Tilray Brands, Inc.
Q3 2018 Earnings Call Transcript

Published: 14 Nov 2018

[Operator:]

Good day, ladies and gentlemen. And welcome to the Tilray Third Quarter 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct the question-and-answer session and instructions will be given at that time. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to introduce your host for today’s call Ms. Katie Turner. Ms. Turner, you may begin.

[Katie Turner:]

Good afternoon. And thank you for joining us on Tilray’s third quarter 2018 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 belief and involve risks and uncertainties that could differ materially from actual events and those described in these forward-looking statements. Please refer Tilray’s final prospectus with initial public offering and other reports filed from time to time with the Securities and Exchange Commission and its press release issued today for a detailed discussion of the risk that could cause actual results to differ materially from those expressed or implied in any forward-looking statements made today. Finally, on today’s call management will refer to adjusted EBITDA, which is a non-GAAP financial measure. While the company believes adjusted EBITDA will provide useful information for investors, the presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. Please refer today’s release for a reconciliation of adjusted EBITDA to net loss, the most comparable measure prepared in accordance with GAAP. And now I’d like to turn the call over to Brendan.

[Brendan Kennedy:]

Thank you, Katie. Good afternoon, everyone, and thanks for joining us today. On today’s call I will review the progress we have made on our strategic initiatives as we further extend our operations in Canada and internationally to capture the robust opportunities for long-term growth in the global medical and adult-use cannabis industries. Mark will then review our third quarter financial results in more detail and discuss our long-term financial targets. After that, we will open the call for your questions. At Tilray, we remained in the early stages of achieving our growth potential. Since our last earnings call at the end of August, our team has been intently focused on making disciplined operational actions, making key strategic investments and generating additional capital to support the sustainable growth we expect to achieve over the next several years. Focusing on our third quarter for a moment, we are pleased with all our overall business momentum. Revenue increased 86% from the third quarter last year to US$10 million. And total kilogram equivalents sold increased both sequentially and on a year-over-year basis. Our medical cannabis business continues to perform strongly. And we expect the adult-use market to become a meaningful part of our business as supply ramps up. Mark will discuss this in more detail along with where we see our margins heading as we increase sales. Taken together, what you will hear is how the results reflect the beginning of a global transformation of a $150 billion industry from the state of prohibition to the state of legalization. As we have discussed with you in the past, this continues to accelerate and become a reality. Tilray medical cannabis products are now available to patients in 12 countries on five continents, reflecting our position as a leader in global medical cannabis distribution. The foundation we have built in medical cannabis has helped us as we position our business to also benefit from the opportunities in adult-use cannabis. We believe and our progress to-date reflects that companies such as Tilray with trusted brands and multinational supply chains will be the one that win not only with consumers, but regulators as well. Building our brand and supply chain has become our core focus since we founded Tilray. And we have made significant investments to develop the right assortment of products and brands to scale our operations and to recruit the right team. We have built a premium, vertically-integrated business to pioneer the development of multiple markets around the globe. While this approach will continue to require initial investments in the short-term, we believe it creates a strong foundation and unique barriers to entry that can be leveraged and scaled in the medium to long-term. To reiterate, our global growth strategy is focused on six top-line performance drivers, all of which we pursue with the focus on discipline, efficiency and potential to generate strong returns as the business continues to grow. First, increasing our production capacity and inventory to serve the rapidly growing global medical market and adult-use market in Canada; second, maintaining a rigorous focus on quality as we scale; third, partnering with established distributors and retailers to scale distribution of our products further and faster; fourth, developing a differentiated portfolio of brands and products that appeal to a diverse set of patients and consumers; fifth, expanding the addressable medical market by fostering mainstream acceptance; and sixth, continuing to pioneer the future of our industry by investing in innovation, R&D and clinical research. From a production perspective, we are aggressively increasing capacity. Our GMP certified facility in Nanaimo, British Columbia continues to operate at full capacity based on our robust medical cannabis demand. Furthermore, we have both our Tilray Canada and Tilray Portugal entities focused on cultivating, producing and distributing medical cannabis. Tilray Canada serves as our production hub for patients in North America and globally. Once complete, Tilray Portugal will focus on supplying the global medical market, primarily in the EU. Tilray Germany and Tilray Australia and New Zealand are similar and that they focus on importing products and on sales and marketing. During the third quarter, we received regulatory permits in Canada and Germany to export medical cannabis flower to Germany, making Tilray the first and only company to import both flower and oil medical cannabis products to the German market. Our team is committed to maintaining a rigorous focus on quality as we expand both our medical and adult-use cannabis products. As many of you know, adult-use in Canada began on October 17. We were pleased to launch our products in eight provinces. Based on strong initial consumer demand and constrained inventory across the industry, we are aggressively scaling capacity. Additionally, we recently signed an agreement with Prince Edward Island to supply cannabis to adult-use consumers. We are ramping up capacity at two High Park facilities to support the adult-use market, including High Park Farms in Enniskillen, Ontario and the High Park processing facility in London, Ontario. High Park Farms recently received a cannabis sales license from Health Canada to supply and sell finished cannabis products within the Access to Cannabis for Medical Purposes Regulations as well as sales to the adult-use market. Last week, we received additional licenses for two cultivation areas that had not yet received their licenses, which previously limited the output of this facility in the short-term. In the third quarter, we completed our first outdoor crop harvest in Portugal. This is an exciting corporate milestone. Tilray was the first licensed producer in Canada to ever harvest outdoor crops outside of Canada. We are continuing to build out the facility in terms of our Dutch style glasshouse, which we expect to be complete by the first quarter of 2019. Our EU campus located in Portugal has several benefits, including an ideal climate, skilled labor, reduced regulatory costs and tariff-free access to all EU markets. When fully operational, our four production facilities located on two continents will allow us to significantly increase our global production output, while reducing cost and hedging against regulatory risk. By the end of 2018, we expect to increase our production space to 912,000 square feet, a more than 15-fold increase compared to 2017. With more than $0.5 billion on our balance sheet, we have the capital needed to build out this capacity. On our existing properties, we have the ability to expand our total production space to 3.8 million square feet. As we scale our capacity, in parallel, we continue to develop a differentiated portfolio of brands and products that appeal to a diverse set of patients and consumers by investing in innovation, R&D and clinical research. In the coming year, we intend to announce our support of additional clinical trials in multiple countries. We have already exported 2

