Eastside Distilling, Inc.
Q2 2018 Earnings Call Transcript

Published: 13 Aug 2018

[Operator:]

Good day everyone, and welcome to the Eastside Distilling Second Quarter Fiscal Year 2018 Financial Results Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today's presentation there will be an opportunity to ask questions. [Operator Instructions] And please note that today’s event is being recorded. I’d now like to turn the conference over to Robert Blum with Lytham Partners. Please go ahead.

[Robert Blum:]

Thank you, William. Good morning everyone and thank you for joining us to discuss Eastside Distilling’s financial results for the quarter ended June 30, 2018. I’m Robert Blum at Lytham Partners, and I will be your moderator for today's call. Earlier, Eastside issued their second quarter 2018 results in a press release as well as filed its 10-Q. Joining us on today's call to discuss these results are to Grover Wickersham; Steve Shum; and Kim Davis. Following the remarks, we will open the call to your questions. Please note that listeners both from the live portion of the call as well as webcast will be able ask questions. If you are on the webcast, you can type your questions into the question box and press submit. We will take as many questions as time will permit for. [Operator Instructions] Before begin with prepared remarks, we submit for the record the following statement. Certain matters discussed on this conference call by the Management of Eastside Distilling may be forward-looking statements within the meaning of section 27 A of the Securities Act of 1933, as amended, section 21E of the Securities Exchange Act of 1934, as amended and such forward-looking statements are made pursuant for Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements describe future expectations, plans, results, or strategies and are generally preceded by words such as, may, future, plan or planned, will or should, expected, anticipate, draft, eventually or projected. Listeners are cautioned that such statements are subject to a multitude of risks and uncertainties that could future circumstances, events or results to differ materially from those projected in the forward-looking statements. Such matters involves risks and uncertainties that may cause actual results to differ materially include, but are not limited to, the Company's acceptance and the Company's products in the market success and obtaining new customers, success in product development, ability to execute its business model and strategic plans, success in integrating acquired entities in their assets, ability to obtain capital, ability to continue the growing concern and all the risk and related information described from time-to-time in the Company's filings with the Securities and Exchange Commission, including the financial statements and related information pertaining to the Company’s annual report on Form-10K for the year ended December 31, 2017 filed with the SEC on April 2, 2018. Now I would like to turn the call over to Grover Wickersham, CEO of Eastside Distilling. Grover, please proceed.

[Grover Wickersham:]

