Stem Holdings, Inc.
Q3 2021 Earnings Call Transcript

Published: 17 Aug 2021

[Operator:]

Greetings and welcome to Stem Holdings' Fiscal Third Quarter 2021 Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. I would now like to turn this conference over to your host, Mr. Valter Pinto, Managing Director of KCSA Strategic Communications. Thank you, sir. You may begin.

[Valter Pinto:]

Thank you, Operator. Good morning, everyone. This morning's remarks will be given by Mr. Adam Berk, CEO of Driven By Stem. Following our prepared remarks, we will host a brief question-and-answer session. The company's Form 10-Q for the period ended June 30, 2021 was filed with the U.S. Securities and Exchange Commission yesterday, August 16, 2021. Today's call will refer to various non-GAAP financial measures. Today's discussion will include actual historical information, as well as forward-looking statements that are based on assumptions which are subject to risks and uncertainties that could cause actual results to differ materially from those in these forward-looking statements. Management can give no assurance that any forward-looking statements will prove to be correct. Forward-looking statements discussed in this call are relevant as of the date of this call, August 17, 2021 and the company undertakes no obligation to update or revise any of these statements, except as required by applicable law. Management refers you to the cautionary statements and risk factors included in the company's MD&A, by which any forward-looking statements made are qualified in their entirety. All information is in U.S. dollars unless otherwise specified. I'd now like to turn the call over to Adam. Adam, please go ahead.

[Adam Berk:]

