Q3 2022 22nd Century Group Inc Earnings Call

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Okay.

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Welcome to the 22nd century group's third quarter 2022 conference call and webcast.

At this time, all participants have been placed in a listen only mode and the floor will be opened for your questions. Following management's prepared remarks.

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It is now my pleasure to turn the floor, but to your host make well director of communications and Investor Relations. Please begin.

Thank you Rob.

And welcome to 20, <unk> century's third quarter earnings Conference call.

Joining me today are Jim Mitchell, our Chief Executive Officer.

Hugh Kingsman, Rf's, Chief Financial Officer, and John Miller, President of our tobacco business.

Earlier today, we issued a press release announcing our results for the third quarter 2022. The release earnings presentation and 10-Q are available in the investors section of our website at X X I I century dot com under the events top heading.

We'll start today's call with prepared remarks from Jim John and Hugh before moving into a Q&A session.

As a reminder, those joining by webcast can submit questions through the online interface, which we may include during the Q&A section of todays call time permitting.

Some other statements made today are forward looking forward looking statements are subject to risks uncertainties and other factors that may cause actual results to differ materially from those contemplated by these statements.

Additional information regarding these factors can be found in our annual quarterly and other reports filed with the FCC.

During today's call, we may discuss non-GAAP financial measures, including adjusted EBITDA, which we define as earnings before interest taxes, depreciation and amortization as adjusted for certain noncash and nonoperating expenses.

For more details on these measures. Please refer to our press release issued earlier today and with that I'll turn the call over to Jim beginning from five three.

Thanks, Nate good morning, everyone and happy election day.

I've spoken at a number of recent conferences, so I'm going to keep my opening comments brief.

And we can get to the details quickly.

I will say, it's been an incredible few months since our last quarterly update and there are more exciting topics to discuss how we can fit into our call today. We're.

We're going to focus our time on commercial activities are rapidly expanding U S tobacco business and.

And our global scale hem cannabis ingredients and CD ammo business.

I'm joined today by John Miller, President of the tobacco business unit and Hugh Kinsman our CFO .

First since our last call we have aggressively expanded our exceptional BLM pilot results by moving into a multi state commercial launch designed specifically to leverage our awareness education and trial approach.

We've advanced from our Chicago pilot to expanding across Illinois to our first statewide multi partner launch in Colorado.

And now announced three additional statewide launches to complete the four corners region.

This is just the beginning as we intend to grow our presence and now up to 18 states over the next 12 months and take a notable share in these markets.

Don will detail this more in a moment, but I couldn't be more excited about our prospects.

We have an unstoppable expansion blueprint driven by consumer interest, we can reach a 1% share milestone quickly where we decide to go.

We have a plan to cover over 50% of the addressable market within 12 months.

Second we have now integrated <unk> biopharma, a top shelf ingredient and CMO provider in the hemp cannabis derived ingredients space.

This catapulted us into a fully commercialized and growing hemp cannabis business with increasing margins and we're moving quickly to complete certifications that will further differentiate our products and make us the dominant global supplier of hemp derived ingredients I'll come back to this detail after John .

Finally, our financial results are driving long term growth margin expansion operating leverage and cash generation.

Our balance sheet is fully funded to support our existing business plans and we're closely monitoring our investments to rapidly drive share scale and financial returns of our commercial pursuits.

The chart on this slide illustrates the quickly developing revenue scale in our business that will ultimately drive us to cash positive flows.

We complete this carefully planned commercial launch and investments.

With that I'll, let John dive into the incredible work he and his team are doing in the tobacco business John .

Thanks, Jim and good morning, everyone. It's definitely an exciting time at 22nd century, and we are moving rapidly to make an incredibly disruptive product to market.

Starting on slide five our Chicago pilot with circle K generated exceptional results in a very short time, especially when compared against normal industry expectations for a new product launch.

We also tested a range of offers designed to drive increased share to trial and repeat purchases.

With that data, we have sharpened and refined our launch plans for our multistate rollout.

We are now fully immersed in our commercial push into the $80 billion U S retail tobacco market, capturing even a very small percentage of this market will be transformative for 20, <unk> century, and our revenue line.

Phase III includes not just adding states, but also bringing on new partners to execute the distribution training stocking and ground support for our growing list of retail sites.

