Q3 2024 Village Farms International Inc Earnings Call
In a news release reporting its financial results for the third quarter ended September 30th.
24 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 the completion of the call.
Today.
Details of 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 the 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 <unk>.
Underlying assumptions risks and uncertainties is contained in the company's various securities filings with the SEC and Canadian regulators, including its Form 10-K M. DNA for the year ended December 31, 2023, and 10-Q for the quarter ended September 32024, which will be available on Edgar.
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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.
Michael: I'll turn the call over to Michael.
The necessary Michael to Julio.
Speaker Change: <unk> Executive officer of village farms International. Please go ahead, Mr to Julio.
Speaker Change: Alright. Thank you operator, good morning, and thank you for joining US today with me are Steve Ruffini, Chief Financial Officer, and given them a feeling of our Chief operating Officer, Patti Smith, corporate controller, and Sam Gibbons Senior Vice President Corporate Affairs.
But a little bit of a cold today, so I may do some coughing and I apologize for that so let's get going on the third quarter reflects strong outperformance from our fresh produce business, which we anticipated following the softer pricing we experienced in Q2 as well as continued solid growth in leading market share in Canadian County, as our teams continue to <unk>.
Speaker Change: Sell across all brands form factors and geographies.
Speaker Change: <unk> sales increased 20% to nearly $43 million gross margin of 8% improved 400 basis points year over year and fresh delivered positive adjusted EBITDA and net income of $2 3 million and four respectively.
Continued execution in these areas along with further expansion of our partner sales remain an important focus area to support the value of our fresh produce business as we work towards achieving sustained profitability in this business.
Speaker Change: As a reminder, we believe thresholds great value as a top north American <unk> market and it's a critical component in our ability to maintain optionality of a potential rollout of a permissible cannabis strategy in the U S either NASDAQ permitted where Texas space now.
Speaker Change: Now turning to Canadian cannabis total net sales grew 29% year over year organically without acquisitions to roughly $50 million Canadian branded retail sales grew 22% and we were once again profitable with positive adjusted EBITDA of $6 5 million in cash flow from.
Speaker Change: <unk> of $6 1 million Canadian.
Speaker Change: We're also very excited about continued growth in international medical sales, which doubled year over year with continued increases in sales to our Germany, Australia and UK partners in Q3 and year to date.
Speaker Change: According to German cannabis outlet flows of strain.
Speaker Change: Strange currently ranked number one and three <unk> in the German market through a supply agreement with one of our partners, which reflect continued strong reception to Australians with international customers.
Speaker Change: Continued to hold the number two LP position in Canada, and we're the fastest growing Canadian LP over the past year experiencing revenue growth across all sales channels.
Village Farms: We maintain number one market share in Ontario, and for the first time ever have achieved number one market share in Quebec, giving village farms, a number one market share leadership position, Kansas two most populous provinces.
Speaker Change: We maintained our number one market share in flower in Canada, and then grew that market share by two 7% during the third quarter.
We also continue to hold the number two position in pre rolls nationally and improved our market share in pre wells by two 3% as compared to last year.
Speaker Change: Over the last year, we've improved our market position and pre rolls from number four and number two.
Speaker Change: Supercharge our mill Flower brand continues its outstanding performance, despite the milk category being very competitive with a well entrenched leader Super tells currently sells five provinces and remains a third fastest growing of all brands nationally.
Speaker Change: During the third quarter. We also began to realize sales from our recently announced PC trials program Outgrow of led initiative designed to bring exclusives.
Speaker Change: Cross access I'm, sorry exclusive access to limited release strengths.
Speaker Change: We also introduced three trial strains that are driving revenues in British Columbia, and we are looking at expanding the small batch limited release brain initiative for other provinces in the coming quarters.
Speaker Change: And as we continue to adjust our product offerings to appeal to the many cannabis kind of source across Canada.
Speaker Change: Finally, we continue to innovate and fly with new strains that delight, our consumers and we're pleased to announce that reversion. This illustrates Leon Lambeau corvette.
Speaker Change: Corvette Guy myself, but so the market share in the fourth quarter.
Speaker Change: Early reception to the strength has been excellent with our customers and initial order rates give us solid optimism that this strength can achieve similar success to our formal launch of <unk>, which became a top five selling strained across all of Canada.
Speaker Change: We also have some exciting new brand and product introductions planned in debate and infused pretty well categories, where we under indexed for late for later in this Q4 and Q1 of next year and we're excited to be able to share more on these launches next quarter, but for now they reflect continued stellular.
Speaker Change: Execution by our brand and product innovation teams to identify opportunities for us to profitably grow market share across the white space opportunities.
Speaker Change: Moving to the U S cannabis business, we're starting to see signs of stabilization and the team has begun to invest in growth initiatives. We're still exposed to challenges caused by proliferation of unregulated hemp derived products across the United States, but we're looking forward to more stable performance from this business in the future.
Speaker Change: And before I move on to discuss our international business I want to provide some additional discussions of some of our out of stock cultivars, which impacted sales velocity during the third quarter.
Speaker Change: After a very strong first half of sales in the Canadian cannabis space during the third quarter, we experienced some out of stock inventory in several of our most popular skus, which impacted sales performance. We estimate this resulted in lower sales of approximately $2 5 million during the third quarter.
Speaker Change: Restocking of the Skus began.
Speaker Change: <unk> began in September improving our market share performance in the milk category after experiencing slight delays.
Speaker Change: The clients rather during the first two months of the quarter and we believe we will be back to normalized in stock levels across the board by early Q1 of next year.
Speaker Change: During the second quarter, we made a strategic decision to move away from some lower profitability Skus and raised prices on average as we plan to be more selective as we prioritize higher profitability sales over volume.
Speaker Change: We also chose to take advantage of strengthening pricing in the <unk> market to sell non branded spec inventory.
Speaker Change: Overall Canadian gross.
Speaker Change: Margins of 26% were impacted by these non branded spec sales and if we executed those impacts gross margin in the third quarter would have been 31%.
Speaker Change: The Canadian cannabis industry industry has significant has had significant overcapacity, which has resulted in unhealthy accumulation of inventory and created pressure on pricing.
Speaker Change: In addition to the egregious excise tax that the Canadian industry pays.
Speaker Change: Our team remains very in tuned with supply dynamics.
Speaker Change: With a growth with a growing international or additional business to an increasing number of attractive markets like Germany. We are in a great position to be more selective with the allocation of high quality flower across our various sales channels and customer relationships sustaining our focus on driving more profitability from <unk>.
Speaker Change: Sales, we've got a ton of opportunity internationally to make higher ROI capital allocation decisions and given continued egregious challenges with the excise tax in Canada, we're not allocating additional capital from our balance sheet to increase capacity at our Delta two and greenhouse at this time.
Speaker Change: Focusing our resources on higher ROI investment opportunities, which brings me to the recent update at our lately Holland subsidiary in the Netherlands, We put in an updated investor presentation on our website yesterday by the way, which continues which I'm, sorry, which can change some new information about the Netherlands market, we would incur.
Speaker Change: Average you'd all take a review of that information, but as a reminder, our lately Holland subsidiary has one of 10 licenses to supply recreational cannabis the coffee shops in the Netherlands, We announced last month that we have completed construction of our indoor cultivation facility and dropped in the Netherlands and I can.
Speaker Change: Confirm today that we begun cultivation in October and are on track to have our first sales during the first quarter of next year.
Speaker Change: We believe a great comparison for the Dutch market is the province of Quebec in Canada, where I mentioned earlier, we established the number one market share position during the third quarter. Some estimates based on comparable per capita consumption patterns with a Dutch population of $18 million indicate that a full legal mark.
