Charlotte's Web Holdings, Inc.
Q2 2021 Earnings Call Transcript

Published: 12 Aug 2021

[Operator:]

Good morning, ladies and gentlemen and welcome to the Charlotte’s Web Holdings Inc Second Quarter Conference Call. This call is being recorded on Thursday, August 12, 2021. I would now like to turn the conference over to Cory Pala, Director of Investor Relations. Please go ahead.

[Cory Pala:]

Thank you, Jessica and good morning everyone. Thank you for joining us for our 2021 second quarter earnings conference call for Charlotte’s Web Holdings Inc. My name is Cory Pala, Director of Investor Relations. And leading the call today is Charlotte’s Web’s CEO, Deanie Elsner and Incoming CFO, Wes Booysen. Wes replaces former CFO, Russ Hammer, who has recently retired. Our earnings press release, financial statements for the second quarter, along with our MD&A can all be found in the Investor Relations of our website and filed on sedar.com. On today’s call, Deanie will share some high level comments on the quarter, with an update on the business and some color around recent correspondence with the FDA, and Wes will highlight our financials. We will take questions from our analysts at the end of the prepared remarks. A replay of this call will be available through the next week, accessible for the details provided in our earnings release. A webcast replay of this call will also be available for an extended period of time accessible through the IR section on our website at charlottesweb.com. A reminder to our listeners that certain comments made on this call, including some answers we may provide to certain questions may include content that is forward-looking in nature and therefore subject to risks and uncertainties and other factors which could cause actual future results or company performance to differ materially from implied expectations. Such risks surrounding forward-looking statements are outlined in detail within the company’s regulatory filings on sedar.com. In addition, during this call, we will refer to supplemental non-IFRS accounting measures, including adjusted EBITDA, which do not have any standardized meaning prescribed by IFRS. Adjusted EBITDA is therefore defined in our press release as well as in MD&A as filed on SEDAR. With that, I will now hand over the call to Charlotte’s Web Chief Executive Officer, Deanie Elsner.

[Deanie Elsner:]

Thanks, Cory. Good morning from Denver, Colorado and thank you for joining our call. With me this morning is Wes Booysen, our new CFO. Wes brings a significant amount of M&A and international experience to Charlotte’s Web. He was appointed CFO following Rus Hammer’s decision to retire. I want to thank Russ for helping to build the infrastructure, team and processes, especially during the difficult times in the pandemic. We wish him well on his much deserved retirement. To set the context for Q2, I want to provide a little bit of perspective. 2021 year-to-date has been characterized by advancements within the CBD category with notable progress made behind three key themes

[Wes Booysen:]

