Tilray Brands, Inc.
Q3 2019 Earnings Call Transcript

Published: 13 Nov 2019

[Operator:]

Good day, ladies and gentlemen, and thank you for standing by and welcome to the Tilray Third Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. . Now, I'd like to hand the conference over to your speaker today, Ms. Rachel Perkins.

[Rachel Perkins:]

Good afternoon and thank you for joining us on Tilray's third 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 update on the progress we’re continuing to make on our strategy to be a leading cannabinoid-based global consumer packaged goods company, with a portfolio best-in-class brands supported by a multinational supply chain. In just a few moments, Mark will review our third quarter 2019 financial results in some detail, and discuss our long-term financial targets. But first, I'd like to provide some highlights. In the third quarter, our revenue increased 409% year-over-year to US$51.1 million and total kilogram equivalent sold nearly doubled sequentially to 10,848 kilograms. With receipt of our first GMP certification for our Portugal facility, revenue from international medical sales grew more than five-fold compared to the prior year period. This is in line with the expectations we shared earlier this year that growth for our global businesses would accelerate in the second half of 2019 and into 2020. While the cannabis industry is still in its early stages of development, the global paradigm shift regarding the legalization and use of cannabis as medicine and mainstream consumer products continues to play out as anticipated. To capitalize on this opportunity, we are prudently investing to build the global infrastructure required to drive long-term growth and shareholder value creation. Today, our products are available in 20 countries spanning five continents. Over the next two to three years, we expect a number of additional countries to legalize medical cannabis, followed by adult-use and our global footprint puts us in an advantaged position to enter new markets when we are legally permitted to do so.

[Mark Castaneda:]

Thanks, Brendan. Good afternoon to those of you joining us on the call today 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. Our momentum from the first half of the year continued through the third quarter and we believe our strong growth will continue in Q4 and throughout next year. Focusing on our Q3 results in more detail, Q3 revenue grew more than fivefold to $51.1 million or C$67.8 million compared to the third quarter last year. To put this in perspective, our Q3 revenue alone was 18% greater than our revenue for full year of 2018. Revenue growth was primarily driven by the Canadian adult-use market, the Manitoba Harvest acquisition and growth in international medical markets as a result of our first GMP certification of our Portugal facility. Our performance in the Canadian adult-use market so far has been in line with our expectations. Adult-use represented 31% of revenue in the third quarter and increased sequentially from Q2 to Q3. With additional retail distribution and new form factors becoming available, we expect adult-use revenue to continue to drive our growth. Additionally, the adult-use channel has driven our average selling price or ASP down compared to the prior year due to two factors. First, a lower mix of higher value-added extract products which represented 17% of non-hemp revenue for the third quarter 2019 compared to 52% of revenue in the same period last year. We expect the introduction of Cannabis 2.0 products that ASPs will increase as edibles, beverages and vapes all sell at higher prices overall. Additionally, we will likely transition our key operating metrics to focus on units as grams become less relevant in 2.0 products.

[Operator:]

. And our first question is from Vivien Azer from Cowen & Company. Your line is open.

[Steve Schneiderman:]

Good evening. This is Steve Schneiderman in for Vivien tonight. Want to start off on Fluent. Can you talk a little bit more about the opportunity you are seeing with CBD beverages specifically within the market and in addition can you provide any color regarding the delay on the rollout for THC beverages?

[Brendan Kennedy:]

Sure. Yes. So, in the quarter, we announced the name Fluent as well as the CEO and the team at Fluent has been working since we announced the partnership with AB InBev last December. They have been working on developing formulations, form factors, brand and packaging for the product that we will or they will launch in December. I believe that they will announce -- showcase their products before the end of the month, and they have announced selling them to the various provincial buyers, crown corporations throughout Canada. They’ve been showing the products to those buyers and we expect to ship those products December 17th. The CBD beverages became a focus for them based on a lot of market research that they did, and so they launched those products for sale to adult consumers in Canada in December. They continue to do research on THC beverages and expect to launch sometime next year.

[Steve Schneiderman:]

Okay. That's great. Thanks very much, Brendan. On Portugal, I want to go back to this real quick. On the GMP certifications stat, I understand that the finished manufacturing license you expect by the end of the year, correct me if I'm mistaken but wasn't there another license you are awaiting on in order to be able to have full access to sell the full product suite? And also, based on what you are licensed for today versus what you hope to be licensed for by the end of the year, what percentage of your product mix is available today versus what you're awaiting on?

