Ayr Wellness Inc.
Q1 2022 Earnings Call Transcript

Published: 26 May 2022

[Operator:]

Welcome to the Ayr Wellness' First Quarter 2022 Earnings Call. Joining us today are Ayr's CEO, Jonathan Sandelman; the company's CFO, Brad Asher; and the company's Co-Chief Operating Officer, Jennifer Drake. The company will discuss forward-looking matters on this call, including targets for revenues and adjusted EBITDA. This forward-looking information is subject to the assumptions and risks as described in the company's management discussion and analysis for the quarter ended March 31, 2022. As well, we remind you that adjusted EBITDA is a non-GAAP measure. We refer you to the reconciliation to GAAP measures and other disclosure concerning non-GAAP measures contained in Ayr's management discussion and analysis for the quarter ended March 31, 2022. I will now turn the call over to Ayr's CEO, Jonathan Sandelman.

[Jonathan Sandelman:]

Thank you all for joining us. When we last spoke, Ayr was in the midst of completing a major cycle of CapEx, and working its way through the regulatory process in a number of key states. We are pleased to say that we've made significant progress on these fronts, and are now just beginning to unlock the revenue stream that these investments will provide. We are very pleased to be approved for adult-use sales in New Jersey, at all three of our stores. And in Massachusetts, our long-awaited Back Bay store was approved on May 12, for a June open. We are optimistic that our Greater Boston Watertown location will follow quickly in its steps. Our team has worked hard and made great strides to get us to this point. These investments, along with our four cultivation facilities, represent significant expenses frontloaded by Ay. And we'll begin to see the revenue benefits from those investments now that the facilities are built and approved. Though these assets will have very little impact on sales and margins in Q2, we anticipate a significant ramp in Ayr's revenue and profitability beginning in Q3 and Q4, as we outlined on our last earnings call. Beyond these specific assets, we've made great progress throughout our business. Ayr has experienced 90% year-over-year revenue growth, doing so in the face of macro headwinds and without the aid of stimulus checks. The company has consistently gained or maintained share in most of the major markets in which we operate. Since we introduced our refreshed brand portfolio, in November, we've completed 20-plus launches of our 10 national brands across our markets, and will launch 50 more brands, re-brands, and new product releases over the next 90 days, such as Road Tripper, in Nevada, and exciting reformulation and re-brand of Entourage vapes, in Massachusetts, and [Levia's beer drink drops] [Ph] in Florida. Our flower brands are number one in our established adult-use markets of Nevada and Massachusetts per BDSA. Because we focus on great products grown exceptionally, and while it's still early days for our brand portfolio, we are building it with date-driven consumer-centric insights that resonate with our customers across different price points and product categories. On the cultivation side, while we have always aimed to be the largest producer of high-quality flower at scale, we understood that it was always going to be a process. We are currently bringing online some of the best cultivation facilities in the country across our footprint. And we are pleased to say that the quality of our flower is the best it's ever been. We're combining this with an approach to genetics, which includes building a bank of unique and cutting edge strains, and consistently rotating genetics through our operations to keep our offerings fresh and our customers coming back for more. This is what our flower customers want, and we will provide flower brands, like Kynd and [LIT] [Ph] with the genetic platform they deserve to consistently delight our customers and build a loyal following. We will continue to invest in our quality, and invest in our brands. I will now hand the call over to our Chief Financial Officer, Brad Asher.

[Brad Asher:]

