Earnings Transcript for MMEN.CN - Q3 Fiscal Year 2020

Operator: Ladies and gentlemen, thank you for standing by. And welcome to the MedMen Third 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] Please be advised, that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Zeeshan Hyder, CFO. Thank you. Please go ahead, sir.

Zeeshan Hyder: Thank you. Good afternoon and welcome everyone. Today I'm joined by our CEO; Tom Lynch. On today's call, management will provide prepared remarks and then we will open the call to your questions. Earlier today, we issued a press release announcing third quarter fiscal 2020 results ended on March 28, 2020. 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 would 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, and our expectations as to future sources of funding. These forward-looking statements speak only as of the date of the conference call and shall 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, 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, adjusted EBITDA, retail cash flow and corporate FC&A [ph] 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 Tom.

Tom Lynch: Thank you, everyone for joining us this afternoon. On the call today we'll discuss our operational highlights, financial performance, and how we're thinking about the business moving forward. But first, I'd like to address the pandemic that we're living through. We understand this is a challenging and turbulent time for everyone around the world, and we hope everyone is staying safe and healthy. Here at MedMen, we are grateful to be deemed an essential retailer, and we are taking that responsibility extremely seriously. We're working hard behind the scenes to make sure our employees are safe, and our customers and patients have a safe shopping experience and an ability to access safe, high quality products. My sincere thanks to our employees who need to be in our stores, driving for delivery, and working at our cultivation facilities and distribution center; they are leading the way for us and doing an unbelievable job to make sure adult users and medical patients obtain the product they need. I took over as Interim CEO close to two months ago, and I'm proud of the way our entire team has performed, despite the difficult and complex circumstances we find ourselves in. Faced with the global pandemic, executive turnover and industry-wide challenges, the team has come together, mobilized and executed in an extremely efficient fashion. I would typically want to take this time to recap the quarter ending in March. And while we'll discuss our quarterly results in detail, especially in the financial section of the call, I do want to catch everyone up on what we have accomplished as a team over the past 60 days. What we've done, and the progress we've made will lay the foundation for the company for our next several quarters. As an outsider to the company, I've long admired the MedMen brand and firmly believe we have the best and most recognizable brand in the industry; that is extremely valuable starting point to build any kind of cannabis platform. That being said, there was lot of work to do to transition the company to profitability, strategic growth and transparency with stakeholders. There were three main objectives for me when I came in as Interim CEO for this company; first and foremost, we had to establish a culture of strong leadership and pride of ownership across all levels of the company. This includes empowering the existing leaders within the company to drive strategic change and make key decisions, but also holding those same leaders to the highest levels of accountability and tying compensation for the entire company to clearly defined an aggressive performance targets. Over the past couple of months, I've already seen a significant shift in the overall decision-making process within the company. Instead of relying on intuition and feel, everything we do is based on rigorous data driven analysis. We're also making progress and breaking departmental silos and connecting leaders across functions to get to the best possible answer. We've created thoughtful, and detailed business plans for our assets in each market looking at short-term, medium-term and long-term returns to determine our ideal footprint and asset base. We've looked at the entire supply chain, and analyzed where the most margin accretive areas are, and how we can leverage our scale and footprint to access them. We've thoroughly reviewed our organization to determine the ideal structure to support our retail platform, the core of our business. Second, which may be obvious, is reducing the overall cash burn across the business. Many of these past decisions were in the spirit of growth at all costs. As the industry and capital markets evolve, we must evolve as well. This part has been straightforward; I've done this dozens of times at retailers across various stages of growth, and the progress we've made here in such a short period of time with everyone working remotely, has been nothing short of remarkable. First, we looked at our overhead, at corporate, and then our retail and cultivation facilities. At corporate, we reduced overall headcount and executive compensation, generating almost $8 million in savings. At the stores, we were just payroll by 30% through a more data driven staffing process which allows us to maintain our customer service, but also reduces over staffing during lower traffic hours. We've already seen a substantial increase in store level profitability as a result of our staffing reductions, which resulted in our first full month of being cash flow positive across our retail footprint in the month of March. At the factories, we took down operating burn by almost $1 million a month for ramped down and staffing, and overhead and anticipation of a potential partnership. We also took a hard look at our rent and cash interest burden across the company. We asked our landlords and lenders to collaborate with the company as partners, and they delivered. We were able to successfully receive rent and cash interest deferrals, which allowed to maintain additional flexibility with our cash during the coming months. The third, and likely the most challenging objective is executing on the second objective while still preserving the tremendous upside and long-term growth trajectory