Lowell Farms Inc.
Q1 2021 Earnings Call Transcript

Published: 8 May 2021

[Operator:]

Good day, and welcome to Lowell Farms Inc. First Quarter 2021 Earnings Conference Call . Please note, this event is being recorded. I would now like to turn the conference over to Bill Mitoulas. Please go ahead. Mr. Mitoulas, please go ahead. Mr. Mitoulas, your line is now live.

[George Allen:]

I believe we've got some pre-recorded notes.

[Bill Mitoulas:]

Good morning and welcome to the conference call to discuss Lowell Farms Inc. financial result for the first quarter of 2021. Before we begin, please let me remind you that during the course of this conference call Lowell Farms' management may make forward-looking statements. These forward-looking statements are based on current expectations that are subject to risks and uncertainties and they cause actual results to differ materially from expectations. These risks are outlined in the Risk Factors section of our listing statement filed on SEDAR. Any forward-looking statements should be considered in light of these factors. Please also note that any outlook we present as that of today and that management does not undertake any obligation to revise any forward-looking statements into the future. This call has been pre-recorded with George Allen, Lowell Farms' Chair of the Board; Mark Ainsworth, Chief Executive Officer; as well as Brian Shure, Chief Financial Officer who will go into the details about the company's financial results for the first quarter later in this call. The Q&A portion of this call will be open to analyst questions to provide further insight into the company's performance, operations, and go-forward strategy. Those of you who may happen to leave our call before its conclusion, please be advised that this conference call will be archived on the Lowell Farms Investor Relations Web site page.

[George Allen:]

Good morning, and thanks for your time this morning. We have a lot to cover so let's get on. Now, this was a transitional quarter for us and I don't want investors to think for a minute that we were satisfied with our financial results for Q1, we're not, but I do want to convey to our investors that we have turned the corner on cultivation and our integration in the new brand is going extremely well. I'm confident in our ability to deliver a solid Q2 that will demonstrate our capabilities. The acquisition of the Lowell brand has proven to be immensely positive for our company despite some early hurdles. We have been able to improve sales of that brand to new levels with tremendous early success and I'm optimistic that we have chosen our flagship brand well. Before I talk about the future, I want to briefly discuss the first quarter. Our operating losses during the quarter were driven by two primary factors; number one, a lack of cultivation output from the greenhouse; and number two, the increased operating drag the Lowell acquisition. Now Mark and Brian will go into more details on both, but I'll touch on it briefly. On last call, we forecast that we would harvest between 4, 000 and 4, 500 pounds during the quarter. Our actual output was 4, 724 pounds beating our estimate but unfortunately, an improvement in yields came mostly at the very end of the quarter. And we spent much of the first quarter with the inadequate flower supply forcing us to source flower externally. Additionally, when we acquired Lowell, we inherited two Southern California facilities and 121 members that we needed to rationalize. Lowell was not profitable. It was essential that we address the excess immediately. In early April, we shuttered both facilities and eliminated 99 positions. This was tough medicine all around as many of these team members were extremely talented and have been loyal members of the family since the beginning. But we're not a company that is large enough to be spread across multiple locations. I'm really proud of our combined manufacturing team as they answered the call and have completely migrated the full production of all Lowell SKUs to our Salinas facility without any supply interruptions. Now, this was better than any best-case scenario that we could have planned for, great work team. As to sales, I'm pleased to say that we are off to a great start with Lowell after integrating 2 sales forces last month. In April alone, we have soared Lowell into nearly 234 accounts, a substantial improvement from the footprint we inherited around 110 regular customers. While some of the momentum has occurred from the substitution of packaged flower from our legacy brands into the Lowell brand, we have seen a substantial improvement in Lowell sales doing nearly $2 million in branded product sales in the month of April alone. Now, this is a very positive sign about the brand health and potential.