Thank you, Valter. Good morning to everyone on the call and thank you for joining us as we deliver our financial results for the Fiscal Third Quarter ended June 30, 2021. I hope that you all have had the opportunity to review our earnings release as we are eager to share our results and the operational progress we made during this quarter. Now let's dive into some of the details. During the fiscal third quarter, Stem Holdings generated historically high revenue that was two times above our fiscal third quarter 2020 revenue. The strong revenue results reaffirm the strategic and financial benefits of our focus on organic growth coupled with the acquisition in late 2020 of Driven Deliveries, which was the only publicly-traded cannabis, e-commerce and delivery as a service platform in California. Our fiscal third quarter 2021 gross revenue was $12.4 million, an increase of $6.3 million, or 104% from $6.1 million in the same quarter of 2020. Our gross margin of 14% includes a reclassification of expenses from SG&A to COGS for our recent acquired Driven cannabis delivery business. Without this, our gross margin would have improved 7.6% to 41.8% for the quarter. As I'll discuss in a few minutes, our retail and direct-to-consumer delivery operations continues to outperform our expected expectations. Our team executed 57,603 transactions during the quarter, driven by a 15.3% increase in Oregon and producing a 19% increase in revenue on improved transaction value. Similarly, we executed 78,455 deliveries during the quarter in California and nearly 1,000 in Oregon as we test drove Buddy in anticipation of our official launch in the greater Metro Portland area this past week. Due to full vertically-integrated operations, we have the advantage of participating in every aspect of the cannabis supply chain. This integration strengthens the foundation of our long-term growth strategy and reduces regulatory risks as the industry continues to evolve in the U.S. and globally. This structure will enable us to build value for our shareholders and support our rapid growth. As previously outlined, we have a clear roadmap to build the largest publicly-traded cannabis farm-to-home ecommerce and delivery company with multiple strategic opportunities ahead of us. This roadmap that we're building contains five paths to profitability. The first path is further expansion of our proprietary Buddy delivery as a service platform into new states in multiple markets. The second path is to create strategic partnerships for delivery with leaders in the cannabis space in new markets to expand our footprint. We plan to achieve this utilizing our own licenses, or by entering states with joint ventures. The third path is focused on continued growth of our current retail dispensaries, as well as Buddy and Ganjarunner in California and Oregon. The fourth path is the progression of our own branded product sales and distribution. And lastly, the fifth path is strategic M&A that is accretive in value and provide synergies to our operations in current and future markets that are consistent with our vision. As we drive our current business model and explore new opportunities, we are also monitoring and preparing for the future landscape of cannabis. As the industry continues to evolve in the U.S. on a state-by-state basis, we are positioning accordingly. Notably, the recent proposed Cannabis Administration & Opportunity Act, introduced by Senator Majority Leader Chuck Schumer, along with Senators Ron Wyden and Cory Booker, contemplates interstate commerce for which we are already well-positioned. Both small and large cannabis operators are evaluating their current operations and focus on geographically-strategic production facilities that can serve as their national footprint in the event that this bill passes. These operators can effectively be viewed as our potential partners for our delivery as a service platform as we are ahead of the curve in the rapidly-growing delivery submarket. In fact, we are already working with some of these potential partners in some of our current markets. For the past six months, Driven by Stem has strategically onboarded specific brands and products. They're not only in high demand by our connoisseur cannabis consumers, but they also become national partners. In addition to retail delivery partnerships, our brand Buddy widget is an online ordering tool, enabling seamless integration for current and future brand partners to have consumer delivery. Essentially, this service allows branded product companies to install a tool on their web browser, social media, and auxiliary digital platforms, enabling a seamless and direct connection to consumers engaging in personalized home deliveries of cannabis products that we are facilitating. To build a strong balance sheet in order to achieve our vision, we continue to focus on our four-point execution plan described in previous calls and presentations. Our first point is the execution of expanding our domestic footprint. We are currently operating in California, Massachusetts, Nevada, and Oregon and we'll launch operations in Michigan in the fall, followed by our new state of Georgia. We're also expanding by way of our wholesale business, with our product now sold in over 240 dispensaries outside of our own, increasing by over 23 new locations just in the last quarter. As we now get set, Driven by Stem is executing our go-forward strategy for home delivery with our Buddy proprietary platform. We made further progress in our expansion plan as we recently announced the official launch of the shopbuddy.com ecommerce platform in Oregon. This represented our first contiguous expansion state for our delivery service and a major catalyst. Our Buddy platform is anchored by our Stem's local Tj's on Powell dispensary in Portland. This location is recognized for the largest selection of curated products available for delivery in the market, including flower, pre-roll, concentrates, and edibles as well as non-cannabis gear. After our soft launch and several months of work to ensure our complete build out of our market-specific front end and an API to connect our ERP and metrics, shopbuddy.com is now live with over 100 brands in 825 skews for delivery in greater Metro Portland to be soon followed by the rest of the state beginning in October with Metro Eugene. This will be supported by an exciting new marketing campaign, passing consumer behavior, taking cannabis delivery at home. We also continue to grow Buddy in California, with two-third of our customers in the desirable age range of 21 to 39, which is a heavy-user demographic, which has indicated increases in average size of orders. Customer attention or stickiness, which I like to say is critical to our strategy as we continue to build our technology capabilities in this area. We continue to operate a well-performing Foothill Health and Wellness dispensary in Northern California region of El Dorado. This dispensary is currently medical use only with limited competition in the area and we expect to receive our recreational license in the coming months. In addition, we are exploring opportunities in