Speaker Change: It could be somewhere between three and $3 5 billion revenue market.
Speaker Change: Opportunity annually at maturity, we believe the quality of our operations have lately puts us on a clear path to profitability and generating strong returns on this investment.
Speaker Change: There is no excise tax in this regulatory jurisdiction and much more favorable product pricing, which will enable us to have stronger fundamental performance.
Speaker Change: Than we do in Canada by far over the next couple of quarters of drafting facility will be ramping up to full annualized capacity of approximately 2000. It kills the dry flower, we anticipate pricing per gram of approximately six euros, which would put us on track to generate revenue of approximately 12 million euros on an annualize.
Speaker Change: Spaces over time, we have the potential to vertically integrate by acquiring coffee shops, which would help improve margins and we look to add capacity as demand dictates.
Speaker Change: That concludes my summary of our third quarter highlights I will now turn the call over to Steve to review the financials before I make some closing comments Steve.
Steve Ruffini: Thanks, Mike starting with consolidated results total sales grew 20% year over year, 83, 4 million with strong topline growth in both Canadian cannabis and fresh produce.
Steve Ruffini: Net loss narrowed to 800000 or <unk> <unk> per share from a $1 $3 million loss last year, notably with positive net income contributions from both Canadian Canada and fresh produce.
Steve Ruffini: Solidago adjusted EBITDA was positive $5 3 million up 65% from three.
Steve Ruffini: $3 2 million for Q3 last year again positive contributions from both Canadian Canada and fresh produce.
Speaker Change: I will now turn to the business segments individually starting with Kroger.
Speaker Change: As expected we saw a return to more normalize tomato pricing during the quarter Q3 sales increased 20% year over year to $42 8 million growth was driven by higher volumes from both our own production and that of our partners.
Speaker Change: You can see the continuing positive impact of our success around yield expansion and cost efficiencies in our gross margin for the quarter, which was up 133% compared to that of Q3 last year.
Steve Ruffini: I will note that here the volumes from our own facilities for Q3 were up 25% compared to the same period last year.
Steve Ruffini: Adjusted EBITDA tripled to $2 3 million compared to 800000 last year.
Steve Ruffini: Canadian canvas delivered another strong quarter of total net sales up 27% year over year driven by increases in retail branded sales non branded sales and international sales together. These drove another quarter of positive adjusted EBITDA Canadian $6 5 million in operating cash flow.
Steve Ruffini: <unk> up $6 1 million.
Steve Ruffini: Retail branded sales grew 20% to Canadian $37 2 million.
Steve Ruffini: It was also another strong quarter for non branded sales as we continue to be opportunistic with more favorable pricing.
Steve Ruffini: Which is much improved from last year.
Steve Ruffini: Non branded sales were up 68% versus Q3 last year Q Canadian $10 1 million.
Speaker Change: As Mike mentioned, we also saw continued momentum in our international medicinal sales, which were up 111% from Q3 last year.
Speaker Change: Canadian cannabis gross margin for Q3 was 26% in line with Q2 and down from 35% in Q3 last year due to the increased non branded spec sales Mike mentioned earlier.
Speaker Change: Which are lower margin, excluding the non branded spec sales gross margin for Q3 improved improved to 31%.
Speaker Change: Which was up from Q2's, 28%.
Speaker Change: Returning us to our target range of 30% to 40%.
Steve Ruffini: SG&A expense as a percentage of sales for Q3 improved 22%.
Steve Ruffini: Down from last year's 26%.
Steve Ruffini: Q3, adjusted EBITDA for Canadian candidates of $6 5 million was up 5% from Q3 last year.
Steve Ruffini: Before leaving Canadian candidates.
Steve Ruffini: I will once again highlight the impact of the egregious excise tax we pay on retail branded sales total excise tax paid in Q3 with Canadian $24 million, which brings our year to date total to Canadian 78.
Steve Ruffini: Yeah.
Steve Ruffini: As I have noted before this is the largest single expenditure within our canvas business and factors heavily into our capital allocation strategy decisions.
Steve Ruffini: Turning to our Canadian or U S. Canada business Q3 sales were $3 9 million with.
Steve Ruffini: With a gross margin of 63%.
Steve Ruffini: Our Q3 sales were impacted by additional states moving to restricting intoxicating hemp based products as our responsible GMP produced natural hemp products are caught up in several states attempt.
Steve Ruffini: To deal with the proliferation.
Steve Ruffini: <unk> of unregulated hemp based products, most notably synthetic products.
Steve Ruffini: We continue to progress in multiple initiatives to reinvigorate sales, while we manage the cost side of the equation.
Steve Ruffini: The team has stabilized the business against these headwinds and is now turning to growth initiatives, which include new skus with innovative flavor.
Steve Ruffini: Flavor profiles.
Steve Ruffini: Q3, adjusted EBITDA of negative 159000, and net loss was negative $192000 both were improvements over two.
Steve Ruffini: Finally, we are pleased with net income of 300000 from those funds clean energy during the third quarter. This project began operations at the Delta LNG facility in April and royalty payments are now being received from our energy partner provide a healthy stream of incremental profits for the company going forward.
Steve Ruffini: Turning to consolidated cash flows and the balance sheet, we generated cash flows from operations of $4 and our second consecutive quarter of positive operating cash flow.
Steve Ruffini: We ended Q3 with cash of $28 7 million and working capital of $65 4 million.
Steve Ruffini: Total term debt at the end of Q3 was $43 million split equally between fresh produce debt due may 2027, and cannabis debt, which matures starting in February 2026.
Steve Ruffini: We have long standing multi decade relationships with our lenders and are confident we will extend our cannabis term facilities in the coming months. We believe we are lenders top performing candidates facility.
Steve Ruffini: Last quarter, we amended and extended the agreements are $10 million.
Steve Ruffini: <unk> line for fresh produce which has a current balance of $4 million.
Steve Ruffini: In May 2027 maturity day, we also have in place a Canadian $15 million canvas line of credit, which is currently not drawn on.
Steve Ruffini: We remain comfortable with our net debt level of $18 7 million.
Speaker Change: And I will now turn the call back over to Mike.
Speaker Change: Thank you Steve.
Mike: In closing just to summarize we are very pleased with our third quarter results our improved performance in fresh business.
Mike: Business and continued solid execution without cannabis strategy. We are building strong momentum in our international business, which should help us continue to improve overall profitability and ability to generate positive cash flow.
Mike: Our flowers increasingly being sort out by international partners and consumers based on their reputation and success of our leading brands in cultivars in Canada.
Mike: We are very excited about the commencement of sales from a Lilly <unk> subsidiary in the Netherlands. During the first quarter of next year and we will continue to explore additional high ROI opportunities to expand our international business into new jurisdictions as policymakers in Europe continue to embrace the many benefits of the.
Speaker Change: Kind of decisions.
Speaker Change: I'd like to close on a recent news that village farms was the only cannabis producer to be selected as a witness for the dea's upcoming hearing regarding the proposed rescheduling of cannabis in the United States.
Speaker Change: As a U S company with one of the leading global cannabis franchises, including our top ranked U S. Cannabinoid brand CB distillery and some of the most attractive greenhouse assets in the United States. It was incumbent on us to submit an application to advocate for what we believe is one of the most important movements in health.
Mike: And wellness in our lifetime.
Mike: Our inclusion in the hearing is a testament to the depth and breadth of our expertise and experience in the cannabis industry broadly as well as right here in the United States, including our deep involvement in Colorado, we realize it has been a challenging last couple of days with cannabis following the election results.