[Brendan Kennedy:]

Yes. So currently, obviously we have been investing in Portugal since 2000, I made my first trip there in 2015, signed an MOU with the government in 2015 and started buying property and designing facility in 2017. We planted -- built up the building 2018 and put our first plants in our greenhouse in November, December of last year and so we have been harvesting products for almost a year now. In Q3, we announced our first export. It was €3 million, $3.3 million bulk export from Portugal to Germany. So, it’s always exciting to generate that first dollar of revenue from a project like that and we are looking forward to significantly increasing revenue from Portugal in Q4 and throughout 2020. There are three main steps in the EU GMP certification. Those certifications are issued by our regulator in Portugal INFARMED. The first was issued. So GMP Part 2 which enables us -- well that's what enabled us to ship that GMP flower from Portugal in bulk. So think about roughly 50 kilo sized packages from Portugal to Germany. So we have that first EU GMP Part 2 certification. We are awaiting EU GMP Part 1 and that enables us to produce and package flower products and oil products in finished form factors. So actually, in the end, product package that a patient in Germany or any other EU country would actually receive from a pharmacist. Like you said, we expect that certification before the end of the year. We actually expect it before the end of the month. And so we're awaiting that. The final GMP certification that we're looking for is likely to come in Q1 and that would enable us to extract oil from flower and byproduct at our Portugal facility and that one is going to take a little bit longer because we've produced the -- I believe we've produced the test batches but that one won't happen to Q1.

[Steve Schneiderman:]

Okay, thanks for clarifying on that one. And last one from me. Can you provide an update on the holiday roll out of CBD offerings through ABG? It sounds like you're going to be able to get something out by the end of the year. Was there any additional detail that you can offer beyond that?

[Brendan Kennedy:]

Yes, so we -- obviously we completed the acquisition of Manitoba Harvest in Q1 and launched those products at the end of May, start of June. Those products are currently in about a thousand -- little over a thousand retailers in the U.S. We have developed the first product set through the ABG partnership and those products have been produced. They've been introduced in a very small roll out and expect them to be in market before the end of the year. In addition in terms of U.S. CBD, we acquired Smith & Sinclair in Q3 and expect to launch those products -- their CBD products in the U.S. before year end.

[Operator:]

Thank you, our next question comes from Doug Miehm with RBC Capital Markets. Please go ahead.

[Doug Miehm:]

A couple of questions starting with EU. Could you maybe frame what you see the opportunities? You talk about the increasing revenues in Q4 and then into next year. But I'm guessing that this is going to be really tied to that GMP Part 1. And could you provide us a few metrics around how you see that market developing for you over the next several quarters?

[Brendan Kennedy:]

Sure. So we -- Tilray was the first company to ever legally export medical cannabis from North America and that was an export we did from Canada in June of 2016 to the EU. Since then we've exported to -- our products are in 13 countries, a handful of them, about six I think in the EU. So we've exported to Australia, New Zealand, Latin America, South Africa, the U.S. for clinical trials and then I think six EU countries. Our products are now in Ireland, in UK, Germany, Croatia, Czech Republic, Cyprus, and we continue to look to new countries to export our products to and we will likely add one before the end of the year and one either before the end of the year or just at the start of Q2. And when we look at the patient and prescription count in Germany, it's actually very similar to the old ACMPR patient model in Canada in terms of patient ramp. And so we're encouraged by the number of patients that are getting prescriptions in Germany. And so, when we look at what we’ve built in Portugal, we expect to not only significantly increase revenue through bulk exports to Germany and other EU countries but with this final GMP or the next GMP certification, we will be able to ship finished packaged products and that will really have two effects. It will; one, increase overall revenue because the revenue for finished package product per gram is significantly higher than a bulk export per gram; and then secondly, it will increase our profit margin, because the profit margin on the finished packaged product is also significantly higher than a bulk export.

[Doug Miehm:]

Okay. And then just to wrap up. With respect to the consumer insights that you noted based on some of the agreements that you have in place. Could you speak to that? And then also, maybe Mark could speak to the B2B market, what you're seeing there in terms of pricing and the quality of product? And I leave it there. Thanks very much.