the Rockies and looking to expand our current footprint in alignment with the opportunities that will be identified in constantly-evolving cannabis industry. Among the strategic opportunities under consideration to enhance our footprint, including brick and mortar dispensary that can also act as new hubs for home delivery. We can also expand our core competencies through M&A in several areas, including extraction technology, as well as integrated disruptive brands that we can pipeline across our full footprint. And this is just the beginning. Point 2 focuses on cost reduction. As we continue to expand and scale our operation, we will drive cost savings through synergies that eliminate duplication and increase performance. In addition, we plan to reduce SG&A through consolidation of back office and other functions that can be handled by our management team to further improve efficiencies in the coming months. Point 3 is our commitment to operational excellence and productivity. We have implemented a new MRP and IT solution to improve inventory, as well as financial controls to drive cash conversion. We seek to increase automation, assortment efficiency, introduce product cost through value engineering, while not compromising on product quality. We have already applied this process in our acquisition of the Buddy Delivery platform. Buddy also offers localized cannabis products repacked and carried by our own drivers in lock boxes to our highest performing communities. As a leading cannabis technology company this quarter, we implemented a new algorithm to completely maximize an opera and optimize the assortment and value of the cannabis products that are stored in each vehicle. This has reduced order processing time with increased accuracy, eliminating the potential for human error of over-packing the coolers while also enhancing customer satisfaction. This is indicative of the initiatives that we have underway to drive our top line growth and a bottom line profitability with cutting edge know-how. As we assess and integrate new acquisitions, we will continue to identify opportunities for margin improvement with quality assurance while supporting our culture of diversity, inclusion, and teamwork. Point 4 is perhaps the most crucial -- customer acquisition, loyalty and retention. We continue to acquire new customers at all points in our distribution chain with high retention by exceeding their expectations. This is critical given the unprecedented of long lesson behavioral changes driven by COVID in other environmental changes and challenges on the west coast of the U.S. Despite the increased mobility of the California population this past summer, a Buddy platform acquired over 3,800 new customers this quarter, demonstrating that our customer-centric focus is pivotal to our continued success. It is expected that as many companies that are geographically delayed reopening once again, and vaccination and testing mandates expand, we will continue to have millions of employees working virtually, creating new incremental opportunities for home delivery specifically in California. Service excellence is critical to our growth and expansion as this situation continues to evolve. I'd like to share a few key performance indicators for the quarter, which has been supported to this strategy. Operationally, this past quarter, our average delivery time was 59 minutes, reaching 92% of California's population two minutes faster than the prior quarter. In addition, we increased our monthly retention rate in the state of California to 72.5%, which was a 6.1% increase from calendar Q3 2020. As mentioned, Buddy added 3,850 new customers in Fiscal Q3, which was an 11.5% increase from the previous quarter and at an equal average order rate of $66. Our acquisition cost per customer in the same period with $17.02. This was a decrease of 9% from the previous quarter. We achieved this through focused marketing, particularly with Weedmaps, which is our primary marketing platform in California, where we have optimized over 450 pins to drive response. Our Weedmaps partnership for consumer engagement yielded 6,964 orders for the quarter. This was a 24% increase from the previous quarter. Weedmaps is a technology company servicing the cannabis industry, with whom Buddy has partnered since its inception to drive relationships and sales in the cannabis community. Additionally, the Weedmaps app has just been approved for in-app purchases of cannabis products, enhancing the value of our partnership, as we will be able to explore additional opportunities to further consolidate the market. During the quarter, we also added A Proper High to our digital mix, which has a proprietary app that reviews thousands of products and connects consumers with the best distribution outlets available. This is a new relationship for our company and we are excited about the future prospects. We have also partnered with and taken a 5% minority stake interest in High There!, a cannabis social networking platform. We'll be writing API into their app so High There! members can purchase cannabis through our delivery networks in both California and Oregon. We will integrate our order platforms with our partner apps and their members will be able to swipe and purchase cannabis at their fingertips and we will be doing the delivery. Additionally, we expect our ads will drive traffic directly to Buddy for ordering. Further, we are excited to plan for the launch of our own exciting new Buddy shoppable cannabis application that will be available through the Apple App Store once approved as expected. Apple has long prohibited full ecommerce cannabis functionality through the app store, forcing consumers to complete transactions through their own websites. Apple recently changes policies, thus enabling cannabis companies to create experiences that reflect the way people currently shop. The Buddy app will facilitate our national indoor market-by-market expansion of delivery. The Buddy app will provide a seamless process allowing our customers to move through the initial registration steps to the final home delivery option in the most efficient way possible. Customers will also be able to track their orders throughout all stages of the order placement process. We will use our expertise to build trial and loyalty quickly, rolling out in California first. Phase 2 of our Buddy integration encompasses our plan to expand beyond our internal capabilities to key external partners. As a cannabis technology company, our Buddy and Ganjarunner ecommerce platforms will partner with leading cannabis companies in new markets while our experienced management team will integrate and streamline our operations for accretive margins. We are currently looking at opportunities on the east coast where we are planning on implementing this model by the end of the year. As previously announced, our first Michigan dispensary will open in Kalamazoo, Michigan in the fall, enabling us to offer delivery service to this high-potential market valued at over $3 billion. In addition, Driven by Stem was recently notified that we were one of the six applicants to be awarded