Robert, thank you very much, and good morning to everyone on the call. Thank you for joining us today. I'm pleased with the second quarter results which showed record revenues for the second quarter. I'm excited about the opportunities that is East has untapped for the rest of 2018. The quarter highlights are the rapidly expanding geographical footprint of Redneck Riviera Whiskey to an even more than expected number of 28 states. The growth of our new wine and RTD canning operations, the continuing re-launch of our Burnside family of whiskeys our financing activities to strengthen our balance sheet and put us on a very sound footing as we continued into Q3, and finally, the overall sales performance of up 90% and shipments of branded products up 70%. Let's now take a deep drive into Q2 performance and our management's business strategy on a unit by unit basis starting with Redneck which because of its importance I will intentionally emphasize. Starting with the Redneck Riviera update, I’d point out that in Q1 when we announced our plans for the first year of Redneck Riviera, we were telling shareholders it was rolled out in five goal states then expanded to 11 and we would pursue other markets later in the year. We quickly blew pass those targets as we met unexpected demand in new areas. Redneck Riviera whiskey is now distributed in 28 states and counties with half of these or 14 states added since the end of the first quarter. Five of these states are so new that our first stocking shipments have not even shifted though they are pending and will go out shortly. Robert Manfredonia, our new VP of National Accounts got us into an amazing lineup of chain store accounts like Safeway, Albertsons, ABC Liquor and Total Wine and added major new territories with Walmart just to name a few. And there is a continuing effort at a rapid pace thanks to Robert's help and the assistance he is receiving from John Rich personally in selling those major accounts. John Rich also works closely with Jarrett sales team. John support sales with radio, television spots, in-store bottle, signings, social media engagement and of course is tremendously well attended concerts. To supplement John's efforts, the Company has brought on additional brand ambassadors including Gretchen Wilson, Granger Smith and Colt Ford who are also supporting the brand. Because of the golden opportunity we had to launch in 28 states and county so early in the brand's development, Steve and I departed from budget and accelerated our spend on staffing marketing and advertising in Q2 and Q3. Specifically, we've quicken those spending on staff in the sales team that can great national brand, supporting our distributors by increased spend on sales and marketing IP, including a 174,000 just on Stanford sales from partners in the first half. And we also spent on dealer incentives to get product on retailer shelves pronto. We have been supporting the retailers adopting us and what we have told of record pace for a new brand with Samson design point-of-sale displays and regional marketing support to speed product off the shelves to consumers. Like our list of new states this upfront spending is coming earlier than planned in 2018, but it will accelerate the brand growth in Q3 and Q4, and we think its shareholder money well spent. Now, I’m going to intrude a bit on Steve Shum and touch on financing as I think the topic is related to understanding the big picture of our Q2 sales push. Steve and I wanted to strengthen our balance sheet to support more aggressive spend on the Redneck launch, provide extra liquidity in case the warrant call was delayed until 2019. Being very mindful of our standing promise to minimize equity dilution, we use creative structuring and supported by friendly shareholders added many millions in capital and capital and liquidity while holding equity dilution to a minimum. Not long afterwards and somewhat unexpectedly, the warrant call was triggered after all bringing in additional cash and eliminating a major warrant overhang. They are not exactly a windfall. This was one of those wonderful times where things go better than planned. Cash not needed as an accelerant for Redneck Riviera growth or for our other brands will be profitably employed towards building our inventory of fast appreciating and highly marketable book spirits well in advance as need. This will both assure future supply and greatly COGs. The successful execution of our financing strategy also adding to our unexpectedly higher costs in Q2 leave us ahead of the game as we approach the seasonally strongest this time of year. Shareholders should remember that according to our contract, when the Redneck brand is sold, fully 50% of our marketing spend is reimbursed off the top from the brand sale proceeds. Steve intends to start providing some color on the magnitude of that number as it becomes more and more material. Other Redneck initiatives are worthy of mention. This week we will be formally announcing and advertising to the trade, a value-added pack or VAP which