[Mark Ainsworth:]

Thank you, George, and good morning. For the first quarter of 2021, the management team continued to focus on getting the farm back to good health and yield levels back to our expected output. The recent April harvest data tracker, which is posted on our website confidently shows that all the hard work paid off and all systems are go. Through extensive data within the cultivation, our team was able to identify what our biggest biological issues were at the farm. One by one we implemented SOPs to eliminate the threat and prevent the re-occurrence. Our efforts are really taking hold. April has been extremely positive for the team as we have harvested nearly 60% of the weight, we harvested in the entire first quarter. If the current trend holds, we should see harvest output of between 8, 500 pounds and 9, 000 pounds of flower for the second quarter. A record level and a massive improvement from last quarter. As George mentioned, during the first quarter, our leadership team undertook the task of merging Lowell and Indus. Our objective was to combine the two teams and put the best athletes on the field. We closed the acquisition on Thursday, the 25th of February, and immediately commenced integration. By the following Monday, a Lowell inventory have been relocated and on-boarded into our systems to be available for sale statewide. Within two months of the acquisition, we successfully transitioned all of the manufacturing of Lowell products through our Salinas facility. Using our own feedstock grown on our farms, we are now making the entire product line at our Salinas facilities. The actions we took to centralize production and operations in Salinas allowed us to eliminate 105 positions with an annual savings of $3.9 million in salaries and approximately $1.5 million in facility-related OpEx. The integration of the combined sales force was extremely important to get right and we delayed the initiative for 30 days in order to plan appropriately. Cannabis sales are very relationship-based and it was imperative that we kept as many relationships intact as possible. We took this opportunity to revisit territories, commission structure, and quarters across the board and I believe now we have one of the best go-to-market teams in the business. April was the first month under the newly federated sales organization and the team sold nearly $2 million in Lowell products for the period, a threshold that the brand had not seen since 2019. This integration and the combined sales team out of 124 new customers increasing distribution by 33% within the first two months as one sales team. You will recall that a critical piece of the plan to acquire Lowell was the improvement of feedstock that was used in the brand. Historically, margin pressure has forced the brand to put inferior products into their packaging. This hurt the brands with budtenders and we did not want to waste a minute addressing the issue.

[Brian Shure:]

Thank you, Mark, and good morning, everyone. Before I begin, please note that we are reporting our Q1 results in US GAAP. Previously we reported on an IFRS basis however we are completing the process for registering our shares with the SEC and going forward, we will report on a GAAP basis. For Lowell Farms, the primary difference between US GAAP and IFRS is the requirement under IFRS to report biological assets at projected fair value while GAAP records agricultural assets on a cash basis. Additionally, a portion of my commentary will be on a non-GAAP basis. So please refer to today's earnings release for a full reconciliation of GAAP to non-GAAP results. We report all figures in US dollars unless otherwise indicated. I would also note that our quarterly report will be filed with the CSE and the SEC by mid-May. As Mark highlighted, we reported Q1 revenue of $11 million up 17% from Q1 2020. As noted earlier, Q1 revenues included over $900, 000 in Lowell branded sales resulting from our acquisition of the Lowell brands effective February 25th. Revenue in the quarter continued to be impacted by lower yields experienced from cultivation as a result of plant stress from extreme temperatures in late summer. But recent harvests have begun to exceed pre-stress yield, which is encouraging for Q2 and beyond. I should also note that revenues were impacted by the decision to significantly reduce lower-margin third-party agency and distributed brand sales and focus primarily on higher-margin own-brand products. As we've discussed previously, we segregate our brands into three categories owned, agency, and distributed or third-party brands. For the first quarter, owned brands were 88% of revenue compared to 83% in the prior quarter and 55% in Q1 last year. Agency brands were 11% of revenues down 18 percentage points from Q1 last year. Our focus is on supporting those agency brands that are more strategically aligned with our drive to profitable growth. Distributed brand revenues were 1% of revenues compared to 16% in Q1 last year. We anticipate revenues in Q2 of $14 million to $16 million driven by contributions from Lowell Farm products for a full quarter and increased output from cultivation. We exited Q1 with cultivation yields getting back to or exceeding levels we experienced in Q3 last year. We expect agency and distributed revenues to continue to decline as we focus on driving our more profitable owned brand portfolio. Turning to gross margin. Gross margin as reported was negative 13% in the first quarter compared to negative 18% in the first quarter last year. The margin improvement over the first quarter last year was due primarily to our emphasis on own-brand product sales in the current year but was still depressed due to reduced flower output from cultivation. Gross margins in Q2 are expected to be positive reflecting the anticipated increase in flower output and expanded penetration of Lowell brand sales. I should also note that gross margin is impacted by GAAP for finished goods purchased in an acquisition since finished goods acquired are valued at selling price with sales expense incurred in selling the product. This adversely impacted margins by approximately 2 percentage points in Q1 and will impact margins in Q2 as we sell through the acquired finished goods inventory.

