Tilray Brands, Inc.
Q2 2019 Earnings Call Transcript

Published: 13 Aug 2019

[Operator:]

Good day, ladies and gentlemen. And welcome to Tilray's Second Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. . Later, we will conduct a question-and-answer session and instructions will follow at that time. As a remainder, today's conference maybe recorded. I'd now like to introduce your host for today's conference, Ms. Rachel Perkins. Ma'am, please go ahead.

[Rachel Perkins:]

Good afternoon and thank you for joining us on Tilray's second quarter 2019 earnings conference call. On today's call are Brendan Kennedy, President and Chief Executive Officer; and Mark Castaneda, Chief Financial Officer. Before we begin, please remember that during the course of this call, management may make forward-looking statements within the meaning of the federal securities laws. These statements are based on management's current expectations and beliefs and involve risks and uncertainties that could differ materially from actual events and those described in these forward-looking statements.

[Brendan Kennedy:]

Thank you, Rachel. Good afternoon, everyone. And thanks for joining us. Today, I will provide an overview of the progress we've made on our global growth strategy. Mark will then review our second quarter 2019 financial results in more detail and discuss our long-term financial targets. After that, we will open the call for your questions. The global paradigm shift with regard to cannabis is still in its early stages. Tilray currently serves tens of thousands of patients and consumers in 13 countries spanning five continents. We aspire to be the world's most trusted cannabis company. And to do that, we're building a global platform to be a multibillion dollar consumer packaged goods company, with a portfolio of world class brands supported by a multinational supply chain. We're taking decisive actions in order to create an infrastructure that can be scaled around the world and are committed to deploying capital in a way that creates shareholder value over the long-term. We're pleased with our second quarter results, which included the first full quarter of Manitoba Harvest sales. Revenue increased 371% year-over-year to $45.9 million and total kilograms equivalent sold increased both sequentially and on a year-over-year basis to 5,588 kilograms. Adult-use revenue nearly doubled from the first quarter to second quarter with revenue of US$15 million. In the next 12 to 18 months, we believe there could be a supply balance in Canada as the market finds an equilibrium between supply and demand. While the industry continues to ramp up production, we have seen improved performance across LPs and we have signed the long-term wholesale supply agreements to support our cultivation asset-light model and enable us to focus on the cannabis value chain further downstream.

[Mark Castaneda:]

Thanks, Brendan. Good afternoon to those here joining us on today's call and webcast. It is a pleasure to be speaking with you today. Please note all the financial information we discuss today is prepared in accordance with U.S. GAAP and in U.S. dollars unless otherwise indicated. We had a strong start to the year and believe we will continue to gain momentum in the second half of this year. Focusing on our 2Q results in more detail, Q2 revenue more than tripled to US$45.9 million or C$60.9 million compared to the second quarter of last year. Excluding excise taxes revenue was $42 million. These results exceeded our internal estimates due to improved output from our cultivation facilities which allowed us to ship more adult-use product.

[Operator:]

. Our first question comes from lien of Vivien Azer with Cowen. Your line is now open.

[Vivien Azer:]

So terrifically strong quarter from a revenue perspective, a little better than we were looking for, in particular on the adult-use. And so as we think about that in the back half of the year, can you guys to just offer a little bit more color about how we should think about kind of the phasing of kind of the first commercial shipments? Do you anticipate there being like pretty meaningful channel load in the fourth quarter, or will be a little bit more balanced between 4Q and 1Q? Thanks.

[Mark Castaneda:]

Yes, originally Vivien, as you know that the original plan was that we're going to start selling in the October timeframe. So we thought would be very strong shipments in Q4 with now the regulations talking about December -- mid-December as the timeframe, we expect most of that the shift to Q1 as we don't think the Crown corporations are going to carry a lot of inventory going into the holidays.

[Vivien Azer:]

Okay, that seems reasonable enough. On the international side, that was a little bit late but it sounds like you guys had a lot of pieces in place to meaningfully improve that revenue generation in the back half and then going into 2020 with two new GMP certifications. So how should we think about the ramp there? Given that you now even have more capacity, what is ultimate like revenue opportunity just from those Portugal assets?