Thanks, Jon. Q1 sales, of $111.2 million, represented an increase of $52.8 million or 90% year-over-year and flat quarter-over-quarter. As discussed by our peers and corroborated with third-party data, many of our markets continued to experience pricing pressure in the quarter, resulting in a decrease in overall market size. For these states, we had a sequential decrease in sales but at a lesser rate in the market, meaning we were able to hold or gain market share in each of these states. In Nevada, for example, our market share according to BDSA is at an all-time high. In Florida, which continues to growth in their expanding patent base, our same-store sales increased 5% quarter-over-quarter. On the wholesale side, we increased sales 5% sequentially, driven by an increase in nearly every market despite the competitive environment during the quarter. Q1 adjusted EBITDA, of $19.5 million, represented an increase of 6% year-over-year. The sequential decrease in adjusted EBITDA, of $6.7 million, was largely driven by a decrease in adjusted gross profit of $5.4 million. The adjusted gross margins in Q1, of 52.1%, down from 56.7$ in Q4. As indicated in our last earnings call, we started Q1 with lower base pricing due to the compounding effect of Q4 price compression. Adjusted gross margin still remained north of 50%, which is in line with our peers. We expect a similar level of gross margin next quarter, with opportunity for upside in the second-half driven by increased internal sourcing and economies of scale from our cultivation facilities coming online. In this lower gross margin phase, we have largely been able to offset increases to wages and supplies by recognizing improvements to our yields, as well as closely managing labor utilization by leveraging data-based KPIs. After adjusting for non-cash charges, such as stock-based compensation, depreciation and amortization, operating expenses decreased by $2 million or roughly 4.5% sequentially on a dollars basis. This is the result of optimizing headcount and realizing efficiencies across the board as we continue to fine-tune the integration of our recent acquisitions. In Q1, headcount decreased sequentially from 2,380 to 2,240 employees, which is inclusive of the acquisition of Levia and Tahoe during the quarter. As referenced in our last call, we anticipate any further increases in SG&A to be highly correlated with significant milestones of sales growth, such as adult-use retail in Massachusetts and New Jersey. Moving on to the balance sheet, we ended the quarter with a cash balance of $78.7 million, with $33.2 million spent on CapEx, over Q1. This represents payment of roughly half the outstanding CapEx for remaining projects, all of which are either operational or near completion, leaving approximately $37 million of remaining CapEx to be paid over the course of the year. $21 million of cash used in operating activities during the quarter was largely driven by the $23.5 million of tax payments, leaving just $7 million relating to our '21 tax obligations, which was subsequently paid in early April. Other uses of cash flow during the quarter include $22.7 million paid for M&A, including Tahoe Hydro, Levia, and the PA Natural's final earnout. The next earnouts are estimated to be payable in Q2 of '23. And the cash portion of these is roughly $20 million. Included in financing sources of cash are the proceeds from the $26.2 million mortgage loan at 4.625%, which closed during the quarter. After self-funding our CapEx investments to date, our real estate portfolio represents a significant opportunity for liquidity to further strengthen our capital position. This loan represents the first monetization of our real estate portfolio, which totals approximately $180 million of owned properties. And subsequent to quarter-end, we closed the financing on another property with principle of $25.8 million, and interested based on prime rate plus 1.5%, currently at 5.5%, demonstrating the strong financing options of Ayr's high-quality assets. Year-to-date, this represents the second financing linked to our real estate portfolio, which in the aggregate has unlocked $52 million of valuable capital in our business, with an industry-leading blended interest rate of 5.06%. Our Board and management team regularly evaluate ways to optimize our balance sheet. And see these financings as excellent sources of value to our company and our shareholders. Particularly given the recent geopolitical uncertainties and the volatility in the broader capital markets, with cannabis equity evaluations impacted, we remain focused on financial discipline and maintaining a significant cash position. We will continue to focus on optimizing our balance sheet, including efficiency in our cost structure and capital deployment. I will now pass the call over to Jennifer Drake, our Co-Chief Operating Officer.

[Jennifer Drake:]