a cannabis license out of the 69 applicants in the state of Georgia. Georgia is an extremely attractive cannabis market with one of the fastest growing populations in the U.S., now with over 11 million people. The 60 plus population of aging baby boomers is growing very rapidly, indicating the potential for a robust medical cannabis program. There are 17 qualifying conditions for patients and five allowable product form factors. Those four factors will include oil, tinctures, transdermal, capsules and lotions. We're already manufacturing these types of leading products in these segments in other states, particularly Oregon, where our TJ's Gardens brand has long offered five THC and CBD tinctures while also supporting the forest initiative, playing safe and prescribed tinctures to suffering adult children. It is worth noting that Georgia's framework is very similar to Florida's, which is by far one of the most favorable markets in the U.S. in which to hold the license. Our plans to license will have a limit of 50,000 square feet of cultivation canopy, allowing us to build dispensaries as one of our core competencies in addition to the potential for home delivery. We are projected to build our facility near the campus of Central State Hospital in Milledgeville, which is the state's largest treatment for treating mental illness and developmental disabilities. Overall, we are excited about the future of operating in this state and I'm looking forward to bringing our brands to the southeast U.S. Regarding other markets in which we operate, our operations in other contiguous states are also achieving record sales. Our facility in Las Vegas is constantly growing high tested flower under our Travis X James brand. While sales of flower, pre-roll and edibles grew in Q3 versus a year ago. We are now wholesaling our products over half the dispensaries in the state. We are only restrained by the size of our growth facility and commercial kitchen, where we make our award-winning Cannavore Edibles as well as producing grand under this license. We continue to review plans for further development and expansion of our facility and commercial kitchens. We continue to evaluate the opportunity for home delivery in this market as well. The State of Oregon remains a major area of focus and excitement for us beyond the launch of Buddy as we continue to strengthen our position in the state. Our five cultivation facilities have been upgraded this year. We have added 5,000 square feet of new canopy and our Mulino Farm light-dep campus, as well as improved lighting and automation for efficiency, proving once more that our commitment to quality can be upheld at every facility that we have. We have planted our two revitalized light-dep greenhouses at our Applegate Farm in Southern Oregon on our 40-acre farm and have added four rooms at our state-of-the-art indoor grow in Springfield. New cultivars from our genetics and breeding program will also be introduced next quarter with this additional space. The overall market in Oregon grew 7% in dollars during this period, but our dispensaries grew at over 19% versus a year ago as our sales and market share continue to accelerate, driven by our strong assortment and excellent bud tender staff. Our Cannavore brand achieved record-sales this quarter and our initial lineup of Caramels will be soon joined by an exciting new lineup of innovative edibles for holiday and all occasions. This also includes our line of THC Syrups, which will be launched by year end. The launch of the THC Syrups will enable us to aggressively tackle the beverage sector in a unique form factor. And of course, the launch of Buddy will expand our direct-to-consumer sales through our dispensary environment, beginning in Portland, followed by Eugene, and then to Salem, which is the state capital. We also remain bullish on Massachusetts and our Rebelle dispensary investment is proving to be successful, with sales of $2.4 million for the quarter with 53% gross margin. We are highly data-driven and are capturing market share with a laser-focus on customer shopping as competitors in strong SEO. Our application for delivery is about to be filed, reflecting another expansion market for Buddy, now expected to be launched in early 2022. Our key performance indicators in Massachusetts for the quarter included solid growth of 16% during Fiscal Q3 as we near completion of our first year of dispensary operations. 42% of sales are now from online pre-orders, which are averaging $222 ; this percentage continues to increase. In-store sales are 58% of revenue and are attributed to ordering averages of $155. These are some of the highest we've ever seen. Notably, the state average is at $87, proving that we are well over our competition in the market. 52% of customers are repeat shoppers, returning after a positive experience despite increasing regional competition. Our brand presence in Great Barrington continues to be strong. The buildup of our cultivation facility in North Hampton, Massachusetts continues and should be completed by year end, barring any unforeseen supply chain disruptions due to COVID. By June 2022, Rebelle will launch Eight cultivars and offer our own pre-pack flower, pre-rolls, tinctures and rising carts thus increasing gross margin by 6% for our dispensers. So, what's next? Well, first, we are raising the bar with our management team and board of directors. We are looking to add more human capital expertise to our roster as it relates to retail, cultivation, and extraction. Second, we are investing in IT to be cutting-edge in our operation and data management. This will enable us to rely on the most sophisticated IT systems enterprise-wide databases, analytics and technology applications. Third, we are initiating new marketing campaigns across the enterprise, particularly in new delivery regions as previously noted. Fourth, we are investing in innovation in high-growth segments from concentrates to edibles with accretive margins. During this quarter, we launched our first on-trend solventless extracted, live-resin from our best-selling darkstar cultivar. It sold out in one week. Dabbles offered great potency, greater than flower and the segment is growing rapidly in the Oregon and West Coast market. And solventless attraction is the emerging technology that does not require butane, or other solvents for extraction adding to its appeal. In subsequent quarters throughout calendar 2021 and early 2022, we will launch a line of live-resin, butter, batter, shatter and THCA crystals. We will also continue to review M&A opportunities that are accretive to our expansion goals. We look forward to a strong finishing this year and anticipate strong growth trends for the remainder of the year. We are committed to drive shareholder value through execution of our strategy, product and technological innovation, as well as our numerous productivity initiatives to improve gross margin as we prepare for the coming year and what will hopefully soon become a federally lawful industry. Thank you for joining us this morning. I would like now like to turn the call over to the operator for questions.