of this business. We're still in the early innings of this industry, and MedMen has the potential to be the most valuable cannabis retailer in the industry based on it's existing footprint, it's retail experience, and the strength of it's brand as the most valuable markets across the U.S. As such, we maintain that leadership position through the turnaround without sacrificing customer experience and growth of our branded footprint. We can do this by leveraging our operating scale, focusing on high ROI initiatives and leaning into what areas we do best, which is retail. I'll provide a few examples. We're exploring joint ventures on certain capital intensive projects to bring in highly qualified partners which allow us to still maintain our retail presence without having to deploy upfront capital. We're looking at new customer acquisition tools to increase the top of the funnel and boost traffic and sales at our existing stores and our e-commerce platform. We are evaluating various third-party technology and software that could increase the returns of our existing tools. And most importantly, we are still looking to bring the MedMen retail experience to more and more customers across the U.S. We will continue to expand the MedMen retail footprint by opening new stores, which we believe will deliver returns immediately. We expect to open stores in San Francisco, Emeryville, Pasadena, Fenway area of Boston, Chicago, and Miami, all in the next 12 months; stores that could be at the top of the list in terms of performance. I took on this role because I firmly believe in the MedMen brand and retail footprint. But we've only scratched the surface in terms of maximizing value creation for all stakeholders. From our shareholders, to our customers, to our employees; we are a retailer, not a products company, and not a technology company. Everything we do must support our retail stores and store managers to ensure that we are offering the best customer experience possible for our customers; from the locations we choose, to the products we carry on our shelves, to the employees that we hire, to the technology and systems we use to guide the customer experience in purchasing. As part of this unwavering commitment, we will also look to go deeper in our core markets and double down in markets where we already have a leadership position. I'll give a quick update on those markets. Our primary market will continue to be California, where we remain the top retailer, and where our stores prior to COVID generated six times the revenue of the average dispensary [ph]. The strategy in California will be focused on maximizing cash flow from existing stores through gross margin improvements and cost reductions, as well as expanding our footprint across the state. We have a big opportunity in Northern California, where we expect to have three new stores; Emeryville and two in San Francisco. Given our buying power in California, we've been incredibly successful in locking in favorable vendor agreements. We're also excited about the potential for our e-commerce and curbside pickup business in California. We already saw a 300% increase in overall transactions over the past several months, and continue to draw more and more new customers into our loyalty program through this part of the business. Moving on to Nevada; while we saw a decrease in overall sales in this market, particularly given the impact that the pandemic has had on tourism into Las Vegas, we're encouraged about the recent decision to open up cannabis retail again, and have already begun to see a steady ramp up in revenue. In Illinois, we currently have two locations; Oak Park in Evanston, and are very encouraged by the ability to be a leader in the market based on their performance. Based on data from the state, we are performing almost 40% better than our competition in the market with our stores rivaling some of the best performers in California. We are also cautiously optimistic about having access to additional supply in the market, which would provide another boost in sales in this market with expanded store hours and greater product selection. We'll also look to remodel and expand these locations to reflect the MedMen retail experience that our customers and patients and other markets are accustomed to. Florida has also been another bright spot for the company. We've made substantial improvements to our facility in Eustis and saw our revenue continue to increase from the beginning of the quarter. We ended the quarter on a run rate of close to $15 million. We made the decision to temporarily close five stores in the state to redirect the limited product to the higher traffic locations, but fully intend to open those backup. We have 13 stores with minimal CapEx remaining that are ready to be turned on with additional supply. And lastly, New York; we've seen some regulatory delays in this market but are also encouraged by trends over the past couple of months. We saw our best weeks ever in that market towards the end of March and have seen sales continued to rebound back to those levels since. Before getting into the financial portion of the call, I'd like to call in a few metrics. We continue to see a sequential quarter-over-quarter revenue increases despite the slowdown in new store openings and the headwinds toward the end of the third quarter. In the quarter, we produced a record $46 million in revenue while reducing overall SG&A by close to $15 million in one quarter. As mentioned earlier, we also accomplished a significant milestone for the company. We had a first full month in March of our retail stores being cash flow positive on an after-tax basis. While we expected to be here sooner, we now have a playbook for how to continue building off the progress being made to increase gross margins and reduce store level expenses. Unfortunately, COVID has impacted our sales since the end of March; we're down in April overall, but have seen a steady increase since. While we're still not back to our normal levels, pre-COVID, particularly in California, we're optimistic about our ability to recapture traffic as soon as stay at home orders are lifted. I look forward to continue leading this company into the next chapter, and we will continue to share updates as they develop. With that, I will hand it over to Zeeshan for the financial highlights.