Good morning, everyone. Thank you again for joining us. Deanie already provided some color on Q2 revenue. So I won’t repeat it. But what I would add is that the 11.4% revenue growth doesn’t fully reflect the increase in unit volume due to the contribution coming through B2B sales. B2B is wholesale pricing, which generates lower revenue per unit. So, demand for growth from Charlotte’s Web’s products is higher than our revenue may suggest this quarter due to channel mix. This is very encouraging and reflected in the market share gains we made this quarter. Turning to Q2 gross margin and profit, in terms of gross profit for the quarter, year-over-year increases in both revenue and gross margin resulted in a 38% increase in gross profit for a total gross profit of $15.8 million compared to $11.5 million in Q2 last year. Blended gross margin came in at 65.5% for the quarter, a significant 12.6 point increase from 52.9% reported in Q2 2020. For greater transparency, the Q2 2020 gross margin of 52.9% included inventory provisions of $2.5 million for discontinued products. Prior to this adjustment, Q2 2020 gross margin was 64.6%. For modeling purposes, we expect second half consolidated gross margin in the mid-60s range based on sales mix and increasing into 2022 from production and fulfillment cost improvements as our new facility becomes fully operational. We expect improved manufacturing efficiencies as volumes ramp up and this is very encouraging. Now, turning to operating expenses, total OpEx for the second quarter was $25 million, down 15.2% from $29.5 million a year ago. Q2 last year included approximately $5.2 million of one-time expenses related to the Abacus acquisition and legal fees. Excluding these items for better comparison, Q2 2021 net OpEx increased modestly by approximately 3%. Our OpEx level also reflects the success of our expense reduction program that we implemented in Q3 2020 to reduce our OpEx by 10% from the Q3 2020 peak to bring our costs more in line with pandemic impacted revenue levels. We have been ahead of that plan with our OpEx run-rate down 11.7% in Q2 from our Q3 2020 run-rate. We recorded a net loss of $5.4 million for the quarter compared to a net loss of $14.4 million a year ago. This is a 63% improvement, reducing our loss by $9 million. On an adjusted EBITDA basis, we recorded a loss of $3.9 million a 31.1% year-over-year improvement versus Q2 2020 adjusted EBITDA loss of $5.7 million. We are modeling smaller losses through the remainder of 2021 as we head towards adjusted EBITDA breakeven at the end of this year and into 2022. So, to summarize the P&L, we delivered higher revenue, increased our gross margin and reduced OpEx, which improved our adjusted EBITDA and reduced our net losses. This is what we want to see continued directional improvements across the board. Moving on to CapEx, our CapEx spend during the second quarter was approximately $1.6 million primarily related to completing the final phase of our R&D production and distribution facility. As the facility becomes fully operational this year, we will be able to reduce some production costs and improve margins. Total CapEx in the first half of 2021 was $3.3 million and we expect CapEx investment for the full year to be between $7 million and $9 million. We look forward to hosting an Investor Day to showcase the capabilities and efficiencies of our new R&D production and distribution facility in the new near future. Turning to liquidity, use of cash during the second quarter included $6.5 million in operations compared to $7.9 million in Q2 of last year. Total cash used for the first half of this year was $25.7 million. For context, approximately two-thirds of cash used during this period was non-recurring. Cash at the end of Q2 was $27.1 million, which excludes our short-term IRS tax receivable of $10.9 million. With reduced losses through the remainder of 2021 and as we hit towards adjusted EBITDA breakeven at the end of this year and into 2022, we believe that we are sufficiently capitalized to deliver on our plan. We also maintained zero debt and an unused line of credit extendable to $20 million. Turning to guidance, I am comfortable that we will continue our quarterly revenue and market share growth, but having been with the company is short time, I am going to hold off on providing specific revenue guidance for the year. In summary, I expect the positive revenue and margin trends evident in the second quarter to continue. I will now turn the call back over to Deanie for closing remarks.

[Deanie Elsner:]