Mike: With much of the sector trading at all time lows.
Mike: We have not rushed into the U S market for these very reasons and we'll continue to be patient as we evaluate our opportunities to enter the market at a time that makes sense for our business and shareholders.
Mike: That said, though I am however, very upbeat on the new administration towards the legalization of cannabis in one form or another.
Mike: Nearly app to zero impact.
Mike: Towards cannabis.
Mike: Legalization in the last four years I really truly believe we have we.
Mike: We have good blue skies ahead.
Mike: We are also in a great position as one of the only profitable operators in Canada with a lot of compelling profitable growth opportunities in front of us and we are proud of the opportunity to represent the industry has incredible voice with regulators.
We have not rushed into the U.S. market for these very reasons, and we'll continue to be patient as we evaluate our opportunities to enter the market at a time that makes sense for our business and shareholders.
Mike: That being operating for almost four decades in controlled environment agriculture, we look forward to the opportunity to share our diverse knowledge and unique perspective at this hearing which is expected to be during the first quarter of 2025.
That said, though, I am, however, very upbeat on the new administration towards the legalization of cannabis in one form or another.
Neil E. Abt is zero impact.
towards cannabis legalization in the last four years. I really truly believe we have.
Speaker Change: And now operator, we're ready for any questions.
Speaker Change: Thank you.
Speaker Change: A question you will need to press star one on your telephone and wait for NIM to be announce to withdraw. Your question. Please press star one again, please limit yourself to two questions you can rejoin the queue for additional questions. Please standby with the Q&A roster.
We have good blue skies ahead.
Speaker Change: One moment for our first question.
Speaker Change: That being operating for almost four decades in controlled environmental agriculture, we look forward to the opportunity to share our diverse knowledge and unique perspective at this hearing, which is expected to be during the first quarter of 2025.
Speaker Change: Our first question will come from the line of Aaron Grey from Alliance Global Partners. Your line is open.
Speaker Change: Hi, good morning, Thanks for the questions and I know stakeholders across the insurer wishing you lock in this rescheduled hearing so I appreciate the efforts made there.
And now, operator, we're ready for any questions.
Speaker Change: <unk>.
Speaker Change: So first question for me just in terms of the decision to not expand the Delta two facility at this time.
Speaker Change: Thank you. To ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please limit yourself to two questions. You can rejoin the queue for additional questions. Please stand by while we compile the Q&A roster. One moment for our first question.
Speaker Change: As we think about planned allocation of product going forward in the prepared remarks, you spoke a lot to focus on profitability. So as you're building out your international presence not just in the Netherlands, which has its own facility, but more broadly speaking how do we think about allocation in Canada versus international and then within Canada.
Speaker Change: Our first question will come from the line of Aaron Gray from Alliance Global Partners. Your line is open.
Speaker Change: You mentioned moving away from the lower profitable Skus. So I imagine that kind of goes in line with the thought of nice thing Thats two facility.
www.microsoft.com.ca
Speaker Change: Hi, good morning. Thanks for the questions. And I know stakeholders across the industry are wishing you luck in this rescheduling hearing. So appreciate the efforts made there.
Speaker Change: A broad overview and how youre thinking about allocation of product with that thank you.
Speaker Change: So first question for me, just in terms of the decision to not expand the Delta II facility at this time, you know, as we think about planned allocation of product going forward and the prepared remarks, you spoke a lot to, you know, focus on profitability. So, you know, as you're building out your international presence, not just, you know, in the Netherlands, which has its own facility, but more broadly speaking, you know, how do we think about allocation in Canada versus international? And then within Canada, you mentioned moving away from the lower profitable SKU. So I imagine that kind of goes in line with the thought of not expanding Delta II facility. Just, you know, a broad overview and how you're thinking about allocation of product with that. Thank you.
Speaker Change: Yes, well as I said, we've taken a strategy to really look at our margins and lower price skus, either we raise the price and the price sticks or we look at allocating that flower to higher margin markets and international is growing.
Speaker Change: We're very bullish on Europe, they've taken a very clear and pragmatic approach towards legalization.
Speaker Change: It is a large market potential we're probably one of the only operators there that are both on the medicinal and recreational side with Holland.
Speaker Change: And when we look at Canada that we're very disappointed that theres been no update on any legislation since legalization happened seven years ago.
Speaker Change: Yeah, well, as I said, we've taken a strategy to really look at our margins and lower price skews. Either we raise the price and the price sticks or we look at allocating that flower.
Speaker Change: As both Steve and I mentioned, the excise taxes unbelievable.
to higher margin markets and Internationaux is growing.
Speaker Change: This year alone, we'll pay over $100 million and just topline tax doesn't include.
Speaker Change: We're very bullish on Europe. They're taking a very clear and pragmatic approach towards legalization.
Speaker Change: Tax for a property doesn't include payroll tax does that include the $4 million licensing fee just to have a license. It doesn't include income tax it's crazy so ill.
Speaker Change: Will we start seeing some movement in Canada, we just want to be more prudent and where we're going to allocate our flower.
Speaker Change: And.
Speaker Change: We're very bullish on an investment in Europe right now so we want to be cautious with any capex, we spend in Canada. That's being said remember we have the largest footprint in Canada. So it's not like we would be looking at building a new facility. It's just converting additional space and we can turn that on very quickly when the time is.
Speaker Change: Legalization happened seven years ago. As both Steve and I mentioned, the excise tax is unbelievable. We're going to, you know, this year alone we'll pay over a hundred million in just top-line tax. Does it include...
Speaker Change: tax for property doesn't include payroll tax doesn't include but $4 million licensing fee just to have a license. It doesn't include income tax.
Speaker Change: So and we could Wap footprint remember and we could do 40% of the entire Canadian market from just one facility in BC. So.
It's crazy, so...
Speaker Change: Until we start seeing some movement in Canada, we just want to be more prudent where we're going to allocate our flour.
Speaker Change: I will take longer to convert when the time is right, but we decided at this point lets holds steady.
Speaker Change: and you know we're very bullish on on investment in Europe right now so we want to be cautious with any capex we spend in Canada. That being said remember we have the largest footprint in Canada.
Speaker Change: Let's not uptake by more than we can chew because we are putting a lot of resources in Europe, and then we will evaluate it on a quarter per quarter basis.
Speaker Change: Okay.
Speaker Change: Okay. Thanks, I appreciate that color and commentary there.
Speaker Change: So it's not like we would be looking at building a new facility, it's just converting additional space and we can turn that on very quickly when the time is right.
Speaker Change: Question for me just within the Canadian market from impact you mentioned on the out of stocks on some popular SKU. So just more color you could offer in terms of was there some impact that was specifically due to the potential.
Speaker Change: So, and we could, you know, at Footprint, remember, Aaron, we could do 40% of the entire Canadian market from just that one facility.
Speaker Change: in BC. So it won't take long to convert when the time is right, but we decided at this point, let's hold.
Speaker Change: Perpetual buyers there or was it more so just your need and giving the right products inventory I know you mentioned you expect to get back to normal levels and <unk> 25. So just some additional color in terms of the drivers of the impact there.
Speaker Change: Unknown Speaker Let's not take more than we can chew because we are putting a lot of resources in Europe and then we'll evaluate it on a quarter per quarter basis.
Speaker Change: This can be internal and sometimes it can be address structural issues with the perpetual buying boards as well. Thanks.
Speaker Change: Sure I'm going to let him respond to you Hey, good morning, and Great question. The answer is it's entirely Ana So it's all internal.