Zeeshan Hyder: Thank you, Tom. Consistent with prior quarters, all the figures on today's call are in US dollars. In addition I will 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 third quarter fiscal 2020. Before going into the results, please note that again for this quarter, we are classifying our Arizona operations as discontinued operations 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 third quarter. System-wide revenue for fiscal third quarter of 2020 was $45.9 million, up 41% from $32.5 million in the same period last year, and up 4% sequentially. We'll get into the specific impact of COVID in the business unit reporting. Gross profit after fair value adjustments was $15.5 million, which represents a margin of 34% compared to $12.7 million or a margin of 29% in the prior year period. Operating expenses for the quarter told $53.8 million, a decrease from $69.1 million in the prior year period. Within operating expenses, G&A expenses, which totaled $38.0 million declined from $52.6 million in the previous quarter, primarily driven by 21% reduction in payroll across all facilities. We made significant improvements across other G&A items as well; sales and marketing spend is down 71% sequentially and T&E is down 64% sequentially. Overall, net loss and comprehensive loss was $76.9 million for the quarter compared to $96.4 million in the previous quarter. Net loss from continuing operations was $68.8 million compared to $75.2 million in the previous quarter. Third quarter 2020 net loss attributable to shareholders of MedMen enterprises was $39.9 million or $0.10 per basic and diluted share. Overall, adjusted EBITDA loss for the quarter was $20.7 million compared to $35.1 million in the previous quarter. Let's now take a deeper look at the details around adjusted EBITDA and the build-up from our four operating units which includes retail operations, manufacturing, corporate SG&A and pre-opening expenses; this will help explain the delta between the loss in the third quarter compared to the previous quarter. Starting with our retail highlights for the quarter; retail revenue, excluding Arizona, for the third quarter totals $45.4 million, up 42% year-over-year and up 3% sequentially, despite the impact of COVID in March. Through January and February, we were tracking to be up 49% year-over-year. With shelter in place in March and most of our markets and our shutdown in tourism, several of our California stores took a hit on foot traffic early on. However, we are so proud to report the following

Operator: [Operator Instructions] Your first question comes from Graeme Kreindler from Eight Capital.

Graeme Kreindler: Hi, good afternoon. Thanks for taking my questions. I wanted to follow-up; you gave a couple of metrics in terms of the impact of COVID with respect to March and April. First-off, I just wanted to qualify; sorry -- clarify, the two stores -- the only two stores that were closed on a temporary basis because of COVID, those were the two in Nevada, Downtown Las Vegas and Paradise, correct?

