Q1 2023 OrganiGram Holdings Inc Earnings Call

Good morning, My name is Rob and I'll be your conference operator today at this time I would like to welcome everyone to the organic Graham Holdings first quarter 2023 earnings Conference call.

All lines have been placed on mute to prevent any background noise.

After the Speakers' remarks, there will be a question and answer session. We ask you to please limit yourself to one question and one follow up.

May requeue, if you have further questions. Thank you Craig Mcphail you may begin your conference.

Good morning, and thank you for joining us today.

As a reminder, this conference call is being recorded and a replay will be available on organic grams website.

Listeners should be aware that today's call will include estimates and other forward looking information, which the company's actual results could differ please.

Please review the cautionary language in today's press release on various factors assumptions and risks that could cause our actual results to differ.

Further reference will be made to certain non I F. R. S measures during this call, including adjusted EBITDA and adjusted gross margin.

Patients do not have any standardized meaning under I FRS our approach to calculating these measures may differ from other issuers. So these measures may not be directly comparable.

Please see today's earnings report for more information about these measures.

Listeners should also be aware that the company relies on reputable third party providers, when making certain statements related to market share data.

Unless otherwise indicated all references to market data are sourced from high fire data as of November 30th 2022.

On December 21st 2022.

I'd like to introduce Peter Goldenberg, Chief Executive Officer of organic Graham Holdings, Inc. Please go ahead Ms Goldenberg.

Thank you and good morning, everyone with me as Derrick West our Chief Financial Officer.

For today's call, we will discuss the results for the three months ended November 32022, and a general business update we will.

Then open the call for questions.

The first quarter of fiscal 2023 reflected the results of our efforts in fiscal 2022 to enhance scale and efficiency through facility expansion and productivity improvements.

These initiatives have had a positive direct impact on our bottom line.

In the quarter as well as a 43% year over year increase in net revenues, we delivered our fourth consecutive quarter of positive adjusted EBITDA positive net income and record adjusted gross margin.

In Q1, we maintained our number three position among Canadian Lps.

Number two in the flower segment number three and gummies and hash and again held the number one market position in capsule.

Shred remains a solid and well recognized brand embraced by cannabis consumers and we continue to hold the number one position in milled flower by a wide margin.

We expect our focus on product innovation brand revitalization strong sales execution and advanced science will enable us to continue to gain share.

Looking at provincial Board data, we have leading market share in the Maritimes and we're number one in flour gummies and hatch.

In Ontario, we have the top three selling Skus, we were number three in gummies number two and hash and hold flower and number one in milled flower and capsules.

In Quebec, our sales have nearly tripled compared to Q1 of fiscal 2022. This.

This is partly from the addition of products from the Laurentian acquisition, but also due to significant increased sales of our overall portfolio.

Based on data from week Crawler, we have the number one SKU, where number one and no flower and shred was the third largest brands in the province.

This national market strength comes from our focus on creating products that excite consumers in Q1, we introduced 17, new skus, including infuse pre role such as Edison, Great Crescendo, and Trump law suite Cherry.

In November we launched when we announce a new brand in English, Canada and Wala in Quebec. These brands offer unique strengths such as rents and Mac, one and three five gram format and pressed cash they provide us a position in the small pack size value segment that isn't covered by our successful big bag.

But.

In terms of production with the foresee expansion complete at Moncton in Q4 of fiscal 'twenty, two we achieve scale benefits from a record harvest in Q1.

After the expansion Milton has an annual capacity of 85000 kilograms, but this will increase as we continue to refine our cultivation technology.

This includes led lighting implemented in fiscal 2022, and fractional watering, which is now in place and all growth.

In the quarter, we achieved a yield of 168 grams per clinic, a 30% increase over 129 grams in Q1 of fiscal 2002.

As a consequence of a larger capacity and improved deal. The company has significantly reduced the cost of cultivation the lowest cost in our history.