Speaker Change: And.
Speaker Change: <unk> had lots of day with higher demand that we experienced an expected and as you know you can't just speed grow a plant. So you got to catch up the growing to the demands and so thats why were projecting improvement by Q1.
Speaker Change: Was there some impact that was specifically due to the provincial, you know, provincial buyers?
Speaker Change: there or was it more so just your need in getting the right products inventoried? I know you mentioned you expect it back to normal levels in 1Q25, so just some additional color in terms of the drivers of the impact there because I know sometimes it can be, you know, internal and sometimes it can be just, you know, structural issues with provincial buying boards as well. Thanks.
Speaker Change: Okay.
Speaker Change: Okay, Great. That's helpful color, there appreciate that and I'll jump back in the queue.
Speaker Change: Alright, thank you.
Speaker Change: Our next question.
Speaker Change: Our next question will come from the line of Eric The lawyers from Craig Hallum Capital Group. Your line is open.
Speaker Change: Sure, I'm going to let Anne respond to that. Hey, good morning, Aaron. Great question. The answer is it's entirely on us, so it's all internal.
Speaker Change: Great. Thanks for taking my questions and congrats on the strong results this quarter.
Speaker Change: First question, maybe to piggyback a bit on.
Anne: and it had a lot to do with higher demand that we experienced and expected and as you know you can't just speed grow a plant so you got to catch up the growing to the demand and so that's why we're projecting improvement by Q1.
Speaker Change: One of the Aaron's questions can you just elaborate on your overall pricing plans.
Speaker Change: I mean should we think of this as mostly excuse me being a sort of mix shift.
Speaker Change: From.
Speaker Change: Perhaps non branded spec in Canada to then just shifting that towards international where you get sort of.
Carter: Okay, great. That's helpful, Carter there. Appreciate that. I'll jump back in the queue.
Speaker Change: Higher.
Speaker Change: Average pricing or are there plans to increase pricing across the board or in certain categories. Just wondering if you can elaborate a bit more on the pricing plans. Thanks.
All right. Thank you. One moment for our next question.
Speaker Change: Our next question will come from Eric DeLauriers from Craighalem Capital Group. Your line is open.
Speaker Change: While we didn't have that and give me a color on that but I would say all of the above its just a continuous process of looking how the market's changing in Canada.
Eric DeLauriers: Great. Thank you for taking my questions and congrats on the strong results this quarter.
Carter: Great, thank you for taking my questions and congrats on the strong results this quarter.
Eric DeLauriers: First question, maybe to piggyback a bit on.
Carter: First question, maybe a piggyback a bit on one of Aaron's questions. Can you just elaborate on your overall pricing plans?
Speaker Change: We think we're the number one player in Canada I totally do when you look at not just our number two market share number one in a lot of the categories almost three years and flower and.
Carter: One of the Aaron's questions can you just elaborate on your overall pricing plans.
Carter: Should we think of this as mostly excuse me being a sort of a mix shift from.
Carter: I mean, should we think of this as mostly, excuse me, being a sort of mixed shift, you know, from, you know, perhaps non branded spec in Canada to then just shifting that towards international where you get sort of higher average pricing or other plans to increase pricing across the board or in certain categories? Just wondering if you can elaborate a bit more on the pricing plans. Thanks.
Carter: Perhaps non branded spec in Canada to then just shifting that towards international where you get sort of.
Speaker Change: Being cash flow positive in EBITDA positive the entire time, because the business is only a business. If you are making money and so we love our position in Canada, but we want to obviously drive higher profitability specific to Canada, though and you want to answer that so Eric works, where a couple of things.
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Speaker Change: Average pricing or are there plans to increase pricing across the board or in certain categories. Just wonder if you can elaborate a bit more on the pricing plans. Thanks.
Speaker Change: We didn't do that and give me a color on that but I would say all of the above its just a continuous process of looking how the market's changing in Canada.
Speaker Change: Well, I'm going to let Anne give you color on that, but I would say all of the above. It's just a continuous process of looking how the market's changing in Canada.
Speaker Change: Retail market pricing is no longer dropping like it was in the prior years, we've seen a stabilization of.
Speaker Change: We think we're the number one player in Canada I totally do when you look at not just our number two market share number one and a lot of the categories almost three years and flower and.
Speaker Change: We think we're the number one player in Canada. I totally do. When you look at not just our number two market share, number one
Speaker Change: Average price per Gram at retail across Canada.
Speaker Change: In a lot of the categories, almost three years in flower and being cash flow positive and EBITDA positive the entire time because a business is only a business if you're making money.
Speaker Change: We don't think there's an opportunity for an across the board price increase we're still very focused and the team does an excellent job of really drilling down on the <unk>.
Speaker Change: Being cash flow positive in EBITDA positive the entire time, because the business is only a business. If you are making money and so we love our position in Canada, but we want to.
Speaker Change: G by SKU opportunities or brand by brand opportunities and making decisions.
Speaker Change: and so we love our position in Canada but we want to obviously drive higher profitability.
Speaker Change: Obviously drive higher profitability specific to Canada, though and you want to answer that so Eric works, where a couple of things.
Speaker Change: The proposed pricing at that at that level.
Speaker Change: Specific to Canada though, Ann, you want to answer that? Yes, Eric, a couple of things. The retail market pricing is...
Speaker Change: The thing I would mention is increases in pricing or not just good for US are also good for the retailer and the provincial board support pricing when they see the opportunity.
Ann: Retail market pricing is no longer dropping like it was in the prior years that we've seen a stabilization of.
Speaker Change: no longer dropping like it was in the prior years. So we've seen a stabilization of, you know, average price per gram.
Speaker Change: Average price per Gram at retail across Canada that said, we don't think there's an opportunity for an across the board price increase we're still very focused and the team does an excellent job.
Speaker Change: If we if we annualize it right and propose it correctly. It is something that we see as an opportunity and we've already executed in 2024.
at Retail across Canada.
Speaker Change: That said, we we don't think there's an opportunity for an across the board price increase. We're still very focused and the team does an excellent job.
Speaker Change: Alright, Thats very helpful.
Speaker Change: And then next question for me.
Speaker Change: Drilling down on the.
of really drilling down on the.
Speaker Change: Steve by SKU opportunities or brand by brand opportunities and making decisions.
Speaker Change: Just regarding the indoor grow in Holland. Obviously this is early days you guys disappointed.
Ski-by-ski opportunities or brand-by-brand opportunities.
and making decisions to propose pricing at that level.
Speaker Change: Last last month.
Speaker Change: Proposed pricing at that at that level.
Speaker Change: But can you just kind of talk about your confidence in the overall.
Speaker Change: Last thing I would mention is increases in pricing are not good for US are also good for the retailer and the provincial board support pricing when they see the opportunity.
Speaker Change: Last thing I would mention is increases in pricing are not just good for us, they're also good for the retailer.
Speaker Change: Cost structure of that operation and then I guess, just overall sort of operational differences between.
Speaker Change: and the Provincial Board support pricing when they see the opportunity. So it is, if we analyze it right and propose it correctly, it is something that we see as an opportunity and we've already executed in 2024.
Speaker Change: Indoor versus obviously your greenhouse expertise.
Speaker Change: It is if we if we annualize it right and propose it correctly. It is something that we see as an opportunity and we've already executed in 2024.
Speaker Change: I'm, just wondering sort of how you're how you're thinking about that and how confident you are that.
Speaker Change: That you can.
Speaker Change: Produce at a at a nice profitability level. Thank you.
