Tilray Brands, Inc.
Q1 2020 Earnings Call Transcript

Published: 12 May 2020

[Operator:]

Ladies and gentlemen, thank you for standing-by, and welcome to Tilray's First Quarter 2020 Earnings Conference Call. . I would now like to hand the conference over to your first speaker today, Mr. Raphael Gross. Thank you, please go ahead.

[Raphael Gross:]

Good afternoon and thank you for joining us on Tilray's first quarter 2020 earnings conference call and webcast. On with me today are Brendan Kennedy, Chief Executive Officer; and Michael Kruteck, the Chief Financial Officer.

[Brendan Kennedy:]

Thank you, Raphael and good afternoon everyone. Today, in my prepared remarks, I will discuss our response to the COVID-19 pandemic, recent actions taken to drive significant cost reductions and efficiencies across our business. A summary of our first quarter performance and our continued areas of focus for 2020, afterward Michael Kruteck will review our quarterly results in detail. Due to the COVID-19 pandemic impact, we are committed to leading through this unprecedented period with transparent communication, empathy and a focus on executing against elements of our business within our control. The safety and wellbeing of our employees, patient, customers and communities where we operate remains our top priority. We have created a COVID-19 taskforce at Tilray, which works collaboratively with our senior leadership to actively monitor and adapt to our operations, to this evolving situation. Throughout the first quarter and the week since, we have taken numerous actions to protect our employees and our business.

[Michael Kruteck:]

Thanks, Brendan and thanks to everyone joining us on today's call and webcast. Please note that all of the financial information we discussed today is prepared in accordance with U.S. GAAP and is in US dollars unless otherwise indicated. As Brendan indicated, we are very pleased with our first quarter year-over-year and sequential revenue growth and our adjusted EBITDA improvement on a sequential basis, notably, gross margin, excluding inventory valuation adjustments, improved both sequentially and compared to the year ago period. We’re also successful in strengthening our balance sheet with the closing of the $60 million debt facility and $85.3 million net equity offering. These two transactions allowed us to close the quarter with $174 million in cash, balance that will provide us with sufficient capital to focus on our path to profitability, a theme I will describe in more detail shortly. Focusing on our quarterly results in more detail. First quarter revenue grew more than $29 million or 126% to approximately $52.1 million or CAD 70.70 million, compared to the first quarter last year. This growth was largely due to increased volumes in all channels excluding bulk and the impact of full quarter of hemp product sales compared to a partial quarter in 2019. On a sequential basis, revenue grew 11% from the $46.9 million achieved in our fourth quarter last year; growth was driven by a 23% increase in adult-use sales and a 14.3% increase in hemp product sales, partially offset by a decline in bulk sales. Our segment revenue mix during the first quarter was 59% cannabis and 41% hemp, compared to 76% cannabis and 24% hemp in the first quarter last year. We generated 165% year-over-year revenue growth in our adult-use business or $20.9 million compared to $7.9 million in the prior year period. On a sequential basis, adult-use grew 23% over the $17 million in the fourth quarter last year. Our international medical business revenues grew 221% to $5.8 million in the first quarter, compared to $1.8 million in a year ago period and increased nearly 45% sequentially from $4 million in the fourth quarter last year.

[Operator:]

Thank you, sir. I show our first question comes from Pablo Zuanic from Cantor Fitzgerald. Please go ahead.

[Pablo Zuanic:]

Hello everyone, and congratulations on the results. Just if you can give some color on that 23% growth in recreational sales. How much of that was flower? How much of that was 2.0? And related to that in the previous call, you talked about the Canadian market, probably doubling this year in 2020. Are you still okay with that projection, given the uncertainty around COVID? Thank you.

[Brendan Kennedy:]

Hi Pablo, thank you very much. So we saw a – primarily flower growth was the driver, we did see very good growth in our vapes, as well as our edibles. But the primary growth was REC flower.

[Pablo Zuanic:]

Right. And regarding the market growth projection that you gave before. I’m just trying to understand the impact from COVID, in terms of overall sales. There was pantry loading in late March, what's happening in April, just some color about that and distribution.

[Brendan Kennedy:]

Sure. Yes. So we did see a bit of a bump in March, but what we have seen is that things settled down in April so far at a level that was higher than what we were seeing in January and February. So we went through January, February, and we saw an increase in March sales as a result of people probably buying in as a function of COVID. And then what we’ve seen is settling in at a rate that is higher than where we were in January and February.