Zeeshan Hyder: Hey Graeme, so I'll first answer your second question on the store counts. So Seaside was closed during the quarter, and then, there is the two in Nevada, that were closed on a temporary basis. And then during the quarter, we also closed five of the A-Florida locations. So where we sit now is, 23 locations across the U.S. And then, to answer your second question on the impact of COVID, you know, I think Tom mentioned it, and I mentioned it in my portion as well. I mean, we have seen traffic decreases in both, California and Nevada, as you would expect; these are two markets that in general over index on tourism, especially, the two cities that we have the highest density in which is Los Angeles and Las Vegas. But I would say, you know, even outside of COVID, given some of the payment issues that we had early in Q3, we had inventory and assortment challenges that also impacted sales and leading to lower conversion. However, I think over the past four weeks we've seen increases in both of these markets, both as a -- as the shelter in place orders are slowly phased out and with our [indiscernible] getting back to where we need to be, we have seen a steady increase over the last four to six weeks. In terms of some of the bright spots on California, I think despite some of the traffic decreases early on, we've seen a huge pickup in our delivery business, which as I mentioned, is up over three times where it was when we initially launched. We also made a good amount of enhancements as it relates to our curbside pickup functionality, which we're really excited about, especially when we're looking at a post-COVID world. And then even outside of California, we were very impressed with what happened in Illinois and Florida. Our Illinois stores continue to do well, not only have they withstood the impacts that COVID has had on that market, but they've continued to gain share, and now they are two of the best performing stores in that state. And in in Florida, we've also -- as we've mentioned with the increased product coming out of Eustis, we've enabled to ramp those revenues up. And even if you think about going forward, I mean, post-COVID, and obviously a lot of this depends on when these stay in place kind of orders get phased out; but there is two kind of key areas that we're looking out in terms of revenue growth going forward. One, just in terms of same-store growth; we've been doing a lot of work over the past four weeks as it relates to opening up the top of the funnel through enhanced customer acquisition efforts. Our product assortment is a lot better now than it was three or four months ago as a result of our AP kind of levels going down. And then, we're also looking at a few of our stores in terms of store expansions, a couple of good examples are LAX, that's one where in a post-COVID world we're going to expand that, get the full string view of that store. In Illinois, as we get additional supply, we'll look to expand some of those store hours, right now those store hours are still limited and we're still able to do some of those revenues. And then, as it relates to new stores, we'll take our time with this but there are some pretty high ROI stores that are still in our pipeline. We have one great store at Emeryville, that's going to open up most likely this year, we have two stores in SF, they are going to be more 2021 initiatives but we're going to start kind of working to build those out. And then we have the two in Massachusetts, still the Fenway Park and Newton. And then, as Eustis gets to full capacity, we'll reopen those eight in Florida. So just to summarize; I mean, I think COVID has impacted sales, especially in -- towards the end of March and in April, but we are still excited about our ability to rebound from that going forward.

Graeme Kreindler: Okay, thank you for that. Appreciate that color. Just with respect to the ongoing efforts to optimize the retail portfolio and you discussed about the temporary closure of five stores in Florida subsequent to the quarter. At this point in time, are you still assessing and look to potentially temporary close any other stores? Or you think you're at a point right now where you're happy with what the portfolio has given, given the current environment and your expectations for how things will develop in the short to medium-term? Thanks.

Tom Lynch: Yes, that's a great question. Zeeshan, I'll take it. This is Tom Lynch. The answer is no, we don't anticipate closing any additional stores right now. I'm actually very pleased with the footprint that we do have. Florida is a good example that -- Zeeshan got into a little bit but as we get in, it's vertically integrated today. And as we get to supply up to a sufficient level, but we did and we closed those stores as we mentioned in the comments, it was simply -- we did that simply so that we could redirect to our highest performing boxes, it was simple as that. So as the production increases, and with new management, we're seeing significant operational improvements there. As the supply increases, we will bring more stores online. We have 13 stores that are available, that are to be brought online; so we're really, really excited about that market, we feel we're well ahead of the pack when it comes to that market. So it's now just about optimizing the assortment and supply but now I'm very pleased with where the portfolio sits right now.

Graeme Kreindler: Okay, thanks. And then, my last question here and then I'll jump back in the queue. Just with respect to capital needs, and I guess I'll look at things on a short-term, and then a long-term basis. On the short-term side, with respect to Arizona, I've been looking to monetize that asset there. Have things gotten easier or more difficult in terms of looking for a potential liquidity event for those licenses given where we've seen valuations go in the market? And you know, I guess a more focus on people keeping cash close to the chest. And on a longer term basis, is there any sort of internal number you have in terms of what sort of incremental financing you would need to bridge yourself to, to a breakeven point? Thank you.

Tom Lynch: Sure. Zee, go ahead and I'll jump in.