Thanks, Brad. Jon mentioned some of the great regulatory progress we'd had since our last call, two months ago. And I want to start by highlighting why these approvals were worth the wait. In Massachusetts and New Jersey, we'll have some of the best-located dispensaries in the Northeast, between Back Bay and Watertown, in Boston, which are both eminent, the Somerville conversion to adult-use to follow, and the adult-use conversion of our New Jersey location, which were approved this week, and where we have three of the only five operating dispensaries in the central region of New Jersey, which has a population of 3.4 million people. In our opinion, location is the most important thing in Massachusetts and New Jersey because in each of these states you can only have three adult-use stores. So, you want those stores to be in the best location possible. We think it was worth the wait for approval to open next to the Apple Store in the Back Bay in Boston. And that's the very reason we were made to wait in New Jersey is because our central region location drives so much customer traffic. Before we get to some of the business highlights that many of you look for in these calls, I want take a moment to talk about margin structure. The foundation for the assets that we are now beginning to turn on is created by consistent investments including investments in our people, our technology, infrastructure, our processes, especially those processes that support flower quality and efficiency, our brand, and our customer relationship. EBITDA margins have been lower for us in recent quarters. Particularly in Q1 as we continue to make SG&A investments ahead of our expansion. An investment we began making in the second-half of last year. We anticipate SG&A as a percentage of sales to decrease in Q3 and Q4 of this year when our expansion assets contribute to revenue and when we realize the economies of scale we expect from our strong asset base. While we could have chosen not to spend some of these SG&A dollars, we believe continuing to invest at a reasonable pace puts our forward earning power in a much stronger position. We are in this for the long haul and extremely aligned with our shareholders. We have been making good progress on the 2022 milestones that underpin the Q4 run rate revenue and EBITDA expectations we discussed last quarter set out in last earnings call and then our management discussion and analysis, which as a reminder $8 million of revenue and $250 million of run rate EBITDA in Q4 based on the assets we return on in this third and fourth quarters. Now let's talk about other developments in our business. In Nevada, we continue to buck the trend of challenging market. As you've heard from others, the total addressable market in Nevada decreased in the first quarter. At the same time, our retail share hit an all-time high in Q1. We will continue to bolster our position in Nevada, where Kynd flower has been the number one flower brand in the market for the better part of the last 12 months with new product launches over the summer including Entourage, STiX, Haze, and Road Tripper. Arizona is starting to show the improvements that we have been making. Now that our 80,000 square foot cultivation facility is online, generation its first sales this month in fact, we see opportunity for even more improvement. The new cultivation is one of the best facilities we have built. And we are receiving great feedback from wholesale partners who see the flowers that's come from our first harvest. And as we dial-in the facility with subsequent harvest, we expect yield and quality to be even better. Output in this facility will drive our in-store product mix and our wholesale business which we expect to drive both revenue and EBITDA generation. Massachusetts was a more challenging environment in Q1 largely because of the wholesale channel. In retail, we've largely been maintaining share despite having only two medical stores and no adult-use retail yet. Our Massachusetts footprint is about to change massively. And next quarter on this call, we will be talking about adult-use opening and how those stores are ramping. In New Jersey, we are thrilled to have received the approval for adult-use conversion. Central Jersey has been the most underserved region of the state. And we are looking forward to opening our doors to adult-use customers in the next few weeks. And like Massachusetts, next quarter on this call, we will be talking about how those stores are ramping. Across our Pennsylvania footprint, we continue to hold share with our eight stores. And we are now planning to open our ninth Pennsylvania store in June in the City of Indiana, an underserved areas in the western part of the state that's home to Indiana University of Pennsylvania. And finally, an update on Florida where our top line continues to grow and Q1 was another record revenue quarter for us. We are selling double the biomass we were selling a year ago driven by our expanded selection of offerings and store growth at 47 stores as of this month. We are planning to open at least two more stores before the end of Q2 and with more to come to the back-half of the year. We're seeing positive trends from out Florida cultivation, where flower quality and yields continue to improve. We've added some recent photos to the investor deck online. We've been growing some really beautiful flower in Gainesville. And remember that it takes at least a quarter for cultivation improvement to show up in the bottom line. The improved harvest we had, in March, will get cured and tested through April, and show up in the stores in May; plans take time. It continues to be an incredibly busy time for us at Ayr. We can feel our hard work and our investments into the business ready to begin contributing to the second-half ramps that we've all discussed. And while as an industry, we've gone through a period of slightly slower growth, we think it's important to remember that growth is not uniformly up into the right, and that the long-term demand prospects for cannabis are exceptional. I'll now pass it back to Jon for final remarks.

[Jonathan Sandelman:]

The CapEx cycle that we've undergone over the last 18 months has been a challenging and exciting time for our business. But now that we're nearly through the construction and completing the final stages of our regulatory approvals, we're excited about finally turning on the power of these investments, and getting back to what we've been known for, being good stewards of capital and being strong operators, and improve the businesses that we manage. We thank you all for your continued patience, and thank our team for their hard work and dedication as we build for the future. And we look forward to you being by our sides as Ayr realizes its next phase of growth over the second-half of this year.

[Operator:]

We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Matt Bottomley with Canaccord Genuity. Please go ahead.

[Matt Bottomley:]

Good morning everyone, thank you -- yes, good morning, everyone. Thanks for taking the questions. Just first on the recent positive news in Massachusetts there with your licensing for the Back Bay location. Can you give any other color on if there is going to be any medium-to-longer-term change in the retail versus wholesale strategy? I anticipate, obviously, a lot more product flowing through there which will bode well for margins. But Massachusetts, from the read-throughs in Q1 from all of the MSOs seems to be a market where the wholesale side of things seems to continually face pressures in the last three, four quarters here.