[Pablo Zuanic:]

Okay. Thank you very much.

[Michael Kruteck:]

I need to add one point there. I think a lot of the revenue growth in terms of adult-use in Canada is really going to be dependent upon the number of retail stores that opened up, and currently we're tracking about 925 licensed retailers in Canada, licensed adult-use retailers in Canada. And the question, where do we end this year? Do we end the year 1,100 or 1,200, if we end 2020 with 1,200 retail stores opened in Canada, I think that doubling could prove to be accurate. What we do know is that, we will continue to see adult-use growth year-over-year in Canada, as more and more consumer’s transition from the illicit market to the legal market.

[Pablo Zuanic:]

Okay, great. Thank you.

[Operator:]

Thank you. Our next question comes from Rupesh Parikh from Oppenheimer. Please go ahead.

[Rupesh Parikh:]

Good afternoon, and thanks for taking my questions. I just want to go back to expenses. So definitely a lot of progress on your expenses, sequentially, especially the G&A line, so if my math is correct, I think your adjusted G&A is close to that $15 million or so range for Q1. Do you still see an ability to continue reducing the G&A line, I guess for the balance of the year or I just want to get some more thoughts on the run rate for that line?

[Brendan Kennedy:]

Yes, so Rupesh, thanks very much. So yes, we – well we took out a fair bit in the G&A line, that was about – the $40 million, probably about $30 million of that. And then non-headcount related is probably 10 to 11. And so we're looking, I mean we want to get the percent of revenue down to a manageable level. And so I think when you look at our Q1, we were 33%. If you just look at G&A, if you include the sales and marketing, which has probably touched some cost out, it’s 67% and we're looking to bring that down into the high-20s, if not on some of the lines, kind of a low-20, as we go through the year. And so – and part of that will come through COGS, we've got about $8 million, that’ll come through COGS and major of that – of the – $8 million, some get $22 million – $32 million that'll come through the I'm sorry the excuse me, of the headcount, we see about $8 million coming through COGS and $18 million, $19 million coming through SG&A. And when we look at the G&A stuff, it's across the board, it was T&E, it’s professional fees, public relations and a bunch of different things.

[Rupesh Parikh:]

Okay. That's helpful. And I guess switching gears to international medical. At least for us that's been harder to model, just given I guess the ramp in some of the volatility within that business. Anymore color you can provide in terms of how you guys are thinking about the ramp for the balance of the year on the international medical front?

[Brendan Kennedy:]

Hello, Rupesh. This is Brendan. Maybe I’ll start answer it and then turn it over to Michael. I think one of the key milestones in Q1 is that the first time our international medical cannabis revenues exceeded our Canadian medical cannabis revenues. And that will never go back, right, our international medical will always be an excess of our Canadian medical cannabis revenue and we expect that growth to continue on a quarter-over-quarter basis, throughout the rest of this year and start of next year. And so while we achieved one milestone, I think the next milestone that I'm paying attention to is at some point over the next three or four quarters our revenue internationally will exceed our revenue in Canada and that will be important milestone for us as a company. Looking at international medical cannabis revenue in Canada - in Q1, a lot of that was driven by exports, not only from Canada, but from our Portuguese facility, which is online. And so that growth occurred in exports from Portugal to Germany. And so we expect that trend to continue in Q2 and Q3 and Q4 of this year. Michael, maybe, do you want to be a little more specific?

[Michael Kruteck:]

Yes. So when we look at our mix just on the cannabis side of things, you look at Q1 2020 and international medical made up about 19% of that mix and we see that growing into the I guess, mid kind of 20 range is where we'd like to see it.

[Rupesh Parikh:]

Okay, great. Thank you.

[Operator:]

Thank you. Our next question comes from Aaron Grey from Alliance Global Partners. Please go ahead.

[Aaron Grey:]

Hi, good afternoon and thanks for the questions. First question I had was just in terms of ASP for the adult-use market in Canada, and I see that up-tick sequentially. Can you just talk about how to kind of look at that line item over the next couple quarters, as you know, we do start to see more of form factors increased in terms of mix of your sales there and just our expectation there? Thank you.