Thanks, Wes. I will conclude today’s prepared remarks with some additional color around our recent formal correspondence with an FDA as well as providing an update on other international regulatory progress. Since passing the 2018 Farm Bill, there has been significant attention on the FDA to resolve a regulatory pathway for full spectrum hemp extract with naturally occurring CBD. The FDA has indicated publicly it wants to ensure consumer access to safe CBD containing products. They have had several public meetings on this topic and they opened a docket over 2 years ago to obtain information from stakeholders on these products in addition to preparing and then withdrawing a formal draft enforcement discretion policy. During this period of time, the CBD category has grown to become $3 billion to $4 billion in annual sales, with thousands of brands entering, but it remains unregulated. After 2.5 years, it has become increasingly more apparent that in the FDA’s own words, potential legislation might be appropriate to enable a framework for under which the FDA can regulate full spectrum hemp extracts as dietary supplements. During the second quarter of 2021, we put this thesis to test by formally submitting a new dietary ingredient notification to the FDA for our full spectrum hemp extract as they have been recommending. The FDA responded with an objection letter to our NDI notification. Their response substantially based on their drug preclusion provision reveals that legislation is required to enable the FDA to establish a regulatory oversight for full spectrum hemp extracts as dietary supplements. Both the House and the Senate have introduced bills that would recognize hemp CBD as a dietary supplement and we are encouraged by this progress. Our experience with the FDA shows that this legislation is a critical step in securing a regulatory environment to protect consumers and to establish guidance for manufacturers. It is our intent to stay at the forefront of this issue by working to establish a safe and transparent legal framework to regulate this category. We believe that given our vertically integrated supply chain and our leadership in this category, we are uniquely positioned to work with Congress and with the FDA to establish a regulatory framework for the benefit of the hemp wellness industry. And finally, we have been previously discussed in our intent to extend our footprint making moves to expand geographically within the sector, which I will follow-up on now for you. Internationally, we are focused on the UK, the EU, Canada and Israel through valuable strategic partnerships rooted in R&D, quality, manufacturing and distribution. In the UK and the EU, we are diligently working with the evolving regulatory statutes and have successfully submitted our UK and EU novel foods applications. We have successfully passed the first leg of the regulatory process in the EU and currently await validations by the UK regulatory body. In addition, we are working with several distribution partners to establish our territorial reach as regulations mature. In April of 2021, we secured Health Canada approval to bring proprietary Charlotte’s Web CBD genetics to Canada having been accepted to the list of approved cultivars. We now have successfully planted our first international hemp crop of our proprietary patented hemp cultivars in the agriculturally rich Okanagan Valley in British Columbia, Canada. We believe that our proven full spectrum products, coupled with our leading brand trust, will be highly advantaged in the Canadian market. We already have a large waiting list of consumers in Canada, where we have never actively marketed our products. We are employing an asset-light model approach to the Canadian market developing our Canadian supply chain and expect to – expect product to be commercialized in Q1 of 2022. In Israel, we have continued to develop our exclusive partnership with Canndoc, a division of InterCure and await reclassification of CBD as a dietary supplement following the establishment of the new Israeli government. A recent bill to legalize recreational cannabis did not pass. However, we currently expect that separately hemp could be declassified through the Ministry of Health by the end of this year. In the interim, we are exploring pathways to market through food, drug and mass as well as pharmacy dispensaries through the Israeli medical cannabis program. We currently expect to have products selling in Israel by the front half of 2022. In the territories where medical cannabis is federally permissible, including Canada and Israel, we are investigating both CBD hemp as well as cannabis wellness opportunities through asset-light partnerships to leverage our brand and genetics. With that, I will wrap up and ask the operator to open the calls to questions.

[Operator:]

Thank you. Your first question comes from Gerald Pascarelli of Cowen. Please go ahead.

[Gerald Pascarelli:]

Hi, good morning and thank you very much for taking the questions.

[Deanie Elsner:]

Hi, Gerald.

[Gerald Pascarelli:]

Hi, Deanie. So, can we just start on the top line? Obviously, it looks like at least in B2B that trends did improve arbitration of the quarter. As we are like halfway through 3Q now, can you offer any kind of color on how your top line is running either from a total company perspective or by e-com and B2B just to give us some color on how trends are faring given what are going to be a little bit tougher – what are going to be tougher comps as we get into the back half of the year? Any color you could provide there would be helpful? Thank you.

[Deanie Elsner:]

Yes, absolutely, Gerald. It’s a great question. I think from a company standpoint, Charlotte’s Web is uniquely advantaged in the category because we are the only company that has products in every segment in CBD and we are the only company that participates in every channel, those segments are being sold in. And so the benefit of our portfolios we can pivot and shift with where the consumer is going and certainly, that’s the case this year. Through the first half of this year, our net revenue is up in total about 11% year-to-date and that is in large part because of our B2B business. As mentioned, Q2 B2B was up about 38%, that’s coming through our big established channels like medical, natural and we are seeing a really nice uptick on our new alternate channels. And so I am actually pretty bullish on our B2B business in the back half of the year. As we look at where the consumer is, we have access to those channels and we have products that they want. And so I would expect B2B to continue on the trajectory it’s on. In terms of DTC, our front half has been a little challenge from a traffic standpoint and I think that is a return to retailing. We are seeing that across the board. However, we are now working diligently to reach out to new consumers in our DTC model. And again, we have got one of the most developed DTC models in the industry. And so we are going after new consumers and new ways of selling. And we will be piloting or expanding a pilot of that very shortly in the next month. And so I am actually excited to see an acceleration of DTC in the back half of the year. On total, I would expect to be outperforming the category in terms of total growth for the company and the exact number is going to depend on how the channel opportunities develop. In terms of new products, we launched in the second half of the year, THC-free product which we feel really good about. In the back half of the year, you are going to see us expand our gummy portfolio and gummies right now represent just shy of about 30% of our business. And so we think we have got all the pieces working. We have got the segments where the consumers are shopping. We have access with the products and we are bullish about the top line for the rest of the year.