[Jennifer Drake:]

Thanks for the question, Matt. I think it's really important to keep in mind the structure of the Massachusetts market. First of all, for our business, as we said, we've only had two medical stores up until next month, when we open our Back Bay location which will be our first adult-use store. That's going to hugely change our ability to pivot our own strategy and our own biomass between retail and wholesale. It's going to improve margins; it's going to improve revenue. So, we're really excited about that, and about Watertown which will follow, and Somerville in the future. So, the way that our business is changing is also the way that the entire market structure will be changing as more stores open in Boston. And as we said so many times, 60% of the population lives in Greater Boston; it has about 10 dispensaries. There are 200 in the state, 10 of which are where all the people live. That is changing; it's changing over the next 12 to 18 months. And the supply-demand dynamic in the wholesale market will change with it. One other point I want to make with respect to the Massachusetts market, and in particular the wholesale side, is that quality is key. The most important thing is to have a great product, and have brands that people want. And it's extremely important to have that great product because you want your product in the wholesale market to be what people take first. And quality genetics and quality well-grown flower is the backbone of being the product and the brand that people want to take first.

[Matt Bottomley:]

Got it, appreciate that. And just one other question for me, pivoting now to New Jersey, so congrats on that announcement earlier this week, in terms of -- and what you expect, obviously the step function growth in the second-half of this year, I know New Jersey is going to be likely a big contributor to that. But can you give any indication on how you anticipate that market rolling out? I imagine you can't give specific numbers, but you guys have three dispensaries now of, I think, it's only about 17 that are adult-use operational, so a good optionality there for market share. But what are also your expectations of how the regulatory commission is going to allow this sector to ramp up or the retail footprint, more specifically, just given that it is pretty limited to start, and I imagine those stores will all see incredible demand. But just more broadly speaking, how do we get up to kind of 100 locations or more in the next little while here?

[Jennifer Drake:]

Well, I think the first thing we're focused on is our own business, similar to Massachusetts, and making sure that our stores have the supply and the variety that customers want. We're really excited to be three of five operational stores in Central Jersey. Central Jersey is almost as big as Northern Jersey, 3.4 million people versus 3.6 million in Northern Jersey. And as three of five stores, it's pretty impressive for us to -- the profit there for us is going to be pretty impressive. Obviously, the market is going to grow. Obviously, we're going to be a big part of that. And I think that the biggest driver of that growth will be other people opening their stores with time, and it's -- that'll be an excellent market for us on the wholesale side in the future. But right now we're extremely focused on [act on] [Ph] providing the best products to our customers that we can, that's always been our focus. It's been our focus in medical, it will be our focus in adult-use, and it's our focus across the board. I really thing though it's still important to stress the exceptional locations that we have in Central Jersey, it's the best ratio of population to dispensaries in the country. And we have three of five stores in that region, and it's just an incredible opportunity for us.

[Matt Bottomley:]

Okay, thanks so much.

[Operator:]

The next question comes from Andrew Semple with Echelon Capital Markets. Please go ahead.

[Andrew Semple:]

Hi there, good morning. Congrats on the Q1 results.

[Jennifer Drake:]

Thanks, Andrew.

[Andrew Semple:]

First question here, I'll just continue on New Jersey. What steps have you taken to ensure adequate supply for the start of adult-use sales in that state in the coming month? And could you also expand on which of your own brand of product formats may be available to consumers on day one of you launching adult-use sales, and how that shift of brands and formats may change once you're expanded cultivation facility is online and generated product in the second-half, this year?

[Jennifer Drake:]

Sure. Thanks for the question. So, as we alluded to earlier, our locations in New Jersey are just great. And we have -- we've secured approvals for all of our three stores to open simultaneously, which was unique amongst the ATCs in New Jersey. And we believe that it's probably one of the reasons where we had to wait, because our stores are so well-located and would give -- would generate such demand. As a result, we have stockpiled large amounts of biomass to be able to sell into the adult-use market, anticipating that it would be a gangbuster beginning of the adult-use market in that state. Over 3,000 pounds [indiscernible] currently. We have also supply agreements for almost a thousand additional pounds per month. And we generate our own biomass of a few hundred pounds, 300 pounds per month, from our existing facility, but our new facility, which is about to come online, will generate a thousand pounds per month. So, we feel very comfortable with our supply, and have been probably even greater than -- certainly actually even greater than the state guidelines have asked us, just because we know that our stores are going to generate such demand.