[Mark Castaneda:]

Yes, so to be clear, in the first half, or in the first two quarters, we reported none of those sales were from Portugal. Portugal was not turned on or fully -- or GMP certified. We do have a certification, one of three that we're looking for now. And we'll be able to start seeing some sales. So you will see a nice little step change in the EU sales in Q3 and in Q4. So a big improvement, all the products we've sold so far today has been produced for Canada.

[Vivien Azer:]

And just a follow up to that and I'll jump back in the queue. One of the things that we've -- I think all been waiting for is to see how the expanded Sandoz relationship materializes after having an announced that back in December I believe. And so I'm just wondering whether it's really this scaling of the Portugal facility that prevented you guys from coming to terms with relationship with Sandoz in say market like Germany, Brendan?

[Brendan Kennedy:]

So we added two countries in the quarter, so we now have six products available at our pharmaceutical wholesale distributor in the UK and we have a wholesale supply in Ireland. And so the suppliers in Ireland will start to see revenue in the second half of the year and we expect to -- we still expect to add four to six countries -- additional countries in the second half of the year. Depending on the country, Sandoz may or may not be the sort of distribution sales and marketing branding partner. Based on some of the conversations that we've been having, we may go with other distributors that have had a better footprint in certain countries for example in Latin America.

[Operator:]

Our next question comes from Michael Lavery with Piper Jaffray.

[Michael Lavery:]

Could you just clarify specifically on Portugal? You said you have one of three EU GMP certifications. Is that by portion of the building? What’s the right way to think about, you have some you can ship but it sounds like maybe it’s small, could you just elaborate there just a little bit more?

[Brendan Kennedy:]

So there's two parts of GMP. Part 2 is for an API, so a pharmaceutical -- an active pharmaceutical ingredient API. Part 1 is for a finished pharmaceutical product. Currently, we have a Part 2 certification for -- essentially for an active pharmaceutical ingredient, API, for whole flower. We’re awaiting a Part 1, whole flower GMP certification and then parts 1 and parts 2 for oil but those will come together. And it’s not really for a portion of building, it’s really for a type of product.

[Michael Lavery:]

And just back to the outlook for capacity relative to demand, can you give a little sense of maybe exactly what are you expecting there and some amount of how you might adapt and adjust? And you’ve obviously mentioned ways you could be an opportunistic buyer, would you potentially adjust your own capacity if it looks like the industry has too much or how do you think about the next 12 or maybe 18 months?

[Brendan Kennedy:]

In order think about that you can't really look at it holistically. I think you need to separate out Canada from the rest of world. And so, in Canada, we've made relatively small investments, $32 million in increasing capacity. A lot of that increased capacity -- that’s across three different facilities. A lot that increased capacity is about processing space, two of the facilities, it’s mostly about processing space as a third facility in Leamington. It is about some additional cultivation capacity. But in Canada despite those or that investment, we are seeing some third-party supply quality, third-party supply come online. And so we expect to hopefully see more and more of our supply come from third-party farmers. And we've seen -- it feels like a slight easing of supply over the last six to eight weeks. We announced one supply deal, and hope to announce several more where we will buy from -- essentially we'll buy from farmers. That’s situation for Canada. For other -- for the rest of the world, we will continue to invest in building global supply. There is a severe lack of global supply outside of Canada. And so, we tripled our cultivation, manufacturing and processing space over the last -- really over the last two quarters. We've gone from about 1.1 million square feet at the start of the year to about 3.4 million square feet today. A lot of that’s outdoors. And so we have about one location in Portugal with 20 hectares, so 50 acres outdoor. At another facility, another location we have 4 hectares or 10 acres outdoor. So 60 acres of outdoor. We continue to invest heavily in Portugal. We will build additional greenhouse space there and additional to the -- in addition to the 1 hectare that we have, will build additional greenhouse and indoor capacity in Portugal. And expect to continue to invest heavily in Portugal in the coming quarters and years. We're building supply there. We're building inventory as we await those GMP licenses, and we'll continue to harvest on a weekly and monthly basis and build inventory until we have those additional GMP certifications.

[Michael Lavery:]

And can you give us a sense of how big that inventory build is? And how turnkey -- how quickly you could sell it once you get the green light?