[Brendan Kennedy:]

Yes. So on the selling price, we're seeing that we expect to see some pretty good growth in our 2.0 products in particular the vapes and some more edibles as we rolled out additional products. And so I would say that, that growth there should help our average selling price pretty significantly, as we move through the year. We're seeing very good growth in the vapes right now, and edibles are being taken up pretty well also. So it's really just I think the 2.0 form factors and we're constantly looking at our pricing to see if there's an opportunity to take some price, especially if we look at the higher potency products. But at the moment I think it's more of a 2.0 on the adult-REC space, where we do see the opportunity to take additional products or actually just increase the overall average selling price that you got is through the growth of our international medical or Canadian medical, both of which we're seeing some pretty solid growth trends at the moment.

[Aaron Grey:]

All right, great. Thank you. And just one more if I could. In terms of your commentary on recent, you have a positive by 4Q 2020. Can you just talk about the underlying assumption for gross margins? I believe last call we talked about trying to reaching 40 to 45 gross margins by the end of 2020. Is that so the target, and what's embedded in that expectation for reaching you positive? Thank you.

[Brendan Kennedy:]

Yes. So Aaron, on the gross margin we’re not under that, were necessarily calling a specific number. I think we’re all looking for sequential improvement in our gross margins, and that'll be a function of, just getting more efficient at what we're doing as we start to produce more product in our Portuguese facility, we should some very good leverage there. We're increasing the efficiency in our Canadian operations and are looking for efficiencies there. The headcount and the cost that we’ve recently made will show up and pass to some degree. So I think we've got a lot of moving parts. The one other thing that I would mention about our gross margins is that we'll probably see a little bit of pressure on them due to the fact that we're accounting for our by-product on a zero basis. And so I guess historically what's happened is that by-product has been built-up on the balance sheet and that's why there have been significant write-offs for us as well as for, I guess, you know, industry – other industry players. And what we're doing is we're – except for few instances, we are attributing zero value to that by-product. So everything that we sell will have all the cost structure associated with it, so that we don't have any write-offs at the end of the year. So we're essentially taking the by-product through the P&L on an ongoing basis. So there will be a little bit of a change for us. We won't be building up that balance on the – the inventory on the balance sheet and, so the gross margins will look a little bit depressed as a function of that and – but otherwise we do expect to see sequential growth in gross margins.

[Aaron Grey:]

Great. Thanks a lot. That’s helpful. I’ll go back in the queue.

[Operator:]

Thank you. Our next question comes from Tamy Chen from BMO Capital Markets. Please go ahead.

[Tamy Chen:]

Yes. Thanks. Hi guys. First question is, just wanted a bit more color on the flower segment, just what's driving the growth in the quarter and where you see the competitive dynamics going forward. I think we're seeing this apparent continued shift the value, larger pack sizes. Just wanted to understand how Tilray thinking about this? And what’s this – and I think you mentioned there's a supply disruption you've been seeing recently. Just wondering what that is exactly and is that over now?

[Michael Kruteck:]

So, unfortunately I don't have hat-size information for you. I can try to get that and provide that to you. But I don't have that information to help you understand whether that's the driver of the growth in flower right now. What I would say is that we are seeing a growth in flower across all categories. Obviously we would see more growth in flower at higher potency if there were more available, higher potency product in the marketplace or if we were producing a bit more of it on our own. But we are seeing growth across the spectrum in the flower products. And that goes for, I think for medical also. We're seeing good growth in our Canadian medical, in fact, I think during the COVID piece of business that we did see some increase in patient counts, which manifest itself and increased sales as well. Again, like I mentioned earlier on the adult-use that we did see that settle into a higher – higher level of growth in April so far compared to our January and February quarter. We saw the same thing in Germany; although it's a little bit harder to estimate that, just because that market is growing pretty rapidly for us. So we are seeing big growth just across the board in flower. I'm sorry; I didn't catch your second question.

[Brendan Kennedy:]

I got it Michael. Hi, Tamy.

[Tamy Chen:]

Hi.

[Brendan Kennedy:]

Our supply chain disruption due to COVID is pretty minimal. I mentioned that at the call, mostly around adult-use distribution in Canada and really that was mostly in March where some of our – some of our shipments – some of our deliveries were delayed by few days here and there. But overall we've not seen significant COVID related distribution challenges in Canada or Internationally in Q1 and throughout April and 1st of May.