[Mark Castaneda:]

Thanks, Brendan. Good afternoon to those joining us on today’s call and webcast. It is a pleasure to be speaking with you today. We are pleased with our third quarter financial results and the significant growth and opportunities that lie ahead. Focusing on our Q3 results in more detail, please note, all the financial information we discuss today is prepared in accordance with U.S. GAAP and is in U.S. dollars unless otherwise indicated. Q3 revenue was $10 million, representing an increase of 86% compared to the third quarter last year. Revenue growth was driven by increased patient demand, bulk sales and export sales. Extract products represented a greater mix and approximately 46% of revenue for the third quarter of 2018 compared to 18% of revenue for the same period in the last year. We are pleased with our medical cannabis revenue, but we do expect to see an inflection in our growth trajectory throughout 2019 when adult-use revenue from additional form factors will be included in our results since it went into effect in mid-October. Moving on to operational metrics, total kilogram equivalents sold increased over two-fold to 1,612 kilograms from 684 kilograms in the same quarter of 2017. The overall average net selling price per gram was $7.53 in the prior year and $6.24 in the third quarter of 2018. The reduction was primarily due to an increase in bulk sales as a percentage of total revenue compared to the prior year’s quarter. Excluding bulk sales and looking at Canadian direct-to-patient sales, our average net selling price per gram increased 9.2% to $8.22 compared to $7.33 per gram. On the production side, we expect significant increase throughout 2019 as we expand our capacity to 90 metric tons as we bring our Ontario greenhouses and Portugal facilities fully online. Gross margin for the third quarter decreased to 31% from 55% in the same period last year as a result of procurement of third party supply and larger portion of our revenue being attributed to the bulk sale channels. As we indicated on our last quarter’s call, we continue to balance our product supply as we were long THC extracts and short CBD product. We expect continued balancing through the end of the year while we ramp up our production. Additionally, margins were impacted as we incur start-up cost in ramping our cultivation. Longer term, we continue to expect 50% plus gross margins as we lower our cost to greenhouse and outdoor cultivation and as we ramp those facilities past our start-up phase. We also expect to reduce revenue per unit as we begin selling wholesale in the adult-use markets, whereas today we are selling direct-to-patient. Total operating expense increased to $23.1 million which includes $11.2 million in non-cash stock compensation expense. Excluding the non-cash stock compensation cost, operating expenses increased to $11.9 million from $5.1 million in the prior year. The increase was primarily due to $4.6 million increase in general and administrative expenses associated with higher professional fees and the increased resources to support our growth and expansion for the start-up of our operations for adult-use. Net loss for the quarter was $18.7 million or $0.20 per share compared to $1.8 million or $0.02 per share in the third quarter of 2017. Net loss included non-cash stock compensation charge of $11.2 million compared to $35,000 charge in the prior year, about $6.8 million of non-cash compensation charge over those performance awards triggered upon IPO. Excluding the non-cash compensation charge, net loss was $7.5 million or $0.08 per share. Adjusted EBITDA was a loss of $7.4 million compared to a loss of $1.7 million in the third quarter of last year. The increase in net loss and adjusted EBITDA was probably due to increase in operating expenses related to continued growth, expansion of international teams and cost related to the IPO. Turning to the balance sheet, we ended the quarter with cash and investments of approximately $119 million. In October, we announced our pricing of $475 million convertible senior notes due 2023 and a private placement resulting in proceeds before expenses above $460 million. We intend to use the proceeds for working capital, future acquisitions, general and corporate purposes and repaying existing mortgage. As we look ahead, we do not provide guidance. However, we are aware that guidance does exist for our performance. The slow start and rollout in adult-use across the country has been impacted by many factors, including the timing of licenses, distribution and retail infrastructure. We are now immune to these factors and they will impact our results. However, we have witnessed that all markets that have transitioned from an illicit to legal market have had bumpy beginnings then thrive once the infrastructure and [ph] cycle periods have passed. On a longer term basis, we intend to further build our early relationship in the global cannabis industry and to achieve stronger growth for years to come. We see an opportunity to capture a sizeable portion of this market with an estimated gross margin of 50% plus, adjusted EBITDA margins of 25% to 30%. The EBITDA margins are based on the legal markets that exist today. As new markets are added, we will invest and develop those markets which would have a short-term impact on those margins, but also provide for greater revenue upside. This concludes our prepared remarks. Brendan and I are now available to take your questions. Operator?