[Gerald Pascarelli:]

That’s a great color. Thanks, Deanie. My next question is just on gross margin, it definitely came in higher than I was expecting. And I am trying to reconcile the 65.5 like understanding that there was an inventory provision, which was impacting the year-over-year, like when you look at your – when I look at your sales mix, the negative mix associated with such faster B2B growth and it doesn’t look – sound like there was any pricing taken, just like I think sequentially either the margin expanded like over 700 basis points, so maybe just any additional color that you can provide on the strong margin? And then, Wes, maybe based on your commentary on the production and fulfillment center, is that coming online? Is that still scheduled to come online in the back half of this year or is that getting pushed out now through this year, maybe into the first half of next year? Just that’s like a clarification question. Thanks.

[Deanie Elsner:]

I will provide a little bit of context and then flip the question over to Wes. We have been transparent about our desire to work hard on our gross margin. We have put a lot of initiatives in place to reduce our costs. And one of the big reasons for doing the manufacturing and distribution stand up was to ensure we had the opportunity to control our costs in a much more aggressive way. And so what you are seeing in our gross margins in Q2 we believe is the baseline of what we will be going forward with opportunity to improve. And so that’s the whole business model that we have built is that, I will let Wes speak to the specifics of what to expect.

[Wes Booysen:]

Gerald, good morning. Couple of things, maybe let me provide some more color and help you unpack that number. If you look at the 12.6 point increase in gross margin, so last year, 52.9% to 65.5% for this Q2 of this year, that included a inventory provision as you rightfully said of $2.5 million for expiring product. And so prior to this adjustment, Q2 2020 gross margin was 64.8%, maybe something else that would be helpful as well, Gerald is historically we have guided our gross margin in the 60% to 65% range, obviously, depending on the product and channel mix. And so we are modeling now for the second half of this year, consolidated gross margin in the mid-60s range. And you are absolutely right, it’s based on some of the supply chain savings and yes, we do anticipate the new facility coming – becoming fully operational later this year and in those improved manufacturing efficiencies, we will see as volumes ramp up.

[Gerald Pascarelli:]

Perfect. Thank you for the color. I will pass it on.

[Operator:]

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

[Scott Fortune:]

Yes, good morning and thanks for the call or the questions here. Deanie, you want to talk about kind of the new product innovation. You are saying that THC-free being rolled out there, but it seems on the call you called out really the mix of gummies really increasing while the tinctures have come off? Is that a continuing kind of shift you think for the consumers that you are targeting as more gummies versus a tincture and how does that relate to kind of the margin profile as you see going forward and expectations of these new products moving forward here?