And Winnipeg, we have increased our output for gummies in kilograms by 35% from Q4 'twenty to Q1 of 'twenty three.

This was driven by the increase of more mature units in response to high consumer demand.

We continue to have great productivity on our packaging line with 35 to 40000 pages per day production.

At like Superior construction is substantially complete we expect to begin to move into the new building in February which will help support for launching several new exciting cash suite.

The greenhouse expansion is expected to come online in May.

This will take us towards expanding the facility's annual capacity to 2400 kilograms with Kraft flower and over 2 million package units or cash.

As well as expanding and increasing automation at Lat superior, we are adding staff to the packaging shifts to increase production.

Another initiative completed in Q1 with transitioning our medical cannabis business from direct patient fulfillment, having orders completed through medical cannabis by shoppers drug Mart.

This provides a proven and trusted platform for our patients.

We remain committed to our medical cannabis business and in Q1 have added 26 skus to the shoppers channel.

Our center of Excellence is now active and focused across various cannabinoid to develop and launch new product technologies.

One area of activity is supporting discovery and development efforts on novel vapor ingredients and substrates.

This research also creates an industry, leading baker dataset that will serve as a foundation for future development activities, including consumer safety product quality and performance.

The state of the art Bio lab facility has been operational since June the focus is on developing genetic toolboxes to aid the research cannabis traits and accelerate R&D activities.

This is already supported several plant science discoveries that will benefit our current plant portfolio and long term growth strategies.

So overall this foundation of the increased capacity high quality efficient production and innovation serves us well in addressing markets in Canada and internationally.

In Q1, we delivered $5 9 million of dry flower to Israel and Australia. This is a 71% increase over $3 4 million in Q1 of fiscal 2022.

On November 17th we signed a new agreement with can darken Israel disagreements over a three year term supply allows for the shipments of 10000 kilograms of dried flower with an option for <unk> to order an additional 10000 kilograms.

This is a great long term partnership with Canada. The products sold in Israel, a dual branded with organic growth and has identified as indoor grow Canadian flower, which is recognized as premium product play Israeli consumers.

We also expect to make further shipments to Australia in fiscal 2023 and are looking at other international opportunities.

I'll now turn it over to Derrick to present, the financial review and then I will return with some closing comments.

Thanks Peter.

As Bina mentioned in the first quarter of fiscal 'twenty three we benefited from the increased efficiency and scale, we created in fiscal 'twenty two.

Gross revenue grew 37% from Q1, 'twenty three to $60 9 million and net revenue grew 43% from the same period in fiscal 'twenty two to $43 3 million.

These revenue increases were primarily due to higher recreational net revenue, which grew 30, 43% from Q1 of fiscal 'twenty two.

The cost of sales in Q1 fiscal 'twenty three were $32 million compared to $28 million in Q1 dollars 22, an increase of 13%.

The low increase in cost of sales relative to the increase in revenues was due to the lower cost of production that was achieved through higher output from expansion and improved yields.

We harvested approximately 22000 kilos of flower during Q1 dollars 23 compared to about 12000 kilos in the same prior year period period, an increase of 92%.

In Q1, the harvest benefited from the increased annual capacity at the Moncton growing facility to 85000, Kols, we expect to see similar harvest levels in 'twenty, three which positions us well to meet our Canadian and international sales demand.

<unk> margin was $12 8 million or 30% of net revenue.

Over the $5 5 million or 18% in Q1 of 'twenty two.

The significant improvement in adjusted gross margin was primarily due to the higher overall sales volumes combined with a lower cost of production.

SG&A, excluding non cash share based compensation increased to $15 7 million in Q1, 'twenty three from $12 6 million in Q1 'twenty to <unk>.

While the total spend decreased as a percentage of net revenue SG&A expenses decreased to 36% from 42% in the previous year's quarter.

The increase over the prior period was primarily due to the.

The increased employee head count related to the acquisitions of the Winnipeg and superior facilities increased.