[Mark Ainsworth:]

Thank you, Brian. I cannot say this enough, but I am incredibly thankful for George's vision and the teams' panache to execute at the best of their abilities. I'm also thankful for our investors who quarter after quarter continue to double down on their support. The future is bright for Lowell Farms Inc. and I can't wait to share more with you as we solidify our positioning within the California market and beyond. Thank you. And with that, I turn it back to the operator.

[Operator:]

Our first question comes from Jason Zandberg, PI Financial.

[Jalson Zandberg:]

I just wanted to touch on the Lowell Farms and the integration. Just one thing that was pretty important in developing Lowell brand was their great packaging. I just wanted to know if you're maintaining that packaging line-up. And just if you can share with us what would the incremental cost be in terms of packaging for Lowell versus some of the other brands, it sounds like you've got quite a bit of a price increase so there is, I'm sure a lot of margin there to absorb the packing cost but any comments or color would be helpful?

[George Allen:]

So I will generally tell you that there is a fair amount of value in the packaging, it's obviously iconic. And I will tell you that our plans are certainly to evolve the packaging over time but that the bar there is only to improve it. And I think from our standpoint, it's sort of proceed with extreme caution type development. But we do think the consumer expectation is to continue to be delighted by packaging especially when it comes to the Lowell brand and evolving it over time is something that we can keep it fresh and alive. So right now, we're currently selling all products under the existing packaging. We've gotten some new packaging that we're developing around a couple of additional SKUs that we're launching. So no change to existing SKUs in terms of packaging. There is a surcharge in terms of cost on the packaging. There is a surcharge in terms of cost, generally costs us about a little over $1 for our existing packaging on the pre-roll pack and about three fourth of that on the flower packaging. We think that's important and certainly not something we're looking to compromise but we will certainly look to drive cost down there with volume and sort of intelligent sourcing but the lead times on that the development is longer than a couple months, so it will take us a little bit of time to drive cost out there.

[Jalson Zandberg:]

And in terms of your partnership with Ascend Wellness, will they have to adhere to that same packaging standard, is that the plan or -- and I know that different states have different packaging requirements but to the best of their abilities, is that the plan to carry on that packaging, to carry the brand in other states as well?

[George Allen:]

Yes, 100%. The brand and the pack or iconic. So the only product that we've launched with Ascend out of the gate is that our hero product, the pre-roll pack. And that simply wouldn't exist without the pack itself, so 100%. And the way we are doing that is right now, we're in the acceptance process in both Massachusetts and Illinois for the packaging. Once we get that packaging approved for compliance, then we will modify our existing packaging to comply with whatever feedback we get. And the good news is on pre-rolls, the packaging hurdles and requirements are far less onerous than they are in other more dangerous types of products like edibles. So we feel pretty good about the timeline there and the way packaging works in that relationship. As we're responsible for packaging, we sell the pack to Ascend Wellness. So we have complete control over what the external look and feel, look of the product is.

