Earnings Transcript for MMEN.CN - Q2 Fiscal Year 2020

Operator: Ladies and gentlemen, thank you for standing by. And welcome to the MedMen Second Quarter Fiscal 2020 Earnings Call. At this time all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to your speaker today, Stéphanie Van Hassel, VP, Investor Relations. Thank you. Please go ahead.

Stéphanie Van Hassel: Thank you. Good afternoon and welcome everyone. Today I'm joined by MedMen's Executive Chairman, Ben Rose; and Interim Chief Executive Officer, Ryan Lissack; and Chief Financial Officer, Zeeshan Hyder. On today's call, management will provide prepared remarks and we will conclude the call with opening the line to your questions. Earlier today, we issued a press release announcing second quarter fiscal 2020 results ended on December 28, 2019. The press release, along with our financial statements and MD&A, are available on the company's website and filed on SEDAR. Before we begin, I'd like to remind you that the comments on today's call will include forward-looking statements, which by their nature involve estimates, projections, goals, forecasts and assumptions and are subject to risks and uncertainties that could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements. And certain material factors or assumptions were applied in drawing a conclusion or making a forecast in such statements. Forward-looking statements relate to among other things, the business and operations of MedMen, our plans for new stores and factories, our financial and operational expectations, our expectations as to future sources of funding, the terms, conditions, structuring and timing for completion of acquisitions, and the prospects of MedMen upon completion of the acquisition. These forward-looking statements speak only as of the date of this conference call and should not be relied upon as predictions of future events. Additional information about the material factors and assumptions forming the basis of the forward-looking statements and risk factors can be found in MedMen’s Annual Information Form dated November 8, 2019, the Management Discussion and Analysis for the period ended December 28, 2019 and the earnings press release issued earlier today, all of which are available under the company's profile on SEDAR. During today's conference call MedMen will refer to certain non-IFRS measures that do not have any standardized meaning prescribed by IFRS such as EBITDA and adjusted EBITDA, which are defined in the earnings press release we issued earlier today. Reconciliations to IFRS measures are contained in the press release and our MD&A. Please note, all financial information is provided in U.S. dollars unless otherwise indicated. Now with that, I'd like to turn the call over to MedMen's Executive Chairman, Mr. Ben Rose.

Ben Rose: Hello and good afternoon. Thank you for taking the time to join us today. I'd like to start off by thanking MedMen shareholders. We recognize it's been a challenging and at times frustrating journey and we appreciate your continued patience and support as we work to maximize the company's strengths and the opportunity ahead. While change doesn't happen overnight, I'm optimistic by recent developments. On February 21, the company held its Annual General Meeting where our new Board was appointed. In addition to three existing members, the following individuals have been appointed to the Board. Mr. Melvin Elias and Active Investor, Entrepreneur and Developer in Los Angeles and Former President and CEO of the Coffee Bean and Tea Leaf for six years until it was sold in 2013. Mr. Cameron Smith, an investment professional with experience at the U.S. Securities and Exchange Commission, who currently operates a private Angel Investment and Advisory Fund focused on health food. And Mr. Chris Ganan, Chief Strategy Officer of MedMen since May of 2018 and Former CEO of Treehouse Real Estate Investment Trust, a REIT focused on cannabis properties and integrate partner of MedMen. MedMen held its first Board meeting with our newly appointed board earlier this week and I feel good about the productive conversations we had around the progress of the restructuring, what the restructuring plan entails and the strategic direction of the company going forward. Along with forming the audit compensation and corporate governance and nominating committees, the Board is also in the process of forming a subcommittee responsible for identifying a permanent CEO. And the Board also established a special committee to value the former CEO separation package as further described in the company's January 31, 2020 press release. So before handing the call off to Ryan and Zeeshan, I want to take a moment to address our capital needs. This week we received an initial $10 million payment for the sale of a licensed cultivation and manufacturing facility in Hillcrest, Illinois, which is a non-core asset for us. We expect to receive the final payment of $7 million on or before March 10, 2020. The Board is acutely aware of the importance of raising additional capital. We are working closely with management, the Board is focused on securing a stable long-term capital management plan to provide the organization with the runway it needs to make progress on the cost reduction efforts we have embarked upon and move the company to cash flow break even. Well, at this time we don't have anything additional to announce. We are in advanced discussions with our key strategic partners around a long-term credible plan to fund this business. We appreciate your patience as the company completes this process and we will keep you informed on any new developments. As we continue to navigate this transitional period for MedMen, we are grateful that Ryan Lissack has agreed to serve as Interim CEO. Ryan is a seasoned technology executive with over 20 years of experience. He joined MedMen close to a year ago as CTO and has been instrumental in defining and building MedMen's technology platform, particularly the company's delivery and loyalty programs. We really appreciate him stepping up and focusing the business on execution. We trust that MedMen is in capable hands as we work through this transition together. So with that being said, I would like to introduce you all to Ryan Lissack.