Increased professional fees.

ERP implementation costs.

And noncash amortization of the intangible assets acquired from the acquisitions.

In the quarter, we achieved positive adjusted EBITDA of $5 6 million compared to negative $1 9 million in Q1 'twenty two.

The primary drivers of the significant improvement in profitability with a higher volume of products sold and the lower unit per unit cost of production, which resulted in a large increase to gross margins.

Q1, 'twenty three was our fourth consecutive quarter of positive adjusted EBITDA based on our outlook for revenue, including international sales and improved efficiencies primarily achieved through scale. We expect this trend to continue.

In the quarter, we had net income of $5 3 million compared to a net loss of $1 3 million in Q1 fiscal 'twenty two.

In addition to positive net income is primarily due to higher gross margins along with a fair value gain in biological assets that occurred as a result of the large number of plants now growing in novato facility as a consequence of the <unk> expansion.

From statement of cash flows perspective, there was cash provided from operations of $3 5 million compared to cash used of $9 3 million in Q1 'twenty two.

This improvement was primarily driven by the quarter's positive adjusted EBITDA and a decrease to accounts receivable.

Cash used in investment activities in Q1, 'twenty three was $1 7 million compared to past generated $54 million in the prior year's comparison period.

In Q1, 'twenty three the cash use reflects a net redemption of short term investments of $5 million offset by the purchase of property plant and equipment of $8 4 million.

Note the cash generated in Q1 'twenty two includes proceeds of $60 million from the redemption of short term investments.

In terms of our balance sheet on November 32022, we had $95 million in cash and short term investments compared to $99 million at the end of fiscal 'twenty two.

Small decrease is primarily a result of capital expenditures of $8 4 million, partially offset by the cash provided from operating activities.

With organic ground generating positive adjusted EBITDA and the expected completion of the planned capex from during fiscal 'twenty three.

We expect to generate positive free cash flow by the end of calendar 2023.

This concludes my comments I will now turn the call back Davina.

Okay.

Thanks, Dan.

Before we open the call to questions I would like to reiterate that our success in the first quarter of fiscal 2023 resulted from the strategic investments we made in our business in fiscal 2022 that helped improve our margin and enabled us to compete profitably in today's competitive industry.

Disciplined approach will continue and will help drive solid progress throughout the rest of the year.

Thank you for joining us today, operator, you may open the call for questions.

At this time, if you would like to ask a question Press Star then the number one on your telephone keypad.

As a reminder, we ask you to please limit yourself to one question and one follow up your first question comes from the line of Andrew <unk> from Stifel. Your line is open.

Hi, good morning, Thanks for taking my questions and congrats on the great quarter here.

Thank you.

I wanted to talk a little bit about gross margin. Please.

I think Q1 was the first quarter, where you benefited from the expanded production in months and as you mentioned.

Saw some great gross margin expansion.

And then in the outlook section you mentioned that.

It could it could potentially stabilize from from these levels and in the rest of fiscal 'twenty three and please correct me if I'm wrong in interpreting that.

But assuming that's what.

Your press release indicates.

Could you talk about.

What kind of expectations you have for price compression that could offset.

The improvements in scale and scale benefits that you expect to see in the rest of fiscal 'twenty three.

Maybe you could to the extent that you can dive down into your assumptions and price compression on the types of products and is this primarily on your on your domestic business here in Canada or or do you see the potential for price compression on your international sales.

Yes, Thanks, Andrew I think that we're seeing price compression now in the Canadian rec market, particularly around flower and when we factor that in notwithstanding we do believe that we can continue to decrease our cost of production as a consequence of just the continued.

Flow through of the higher.

Yields in that in terms of our cost of cultivation that will help our flower margins and as well with the.

They have a capex spends around automation et cetera, and the extra margin, we should be able to get from <unk> superior based on having our improved cost structure. There post expansion I think that while we have room for all things being equal we have room to improve the gross margin rate in the Canadian Rec business, if everything remains.