[Andrew Semple:]

Great. Thanks for that, Jen. Second question, on Massachusetts, the wholesale dynamic is shifting in that state fairly quickly. Just want an update from your team, whether you guys are still confident you could find a home for all that incremental capacity coming online in the state? And maybe if you could provide some color on what proportion of that incremental capacity your own two adult-use stores extend to be open by year-end might absorb as well as the medical stores open in that market?

[Jennifer Drake:]

Well, I think one of the important things about our stores in Boston is similar to the comments about New Jersey, they're exceptionally well located. So, we have been, we've been trying to be conservative in terms of our expectations for those stores in terms of really, in terms of the sales that will generate. But I mean, you've been, you toured our or you've seen the location for Boylston Street facility in the Back Bay. I mean, it's an incredible facility next to the Apple store across from the Prudential Center in the center of the foot trail, the foot traffic of the Back Bay of Boston. It's just incredible. So, as we think about what are as we think about what our needs are in that store, our gases that we probably are going to be buying more third-party for that store, than we otherwise might like to, until our extended cultivation facility comes online in the fourth quarter, because we probably won't have sufficient capacity out of our first two cultivation facilities to really meet both our wholesale business and the sales through that Back Bay facility. And I don't I actually, I'm not sure if you've been to Watertown, but Watertown is only about six miles from the Back Bay. It's right on the Charles River. It's Central Boston, probably not Central Boston, known to people who are from Boston, but it's on a main commuter route. It's an incredibly well located facility. It's got a huge parking lot accessible from both sides of the street. And it's a big, big, beautiful dispensary. So, we think that dispensary will also generate an incredible amount of business. And between those two stores, I think we're going to take up a lot of our capacity and still have some leftover for wholesale, especially as the Akena, especially as some of the non-vertically integrated dispensaries start to come online.

[Andrew Semple:]

That's great color, and I agree that Back Bay dispensary, excited to see that one open, so looking forward to that. Thanks for taking my questions. I'll get back into queue.

[Jennifer Drake:]

Thank you.

[Operator:]

The next question comes from Matt McGinley with Needham. Please go ahead.

[Matthew McGinley:]

Thank you, if we simplistically break the gross margin decline in the market factors like volume and price compression, which I think would probably have a longer tail versus the Ayr specific factors like investing ahead of markets opening, how much of that 4.5 points drop in gross margin rate is driven by those market factors versus the Ayr specific factors. I guess what I'm hoping to understand is how much of the economy is more of a timing issue versus a structural issue in terms of where your gross margin will ultimately land?

[Jennifer Drake:]

Sure, thanks for that question, Matt. I'm going to answer. And then, I'm going to turn it to Brad to add, but I think it's important to note that our gross margin did come down a few points, probably the majority of which is market factors and price compression over the course of the first quarter. And in addition, as vertical, as we become more vertically integrated throughout the business, which will really start happening predominantly in Q3, as we bring on some of these cultivation facilities, vertical integration will improve our gross margin again, and we'll be able to get back some of those margin points that we're hoping that we'll be able to get back some of those margin points last price compression over the first quarter. But I'd say the majority comes from price compression and some additional comes from the fact that we are increasing sales in a non-vertically integrated way and that vertical integration will backfill over the second-half. But Brad, what would you add?

[Brad Asher:]

Yes, I would just add tough price compression, which is highly correlated with compression in the market size. So, the BDSA market size is decreasing. Those are the states are seeing pricing pressure, but we're still over 50% adjusted gross margins and expect to remain over 50% of the balance of the year.

[Jennifer Drake:]

Which I think is in line with -- in line with industry peers are on the higher side of the industry.

[Matthew McGinley:]

Okay, my second question is on the cash uses, between the operating cash flow loss, the CapEx, the acquisition related outflow, you went through about $75 million in cash in the first quarter, given the call for flat first-half revenue, how should we expect that cash flow to trend into the second quarter where your current cash balances and what were your primary go to, if you needed to raise capital for the remainder of this year?

[Jennifer Drake:]

So, our cash spend for 2022 as always been expected to be front loaded for two reasons. First, our CapEx is frontloaded into the first quarter. We spent half of the CapEx we're going to spend for the whole year over Q1. And that's because you spend your CapEx when your assets are about to turn on. And our assets are about to turn on where at the end of the building phase, we're paying our construction bills, and we're turning on our assets now and into the third quarter. So, half of our CapEx has already been spent for the year. In addition, we paid our taxes. We paid taxes in the first quarter and then finished paying in April. We don't have a large tax deferred tax liability on our balance sheet unlike others in the industry. And that was the other major use of cash over the first quarter. Those two uses of cash, which were the Lion's share of the cash used are now done, and will not be repeated throughout the year.