[Operator:]

At this time, we will be conducting a question-and-answer session. Our first question comes from one of Joe Gomes with Noble Capital. You may proceed with your question.

[Joe Gomes:]

Thank you for taking the questions, Adam, and Good morning.

[Adam Berk:]

Good morning.

[Joe Gomes:]

So, it sounds like there's a heck of a lot going on, a lot positive stuff. But if I look sequentially on the net revenues, second quarter, third quarter, they are relatively flat. I'm just wondering if you could give us a little more detail as to why we didn't see a little bit more growth sequentially on the net revenue in the third quarter?

[Adam Berk:]

Absolutely and thanks for that question, Joe. Definitely part of this is seasonality, which we normally see in the summer months. However, that was definitely expedited by a lot of consumers leaving West Coast markets for summer vacations -- pent up demand for travel due the COVID. So, we saw a lot of people exiting the state of California and Oregon, going on a lot of trips. However, we were able to replace a lot of those legacy consumers about 25% with a lot of new customers that we picked up through Weedmaps, A Proper High and some other SEO marketing efforts. We believe that this should pop in going into the September month, right as everyone's coming back and also people are going to start working from home again.

[Joe Gomes:]

Okay, thanks for that. And you mentioned the gross margin on the reported that due to some accounting, moving of expenses from the SG&A, up to the cost of goods sold line. So, is that gross margin that was reported at third quarter roughly 14%, is that kind of a good number going forward? Or you think you can start to see some improvement on that gross margin line as you go forward.

[Adam Berk:]

Yes, we'll definitely see improvement on that. A lot of that reclassification or almost all of it was based on all of the drivers and all of the workers that are inside our digital hubs in California. Auditors as well as now reclassifying all of that to be inside the cost of goods sold because they are actually doing all of the delivery and the order taking for those orders. We will see margin improvement based on productivity. We're also buying better than we've ever bought products before. We're doing that inside not only just our delivery business, but also at our brick and mortar locations as well. That will also help drive productivity and definitely get our costs down. Also better . So that was also -- as I stated right from the beginning, when we acquired Driven, they had probably about 25 brands or so. We've increased it in California to over 60 brands now. Some of the most top-selling brands in the market are on our platform. This was super key to get the stickiness of the application on the desktop of our consumers. To me, product assortment is super important, but also having some of our own products as part of that as well. Last quarter, or the quarter before in Q2, we were able to launch our Yerba Buena brand. It blew out. And we're going to relaunch Yerba Buena once again in the California market. By launching delivery in Oregon, obviously hit a lot of checkpoints for the catalyst. One was that's our first contiguous expansion state for delivery, which is super exciting. But also, we have one of the largest footprints in the state as it relates to cultivation and products. So, we're now able to move all of those products through our B2C platform.

[Joe Gomes:]

Great. I appreciate it. And just talking about the home delivery for a second here -- kind of two questions. Are you seeing any additional competition in this space? And how has it given some of the staffing issues that all companies seem to be occurring here? How are you guys dealing with staffing issues on the delivery side of the business?

[Adam Berk:]

So, I would say that it's not just the delivery side of the business. I think it's every business now in the U.S., is definitely having staffing issues. We are constantly hiring. In some components of our business, we might even be a little bit overstaffed. We have a great retention program, great culture, and we're going to continue to embed that. But I think you're right, getting and retaining employees is very difficult in this environment right now, especially the summer where a lot of people wanted to get out. They weren't necessarily looking for new jobs, they wanted to get out, they wanted to travel. I think from our standpoint, putting in these programs in place, to have extra drivers on staff, extra growers, extra bud tenders, extra managers is very key to me. I'd rather carry extra employees right now to make sure that there's a backup plan because we're getting the best of the best right now, which is very exciting from my standpoint.

[Joe Gomes:]

Okay and one last one for me and then I'll jump back in queue. So, when you had made the acquisition or merger of Driven, you had mentioned the goal for 2021 calendar year with $75 million of gross revenue. Seeing as we've seen now, over the past two quarters, what do you think is the number now for calendar 2021 in terms of either gross or net revenues that you think is achievable?