[Operator:]

Now, our next question comes from Bobby Burleson of Canaccord.

[Bobby Burleson:]

So just curious on the licensing -- back to the licensing opportunity. What should we be thinking about there in terms of margins given that you're selling through some of the packaging, what's the kind of all-in blended margin you guys are looking for there?

[George Allen:]

I think we're sort of still trying to watch out where pricing ends up. So that the way it works is I think we have a cost-plus arrangement on the packaging. So that's a pretty narrow margin profile, but not necessarily likely to generate a lot of the top line revenue. Most of the top line revenue will come from the royalty arrangement with Ascend which we said on the call but I'll repeat because it's important. The royalty arrangement we have is we get 15 points on wholesale sales from Ascend. So either if it's sold to their own dispensary, we use the list price and if it's sold to a third party, we use the transaction price in wholesale, so for the basis. And that top line, the only cost that we incur would -- against that would be additional headcount costs we have on our side as well as whatever marketing support we're lending to the brand activation. And that level is yet, it is undetermined. We're stepping through us, it's the first time we've done this, we certainly had other offers to do this in other states. My instinct here is that Ascend is a highly confident and friendly partner to us and we know them well, they know us well. And so we're trying to learn what's important in this activation of a brand in another market before we rinse and repeat in too many other geographies. And so this is really about our learnings and what we can take away from it. I do think it's going to have a meaningful financial impact but exactly how much is sort of undetermined right now.

[Bobby Burleson:]

Congratulations on getting the yields up at the greenhouse. Curious what you guys are doing. If you maybe could just walk us through -- this is a little bit of review, but what you guys have done to protect against future losses of a similar nature? I saw that we're entering fire season potentially early this year. So curious what mitigates this kind of an issue going forward?

[George Allen:]

Well, I'll start and then I'll give it to Mark to see if there's anything I missed. Obviously, there are only so many parallels that you can run into with cultivation in the form of pests and viruses and foreign contaminants. And I think we've actually had a fair amount of run-ins with each of them over the last 12 months. And the genesis of what happened here, I think is something that it was coming more into focus as time evolves, but it all certainly was -- the sound of it was certainly the heat stress that we experienced last year during the wildfire season. It certainly impaired our plant health, in our nursery which is once you have challenges in nursery, it takes a very long time to work its way through. So I think what we've done is we've created SOPs that are far more rigorous than we had before and staffing frankly that's far more acute and specific to each type of peril out at the greenhouse. And that allows us to maintain vigilant watch for each one of the issues. Now when we're -- in respect to the wildfires, so I think we've said this earlier in the year. One thing that we have actively worked on is our environmental controls at the greenhouse which are far more reactive in terms of mitigating heat and humidity inside the greenhouse which are your enemies during the summer season and can be really exasperated by the wildfires if you shutter the greenhouse. And so that's something that we've implemented, it's no longer a mechanical system, it's now fully automated and the team has been working to program that in advance of wildfire season to make sure that we have controls in place. And I think it's important to note, last year's wildfire is never this year's wildfires. Obviously what's likely to burn this year is forest land that wasn't sort of burned down last year, it's pretty logical and obvious. And so I think we are watching where the state has declared are high-risk areas and we feel relatively comfortable at this stage but we'll keep everybody posted as the season evolves. Obviously, there is a fair amount of anxiety everywhere in California around on a repeat of what occurred last year and no shortage of that on our team. Mark, is there anything you want to add to that?

[Mark Ainsworth:]

No, I mean I think you addressed it really well. The team, I mean we're testing for viroids in-house now, and we're cutting off some others. So things don't need to move in production if they have any issue. So I mean we got the bottom of everything and we now plan every harvest like it's going to come in contact with our worst enemy. So we've taken mitigation risk from day one in the nursery all the way through the last few weeks of flowering. So I mean I think as a team and a program I don't know, I think we've seen every plague that could have been thrown our way and I think now we have a system in place to catch it before it's even going to happen.