[Brendan Kennedy:]

Yes. So from a cost standpoint, and because we’re U.S. GAAP, we're reporting costs, we don't markup our inventory. So from a cost standpoint, we have about $4 million at the end of Q2 of inventory in Portugal. And as you know, inventory or product in the EU sells at a much higher rate than it does in Canada. So you can do the math on what value it is for -- revenue value.

[Operator:]

Our next question comes from Mike Hickey with Benchmark Company. Your line is now open.

[Mike Hickey:]

Hey, Brendan, Mark, thanks for taking my questions and great job on sales for the quarter. I guess just maybe looking at the Canadian market from a little higher view, what's your estimate now as we approach sort of one year in the legalization, what percentage of the sort of flower market or what the legalized is going through legal channels versus illegal channels? And sort of how you expect that to trend? And then I'm sort of curious on the retail. Obviously retail on the dispensary side has been unlimited. I'm curious how many stores are opened in Canada where that goes in '19, where that goes in '20 if you can, I am sure you’ve done it? And how many legal stores are you sort of continuing with, just looking sort of broad brushstrokes on the market as that develops?

[Brendan Kennedy:]

I think there's a severe distribution constraint in Canada, some of the provinces have more retail locations opened than others. Alberta, for example, continues to source at a fairly fast clip. But on Ontario, and Quebec don't -- certainly don't have as many stores opened as one would expect. In Washington State, there's more than 450 stores. Ontario, which is larger I think has less than 100 opened today. And so I think that's one big constraint in Canada that is constricting -- it's really doing two things, it's restricting the growth of retail revenue. And I think the other thing that it’s doing is continuing to fuel the illicit market in Canada. And different sources estimate that illicit market in Canada is still in the $6 billion range. And so, that would suggest that the legal market has captured somewhere between 15% and 20% of the overall market. We do expect that number to continue to grow, not the illicit market but the legal market, as new products and form factors come online. One other factor that is different between the legal market and the illicit market is that you have a full range of products from flower and pre-rolls to oils and concentrates and vapes and edibles and beverages. All those products are already available in the illicit market.

[Mike Hickey:]

Obviously in the States, there are some states that have less retail, maybe even California relative obviously the size of the population there. But on the adult-use side some of the tension on distributions and alleviated through delivery services. Obviously, I think in Canada, on the medical side, you can ship directly to your patients. But do you expect any sort of potential relief in terms an ability to deliver adult-use product or deliver it directly from the dispensary call it to the consumer?

[Brendan Kennedy:]

Yes, I think one of the things that's really different about the Canadian market is that, with the -- looking at two provinces, Ontario and Quebec, the OCS in Ontario and the SQDC in Quebec, both have online stores where consumers -- adult-use consumers can go online and purchase cannabis from their provincial government, which is really different from the United States. Now those products are generally packaged in -- assuming you placed an order today, they are packaged and shipped within 24 to 48 hours. And so you would get the product essentially in 72 hours -- 72 to 96 hours after you’ve ordered, which is there is no model like that in the United States today. What doesn't really exist in Canada today is sort of an immediate delivery like you see if you order a pizza or like you see in some of the U.S. states. There are some companies in some provinces that are trying to do it but we don't have that sort of -- you place an order and receive it from some sort of delivery driver within an hour or two like you see in U.S. states. I expect you will see that at some point in Canada but it doesn't -- there are few exceptions that doesn't really exist today on the legal market. There’s lots of such services that are available for that illicit product.

[Mike Hickey:]

Thanks guys. Last question. Just I was curious on the Cannabis 2.0 edibles, seems like maybe it’s being over regulated, curious your view on that? But maybe the low hanging fruit is sort of vape. So I was hoping maybe you could dig into new vape strategy, hardware, et cetera that would be helpful? Thank you.

[Brendan Kennedy:]

We expect to distribute a number of different vape products under multiple brands, I would sort of segment the vape products into sort of three broad categories by form factor, not by brand on this call, but by form factor we expect to have a full line of products available that are disposable vape. It would be the first category. The second category would be an interchangeable 510 thread like you see in most U.S. states. And then the third category would be essentially some sort of cartridge that fits into someone else's proprietary delivery system. Also I could see in some U.S. states. So we expect to have a full product line across those three different form factors available whenever the regulations allow us to sell those products. We’ve been stockpiling oil for vapes beginning this quarter and we will continue to building that inventory in preparation for the end of the year.