Zeeshan Hyder: Yes, sure. So Graeme, I'll answer your question on Arizona first. From the beginning, we've gotten a lot of interest in our Arizona assets, given some of the regulatory changes that are expected in that market. We're currently still working through a number of options there, and we'll have a lot more clarity in the coming weeks. Your answer -- your question -- sorry, your question on valuations in that market; I would say the hurdle is definitely higher in this environment for deals in general to get done but there are still a lot of cash buyers out there looking to get into the industry. I mean, Arizona still checks a lot of boxes for markets that are worth paying a premium for. I think in terms of potential capital coming in, we'll take our time and we're going to be patient, we want to get the number right on those assets but for now, there is still a lot of interest in those particular licenses. And then on overall funding, I mean, I think -- well, what we can say on that is, you know, we are still a lot of moving parts and the market is still very dynamic. We're going to be extremely strategic about how we deploy capital and the number; the cash needs that we need today are a lot lower than what we thought we needed six months ago based on all of the changes that have happened over the past couple of months. And all we can say really is, we did announce something end of March, about the expansion of one of our existing facilities. I mean, we're optimistic that our additional proceeds will get funded through that.

Graeme Kreindler: Okay, thanks for the detail. Appreciate it.

Tom Lynch: Thanks, Graeme.

Operator: Your next question comes from Scott Fortune from ROTH Capital Partners.

Scott Fortune: Yes, thank you for taking the questions. And I want to follow-up in kind of stores in California and the vendor kind of restructuring in margin improvements you were looking for from your different vendors, you're targeting vendors that could reproduce 65% margins; kind of step us through on that initiative going forward here.

Tom Lynch: Sure. So, when we -- this is Tom. So when we stepped in a couple of months ago, the assortment quite frankly on the shelves was thin and you can see the results clearly reflected that, right; retail is a pretty simple equation; we drive traffic, we have a good smart curated assortment, we have a very good consumer experience, and the results tend to speak for themselves. In our case here, we were thin on product, so we've entered into conversations with all of our suppliers existing and some new, and really started to build out an assortment plan with demand planning as the initiating point. And we're working very closely with them on what our margin goals eventually will be. As you understand, there is margin that's going to -- this product is going to work itself through the system. But we think as we've -- we really show the credibility as the premier retailer in the space but our shelf spaces is quite valuable, and we've got a very good reception from our vendor partners as we do build our assortment. So, we're pleased where we are right now, we still have some work to do to get to that margin goal. But I think we've made tremendous progress -- tremendous progress on that front in the first two months.

Scott Fortune: Okay, thank you for that color. And then, just -- what about the new store opportunity in California? You mentioned expansion in San Francisco and Emeryville, and then the stores outside of the top stores in LA, primarily how -- from an improvement standpoint, how do you see that trending towards the end of the year? Kind of what's your expectation towards the end of this calendar year of the potential number of California stores if shelter in places is all starting to come off going forward from here in California?

Tom Lynch: Yes. I wanted -- I'm willing Zeeshan to answer that question. I'll just say, we're not going to speculate too much because I don't want to have to come back and correct myself here because of the uncertainty, right. This is a unique environment we're all in; so we are starting to get more clarity, all of us, you guys, you folks included. But I'm still not completely comfortable telling you what December is going to look like. I don't think anybody in any business should be right now. But having said that, let's talk -- Zeeshan, a little bit about the stores that we mentioned in the MD&A in our presentation.

Zeeshan Hyder: Yes, sure, Scott. So on the store expansions and remodels, I mean, the one that comes to mind is LAX, that's one where the expansion is pretty much all the way done. There's a few things that need to happen but we think that's going to happen in pretty short order here. And then, the stories that are still in the pipeline in and like, Tom mentioned, we don't want to commit to certain timelines on those openings, but the ones that -- we have a high degree of confidence that will open in the next 12 to 18 months are Emeryville, it's up in the Northern California. We have the two in San Francisco, and then we have the one in Pasadena. So I would say those four are kind of the key ones in our California pipeline that are coming up. And then outside of that, I mean, we're always evaluating other opportunities to either apply for licenses or partner on licenses; so we'll provide those updates as they come.

Scott Fortune: Okay. And then one last question, just to kind of talk about what's your in-house product percent as far as Nevada and California from the retail [ph]?

Tom Lynch: Zee?