This allows for efficient management of overhead while covering entire states with full service retail programs and support for <unk> rollout.

So in some of our new partners.

Authorized <unk> not only bring potentially hundreds or thousands of store locations, but also represent an accelerated opportunity in the next date, where that chain has a presence in short our retail launch efforts become efficient faster and more productive as we move forward by leveraging our frictionless go where we go partnership approach.

Moving to slide six let me illustrate that a bit.

Current five states represent about 7% of the total U S retail cigarette market or about $5 $7 billion at the register just getting a 1% share would be approximately $3 8 million packs of El N on an annual basis.

What's more three of these five states have favorable <unk> TP excise tax structures that can further leverage components of our launch programs for adult consumers and our commercial partners.

We started with circle K in Illinois, a fantastic partner, who has fully supported our mission. They also supported our expansion into Colorado, where we added the Eagle rock and Krieger mercantile to distribute deal in even more stores across the convenience grocery pharmacy and other channels.

As new retail partners come onboard via our sales and marketing programs. Those accounts can go where we go in the other four corners states, where we're launching right now as an example.

Circle K in addition to Illinois, and Colorado also authorized the deal and we sold in all of their new Mexico stores.

But this is just the starting point as we rapidly expand <unk> availability grow our market share and increase revenue throughout the next 12 months by securing distribution and a total of 12 to 18 States. Let me share with you what that can look like on slide seven.

The U S cigarette market is concentrated and we have adapted our accelerated launch plans to take advantage of this concentration.

Getting into just 18 states can provide access to more than half the total U S cigarette market, that's access to more than $39 billion in cigarette sales in the highlighted 18 states.

You can see on the map that our five current states, Illinois, Colorado, Utah, Arizona and New Mexico include three states that offer the <unk> excise tax benefit.

These are color coded in light green.

Five other states have passed them RTP tax program with similar benefits, Michigan, Washington, North Carolina, Kentucky, and Connecticut, and more states have proposed <unk> legislation.

The <unk> TP states are compelling market opportunities in their own right, but connecting them with adjoining states allows us to create large regional markets and extend the reach and benefit of our marketing PR and awareness investments.

Well choose which states and in what order as we continue to move ahead, but understand that we will continue to deploy our model of distribution partnerships awareness campaign and education efforts with retail partners, who share our commitment to improving public health as we build share and revenue.

Moving over to slide eight I wanted to get a little more granular and help you understand that we can focus our marketing investment and ways to be even more efficient by looking at key market and population centers within the states for example, in Colorado, where we are actively in the launch phase. There are 64 counties statewide, but the top 10 counties are home to more than 80.

2% of the population and almost 79% of the states cigarette volume by targeting much of our marketing spend and consumer engagement efforts and just 11 of 64 counties could give us access to 80% of the state cigarette purchases while at the same time, we will deploy an appropriate amount of resources and the other 53 counties that are less populated this enables.

The focus of our marketing spend to maximize return on investment on our launches.

Finally on this slide as we discovered in Chicago, a tobacco cigarette that is FDA authorized to help you smoke less there's truly newsworthy.

During the Chicago pilot, we earned significant coverage that helped adult smokers learn about deal and how it helps them smoke less this has been proved out again in Colorado with more than 15 segments focusing on deal and having been aired on Colorado TV news stations.

Slide nine shows how all this comes together in our four corners efforts with adult population of more than $13 million and a total retail cigarette market valued in excess of $3 billion, we will target more than 7000 stores across dozens of retail brands.

Cure, both traditional partnerships like smoker friendly and non traditional partnerships like Eagle rock and figure mercantile who want to join us in our mission to reduce the harms of smoking.

It is available we will use favorable excise tax legislation to drive market adoption and incentivize our partners to maximize the opportunity.

Of course, our success in ramping up volume, meaning we have the scale or tobacco growing and manufacturing capabilities, which we address on slide 11, five excuse me, we previously announced a record planting season, and an expansion of our manufacturing capacity by 25% as we ready for volume increases, but it's more than that.

Diversifying our growing locations to include the southern hemisphere, and working to continually improve our planting results in products. For example, our recent deal on two point out tobacco harvest demonstrated a 30% improvement in yield enhanced leave quality improved disease resistance reduce nutrient requirement and improve stability across grown.

<unk> locations and environment.

