Q3 2023 Village Farms International Inc Earnings Call
[laughter].
Good morning, ladies and gentlemen.
Welcome to village farms International's third quarter 2023 financial results Conference call.
This morning village farms issued a news release reporting its financial results for the third quarter ended September 30th 2023.
That news release, along with the company's financial statements are available on the company's website at village farms Dot com under the investors heading.
Please note that today's call is being broadcast live over the Internet and will be archived for replay both by telephone and via the Internet beginning approximately one hour following completion of the call.
Details on how to access the replays are available in today's news release.
Before we begin let me remind you that forward looking statements may be made today during or after the formal part of this conference call.
Certain material assumptions were applied in providing these statements many of which are beyond our control.
These statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from those expressed or implied in forward looking statements.
A summary of these underlying assumptions risks and uncertainties is contained in the company's various security filings with the SEC and Canadian regulators, including its Form 10-K M. D&A for the year ended December 31st 2022, and 10-Q for the quarter ended September 30th 2023, which will be available on Edgar and SEDAR plus.
Yeah.
These forward looking statements are made as of today's date and except as required by applicable Securities law, we undertake no obligation to publicly update or revise any such statements.
I would now like to turn the call over to Michael Digilio, Chief Executive Officer of village farms International. Please go ahead.
Thanks, Liz good morning, and thank you for joining us for today's call with me are Steve Ruffini, our Chief Financial Officer.
And given the fever, Vice President of corporate Affairs, and Patti Smith, Vice President corporate controller.
As per our usual format, Steve and I will review the operating highlights and financial results for the quarter and then open the call up for questions.
So turning to the third quarter I am pleased with the contributions from each of our businesses, particularly the across the board execution on improved profitability and cash flow.
The true test of a sustainable business model.
We generated positive cash flow in each of our operating segments. That's bottom line cash flow not just from operations not adjusted pure cash flow.
Each of our Canadian and U S. Cannabis businesses also delivered positive adjusted EBITDA and net income.
In our fresh premise operation saw another quarter of significant year over year improvement also with positive adjusted EBITDA.
I'm also pleased with trends at the retail shelf, which are true test of whether everything we do resonate with the consumer.
Ian.
Cannabis.
Covering from the number for sure at the beginning of the quarter and more on this in a moment.
Saturday results were further narrowing or a net loss to just one cent per share another quarter of positive adjusted EBITDA and positive cash generation on a consolidated basis.
These results are not possible without the business acumen commitment and contributions from each of our team members and I am grateful everyday for the village farms team.
Team's determination and I'm confident now continue to execute.
Starting with our Canadian cannabis business, we are proving out what we believe is the most sustainable profitable model in the Canadian industry.
There are a number of highlights for Q3 the <unk>.
This is another quarter of positive adjusted EBITDA and cash flow generation.
These are the direct result of our <unk>.
Our relentless focus on operational efficiencies.
This in turn enables us to fund organic reinvestment in both the Canadian market and international markets as they become accessible.
For village farms organic reinvestment is critical.
Simply put we strive to build competitive moats, and the capabilities, which will drive future growth.
These pillars include cultivation and production commercialization branding and innovation with the consumer in mind. This quarter. Our reinvestment wins include the launches of new brands and products as well as the continuous quality improvement, which are contributing to our top market share rankings.
And more importantly profitability.
It also includes the development of our international business, both export and in country, which are the base, which are based on a profitable Canadian business model.
The second highlight for the quarters that our strength and focus on newness is showing up where it matters profitable market share gains as a reminder, we don't chase unprofitable market share and sometimes that means forgoing topline growth for profitability and cash flow the increased pace.
Some newness that I discussed on our last call continued in Q3 with a number of noteworthy launches. These included a new Super brand supercharged targeted as a consumer preference for convenience and they added strange or all three of our flower brands.
We also saw the continued success of our <unk> brand, which quickly became a top three premium dry flower brand nationally after its launch one year ago.
During Q3, one of source exclusive cultivars pineapple God was one of the best selling premium dry flower products nationally.
Also on the product side lots of Fraser Valley Strawberry.