Ryan Lissack: Thank you. As Ben mentioned I joined MedMen close to a year ago as Chief Technology Officer, in that time we have amplified the MedMen experience by introducing the company's fully owned and operated delivery and pickup platform and created a first of its kind loyalty program, MedMen Buds. These two initiatives along with MedMen's national retail strategy creates an industry leading experience resulting in improved brand awareness, customer stickiness, and an elevated shopping experience. In the past 20 years of my professional career, I've had the pleasure of working with some of the most talented and respected people, and for successful startups and groundbreaking companies such as Salesforce.com and the Walt Disney company. These experiences at companies of various sizes, maturity levels, and industries have given me a deep understanding of large scale enterprise, consumer commerce and data platforms and most importantly of what it takes to successfully build truly great company. MedMen's last chapter was about pursuing growth. Today, while we acknowledge the financial complexities we face, we have a tremendous opportunity to build upon our brands premium experience and footprints. This is a pivotal time for the company where we can re-assist the business including all of our past decisions and focus on what we do best, retail. We will continue to cut costs and execute on continuing to improve our four wall economics to ensure we are on a path to profitability. I would like to expand on these goals with near term priorities, which I believe will position the company and its stakeholders for long-term value creation. First, we will continue our restructuring efforts. While the team has made significant progress over the past several months, we are not done yet. We previously announced that based on our most recent restructuring initiatives, our revised corporate SG&A target was $65 million on an annualized basis. I'll notice that the results of these improvements are not yet fully reflected in our Q2 financials. We will continue to focus on our SG&A materially reducing it further as we right-sized our operation, improve our execution, and work on becoming cash flow positive. Second, we will dedicate our focus to our retail business. MedMen is the preeminent retailer for cannabis and we believe that any capital invested in other areas of the supply chain will offer a lower ROI than continuing to efficiently operationalize our retail footprint in core market. While vertical integration has been a big focus for the industry, our growing belief is that cannabis is evolving like every other consumer vertical with the fragmented value chain and specialists at each layer. The long-term winners in cannabis will be retailers that have a superior retail experience, brands that have the highest quality differentiated product offerings, distributors that are able to build our best networks in the markets that matter and growers that are able to grow and produce efficiently X scale. In addition to operational expertise, we have seen particularly in markets such as California, that's the benefits of vertical integration on dwindling as well. I'll let Zeeshan go into the details that we are able to replicate most of the vertically integrated margin benefits throughout vendor partnerships. As such, we are in active discussions to spend out, we'll partner with leading cultivators and manufacturers on our factories. These transactions will vary based on state and local regulations, but our goal is to outsource that part of our operation and build out business around our retail footprint. Third, which has been stated on previous calls, we will be focused on becoming cash flow positive, not just EBITDA positive. While corporate SG&A reductions will help accelerate this timeline, a big focus for us will be turning our retail operation cash flow positive on a standalone basis. While this will require us to be more efficient in the ways we are operating our stores, we believe we can maintain our differentiated premium customer experience while generating retail cash flow to cover a corporate SG&A to get to break-even. We are actively evaluating the various levels within our retail stores, including exploring to the lane or shutting down stores without a near term [plot] [ph] to generate four wall cash flow. Lastly, we understand the liquidity concerns many of our shareholders have. As Ben mentioned, while we don't have a comprehensive update today, we are actively working with a number of capital partners but new and existing to fund the business through to being cash flow positive. As we have said from the beginning, MedMen's focus is to be a successful retailer in the cannabis space. We will continue to carry forward MedMen's mission to provide an unparalleled experience to our customers and building a world that is safer, healthier and happier through legal and regulated cannabis. I will now hand over the call to Zeeshan Hyder, to run over view of our financials.