Other words, our leaf inventory is scaling quickly generating higher yields and improving in quality. We are prepared to drive manufacturing volumes to meet any level of market demand needed.

This is especially important given the increasing movement by regulators at the state and federal level to deploy new policies that can favor a reduced nicotine content products illustrated on slide 11.

Most notably we have talked extensively about the federal regulations, including a proposed ban on menthol products and even a reduced nicotine content mandate with state and local governments are not waiting for federal action as noted by the current eight states with MRI <unk> reduced excise tax statutes, we believe that our vela and menthol king cigarettes could be the only <unk>.

Mental cigarette on the market exempt from the menthol ban, which was specifically contemplated as part of our <unk> authorization.

But even more the science shows that a reduced nicotine mandate would help all smokers more easily quit smoking or migrate to less toxic products.

We currently have the only product that meets the standard with the clinical data to back it 20.

20, <unk> century's research cigarettes continue to fuel numerous independent scientific studies to validate the enormous public health benefit identified by the FDA that would be achieved by implementing a nicotine standard. We believe it is only a matter of time on these fronts and we are ready to help smokers leverage these policy opportunities to truly smoke less.

We are moving quickly and plan to continue our accelerated rollout in order to get <unk> into the hands of as many adult smokers as possible.

I'll now pass you back to Jim for an update on our hemp cannabis franchise Jim.

Yeah.

Thanks, Joe and it's been an amazing third quarter for tobacco progress and we're just getting started and I just have to pause for a second and just repeat some magic words unstoppable expansion blueprint.

Driven by consumer interest, it's just an amazing progress with John and the team are making.

So, let's turn to slide 13, we focus for a few minutes on our commercial progress in hemp cannabis.

You've seen this slide before discussing how GBP completes our capabilities from the most fundamental elements of plant genetics and receptor science, all the way through to white labeled products on the retail shelf for purchase.

We stand alone in the world with this level of breadth of expertise more importantly, GBP is already the world's largest hemp cannabis ingredients merchant market supplier with the lowest cost largest scale and highest quality. This platform is a tremendous growth opportunity with minimal investment a process that we're undertaking.

Lightning pace.

It all starts with the assets, we acquired are fully integrated manufacturing chain that slots right into our plant science platform.

It starts with a world class extraction facility in <unk>, Oregon that will start out at 5000 kilos per month capacity and grow quickly with our investment program already underway with an expected output capacity of 15000 kilos per month in 2023.

As this facility scales. It will displace a majority of our third party crude purchases in the market.

We will then take that crude material into our 30000 square foot crude refinement facility, where we expect to see a substantial increase in gross margins as triangle expands producing global leading quality cannabinoid isolates and distance.

There are 40000 square foot manufacturing site and produce an extensive variety of white label products for our customers in the nutraceutical consumer products and pharmaceutical industries.

The acquisition gives us a strong revenue position in hemp cannabis.

<unk> platform as an industry leader and a pathway to increase our gross margin profile and accelerate our path to profitability and hemp cannabis.

Slide 15 brings it together to show how we take our hemp cannabis business to the next level of global leadership.

First our triangle crude extraction facility will enable us to buy biomass and produce our own crude rather than buying crude on the open market. This.

This is a massive cost reduction and will enable us to quickly scale gross margin on our operations as this facility scales up.

We are ultimately targeting a 50% increase in our gross margins from the current levels. As a result of this relatively modest investment while also increasing scale and quality even further.

Second FDA is moving steadily towards establishing novel food product standards for the CBD industry in 2023, including both quality standards keto certifications and daily recommendations for intake that will unlock a massive consumer goods and nutraceutical market.

In addition to our leading role as the world's largest producer of these active ingredients.

How active are.

Acting secure the product and the facility standards that will enable us to become the dominant supplier to these brands.

This includes pharmaceutical grade certifications for both of our facilities of core cannabinoid Apis.

In other words this puts us in the pole position and an exponentially growing global consumer market and also reinforces our CMO capabilities, where we have exciting news to come soon.

Moving to slide 16, we target that by the end of second quarter next year, we will have a full drug master file audit complete, giving pharmaceutical grade certification enable us to supply cannabinoid into clinical pharmaceutical activities under the highest certifications in the world.

It will also give us the edge is a leading global ingredient supplier.