[Operator:]

The next question comes from Andrew Bond with Jefferies. Please go ahead.

[Andrew Bond:]

Hi, good morning, Andrew Bond in the line for Owen Bennett. Thank you for taking our questions. So, first, I wanted to touch on the pricing risks that you lay out in the MD&A around your run rate guidance by the end of 2022. Specifically, the assumption that retail and wholesale prices remain relatively stable at current levels, so we're seeing some data that overall market prices and some of your core markets are generally still under pressure, maybe showing some flatness in at least Arizona and Nevada in the last month or so. So, can you give any incremental color on your outlook around these pricing in your core markets? Maybe specifically Pennsylvania and Massachusetts, where there seems to be a bit more pressure, and what levers you might have at your disposal to still hit those targets if pressures persist? Thank you.

[Brad Asher:]

So, in terms of the pricing compression, we talked about how Q4 had a compounding effect to each month, we saw a few percentage point decrease in pricing. Q1 was an entire quarter at that lower price point. So, as of right now, that price impression that we saw in Q4, especially in wholesale has stabilized through Q1. So, it hasn't recovered yet, but it has stabilized. So, that's the assumption that we have running through the remainder of the year. That's what we've seen in the first quarter.

[Andrew Bond:]

So, I guess, as we sit here at kind of the end of May, how is that tracking relative to your expectations into the second quarter as a follow-up? Thank you.

[Brad Asher:]

Aside from the few days around for '20, I'd say it is tracking.

[Andrew Bond:]

Great, thank you. And then, moving on to the brand portfolio, obviously, you've made some pretty substantial progress, expanding those 10 core brands into new States. And then, more 50 new launches, I think you said to come. So, some of your larger MSO competitors have a much smaller brand portfolio, some do go with a wider approach, can you discuss kind of your overall brand strategy, big picture how these 10 brands fit together for you within that. And then, whether that has to do kind of with an overall specific form factor, different cannabis consumer segments or otherwise? Thank you.

[Jennifer Drake:]

Sure, so our brand portfolio is really constructed, so that we have an offering, an offering across form factors and price points for all consumers. Our power brands address the key form factors of flower, concentrate, our Levia beverages, and vape. And we have a broader range of core offerings, which can hit more of the accessible price points. Those are 10 brands that are national and go across all of our geographies are very, very focused on meeting the customer exactly where they are for every customer. And they've been specifically -- they've been specifically designed and specifically created such that as we bring them into new markets, we can hit the market exactly as the consumer in that market wants to address cannabis. So, a Nevada customer is different to a Massachusetts customer, is different to a Florida customer. And we think it's really important to have a brand portfolio that can pivot to the market in which the portfolio sits.

[Operator:]

The next question comes from Scott Fortune with ROTH Capital Partners. Please go ahead.

[Scott Fortune:]

Good morning, and thank you. Good morning, thank you for the questions. And just another follow-up now on Florida, and looking at that state, can you provide a little more progress and update on state level metrics and the store level metrics you have? Where you come from and the upside left to continue to drive that the sales in those 47 locations you currently have? How does -- you mentioned opening up new brands Entourage, the Kynd Premium, and how does that affect the kind of Florida margin profile for that? Or, is that helping offset pricing? Can you just speak to kind of the progress and the upside you have continuing Florida going forward here?

[Jennifer Drake:]

Sure. Thanks, Scott. So, as we open more and more stores, that's one of the main drivers of increased revenue in the Florida market. So, we are at 47 stores today. And, we'll be at 49 by the end of this quarter. And we'll open additional in the second half of this year. So, that store growth is really driving our revenue. And as you know, one of the key things for us in Florida has been growing more and better flower in our Gainesville facility so that we can feed our stores with even more product. That's the negating factor, the limiting factor for us in Florida. We have made tons of progress on it. I think you were actually thinking of coming and visiting in our Florida facility today actually. But, we will get you there soon. But, seeing the progress in the facility is this really an impressive and really encouraging precursor to the additional excellent products that we are going to be pushing to our stores. I really encourage everyone to grab the most recent investor deck off of the Web site. Go to the Florida tab and look at some of the flower that we have grown there so far this year. It's really very impressive. And as that goes feed to our stores, we will be able to drive higher volume and more premium pricing as we are able to provide our customers with a more premium product.