But as noted we do see price compression that could be such that it is equal and offsetting.

We're hopeful that it will not be fully equal and offsetting that.

In light of that.

Do believe that we can achieve the current gross margin rate that we have now being the 30%.

As we move forward and if the price compression is not meaningful.

As we look at this then we have room to increase the rate and of course as we continue to grow which we would expect.

Knowing <unk>.

And that would continue to do as sales move up there will be more gross margin dollars, but the guidance. We've given is specific to the rate of 30%, which we haven't historically provided but we are comfortable with that.

This is the new normal for us in the in the climate of the current market in China, and again with with an offset for some price compression.

I appreciate that fulsome answer and if I could switch gears a little bit.

And talk a little bit about.

The balance sheet inventories biological assets.

Being that you did increase this quarter, which I think you've previously guided to and in line with the production expansion could.

Could you talk a little bit about.

Your.

Your internal planning and what Youre comfortable with in terms of the level of of biological assets and inventory.

And any way that you're comfortable with talking about a turnover absolute dollars or anything like that and when do you think that inventory biological asset could be a source of cash going forward.

Yes, I think on the bio asset.

The increase that we had from the last quarter and also the gain that was on the income statement as we measure the fair value growth of those assets.

It was.

A fairly significant 10% increase in the quarter to take it up to approximately $21 million now.

We are planting and all are available grow rooms, now with amongst a facility there will be small fluctuations by quarter, but.

Without a another expansion.

The acquisition of another facility.

This is roughly where the bio assets should reach give or take a few million dollars. So I think that's a fairly stabilized number for.

For inventories, we did see an increase as well, but I think in prior calls.

<unk> mentioned, a few times that.

We had demand.

Essentially outstripped, our our current production and so as soon as we have the available flower ready. It was shipped out so we were probably running fairly lean to lean on.

On our inventory levels. So we are trying to to build them a small reserve there a flower to ensure that we can beat our sales orders as they come in and then to maximize sales and profitability. So I think that inventories are more apt to move.

Slightly north from their current number but again I think that.

Some of the increases in inventories are now baked into our balance sheet, but I would expect inventories to slightly more than my bio assets with as we look forward.

Thanks for that I'll get back in the queue.

Your next question comes from the line of Aaron Grey from Alliance Global Partners. Your line is open.

Hi, Good morning, Thank you for the questions and nice to see that the EBIT improvement there.

So quick question for me that I have just around the price compression and market share specifically more so for Canada can you just give US a reminder, in terms of how you think going forward in terms of how you look to balance profitability of Skus youre, putting out against share obviously, it's been a big momentum in terms of the gross margin.

<unk> seen shares where you guys were not former it seems like they might have softened a bit in the past two months, but would love to get a reminder, in terms of your outlook on how youre looking at profit versus share I know, it's a little bit of both but during.

Sometimes you might have to lean more on one versus the other thank you.

Alright, no problem.

No problem areas. So so let me, let me start by saying that.

It is important for us to continue to see revenue growth, but profitable growth right and that's important to us so we.

We are cautious.

I've said many times on these calls that we don't have a problem competing in the value segment, because that's where most of the tonnage that's where the consumer car.

However, it is not our desire.

Yes.

The lead the race to the bottom.

We had a little bit of softness at the end of this quarter on our large format 28 Gram flour as a result of some headed up activity coming in to the Ontario market at the price floor.

We did.

Did not match that but we have made adjustments to our pricing in order to ensure we remain competitive and in the latest four weeks have seen already a rebound.

Some of that softness that we saw.

As a result of that price compression. So further to what Derrick said earlier.

We do it right.

Price compression there isn't a lot of flower out in the marketplace today.

More supply across all of the other.

Other competitors and us than there is demand we have heard from other competitors, they're looking at moving.

Production capacity to grow Tomatoes, and then this is the reality of the market, which is what are projecting some price compression, especially in the large format.