We believe that we can generate double digit growth in this business expand gross margins and take the business unit to cash positive in 2023, helping.

Helping self fund our growth efforts across our corporate platform.

Well a lot of attention understandably focused on our rapid expanding tobacco business. Our hemp cannabis products are also scaling fast and have tremendous opportunities for margin expansion and cash flow in the near term.

Those are a lot of words and I just want to summarize one more time, because it's an exciting perspective in cannabis.

We're already the world's largest merchant marketer of hemp cannabis ingredients, we already have the lowest cost largest scale and highest purity now the new extraction unit only entities three differentiators and allows new certifications that lead the global dominance.

Dominance.

And timing is perfect as the FDA advances to novel food regulations in 2023 that unleashes a massive market opportunity.

And with that let me turn it over to Hugh to discuss the financials.

Thank you, Jim and good morning to everyone.

Starting off on slide 18, with third quarter financial results net sales increased by 149% quarter over quarter to $19 4 million, which reflects the addition of a full quarter of <unk> revenue and record tobacco CMO manufacturing sales.

We continue to experience significant customer demand for tobacco and hemp cannabis products, including higher CMO cigarette volume from new customers. In addition to the acceleration of BLM product sales.

Gross profit increased slightly quarter over quarter to 619000 as improved gross margin from CMO manufacturing was offset by lower margin from hemp cannabis sales.

Certain nonrecurring charges.

And I'll explain gross profit further on slides 19 and 20.

Moving to slide 19 tobacco revenue for the third quarter increased to a record $11 5 million from 17th I'm seeing from $7 8 million an increase of 48%.

Profit margin on tobacco sales increased to five 5%.

Or a combination of strong unit sales growth and improved product mix from higher margin CMO and BLM cigarette sales.

We expect continued gross profit margin expansion to be achieved with the accelerated launch of the land.

Moving to slide 20 for hemp and cannabis, which reflects a full quarter of <unk> operations revenue grew 25% to $7 8 million for the third quarter.

This revenue growth reflects an increase in unit sales of over 80% due to strong demand for the company's premium quality bulk ingredients.

<unk> certain nonrecurring charges and the impact of purchase price accounting <unk>.

<unk> pro forma gross margin was eight 1% in the third quarter.

GBS gross profit margin is typically 15%, 20% and will expand as the company becomes more vertically integrated with the addition of the new private Oregon extraction facility in 2023.

Slide 21 illustrates the updated third quarter of <unk> acquisition purchase price accounting in more detail.

And as a footnote from our third quarter Form 10-Q explained.

Allocation reflects estimated fair values as of the date of the acquisition.

Determined using significant estimates and assumptions.

We have substantially completed the valuation procedures required to allocate the purchase price in areas, such as property and equipment intangible assets deferred taxes and goodwill.

Further changes may occur in the future.

Which may be material.

And last for me on Slide 22, you'll see a few key highlights from our balance sheet.

The total assets of more than $140 million includes a $44 million of goodwill and intangibles from the GBP acquisition.

The strength of our balance sheet, including quarter end cash balance of $44 million will support our near term strategic initiatives, primarily the accelerated launch of the airline.

I know that many of you are focused on our cash position and how we're using it to continue our steady progress toward profitability.

The company is selectively deploying capital to accelerate the launch of <unk> <unk>.

<unk> tobacco manufacturing operations invest in GBS production capacity and increased inventory levels to meet growing demand about hemp cannabis and tobacco products.

Plenty of second centuries cash requirements are anticipated to decrease reflecting higher sales volume for <unk> products to fiscal 2023 and continued organic growth of <unk> operations.

In fact, <unk> is on pace to becoming a cash generating business in 2023 due.

Due to the investments, we're now making to meet market demand.

And as a result, the company has adequate liquidity from the current balance sheet to complete its strategic initiatives and with that I'll pass it back to Jim.

Yeah.

Thank you.

It's an exciting time for 20 <unk> century, as we accelerate our USB Linde launched with several major national C store and pharmacy chains, placing our <unk> products in front of customers.

With our exceptional pilot exceeding our internal expectations and our massive market opportunity, even a relatively small share of that market is transformational.

With the proposed menthol ban moving ahead as it should.

Thank you at this time, we'll be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue.