Speaker Change: Alright, Thats very helpful.
Speaker Change: Well sure I mean, we do have an indoor facility as you know in Canada 55000 square foot. So.
Speaker Change: All right, that's very helpful. And then next question for me, just regarding the indoor grow in Holland, you know, obviously this is early days, you guys just planted.
Speaker Change: And then next question for me.
Speaker Change: Just regarding the indoor grow in Holland. Obviously this is early days you guys disappointed.
Speaker Change: Look indoors easier as far as on greenhouse. So I'll just tell you straight out because everything more or less in your control of course, it has a higher price to it and you have to be very selective.
Speaker Change: Last last month.
last last month.
Speaker Change: But can you just kind of talk about your confidence in the overall.
Speaker Change: But can you just kind of talk about your confidence in the overall cost structure of that operation and I guess just, you know, overall sort of operational differences between, you know, indoor versus obviously your, your greenhouse expertise.
Speaker Change: Cost structure of that operation and I guess, just overall sort of operational differences between.
Speaker Change: Design, we create I mean, we've been designing cultivation facilities from therefore for decades. So the team. We have is excellent we don't overdo it and we think we built just.
Speaker Change: Indoor versus obviously your greenhouse expertise.
Speaker Change: I'm, just wondering sort of how you're how you're thinking about that and how confident you are that you can.
Speaker Change: just wondering sort of how you're how you're thinking about that and how confident you are that you can You know produce at a nice profitability level. Thank you
Speaker Change: Fantastic facility.
Can.
Speaker Change: Produced at a nice profitability level. Thank you.
Speaker Change: We have plenty of megawatts there we put the most advanced lighting and we're very bullish on it because remember at six euros thats equivalent to almost $9 $10 Canadian with no tax even if the cost is 15% more selling prices eight times.
Speaker Change: Well sure I mean, we do have an indoor facility as you know in Canada 55000 square foot. So a.
Speaker Change: Look indoors easier as far as in greenhouse. So I'll just tell you straight out because everything is more or less in your control of course, it has a higher price to it and you have to be very selective the design, we create I mean, we've been designing cultivation facilities from therefore for decades. So the team. We have is excellent we don't overdo it.
Speaker Change: So we're very bullish on it and.
Speaker Change: In fact, we're very proud that we've gone to totally a seat base here first time for the company to growing were growing from seed this way we can.
Speaker Change: And we think we both just.
Speaker Change: Just keep it sterile and excited about the future there.
Speaker Change: Fantastic facility.
<unk>.
Speaker Change: We have plenty of megawatts there we put the most advanced lighting and we're very bullish on it because remember at six euros thats equivalent to almost $9 $10 Canadian with no tax even if the cost is 15% more.
Speaker Change: Okay.
Speaker Change: Awesome. Thank you for the color.
Speaker Change: Thank you.
Speaker Change: And for our next question.
Speaker Change: Our next.
Speaker Change: On a final Mike Reagan from Excelsior Equities your line is open.
Mike Reagan: Hey, Thanks for the question and congrats on a great quarter.
Speaker Change: Selling prices eight times more so we're very bullish on it and.
Speaker Change: Following up on Eric's Thomas and that's great color on the comparative cost of.
Speaker Change: In fact, we're very proud that we've gone to a totally a seat base here first time for the company to growing were growing from seed this way we can.
Speaker Change: The heartland facility versus the Canadian facility, but I'm just hearing this correctly with.
Speaker Change: Just keep it sterile and excited about the future there.
Speaker Change: Like you said eight times the pricing no excise tax and costs that are frankly, only 15% higher than Canada, the margins should be much much higher.
Okay.
Speaker Change: Awesome. Thank you for the color.
Thank you Sir one.
Speaker Change: Then you are currently seeing in Canada or is there some other factor that I had.
Speaker Change: One moment for our next question.
Speaker Change: Our next question comes from the line of Mike Reagan from Excelsior Equities. Your line is open.
Speaker Change: We're getting there compared to the 13% EBITDA margins.
Speaker Change: The cost will be more than 15% higher than our greenhouse costs. It is indoor.
Mike Reagan: Thanks for the question and congrats on a great quarter.
Speaker Change: Got it okay. So.
Speaker Change: Just to start following up on Eric's comments and Thats, great color on the comparative costs.
Speaker Change: Is there any reason it wouldn't be at least.
Speaker Change: The Canadian cannabis margin.
Speaker Change: The heartland facility versus the Canadian facility, but I'm just hearing this correctly with.
Speaker Change: Adding back.
Speaker Change: It will be well in excess of the of the Canadian and more the margins would be more in line with our U S margins.
Speaker Change: Like you said eight times the pricing no excise tax and costs that are frankly, only 15% higher than Canada, the margins should be much much higher.
Speaker Change: Which are.
Speaker Change: Please proceed.
Speaker Change: And then you are currently seeing in Canada or is there some other factor that I'm forgetting there compared to the 13% EBITDA margins.
Speaker Change: Okay.
Speaker Change: Our U S margins around 60% to 70% range. So just to be clear I mean, we haven't published a lot of the information so.
Okay.
Speaker Change: Cost will be more than 50% higher than our greenhouse costs.
Speaker Change: Apologize, if we're being a little.
Speaker Change: <unk> live here don't want to let everything out so but.
Speaker Change: Is indoor.
Speaker Change: Got it okay. So.
Speaker Change: Mike you know the industry you can do the math on it and compare it to Canada.
Is there any reason it wouldn't be at least.
Speaker Change: The Canadian cannabis margin.
Speaker Change: And keep in mind.
Speaker Change: Adding back.
Speaker Change: Sure.
Speaker Change: It will be well in excess of the of the Canadian and more the margins would be more in line with our U S margins.
Speaker Change: Overall costs are higher in Holland, but thats, a reflection of again the price and in our model six euros, but there are products that sell up to 50 euros in the Netherlands I have seen it there so.
Speaker Change: Which are.
Speaker Change: Please proceed.
Okay.
Speaker Change: Our U S margins around 60%, 70% range. So just to be clear I mean, we haven't published a lot of the information so.
Speaker Change: Early days, we will see where it goes but we're extremely bullish.
Speaker Change: Got it Okay, and then I guess Bob.
Speaker Change: <unk>, if we're being a little conservative here don't want to let everything out so but.
Speaker Change: <unk>.
Speaker Change: In terms of the non branded sales.
Speaker Change: Are those sort of more opportunistic as the pricing is.
Speaker Change: Mike you know the industry you can do the math on it and compare it to Canada.
Speaker Change: Stable to you and you have inventory to sell or is there sort of more.
Speaker Change: And keep in mind.
Speaker Change: Any sort of.
That's.
Speaker Change: Relationship building are sort of recurring.
Speaker Change: Overall costs are higher in Holland, but thats, a reflection of again the price and in our model six euros, but there are products that sell up to 50 euros in the Netherlands I have seen it there so.
Speaker Change: Selling of some of those larger operators shifted to the asset light model.
Speaker Change: The sales that youre seeing in this quarter and pretty much year to date has been opportunistic related to the opportunity that we're seeing in the pricing.
Speaker Change: Early days, we will see where it goes but we're extremely bullish.
Speaker Change: Got it Okay, and then I guess, Bob <unk> had.
Speaker Change: Pricing has strengthened significantly over the year.
Speaker Change: In terms of the non branded sales.
Speaker Change: Okay.
Speaker Change: Are there sort of more opportunistic as the pricing is.
Speaker Change: Okay, Great remember no excise and remember Mike Theres, no excise tax on <unk> or international Unlike branded sales in Canada and that that level of insanity, you have to take that into account at times.