[Brendan Kennedy:]

So we've done performance market research on Canadian consumers, we've seen increased interest from older demographics around CBD and there’s certainly -- there’s obviously a lot of interest around CBD. And if you look at Google Search results for CBD in the U.S., you see significant growth over quarter-over-quarter. We see the same interest in Canada. And so we've done some segmentation of the consumer base there. And we'll introduce not only new form factors, edibles base for that demographic in Canada, but also the beverage brands and products that we will launch in December. We’ll target the consumer segments that we identified in that research. We're actually doing some work with Deloitte on consumer segmentation in Canada and we'll publish some of those results in 2020. So we use that data, as well as other data. We've access to not only develop new brands and products but refine the brands and products within our existing portfolio.

[Mark Castaneda:]

And the second part of the question was the bulk market and what the spot market looks like in Canada. And so what we still cannot find high quality or high potency flower in the market really almost at any price, it’s very rare to find. There is more and more lower potency product on the market and pricing is coming down for that bulk market and there is also a lot of byproducts on the market that people are using for extraction. So the pricing, and byproduct and low potency is continuing to come down, but there is this whole in the market for trying to buy some higher potency products.

[Operator:]

Thank you. And our next question is from Andrew Carter with Stifel. Please go ahead.

[Andrew Carter:]

So I wanted to understand kind of the commentary around expecting a continued acceleration in the fourth quarter and some of the channels you have there. Starting with medical, I think kind of at that level should we expect that as you kind of potentially get the GMP certification coming up? And then from the adult-use, are you thinking January or December shipments of adult-use products in Canada?

[Mark Castaneda:]

So we do expect a small amount of shipments in Q4, but a bulk of that will be shipped in Q1. So there'll be a small amount but not a material amount in Q4 for the adult-use 2.0 products. We do expect our adult-use revenues to be up versus Q3 on just the flower products. And going around to the other channels, as Brendan mentioned, our medical -- international medical, we expect to see a continued strong growth, as we have prefaced in the first half of the year that we thought there'd be some nice step changes in that market and that is playing out as we expected. On the Canadian medical and the Canadian, we group Canadian medical and Canadian both together. The bulk portion of that will come down. There is just less opportunities for us and we're keeping all that byproduct or oil that we've been selling. So it'll be kind of a mix. You'll see some strength in Canadian adult-use and strength in international medical.

[Andrew Carter:]

And then kind of a second question, I want to step back and ask about the Batch kind of the discount offering, you and another competitor have kind of put something out there. Just kind of to step back from that and with kind of some of the restrictions you have in Canada, limited retail availability and really kind of the limited ability to kind of communicate that to consumer, do you think you'll be able to get this offering to the intended user, which can convert the illicit market users? And also just one other follow-on, would this product be incremental to -- or be accretive to your gross margin long-term guidance?

[Brendan Kennedy:]

Hey, I'll talk about the first part and Mike will answer the second part of that question. When we looked out and surveyed the various products in various provincial retail stores, it seemed like there was a gap in that. There weren't a whole lot of brands focused on the value consumer. And certainly when we look at U.S. states, you do see products that target that consumer segment. And so we've launched that product and that brand in Canada and we were very pleased with the results. A lot of that product is typically product that we wouldn't sell under our existing higher quality, higher priced brands. And so these products gives an opportunity to generate revenue from product that otherwise would have been sold to another LP or extracted. And so, it gives opportunity to generate additional revenue.

[Mark Castaneda:]

Yes. And from a margin standpoint, the margin on that is slightly lower than our overall averages of margins. But as we get in the 2.0, we do expect there to be higher margins from the 2.0 products.

[Operator:]

Thank you. Our next question comes from Tamy Chen with BMO Capital Markets. Your line is open.

[Tamy Chen:]

Yes. Thanks. First question is for a quick clarification. Mark, did you say that guidance you're expecting positive EBITDA by the fourth quarter of 2020?

[Mark Castaneda:]

That is correct. We expect to be positive fourth quarter 2020.

[Tamy Chen:]

Okay. So, I just wanted to understand how you are getting there given that you mentioned you have this new value product. You have been talking to that you expect Rec 2.0 will be margin accretive. But I just wanted to get a sense of kind of the sensitivity towards that because presumably there will be a ramp associated with the Rec 2.0 and it’s a totally different ramp from cultivation. This is a lot more manufacturing out. So, maybe thought about what the potential I guess risk could be associated with that ramp? Could that in the interim further pressure your margins before things get better? So, I just wanted to better under how you are seeing that trajectory of positive EBITDA by the fourth quarter of 2020?