We will take questions from the approved list of analysts first if we have time, maybe read a question that was submitted via webcast. Our first question comes from the line of Vivien <unk>. Please proceed with your question.

Lots of great detail on your aspiration is to further expand VL and Jim you noted.

What are going to be some of the key factor or as they form whether you hit 12 states.

Yes, Hi, Vivien and I'll, let John comment on this as well, but I will give you give you my perspective, because we were even a few weeks ago, we were targeting 12% to 15 that number has gone up too.

To add on three more states that takes us over the 50% Mark.

<unk>.

Good question too about how do we come to the 12 to 18 states.

Again, expanding through the pilot program in the Midwest understand the opportunities in southeast taking advantage of them RTP taxes in Connecticut and peninsula in the Tri State area.

Doing the analysis and research that shows this.

Where it does seem like you have plans to bring on incremental points of sale to deepen your penetration geographically as well do you think that the sequential growth that we saw in terms of absolute revenue.

Thank you Kieran.

A good framework to keep in mind as we model the opportunity going forward at least over the next call. It three to five quarters. Thanks.

Would that be.

Yes, I'll take that.

Good question.

I think when you are thinking in terms of modeling, let's just take tobacco operations.

Incremental quarter over quarter.

It will be comprised of CMO revenue and then I would start Larry at Snake about growth for <unk> as we could tell you accelerate the rollout strategy.

Thank you.

Our next question comes from Aaron Grey with Alliance Global Partners. Please proceed with your question.

Hi, Good morning, guys. Thank you for the questions and thanks for the detail.

A great partner and circle K to help in terms of display and shelf placements. So I just wanted to get some more color in terms of as you go to Colorado in these other states, obviously youre going to have a circle K there, but as you lean a little bit more on distribution can you talk about how.

How you are looking to ensure that you have similar shelf shelf placement at displays at retail to kind of reach that 1% plus that you got in Chicago and Chicago in these other markets. Thank you.

And quite honestly in Colorado, we have a very very similar program with circle K that we had in Illinois.

All the things that we tested and can take out of a pilot and then move that into a much much broader array of stores. So for certainly a colorado. They basically mirrored what we've done in Illinois to a large degree.

And then rolled that rate into new Mexico, So that those learnings and those things will be learned about about.

Those are the things that were explaining to retailers that they're working with us to achieve.

And this this isn't like a challenging discussion I mean, when people understand exactly what we're doing and they understand sort of the difference in <unk> versus a traditional cigarette and what we're trying to achieve with this brand when they see it and understand what we tested and now what we're putting into market.

To get that awareness campaign going what does it take what does it take to make the consumers become aware of it to educate them on what the product does to get them to try to come back and repeat.

Repeat purchase all of those things are now factored into our retail programming, which is exactly why we're doing this approach to how we're going into a geographical pragmatic way.

And we're not don't we're not going to our retail partners and saying give me every store on day one.

10, or 11 counties, which we really have to execute and to get to 80% of the volume.

And.

The retailers are understanding this and to go where you go where we'd go makes sense for them because we know what we have to do to be successful in the market.

Those have been receptive.

Yes, sure I can I can start out and then I'll ask <unk> to chime in as well.

And that you know that takes effort across all different functions, including the commercial side getting getting rhythm tied out.

So we're expecting a.

To set their safety guidelines on CBD and that will open up not only the U S consumer product space now and legitimate terms with safety considerations around it and the quality specifications around it.

But that will very likely be adopted into the European theater, which is very much larger just based on population. So it's really living up everything we thought.

Highly energized so we couldn't be happier with it and it really did fill out the foundation, but.

No I completely agree Tim I think it's important to mention that just the backlog for the demand we have for specialty ingredients as significant going forward, so that should propel revenue growth.

In addition to some of our white label contracts should be coming online in fiscal 2023.

And then kind of extra.

Great to hear that's helpful detail and then ill jump back into the queue.

Thanks, Good morning.

To start out with.

I looked at the math.

Well and Marc <unk> States, but then you works.

You know flashing neon red kind of to me, but I don't Wanna.

Just wondering what to think about kind of priorities for next states.

As you are kind of response to that kind of.

Analysis for lack of better word.

John you want to cover that.

Phone cut out for a second did you say that Texas was flashing red.

Yes, yes as far as like.

It's so close to the to the four corners states and it's a big state I know, it's not easy, but it just seems like.