Speaker Change: Several to you and you have <unk>.
Speaker Change: I'm, sorry to sell or is there sort of more.
Speaker Change: Any sort of.
Speaker Change: Relationship building are sort of recurring.
Selling of some of those larger operators shifted.
Speaker Change: Thank you one moment for our next question.
Speaker Change: Shifting to the asset light model.
Speaker Change: Our next question comes from the line of Doug Cooper from Beacon Securities. Your line is open.
Speaker Change: That the sales that youre seeing in this quarter and pretty much year to date has been opportunistic related to the opportunity that we're seeing in the pricing.
Doug Cooper: Hey, good morning, the terrific work in the quarter just a quick.
Doug Cooper: One Mike.
Speaker Change: Pricing has strengthened significantly over the year.
Doug Cooper: One in Quebec number one, Ontario, the top most populous provinces in the country. So how are you not number one across the country. So you must.
Speaker Change: Thank you.
Speaker Change: Okay, Great remember no excise and remember Mike Theres, no excise tax on <unk> or international Unlike branded sales in Canada and that.
Doug Cooper: I guess, Alberta, and BC or the only other ones, so where you rank in there and how is the trend in those provinces.
Speaker Change: Well.
Speaker Change: That level of insanity, you have to take that into account at times.
Speaker Change: We want to give us a chance to others to catch up to us so.
Speaker Change: We do care about the overall industry.
Speaker Change: Thank you one moment for our next question.
Speaker Change: No I mean.
Speaker Change: Our next question comes from the line of Doug Cooper from Beacon Securities. Your line is open.
Speaker Change: <unk>.
Speaker Change: D C is a little different of a market is our home territory.
Doug Cooper: Hey, good morning, the terrific work in the quarter just a quick.
Speaker Change: We're definitely increasing from.
Speaker Change: From where we were the number four in BC, Alberta, where.
Speaker Change: One Mike.
Speaker Change: One in Quebec number one, Ontario, the top most populous provinces in the country. So how are you not number one across the country. So you must.
Speaker Change: We're sort of at the number six position that's been a slight drop but overall.
Speaker Change: I guess, Alberta, and BC or the only other ones, so where you rank in there and how is the trend in those approaches.
Speaker Change: Well, what can I say I mean, we're working to do better in those provinces, but overall, we're number two in Canada and there is always going to be some variability, but I could tell you. This after seven years.
Well.
Speaker Change: We want to give us a chance to others to catch up to us so.
Speaker Change: We do care about the overall industry.
Speaker Change: We've been in the market.
Speaker Change: Normally believe that on a long term durable sustainable basis that village farms will remain top three overall cannabis company in Canada.
Speaker Change: No I mean.
Sure.
Speaker Change: D C is a little different of a market is our home territory.
Speaker Change: We're definitely increasing.
Speaker Change: From where we were the number four in BC, Alberta, where.
Speaker Change: Whether that varies from one to two like we are now.
Speaker Change: We're sort of at the number six position that's been a slight drop but overall.
Speaker Change: The $3 two to one it just depends on newness and innovation, what you're delivering to the consumer consumer insights are all working together. So we feel very good look we wouldn't have moved into the international Arena. If we felt we had not achieved more or less where we wanted to in Canada, we want to achieve more we definitely want to be.
Speaker Change: Well, what can I say I mean, we're working to do better in those provinces, but overall, we're number two in Canada and there is always going to be some variability, but I can tell you. This after seven years.
Speaker Change: We've been in the market.
Speaker Change: We believe that on a long term durable sustainable basis at village farms will remain.
Speaker Change: Number one overall, we want to make is a brand that people love and a company that people up but we feel very secure with our position in Canada and Thats why we are now looking abroad.
Speaker Change: <unk> III overall cannabis company in Canada.
Speaker Change: Both for not just for export from Canada, but making investments like we have in the Netherlands going forward.
Speaker Change: Whether that varies from one to two like we are now.
Speaker Change: To three to two to one it just depends on newness and innovation, what you're delivering to the consumer consumer insights are all working together. So we feel very good look we wouldn't have moved into the international Arena. If we felt we had not achieved more or less where we wanted to in Canada. We wanted to achieve more we definitely want to be.
Speaker Change: I'm just.
Speaker Change: To get into the Netherlands in a second but just.
Speaker Change: In the Canadian market generally it looks like the last reported numbers I saw were in August which looked pretty good quite frankly.
Speaker Change: So I think $465 million.
Speaker Change: For the country.
Speaker Change: Up from $4 53 in July what are you seeing.
Speaker Change: Number one overall, we want to make is a brand that people love and the company that people up but we feel very secure with our position in Canada and Thats. Why we are now looking abroad. Both for not just for export from Canada, but making investments like we have in the Netherlands going forward.
Speaker Change: And the marketplace, you've seen sort of pick up.
Speaker Change: And sales growth not just a market share but actually the.
Speaker Change: The entire market.
Speaker Change: Hey, good morning, the sales growth as the overall market is slowing a bit.
Speaker Change: Two of our key basis.
Speaker Change: And just.
Speaker Change: Want to get into the Netherlands in a second but just.
Speaker Change: So we are seeing some of that a little slower than we budgeted but.
Speaker Change: In the Canadian market generally it looks like the last reported numbers I saw were in August which looked pretty good quite frankly.
Speaker Change: It is slower than I think it's going to be prudent for.
Speaker Change: So I think $465 million.
Speaker Change: US and others in terms of the demand profile in the Canadian market next year to be thinking about it landing somewhere around the mid single digits in growth.
Speaker Change: For the country.
Speaker Change: Up from $4 53 in July what are you seeing.
Speaker Change: Hmm.
Speaker Change: And the marketplace, you've seen sort of pick up in.
Doug Cooper: Just on the Netherlands Pallet, Doug My General color on that just one thing I do want to say about the Canadian government as they have now issued.
Speaker Change: <unk> sales growth not just a market share but actually.
Speaker Change: The entire market.
Speaker Change: Hey, good morning, the sales growth as the overall market is slowing a bit.
Speaker Change: We released that theyre going to spend north of $30 million against the illicit trade in Ontario.
<unk>.
Speaker Change: Q over Q basis.
So we are seeing.
Speaker Change: Really positive thing for wants to go after that illicit trade because the illicit trade both at the dispensary level.
Speaker Change: Some of that a little slower than we budgeted but.
Speaker Change: It is slower than I think it's going to be prudent for you now.
Speaker Change: As well as the LP level is of concern.
Speaker Change: US and others in terms of the demand profile in the Canadian market next year to be thinking about it landing somewhere around the mid single digits in growth.
Speaker Change: If that starts to get cleaned up I think that will have an impact on growth going forward. It just depends how much the Canadian government of the $1 billion billion that they receive an excise tax they want to plow back in all honesty. The other thing is we've always taken the approach of.
Okay.
Speaker Change: Just on the Netherlands Pallet, Doug My General color.
Speaker Change: On that one thing I do want to say about the Canadian government as they have now issued.
Speaker Change: Released that theyre going to spend north of $30 million against the illicit trade in Ontario, and that's a really positive thing for wants to go after that illicit trade because the illicit trade both at the dispensary level.
Speaker Change: Crawl walk run as you know, we've said that we wanted to be number one in flower we've maintained as I said three years running.
Speaker Change: Wanted to be number one on pretty well we've come from number for about a year ago to number two.
Speaker Change: As I mentioned in my comments, we've been under indexing in Vape, we put a lot into our <unk> program and we're very very excited about launches coming up in the fourth and first quarter.
