate from others on the shelf.
It's not a massive national marketing campaign and awareness remained low so let's focus of a lot of as brand awareness and building loyalty.
And in flower with rhythm with where you're talking in the core product is flower you build that loyalty over time every time you open the jar with high quality flower. So as both of US mentioned that focus on the indoor environment on the genetics on the techniques omnicare the grow in the jar remain paramount for us to build that rhythm we see it there you see it in vivo and we're excited.
About the brands.
Yeah.
The next question comes from Daniel Chan scheme, but it was a private investor. Please go ahead.
Hi, Thank you very much for taking my question and congrats on the quarter very great.
I have a quick question regarding your press release for me 2021, we're at Green thumb and cookies partner together to open up with cookies on the strip retail location.
We all know that the cookies brand has been enormous called following product quality is top notch and I cant take anything away from your own products dog walkers and rhythm et cetera.
But may I ask if you can provide some insight into your current relationship with cookies and its green thumb has any.
If you're looking to expand partnerships in Nevada, or any other market going forward with the cookies, Brent Thank you and events.
Sure. Thanks, Daniel Good question, Yes, we did open cookies on the strip the relationship is strong and close relationship with BARDA Parker and the whole team over there as they build out their infrastructure really nationally and particularly internationally.
The growth that we see with the cookies site has had more to do with on Prem and ask Nevada Road, you've seen a lot of pressure in Nevada, we're not actively looking at new states signed a licensing agreement with them. They have their growth potential we're big fans of big fans of the product.
But we like what we've done in Las Vegas, It remains a big tourist destination and we feel like we have upside opportunity as we expand that real estate as the program expands in Nevada.
The next question comes from Valerie Quintana.
From the Spirit. Please go ahead.
Yeah.
Okay.
Thank you, it's pretty timely I was just going to ask if your plans include expanding into the southwest states.
It sounds like no.
Southwest States I think you said southwest.
Yes in the southwest New Mexico.
Arizona.
I mean.
And I says everything's on the table, we're looking at it we obviously studied Arizona with the transition there, but we would prefer to be making bets in states that are early on in their curve that are immature and patient consumer penetration in that market hasn't developed we can get a much larger return on our capital going to a place like.
You know, a new state like Virginia, or Minnesota versus a state like Arizona, even if on paper, Arizona is a $2 billion market and Minnesota as $100 million market, we're more likely to bet on our Minnesota, given those dynamics than in Arizona, not because of southwest southeast just a return on capital potential based on the population.
This concludes our question and answer session I would like to turn the conference back over to Ben called Black for any closing remarks.
Thanks, everybody for joining look forward to updating you again this fall enjoy the rest of your summer.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Yeah.