[Tamy Chen:]

Got it. Okay. And my follow-up is; on the German market, I think there's been sort of a change to the regulatory environment in terms of how medical cannabis would be reimbursed, and there may be a cap now. So just wondering, and started making the case and where your expectation is with respect to how it could possibly impact pricing or growth of the market? Thanks.

[Brendan Kennedy:]

We don't see it significantly impacting our pricing. What is changing some of the – some of the market that at the retail level, I'm going to say retail in Germany that, that means pharmacies where the product is distributed to patients. In Germany, medical cannabis normally distributed through pharmacy and the German pharmaceutical regulation, there were some changes to how those pharmacies can some limit, some cash growth on the market of medical cannabis in that regulatory framework, but it should have fairly – a little more impact to some sorts of revenue and margin. We continue to see – we continue to see increase in demand in Germany and throughout Europe for medical cannabis, on a month-over-month, quarter-to-quarter basis and so over the last, I guess, start of the year and throughout this year.

[Tamy Chen:]

Okay. Thank you.

[Operator:]

Thank you. Our next question comes from Vivien Azer from Cowen. Please go ahead.

[Vivien Azer:]

Thank you. Good evening, I hope everyone is healthy and safe. I wanted to dive in on the North American hemp business please. We know from last year that our business is a little bit seasonal because it's tied to school attendance, which is why you had a bit of a later selling period in calendar 3Q. So with kids in North America, broadly not going to school right now. I'm curious what you guys are seeing in that business. So kind of at the end of March, but also into April, because it seems for the broader FMCG categories in particular, food and beverage you have some categories, got a pantry load and that demand has held up and other categories have seen a pantry load and then not kind of subsequent incremental demand. So any color on that would be helpful? Thanks.

[Brendan Kennedy:]

Yes. On a sequential basis we saw growth – I should say, hi, Vivien. Thanks for your question. On a sequential basis, we saw a growth of approximately 14% from $18.7 million in Q4 and almost entirely driven by food product. And the – it’s hard to answer the question, because it happens to be in additional Costco stores in both Canada and in the U.S., where they have something called Costco and something called a monthly value mailer, so we've seen a significant demand for financial part of hemp food products, not only from Costco but from Amazon in Q1. And that demand has continued into April and May. And so typically in Q3, in the past week we have seen a downtick in revenue for Manitoba Harvest food products, mostly due to its consumer’s routine being attracted by summer and it’s hard to – it’s hard to know whether we will see that changed this summer as a result of the destruction that's already underway.

[Vivien Azer:]

Okay. So just to summarize probably some portion of the growth came from Costco, but you haven't seen a material change in consumer demand patterns over the last three months or so.

[Brendan Kennedy:]

We had not.

[Vivien Azer:]

Okay, let’s forget. Thanks for the help, forget it.

[Operator:]

Thank you. Our next question comes from Michael Lavery from Piper Sandler. Please go ahead.

[Michael Lavery:]

Thank you. Good evening and welcome Michael. Just was wondering if you could give a little more color on your medium, longer term outlook. Obviously if you been mindful of your capital allocation and position you have some sort of plan. Can you may be at least just at a high level, give us a sense of the timing for something like EBITDA positive or maybe more importantly, cash flow positive and how far away that might be.

[Michael Kruteck:]

Yes I mean thank you Michael. The question I think is as Brendan and I both indicated that we're focused on the Q4 period for the EBITDA breakeven or positive for 2020. And I mean, given what we see today we think that's something that is achievable. We don't know what we may see given COVID and other things in the marketplace. But our focus is squarely on trying to achieve that goal. And that's how we're operating the business. In terms of the, cash flow…

[Brendan Kennedy:]

Yes the cash flow piece I will clarify that.

[Michael Kruteck:]

I'm sorry.

[Brendan Kennedy:]

But yes on the cash flow side you were about to go there. Sorry, I interrupted you.

[Michael Kruteck:]

Yes, I mean, look I've been here a hundred days and I'm getting my arms around a lot of things that necessarily have a clear view of cash flow positive at the moment. We're working towards the EBITDA component. We are also looking at all of our CapEx. And when we looking at CapEx this year, this should be a big year where we finish significant projects, particular our Portuguese Stage two, we won't see that coming in 2021. So I think we've got some pressure that comes off cash into 2021 and with the cost cuts that we've got, I think that, we'll be driving hard towards trying to achieve a timely goal of cash flow positive. I just don't have the visibility that I kind of put out a timeframe at this exact moment.