was developed with Sandstrom. The VAP consists of presentation box along with two free packets of John's beef jerky along with a bottle of Redneck Riviera Whiskey with the Git Down pack spell G-I-T. It's sort of a Redneck food pairing if you will. Jarrett and Robert started taking preannouncement orders last week for late Q3 early Q4 shipment to the VAP and already over 1,009 leader cases. We think the Git Down pack will be a real hit in 2018 through 2019 and will measurably move the needle. As always, we have other ideas and works, we are not ready to talk about. I'll now turn to our business areas in order to provide further granularity. First, I’m going to talk about Burnside. Let's not forget the major opportunity we have with our Sandstrom branded Burnside family of spirits finished hitch barrels of rare Oregon. Our strategy for 2018 is focus on core territory in the Pacific Northwest in California. This is a shift from prior management strategy. I would prefer to be a mile deep and an inch wide, as opposed to a mile wide and an inch deep, and with our growing list of medal wins, I think we can create cold brand status for Burnside. In Q4 working closely with Sandstrom, we're launching a one year long $100,000 plus media by marketing campaign focused almost exclusively on Burnside mostly in the Pacific Northwest. I expect to go into greater detail on our progress with that campaign on the Q3 earnings call. Now, let me just touch briefly on the retail tasting rooms. These tasting room stores has served a strong advertising for our brands and as platform trying out new product ideas on thousands of people per month and as a way to boost acceptance of the Big Bottom line of products, which incidentally was up over 90% year-over-year in wholesale case sales in July. We believe this unit can make a larger contribution. We have added new management, retained the consultant to improve merchandising, invested in more point-of-sales and advertising, bumps staff training up a notch or two, and we are just now in Q3 adding high margin non-alcohol products namely mixers, bitters and syrups used by bartenders and cocktails for our award-winning spirits, and which we hope will ties us in closer with the mixologist community. We are already seeing benefits from our changes. Let me now say a few words about canning, bottling and private label. As we have previously said, 2017 performance in MotherLode was less than planned and our plans to launch wine canning in 2017 did not materialize. After some tough changes this time of an executive manager, we brought in an experienced operational management and the guys who Tom Wood, our VP of operations. After addressing and fully solving design issues with our equipment, the networking with the manufacturer to reengineer it our wine and RTD canning operations were falling on track. We're servicing five wine canning customers and counting. We have customers that we believe will grow organically and will themselves drive these sites growth. During Q2, we benefited from the abrupt liquidation of Sonoma Cider down in California. Figuratively speaking, we swooped in and acquired additional high capacity canning equipment, the 32 had high-speed rotary bottling line, a full Q&A laboratory, chilling and carbonization equipment, complete sleeving and heat tunnel line for labeling cans and bottles, and even a fully TTB cleared can wine brand all to achieve. I’m personally very excited about this equipment coming online, not just for co-packing, but also because of the range of products we can now produce internally. I’d also like to mention that shifting gears here that during the quarter we issued our first single malt and that was then under the Big Bottom label. Before I turn the call over to Steve for review of the financials, I want to touch base on that and a couple of our future growth drivers. We launched our first grade to glass American single malt whiskey with a very limited release. The response was overwhelming as evidenced by awards in national competition. We think American single malt whiskey will be a growing new category and a big part of our future. As we installed the new higher volumes still repurchased with the proceeds of our uplifting last August, we hope to start increasing production volume and turning this into a major product area for East down the road. Let me also mention that our Sandstrom branding program is continuing. For example, we are in the process of rebranding our fruit-infused whiskey lineup which includes our Marionberry and Cherry product that have such a great following in Oregon. We are still early in the process, but anticipate an exciting release for both of these products. Finally, I just like to mention we are also planning the 10-year anniversary edition of our Burnside Bourbon known as Buckman and we have plans to create a Burnside malt product as well and brand extensions of our Portland Potato Vodka. So please stay tuned for those. With that said, let me turn the call over to Steve to run you through the financials. Steve?