Zeeshan Hyder: Thank you, Ryan. Consistent with prior quarters, all the figures on today's call are in U.S. dollars. In addition, I'll refer to our top-line performance in terms of system-wide revenue as we believe that is the best representation of our economic progress. You can find further information on these financial measures in our MD&A for the second quarter of fiscal 2020. Before going into the results, please note that for this quarter we are classifying our Arizona operations as discontinued given that we disclosed our intention to sell our Arizona business. As such, all reported numbers exclude Arizona. With that, let's get into our results for the second quarter. System-wide revenue for Q1 fiscal 2020 was $44.1 million up 50% from 29.4 million in the same period last year and up 11% sequentially. Including Arizona system-wide revenue for Q2 fiscal 2020 would have been 48.3 million up 10% sequentially from the previous reported quarter, which included Arizona. Gross profit after fair value adjustments was $12.8 million, which represents a margin of 29% compared to $15.7 or a margin of 53% in the prior year period primarily driven by an increase in costs of goods sold at the factories. During the quarter, the company recorded a one-time adjustment in COGS from reclassifying approximately $9 million of unrealized gain changes in fair value of biological assets. This reclassification was a result of a change in the way we were calculating unrealized changes and the improvement in qualitative information we are receiving from our facilities. Operating expenses for the quarter totaled 69.2 million a decrease from 76.1 million in the prior year period. Within operating expenses, general and administrative expenses, which totaled 52.5 million declined from 64.1 million in the prior year period. During the quarter, we also recorded a non-cash impairment charge of 24.7 million related to the pending sale of Arizona licenses. This impairment expense had a significant impact on overall net income resulting in 96.4 million in net and comprehensive losses. Net loss from continuing operations, however was 74.8 million compared to 82.6 million in the previous quarter. Second quarter 2020 net loss attributable to shareholders of MedMen Enterprises was 40.6 million or $0.09 per basic and diluted share. Overall, adjusted EBITDA loss for the quarter was $35.1 million compared to $20.4 million in the previous quarter. The previous quarter adjusted EBITDA would have been 30 million, if the current inputs for calculating unrealized gain and fair value of biological assets was used. Let's now take a deeper look at the details around adjusted EBITDA and the buildup from our four operating units which include retail operations, manufacturing, corporate, SG&A and pre-opening expenses. This will help explain the delta between the loss in the second quarter compared to the previous quarter. Starting with our retail highlights for the quarter, retail revenue excluding Arizona for Q2 fiscal 2020 totaled 43.9 million up over 50% year-over-year and up 11% sequentially. In California which represents approximately 74% of our retail revenue, retail revenue was up 8% sequentially. While half of our sequential increase was driven by new store openings in Florida and California, we continued to see positive same-store comparable increases. Same-store wise, we were up 20% from the same period last year and up 6% sequentially from the previous reported quarter, mainly driven by holiday momentum. Highlighting a few of our individual flagship stores, our Beverly Hills location was up 43% year-over-year, our downtown Los Angeles location was up 30% year-over-year. Our LAX location was up 40% year-over-year. Our Abbott Kinney location was up 30% year-over-year and our Santa Ana store was up 43% year-over-year. Turning to our retail margins, retail gross margins for the second quarter of 2020 or 51% versus 52% in the first quarter. In California our retail gross margin were 52% for the quarter, slightly higher than the national average. Gross margins continued to be suboptimal relative to our long-term targets for two primary reasons. One, while our flash applications such as Abbott Kinney, downtown LAX, West Hollywood and Paradise continue to generate gross margins between 54% and 56%, overall gross margins are being dragged down by newer and underperforming stores. And secondly, the impact of our new vendor agreements will not be reflected until the end of fiscal third quarter. As we mentioned on the previous call, we are mandating a minimum of 65% gross margins with several of our top vendors. Overall, retail EBITDA prior to local taxes was $2 million for the second quarter, representing a 5% four wall EBITDA margin. In California our four wall EBITDA margin prior to local taxes was 16%. EBITDA margin decline nationally and in California from the previous quarter for a few reasons. First, new store openings in Florida led to a sizable jump in payroll without the proportionate increase in revenue. And secondly, the launch of delivery led to a rapid ramp up in delivery drivers at our retail locations. Since the end of the quarter, we have made significant reductions in retail payroll across all States and have downsized delivery to focus just on California, which drives the majority of delivery revenue. These payroll reductions will not be fully reflected in our third quarter results. In addition to payroll, we also saw a modest increase in rent as a percentage of revenue given the leases on new Florida locations which are kept in terms of revenue, given product shortages in the state. Including both local taxes and distribution costs into our calculation of adjusted retail EBITDA, we recorded a margin of negative 8%, compared to a positive 4% in the previous quarter. In California, we were break-even after local taxes and distribution costs on an EBITDA basis. Payroll and local taxes drove the majority of this swing in EBITDA from the previous quarter. We understand how critical it is for our retail business to not just be EBITDA positive in a meaningful way, but more importantly be cash flow positive on an after-tax basis. We believe the deprioritization of non-retail business lines will allow us to focus on the 29 operational stores in our portfolio and the key levers to unlock cash flow from each location. We are currently in the process of evaluating each store and putting together a plan to achieve meaningful after-tax cash flow margins with the understanding of the two biggest drivers are gross margin and payroll. We are also looking at other levers such as local taxes and ways we can pass those on to consumers like several of our competitors are starting to do in California. Local taxes, which currently total approximately 10% of revenue in California have a huge impact on overall retail margins. As we go through this retail optimization exercise, we will also look at shutting down certain locations, whether temporarily or