[Operator:]

Our next question comes from Rupesh Parikh with Oppenheimer. Your line is now open.

[Rupesh Parikh:]

So I wanted to touch a little bit more on the U.S. CBD market. So I was just curious if you guys can provide more color on in terms of how you see the ramp in the back half of the year on the CBD front? And also on the Manitoba Harvest CBD launch, I was also curious in terms of how much distribution you've gotten so far?

[Brendan Kennedy:]

Currently the Manitoba Harvest food products, the hemp food products are available in about 16,000 stores in North America so in U.S., 13,000 stores in the U.S. today. Their broad spectrum of hemp extract products, their CBD products are -- we've launched those products this quarter in Q2, and they're in nearly 1,000 stores today. We expect that number to continue to grow significantly in the second half of this year. I think we're all looking forward to a clarification and regulation from the FDA on CBD products and broad spectrum and extract products.

[Rupesh Parikh:]

And I was just also hoping for potentially more color in terms of how you guys see the ramp on the CBD side in the U.S. in the back half of the year?

[Brendan Kennedy:]

So the ramp will be somewhat dependent upon how much clarity the FDA does give. We do see a lot of the major retailers holding off, especially on the ingestible products until they have more clarity. As that clarity comes in the second half, we see significant ramp in the second half of the year. If it does not, we see a much slower ramp on the CBD side, for again, on ingestible side.

[Rupesh Parikh:]

And then maybe just one housekeeping question. So Mark, I was hoping to see if you can provide more color in terms of how you guys are thinking about G&A expenses, and sales and marketing in the back half of the year? It looks like at least on the sales and marketing front, it's leveled off at about 30% of sales. So just curious if there's any additional color you can provide on either line item?

[Mark Castaneda:]

Yes, so on the sales and marketing, this quarter, you saw a little bit of a bump. And a lot of that was because of the Manitoba Harvest, or a big portion of that bump was Manitoba Harvest having it in there for the full quarter. From a percent of sales, you'll see that come down as a percent of sales slightly. But that's pretty small ticks down for the second half of the year.

[Operator:]

Our next question comes from Mike Grondahl with Northland Securities. Your line is now open.

[Mike Grondahl:]

On the Authentic Brands, you talked about a first product. Any insight into kind of what that product is going to be and what does the pipeline look like for other products in the back half?

[Brendan Kennedy:]

We haven’t announced it yet. The first line of products and the first brand will be a set of topical products. We haven't announced the brand yet. But I would expect in the next -- I guess in the next three months to announce the brand and it's about, I can’t remember, it’s five or six SKUs, that will -- product SKUs that will launch. But we'll make that announcement in conjunction with the partners at Authentic Brands Group.

[Mike Grondahl:]

And just the pipeline Brendan for other products?

[Brendan Kennedy:]

So have a pipeline of -- with ABG on the product and branding side and then the team at Manitoba Harvest on the product innovation and form factors side as well as we made an acquisition, small addition this quarter of a company called Smith & Sinclair. We expect to bring additional products, brands, form factors to market in the U.S. CBD space.

[Operator:]

Our next question comes from Tamy Chen with BMO capital markets. Your line is now open.

[Tamy Chen:]

Yes, thanks. First question is, I'm just trying to understand what really drove the notable increase in sales volumes this quarter into the recreational channel, considering in the past several quarters have had more modest volume. So was it just a function of you had been constrained on your own production and now you're really turning the corner there? Or was it that heading into Q2 you managed to procure more third-party supply? Or was it that in previous quarters, you were prioritizing production to take advantage of good LP wholesale pricing before?

[Brendan Kennedy:]

So Tammy it’s been a combination of many things. But as you pointed out, it is, A, getting some third-party supply as well as ramping our own cultivation. You saw our -- the amount we harvested was up almost 40% this quarter versus last. So we're continuing to ramp our own cultivation, as well as we're continuing to provide more sources for quality third-party supply. So I think if you look at kind of us versus some of the competitors we’re probably one of the biggest increases in Q2 for sales for adult-use in the industry.

[Tamy Chen:]

And I'm wondering, could you break down the other channel for cannabis of non-vape channel, the -- I believe it’s $9.1 million of gross revenue. How much of that was direct to medical patients versus continuing to sell to other licensed producers?