[Steve Shum:]

Thanks Grover. Growth sales in the second quarter totaled approximately 1.68 million as compared to 883,000 in the prior year, an increase of approximately 90%. Net sales which exclude the Excise Taxes and certain customer promotion activities increased to a 152% to the 1.52 million versus 605,000 in the year ago period. During the second quarter, we sold 18,401 cases overall this consisted of 7,445 cases of our branded products and 10,957 cases of private label, most of which was from newer wine canning business. This reflects an increase of 70% over the prior year in our branded products and a 273% case growth overall. Similar to last quarter, the higher branded product case sales were driven largely by the newly launched Redneck Riviera product and an increase in wholesale traction within the Pacific Northwest on our vodka products and our newly re-launch Burnside brand. That was partially offset by slightly lower retail case sales during the period due to our decision to close an underperforming retail location. The private label business benefited in the second quarter from a ramp up in the number of canning projects, in addition similar to the first quarter, we also conducted another opportunistic sale of surplus bulk spirits in the period for a profit. Overall, wholesale revenues improved by approximately 68% to 830,000 compared to 495,000 last year. Clearly, the new Redneck Riviera product contributed to this improvement, but we also saw contributions from other key products Vodka and Burnside in our Big Bottom line. Looking ahead to the rest of the year we believe the Redneck Riviera brand will continue to benefit from the investments being made, especially considering the rapidly expanding geographic footprint and the marketing we are doing to pull product off the shelf. To this point, we are already experiencing strong that Q3 sales will meaningfully surpass Q2. We also expect the Burnside product to continue their progress particularly in Q4 when our new marketing campaign hits Oregon. Revenues in our private label business were approximately 577,000 for the period, a substantial increase over the last year and sequentially from the first quarter of this year. This was a result of both the canning operations ramping up along with the additional profitable sales surplus bulk spirits. Revenues derived from our retail and special events operations were approximately 268,000 which represented a 14% decrease from a year ago. We left it to close one of our underperforming retail locations earlier this year, along with the decision to focus on fewer, yet more profitable event activities both of which contributed to the decline in sales but should help with bottom line performance. For our other we've also implemented some new initiatives to draw customers, improve the customer experience and sell additional high-margin products. We hope this will bear fruit in the second half. Gross profit for the period totaled approximately 761,000 compared to 210,000 in the prior year. Gross margin relative to net sales was 49% versus 35% a year ago and an overall 2017 margin 37%. The gross margin in the period was positively impacted by the newer federal excise tax rate, which we have highlighted several times, which was partially offset by higher customer incentive programs as compared to last year. As we have mentioned, we do have a longer-term goal to further improve margins as we increase volumes and better spreads our facilities costs. However in the short run, margins may fluctuate as we continue to implement aggressive customer program incentives associated with the product launches for Redneck Riviera, Burnside, Hue-Hue and others. Advertising, promotional and selling expenses for the year increased to 1.07 million up approximately 94% from 550,000 last year. Again, we made strategic decisions to ramp our marketing efforts and support the more rapid and planned geographic expansion of Redneck Riviera. These efforts are also supporting our overall efforts to expand other key products both locally and regionally. And as a reminder under our agreement with John Rich, if and when the Redneck brand is sold, we are allowed to recover 50% of our direct marketing expenses in support of the Redneck brand. We do expect to provide more specifics on this in the near future. G&A expenses for the period totaled 1.5 million, an increase of 76% from last year. This increase was a result of addition to key personnel, along with higher stock based compensation and depreciation expenses. Net loss in the period totaled 1.9 million or $0.37 per share, compared to a net loss of 1.3 million or $0.40 a share in the year ago period. Our adjusted EBITDA during the period was a loss of approximately 1.25 million which compared to a loss of 771,000 a year ago, due to the strategic decisions and brand investments made. We sincerely appreciate the strong shareholder support in helping us build all of our brands which we feel will drive substantial value for all. Moving to the balance sheet cash, at the end of the period totaled approximately 2.35 million, inventory further increased totaling approximately 7.9 million. We have purposely built inventories further in the period to support the new product launches and ensure our ability to deliver. Subsequent to the period and we have also substantially added to our working capital position, putting us in a strong position to fully execute our strategy and support the growth now occurring. Since the period end, we have raised approximately 5.7 million additional capital largely as a result of warrant exercises. We used approximately 2.3 million to reduce our three-year notes outstanding and improve our balance sheet. Much of the recent warrant exercises have been a result of our announcement on August 3rd that the Company was exercising its option the call for redemption of the public warrants including both the original issuance of 1.38 million of these warrants last year, along with the additional 500,000 warrants issued with 2018 note offering. There was a total of 1.88 million public warrants subject to this call. To date, we are pleased to report that 1,264,115 warrants have already been exercised, leaving the remaining balance of 615,885. Further remaining warrants do exercise by the September 10th redemption date we will raise an additional 3.3 million from the warrant call. That concludes my highlights for the quarter. Further details are available in our 10-Q. With that, I’ll hand it back to Grover for closing remarks.

[Grover Wickersham:]

Thank you, Steve. We are making a great progress in developing Eastside Distilling into the brand factory concept that we envisioned when I became CEO at the end of 2016. Redneck Riviera whiskey is off to a blistering pace in Q3 2018 and when you look at other very successful product launches recently, such as Casamigos and Patron. They were no near where we are out to sell few short months. We are highly appreciative of the trust for shareholders place in us and we are dedicated to maximizing in the value of their investment in the future. With that, I’d like to open up the mic to Q&A session and look forward to -- Steve and I look forward to your questions. Thank you.

[Operator:]

And we'll now begin the question-and-answer session. [Operator Instructions] And our first questioner today will be Ian Gilson with Zacks Investment Research. Please go ahead with your question.

[Ian Gilson:]

As we look at the gross margin for prior years, the second half of the year as always surely significant reduction as compared to the first half of the year. Are we looking for the same sort of dynamics in 2018? Or can we hold the gross margin close to the first half level?

[Grover Wickersham:]

Steve, you are a margin expert, do you want to answer Ian's question?

[Steve Shum:]

Definitely. Ian, I definitely think we won't see as dramatic of a change as we do point out. We certainly do have some plans for additional customer incentive programs going into the seasonal period in the late third quarter and fourth quarter. So there will be some fluctuations, but we generally wouldn’t anticipate a kind of change that we saw in the previous two years.