[Michael Lavery:]

And just on the broader industry, do you have any sense of how something like COVID-19 might be impacting illicit trade and would digital or delivery, for example, be driving share gains for the legal market?

[Michael Kruteck:]

Yes, that's something I've been thinking about a bit over the last few weeks. You could argue that Canadian consumers are – in the time of COVID are more interested in obtaining a product from a licensed retailer or a license producer. In that they are able to obtain the product from – through the mail or via curbside pickup, which may lead to fewer interactions as opposed to traditional elicit transaction. Obviously some of the elicit providers in Canada do have online and they do deliver it through the mail. But I think as people are concerned about quality and safety, I think, that that COVID may lead to a faster migration of Canadian consumers from the elicit market to the legal market. There's a lot of speculation in that statement. But it seems as if there’s a possibility based on sort of the revenue growth we saw in March from January and February, and continuation of that growth into April.

[Michael Lavery:]

Okay. Great. Thank you very much.

[Operator:]

Thank you. Our next question comes from Scott Fortune from ROTH Capital Partners. Please go ahead.

[Scott Fortune:]

Thank you for taking the call. Good afternoon. A little bit more color on what you're seeing Ontario, and they were wanting to bring on a fair amount of retail stores here in April. Kind of that's the key consumer activities. What we're seeing in the U.S. is the curbside and delivery less transactions like you meant that these are much higher transactions, but just want to get a sense for Ontario and the ramp from a store and consumer access from that side as you view it?

[Brendan Kennedy:]

We're seeing continued licensing. We track them on a provincial basis. And right now we're looking at roughly 50 licensed retailers in Ontario, which is a significant growth from where Ontario ended, end of the year, last year. We expect that that growth to continue throughout the remainder of the year. And the question will be where do we end up during the end of this year in the number of retailers that open up? And last year we were basing our model on somewhere between 800 to 1200 and being open at the end of 2020 it looks like following some issue with COVID at the end of the year it looks like we’ll end up at the end of this year somewhere between 1,100 and 1,250, which, I think, will be positive for the growth of these market in Canada.

[Scott Fortune:]

Okay, great. And just follow-up if you get 1,100, 1,200, then that makes, you're getting to adjust EBITDA positive pretty much on track from that standpoint unless it would make it a little more difficult, is that kind of how you guys are looking at?

[Brendan Kennedy:]

That’s better, we were looking last year and it would be challenging to get there if we ended 2020 with 800 stores or 900 stores opening in Canada. And it makes it a bit easier if we add in 2020 somewhere under 1,100, 1,200 stores. That's one of the key drivers. The other key driver for us is continued international growth and the ability to shift products from our southern portion to other countries around the globe.

[Scott Fortune:]

Great. I appreciate the color. Thanks guys.

[Brendan Kennedy:]

Thanks Scott.

[Operator:]

Thank you. Our next question comes from Andrew Carter from Stifel. Please go ahead.

[Andrew Carter:]

Hey thanks, good evening. I just wanted to ask, because you've kind of alluded to kind of the market, the big surge in March and then kind of returning to normal levels in April and March. Is that what you're seeing kind of on the shipment side of things? Are provinces kind – are in lockstep with where they were in the quarter, kind of matching that consumption or are they reducing inventory levels? And I know there are some closures, but have they increased the order size? Can you help us understand that?

[Brendan Kennedy:]

Yes, so we April significantly from January, February, but March even more continuing February. And a lot of that was – a lot of that was driven by both consumer and patient, essentially.com, or pantry what are they in Canada. In the midst of all of that, I think, that the Canadian distributors, primarily client corporations decided to roll out Cannabis 2.0 products really differently from the way that they'd rolled out Cannabis 1.0 products in October of 2018 through EBITDA. What I mean is that in October 2018 a lot of the problems that it's really large orders and one of the products in, in stock inventory. This time around, they place smaller orders but its place them much more frequently. And many times in December or January, we were getting a second order from a province almost potentially as soon as we shipped the first order. And the frequency of their purchases has increased significantly which is what we different from how they were managing their supply chain during first go-round over a year ago.

[Andrew Carter:]

Okay. And then to that point, you showed up a pretty robust suite of products and only a handful of producers can say that. Are you seeing the provinces increase their order sizes? For me, obviously the frequency is kind of a burden on your supply chain. Do you need it to go back to like higher orders, less frequent in order to achieve kind of that more profitable Canadian template?