Zeeshan Hyder: Yes. Scott, so it's relatively low right now, in both Nevada and California. A big part of the partnership discussions that we're having at for DHS and Mustang are around private label supply; so we still expect our MedMen Red brand to comprise a sizable share of our retail revenue. But as of now, you know, they are still relatively low.

Scott Fortune: Okay, thanks. I'll jump back in the queue.

Tom Lynch: Thank you.

Operator: Your next question comes from Vivien Azer from Cowen.

Vivien Azer: Thanks. Good afternoon. Just wanted to start off with a housekeeping item; on the inventory adjustment that you called out Zeeshan, I mean, we're certainly used to hearing this in Canada because of excess supply and slower velocity, it's a bit more of a unique circumstance amongst US MSOs. Can you expand on that adjustment a little bit, please? Thanks.

Zeeshan Hyder: Yes, Vivien. That adjustment is related to inventory waste that we took a write-off for in this quarter. And that was related to mostly retail inventory.

Vivien Azer: Okay, that's helpful, thanks. And then, just the bigger picture question, you know, for me, obviously an admirable job in terms of really reining in your G&A from kind of peak levels, a little over a year ago. That being said, and I think you appropriately called it out during the prepared remarks is that, you know, the gross margin is problematic. Because, you know, despite all your costs, cost savings, your OpEx is still running three times ahead of gross profit. So, can you talk and now you're not going to be vertically integrated, which means it seems like you're probably getting up to margin there though you're saving yourself some of the overhang on DNA. So, just help me kind of think through that balance. You know, like, is it -- is it really just a function now of generating more operating leverage, you've got to push the sales mechanism harder; hopefully, that helps drive down your gross margin, you hold your SG&A constant. How are you thinking of that balance? Thanks.

Tom Lynch: Thanks. That's a great question, Vivien. This is Tom. So on the gross margin side of that, the assumption that vertical integration would lead to higher margins, you know -- and probably in many academic cases that may be the way; here it has not been. The execution, really in the non-mandated facilities has not been great, it simply hasn't been. And the future here for the private-label brands is going to have to involve a partner, it just is. I'm absolutely -- I'm just very optimistic about our ability to hit those margin numbers through the vendor base account that exists and others that were -- that we're starting to introduce into our ecosystem. The margins are there, right; so there is more work for us to do, obviously, on the expense side of the equation. We're not done yet, right. But we've made some significant strides, as you've seen, and we're going to continue to be more efficient as a retailer, right. So, we're going to become incredibly efficient that way. I am very -- more, I'm much more confident today in our ability to hit those margin numbers through what is available to us in the market, the supply chain, then I may have been slightly less than two months ago. I don't think it's necessary for us to be vertically integrated everywhere for us to do that, where we are vertically integrated, where it is mandated in Florida, in New York, because we've brought our new management, and we've seen some significant operational improvements, those equations are definitely going to help us and that production is definitely going to help us. But that's going to have to wrap up pretty significantly in Florida; so there is a lot of focus there for us. But I think that with all those pieces together and the new focus we have on those, I think that the gross margin numbers that we've stated are absolutely achievable.

Vivien Azer: Got it. Last one for me. I believe you said that April is down but unless I missed it, I don't think you've quantified it. Can you quantify that, please? Thanks.

Tom Lynch: I don't know that we did. Zee?

Zeeshan Hyder: Hey, Vivian. Yes, we did not quantify how much we were down in April. We don't want to give any kind of mid-quarter actual results or guidance for the quarter; I mean, a lot of things are still changing. But we did not quantify that.

Vivien Azer: Okay, that's fine. Just wanted to clarify that. Thank you so much.

Tom Lynch: Thanks, Vivien.

Operator: Your next question comes from Matt [ph] from Canaccord Genuity.

Unidentified Analyst: Hi all, thanks for taking the question. Maybe just picking up from the last question there. You know, understandable that you're not looking to provide any near-term guidance considering the volatility of overall markets, but just given some of the commentary of foot traffic in California, switching five stores off in Florida, and then what's happening in Nevada; and then it seems like mid-quarter there might be an inflection point back up or -- my read through of that is, it's likely going to be a down quarter on revenues. So, maybe without getting into numbers is there anything that maybe we should be considering as analysts that might be mitigating that -- that might be worthwhile talking through?