[Ian Gilson:]

Excise taxes were even lower than I had anticipated. Now excise taxes plus promo incentives. What you reported in the second quarter relative to the spread going forward? Or was there something in there that was…

[Steve Shum:]

Yes, we think so. Part of that dynamic is also a function of the mix, further shifting more towards wholesale business versus retail. Within wholesale business, we only pay the federal excise tax. When we have our retail operations, we are paying both federal excise tax as well as the Oregon liquor control excise tax. But when we sell on a wholesale basis, we don't incur the state tax. So again, part of that is our mix issue. And we certainly anticipate, the retail is not an area that we see high growth. We are certainly implementing some programs to improve that, but the higher growth part of the business will really come from wholesales so we would expect that mix to further shift more towards wholesale.

[Ian Gilson:]

You gave a breakdown of case sales and I don’t have a number for the first quarter. Do you have that?

[Steve Shum:]

The numbers between the branded products and the private label breakdown, is that we are referring so that we…

[Ian Gilson:]

Yes.

[Steve Shum:]

We did provide that in the first quarter, it's in the press release. I can go back and pull that up, but it is certainly listed in the first quarter release.

[Ian Gilson:]

I’ll check that myself. In the second quarter, how many cases were sold outside of Oregon?

[Steve Shum:]

Well, the outside of Oregon business is purely wholesale and certainly some of our private label wine canning, customers are also outside of Oregon. So it's really a function of what aspect of business you are looking at. If we look at the branded products, approximately -- and the wholesale side of it, approximately 40% of the business in our wholesale branded products came from outside of Oregon, which was largely dominated by the Redneck Riviera product.

[Operator:]

[Operator Instructions] And our next questioner will be Harold Weber with Aegis Capital. Please go ahead.

[Harold Weber:]

My question is what type of timeframe or [indiscernible] do you have as far as moving products towards the East Coast?

[Grover Wickersham:]

We don’t have a specific timeframe in mind. I will say that one of our lead distributors is in Connecticut, so to the extent that we are doing expansion at our Connecticut probably top of the list, but I think I’d really leave that to Jarrett but it's probably going to be fourth quarter at the earliest before we do anything major on the East Coast because as I mentioned on the earlier part of the call, we got fairly forehead of our plan already, and there's a certain amount of consolidation and digestion that needs to be done.

[Harold Weber:]

But let's say mentally, I’m sure you are looking at this. How long do you think it will take so you are able to ramp up out but enough to start selling shipping stuff this way?

[Grover Wickersham:]

Well, I mean we have demand there right now Harold.

[Harold Weber:]

I’m sure, I’m saying how, but it's going to take you while to ramp up I guess in [indiscernible] but they'll get there.

[Grover Wickersham:]

Well, actually we have the production and we have the ability to go in there right now. It's more of a question of not getting ahead of our sales team. And our hiring, we are still feeling -- we have done a tremendous around hiring. As Steve and I both said, our marketing expense and on the prior earnings call I mentioned that actually the hiring that we are doing that specifically Redneck Riviera marketing team is actually part of this 50% that we recovered. So, that's a huge incentive to us to go forward quickly with the rollout of our sales team. But we don’t have a regional coverage right now on the East Coast on the sales team. So what we are going to be doing is filling in more in Florida more in Texas and one in the states that we recently announced, plus we will be announcing additional states that are within sort of Midwest, west coast footprint. So really don't count on us to anything really big on the East Coast until fourth quarter at the earliest, but we think we are going to have a really strong growth in that quarter without needing to have a big expansion on the East Coast.

[Harold Weber:]

But you are looking forward to planning that direction, yes.

[Grover Wickersham:]

Well, we know you and the other guys today just are going to be pretty big customers on your own. So, yes, we have got a lot of really -- we have got our major shareholders out there too. So, I mean we have and also John Rich is constantly getting national exposure on the East Coast and in the Northeast. So in fact a lot of the programs he interviewed on are based out there and have a lot of listeners out there. So, it's just a matter of time and I will keep you posted.

[Harold Weber:]

I just think it would be worthy to try you know you have a lot of momentum going with that idea, try and I don’t know tease them a little bit, but a little limited something out there, something coming soon or something I don’t know.

[Grover Wickersham:]

I’ll take that out with the rest of the team and we will see, if we can add some color in some of the upcoming press releases.

[Operator:]

[Operator Instructions] And our next questioner will be Ross Taylor with ARS Investment Partners. Please go ahead.