[Mark Castaneda:]

Yes. So, Tamy, as you saw this quarter despite having sell-in of the Batch product which is at lower cost and at lower margin, actually gross margins were up 200 basis points. So, as our facilities -- as we put more product to our facilities, any factory that you start running at a fuller capacity, you cover more of your fixed costs, so it brings down the overall cost and expand your margin. Additionally, with our international business, international medical is by far the highest margin part of the mix, and we expect significant increases in that business to offset any kind of risk on the Canadian adult-use side. So, I think having that extra leg of growth at high margin is a good hedge against the -- some of the risk in the Canadian adult-use market. And so, yes, the way we get there is, we do see for the full year over 40% margins in 2020. We do see our expenses from an overall expense kind of averaging around $45 million a quarter to lower in the earlier quarters, a little bit higher in the letter quarters. And with revenue ramp, you get to a gross margin that covers your operating expenses. So, that's how we get to positive EBITDA in Q4.

[Tamy Chen:]

Okay. And on the cash side here, you said that you're expecting the quarterly cash burn will come down in each quarter. But I'm wondering -- net working capital for example is one area as well as CapEx. How should we think of that going forward because again there is the Rec 2.0 aspect that's coming down the pipeline? So, how do you think of it? Can we get more color on that guidance you are giving for cash burn to decline over the coming quarters?

[Mark Castaneda:]

Yes. So, if you think about this quarter and next quarter we will probably peak in inventory at least for some time. Inventory as you saw was around a $110 million. We also have about $60 million in deposits which are primarily prepaid inventory. We expect that number this time next year or at the end of next year to be around $100 million. So we expect to benefit on the working capital side of around $70 million. So that kind of helps with negating some of the cash burn going forward. We effectively prepaid for a lot of our cost of sales. So when you look at the operating expenses from a cash burn standpoint, you're looking at around $65 million in cash burn over the next four quarters. And so that's negated by kind of the working capital benefit. So then we had interest expense of around $25 million and CapEx between $25 million and $35 million, which gets you to $50 million to $60 million in net usage against our $120 million cash.

[Tamy Chen:]

And sorry if I could squeeze in one more here. When you talk about you're likely to tap the debt market, you're talking about -- because you mentioned also assets on the book about 300 million if I heard that right. So are you talking about a credit facility? And just wondering why you said it's likely you'll tap that? It’s by your math, the current cash you have on hand you believe will be sufficient until you get to EBITDA positive?

[Mark Castaneda:]

Yes. We will likely tap it, I didn't say that we would for sure tap the markets, but we want to make sure we have plenty of cushion in our operating plan. And as you know in running businesses working capital fluctuates within a quarter and within a month. So you need some of that cushion sometimes to help absorb some of those seasonality or movements around working capital during the month.

[Operator:]

Thank you, our next question comes from Aaron Grey with Alliance Global. Please go ahead.

[Aaron Grey:]

Thanks for the questions. Just want to dive back again into kind of the assumptions to get to the 4Q EBITDA positive. Just in terms of the revenue ramp, can you talk a little more in terms of sensitivity on that, just given there are some things that are out of your control in terms of just increased brick and mortar in Canada and then also U.S. with CBD and regulations you know coming from the FDA. What kind of sensitivity do you have in terms in any kind of delay or ramp-up in brick and mortar in Canada? Thank you.

[Brendan Kennedy:]

Yes, so looking at the revenue ramp for really more 2020, there's really little CBD, U.S. CBD in those numbers. So that would primarily be upside. On the Canadian side, we do expect that 2.0 products and more locations. We do expect around a thousand locations by the end of next year. Sensitivities go to from 800 to a 1,000 so we think even at 800 locations we will be positive on EBITDA in Q4. So that there is a sensitivity if there's no new locations, that could put that into jeopardy. I don't think that's going to be the case. But if there is no new Canadian location that could put probably positive EBITDA out maybe another quarter. So those are the two -- like I said the offset is international medical which is high-margin and significantly high-growth.