permanently, that don't have a path to achieving our after-tax cash flow targets. We will have further updates on our retail optimization plan as well as new store opening schedule in the coming months. On the cultivation and manufacturing, for the quarter, we recorded an adjusted EBITDA loss of $11.4 million. These losses largely stem from our factories in Florida, California, and Nevada. We've gone through a lot of iterations with respect to our strategy on cultivation and manufacturing. Even as of last quarter, we anticipated that the factories which were close to an inflection point would be a big driver of cash flow for the business. As we secured more attractive terms from third party vendors for our retail stores, we reevaluated our factory strategy in the case of becoming a pure play retailer grow stronger and stronger for a few different reasons. One, we continue to burn significant cash at our factories where we are as a company and where this industry is from a capital markets perspective, we cannot continue to invest in assets that are not producing near term cash returns regardless of the value they hold long-term. And secondly, the benefits of vertical integration for a retailer with significant leverage are eroding and the gap between third-party vendor margins and vertically integrated margins are shrinking. As I mentioned earlier, we are securing 60% to 65% gross margin deals from our third party vendors with summit high 70%. While vertical integration if done effectively could add 10% to 15% margin to those numbers. It is a huge distraction for the business operationally across all teams. From a working capital perspective, the benefits of vertical integration are even less pronounced. With vertical integration, we would need to pre-buy equipment, packaging, raw materials, et cetera, versus being able to purchase from third-party vendors on 30 to 60 day terms, while receiving cash from customers on those same products within two to three weeks of being on our shelves. It's also our belief that long-term the supply chain will be broken up like other consumer verticals and we'll see specialization across the value chain. We'd rather lean into being a retailer and deploy every dollar to add to our retail footprint versus competing with more efficient operators are able to participate in other parts of the value chain. As Ryan mentioned, we are undergoing a strategic review of our cultivation and manufacturing and the structures we are working on depending on the regulatory framework in each state. To be clear, this won't prevent us from executing on our private label strategy like other industries such as grocery, we will still work with our supply partners on developing innovative in-house brands that will give us better margins and control of our own shelves. A strong private label strategy and offering will also allow us to continue maintaining leverage with third-party brands fighting for our shelf space. Next, I'd like to discuss reducing our corporate SG&A, which is our third reporting unit. For the second quarter, our corporate SG&A loss was $26.8 million, which represents an 11% decrease from the previous quarter and a 30% overall decrease from the second quarter of fiscal 2019, which is a quarter after which we began our initial cost cutting efforts. During the second quarter, we executed multiple rounds of headcount reductions and cost saving initiatives, which are still not reflected in our numbers. Given the layoffs at corporate, we're subject to the Warren Act, the full cash impacts and the headcount reductions will not be realized until the fourth quarter. Subsequent to the end of the second quarter, we executed on additional reductions in headcount, the department budgets and are looking to reduce our corporate SG&A target beyond the $65 million guidance we gave at the end of calendar 2019. Our fourth and final reporting unit is pre-opening expenses. For the second quarter, we incurred $4.5 million in pre-opening expenses, which included rent expenses for retail stores and factories not yet operational. A big focus for our next phase of restructuring will be reducing the cash burn from these leases through either full termination of leases for stores without a near term path to opening or profitability or overall rent reductions. In the past, we've been ambitious about the expected timing of licensing and new store openings and plan to be extremely conservative going forward as it relates to our rent burden and signing of new leases. Let's now turn to our balance sheet metrics for the quarter. We ended the second quarter of 2020 with $26.0 million of cash and cash equivalents. Subsequent to the quarter end, we closed on additional equity placements and signed definitive documentation on the sale of our Hillcrest license, which brought in $10 million as of yesterday with another 7 million to come in March. As Ben mentioned, we are also in active discussions with our partners on additional financing and are near the finish line on a few assets sales that will generate significant cash for the business. Outside of cash, I'd like to spend time discussing our accounts payable situation, which has been a big focus for the business and its vendors over the past 90 days. We ended the second quarter with total outstanding AP a $52 million. Given our focus on cash management through this period, we are putting several of our vendors on payment plans that allow us to manage near term cash while still maintaining our key vendor relationships. While there's been noise publicly about our communication with vendors, we continue to over communicate and work with our partner vendors on solutions that are beneficial to both sides. We understand how critical it is for our business to make sure we are doing right by our important vendors. Through the prioritization of inventory AP, we reduced our overall total outstanding payables for inventory to under $20 million, which is relatively in line with our steady state inventory AP levels based on our revenue numbers. This gives us confidence in our ability to maintain sufficient inventory levels at our recreational stores. While we've been prioritizing our inventory vendors, construction related AP remains the biggest payable category for the company. Many of these bills are for stores outside of California and Nevada. While we intend to fulfill our obligations, we have some more flexibility with our construction payables and we will look to address these liabilities in the coming months. We are undergoing a significant transition for the company. Hard decisions need to be made, but we as a management team understand what needs to be done to put the business back on track. We are reducing our cash burn, limiting and chipping away at our liabilities, reigning in our overhead and slowing down growth to focus on being cash flow positive. Thank you again for your time today and for your continued support. We will now open up the call to your questions. Operator?