[Mark Castaneda:]

So about $2.5 million was direct to other medical patients.

[Tamy Chen:]

And the rest was two other licensed producers?

[Mark Castaneda:]

That's correct.

[Tamy Chen:]

Okay. And just a housekeeping item. I was wondering Mark, if you could provide this, your gross average selling price, specifically for the recreational channel, just trying to understand how the pricing and the different channels worked out because you did have the decline in total average selling prices?

[Mark Castaneda:]

Yes. So the adult-use pricing -- price per gram overall was US$5.17 or about C$7.00. Is that what you're looking for Tamy?

[Tamy Chen:]

Yes, that was enough growth.

[Mark Castaneda:]

That's correct.

[Tamy Chen:]

Okay. And I just have one last question. This is on Manitoba Harvest, the Broad Spectrum Hemp Extract. First, I'm just wondering, like, why is it branded that way versus being named or called CBD oil? And secondly, you were talking about, the FDA issues there. So are you currently just selling in terms of products the topicals or do you have some sort of ingestibles that you are selling right now?

[Brendan Kennedy:]

So currently there are -- I mean there are four different product types. There's A, an extract product that's in a dropper bottle. There is a gel cap product, there's a spray and then there's a protein powder. And Tammy, it is CBD oil is -- CBD is one of the ingredients, and you will see that on the package, so it is CBD. One of the reasons we marketed it as a broad spectrum abstract product is that Manitoba Harvest is a hemp brand. They're, like I mentioned, in over 16,000 retailers in the U.S., and so we wanted to continue that language. And when we did some consumer testing, it was really important to -- in our market research that consumers were interested in broad-spectrum hemp extracts as opposed to CBD isolate. And there is certainly uncertainty with what the FDA is going to do around CBD isolate based on the GW Epidiolex product authorization in the U.S. And so we were much more comfortable with the broad spectrum hemp extract language based on the product that's in those individual form factors. The other thing that's important in how we distinguish that product a lot of the other CBD products that are in the market is that the Manitoba Harvest team has attained self-affirmed GRAS, generally regarded as safe status. And so that makes Manitoba Harvest the first company, to our knowledge, to achieve that distinction and it demonstrates our commitment to compliance and building consumer trust.

[Operator:]

Our next question comes from Aaron Grey with Alliance Global Partners. Your line is now open.

[Aaron Grey:]

Nice to see improvement in gross margin sequentially. Just any color you could provide on how much the gross margin should trend in the back half just as utilization improves? And then as we look to next year with increased sales in the international markets with carry higher margins, as well as novel form factors coming online. Justhow best to think about gross margins over the next 18 months? Thank you.

[Mark Castaneda:]

So as we talked about on the last call, we did expect to see gross margins improve, about 300 basis points or actually ahead of that this quarter. We expect probably another 300 basis points through the back half of this year. So we do expect to be in the 30% plus range for gross margins by the end of the year. For next year, we do expect to see expansion as we get into other form factors, and have more product available for international markets, which do carry higher margins. So you will see us getting -- probably starting in the mid 30s and getting mid 40s by the end of the year and potentially even higher.

[Aaron Grey:]

And then just overall thinking about EBITDA. Any sense you could provide on how best to think about moving closer to breakeven and then profitability just as thinking about SG&A along with what you just provided on gross margins as you lookinto potentially spin outthe marketing with some form factors come online to U.S with CBD entermarketing around that. Just how best to think about overall EBITDA. Thank you.

[Mark Castaneda:]

For overall EBITDA, I think as you look at the levels that we're at this quarter, we'll probably see something similar for next quarter and then start to see some improvement in Q4, and then some improvements going forward. If the world were to stop and there was no new countries to invest in, we do believe that we'd be positively by the end of next year. As far as other new markets, we want to be successful in the U.S., and we will continue to invest in the U.S. markets.

[Brendan Kennedy:]

I'll just pipe in here. If your company is a small to midsize LP in Canada, or an MSO in the United States that can export to other countries then I think those countries -- those companies should be focused on profitability. But you only see an opportunity like this once in your lifetime. And if you're trying to dominate a global industry, you'd be constraining yourself if you were focusing entirely on profitability at this point. Globally, it's very early in the emergence of a $200 billion industry. And globally, if now is not the time to invest, I don't know when is.