Right. So if you look at the state with the we look at the map with 18 states.

Labor perspective priority launch dates and Texas is one of those dark Green States. The difference in the map is we're just trying to show where the <unk> states, where as opposed to a priority states. So the dark Green States are definitely priority States, Texas is definitely dark green.

So, yes, absolutely, 100%, Texas the number one cigarette state when they can.

It is a natural opportunity for us as we develop out and pivot around the <unk> states.

And your initial observations Greg the MRI Gp's dates we have eight of them.

And the southwest we're calling it now you have the four corners in Texas and then the southeast you have North Carolina to the North Florida is the number three state per cigarette consumption.

There is a natural connection there.

Also Georgia, and Texas, both had M. RTP legislation initiated last year. So again, what's the opportunity there if that passes at some point in the near future.

And then obviously in the Midwest, you have Kentucky and Michigan.

Adult smokers in those areas.

I hope that answers your question Brian .

Yes, I can I can handle that Brian . Thanks for the question, yes. The submission we're scheduling for Q1.

That does two things for us in essence number one it opens up the door to supply ethical into the ethical pharmaceutical industry for clinical trials and no. One can do that at the moment with natural naturally derived products.

That opens up.

That space and it also then establishes really the highest level of quality, obviously, the lowest level of impurities.

Two our tour isolate.

And that really sets the stage to keeping up with the Fda's movement on the novel Food safety standards. The first thing they'll do.

Is establish a an upper threshold nobody knows for sure exactly what that is going to be but I've heard numbers anywhere from 25 milligrams per day up to 100 milligrams per day that would service the nutraceutical market. That's the first thing that they will do in 'twenty three right behind that they will establish.

The highest quality specifications and there'll be looking to what's plausible in the marketplace and looking for people to work with them would you we already are to establish those quality.

Purity guidelines and also specifically what impurities are in there and a stabilization of it.

Simultaneously helps us on novel food, meaning food beverage nutraceutical products.

And as I said, we've heard very strongly that.

The FDA has really taken the lead on a global basis.

External European markets Asian markets Canadian markets, we'll look to them.

Absolute lowest cost.

Certainly pharma grade CBD and other cannabinoids is where you need to go and the DMF as part of that process.

Great. Thank you so much.

Sure.

Our next question comes from Jim Mccleary with Dawson James. Please proceed with your question.

Yes, Thank you and good morning.

Wanted to follow up on a question Vivien was asking about the contract manufacturing revenues in Q3.

Do I understand this correctly that the quarter to quarter change in tobacco revenues of about $1 million and half was mostly contract.

Revenue.

Jamie Yes, Thats correct.

Firstly correct Michael.

Great. Thank you and.

You talked of this 15% to 20% gross margin for GBP.

I'd just.

I also want to understand exactly what youre, saying youre, saying that that is what it would be on a normal basis without all of the.

Seen beginning Q4, and then as these additional plants come online we should see an increase as 2023 progresses is that is that a good way to look at it.

That's exactly right, Jamie maybe 15% to 20% of your typical gross margin, especially just a nice steady state.

<unk> percentage will start to increase overtime as we layer on the fully integrated the <unk> facility. So.

Those would be the right assumption going forward.

Great and then my last question is on operating expenses for the quarter in the Q It talked about.

Accelerated stock comp accounting for an additional $1 9 million in strategic consulting accounting for an additional $1 7 million.

<unk>.

How transitory or or permanent or both of those expense levels when we.

When we're looking at Q4 and 2023.

The.

Compensation is the majority of that is one time.

Due to an acceleration of.

Payment for.

Our reorganization.

Nation, if you will.

And the.

So the strategic consulting is mostly on the IP side and I assumed it was for the deal and rollout is.

It's mostly IP, but youre, saying, yes, it's mostly IP, but there is some funding that consulting related BLM, but it's definitely related to our IP development for a receptor science.

Plant genetics.

Great. Thanks, very much for taking my question I'm curious now that you've been in a couple of different states that have different tax treatments for your <unk> product.

There been a.

A clear indication of which kind of ways of passing on that pricing have the biggest impact whether that's just a bigger margin for the retailer or passing that savings on to the consumer I am curious if you've had enough.

The needle for demand.

Or how that's playing out.

Yeah.

Yes.