Asia, which was the largest NBC history and launches the number one SKU in Ontario.
These are just a few examples of the new strains we had on an ongoing basis as part about innovation calendar.
Recently, we also expanded our category offerings, including an entirely new vape offering without first shipments rapidly selling out in our first infused plants under the <unk> brand, which also sells out.
In Quebec as many of you know there are just two product calls a year with largest time during Q2 and Q4, so working with our existing portfolios and between these protocols is as important as new launches themselves to ensure sustainable growth on.
Our success in doing so is evidenced by our continued expansion in market share in Q3 from the existing portfolio and decided to see the results from the Q4 product launches, which are currently underway.
Importantly in addition to cash flow generation, our efforts are proving out on a retail shelf year to date. We are the number three ranked licensed producer nationally and let's say noted at the onset we reclaim the number two spot in October.
As we were the second top selling produce of dried flower nationally for the third quarter sitting only behind a competitor who had changed the top spot buy purchasing market share via acquisitions.
I've challenged the team to retake the top spot in flower again through organic efforts.
To that credit the latest data shows that we are now neck and neck without competitor, but that number one position and I will note here that as at the end of the third at the end of October we had achieved five consecutive months of expansion and our share of the dried flower market nationally.
What's especially noteworthy here is the increasing breadth of contribution through our market share by brand by product and by geography with respect to geography I want to recognize the contribution of gross life Science Rose Rose holds the number two market share position in Quebec, and it is the fastest growing produce.
<unk> in the province gross has been one of the most if not the most successful acquisitions.
In Canada, largely due to our relentless strategic focus on driving shareholder value and a strong partnership between the pure Sun farms and rose teams.
During the third quarter. We also highlight the increase in bulk non branded sales, reflecting a purpose driven decision to return to this channel and supply dynamics improve the profitability of these sales.
We achieved this alongside a return to the number two ranking nationally and branded sales proving out the benefit of our leadership in cultivation commercialization on innovation, but multiple growth opportunities.
International sales contributed to.
In Q3 than it did in the first two quarters of the year, a variance, which reflects the startup nature of the industry and our business year to date international sales are up more than two and a half so from last year and I admit it's a small base, but it does not but it does underscore the growth potential and long term trend we expect from these markets.
Which I'll remind you typically have higher margins than the Canadian market.
As we add customers in new geographies, we expect growth in this business to be more steady and predictable.
Speaking of which the Netherlands government recently issued a favorable final update to the rollout of its legal recreational cannabis program.
This has provided clarity for our plans for lately Holland, which has just.
Which is just one of 10 licenses that allow participation in the program. We are moving forward and excited about the opportunity what now looks to be a fully integrated supply model.
Turning now to the U S cannabis balanced south Botanicals demonstrated another quarter of stabilized performance once again generating positive net income adjusted EBITDA and positive cash flow.
Last month, we launched a new visual brand for CBD distillery, including a revamped website focus on wellness and attributes of its products.
Even in the challenging U S market for CBD, we are focused on and we are achieving profitability and cash flow generation without continued belief in the potential of this business and a favorable regulatory environment.
Now moving on to fresh produce our Q3 performance second another step forward.
Go of outgrowing, achieving sustainable long term profitability, we are effectively managing the higher cost environment, which we now operate and we continue to make strong steady progress in managing the brand but goes to arrive virus. This is not only through enhanced operating procedures across all operations.
But also the implementation of virus tolerant and increasingly by risk resistant strains and minimizing the potential for future impact.
We are also benefiting from higher pricing as a result fresh produce delivered positive adjusted EBITDA, adding to a positive total for 2023 so far that's a 5 million improvement over Q3 last year and brings the improvement for the year to date to more than $22 million. This is a great start.
To a new chapter for pressure fresh produce on Mexico refresh us sustainable profitability and ultimately cash flow generation and I am confident we can get there.
I will now turn the call over to Steve for a more detailed review of the financials Steve.
Thanks, Mike as Mike noted another quarter of solid performances from each of our businesses consolidated net loss for the quarter narrowed to $1 3 million.
Alright, one cent per share.