Speaker Change: As well as the LP level is of concern.
Speaker Change: If that starts to get cleaned up I think that will have an impact on growth going forward. It just depends how much the Canadian government of millions billions that they receive an excise tax they want a cloud back in in all honesty. The other thing is we've always taken the approach of.
Speaker Change: We don't just sit on our laurels, we want to be number one in those categories. So.
Speaker Change: So standby and we'll see how things look in the first quarter.
Speaker Change: And just moving on to the Netherlands.
Speaker Change: Talk further.
Speaker Change: Crawl walk run as you know, we've said that we wanted to be number one in flower we've maintained as I said three years running.
Speaker Change: 2000, Kgs is the initial capacity I think you said six Bucks, a grandma average 12 million red potential when.
Speaker Change: Wanted to be number one on pre Ro we've come from number for about a year ago to number two.
Speaker Change: How long will it take to sell.
Speaker Change: As I mentioned in my comments, we've been under indexing in Vape, we put a lot into our <unk> program and we're very very excited about launches coming up in the fourth and first quarter.
Mike Reagan: Sell it out Mike obviously.
Speaker Change: Obviously, that's not a huge amount of product for the Netherlands potential.
Speaker Change: Sure.
Speaker Change: When do you think you might be in a position to add capacity.
Speaker Change: We don't just sit on our laurels, we want to be number one in those categories. So.
Speaker Change: Well first of all we will be fully ramped up in the second quarter, because as we plant the entire flower rooms, it's a continuous improvement process. As you know so we have already planted the first two flower rooms, and then in a couple of three weeks, we will plan to third and then there'll be continuous improvement.
Speaker Change: So standby and we'll see how things look in the first quarter.
Speaker Change: And just moving on to the Netherlands.
Speaker Change: Talk further.
Speaker Change: 2000, Kgs is the initial capacity I think you said it six bucks a grandma average 12 million red potential win.
Speaker Change: And all of it will be on a.
Speaker Change: Harvesting starting in the second quarter.
Speaker Change: How long will it take to sell it out obviously.
Speaker Change: I think we won't have inventory there honestly more than two weeks I think it is going to go very quick.
Speaker Change: Obviously, thats not a huge amount of product for the Netherlands potential.
Sure.
Speaker Change: So I.
Speaker Change: When do you think you might be in a position to add capacity.
Speaker Change: I don't want to comment further at this point, but.
Speaker Change: You know the statistics, we threw out there on what the overall market potential is.
Speaker Change: I think it's pretty great. So.
Speaker Change: What was the cost to bill just remind us what the cost to build that facility was.
Speaker Change: That's kind of putting that out there because.
Speaker Change: We're just not refilling that to our competitors okay.
Speaker Change: Okay, Okay, well I guess from the metrics, there and we sort of the ballpark metrics put around just even a 2000 kg as the profitability or cash flow will put out a bit.
Speaker Change: It seems like at least 20% of the Canadian <unk>.
Speaker Change: Cash flow Youre going to currently.
Speaker Change: A fair assumption.
Speaker Change: Yeah, I think so.
Speaker Change: No I don't want to elaborate on that but commander look.
Speaker Change: So yeah, we like that so.
Speaker Change: Obviously, the U S market participants got drilled.
Speaker Change: <unk> drilled a little bit yesterday.
Speaker Change: On the trailing in Florida, and maybe the extrapolation of what that potentially means but you just talked about it looks like it's already three times last quarter annualized EBITDA.
Speaker Change: Hi.
Speaker Change: A room in your facility would you consider.
Speaker Change: Yes.
Speaker Change: In place or do you need the capital for potential in Europe, I guess is the question.
Speaker Change: So what was your exact question I mean first of all I would say that Florida I looked at Florida as a positive it's unfortunate that it didn't pass but the.
Speaker Change: Charity of people voted for it it's just that you need 60% of the Florida Constitution and I'm sure. The next round and it will happen and Thats, a very good sign and Theres been some other areas Dallas and <unk> Theres a movement happening.
Speaker Change: That's one of the reasons I remain bullish, let's just take a moment to elaborate.
Speaker Change: The chapter on our strategy.
Speaker Change: Did legalize hemp so.
Speaker Change: And that was a big move back in 2017 under the farm Bill.
Speaker Change: <unk> eventually the new one will come out in the next year or two.
Speaker Change: So I think there's a huge movement in just a matter of when not if we entered the U S market.
Speaker Change: I guess the question was just you talked about trade and three times EBITDA.
Speaker Change: Would you put it in CIB in place or would you use the capital more need to expand to Europe. Later. This year. For example, yes, I'm probably not going to answer that question I will answer the question that all in all we started the Netherlands four years ago, and we've invested 10 million euros of our own.
Speaker Change: <unk> in the Netherlands, we have no debt now that did not all go to the cultivation facility.
Speaker Change: That's the cost of getting.
Speaker Change: Getting to the point, where we are today with the footprint, we have and thats been self funded so far so.
Speaker Change: What we do and make a decision on how we allocate capital where.
Speaker Change: We'll just keep we're going to reserve the answer to that right now, but we'll give you some more color probably when we report our year end.
Speaker Change: Okay. Thanks, Mike.
Speaker Change: One moment for our next question.
Speaker Change: Our next question comes from the line of Pablo <unk> from <unk> and Associates. Your line is open.
Speaker Change: Thank you to Mike just following up a little bit on the international discussion in terms of capital allocation.
Speaker Change: You said in the past parts of your <unk> sales are getting reexport re exported by others.
Speaker Change: On your direct international sales have grown in double I believe based on the numbers you reported and you hinted that you would be looking at M&A, what do you mean by that.
Speaker Change: So far your model has been very much shipped to the to the dock and let the local partner to handle everything else are there opportunities for you to take more control of the route to market.
Speaker Change: I guess, Australia is one 9% of our company there could you take more ownership of that company. There I mean is there room for you to take more control of our route to market I'm, making business in those nature in Germany, Australia.
Speaker Change: And.
Speaker Change: I don't even the UK. Thank you.
Speaker Change: Absolutely.
Speaker Change: To be patient and prudent and be very clear, where it's going when we look at some of the.
Speaker Change: Incredible amount of money that's been spent in the international markets, especially the EU by others. Many Canadian companies in the last five years six years, you've kind of blows our mind, both on the cultivation side and distribution side. So we've learned a lot from watching what folks have done we see a great opportunity there to be virtu.
Speaker Change: Integrated and control that.
Speaker Change: Look the hardest thing is to have consistently high quality flower at the right price and we that's what we have that's a pillar of excellence in our company and if you don't have that but you try to do acquisitions with that foundation I think that's a risky road.
Speaker Change: Have that and we're very proud of that so built on that foundation of the other opportunities to build on on that are there and we talked to a lot of folks we're seeing how it's going I think both so the M&A is wide open not just on the <unk> side and the past the conduit to the consumer but also.
Speaker Change: So.
Speaker Change: On the international side, when it comes to rack as well.
Speaker Change: Other things in the Netherlands, so restriction.
Speaker Change: I really loved the Netherlands, just pragmatic professional approach by the government and the regulators.
Speaker Change: They are pro business all away no restriction on on <unk>.
Speaker Change: M&A or being vertically integrated so <unk>.
Speaker Change: Absolutely, yes, and I think we feel good that we didn't enter the U S market to this point.