Tom Lynch: I don't want to simplify that, just -- you know, with shelter in place being lifted, we're not only heavily concentrated in California, we have a heavy concentration in Los Angeles County. So, while we see the state-wide mandates beginning to liberalize and loosen up a little bit, we still have the municipal issues that we have to deal with. So, the sooner that can happen, but again, an obvious statement; but I think we are really well positioned with any return to normalcy, to capture more than our share of the market. We have done -- I think, a very, very good job of mobilizing the curbside part of our business which is going to be part of the new normal, whatever that is coming out of this, that's going to be a part of it our cannabis retailer, straight just is. So curbside delivery; I mean, curbside pickup and delivery. Our efforts are robust, we're not dabbling in those; those are robust and scalable, and I see them as a significant part of our future as consumers purchasing habits change. So, I'm very comfortable with that. As far as speculating as to what the quarter is going to look like; honestly, we just we just simply can't. I mean, we've still got very, very restrictive rules and guidance in place in our largest market. So, we're somewhat, hamstrung by that but that's -- that is what it is at this point; all we can do is continue to improve the operations. I think once that loosens up, we're going to be in a very good place. Zeeshan, anything you want to add to that?

Zeeshan Hyder: Yes. So Matt, two other points as to note, the shelter in place orders are not having an impact in Illinois; as I mentioned, those sales continue to ramp up, especially as we get additional product in those stores. And then, if you look at the Florida and New York revenue, those revenues are also for the most part insulated by what's going on right now.

Unidentified Analyst: Got it, very helpful. Can you also provide a little more color, particularly in California, so sequentially down, but obviously you've explained a number of factors on the fall but in prior quarters, I don't know if it was last quarter, but in the past, you have given an overall estimate, probably based on grossing up tax revenues on what your market share is at the retail level; and I think it was somewhere between 7% and 9%. So even if you don't have that number available, is your market penetration and share in the state have been impacted by this at all or is it an overall decline throughout California?

Zeeshan Hyder: Yes, Matt, that's a good question. California just released tax information yesterday, which showed a pretty big decrease from Q4. That being said, they did not receive a lot of the tax information from the operator or tax entries [ph] from the operator; so I think that number is still to be determined. Once California puts out their final numbers, we'll be able to kind of back into our share.

Unidentified Analyst: Okay, thank you. One more for me, just going back at some of the commentary last quarter, when you were talking more about core versus non-core; so just wanted to circle back on that. And if there has been any changes because you have talked a little bit about Massachusetts and plans there. So, can you give any guidance or clarity on certain markets where you plan on allocating nominal zero capital in the near-term, even if that's just over the next three months? Obviously, we know therefore [ph] at California, Illinois, etcetera but just curious on if there has been changes to what you consider core versus non-core and where capital is going to be allocated?

Tom Lynch: Yes, go ahead, Zeeshan.

Zeeshan Hyder: Yes. Matt, on that question in terms of the next three months, the one market that does stand out where there will be limited dollar spent is Massachusetts; those two stores, Fenway or Newton are still far away from being open, and we plan to minimize burn there over the next six to nine months.

Unidentified Analyst: Okay, much appreciated, guys.

Tom Lynch: Thanks, Matt.

Operator: Your next question comes from Jesse Pytlak from Cormark Securities.

Jesse Pytlak: Hey, good afternoon. Just coming back to Nevada; I was wondering if you can maybe just give us a sense of maybe your fixed cost base or sort of, what kind of rebound tourism levels you implied [ph] you need there in order to kind of get those stores back to cash flow breakeven?

Tom Lynch: Zeeshan, go ahead.

Zeeshan Hyder: Yes, that's a good question on tourism. I don't think we're going to need the full rebound to tourism levels from before to get to breakeven. Since COVID, we've taken a number of steps to reduce burn at those stores. And even as tourism -- and I think in Nevada, it will take some time for tourism to rebound of backup as stabilized numbers. Our goal now over the next 12 months is going to be minimizing burn there to the extent that we can. But one bright spot in Nevada is our Spring Valley location; that location isn't as impacted by tourism as our other two locations, that location targets the local residents in that market, and we'll take steps to boost sales there through a number of initiatives to offset some of the declines that we're seeing in the other two stores.