[Michael Kruteck:]

I think they were – there were a couple of stories around in products that the provincial buyers bought and that didn't sell. So some of our peers had issues with returns, if they were looking to avoid that this go-round and they're also looking to see who was actually going to be able to deliver on their provinces. And so we produced a wide range of Cannabis 2.0 products from teas and chocolates to to-date. And we were learning a part of what happened in Q1 is we were learning along – we were learning what Canadian consumers were interested, which form factors, which flavors, which product. And I think that led to the buyers buying the way that they bought. And the – as the frequency has increased and the retailers are getting more sell-through information, I think we may see some of the quantities increased throughout the rest of the year. But I think that the buyers would just try not to get – not to get burned or placed the wrong bet at this go-round as close to what happened.

[Andrew Carter:]

Thanks. I'll pass it on.

[Michael Kruteck:]

Thanks, Andrew.

[Operator:]

Thank you. Our next question comes from Graeme Kerindler from Eight Capital. Please go ahead.

[Graeme Kerindler:]

Hi, good afternoon and thanks for taking my questions. Brendan, I wanted to follow up on the comment you made about Tilray looking to pursue new partnerships. So I was wondering if you could provide some more detail on what specific verticals you're looking at, what stage discussions are at right now and how the talks in general, have they changed at all in terms of what's being discussed or what's being prioritized now versus the way you might have had those discussions about a year or two ago. Thanks.

[Brendan Kennedy:]

I think Constellation’s entry into the industry and the others entry into the industry over – it depends on how you look at it, two years ago, a year and a half ago. I mean, it scared a lot of people generally in beverage, tobacco, the CBD. As the conversations a year ago were much more – they're much more educational so a lot of meetings we had, we were educated pretty larger company about the cannabis industry. And they were they tended to be in a bit of a panic and trying to understand the industry in a hurry. That wasn't the case with, to answer the question that they started looking at the industry early and between our first conversation with them when we announced the Fluent joint venture, it took about a year. So they had a really patient methodical approach. I would say that generally today companies – Fortune 500 companies are working to add sort of the industry are taking a much more methodical approach. And that means lots of meetings, lots of due diligence, lots of stewards. Also, I think that a year and a half ago, the valuation of companies within this industry and the volatility, scared off of a lot of those are Fortune 500 companies and the more realistic valuations that they have compete their interests more. I guess, my final point would be we're seeing more interest from international partners who are working at other CBD products in certain countries, medical pharmaceutical products, compounding products in certain region of the world. And so a lot of the conversations we're having today are focused on international markets, not domestic market to Canada.

[Graeme Kerindler:]

Okay. Appreciate the color there. And then, just as a follow-up question and just to dig a bit deeper in terms of the sales increases seen in the hemp segment here? I'm just wondering if you could, it sounds like most of that growth there was driven on the food side. I was wondering if you could just give us a bit of an update on how things are progressing on the CBD side. We obviously know that there’s a challenge regulatory environment in the United States right now with respect to those products, but just wondering if you saw any sort of interesting trends or significant movement quarter-over-quarter? Thank you.

[Brendan Kennedy:]

Yes. I enjoy predicting how this industry is going to change over time. What is challenging? What I've learned is challenging is predicting anything involving that FDA. And so our strategy for U.S. is focus around building a portfolio of trusted CBD brands in states where we’re legally permitted to do so. And we feel that we're ready to address the federal CBD market once further clarity is provided by the FDA. But it's really difficult to know today when that opportunity will become a reality in the U.S. as they accept that I go out of it will depend on what happened with your action in November. And one of the disappointment around what's happened with the last quarter, a lot of the ballot initiative in individual U.S. states, primarily Red Republicans states, they – it’s very difficult to collect ballot initiative signatures. So I think we're in a fewer state have successful ballot initiatives in November, but I think overall it'll be interesting to see how presidential candidate address both CBD legalization, medical cannabis legalization and legalization for other use in the U.S. between now and November.

[Graeme Kerindler:]

Okay. I appreciate it. Thank you.

[Brendan Kennedy:]

Thank you.

[Operator:]

Thank you. Our next question comes from Glenn Mattson from Ladenburg Thalmann. Please go ahead.