Speaker Change: And really focus remember we want to be a winning company in the U S. When we answered we will go all out but this is a great expansion for us from Canada now to Europe. So that's a long answer to your question, but the answer is yes, yeah. A quick quick follow up I mean, we've got answers, but just remind us in terms of those.
Speaker Change: What are you going to ship from Canada is your facility your GMP or not yet and I should know, but can you remind us what that yes. We are EU GMP in fact, we just got a renewed our license.
Speaker Change: So we're very proud of that I think we're the only greenhouse company that I know of that has E.
Speaker Change: <unk> is the highest chairman standard by the way of all and we just have that license renewed and extended so we are one of the few.
Speaker Change: Yes, and we think as more countries rollout in <unk>.
Speaker Change: <unk> side.
Speaker Change: We're going to be right there to do it. So your question earlier, yes, <unk> be were pretty restrictive.
Speaker Change: <unk> <unk> sales.
Speaker Change: Competing with us in the Canadian market at the branded level, but we will work with some of our partners on the international and one of the reasons for.
Speaker Change: <unk> say well why would you do that ability yourself because overall, we wanted to move.
Speaker Change: We want to help companies succeed as well on the international market, that's going to help drive more countries to open up and ultimately.
Speaker Change: Rising tide raises all ships.
Speaker Change: And then just a quick question I guess for the Netherlands, do we know when the.
Speaker Change: Coffee shops and that by Lockdowns.
Speaker Change: We'll be forced to buy only from the license producers because right now they can still buy from both right, but do we know he is out of date and will not be enforced.
Speaker Change: I think the data will be based on when all 10 license holders are at full capacity.
Speaker Change: So that's the key so.
Speaker Change: That's really the key.
Speaker Change: Changing all the time on the normal as you know our vo from pure some farms is overseeing.
Speaker Change: Lately and.
Speaker Change: It's a lot of moving parts, but I think the last I heard was probably by year end there'll be eight eight in producing cultivating eight to nine so it's getting pretty close.
Speaker Change: Good.
Speaker Change: One last one regarding chimp right I assume that.
Speaker Change: Your business you'd be the distilleries.
Speaker Change: Meaningful as you say, adding him to everybody is right they weren't towards three years ago, where they've been recently, yes. There has been changes at the state level. So that's been an issue, but we're seeing more companies jewelry with RCM trainings quarterly if one with <unk> and other products. So a lot of companies are getting a lot more proactive and aggressive in terms of your camping fuel products.
Speaker Change: We don't know what the rules, we look like we don't know what the farm Bill will look like but I'm I'm very positive about it based on when Republicans taken control of the Senate. So we think that came through it with you so here to stay.
Speaker Change: Time for you guys to make.
Speaker Change: Be more active in that space I don't think that means investments or launching new products or do you already have a full suite without steroids.
Speaker Change: Thank you.
Speaker Change: We continue to invest we invested in a really high end gummy machine that we got online. It makes incredible gummies. So we are investing in it new products, New technology, but let me say this.
Speaker Change: This is where we've always said if you go back and <unk> been on all our calls that we try to make as Villa trumps prudent decisions based on understanding the legal and regulatory framework.
Speaker Change: One of the mistakes that I take responsibility for is that win.
Speaker Change: Half was legalized as in America, and thinking Okay, well, it's legalized. We finally got there did not see the fact that the FDA or any department of the government would not then regulate hemp theres been no regulation its going on five years and it's it's.
Speaker Change: It's a free for all the Dubai stake or a gas station. So there's no regulatory environment and that has to happen.
Speaker Change: What's the game here, we're producing the highest quality competing with people who are making stuff in their basement and who knows what's in it. So we need the U S government.
Speaker Change: Whenever agencies like the FDA, who has said they weren't regulated until Congress forces them to end funds them and I can understand that.
Speaker Change: Putting special interest aside, but that's what has to happen and so we're going to be very prudent and pragmatic in our investments that we see hopefully under this administration.
Speaker Change: Who's going to regulate the half market.
Speaker Change: And we're bullish on it believe me this is about health and wellness all away and if you really look at besides us being the only <unk>.
Speaker Change: Company kind of this company on the 25 list with the DEA all the others are about all the other positive companies I should say are about health and wellness.
Speaker Change: It's a great product and the government needs to catch up on it. So we're looking at.
Speaker Change: We're feeling as bullish as well.
Speaker Change: Thank you.
Speaker Change: Thank you one moment for our next question.
Speaker Change: As a reminder that started one one for questions.
Speaker Change: Next question comes from the line of Brent Cunnington from ATB capital markets. Your line is open.
Speaker Change: Hi, This is Brian on for Puerto Rico, and congrats on the results this quarter and just regarding the gross margin decline in the Canadian cannabis segments. It seems like it was largely driven by the sockets that you spoke to earlier, but just trying to clarify has this been resolved or will there be a trickle effect on this strength into the current quarter.
Speaker Change: I'm, sorry, I didn't catch the beginning.
Speaker Change: Of your question Brenna.
Speaker Change: Could you just repeat the first part.
Speaker Change: So just regarding the gross margin decline in the Canadian cannabis segments.
Speaker Change: So it was largely driven by the soccer, but just trying to fill.
Speaker Change: Got it so actually the gross margin decline is more because of the mix of <unk> in the quarter, our gross margin on our branded products where are we.
Speaker Change: We had stock out actually.
Speaker Change: I actually went up sequentially.
Speaker Change: So we're back in that 30% to 40% range that we've previously guided for this quarter.
Speaker Change: Okay Gotcha, and then just the second question regarding the <unk>.
Speaker Change: Election results given that those will be participating in a hearing in the new year, just kind of curious what your thoughts are regarding the potential proposed an outcome rescheduling now that you have a crystal ball or anything but just generally speaking.
Mike Reagan: That's like a fool's errand, but I'll turn it back to Mike.
Speaker Change: Yes.
Speaker Change: <unk>, probably been more very conservative on it over the last four years, but I'm feeling much more bullish I just think but the majority of Americans are supporting cannabis again as a health and wellness I can say this is personal it's not about spending hundreds of millions of dollars by <unk>.
Speaker Change: Lps to try to promote legalization of cannabis for profit.
Speaker Change: Of course companies have to be profitable. This is a movement for health and wellness assistance, giving Americans a choice beyond opioids for stage four cancer patients and other wellness issues. That's what the movements about that's what we want to try to get.
Speaker Change: Communicate very clearly.
Speaker Change: I think the Senate plays a huge role in this not just the precedent as I said I support this administration coming in only for the fact that they have demonstrated as I said earlier decriminalization of hemp in 2017, that's a check in the box theres been no checks in a box in the last four years.
Speaker Change: I'm going on in the past and I think with new blood and the Senate are especially at the leadership level, just going to afford us the opportunity to go into Washington, and educate and communicate and I'm really bullish on Robert Kennedy hopefully running the FDA.
Speaker Change: Because special interest has played a big role with Big pharma Big fruit as we all know it's time for change Sanford change not just on the cannabis side, but also on the food side.
Speaker Change: I'm bullish and I haven't been that much in the past. So we're excited and we're very honored to be representing the industry.
Speaker Change: Austin Dallas commentary, thank you very much.
Speaker Change: Thanks.
Speaker Change: Thank you.
Speaker Change: I'll now turn the call back over to Michael for any closing remarks.
Michael: Thanks to everyone for participating today.
Michael: We're excited about 2025, a lot of things to come together, both in the industry and for our company. So we look forward to reporting our yearend and fourth quarter and thanks for participation today operator. Thank you.
Speaker Change: Thank you for participating in today's conference. This does conclude the program and you may now disconnect everyone have a great day.