[Operator:]

Thank you. [Operator Instructions] Our first question comes from Mike Grondahl with Northland Securities.

[Mike Grondahl:]

Yeah. Thank you, guys. Hey, in the adult-use market in Canada, what would you call out is the one or two sort of biggest challenges or hurdles that kind of exist in the market today and how long do you think till those kind of go away?

[Brendan Kennedy:]

I think the biggest hurdle that we weren’t expecting was the change in retail operations in Ontario. Obviously initially we were expecting four physical retail stores open up in Ontario. And with the change in government in Ontario, they decided to initially have online only and not to license and open physical stores in the largest province by population until next April. And so, over the short-term it definitely negatively impacted the industry. And in some way it’s negatively impacted the consumer experience because if you look at Washington or Colorado or Oregon and California and Nevada, day one October 17 you would have seen a lot of people in physical stores. I think over the long-term starting next April, you’re going to see private companies and entrepreneurs open physical stores much faster much more quickly than crown corporations -- the crown corporations would have than the OCS would have. And so, while it’s a negative impact over the short-term, I think starting next April, it will have a very positive impact that change in regulation will have a positive impact not only on Tilray but on the entire Canadian industry.

[Mike Grondahl:]

Got it. Got it. And then with the Tilray brands out in the marketplace the last month, kind of any early feedback or read, kind of what are you seeing so far?

[Brendan Kennedy:]

Hey. It’s really too early to tell. We thought it was really interesting the product mix that people chose, the brand mix that people chose province-by-province as all these different retail locations were being set-up. It was really the buyers who were taking the initial brands and initial products and we’re looking forward to those choices being made really by consumers, consumers picking brands and products that they love. That’s really going to be what determines long-term success in this industry in Canada.

[Mark Castaneda:]

And Mike, with the imbalance we have today with more demand than supply, everything is selling out. So, it’s really hard to tell what consumers are going to prefer longer term. Also consumers are limited on their form factors. So, as vape cartridges and edibles and beverages hit the market within the next year, we’ll really see what consumers want. So, this is really kind of short-term high demand for every product that the consumer can get their hand on.

[Mike Grondahl:]

Got it. Okay. Hey, thank you guys.

[Operator:]

Thank you. Our next question comes from Graeme Kreindler with Eight Capital.