[Deanie Elsner:]

Yes, it’s a great question. So a big part of how we run our new innovation is to identify the consumers we are targeting and adjust products and develop products that specifically meet the needs that they are looking for. And so for us, we launched gummies in August of 2019, because we saw the opportunity in the dietary supplement space and knew within CBD hemp extracts that was going to be something that was going to translate over. And so we were the first to do that in the category. Today, our gummies are the biggest segment in the categories. Fun fact is in the natural channel, our sleep gummies are the most popular sleep product, not sleep hemp product, but sleep product available in the natural channel. So we know we are producing good products and we know we are producing products in a format that consumers prefer. Our key now will be to figure out who are the consumers going forward and how does our product portfolio from a format standpoint adjust to meet their needs. As we look at gummies, we saw an acceleration of gummies in our portfolio all through 2020 and through Q1 of 2021. In Q2, 2021, the gummy growth has begun to slow a little bit and I know 65% growth doesn’t sound like slowing, but when you are comparing it to triple-digit from the previous year, we see it stabilizing a little bit more and our tincture decline stabilizing. And so Scott, I don’t have the exact answer for you in terms of how these segments ultimately pan out. What I do have is a set of capabilities and infrastructure that enables us to adjust in a really agile way to meet the needs of the consumer, regardless of where she is going, I believe dietary supplements will be defined by gummies and I believe this category gummies will remain a very big segment in the category and we are certainly doing our part to expand our portfolio in the back half of this year, with a couple of new offers across our channel. So we are bullish on gummies. As you can expect when you launch a new product, building the infrastructure in-house financially is not as feasible. And so our gummies have been a product mix dilutive from a gross margin standpoint in the early days, because of our dependency on a common manufacturing network, but we have gotten more aggressive about getting our gummy COGS improved and have plans to see a really nice ramp up in that into 2022 hopefully before the end of 2021, but that is coming around the corner and we’re really quite excited about what that will be in our portfolio going forward.

[Scott Fortune:]

I appreciate the color on that. And then I just want to focus on the international kind of upon Canada the opportunity there as more competitors look to get into U.S. There seems to be less competition up there. You mentioned the opportunity, but can you highlight, is it going to be a full broad portfolio that you can offer in the Canadian market right away or how are you kind of looking at that as you will on the international side of things with your product mix is?

[Deanie Elsner:]

Yes. Canada for us is both an opportunistic move, because the hemp CBD category is relatively underdeveloped, although it’s a very strong cannabis THC market. A lot of the CBD product that exists in the Canadian market is actually derived from the cannabis plant, the THC plant. Coming in with the CBD specific genetic is really quite advantage. And when you combine that with our patented check – patented cultivars and genetics, we think that we have got something consumers are definitely going to want. But Canada is not just a revenue play for us. Canada is an incredibly strategic market for us, because on the international front, we are able to access other international geographies from the Canadian market, both in terms of finished goods, biomass, and extract. And so for us, Canada is a revenue opportunity, as well as an export opportunity. And that’s in large part why we are entering that country. As we look at the market in Canada as well as the market in Israel, both of those countries appear to be moving towards Federal – Federally legal THC as well as CBD. And so those are two markets where I feel like our portfolio pilot can take root. And we can expand our portfolio to take advantage of a Federally permissible environment. And so our portfolio in Canada out of the gates in Q1 will be hemp CBD. It will be – we will have a good representation, but we won’t have a full portfolio. We will have about four to seven products that we will have in the marketplace, controlled given the size of the market. But what I am excited about is the opportunity to expand beyond that and look more broadly into cannabis wellness. And so for us Canada is a larger pilot of things to come, more broadly in the international geographies.

[Scott Fortune:]

I think that’s great detail. And thanks, Deanie. I will jump back in the queue.

[Deanie Elsner:]

Thank you.

[Operator:]

Your next question comes from Derek Dley of Canaccord. Please go ahead.

[Pulkit Sabharwal:]

Hi. Good morning. Pulkit again, I am filling in for Derek, I am his associate. Just a couple of questions, I was interested in your CapEx initiatives for the coming year. I know you already talked about what CapEx looks like after Q2 and the rolling off, but something or some color on next year. We really appreciate it.

[Wes Booysen:]

Sorry. Can we just get your name one more time? I thought it was Derek, but you said it’s you are sitting in for Derek.

[Pulkit Sabharwal:]

That’s right, I am his associate Pulkit.