Operator: [Operator Instructions] Your first question comes from the line of Graeme Kreindler with Eight Capital. Your line is open.

Graeme Kreindler: I wanted to follow-up with respect to the outstanding asset sales. With respect to the one announced in Illinois in the press release, I wanted to confirm that the total proceeds there are expected to come in on cash. And then, with respect to the outstanding sale in Arizona, given that you recognized an impairment charge against the Arizona assets in the quarter, does that affect potentially the amount that you're looking to get from the pending sale of that asset given when it was press released, I think both assets combined were expected to generate somewhere in the neighborhood of $50 million to $55 million. Thank you.

Zeeshan Hyder: This is Zeeshan. I can take that question. So, on the first question as it relates to asset sales, we're working through that, we announced that we're working with Canaccord on selling off some of our non-core assets. The primary driver of sign those assets to reach [indiscernible] kind of near-term cash into the business. So our expectation is that the majority, if not all of the proceeds, that company's asset sales would be in cash and that allows us to kind of require less diluted financing. So, that kind of answers the first part of the question. And the second part relates to Arizona specifically. The impairment charge was based on kind of what our initial view of what the valuation would be on those assets. Right now we're still working through a few different offers on Arizona specifically. So, we don't have much more to announce on Arizona, but that impairment charge will impact our ability to transact on that evaluation that we're looking for.

Graeme Kreindler: Okay. Thanks. And then just another question here, I want to follow up on the accounts payable and I appreciate the color you provided on the call. I know there's an effort to push more of the products in terms of -- though they have created in-house and you have the gross margin targets on that. I was just wondering, given the dynamic nature of the industry and the changing consumer preferences and trends that we see when you're looking to bring on new products potentially from new suppliers, I mean it has the situation with the accounts payable and as you mentioned, some of the coverage has gotten in the broader media. Has that impeded any sort of negotiations and had any impacts on bringing on the optimal different types of products into the store? Or is it more of an understanding relationship as you're seeing it in negotiations when looking at bringing the most relevant products on the shelf there? Thank you.