[Bobby Burleson:]

And then just one last one. It seems like things are opening up in terms of more and more localities allowing cultivation and production but there's also a lot of capital that's been raised and is being deployed to build out footprint in California. I'm wondering what lumber prices you're dealing and issues maybe getting lighting from overseas, what's the latest prognosis on being able to get a greenfield operation up and running or find here an existing facility that's relatively easy to retrofit as they've gotten a lot better and more expensive?

[George Allen:]

So, Bobby, I will tell you that like it was just about announcing square footage and getting footprint under the belt, the even footprint under the belt that could work in the near term I think that would be something that we would have no problem doing because there is no shortage of licensees who are willing to sell licensees who had similar issues that we had that busted the bank who are going to sell. The challenge that we are facing is cannabis cultivation is certainly a cycle in California and will be a cycle. We've just seen very strong bulk prices over the last 18 months to two years and that has created a sort of bumper crop of capital expansion in California. And we're watching very cautiously, as we think through that about how to make sure our facilities have a cost structure that's enduring over the long run. And one critical ingredient there that we've been deploying is really the negotiation on taxes. So each city or each incorporated city or county has their own cultivation tax that they deploy depending on whether or not you're in an incorporated city or a county. And it's really imperative to use your negotiating leverage with a large-scale operation at the outset. We've seen a number of large operators walk into the big facilities with taking the rack rate tax deal and we think that that's a little bit more of a treacherous path. So we see a couple opportunities out there to negotiate with some western jurisdictions and to get tax rate to be a huge advantage. If you don't get your tax rate right, it can be nearly double what you're rent is in a facility. So it's a major contributor and certainly will be a major contributor to losses should the cycle turn. The other thing we're starting to see is a trend towards outdoor and sort of modified hoop house, greenhouse construction was sort of a low-cost environment. We've seen counties that were really reticent to embrace that type of cultivation are now starting to embrace it. But what that creates is a massive chokepoint in the production, in sort of post-production processing and that is an opportunity that we are evaluating really closely. I can't speak specifically about it yet, but I do think it potentially affords us a way to get access to a large quantity of feedstock but in a way that protects us from future price movement and in a way that gives us a substantial advantage to our competitors in unit economics. So that's something that we're very focused on right now as well as the cultivation expansion. I want to reiterate something and that's also really important to understand. Our brand today we produced just shy of pound 3, 000 in the month of April in terms of flower. That's obviously great for us and we look forward to putting that number in the rear-view mirror as the team is confident in their ability to march upwards. But I just want to be clear, our ambition in terms of where we want to take our brand, we have all that we need from our greenhouse today, to build the largest brand in California cannabis. Our output is substantially higher per square foot than most greenhouses that's because of the investments that we've made into it. And the unit economics adds whole-throated output are superior. And what that allows us to do is build -- I believe build everything we want in terms of branded products. We could take the number one position in pre-rolls and the number one position in packaged flower in California with the cultivation output that we're seeing from our farm today. So we have everything we need. That doesn't mean that we don't want to continue growing and we are, but we're just going to be judicious about it and I look forward to walking our investors through our next step and why we think it was the right next step.

[Operator:]

Our next question is going to come from Doug Cooper of Beacon Securities.

[Doug Cooper:]

Just on the capacity of the greenhouse output for Q2, you give a range 8, 500 and 9, 000 pounds. Is capacity at the facility is still I think 45, 000 pounds, so would you get there kind of run rate in the early Q3 or mid Q3?

[George Allen:]

So I think we've always said between 40, 000 and 45, 000 pounds. I certainly don't think we've learned anything that suggests we can get to that output. I think we still, the team is confident, there's a couple of measures that they've taken can have more step-function improvements in output. We'll see, we've got another piece of -- a couple of pieces of data coming in this quarter as to how we've transition in plant medium and then a couple other changes that we've made to see what kind of step function we can get out of those. I will tell you that I feel good about that number. I still feel good about our ability to get upwards of 40, 000 pounds. What that will require is that will likely require that we are running at a higher monthly output over the months of usually about May through October when we see peak output from our greenhouses and we'll probably see about a 15% to 20% decline that's usual from the greenhouses but I'm still highly confident in our ability to achieve that number, Doug.