<unk> products and as a result, we adjusted our pricing that being said, we adjusted it to the point, where we're comfortable with the profit that we generate from that business. So back to your question of market share over profitability, we will be managing that tightly.

Well it is certainly our interest to continue to drive our revenue, but again there will be a continued focus on profitable sales growth.

Okay, great. Thanks for that was really helpful answer there.

So a question I just wanted to switch over to international another really nice quarter there.

And that we saw so last quarter. So just on the go forward.

Where do you guys feel confident being able to maintain or build off that base of about $6 million or so in the gulfport or anything that we should think about I know some competitors have.

Kind of stalled on Israel, you guys were remaining.

Pretty heavy they're talking about your indoor premium thought which I know is in high demand. So just your outlook on international would be very helpful. Thank you.

Yes, certainly listen I think we've seen some good growth actually in our shipments to Australia.

Customers, we have a long standing relationship with Cana track, but last year, we added net Ken to our customer base and continue to add new cultivars.

Interest remains strong from from both of our Australian customers and so besides the <unk> agreement that we have an entry we have a growing business in Australia and at the same time, we're looking at other markets. We are in conversations with some customers.

In Germany.

The reality is this is the area of the bank could not take advantage of last year. When we just didn't have the flower capacity.

And we were operating hand to mouth just to supply the Canadian market.

And our existing international customers so.

By having this excess flour, we have engaged in several conversations and we do have confidence that we will grow our international business and we will have more to share on that in the upcoming quarters.

Fantastic. Thank you very much I'll jump back in the queue.

Yes.

Your next question comes from the line of Tami Chen from BMO capital markets. Your line is open.

Hi, good morning, Thanks for the question.

I've got two here one is a follow up to the comment you made that you saw some softness was at the end of the quarter or just after the quarter on your large format and that he made some adjustment to pricing.

Is that a meaningful Linda I wasn't sure how to take that or was it just some modest tweaking going on euro 28 Gram flour.

So tobey.

In addition to that the competitive activity came into the market in October .

We're watching our.

Our offtake in and seeing the impact.

We did make adjustments that announced the market that didnt take effect.

In the quarter, but after the quarter.

So we have some adjustments to pricing in terms of whether it's a full scale listen it's an adjustment on our 28 Gram large format flower.

But not to all of our Skus. So it depended on the kind of turns we had on our skus. So we're being selective to make sure we may.

We remain competitive.

We are excited about the fact that we will be introducing our <unk> large format offerings in this quarter.

And we will come in with what is a.

Brand that has been grounded in consumer insights, we're very excited about the opportunity, but we also know that we've come in with the kind of pricing that is.

The right price for that brand relative to the competitive set so I'm.

I'm not sure I've given you a lot more clarity only to say that I wouldn't say, it's a tweak but it wasn't a whole scale adjustment either.

Okay, well that's still helpful incremental.

Commentary on that and last follow up.

On this whole pricing discussion.

You know you're being a bit cautious in your guidance, which I understand with respect to your calling out the potential for continued price compression.

I was wondering are you able to like do you have a sense.

Yeah.

Your guidance expectations, the sort of magnitude of price compression, you're sort of expecting over fiscal 'twenty, three and within that I guess higher level is.

A couple of quarters ago, you had thought that maybe we were starting to see some stabilization in price, but it sounds like both from your comments today and.

Competitor that reported earlier that this price compression across the industry is still continuing.

And you know do you see at some point it will stabilize like.

How long do you think it might take to get there.

Like what what continues to drive this one will be kind of out of the tunnel here. Thank you.

Great I'd love to know the answer to that but let me let me perhaps address your question in this way.

If you look at the overall supply of cannabis in the Canadian marketplace and you look at the size of the market and the demand there is still a significant surplus production coming out.

And to the market.

And while there is a lot of extra capacity with some of our competitors they have extra flower.

People will do what I might call silly things to get product out.