Earnings per share.
Net loss of $8 79, or 10 per share for the same period last year, notably each quarter. This year has posted a sequential improvement over the prior consolidated sales for Q3 were $69 5 million compared with $71 1 million.
The 2% decrease was largely the result of slightly lower Canada sales compared to the same period last year as well as a small negative impact on FX due to a stronger U S. Dollar in Q3 2023 versus Q3 2022 as.
The USD is our reporting currency, we delivered another quarter of positive consolidated adjusted EBITDA in Q3 at $3 2 million.
Up $5 4 million improvement from the negative $2 two 9% in Q3 last year. The improvement was driven mainly by fresh produce but also higher EBITDA from our U S canvas business as well as lower corporate costs.
I will now turn to our Canadian cannabis results as usual I will discuss these in Canadian dollars to assist in year over year comparisons absent the impact of.
Exchange rate fluctuations.
As Mike noted, our Canadian cannabis operations delivered another quarter of positive EBITDA as well as positive cash flow and positive earnings.
Canadian cannabis sales were $38 7 million compared with $39 8 million for Q3 last year breaking this down into its component parts retail branded sales, which comprised about 80% of total Canadian cannabis sales for Q3 were $31 million down slightly from $32 8 million.
In Q3 2020.
International exports from Canada were down slightly to 900000 compared to $1 1 million in Q3 last year export sales for the year to date, we're up 162% compared to.
To the same period last year.
I mentioned as I mentioned last quarter, we are seeing an increase in inquiries and sales for non branded or wholesale product due to what we believe is less availability are consistent high quality biomass as many producers have been moving.
Two asset light models or have sold through inventories to generate cash that translated into higher non branded sales for Q3 of $6 million, which was up from about $4 990 in Q3 last year and $3 9 million for Q2 of this year pricing. This channel has improved while demand is up we continue.
To be very selective.
Selective around our non branded sales.
Gross margin for Canadian candidates for Q3 were 35% compared with last year's 32% last year's gross margin figure of 32% excludes the impact on our reported Q3 2020 margin of 27% due to the impact of acquisition accounting and inventory adjustments in our Q3 2022 results.
The year on year increase is primarily due to a continuing lower bulk cost per gram as well as a slight favorable exchange rate fluctuations.
As we've stated since our entry into the cannabis space, we will continue to improve our operational efficiencies as we learn innovate and broaden our candidates experience expertise.
Selling and general administrative expenses for our Canadian cannabis for Q3 were $10 2 million down from $10 5 million. Both in Q3 last year in Q2 this year.
As a percent of sales SG&A for Q3 was unchanged at 26%.
Canadian candidates suggested EBITDA was $6 2 million compared with $6 7 million for Q3 last year as well as Q2 of this year.
As I already noted adjusted EBITDA for the year to date is up 37%.
For a 400 basis point expansion into EBITDA margin to 16%.
Adrian canvas net income was $3 8 million up significantly from net income of 200000 for Q3 of last year and more than double the $1 7 million for Q2 of this year cash.
Cash generation after all capital expenditures and debt service payments was also positive at $5 1 million.
Meaningfully from $1 3 million last year.
As Mike noted at the onset we have stabilized our U S canvas business and that's reflected in the financial results U S. Canada sales, which were generated entirely by balance helped botanicals.
We're 5 million down slightly from $5 1 million for Q3 last year U S. Cannabis gross margin was 64% compared with 69% Q3 last year, primarily due to the ongoing transition of our customers from tinctures to gummies.
Partly due to the success of our synergy plus line.
Adjusted EBITDA for U S. Canada was positive 200000, a slight improvement over what was essentially breakeven performance in Q3 last year.
Finally use canvas generated net income of 79000 as well as positive.
Cash flow in the quarter.
Turning now to fresh produce we delivered a positive EBITDA quarter.
Which.
I have not projected <unk> been asked during our Q2 earnings call. In August. This is a result of improved pricing in the later half of our third quarter and better volumes from our third party supply partners as we slowly but surely regain our volume after losing two key third party suppliers to end of calendar year 2022.