[Doug Cooper:]

Revenue $11 million in the quarter 88%, which was your own brands, that puts it around $9.7 million. You said the Lowell was $900, 000 was that for the quarter, was that for March?

[George Allen:]

No, that wasn't for the quarter. That was just for the March and the stub period and in February which I think was achieved a bit.

[Doug Cooper:]

So that was the entire contribution of the Lowell in the quarter, right?

[George Allen:]

Yes.

[Doug Cooper:]

Because it was just closed, the acquisition closed Feb 24, the summer.

[George Allen:]

That's right.

[Doug Cooper:]

So if I look forward to the guidance that you guys gave a $14 million to $16 million in revenue for Q2, call it $900, 000 in Lowell for March, $2 million of April, so it obviously doubled, give or take, on the back of greater distribution. Of your $14 million to $16 million in revenue, how much of that is estimated to be Lowell's, is it be around 50%?

[George Allen:]

I think 50% is an aggressive number there. And I'm not 100% comfortable yet giving guidance on the breakout in Lowell. I think a lot of -- we've got some product launches this month that I'd like to see how those go. Obviously, we think we've got a lot more stores to get penetration into in terms of footprint and the team is actively working on that. So I do think it's got a lot more revenue potential than where -- than where we were in April. But I think it's going to be -- I think it's going to take a little bit of time for us to grab that kind of share.

[Doug Cooper:]

I guess the proof's sort of in the -- putting in the reorders. So you had your initial sort of sell in to some of these new stores, have they started to reorder yet?

[George Allen:]

Sure, a 100%, yes. We've definitely seen some re-order volume, it's something we watch closely. 420 was a big volume clear in -- clear out for a lot of stores and we saw some replacement ordering and it's something that we're watching now. And sell-through is critical, I mean we watch sell-through through all the tools that we have to make sure the products that they're moving. A big part of sell-through is making sure we have our brand ambassadors who are visiting stores, making sure the product's merchandised favorably and making sure that if there is a demo day where customers want to learn about the farm or learn about the product, we're in front of customers doing that. This is -- it's obviously a -- it's a battle for eyeballs and pension and that's where our own captive distribution network and our sales team really is an advantage to us. Most of our competitors are using third-party distributors, but there's a lot of work that has to get done in order to generate that kind of sell-through. So I think we should be better at being able to report our sell-through volume and velocity at the end of next quarter.

[Doug Cooper:]

And just sticking on the pre-rolled market to last sort of data I saw, maybe that was your debt is roughly 10% of the California market, do you have any update on there? And where in April, based on the $2 million of sales, where Lowell stood in the market share?

[George Allen:]

Yes, I would say Lowell probably third or fourth in market share. That's a little deceptive because some of the players above us have product SKUs that we don't have mainly the infused and many pre-rolls. So in terms of the non-infused pre-roll pack were higher up in the material than before I don't know exactly which one it is but I think it's probably number two in the market. But I would say that I'm optimistic about our ability to climb that chart. I think the other thing that we are very focused on right now and I think it's something that's coming into focus is how to drive substitution from flower into pre-rolls. And I think there's probably an analog that you could go back and make to the sort of to the tobacco industry where loose tobacco outsold cigarette through great number of years. And I think from our standpoint, the consumer is inclined to make more of a substitution towards pre-rolls if you get the offering right. And I think that's a combination of product, that's combination of price and merchandising. So those are the three things that we're so keenly focused on in terms of driving substitution. I don't think this is about just taking share from the other pre-roll suppliers in the marketplace. I think this is about driving automation to drive down our unit cost to make pre-rolls a better substitute, a more compelling substitute for the consumer. Now the one thing that's really great and exciting about the marketplace, and sorry for the long-winded answer, but the thing is we are seeing flower and pre-rolls vastly -- when you combine those two, those two are vastly outpacing the growth of the rest of the California cannabis market. And that tells consumer has a desire and a want to smoke cannabis in a natural form. Well, I think that gives us all the jet fuel we need to invest in automation to push pre-rolls to be a viable substitute for flower because the consumer has spoken, right? The consumer is already telling you then the most mature market in the world what they want to do is they want to smoke cannabis in its natural form.