To try to generate some cash from that inventory and so you're right a couple of quarters ago I thought we had stabilized on flower.

We were.

And kind of had a few quarters of it.

That has stabilized, but we really see the.

Especially the large format flower.

<unk> are being compressed now and I think.

Until the supply and demand gets in aligned this could always be a problem. There will always be somebody out there who might make a move that isn't what I would say the best move for the overall industry, but might be the right thing for that.

From our perspective, we did add capacity, but we were adding capacity because our demand was greater than what we could supply.

And so we have confidence that we have.

Output at <unk>.

Customers for that extra flower capacity.

But we have some competitors who are producing a lot more flower than.

They have demand and that's what's causing the volatility in pricing.

Again when will it stop when some of that capacity is taken out of the Canadian industry.

Got it thank you.

Your next question comes from the line of Thai Cohen from <unk> Capital. Your line is open.

Hey, Thanks for taking my questions and congrats on a great quarter here I want to circle back to the balance sheet.

Could you talk about how youre thinking about your cash position today, you've got $95 million on hand around $20 million of Capex commitments remaining this year and youre expecting to get to positive free cash flow by the end of the year. So that does leave quite a big cushion should we think of that as mostly dry powder for M&A or.

Or is there a chance you consider returning some of that to shareholders when cash flow and maybe pricing stabilizes a little bit.

Yes, I think the answer is listen we have.

We have still quite a bit of capex to spend this year.

We've talked about it as you mentioned there was $20 million more is as we look at opportunities.

The cash so we're able to look at a longer timeframe and look at.

Turn on investment capital expense that that will help our ongoing margin improvement. So this is around automation and efficiency driving so while we have identified projects. Currently will continue to evaluate where we could continue to optimize our business and improve our margins improve our profit in.

Canada.

But certainly.

We do have enough cash on our balance sheet to explore other opportunities.

This is going to be an interesting year in 2023, we all know that there was a tight capital markets right now a lot of companies are low on cash and there might be great opportunities for us to explore so we have that optionality in in our balance sheet that we will.

<unk>.

Look for the right opportunities.

And hopefully continue to build what is a great business for us.

Okay, Great appreciate the color and maybe maybe roofing off you're at your comments on the opportunity set out there could you maybe update us on how youre thinking about U S opportunities might have changed following some of the recent disappointments in Congress and maybe whether this elevates some overseas investments.

In the pecking order or maybe even turns attention back to Canada in the near term in terms of potential M&A opportunities.

Right. So listen I think we have mentioned many times on these calls that we.

We wanted to establish a solid foundation in Canada, I think we are there.

If there's the right Canadian opportunity that is what I would say complementary in terms of addressing some under index.

As segments in the marketplace, we might look at it but really we recognize that Canada is now in a good position and it's time to look outside the Canadian borders.

We are watching Germany closely as most people are.

While we saw draft regulations in the fourth quarter, we're expecting to see their final regulation report out by the end of March.

And so Germany is a market that we're looking at for sure.

For the U S.

It is disappointing with all the high.

High hopes for safe capacity before the end of the year.

And it didn't but you can't help but look at the U S market. It is right right next door and so we continue to look at the U S and well in the past we looked at CBD opportunities as many of our competitors did because they were available to us with our <unk>.

Current PSX and NASDAQ listing what we've evaluated as most companies who invested in CBD have not seen the benefit of that investment mostly because it is a highly fragmented market in the U S and until FDA regulate CBD.

Don't really see it as a great opportunity so that leaves THC.

Opportunities, which we know we can't do with our listings.

But there are some creative ways that people are looking at that market.

We continue to explore opportunities that would be compliant to our listings.

And well.

If we find one that you'll hear about it obviously, but it's something we're looking at for sure because it is an important next evolution for our business.

Okay, great. Thanks for the questions.

Thank you.

Sure.

Again, if you would like to ask a question. Please press Star then the number one on your telephone keypad.