[Aaron Grey:]

And then just on price per gram, it seem like kind of fall again sequentially, just how best to think about the puts and takes of that as we kind of go forward and as we have international kind of sales coming online and then also Cannabis 2.0 products which will have a higher ASP, when should we best expect that to ramp-up? And also as we begin to see that offset to with kind of a balance in terms of supply demand you talked about in the next 12 months, do you expect to see pricing pressure overall. So just how to think about price per gram going forward?

[Brendan Kennedy:]

Yes, we do expect price per gram to be going up, probably going up from here, primarily because of international medical will be a bigger mix of the overall revenues, as well as the 2.0 products should be a bigger mix of the overall revenues, less impact in Q4, more impact in 2020. So with those higher priced items, you'll see ASPs go up. And what was the second part of the question?

[Aaron Grey:]

Just in terms of supply demand equilibrium, talk about the next 12 months and the impact that would have?

[Brendan Kennedy:]

Yes, so supply demand is a little bit tricky because there's so many subcategories of the products. So I would say we're getting close to supply demand balance on low quality, byproduct and for low potency product. But for high potency product and products that consumers want there is just not enough supply. I think we'll see the same thing in the 2.0 products, especially as we start out of the box, it will be pretty lumpy as people ramp up their manufacturing processes. But maybe within a year we might be within a good supply demand balance in Canada at least.

[Operator:]

Thank you. And our next question is from Graeme Kreindler with Eight Capital. Your line is open.

[Graeme Kreindler:]

Yes. Hi, thanks for taking my questions here. I just wanted to follow up with respect to the hemp CBD in the U.S. market. If I recall correctly, earlier in the call you said you’re in about 1,000 stores right now. I was just wondering if you have any targets or milestones with respect to what you're looking for in terms of increasing that distribution over time as you ramp up the supply chain as well as introducing more brands and products?

[Brendan Kennedy:]

Yes, it's something that we're focused on in building -- continuing to build up a team that will execute on that strategy. There’s still a lot of retailers in the U.S. that will not -- they will not buy or they won't sell stocked products that are -- that contain CBD and are edible, digestible. And so nutritional supplements, dietary supplements, they're awaiting for some clarification from the FDA. And that's where a large part of the market in the U.S. is right now in terms of digestible products. And so they're sort of at the starting blocks, waiting to be allowed to sell this product. On the other hand, there are retailers who are in interested in selling topical products that contain CBD. It’s why with the ABG agreement, the first product that we're introducing there are topicals. And then generally the smaller retailers in the U.S., some of the smaller are health and wellness focused. Grocery retailers are stocking some digestible edible CBD products. But it's still growing gradually. And so we're out meeting with those buyers and introducing them to the ABG and Manitoba Harvest and Smith & Sinclair products. But even they are awaiting a bit to do what sort of clarification comes from the FDA.

[Graeme Kreindler:]

Okay. Thanks. And then on an unrelated note, just going back to the mention of the prepaid inventory balances, the prepaid supply agreements there. Just wondering given the comments on what you're seeing the wholesale market in terms of product being available but maybe not necessarily the type of product you want to source. Just what’s involved in terms of managing the counterparty risk there, and making sure that ultimately the product that you’re going to be getting in those agreements is going to be something you will be able to place either in the delivery of product or potentially in that category of high quality flower that there seems to be a shortage of? Thanks.

[Brendan Kennedy:]

Yes. So, we went out and we met with the partners, the suppliers and they’re suppliers and partners that we’ve used in the past and so we were familiar with them. We're familiar with their facilities and we're familiar with their quality and their potency. However, we do continue to monitor them. This is not an industry where you sign a contract and then wait for the product to be shipped to you. We believe in trust but verify and so we send people out to regularly inspect the crop that we're buying. And within the supply contracts, there are mechanisms, there is potency ranges in the contract that determine the price we ultimately pay for the finished product.

[Graeme Kreindler:]

And just one final follow up with respect to the potency ranges and the prices that you pay. Is there a further mechanism that adjusts the band of pricing, depending on what’s seen in the larger market as that's can be -- looking at it is just a quite volatile in short amount of time?

[Mark Castaneda:]

There are not -- it’s hard to get an accurate spot price unlike a lot of -- unlike corn or other products like that, there’s not necessarily a market price on a daily basis that you can point to. At some point, we may have a contract like that. But what we have done is for these contracts that we have prepaid the prices so far below the current spot price that we're comfortable there, the spot prices just never going to get to -- certainly not in the lifetime of these contracts. The spot prices just never going to approach the price that we've negotiated for these contracts.