[Doug Cooper:]

And my final question, I guess just on the licensing side. Has Ascend given you any indication what they think Lowell could do with Massachusetts, Illinois, part one. Part two, do they have a roll from other states that they're in, and then part three, other states, which ones would you find most attractive, I mean there is a huge need for cannabis currently I think?

[George Allen:]

Yes, I think our relationship with them is -- and I was reluctant to sign a sort of binding long-term relationship that coupled us at the hip. But over time, because one thing you've got to remember about these MSOs, they are supply-constrained. I mean they have -- most of them have indoor growths where they can only produce so much flower. And then they have to optimize their output to make as much revenue from that output as they possibly can. And what that means is that product that they tilt towards our offering has to be revenue accretive for them. And so, one thing that we're going to be watching very closely is how the product moves when we price it at a place where it's revenue accretive to them and absorbs our royalty. I think it's too early to say how successful that is. From my standpoint, I think we're achieving two fundamental goals and the first is, learning how to effectively rollout this product in other marketplaces, and the second is cementing our brand and brand image with cannabis consumers at the moment of discovery in other markets. And we don't want to be absent from the dialog that consumers have with budtenders in other markets and that's really critical. I think it all sort of paves the way towards what we think the long-term future here is where the product is essentially manufactured and sent to consumers on a nationwide basis. That's obviously some time off, far off but it's important for us to plant the seeds now.

[Doug Cooper:]

I mean, just to clear it through. If one may say cannabis is allowed what happens to these licenses?

[George Allen:]

I think by the way, that is a great question. I'm sure there is a teams of lawyers who'd get on that. But I think the vision of the future that I think I subscribe to is one where feedstock and/or raw products can be acquired -- can move across state lines but they need to be sold and distributed by license entities within those marketplaces. That's what in my opinion, what the future is most likely to look like. How long it takes for us to get to that end state, I couldn't be certain.

[Doug Cooper:]

And probably what sort of other states that you find attractive, will it be Florida, Brooklyn?

[George Allen:]

Yes, it's obviously, they were -- yes, the recreational states, I would say Florida is interesting. It's sort of like Michigan and was one that was a medical market. It's very high penetration of cannabis consumers, very high normalization rate. So I think Florida is probably out there and certainly interesting. Obviously, it's only been a year and a half since they embraced. So I think that would be a good time for us to get into that dialog. The challenge of Florida as you can't -- when you choose a partner in Florida, you have to choose the partner to be vertically integrated because the brand can't be sold wholesale and for whether or not that changes, who knows, but today, that's the case. Other markets that are certainly interesting are the sort of -- are the rec-markets of high volume, especially those with a fair amount of tourism. So Nevada is certainly one that we're watching closely and probably look to be a fast follow beyond the states that we're in and certainly New York. Ascend Wellness has one of the best retail locations with the MedMen facility in New York City and certainly one that we would want to be a part of. So if partnership goes well this Ascend, we would certainly hope to take it up in New York.

[Operator:]

This concludes our question-and-answer session. At this time, I would like to turn the call back to Mark Ainsworth for any closing remarks. Mark, please proceed.

[Mark Ainsworth:]

Thank you again for joining the call and taking the time to get an update on our business. We look forward to talking with you on our next earnings call.

[Operator:]

This concludes the conference. You're now -- please feel free to disconnect at this time. Have a great day.