[Wes Booysen:]

Yes. Very good, nice to meet you, good morning. I think the way you should look at the CapEx for the year to go is probably will start off by saying, we have finalized and wrapped up the final phase of our new facility, the R&D production facility out in Lewisburg. And if you look at the year-to-date spend on CapEx, we are sitting on $3.3 million. And so we do expect for the balance of this year, CapEx to be in the range of $7 million to $9 million, which is slightly lower than the previous guidance we gave of $8 million to $10 million.

[Pulkit Sabharwal:]

Okay, that’s very nice. Thank you. And just one final question regarding demand, are you seeing any impact at all from the Delta variant in terms of softness, either for B2C or B2B?

[Deanie Elsner:]

I am sorry. I missed the back half of that. Are we seeing an impact from what?

[Pulkit Sabharwal:]

Any impact in terms of demand softness from either – from the Delta variant either for B2C or B2B?

[Deanie Elsner:]

Thank you. Yes. So, we have an opinion about the Delta variant. And as many of you know, the Delta variant is a loophole that has come into the CBD hemp extract market as a result of the lack of regulation. And so it’s a loophole that a number of our competitive peer companies have taken advantage of the Delta variant, specifically Delta…

[Wes Booysen:]

Deanie, sorry to interrupt, just to clarify, he is talking about the COVID virus, Delta variant, not Delta 8, which is another very contentious issue…?

[Deanie Elsner:]

Thank you.

[Pulkit Sabharwal:]

Yes, yes. But happy to have…

[Deanie Elsner:]

We are going back to the pandemic. Okay. I apologize. So apologies. So, in terms of the pandemic, at this point, we obviously are watching it very closely. And we are holding our business and our expectations for the years, just to hit with what we were thinking. If something should happen, and should there be another lockdown, of course, that’s going to change our guidance. At this point, we don’t see that happening. And as we look across the country, we are watching the numbers very closely. If it does happen and incredibly unfortunate, if it does, our portfolio is well positioned to take advantage of that opportunity in terms of having a well developed DTC channel, our direct to consumer 65% of our business during the pandemic last year, our DTC channel jumped up to be as much as 71%, 72% of our business in specific quarters. And so, again, I think the benefit of Charlotte’s Web is we are able to shift our portfolio to be where the consumer is. And should another lockdown happen, we will pivot to the channel where we can gain consumers and double down on DTC. So, that would be how I would respond to this – to COVID again.

[Pulkit Sabharwal:]

And that’s perfect. Thank you so much.

[Operator:]

Your next question comes from Michael Lavery of Piper Sandler. Please go ahead.

[Michael Lavery:]

Thank you. Good morning.

[Wes Booysen:]

Good morning.

[Michael Lavery:]

Apologies, if I might have missed it, I did have to join late. But in the FDA’s letter responding to your NDI notification? They call out a couple of things where they felt like they needed some more information still and didn’t have everything they seem to have been looking for? Can you give a sense of how much that suggests maybe their position isn’t cut sort of definitive or conclusive? If they were to get, for example, some of the underlying data that forms the basis for the – I have no idea how you pronounce this is a 2020 study or some of these other things where they look like they have got some sort of voids they want to fill in, in just the data. Is that potentially something that influences where they might land or does this seem like they have got a pretty final position?

[Deanie Elsner:]