Carlos Good question, the retail pricing aspect of <unk> was something we looked very closely at.

There's no doubt that there, especially on the pilot we saw multiple price points.

For example, when you get into Cook County, and the city of Chicago I mean, there were some stores that we had three different tax stamps on the packs. So we were able to look at and do some research on what is the proper retail pricing to lease launch BLM.

And.

What we learned through the actual retail programming and then the research projects. We did was that the consumers weren't necessarily looking for a bargain or a deal.

And that they were willing to play.

In line with let's say, a top tier product in Marlborough or camera and if we price that that they're okay. Now all consumers love offers right and some kind of deals.

Perfect. So.

We've put that into all of our programming well certainly into the trade marketing side of our business.

Using the <unk> TP as you as you kind of referenced in Colorado.

So you have the base case, which as we know the consumer is if this provides a solution looking for are willing to pay for it but.

But also understanding that they want to have an offer when available when you go onto an NRT. These data gives us the flexibility then.

Using.

Let's say that tax savings to again awareness education trial, how do we drive awareness education and trial and what we started in Colorado was.

<unk> doing what we knew we needed to do in terms of pricing in terms of promoting at the right appropriate levels, but also taking some of that money and driving.

Awareness education and trial.

So and if you think about it's about just as an example, it's $6.50 per carton in Colorado.

If someone's looking for a way to get off highly addictive cigarette smoke.

Smoke less or whatever they are trying to achieve.

Achieved through this brand is 65, the difference and we found out that it isn't necessarily but when they know more about it and when they are aware of it that's what's going to drive.

Trial, obviously reap repurchases now we continue like I say the factor all that in.

We have some we have a.

Very great trade marketing program going in Colorado and for example, we have circle K is one very sophisticated retailers, but we also have smoker friendly which is a very sophisticated retailer in a different channel smoker friendly is primarily discount tobacco channel and they have incredible systems.

So theyre able to do these promotions and they are able to do casino specific carbon pricing in different areas and we've tied into all of those systems. So it isn't it isn't a straight black and white answer that says the <unk> gives you a lower retail it becomes part of a holistic program as I mentioned in my comments that benefit the consumer.

Our trade partners.

And everyone else sort of involved in the whole ecosystem of getting dealing into the consumers' hands.

I hope that answer your question.

It sure does yes, that's really helpful. And then if I could just ask a second on on the vlan.

2.0 tobacco it seems like Youre seeing a lot of success with with that crop here is the idea that this is going to be.

The bulk of the BLM cigarettes in the future are going to be using this <unk> two point.

Can you talk to us a little bit about is it more about improved taste and texture or better yields and lower costs.

We'd love to hear more about the success, you're seeing there with the second generation product.

Sure and I can talk to specific parts of this.

Good.

And a lot of ways, where we're seeing Zealand 2.0, and helping us all sorts of sustainability on the brand.

Calvin treat as our Chief Science Officer has done a remarkable job along with our teams being able to grow more sustainable products and as you heard in my opening comments. This is a product that has a better yield.

The less nutrients.

Just becoming a better product and the more they started.

At a more experienced they have been growing at.

Obviously, it'll be part of the products we have.

It will make it again more sustainable.

Disease resistance.

There's just a tremendous amount of science into how this will help the product I don't know Jim if you have something else you want to add to that but.

In general.

It's just going to make it overall.

More sustainable and put our product.

Yes, I mean, the only thing I can add to that is we're viewing this that we want to have a year round grow both northern hemisphere, and southern hemisphere, which we're doing.

Across all these varietals, where we have IP and then can blend as as we desire again the feedback is already very good on the product, but this gives us the latitude both on the supply chain.

And on the next generation products as.

As well so that's that's really what.

The driver of it.

Okay. That's really helpful. Thank you very much.

Sure.

We have reached the end of the question and answer session I'd now like to turn the call back over to James Mitchell for closing remarks.

Thank you and thanks again to everyone for joining us today.

Say is please stay tuned shortly for our next updates.

As we continue to expand our <unk> launch in the U S and move ahead on our cannabinoid opportunities.

The GBP platform, you'll be hearing from us very soon and look forward to talking to you all next quarter as well. Thank you and have a great day.

This concludes today's conference and webcast you may disconnect. Your lines at this time and we thank you for your participation.