[Glenn Mattson:]

Hi. Thanks for taking the question. I really know it’s late in the call, so I'll try to be quick. Just one quick one on the cash balance as it stands, should you achieve your guidance results as far as cash burn and CapEx and the money spent on interest and debt payment and things like that? Where are you going to stand at the end of the year at that level of cash that Matt would project out to? Is that a level that you're comfortable with or do you feel like the business needs to have more capital as you go into 2021?

[Michael Kruteck:]

Hey, Glenn. Yes, thanks for the question. So I think that the cash balance will be partially dependent upon how much we access the ATM. We have $258 million left on the ATM, and depending upon how much of that we choose to access, we'll kind of determine where we end up with the cash balance at the end of the year and then what that looks like into 2021.

[Glenn Matson:]

Okay, great. One more quick one if I could. I guess maybe as I look at my model and I think this year it would appear that perhaps I have to learn a little more on revenue growth from international medical. Can you give us a sense – can you say what you think your market share maybe is in international medical? And would you expect your growth this year to come from further market share gains or would it be – maybe having a projection about what that German market can grow at this year? Just some color around that and that'd be it for me. Thanks.

[Brendan Kennedy:]

It's really hard to predict market share in Germany today. What we are saying is that there aren't a whole lot of products in the market today. And two of our competitors there essentially don't have much products to be found due to some supply constraints on their sites. But we do expect revenue growth internationally on a quarter-to-quarter basis throughout the year. The bulk of that being in Germany, although we – yes, we see continued growth in Australia, New Zealand, Latin America and some small growth, temporary growth in other EU countries.

[Glenn Matson:]

Great. That's it for me. Thanks.

[Operator:]

Thank you. Our last question comes from Mike Hickey from Benchmark Company. Please go ahead.

[Mike Hickey:]

Hey, Brendan and Michael, hope you guys are good. Thanks for squeezing me in here late. I appreciate it. Yes, curious first on retail pricing across major product categories, how’s that comparing between legal and illegal retail shops at the store, big discrepancy there or not? I’m wondering how perhaps recessionary pressures on consumers here could impact the mix between legal or illegal shops. And I have a follow-up.

[Brendan Kennedy:]

So we’re seeing some pricing compression on whole flower in Canada, especially on the lower indeed potency flower products. That is being countered by some strength, some support on high potency flower product as well as the products. I think that – and I think one of the things we've learned in Q1 is that all use cannabis and medical cannabis internationally in Canada that is more like a consumer staple and less like a luxury product, and cannabis, medical cannabis maybe countercyclical. I think that it's hard to answer your question because if the economic issues were caused by something other than a health issue, I think you might see people migrate back to an illicit market. But in the midst of a global health pandemic, so far we haven't seen that. I think because consumers, patients are trying to be as healthy as possible and are working for high quality safe products rather than untested, unregulated products that come from an illicit market and are also obtained through an illicit transaction.

[Mike Hickey:]

Okay. But on the health side, you're not seeing a mix shift away for vape or flower, right? You're seeing sort of the opposite. I mean, intuitively you think if that was a concern, now you wouldn't want to be inhaling smoke into your lungs or vape.

[Brendan Kennedy:]

Yes. We haven't seen that yet or haven't seen it. We have seen strengths in other four factors, so things like cheese and edibles and chocolates. But haven't seen concerns with flower and vape at this point.

[Mike Hickey:]

Okay. Last question, on the premium flower side, what's the highest potency that you're giving to retail? What's your best strength?

[Brendan Kennedy:]

The highest potency in Q1 that we've got to retail, I believe, it was 20% – 21% to 25% and 26%, and that's a strain called Rockstar.

[Mike Hickey:]

Nice. Is that your best volumes from you?

[Brendan Kennedy:]

It’s not by volume, but since we have it, it quickly.

[Mike Hickey:]

Sure. All right, thanks, guys. Best of luck and be safe.

[Brendan Kennedy:]

Thank you.

[Operator:]

Thank you. This concludes our Q&A session. At this time I’d like to turn the call back over to Mr. Brendan Kennedy, CEO, for closing remarks.

[Brendan Kennedy:]

Thank you. I'd like to thank our dedicated employees and team members for all of their hard work, improving patient, and patients and consumers lives through the power of cannabis now. I appreciate – we appreciate at ones questions and participation on today’s call. Have a great evening.

[Operator:]

Ladies and gentlemen, thank you for attending today's conference call. This concludes our call today. You may now disconnect.