<unk> sales were up slightly year over year to $35 $7 million with a strong increase in sales from our own greenhouses being substantially offset by a decrease in supply partner revenues versus last year.
Sales from our own production increased 28%, which was driven by a 26% increase in the average selling price and an 8% increase in pounds produced.
There's a lot of good operational news in our third quarter report I do want to note that our VF fresh gross margin was positive $1 5 million.
Three of $4 two gross margins.
Versus reporting gross margin losses in this business line every quarter since Q4 2021, when we reported a positive gross margin.
Gross margin percentage of six 8% fresh produce delivered another quarter of positive adjusted EBITDA nearly 800.
That's a $5 7 million improvement over Q3 last year, which brings the year to date improvement to $22 5 million as Q4 is typically a seasonal seasonally stronger quarter for fresh we expect to achieve positive gross margin and EBITDA in Q4 I will note. However that we are still dealing with some inflationary pressures on some input cost.
Cost, which are challenging to pass onto our big box retail customers.
Q3, net loss per fresh produce also improved significantly to a loss of 950000 from a loss of $4 6 million for the same period same quarter last year I.
I am pleased to report our reported positive cash flow from fresh produce which benefited from the receipt of a vendor settlement in Q3 that we reported.
In our earnings Q2, as we look ahead to next year, we have made strategic decisions to deploy half of our Delta two facility not currently being used to grow candidates to grow Tomatoes at least for the 2024 calendar year.
Health, Canada now permits other crops to be grown in licensed facilities, which was not allowed since the inception of the cannabis regulations.
This pivot is due to a number of factors one the change in the regulations.
Two the continuing improvements in our cannabis yields and it's one of the key reasons for a cost of sales decreasing and three historically, our tomato operation in Delta two were profitable.
Additional production is expected to contribute incremental cash flow and profitability to RPF fresh division.
This change will have no impact on our ability to meet expected canvas demand and is in fact, a great opportunity for us to utilize what it has been in Idaho area in our <unk>.
Greenhouses to generate profitable revenues in this screen space now that regulations allow us to grow canvas with other crops within our licensed facility.
Turning now to cash in the balance sheet cash at the end of the third quarter increased to $40 5 million up from $31 7 million at the end of Q2 of this year.
Our working capital at the end of the third quarter was relatively unchanged unchanged compared to Q2 to $84 3 million in working capital, which are significant improvements from $21 7 million in cash and $60 8 million and working capital at the end of last year total debt end of Q3 was $53 million down south.
<unk> from $55 million at the end of Q2, our quarterly principal debt service payments are close to one 5 million per quarter and now I'll turn the.
Call back to Mike Thanks, Steve.
For 30, plus years, we have built village farms with a deep respect for cultivation as the core from which to build that business. Some refer to us as farmers more recently, we were described as low cost or value growers, who had no clue how to build brands this quarter and in fact 2023 year to date challenges the simplicity.
Rick viewpoint, it shows how deep our deep experience and resulting competitive advantage and cultivation is enabling indeed funding leadership roles in critical areas that separate the best consumer goods companies from everyone else.
Getting cultivation rate as we are proving out as providing us with bandwidth to innovate and other critical functions, which are now driving sustainable profitable market share and cash flow and importantly. These are the same pillars of success that we that will be the foundation as we look to expand our Canadian model as new cannabis markets.
Open around the world, it's a continuing growth opportunity. We farmers are very excited about.
Operator, I'll turn it over you for call for any questions at this point. Thank you.
To ask a question. Please press star one one on your Touchtone telephone and wait for your name to be announced to withdraw your question. Please press star one again.
Please standby, while we compile the Q&A roster.
Okay.
Go ahead, operator, our first question will come from the line of Aaron Grey with Alliance Global partners.
Hi, good morning, and congrats on the quarter here.
Mike I want to kind of jump off where you left off in terms of kind of proving out that CPG capability and going on beyond just kind of.
From a third party it doesn't imply from the mix shift from peers from farms to Frazier. So I'm just wondering some contents of how are you seeing the premium mainstream value mix evolving within the category and then as well within your own portfolio and we continue to see the industry evolve here. Thanks.