[Brendan Kennedy:]

We've time for about one more question just because we're running out of time.

[Operator:]

Yes, sir. And we have a question from Michael Lavery with Piper Jaffray. Please go ahead.

[Michael Lavery:]

Can you just touch on the hemp Manitoba Harvest business a little bit and help us to understand what drove the sequential declines from last quarter to this one?

[Brendan Kennedy:]

Yes. Actually, when we were performing due diligence a year ago, when we went back and looked at their historical revenue, one of the things that surprised us was that there is an element of seasonality, cyclicality in their revenue numbers and it happened every Q3 historically. And when we looked at it, the rationale is that a lot of their products are consumed on a sort of daily ritual routine basis, whether it's breakfast, lunch or dinner. And during the summer months, when children are on vacation, those daily routines get -- they get disrupted. And so that's the real reason behind the Q3 decline and we talked about it a lot at the time of acquisition -- probably haven't talked about it. At the time of the acquisition, we sort of talked and discussed this issue with analysts that, that this typically happens. It's probably something we should continue to keep everyone informed that this does happen on a Q3 basis annually.

[Mark Castaneda:]

Yes, and I will add that Q1 and Q2 are the strongest quarters. Q1 is -- everyone wants to eat healthier and this is viewed as a kind of a healthy -- healthier diet type of product.

[Michael Lavery:]

Is the 3Q number up versus last year’s?

[Mark Castaneda:]

Actually last year they did a special with one of the large retailers of a discount. So it is slightly down. But excluding that special discount, the overall branded products are up.

[Michael Lavery:]

And how much contribution did you have from the -- it looks like if I'm reading it right you renamed it from food product last quarter to hemp product this quarter, I assume that reflect the and the broader portfolio, how much did that contribute? And it’s still even just downward year-over-year because of the comparison with the promotions?

[Brendan Kennedy:]

Yes, the promotion made a big difference year-over-year, the CBD or whole a broad spectrum of products just launched in this quarter and it's still very early. So it is relatively small portion of the overall revenues for the quarter.

[Michael Lavery:]

And can you just give a sense of your thinking on the brand approach. I guess part of the question is what is the Pollen brand add, why put that in on top of the one you already have? How do you think about what those mean differently and how to go to the consumer in the U.S.?

[Brendan Kennedy:]

Yes, when we first started having conversations with Smith & Sinclair, that acquisition was really about a number of different things, it was about the management team, the founder and chief formulator that they have. They have innovative products that are clever and a like in the UK. And so when we were meeting with them and saw the products that she wanted to introduce into the U.S. and into the UK, they were different from everything that we'd seen out there. And what we like -- we like the brand and we like the products. And so that's what justifies the acquisition in our opinion and the brand is different and the products are differentiated from our existing product set.

[Mark Castaneda:]

And they'd be filled with some different channels as well, so it's a broader coverage for consumers.

[Michael Lavery:]

No, that's great, that's all very helpful. And then just to add it all up, what should we be thinking about modeling this segment looking ahead into next year and how much momentum now better recognizing the seasonality. What on top of that should we be expecting in terms of a growth profile or run rate?

[Brendan Kennedy:]

Yes. So on just the -- we kind of bifurcate the food versus the CBD, and the CBD, internally our models are pretty conservative just because we're awaiting for the FDA and we do believe that with FDA clearance that will be a step change. We just can't -- we don't know what that timing is. So work on modeling pretty conservatively for 2020 for U.S. CBD. Until we have that regulatory change, we're not going to adjust our numbers up. So the Manitoba Harvest business, we're looking at that. Last year it was around a kind of full year $75 million business U.S. and we see 10% plus improve -- or increases in the revenue on that just on the food side.

[Operator:]

And now I would like to hand the call over to management for their final remarks.

[Brendan Kennedy:]

Thank you. I want to thank our more than 1,400 employees and team members for all their hard work, improving patients and consumer lives through cannabis. We appreciate everyone's questions and participation on today's call. Have a great evening.

[Operator:]

And with that, ladies and gentlemen, we thank you for participating in today's conference. You may now disconnect. Have a wonderful evening.