Zeeshan Hyder: Yes. That's a good question. I think one of the thing that impresses me most about kind of what's going on here internally is our retail team has a really great relationship with a lot of the vendors that we currently sell in our stores and other brands that are in California. Despite some of the challenges we've had in working capital and AP that hasn't really impacted our ability to bring on new innovative brands onto our shelves. I think a lot of these brands are brands that we are in frequent communication with. And we're very upfront about our situation to a lot of these vendors. And I think this issue with AP and payments isn't just specific to med men. It's an industry wide kind of issue that's going on and we understand the importance of the brands and the brands understand the importance of us as it relates to the entire ecosystem. So, for the most part, I would say those conversations are positive and we'll continue to bring on new brands onto our shelves.

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

Brett Hundley: Zeeshan I appreciate all the added detail on this call as well. And I wanted to follow up on Graeme's question and if you can try and put all this together. I know this is kind of a big ask traditionally, but I'm glad to hear that you guys are working on additional sources of funding, but for your shareholder base as it pertains to this call right now, I mean, can you give us some sense of your view on pro forma liquidity along with your near-term expectations on monthly or quarterly cash burn? So that we have an idea of how that equation works leading up to these additional funding talks that you're having right now.

Zeeshan Hyder: Yes, sure. So on the first question, as it relates to funding going forward, I mean, look, as a Board, as a management team, we don't want to keep relying on the capital markets, whether it's equity or debt. So, we're doing a lot of work internally right now and putting together what our two year plan is for the business and what the capital requirement to beat may be for different growth scenarios. I think you're aware, highly sensitive to further dilution and to high interest payments. So it continues taking cash out of the business. So we want to make sure that we'll capitalize and have the runway where capital raising is also not a distraction for the business. And as Ben mentioned earlier, we're working with our financing partners now to determine the best course of action for the business. And we'll have a comprehensive update in the coming weeks. Concurrently outside financing, as I mentioned earlier, we are working on these assets sales for non-dilutive to the business, which will provide us additional cushion in advance of kind of finding a long-term capital plan. On the second question, with respect to cash burn, I understand that a lot of the cash initiatives that we're working on having yet been reflected in our financials, but we have taken significant steps to reduce our overall burn not just from a corporate SG&A perspective, which we kind of spoke to on the call, but we're also delaying capital intensive projects. We're restructuring M&A payments. We know we're in the process of spinning out certain assets that have historically burned a lot of cash for the business. And some of these things will take some time, but our expectation is to get to a place where we don't have to keep raising capital into a place where we are cash flow positive even if it means sacrificing some top line growth. So that's kind of the update that we have today. But we'll provide a more comprehensive update on our capital plan kind of in the coming months.

Brett Hundley: Ben just my last question, if you don't mind, if I can address this to you. I wanted to talk about the CEO search. Clearly there is a desire by the street today to see experienced proven people in cannabis leadership seats. And, I feel like it's almost becoming table stakes at this point. And MedMen does have a lot of repair work to do with the capital markets themselves. And on top of that there are some influential shareholders present within this company and those influential shareholders do seem to be taking a very hands on approach at this time, which I do think is needed. But I guess my question is, can MedMen attract a top level executive to come into a messy situation here against the perception of limited autonomy. I appreciate it.

Ben Rose: Hey Brett. Thanks for that question. It's a great question. So, I would say, and I'm happy also to just provide my true sense on the question you posted to Zeeshan as well. But, what I'd say is that obviously from a workload and a lift perspective and the three or four things that we're focused on through this restructuring to get the company right sized, the balance sheet, right sized, et cetera. We're really fortunate to have Ryan stepping up. He's got a good amount of management experience. He knows the company very well. I know it's a little bit different to have someone from the CTO spot come in. But, I would say over the last sort of three to six months, Ryan's been really operating as the COO as well, and has been really close to our restructuring efforts and everything else from a leadership and decision-making process for the company. So we're really confident that he is the right person to be leading us through this transition and he's well-vetted with our various partners, including our debt holders, et cetera. So and then going forward, we have a, you know, an independent committee on the Board for a CEO search in terms of what and who we attract and what the best profile is for someone like that. We'll see as things come through. I guess what I'll say is, we're not going to just rush, this is a very process driven approach across the Board for us now at MedMen, including this decision and we're not going to rush just to get someone in this seat that has a particular background that somebody might think is a good fit. And in terms of autonomy, really we've been working collaboratively, management, our partners, the Board, et cetera for a good amount of time now to make really any decision for the company. So, I don't anticipate autonomy being a sticking point. But obviously, your point's valid that it is a special situation. And we'll be vetting candidates expeditiously and thoroughly and we'll have something to report, when I think we're ready. But, I want to reiterate, we're very confident in Ryan and really excited about a lot of the, a lot of the continuity along with fresh perspective that he brings to that seat. And he's been great about wanting to work very collaboratively again with the Board and our various partners. And just one other thing to add to Zeeshan's, I understand the desire to get a clear liquidity picture as it relates to burn. Certainly has some of the announcements we've made today solves any kind of near term liquidity issue. And just like the CEO search, we're really taking a measured approach to make sure we address the liquidity and capital structure and capital allocation decisions with the right process. And something that we can stand behind credibly and has the long-term best interest of shareholders in mind and not just an approach that's going to get us to the next a band-aid approach that's going to get us to the next spot. So fully expect to give you guys depth and transparency on that in the near to medium term. But, we don't want to be hasty about announcing things piecemeal or anything else like that.