Sure. Thanks, Eric Yes.
It's somewhat as testing I mean, we really focus on consumer insights before we launch our brands, So clearly with Fraser Valley.
That was a segment, especially on the West coast with now resumes on the East coast or our recent Ontario, where we had sort of the number one launch there with Fraser Valley.
And then.
The quality of Fraser Valley is just exceptional so the quality and the pricing.
Resonated well and it's become a strong player for us, but equally we launch saw a year ago, which is in that premium category and we never expected premium care category to be more than five or 10% with the current economic situation, but it's doing very well and then third.
Sure.
Put some pressure on a pure sowed farms brand, but I think.
So yes.
We continue to innovate the other side of it is really newness within those brands I keep in mind that rose life Science has a number of brands that are resonating very well not just in Quebec, but in other provinces going forward.
And now we continue to drive newness innovation, we need to know where we're going to be in 2025, right now with our launches and it takes a lot of energy a lot of effort a lot of time and money you have to continue to trial.
And we're actually working on some very unique things, which you'll probably talk about it in the next quarter going forward, but I hope that gives you some color.
No. It does that's a very helpful. And then second question from me on non branded sales we saw a nice uptick sequentially. So was that driven more by a one off sale if a new line of business, we expect to generate from there on a reoccurring basis, you kind of alluded to in our prepared remarks. So just fair to say from the increase in mix and then also on the other part of that and gross margin some of the pressure we saw.
And that sequentially was that driven by some of the non branded mix. So just how we think about that sales going forward in terms of new generating business on a reoccurring basis, and then how any type of gross margin impact we had there. Thank you.
No actually the gross margin, we're very satisfied with the gross margin on our <unk> business extremely satisfied we made a strategic decision at the beginning of this year to sort of open up we wanted to prove internally to the company as well as to our consumers and distributors in the provinces that we can be.
A very strong branded.
Company.
I think we've proved that out and we continue to prove it out so that there was a big focus on just being very myopic on the branding side. However.
We are focused on cash flow generation knows where the marching orders early on and strategically we decided let's open up all bnb business, we have capacity.
Margins are good thats not the reason, we see margin change and then you know we were watching the dynamics in the industry. There was a lot of flour available and slowly that seem to be driving up a number of companies change their model to a light asset model and.
If we can drive greater profitability greater revenue greater sales, we're going to take that business on.
And of course for international in a way that speed to be as well. So this just parallels that very nicely and we're going to continue moving forward will be to be.
Okay.
Great. Thanks for the call I'll jump back in the queue.
Yes.
Our next question will come from the line of Eric <unk> with Craig Hallum.
Great. Thank you for taking my questions and congratulations on strong results here.
And Sir I was hoping you could drill in a bit more into some of the changes in produce this quarter. So obviously, some some moving parts here.
One of the profitability drivers here is the increase in volumes. It sounds like I'm wondering if you could also just help us understand or perhaps just kind of drill in a bit more deeply into some of the operational improvements that you've made I know recently, you've kind of spoken about.
AI investments for produce if you could kind of just give us an update overall on the operational improvements that you have made in that in that segment and sort of how to think about.
Perhaps the difference in operating expenses versus cost of goods sold kind of going forward where should we.
Look to see some of that improvement going forward. Thanks.
Well I think look last year was the worst year, we had in produce in 33 years. So.
It was a very difficult year, but it was really driven by a number of factors. It was a perfect storm inflationary pressures that really started post COVID-19 that were astronomical when you look at diesel fuel shipping thousands plus trucks a year.
That said how cost of sales it was crazy everything went ballistic.
Fertilizer costs were up $65, 70% of corrugated cost for all the pack materials across the board in labor skyrocketing across the board even.
Based on our foreign worker program. The department of Labor continues to drive costs up 7% a year. So all of that was happening while we were battling the virus.
We are always in agriculture dealing with items out of our control.
<unk> bacteria in <unk>.
So on but this was sort of one of the worst I've ever seen thank God, we're seeing.