[Operator:]

Our next question comes from Graeme Kreindler with Eight Capital. Your line is now open.

[Graeme Kreindler:]

First question, I had just a follow-up on the comments earlier on the call about seeing a supply balance in Canada in the next 12 to 18 months. Understanding that to potentially get the supply balance there. How does the company think about how much of that supply could be of the necessary quality that it would be something they've looked to actually source and put their own label and brand on that?

[Brendan Kennedy:]

I think that's the big difference for the last, really in the last six to eight weeks. The last time we did this call, I was really frustrated with the lack of quality supply. We announced one supply agreement over the last month or so. And we were pleased with the quality of that product. And I know that our sourcing team has a few more similar agreements that they've been working on with similar quality suppliers. And so I don't want to sound too optimistic. But I am certainly more optimistic today than I have been that quality supply will continue to come online in Canada. And that's pretty big difference from what we were talking about 90 days ago.

[Graeme Kreindler:]

And then just on another note here with respect to the average selling price seen in the quarter with the sequential decrease quarter-over-quarter. Is there any sort of thoughts on how that might trend in the long-term? Obviously, there's more supply and quality supply that -- is that could be coming into the market, and also partially offset by the introduction of derivatives? So just curious in terms of where the company sees that heading in the medium term.

[Mark Castaneda:]

So Graeme, let me give you a little bit more color on that as well. So some of that is mix. So if you look at our product mix this quarter, extract products for adult-use was really 1% of sales, it was much higher in the past. So our pricing actually hasn't come down, it's been more a function of mix into which provinces that we're selling in. So we do expect pricing to from mix standpoint as adult-use becomes higher percentage of mix in the second half of the year, we do start pricing to have some pressure on pricing. Up selling that is 2020 where we do think pricing will go up from a overall mix standpoint with other novel form factors. Also international, we're taking a bigger portion of the mix, which helps on the overall pricing. But if you're looking purely at Canadian adult use pricing, yes, that will be down primarily because of just the mix.

[Graeme Kreindler:]

Got it. And lastly to follow up there, Mark. In terms of mix in the quarter where you said the extracts for adult-use. Was that because of what was happening on the provincial supplier side of things and in terms of what they wanted, or is it that that has to do with taking any capacity offline to stockpile inventory, or processing oil ahead of the derivatives launch?

[Mark Castaneda:]

It's actually a combination of both. But mostly, we did -- the provinces are looking for flower and they're looking for primarily for flower and less for extracts today.

[Operator:]

Our next question comes from Andrew Carter with Stifel. Your line is open.

[Andrew Carter:]

Just a quick question, just understand the revenue potential that's out there in the second half of the year. Just kind of want to understand, you've obviously kind of alluded to the fact that the second wave is going to start in the first quarter next year. So want to understand how you're balancing your ability to supply the market right now? What you have to hold back, should we see -- should it'd be a meaningful revenue acceleration? Help me understand if it's constrained, or there's a lot of opportunity for the second half of the year.

[Brendan Kennedy:]

So it really depends on the channel. So as we look at the international channel, we see some pretty significant increases on the revenue side. From the Canadian adult-use channel, we do see the growth from here to be a little bit more muted as it will be heavily flower related and as the buyer starts shifting their inventory mix to getting ready for Q1, which will have the other form factors. So the stores aren't getting any bigger, they're just going to be changing the mix in the stores. So you'll see some muted -- we expect to see some muted orders over the next couple quarters except for new retail locations by the crown corporations. So from a -- I guess revenue from the back half, you'll see growth. You won't see the doubling of growth like we have this past quarter. You'll see a much more muted growth into the channel for adult-use.

[Andrew Carter:]

And then just a last question. Now that we have the Health Canada regulation fully out there, I guess I want to get your perspective on the approval processes that remain outstanding. How you view any risks of getting product to market from here?

[Brendan Kennedy:]

Andrew, are you talking specifically around the cannabis 2.0 form factor?

[Andrew Carter:]

Yes, sorry. What I was kind of getting at, I know that they’ve thrown a 60-day window. I've heard conflicting things about how strict that's going to be. Is it expiration, you can start shipping? Can you ship before? That's kind of what I'm trying to understand here.