Operator: Your next question comes from the line of Scott Fortune with ROTH Capital Partners. Your line is open.

Scott Fortune: Want to shift a little bit to kind of the top line revenue side of things. With Arizona coming off 8% growth in California and you guys have guided out revenues for 225 million in fiscal year '20. But just give us a sense, California had strong, same service growth of 16%, but most of that came from five of the stores. They were growing very nicely. Kind of what's going on in the rest of the other stores and your initiative to kind of turn those around.

Zeeshan Hyder: This is Zeeshan. I can take that question. So, like you mentioned, we are very happy with the results of some of our core stores in LA and Vegas where we continue to see kind of 40% to 60%, same-store increases year-over-year. That being said, our footprint in California is not done yet. And the way we think about our brand and our ability to kind of increase revenue, a lot of it is driven by us having critical mass in certain areas within the state. In LA where our brand is very strong, the ROI is pretty high for new stores because we're able to kind of capture consumers immediately. That being said, when we go into certain areas outside of LA, it takes some time and it's going to require us to have additional doors or a delivery presence before we see the same kind of level of sales and growth that you would see in our LA stores. We are doing a thorough review of our California footprint as well as part of this restructuring and there may be a door to that we decided to temporarily or permanently close down because it doesn't have a path to being cash flow positive. But overall, California is our core market, we will continue expanding within California with a focus on being cash flow positive, not just driving top-line growth.

Scott Fortune: Okay. And then, a real quick, you said you could have a retail run rate at the end of 2020 in calendar year, about 300 million and guide for that 225 for fiscal year '20. Are you guys providing any color or around those numbers going forward here?

Zeeshan Hyder: So we will, I mean as we kind of work through the restructuring plan with Ryan, we plan to provide a more comprehensive view of our business. the one piece that we did put out in terms of our Arizona run rate, obviously as we're selling off that asset, the revenue that we're expecting from Arizona won't be included in our guidance going forward. And based on kind of our existing set of assumptions and our capital raising views and our new store opening schedules, we aren't withdrawing guidance. But, we plan to do a thorough review of everything before we provide more details to the street.

Scott Fortune: Okay. And then, real quick focus on Florida and what's going on down there. Obviously, cultivation, bringing on production is the most important thing, but kind of -- can you give sense of timing and potential for the Florida market to really start driving some revenue growth for you guys,

Zeeshan Hyder: Sure. So when we entered the Florida market, we prioritized securing flagship sites for our retail stores similar to the strategy that we executed on in California. And this was instead of investing in the actual cultivation facility, which after we took over the asset wasn't in great shape. This led to a mismatch of supply and demand for our locations and led to us eventually putting a haul in any new stores in that state. And I think going forward, our approach will be two-fold. One, as we mentioned on the call, we are in advanced discussions on partnering with cultivators on all of our facilities, including Florida, which should accelerate our timeline to additional supply there. And then concurrently to that supply ramp up, we will look at our existing footprint and evaluate how many stores we want to open in the interim period.

Scott Fortune: Okay. And then last, a real quick question on CapEx build out. You say last quarter, about 20 million to 25 million. Where are we as far as the CapEx looking out for the rest of this year for 2020 from that standpoint, provide color on that?

Zeeshan Hyder: Yes. The CapEx estimate that we provided previously was based on our existing new store opening schedule. As of now, we're sticking with that, but as we do this review, there may be certain stores and certain markets where we decided to delay. So I wouldn't expect CapEx to go up from that. I don't see a path to us accelerating our store opening schedule, but if we do decide to slow things down to focus on profitability that CapEx number could come down meaningfully.