Putting in everyday more and more tolerance more variety setup tolerate which means they may get the virus, but they can tolerate it and thats very important and we are now starting to starting to see the FERC totally resistant variety. So it's taken a long time, even once the resistance gene was ready to.
Be spliced into the new varieties it still takes.
11 turns of <unk>.
<unk>.
Parent to parent at the parent so its finally in there so we had to be patient about it.
So that's probably the biggest impact simultaneously we talked about.
Putting AI systems that were concurrent very strong co pilot without growers that are.
Monitoring thousands of data points.
Every second of the day every day of the year.
That is a big help we've also invested this year close to $4 million in new technology to drive our labor costs down.
Awesome speak right now most of that equipment is being installed which you will have a benefit going forward. In 2024, you saw our yields are starting to be up and thats the direct.
That is directly affected by both the.
Less impact from the virus as well as working with our AI system.
That being said to a big part of our profitability is working with our third party growers and due to the virus. We lost two of them one switched into berries and one went out of business.
So we're rebuilding that and we're very bullish I was just in Mexico last week I was there in June.
We're building our relationships going forward. So I think it's all accumulative.
It's not just one thing thats going to drive it.
We'll continue to look at driving our gross margin higher pricing has been more solid.
Finally, I think the industry realizes that cutting prices against competition.
But trying to drive higher prices. So the industry can survive and it seems to be resonating with a lot about competitors. So.
We're bullish that being said you know it is a commodity end.
There is fluctuations quarter to quarter, but I think overall, we're head has been a very strong direction of 22 million dollar turnover in one years.
It's not easy to do especially in agriculture. So I hope that gives you the color you can either.
Yes.
Helpful.
Great to hear if I could just kind of double click on that a bit more so.
So obviously granted that we are dealing with.
With commodities here and no one is in charge of <unk>.
Pricing.
Do you feel that perhaps once this.
New technology is kind of fully layered in in 2024 that you sort of have have what you need now to reach a sustainably.
Sustainably profitable.
<unk> business or.
Are there other areas that you may look to kind of drive down costs going forward before you kind of you feel sort of comfortable that at least from what's what's in your control that you are kind of.
Out of the woods here.
Yeah, the only thing the only uncertainty would be where inflation goes in.
Even our interest rates on our loans have skyrocketed over the year. So it's there's not been one.
Area that hasnt been have a negative effect and I think as.
For example, even though.
Our interest rate that we pay on our protein business is not directly tied to operational efficiencies and excellence. It does.
Matter. So I think 2024, it's really a very strong pivotal year for us to get to sustainable profitability going forward I feel I feel pretty pretty solid on that.
That's great to hear and just last question for me just looking for an update on the potential sale of the greenhouse in Texas.
Don't have anything to report.
We're working it.
Not just sitting on our laurels, but I think with the economies weight as some other things that have happened in the industry, we just have to be patient.
But as you can see but Steve reported where our cash position is in our working capital so that will eventually.
Go in and there'll be a nice thing.
We'll have to reinvest hopefully in 2024.
Alright, thanks for the color and congrats again.
Thanks.
Okay.
Our next question comes from the line of Mike Regan with Excelsior equities.
Yes, hi, thanks for taking the question.
Congrats on a really good quarter.
In terms of.
We've seen a lot of the capacity start to some of your competitors are starting to shut down capacity.
In Canada.
And it's interesting that some of that swing capacity for canvas there'll be plan estimate is now I guess.
Are you starting to see any impact on sort of a.
The reduction of the capacity, that's allowing you to potentially actually add to that capacity or is it just more that youre getting so much improvements on your yield but that you don't need to you can you can reduce that swing capacity and has generated some cash out of it.
Yes.
Seeing.
We're finally, seeing sometimes things never change and then Theres a domino effect.
Maybe 2024 is that year of reckoning within.
Excess capacity that we've seen for so many years in the Canadian marketplace.
So we are seeing a lot of companies have publicly reported that they're either not going to participate in the Canadian cannabis retail market.
Maybe focus on overseas or others or other cannabis markets some have indicated.
They will be a light asset model and so on.
And.