[Adam Berk:]

Yes, sure. So, the $75 million of gross we expected to achieve. You know, gross revenue in 2021 was based on several events taking place, some of them more organically, some through M&A, some of these that we thought were going to happen the first half had been pushed to the back half of the year. We still believe that we'll achieve $75 million in gross revenue. However, given some of our current trends for this year, it'll probably be just slightly delayed. We're really excited about Oregon that just launched and in the fall, we're going to be launching Michigan, which was one of the best markets. So, I think that will be close but it's going to be delayed a little bit. Also, we spent a lot of time the first two quarters of this calendar year, integrating the buddy and guns around our system. This was a very common replicated IT platform. As you know, we were going to hard-launch delivery in Oregon a few months ago. We delayed it because we wanted to make sure that technology was perfect. And I think for us, that's one of the stickiness factors of keeping that consumer. You want to make sure that your ordering platform is super-seamless all the way through, from logging in, to creating a username and password, through the checkout process, to a timely delivery. So, we spent a lot of time integrating that technology and that's why we delayed a little bit on the launch, especially in Oregon but we got it right now, where you can come in through the shopbuddy.com platform, it integrates and pulls real-time inventory directly from our ERP system, and feeds all the way into the metric state run system. And this is the type of integration we're going to have to do in most states as we launch, but now we have a really good API that we built and it's completely open. So, as we expand to Michigan and as we look to the east coast and look for deals there and implement on the East Coast with potential joint venture partners, we already have the system in place. Some of our targets were just moved back a little bit, because we had to get the technology right.

[Joe Gomes:]

Right. Well, thanks for that. I'll cede the floor, Adam. Really looking forward to the rest of the year and going forward. Thank you.

[Adam Berk:]

Thanks, Joe.

[Operator:]

Our next question comes from the line of Joe Gomes with Noble Capital. You may proceed with your question.

[Joe Gomes:]

Well, Adam, if no one else is going to ask any questions, I'll ask you a couple of more if that's okay.

[Adam Berk:]

That's great.

[Joe Gomes:]

So, you mentioned press release a couple months ago and I think you touched on it briefly -- the beverage business. I was wondering if you can give us a little more color and detail as to where we stand on there and how quickly you think that business could be up and generating revenues for you, guys?

[Adam Berk:]

Yes. I've always loved the beverage business. We've been trying to figure out the right way to enter the market. We've been baiting all different beverages now, I would say probably at least 18 months or so. In California, we created a partnership with Kinley beverage. They built a massive plant. We're going to onboard all of their beverages. But at the same time, we wanted to do something ourselves. And we know that beverages are heavy, they're difficult to transport, there's definitely a shelf life on them. So, from our standpoint, what I wanted to do was go after the syrups business. And basically what this is, is almost like a meal, where you have a flavored syrup infused with water soluble THC and/or CBD or some combination of the two. We already have about five different flavor profiles that have already been done. Ellen Deutsch, our COO has led that team on the innovative and product development side. We created about eight months ago the water soluble THC and CBD. Now, we're in the process of going to be developing packaging over the next 45 to 60 days. I believe this business will be up and running in Oregon first by year end and then after that, we'll be able to expand it thereafter.

[Joe Gomes:]

Okay, great.

[Adam Berk:]

But still all the coming parts out of our commercial kitchen, which is located in Eugene is also going to be underneath our edibles brand Cannavore. And this way, you'll be able to dose your own beverage. So, whether you have a flat water, a sparkling water, a seltzer, a soda, you'll be able then to dose it how you see fit, whether that's 5 milligrams, 10 milligrams, 20 milligrams. From my standpoint, Joe, initially that I always had with prefabricated beverages, that a lot of the beverages that are on the market are 2.5% to 5% THC, which is great for the intro-level consumer. However, in some of the mature markets like in Oregon, for instance, a lot of our consumers want a lot more than 5% THC and it's just not reasonable to have them drink five beverages, five full cans of beverage to receive the proper dosage. This way going into the syrups business, our consumers can properly dose how they want utilizing our taste profile.

[Joe Gomes:]

Okay, that sounds exciting. And then one last truly last one for me. The capital, you still have some cash on the balance sheet. How do you think you guys stand for capital today for the plans in the least in the near term?

[Adam Berk:]

Yes. So, we currently don't need capital. However, we will remain opportunistic giving any sort of growth opportunities that happen organically or through M&A and then we will evaluate those opportunities as they come to the table. But as of right now to execute, we don't need capital.

[Joe Gomes:]

Great. Thanks again, Adam. Appreciate it.

[Adam Berk:]

Thank you, Joe.

[Operator:]

Ladies and gentlemen, we have reached the end of today's question-and-answer session. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation and enjoy the rest of your day.