[Brendan Kennedy:]

Yes, we expect to be able to ship those products and just sometime on or before December 19th. What -- where does -- what's really unknown is not really the Health Canada regulations. But whether or not the crown corporations are going to be willing to place significant orders at the end of November, December, just as they are going through their end of the year and the holidays, or whether some of them might just hit pause on the new form factors and place those orders in January. I've sort of given up on trying to predict how these entities will act.

[Operator:]

Our next question comes from the line of Brett Hundley with Seaport Global. Your line is now open.

[Brett Hundley:]

So I just wanted to follow-up on the discussion regarding additional third-party supply in Canada. So as you guys look to potentially sign up more third parties supply agreements, going forward. The entities that are willing to sign up for these supply agreements. Would you characterize them as larger peers, or would you more so characterize them as smaller entities?

[Brendan Kennedy:]

It's a mix. Some of the smaller ones are entirely focused on one or two strains, and we've seen some high-quality products out of some of those craft cannabis farmers. On the other hand, we announced a large supply agreement with Zenabis, and they were in need of capital. And rather than do around capital or go to markets and favorable time, we were able to structure a deal that made a whole lot of sense for us and guaranteed us supply of high-quality products at an aggressive price.

[Brett Hundley:]

And then I also wanted to revisit a discussion about CBD in the U.S. So I guess on the supply chain side, when you look at hemp and broad-spectrum cannabinoids in the U.S., prices have really been declining year-to-date in the states. We will see what happens as we get out of harvest this year and how much hemp makes it out of the field, and onto store shelves. But I wanted to better understand your own supply chain at this point in time. I mean, I understand this could change if and as you guys conduct M&A, or partnerships ahead. But can you just update us on your hemp and CBD supply chain approach in the states at this point in time right now?

[Brendan Kennedy:]

We've announced a couple of different agreements with farmers, and I guess collectors of farmers. In the U.S., we've procured supply from company in Montana, called the LiveWell. And that's some supply for Tilray and for the Authentic Brands Group products. We've also, through Manitoba Harvest, signed a supply agreement for high potency CBD hemp from a group of farmers out of Oregon. And the name of that group is slipping my mind right now, so I can't name it.

[Brett Hundley:]

And then just last from me, I just wanted to revisit the profitability discussion. I personally agree with what you guys are saying in so far as building for the long-term. And I think we've seen examples within the space where maybe that leniency hasn't been there on some of your peers, at least from their owners' side. And then, of course, you just have views that seem to change across the border marketplace from the investment community. Can you guys -- maybe just looking at profitability differently. Can you characterize how important it might be for you guys to get free cash flow positive within the next, let's say, three to five years? But let's look out longer. I mean, do you think that you have enough leeway from your ownership and the broader market to continue running at negative cash flow for longer periods of time in order to position your platform for that longer-term size and success? Can you just talk about that a little bit as it relates to your ownership and your views of the broader market, and its acceptance of what you're trying to build long term?

[Brendan Kennedy:]

So from an ownership standpoint, we do have a concentrated ownership, which we think is an advantage, because the ownership start taking a long view of this opportunity. And investors are looking at it and rewarding us for that long view. When you look at the multiples in the market, we're one of the highest multiple stocks. So I think people that have the long view are taking the ride with us. Obviously, there's companies that are taking a much shorter view. So our approach in the next three to five years, yes, we do expect to be cash flow positive during that timeframe. But you know we're looking at today as kind of day one. So really maybe a year from the day we've gone IPO, so we're really a couple year into it. This still -- it's still such early days and we were building this thing to be one of the, the leaders, in the space globally. We're not looking to just be the biggest company or one of the biggest in Canada. So I agree with your thoughts that long term we do have patient investors and we have people that are betting on us.

[Operator:]

And that will conclude today's question-and-answer session. I'd like to turn the call back to Mr. Kennedy for closing remarks.

[Brendan Kennedy:]

Thank you, everyone. I want to thank more than 1,300 employees of Tilray for their dedication and extraordinary efforts in building our company, and for improving lives of patients and consumers through cannabis. We appreciate everyone's questions and participation on today's call. Have a great evening.

[Operator:]

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program and you may now disconnect. Everyone, have a great day.