[Graeme Kreindler:]

Yeah. Hi, gentlemen. I just was wondering can you elaborate a bit on the company’s strategy in terms of balancing inventory needs for medical international markets as well as adult-use, what the strategy is going ahead?

[Brendan Kennedy:]

So, in some of the international markets our strategy is really on getting Portugal fully up and running, licensed. Two weeks ago, three weeks ago I was in Portugal for our first outdoor harvest there and that was exciting as far as I know that makes us the only LP in Canada that’s ever grown a product outdoor as ever harvested a product outdoor, which is an exciting development for us and we’re looking forward to processing that product and distributing it inside of the EU and potentially in other international markets. Our greenhouse in Portugal will be completed at the end of this month, have plants in it. Next month, our GMP processing facility will be complete in Q1. And so, that will really -- what we’ll do is -- that will replace the products we currently export from Canada. So, we’ll begin to supply products inside of the EU from the EU. And so, that’s part of our international -- the international part of your question. What has been a little bit surprising in Canada really leading up to October 17, one of the things that was surprising is that I think most people in the industry were expecting some decrease in demand from patients. And clearly for us as part of our long-term strategy, patients come first. And we didn’t expect a run up in demand within the patient population pre-legalization. And we actually thought the opposite and most of our peers thought the opposite. And what happened was we saw a significant increase in demand from patients in the days and weeks prior to legalization and that was pretty counterintuitive to what we’re expecting.

[Graeme Kreindler:]

Can you elaborate a bit maybe how you see those patient figures developing now that we’re about a month in from adult-use? How sticky you think that is considering what we talked about on the infrastructure of the adult-use market. How do you see that developing over the next couple of months?

[Brendan Kennedy:]

It’s really hard to predict based on a number of different things. In some markets such as Colorado you see different tax rates between the adult-use consumers and the medical patients. You don’t really see that in Canada which is very surprising. Cannabis, medical cannabis is really the only product prescribed by a physician that is taxed in Canada. So, depending on taxes, depending on form factor, very different form factors between adult-use and medical and different tax rates, we would expect continued growth in the medical patient base. I think the other significant development that we expect in Canada really in the next few months is that Canada is the only country in the world where Tilray products are available, where they’re not available in pharmacies and that’s going to change. Everywhere else, Tilray products are available in pharmacies. In Canada they’re not, but with companies such as Shoppers’ Drug Mart and Pharmasave, we do expect these products to be available in pharmacies fairly soon. And that will be interesting to see in a place like Ontario where there aren’t retail stores opened, but you may see products, you may see Tilray products available in physical pharmacies. And it will be very interesting to see how that impacts the patient base.

[Graeme Kreindler:]

Okay. Thanks, Brendan. And my last question here just quickly. For the revenue for the bulk sales to other licensed producers, can you disclose what that was which other top-line there?

[Brendan Kennedy:]

It was about 50%.

[Graeme Kreindler:]

Okay, great. All right. Thank you very much, gentlemen.

[Operator:]

Thank you. Our next question comes from Scott Fortune with Roth Capital Partners.

[Scott Fortune:]

Hi, guys. Thank you. Can you step to kind of I know licensing, there has been a backlog, but kind of the progress on High Park and to eliminate kind of the supply issues, how long has this gone for you guys going forward with kind of fourth quarter and going forward for direct side of things?

[Brendan Kennedy:]

Sure. And there is two High Park facilities, one is High Park Farms in Enniskillen, Ontario. Obviously by the name it’s a cultivation facility. And I’ll sort of lock through that one first. So, the High Park Farms facility is now is fully licensed. We had been waiting on two zones, about 50% of the new facility that we had upgraded and we had been waiting on that to be licensed for loss of I guess four months, five months something like that and it’s finally licensed last Friday. And so, that took longer than we expected, but we are excited to get that portion of the facility up and running. And so, we’ve been taking clones to put plants in those two zones and that will significantly increase our capacity at High Park Farms. The rest of the facility is now fully -- I mean the entire facility is now fully licensed. And we are currently processing at High Park Farms. And so, processing and packaging finished products for the adult-use market. And we have submitted our full licensing application and all the documentation for the High Park processing facility in London, Ontario. And anticipate having that facility licensed within our expected timeframe.

[Scott Fortune:]

Okay. And then are you looking at all supply issues to potentially bridge by buying wholesale at all, the bridge is shortage right now?