[Ross Taylor:]

Can you comment on two areas? One is how rapidly do you turn inventory into revenues? And how that should we expect that of inventory going forward as this brand rolls out particularly as Redneck Rivera will roll out, but also as Burnside picks up? And then second would be what percentage of the U.S. market do you currently believe are covered by Redneck Riviera with the agreement you have in place?

[Grover Wickersham:]

Steve, I don’t know if you want to take the inventory question. I’ll say that really as we have mentioned we maintain a rather large inventory aging spirit products. So for example, our Redneck Riviera is a minimum of three years and how some three-year in it. So, if you can buy that new fill and the current price we get is right around $450 a barrel versus buying two year old whiskey from MGP or other people and $900 a barrel or $850. You can see by buying is new filler and lighting age we have a major cost advantage, but that's really work in progress and inventory that is you wouldn’t expect a quick turn on it because it hasn't aged. Steve, do you want to -- can you answer the question?

[Steve Shum:]

Yes, I think you just highlighting that. We certainly are carrying more inventory on our books than we would envision necessarily needing for this year, for the balance of this year, but that’s on purpose as growers pointing out whatever being a strategic and opportunistic and our purchasing looking farther out especially since we had the working capital to do so because that will benefit us downstream and it ensures our supply and it also will allow us to improve margins as we look and get deeper into next year.

[Ross Taylor:]

Which would make sense obviously and we have chatted before. This is a business so you have to invest upfront that’s why there are so few brand liquid companies which are public. The second question about the reach of into the U.S. market that you currently believe you have with Redneck Riviera. And are there specific areas you think that you will reach into before the end of the year that will greatly expand them?

[Grover Wickersham:]

Well, we are in 28 states and we have several states pending. I would think that we -- in terms of our coverage geographically we are a very strong and have very broad coverage in the Midwest and the West Coast in the South. And we are in fact a number of the states that we have got that we have recently announced like we announced Arizona and Nevada we are filling in states that are really within our existing footprint. I would say I’m hopeful Arkansas is going to come in fairly quickly, that is again its sort of a filling state. As far as -- I think I answered here all the day. This is a question regarding where we plan to go on the Northeast. And our base is really actually kind of the main untapped territory I mean we have a few states that I would call southern like Virginia that control states sometimes it takes a while to get into and we expect that we will get into them. But in terms of our reach I’d say we are going to be pretty much every major geographical area in the states with the exception of the Northeast been an area that we're going to take our timeline and be strategic about.

[Operator:]

And our next questioner here will be Ian Gilson with Zacks Investment Research. Please go ahead.

[Ian Gilson:]

How many gallons in a barrel when we're talking about spirits?

[Grover Wickersham:]

Well, if you want to tell me how old the barrel is, it can be when it's initially filled and I’m talking here standard barrel I mean there are big one for coming up with some of our extremely high end spirits. We occasionally will use smaller barrels like 20 or 30 gallons. But typical U.S. barrel is 53 gallons, but the vaporization on it approximately 10% a year. So, I’d say eight year barrel might be as little as 32 gallons of spirit. Those aren’t proof gallons, proof gallons are hundred -- based on hundred proof. So, if you have a barrel with like I just mentioned 32 gallons then the proof gallons would actually be a bit greater since -- I would estimate in eight year it would probably be around 118 to 120 proofs. So, it would dilute down by about 20%. So, it's all -- to other question as aging and like so many things in life, but it really depends exactly with the age of the specific spirit is. This is why our 10-year Bourbon Buckman that we are coming out with this kind of need to be at a fairly high price because of the vaporization and also the just generally the storage costs for holding a barrel for 10 years, but we might try to figure a way to get you a deal on that.

[Ian Gilson:]

I was making sure selling price per case dropped in the second quarter, a new level or how do you expect…

[Grover Wickersham:]

Well, I think our price per case generally is going to be trending up since we have whiskey taking the place of vodka, but again that's really a question for Steve. Do you want to answer that, Steve?

[Steve Shum:]

Well, Ian again, I think you have to separate private label case numbers and isolate the branded products relative to branded revenue both wholesale and retail to get sort of an accurate average case, which you won't see as much fluctuation. And we have talked about this before that the way the private label business is adding in this canning -- the canning capabilities, the case volumes versus revenue are going to bounce around quite a bit over there. So, I think you need look at it separate and private label from the branded products.