Jesse Pytlak: Okay, got it. And then -- and then apologies, if I might...

Zeeshan Hyder: And one more thing to add on to that point is, you know, delivery is going to be a big part of our strategy in Nevada, we're getting a lot more efficient when it comes to delivery there; we're partnering with a few different players there to increase kind of customer acquisition on the delivery side. And then, in terms of the cost side, those costs are still coming down, so it's a moving target at this point.

Jesse Pytlak: All right. Understood. And then, just to sum [ph] Florida, can you -- and apologies if I missed this, if you said it earlier but -- there the kind of expected timing of the production ramp and how that fits with being able to relaunch those stores that you just closed post-COVID?

Tom Lynch: Sure. Zee, go ahead.

Zeeshan Hyder: Yes. The ramp up in Eustis, so we're working on that now. We have a new management team to oversee, kind of Eustis facility, there has been a lot of progress there over the last three months, as evidenced by the growing sales numbers for our stores there. We think we'll be at a much more stabilized point later this fall, and you'll start to see the new stores trickling back in at that point. But I wouldn't assume any additional store openings there for another kind of six months or so.

Jesse Pytlak: All right, that's all for me. Thank you.

Operator: [Operator Instructions] Your next question comes from Pablo Zuanic from Cantor Fitzgerald.

Pablo Zuanic: Yes, thank you. Look, it's maybe a bit of a general and philosophical question, but has the brand suffered? And what I mean by that, you know, if you're shutting down stores to be in short of inventory, to have less staff, the experience is different for consumer, right. I'm just thinking, if I'm in Florida, and my store or my man got it shutdown and when I go to truly [ph] -- again, it's simplistic, but has the brand suffered? Do have any metrics that you would share with us because my main issue has been that; yes, you have strong brand identity in Southern California but outside you still like scale, right? And in those places where you open stores because you end up disappointing your consumers with less staff, store shutdowns, less assortment. So give us some color on that, please and then I'll have a follow-up. Thanks.

Tom Lynch: Yes, Pablo. This is Tom. So, it's a very good question. So, you know, my experience has been exactly what you just said, right; it's intuitive you provide a poor experience and then your brand is obviously going to suffer. This brand still has significant value, it's obviously identifiable, that's -- that can be a good and a bad thing. In this case, it's still, it's still good. But I think the discipline that we've shown in the first two months of coming in and shutting down stores, for instance, in Florida, I would rather close a store that have a store that's at 40% capacity. I'm making that number up but just for the sake of example, right. So show that discipline and rather having someone come in, see a leak -- a weak assortment, and be disappointed; I'd rather close those stores, redirect the inventory to the most profitable stores and deliver a premium or premiere experience in those doors and then open them when appropriate. I think that really the growth at any cost approach is how you spend a lot of money and you get the brand recognition. But then when you get to the next level, and you haven't really gotten your execution plan down, right, and you've got -- perhaps you've overstaffed, so you would say, well, we've got less people here; I would argue we have now the right amount of people here, right. So it's not less people in that we're impacting, we haven't cut to the bone of that we're impacting the in-store experience, we're very, very cognizant of that and we actually think we're actually at the right number for the consumer experience. So it's really about making all the necessary adjustments to do the very basic things to drive traffic, optimize a very well thought out curated assortment, and have a premier consumer experience for the consumers and patients, it's really as simple as that. And being able to bring the footprint to where it is today, focus on inventory and procurement, getting the rest of the story in mind, right, showing stability and making this a more attractive investable platform; I think it's only going to go to grow our brand image. And I think that this is a story, this is a brand that matters to our industry; I think it's important that this brand persist and survive in this industry, and we're committed to doing so.

Operator: That was our last question. At this time, I will now turn the call back over to the presenters.

Tom Lynch: All right. I'd just like to thank everyone for joining us today. There is a lot more to come here, we've got a lot of work underway. Obviously, we've delivered the first couple of months' worth of really just rolling up our sleeves and operational improvements. We will continue to focus in a very direct fashion on every metric that you would expect from a premier retailer. And I look forward to telling you the story in the next quarter and quarters to come. So, thank you for your attention. And thank you for the very thoughtful questions.

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