Operator: [Operator Instructions] Your next question comes from the line of Shaan Mir with Canaccord Genuity. Your line is open.

Shaan Mir: I wanted to get started or just asking on the restructuring of vendor agreements in California, I believe. I was wondering, has there been any percentage of vendors that have kind of stepped away from the renegotiations and also can you provide some color on -- have you been able to take some of those vendor rearrangements and apply them in other markets such as, I don't know, Illinois or Nevada, maybe looking for some sort of margin improvement over there.

Zeeshan Hyder: Yes. On the first question, we haven't seen any of our key vendors in California walk away from the negotiations. We represent a pretty big portion of a lot of our brands sales and I think we're both sides are coming to a solution that works out and allows both sides to continue kind of moving along the relationship. So, I think our teams internally have done a great job at managing those relationships in the situation. I feel confident that even going forward, we'll continue to have sufficient product and the vendors that we care a lot about for our stores in LA. Outside of California, we do plan to expand those margin and vendor agreements to other States albeit California is a priority today. In Illinois specifically, I'll say the only kind of key difference in the payment terms there is a lot of those vendors in Illinois, given the shortage of supply there in that market and the demand, a lot of those sales are five or 10 day terms versus the 30 to 60 day terms we get in California.

Shaan Mir: Okay. Thank you. And then I just also wanted to get a better understanding of, maybe you can provide some color on what the business will look like a year forward. Are there, is a business likely to look like one or two or three core markets that you're looking to penetrate in further? Are there anything outside of California and Nevada that might be considered a protected assets or something that you wouldn't sell? And just to touch on that, what are you seeing in the private valuation market for these asset disposal?

Ryan Lissack: This is Ryan Lissack speaking. As we're reevaluating our business now and updating our strategic, our focus is on generating free cash from all of our retail stores. We're in the process of a deep analysis of all of the locations we have today, as well as all of the locations in our pipeline. And we're working through that now as a team. And as we make those determinations, we will have a much more concrete execution then we will update you all.

Operator: Your next question comes from the line of Jesse Pytlak with Cormark Securities. Your line is open.

Jesse Pytlak: Most of my questions have already been asked. So just a few quick ones here. First just when you think about the spinout of some of the factories in terms of where are you in that process on some of the sites and as you kind of worked through this exercise, are you able to kind of ramp down production or what's kind of the actual production that's taking place right now. And do you plan to maintain that until you have more concrete plans or are you actually actively looking to wind this down right now?

Ryan Lissack: This is Ryan, Jesse. We're in active discussions with a number of parties with respect to the spinout of the factories in the different States. Our intent now is not to wind down any of our capabilities within those facilities to ensure that there is continuity for whoever ultimately takes those over from us. We will have more updates on that in the coming weeks.

Jesse Pytlak: Okay. And then as you kind of think about some of these pre-opening expenses more on the retail lease side, how easy is it to exit some of these leases that you think you may not need? What kind of fees might be attached with exiting these leases and how quickly can you -- just kind of figure out that portion of the business restructuring plan?

Zeeshan Hyder: So just to provide a little more detail around pre-open expenses. Not all of them are for stores that are longer term, right? I mean there are a few stores that we do want to open up, in the first half of this year which leases are included in the pre-opening expenses. So those will naturally kind of go into the retail operations bucket. For some of these other leases that are for locations where there is no real path to opening. We are working both with internal resources and external resources on trying to get out of those leases or defer some of the cash payments on those leases. For a lot of these there may be an upfront payment to do so. So from our perspective, based on our liquidity and cash on hand, we will have to make the determination whether it's worth laying out that cash to eliminate that liability or to hang onto it for a bit and trying to eliminate it later on.

Jesse Pytlak: Sure. And then just finally, just to kind of add on Sean's that previous, so is it fair to think that as you kind of reevaluate the entire operations that your earlier plan to just kind of focus on your six core States could technically be reduced and you may have an actual narrow focus as you worked through this exercise?

Ryan Lissack: As we said, we are in the process of really looking at every location that we have today, as well as all of those in the pipeline and doing a thorough analysis on all of those that we see a path to profitability in the near term. And so as we worked through that process, we will have more detailed updates on what that looks like.

Operator: There are no further questions at this time. I will turn the call back over to the presenters.

Stéphanie Van Hassel: Thank you everyone for joining us today.

Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.