Next question comes from the line of Michael Freedman from Raymond James Your line is open.

Good morning, good morning, Derrick congratulations on a terrific quarter.

I Wonder if you could comment on the.

On the result of the capacity expansions that you've <unk>.

Completed and are in progress respectively.

How would that is filtered into your ability to supply some of your most popular brands domestically you've mentioned.

Having limited supply relative to demand of the shred brand products I'm wondering if you have been able to satisfy Jimmy.

Demand in some jurisdictions, where you previously weren't able to and also how this capacity these capacity expansions filter into your ability to supply international markets.

Sure.

Emory, yes, absolutely we talked a lot last year about being hand to mouth on our supply and not having the capacity to introduce shred to all.

Jurisdictions across Canada.

We were able in fourth quarter to finally get shipments to every.

Province.

And so we have now the flower supply to be able to continue to supply those markets.

We were lapsed into BC.

<unk> takes we as we can.

As we've gone into other.

Robinson and it takes a little ramp up time as people try to understand it come back to it. So we are seeing.

Ramped NBC and we hope to see even greater demand in that market.

So we do have enough flower now for for supplying arc business.

Ross the country.

We also have excess capacity to capitalize on some of the international.

That we've had inbound requests for Bud light.

Our priority last year was supplying our existing Canadian business and our existing international customers and now we have a great opportunity to capitalize on some of those opportunities we didn't have the flour for before.

Alright, great. That's very helpful shifting gears to your product and brand mix I Wonder if you could touch on.

The launch of the Holy Mountain brand has been going.

Where you see gaps in your current portfolio.

Appreciate if you could touch on your pre roll offerings.

The sensor.

So certainly so first of all on Holy Mountain, We're very excited about this launch we did start shipping the three and a half gram format and pressed cash format into the market and saw some good response to that we're very excited about introducing also a larger format.

Flower offering and wholly now Tim.

And we have some new skus that will add to that portfolio.

As the year goes on and in terms of distribution now 10 has start just started shipping.

We expect that we will be in all of English, Canada with rollout in Quebec.

And the next couple of months, so well keep pushing that distribution growth.

In terms of our overall plan, we do have a.

Stronger innovation pipeline for the back half of our year and we had pro in the front half. We I did talk about some of the <unk> pre rules that we have started to ship, but we have some very exciting.

New disruptive innovation that we plan to introduce in the back half of this year.

And we're excited about it so again I don't want to tip my hat yet on what they are but as they come out I'm sure. We will issue press release stated to see.

Response from consumers, but it really was grounded in a significant consumer insights as we built our plan and.

I mentioned this with respect to holding mountain and with respect to infuse pre rules as well.

And the other thing you asked about was where we might see.

Under development in some of the segments.

You know in the <unk> segment, it's no surprise to anybody that we have an under index on our Vapes.

We tested we introduced Shred X date last year, and we introduced a.

Three to four Skus and when you look at our actual sales per SKU. Our actual sales are pretty much in line with some of the.

T.

And are there other Lps vape skus out there.

Our actual overall share was lower because we just don't have the same number of skus out in the marketplace. So you can expect to see more.

<unk> offerings from us in the balance of the year really to address our under development. We are confident we have the quality and the insight on what consumers are looking for.

And we've always been probably tighter on our SKU mix in some of our competitors and we recognize that in this category.

More is more so we will add some items to our lineup.

Okay, Great. That's very helpful and if you would entertain one more I wonder if you could touch on your relationship with British American tobacco and any interactions you might have with them beyond the center of excellence, perhaps touch on new jurisdictions et cetera.

We have a very strong.

Partnership with British Echo.

They are I would call them, they're very engaged strategic investor is probably the right way of saying it we have conversations with them regularly.

We have meetings as we talk about not only the developments in that.

Center of excellence.

Which is really sort of that long range research and.

And we meet to talk about what those are.

Product what the work is that we're going to do in the PDC in order to generate both benefits to today's business as well as long term business.