[Operator:]

And our next questioner today will be Ross Taylor with ARS Investment Partners. Please go ahead.

[Ross Taylor:]

Yes, I wanted to come back and ask your thoughts on the U.S. single malt market. You have mentioned the fact looks like you have -- you have one out and its young, but it's been well recognized. You're talking about bring something out in Burnside. This is an area that seems to be for tremendous upside opportunity. There simply aren’t a lot them in the U.S. Can you talk about it -- talk about the dynamic side, but why you think the opportunities are open?

[Grover Wickersham:]

Yes, this is something that we have been messaging for quite awhile. We feel that American single malt is kind of the next big thing at least in whiskey. And are you seeing what happened with Japanese whiskey or Japanese single malt? And we think there is no reason why that couldn’t be rival even displace for American single malt. And the quality has been fantastic of our product and there's some other great products out there. So, we think if you look at Bourbon which is one of -- Bourbon and whiskey, you know, Bourbon is one of our real signature products and what we do with that with Oregon Oak I think it's a really unique spirit and we see a lot of future in that. But if you think of Bourbon it's really a corn-based product, where these corn grown in places like Indiana, the South Kentucky. But when you think of single malt that's grown -- barley has grown in the Pacific Northwest and the best barley we think in the world, but certainly in the United States we think comes out of the Pacific Northwest. So in terms of street crowd for the Oregon, Washington geographical region, we have that with that grain. So, the other aspect of single malt is to qualify as single malt. Now, we could come out with the sourced malt, we're now having to do with single malt. But the single malt has to actually be produced at single distillery and it has to be -- and that's the whole point of single it comes from just one distillery, but that’s something you pretty much have to do yourself as a distiller. And so my hope is that with the still that we pay for with our uplifting in August last year that’s going to be able to increase our production. There is a two year timeframe on this product. As you can see, we are winning gold medals. So far we won a gold medal at least everywhere we have entered the single malt, we think it's great. That’s a two year product. So down the road, that’s a place I would like to see us put substantial investment. And like I said, I really think it's a next big thing. I also think we are in an excellent position to create a great reputation for single malt. That incidentally and I said this before is why we purchased Big Bottom Distilling because they consistently are either tied for first place or first place of Oregon single malts and San Francisco, LA and all the local contests winner -- anyway sorry -- sorry for taking so much time on that answer. But you hit on something that is I think one of the main reasons why we are excited about the future.

[Steve Shum:]

And also I’d say -- and don’t worry about the time you took from my perspective because it also seems this is an area where we've seen some consolidation. You've seen some Washington state producers them bought out rather a significant prices on the payroll of production basis.

[Grover Wickersham:]

Well, yes, I mean I’m not going to kicked out to Steve's as far as price per barrel, but I will say that, that's a very, very sophisticated point because whereas a number of distilleries have been brought out obviously Casamigos and some of the others and High West, when they get to a very large case volume or large for micro distillery north 30,000 cases or 100,000 cases plus for Casamigos. There have been two major buyouts by Purno in one case and Moet Hennessy in the other case of single malt distilleries in Washington State. One that production was a very low level I mean smaller than us, I mean smaller than us overall, not just -- I’m not referring to our single malt production. So why did they do that? Obviously, those are major mega players in the spirits industry. I think the only answer is, of course, because they think the American single malts couldn’t be really big.

[Ross Taylor:]

I would agree, so I think it’s a very interesting initiative you guys have that makes you very different and unique from not just other public companies but other private ones as well.

[Grover Wickersham:]

Thanks and I appreciate you are saying that. I think we have some advantages and some barriers to entry there that we want to take advantage of.

[Operator:]

And this will conclude our question-and-answer session. I’d like to turn the conference back over to Grover Wickersham for any closing remarks.

[Grover Wickersham:]

Thanks to everyone for joining the conference today. I appreciate your support. As always, Steve and I are available to any of our shareholders, if they care to make further inquiries about our strategy or how things are going. So don't hesitate to be in touch if you need further color on Q2 in a sense of where we are in Q3. So with that, I'll conclude the call and thanks everyone for joining us.

[Operator:]

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.