[Brendan Kennedy:]

We have been. We have been looking at lots of different supply agreements and looking at all of the different farmers, all the different suppliers, cultivators in Canada. And the challenge is that -- really two-fold. One is that over the last, really over the last year we kept hearing about all of this capacity that people were building out and when we went to buy some of that supply, it’s just not available. People intended to exaggerate their capacity, intended to exaggerate the metric tons that they were going to be producing. And so, there is far less supply than frankly than we expected. And the second thing that we’re seeing is that there is far less quality supply than we expected. When we’ve gone out to do our own inspections for quality and look at the product that is available, it’s a much lower quality than our standards would allow us to purchase. And both of those things have been very surprising. We’ve often said that 5 years from now, 10 years from now we would hope to buy all of our supply from farmers not only in Canada, but in other countries around the world. But it seems like a lot of companies are having trouble scaling.

[Scott Fortune:]

Okay. And then last question. Potentially you expanded to Latin America, if the Mexico market comes onboard. Kind of what’s your strategy there serving it from the BC side of things or will Latin America be able to supply that or kind of what’s your strategy for if Mexico comes onboard here?

[Brendan Kennedy:]

So, we would look at -- we would potentially look at a company that we acquired Alef as a source of supply. Obviously also look at our facility in Portugal. And then also look at local supply within Mexico and look at potential strategic acquisitions or building capacity organically in Mexico or partnering with an established partner not within this industry but within a similar industry within the agricultural industry in Mexico.

[Scott Fortune:]

Got it. Yeah, thanks.

[Operator:]

Thank you. Our next question comes from Mike Hickey with Benchmark Company.

[Mike Hickey:]

Hey, Brendan, Mark, congrats on your quarter. Thanks for taking my questions, just a couple. Curious your view I guess on the shifting political landscape in the United States post mid-term elections. Both sessions are out in the pure sort of potential for medical cannabis legalizations were promising, but I wanted to hear your view?

[Brendan Kennedy:]

Yeah. So, obviously there were a lot of big developments over the last few weeks not only in the United States, but in places like Mexico. In the U.S., we saw one state Michigan legalize cannabis for adult-use which brings us to 10 states and then two states to legalize for medical purposes, Utah and Missouri, two very conservative states. You saw a very conservative Senator Orrin Hatch come out in favor of legalizing medical cannabis in Utah. Obviously one house raised was really important to us in the Texas’ 32nd Colin Allred Pete Sessions. I think he was an 11 time incumbent. And Pete Sessions as Chairman of the House Rules Committee had prevented numerous medical cannabis in Cannabis Bills from coming before the house for vote. And so, we are optimistic that without Pete Sessions we will start to see more bills come out in the next congress. I think that all of those things along with obviously Jeff Sessions, Drug War Dinosaur no longer being Attorney General are all positive signs for this industry. If I’m going to point to two more characteristic, indicators, we’re now at a point where 93% of the Americans believe that medical cannabis should be legal. 9 out of 10, you can get 9 out of 10 Americans who agree on anything, but they agree on that and then 65% of Americans believe that cannabis should be legal for adult-use. And sort of looking at that number and then subset of that number, 51% of republicans believe that cannabis should be legal for adult-use. And so, it was the first time the majority of republicans believe that this should happen. And so, all of those things point to the fact that the majority of congress now comes from a district that has legalized cannabis or medical cannabis in some form. This is a bipartisan issue at a time where there aren’t a whole lot of bipartisan issues. I think you’ll see Mitch McConnell include hemp cultivation in the next Farm Bill. So, Senator McConnell will do that and that will allow for CBD products to be more widely available in the U.S. And so, we’re optimistic about the long-term prospects in the United States. And I guess just finally and we talked about Mexico, but we’re also really optimistic about other countries around the world that are legalizing medical cannabis. We’re now at a point where 35 countries have legalized medical cannabis and it’s really clear to me how we get from 35 to 40 to 50 to 60 countries that have legalized medical cannabis in a relatively short amount of time, two or three years I think that’s where we’ll be.

[Mike Hickey:]

Okay. Good, sounds good. That’s helpful. Thank you. The second question from me is sort of back in the U.S. sort of your view on multi-state operators, obviously they continue to scale, you saw a big deal announced yesterday. But do you feel like you’re sort of losing your first mover advantage or game eroded without any sort of federal or legal path for you to do business in the United States?