Thanks for the question, Michael. When you think about the FDA, I will start with we were disappointed and strongly agreed with – strongly disagreed with not just the conclusion that they advanced, but the reasoning for their conclusions, because their letter back to us contained a significant amount of factual inaccuracies. And so the first thing I would tell you to do is on our website in the IR section, we have posted our response to the FDA. And we laid out an excruciating detail why we think they need to create the record in terms of what we submitted and what they concluded. Now, that said, they drew a conclusion based on two examples. One was, they can’t move forward with an NDI as a dietary supplement because CBD is precluded, because it’s already a drug. And as you know, six months prior to the hemp bill being signed into law December 2018, a drug was approved that’s CBD isolate. The second reason why they objected to our NDI was that they expressed safety concerns. And I think that’s the part that we are looking for a correction on, because regarding safety, the conclusions drawn just don’t appear to be based on the data we provided in our NDI. So, that’s we are trying to get focused on. In terms of what does it mean, I think what you are getting to is, it is the industry has been caught in a little bit of a catch-22, because the FDA has not been clear about the process by which they want companies to go through to gain regulatory clarity. And Congress has been pointing to the FDA to take responsibility for this. And so our decision was full transparency, to force the issue to see who has the next decision. And with the FDA objecting to our NDI, it becomes very clear that the regulatory process to get established has to start with Congress, legislative and the FDA to regulate the dietary supplement for CBD, and then FDA can regulate within. And so I am confident there is a way to do this. Over the last 18 months, we have met with the FDA, about eight to ten different times and our meetings were very constructive. I have got a great deal of respect for the FDA. But I think they are in a bit of a catch-22, because they have approved the drug. And they can’t seem to move away from that precedent. And so Congress has to act. And I think once Congress acts, the FDA can be very clear about the process. The process is scientific. It’s intense. There is a ton of data that we have got to do to submit for it. And I feel really good having gone through this knowing what they are looking for. But now we need Congress to act. And when that happens, I think the category will be able to submit NDIs and the whole thing will begin to open up. Does that answer your question?

[Michael Lavery:]

A bit. I guess maybe some of what I am getting at is, which is I guess some of – first of all, how much is the FDA maybe a movable force? I mean, it feels like a pick your poison, who would you rather did? I think I mean I don’t know that Congress is going to touch there. So, I suppose I never want to give a hope on any option that that may exist. But, maybe to your point, if you are calling out some ways that there has been consistencies with the data you provide and what they seem to draw as the conclusions. And you have got a precedent with, red yeast rice and Monacolin K, sort of parallel for full spectrum extract and CBD isolate. I guess why give up on the FDA? And is that still something you feel like could change? I just know, if you watch Congress, it doesn’t take long to figure out that they are just as quick to do nothing…?

[Deanie Elsner:]

Yes, I think that’s – I think it’s a fair conclusion. So to be clear, we are not giving up on the FDA. We have every intent to continue to engage with them and work with them. And we have not ever said externally nor internally, that we would not be going through the NDI process. Again, going forward, we have every intent to progress the regulatory environment for the regulations that the FDA has laid out. So, that will be an active part of how we move our business forward. I think the Congress comment is, I am curious, but I want to just broaden the perspective on this. This is not just a CBD hemp industry challenge. This is a THC sector challenge, because we are going through with hemp extracts with naturally occurring CBD is exactly what the cannabis industry is going to have to do following us. And so this is not Congress, maybe or maybe not engaging on the hemp CBD industry. This is Congress looking at a category today, that is roughly $17 billion to $20 billion in total in the US across 11 states where cannabis is legal and CBD participates. And so some kind of resolution has to be landed for how both of these categories are regulated. And the FDA has to have clarity and perspective about how they want companies to produce safe products for consumers in a way that is holding manufacturers to a very high level of standard. And so we are doing this for ourselves, but doing this for our category. We are doing this in support of our consumers. But it’s the whole sector that is going to put the pressure for Congress to act and push the FDA to move forward. And we will continue to push both fronts.

[Michael Lavery:]

And I mean, it’s a great point that there is the THC equivalent here too. That just maybe a little bit of a time bomb coming. So no, great color, and thanks for the updates there.

[Deanie Elsner:]

Absolutely.

[Operator:]

Cory, there are no further questions at this time. Please proceed.

[Cory Pala:]

Okay, well, thank you everyone for participating in today’s call. This is probably the busiest earnings call day we have had with several competing earnings calls happening at the same time. So, we really appreciate you making the time and participating. We will look forward to speaking to you again in mid-November, following our Q3 2021 results. Thank you and have a great day.

[Operator:]

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.