[Brad Asher:]

I'll just add in terms of that correlation of market size and pricing, we are seeing the market size expanding in Florida, that's holding true on the pricing side as well.

[Scott Fortune:]

And then, a follow-up on that, how you see the margins in Florida as you bring on these premium pricing there for you? Do you expect little bit increase there or stabilize by the promotional activities coming up on from pricing side?

[Jennifer Drake:]

No, we are really excited about been able to provide these premium products, these premium flowers at more premium prices. I think we have talked about this before that when we first took over Liberty we really weren't able to hit the premium end of the market from a pricing standpoint because we didn't have the supply that supported that premium pricing. And with the improvements in our cultivation, we really do. And it allows us also to introduce some of our premium brands into Florida. So, our Kynd flower, our STiX Preroll, these things will -- these brands in addition to the improved product will allow us to improve margins in Florida.

[Scott Fortune:]

Perfect. And then, real quick an update in Nevada, I know you are having the consulting, the cultivation site there. You are hitting new highs. On retail side you have done really good job in tough market there. But how do you look at that retail footprint, or kind of added cultivation? Is that going to be more going towards wholesale? I know you are off store right now. But, how you look at that mix, retail versus maybe moving to more wholesale in Nevada going forward here with more cultivation with consolidation coming onboard?

[Jennifer Drake:]

Yes, we are very opportunistic, and also the way we think about pivoting between retail and wholesale in Nevada. With the acquisition of Tahoe Hydro, we do, you are absolutely right, have additional capacity on the cultivation side. That capacity is excellent premium, allows us to access those vertically integrated premium pricing within our stores as well as premium pricing in the wholesale market. And we can just be opportunistic about where we want to direct that capacity depending on the ebbs and flows of the market. I mean Tahoe Hydro flower -- Tahoe Hydro grown flower sells about $3,000 to $5,000 a pound in the wholesale market. It's incredible. It's very, very high quality. And we are super excited about it for Nevada. But beyond that, the genetic and the kind of human capital talent that is coming out of that acquisition has been incredible across the cultivation footprint of our business. It's one of the biggest reasons those pictures in the deck of Florida look as good as they do.

[Operator:]

The next question comes from Russell Stanley with Beacon Securities. Please go ahead.

[Russell Stanley:]

Good morning, and thank you for taking my questions. First just following up on Florida given the cultivation improvements that you've made and you kind of continue making, how many stores do you think you will be able to support by the end of this year? And I know you plan to add stores in each too. Just trying to get an understanding as to how many you would be able to support from a cultivation standpoint as we finish this year off?

[Jennifer Drake:]

Thanks, Russ. So, with respect to our cultivation, we look at it -- and our retail footprint in Florida, we look at it in kind of two ways. First of all and I think we talked about this a lot, it's really important for us to have the best located dispensaries in Florida. So, we are consistently looking at new locations trying to find the best locations in each town. And we do that work ahead of opening stores. So, we probably have line of 5 to 80 plus location in the state. But we look at it from a cost-benefit analysis in terms of how we want to open them and what the timing looks like. So, in terms of our expectations for the rest of this year, we think maybe we will get 55 or 60 stores open. But again, we'll continuingly look at cost-benefit analysis of every location. And it's really important for us to have the best footprint. And in terms of -- I think your question was specifically can we support those. And absolutely, that's the whole point of our cultivation improvements and our goals in cultivation in Florida is grow as much great weed as we can so that we can open as many stores as we can.

[Russell Stanley:]

Great, thanks. And maybe my follow-up just around the mortgage financing, congrats on tapping that unused balance sheet power, just wondering thinking mid-term where would you like leverage level to be on a debt to EBITDA basis?

[Jonathan Sandelman:]

We are really pleased with those deals. Those were multi-year relationships. And those I think were the best opportunities [to prioritize] [Ph] our real estate portfolio. The retail is something that we're constantly evaluating. As our business is coming online, and into Q4, it is something we will evaluate for other opportunities with real estate based lending. But right now, we are really pleased with the two deals that we have just closed.

[Operator:]

This concludes the question-and-answer session and today's conference call. You may disconnect your lines. Thank you for participating. And have a pleasant day.