[Brendan Kennedy:]

I think that we have lots of different advantages. One, we have over $500 million in cash to invest today. We have a public company stock as currency to conduct M&A transactions around the world. We are able to be listed on NASDAQ rather than other exchanges that some of the multi-state operators are listed on outside of the United States. We’re able to distribute our products around the world and comply with not only import and export laws in the countries in which we operate, but also international treaties. I think that in -- and in September we announced an export from Canada to the U.S. for a clinical trial at the University of California San Diego. I think that that gives us advantages to very quickly deploy capital in the U.S., if -- I should say when the Farm Bill passes and when we see something like the Caries Act [ph] or I guess now the State’s Act pass. So, all of those things would lead us to deploy capital swiftly into the U.S. I think besides the exchanges where you see the multi-state operators list and the lack of liquidity that those stocks have. I think another disadvantage you see amongst the state operators is that all of the products that they produce are -- and all the products they sell within an individual state are cultivated and processed and packaged and distributed solely within that state. And I think that puts them at a distinct disadvantage when federal law changes in the U.S. because they’re going to have all of these cultivation facilities licensed in all of these different states and companies such as ours would deploy massive amounts of capital in one single location or two single locations in one or two states and quickly move that product from state-to-state assuming federal legalization.

[Mike Hickey:]

All right. Thank you very much. Best of luck.

[Brendan Kennedy:]

Thank you.

[Mark Castaneda:]

Thanks.

[Operator:]

Thank you. And our final question comes from Tamy Chen with BMO Capital Markets.

[Tamy Chen:]

Thanks. Just the first question is I just wanted to clarify. So, your -- this quarter, the Q3 you did not ship any product to the adult-use market, is that correct?

[Mark Castaneda:]

That is correct, Tamy.

[Tamy Chen:]

And so, could you speak to how your adult-use shipments starting in October, how you performed versus what your commitment was to the provinces? And also for this initial October shipments, was it all out of the Nanaimo facility or did you have product shipping out from the High Park greenhouse as well?

[Brendan Kennedy:]

Yeah. So, we finally received our license from the greenhouse in Ontario and we did ship product from that greenhouse as well. And so, we are -- we do have a good start. And I think if you look around the industry, no one can keep it up with the demand. And we’re in the same boat as everybody else. We just can’t produce product fast enough as the demand is coming. And there was a bit of a dance at the end of the quarter where we had product packaged and palletized and ready to ship, but the several of the destinations, the distributors, the crown corporations didn’t have licenses to receive the product. So -- and that’s where the dance that took place across many of our peers in Canada.

[Tamy Chen:]

Right. And so, the High Park greenhouse, would you know what your current run rate production is at this point?

[Brendan Kennedy:]

So, as we said, our total production is around 66 metric tons. We had only half of our license or facility licensed. That license just came in this past week. So, effectively theoretically about 33 would be the theoretical capacity. Now that we have the full -- now that we have the rest of the licenses in place, we’ll be able to start planning those. So, we’ll get closer to that 60.

[Tamy Chen:]

Right. Okay. And again on the wholesale, can you speak to the pricing that you’re getting so far in the adult-use market?

[Mark Castaneda:]

So, because of our relationships with our retailers, we don’t disclose our pricing. You will see that in the Q, the overall averages, but we were informed not to disclose the pricing from the -- with our customers.

[Tamy Chen:]

Okay, got it. And my last question is just wondering in terms of your mix you mentioned your long I believe it’s THC, but not enough CBD. I’m just wondering why that is? I would have thought in the medical market you would have more CBD products. I’m just wondering why there has been some mix difference right now?

[Brendan Kennedy:]

So, we weren’t -- we are not planting enough CBD initially. The CBD demand outstripped our supply and we had some extra THC oils and that’s what we sold wholesale. And we’ve made commitments to sell that about a year ago. So, we would have plenty of THC oil we were long. But on the CBD side, we were -- we just couldn’t keep up, it’s also a very popular international product. So our 2

[Tamy Chen:]

Got it, okay. Those were all my questions. Thank you.

[Operator:]

Ladies and gentlemen, thank you for participating in today’s question-and-answer session. I would now like to turn the call back over to Mr. Brendan Kennedy for any closing remarks.

[Brendan Kennedy:]

Thanks everyone. We appreciate your questions and participation on today’s call. Have a great afternoon or evening.

[Operator:]

Ladies and gentlemen, thank you for participating in today’s conference. This concludes the program. You may all disconnect and have a wonderful day.