So very strong.

The relationship.

Obviously, they are a large shareholder we update them on how our business is going.

And.

In the past they have been very supportive in terms of <unk>.

Helping us in terms of getting.

Some some equipment if they have a stronger relationship with suppliers.

It's the kind of.

David Dave by any means but it's an ongoing discussion.

A discussion that we have with them.

And we've continued to look at ways to work together in the future.

Fantastic. Thank you very much I'll pass it along.

Yes.

Your next question comes from the line of Matt Bottomley from Canaccord Genuity. Your line is open.

Good morning, everyone. Just two questions from me. The first is one of your peers that reported earlier this week was.

Calling for potentially an increase in market share just on the back of less competition as there is a bit of a shake out for some of the lower end Lps that arent as capitalize I'm. Just wondering if you think thats something thats reasonable and sort of a 12 month timeframe. If you think there'll be some potential tailwind with respect to the ability to compete for provincial purchase orders and the second is just your view on the <unk>.

Overall total addressable market in Canada, maybe just at the retail level do you think that there is any chance of meaningful upside from where we are today without the changes from the federal government at this point.

Great question. So let me start with the first one.

Everybody has sort of heard out there.

An increasing number of.

LP is going into <unk>.

There is a need for the shake out this industry is highly fragmented and as as people run out of runway run out of cash.

Suspect, we'll have more of those that that have to exit the market.

And as a result.

A company like ours that has now the flower that capacity the.

The ability to supply the market I do think there is opportunity to grow our revenue and our market share.

I think it might be closer to the end of the 12 month period, then I think there might be more.

Silly stuff happening in the short term until.

People really have to throw in the towel and so as a result, we're being cautious but certainly we believe similar to what you've heard that there will be a consolidation in this industry.

And there is opportunity for those who have scale and you have <unk>.

Lower cost, but to be able to capitalize on the opportunity in the short term.

Longer term, what do I think in terms of the size of the market opportunity.

The market is still growing right, we're still seeing month over month your annual I think the latest.

BDSI as forecast is is like 13% growth year over year, there's lots of that.

Market and.

Other other commodities or other industries that would love to see a 13% year over year growth in the market.

So I do think that there is some buoyancy.

We had a really strong fourth quarter as you know in <unk>.

Everybody knows that the summer is the largest.

Demand periods for Canada, and and we still had some restrictions around COVID-19 and I think youre going to continue to see some opportunities of growth in the marketplace.

But.

Long term this is a.

I'm happy to be in this space, it's a really exciting I think the consumers.

Are going to continue to come and.

Will the government regulations change to make it.

Easier to compete I'd love to see you know the removal of 10 milligram cap on edibles, because we have a very strong and thriving edibles business that would benefit from that we know we're not offering consumers ideally what they're looking for with a cap on 10 milligrams, we look at our Colorado market.

Has edibles at 15% of the market and on average people are buying 100 milligrams at a time. So there is opportunity certainly if regulations change too.

To address that I'd love to see CBD decoupled from THC and the opportunity to sell CBD through.

Pharmacies.

And natural grocery stores, we have a great brand among sure.

That has pure CBD gummies that could and with other minor cannabinoids that would be a great opportunity.

But again.

We all know that regulations take a long time to change. So we are involved with our industry Association. We are at the table at I said talking about what the industry needs to continue to grow and.

I am confident that it will change over time I, just don't believe it will change fast enough for some of the.

Some of the Mlps that are struggling today.

Okay, great. Thanks, Peter.

And there are no further questions at this time Ms. Bina Goldenberg I'll turn the call back over to you for some final closing remarks.

Well, great. Thank you everybody for joining us today.

We're excited about the quality of the results we report it and we look forward to providing further updates throughout the year.

For everyone have a great day, and we'll speak soon.

This concludes today's conference call. Thank you for your participation you may now disconnect.

Please wait the conference will begin shortly.

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