That's fine we have nothing good or bad to say, but if there are potential customer we could work with them. So the mutual benefit because our driver is positive cash flow increased revenues, while we're looking at our own.
Expansion of profitable market share, we're going to do so so we are seeing some changes happening.
I think.
What was out there for companies just trying to generate cash without being profitable it's not very durable. So it's got to change so.
We're definitely going to participate in that now keep in mind.
We do have excess capacity, because as Steve reported how yields have been increasing.
We said that five years ago that growing as a continuous improvement process you get better at it hopefully you get better at it and you can drive.
We can drive your yields up which drives your cost down. So we're in a good position we have excess square footage. We can put to use we're very focused now now that where we've reached sort of profitability in our market share position in Canada now, we're very serious about growing international.
Thank.
Some companies maybe.
When international before Canada was right, we had a different approach, let's get Canada, right and going in them go International. So we're really looking forward to increased penetration in the international markets in 2024, and we have the capacity to do so so I think we could service our own needs.
Could be a b to b and we can definitely drive international capacity as well.
Going into 2024 and 2025.
And then as a quick follow up.
Yes.
We've written about how Ontario has changed the pricing structure.
The license producers in the retailers there and the benefit of license producers in the retailers and it's only it's still been early but is there any commentary on how.
Youre seeing those pricing changes in volume changes or any volume changes in Ontario at this point.
Mike This is Steve Thanks for the question.
Good observation as you pointed out.
Sure.
The market markup changed at the end of September So really no impact on Q3 at all.
It does.
We have great transparency with the pricing structure in Ontario, and some of the other provinces.
To date, so it's been a whole month, we have benefited from the change we have decided as.
Company to keep our pricing the same at retail so we effectively the way. It works, we have realized 100% of the.
<unk> margin decreased by Ocs, So we will see a three 5% increase in our margins in ocs.
What other Lps are doing or not doing we think most will follow ups will follow us, but it will be.
Yes, it remains to be seen whether.
Hello Chase prices down or are we have decided to keep the margin to ourselves.
Alright, great. Thanks, a lot.
Thank you Mike.
As a reminder, that is star one one to ask a question.
Our next question will come from the line of Eric Lipschitz with ATB capital markets.
Eric Your line is now open.
Oh hi.
Given the.
The positive cash flow generation this quarter I'm, just wondering do you see this as somewhat of a turning point in cash flow generation for the company or should we expect cash flows to kind of just being more bumpy in the quarters ahead. Thank you.
Well I think they may be somewhat lumpy in the quarters ahead, but on the positive side.
That's our focus is positive cash generation.
Our market share slips, it's because we don't deem it profitable market share was just not going to chase that those days are over and we can see what that sent to a number of companies just chasing unprofitable market share so with our very parochial focus on.
Profitable market share I think we're going to stay positive we're driving our costs down now it may not be steady every single quarter.
But probably won't be but I think overall on an annual basis, we can say, we're going to be to the positive side.
Great. Thank you so much.
Okay.
Thank you I'd now like to turn the call back to Anne for another question.
Thanks, Louis before we conclude we wanted to highlight a question that came in.
E mail related to the Canadian distribution model and the purchasing policies of large provincial buyers.
It's a great multipart question from a clearly engaged shareholder that we appreciate it.
The question boils down to is whether we and other Lps are missing out on sale.
Ordering practices of the provincial buyers.
Thanks, and then the question to that the short answer is no we have excellent relationships with all the provinces and territories we supply.
We know all boards are working hard to ensure market demand is met with their supply and we're working closely with them to provide.
Much more accurate forecasting and trying to maximize product penetration to meet their demand. So I think it's a synergistic.
Opportunity for us.
And.
It's still a nascent industry. So we're not always getting it right, but we're working together and getting better together.
So the benefit of us, but ultimately to the benefit of the consumer so.
Suffices.
So thank you Liz and thanks, everyone for joining US today, we look forward to speaking you next.
Next call.
Going forward for year end in the fourth quarter. Thank you all.
This concludes today's conference call. Thank you for participating you may now disconnect.
Okay.
[music].
Okay.
Yes.