Earnings Transcript for MMEN.CN - Q4 Fiscal Year 2020

Operator: Ladies and gentlemen, thank you for standing by, and welcome to the MedMen Fourth 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 am joined by our CEO, Tom Lynch; and COO, Tim Bossidy. On today's call, management will provide prepared remarks, then we will open the call to your questions. Earlier today, we issued a press release announcing fourth quarter and fiscal year-end 2020 results. The press release, along with our financial statements and MD&A, are available on the company's Web site 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 the 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 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 are provided by the company's reports filed with the United States Securities and Exchange Commission, and Canadian Securities Regulators, including the company's earnings press release, which was issued earlier today and is available under the company's profile on SEDAR. During today's conference call MedMen will refer to certain non-GAAP measures that do not have any standardized meaning prescribed by GAAP, such as EBITDA, adjusted EBITDA, and corporate SG&A, which are defined in the earnings press release we issued earlier today. Reconciliations to GAAP 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 review our fiscal year of 2020, take a deep dive into the company's turnaround progress, including lease and operational initiatives, and then discuss our financial performance for the fourth quarter, with a preview into the first quarter of fiscal 2021. Before jumping into our performance for the quarter, we want to address the ongoing pandemic we are facing. We understand this has been a challenging time and we hope everyone is staying safe and healthy. Our priority here at MedMen has been ensuring the safety of our employees, customers, and patients. We continue to follow CDC guidelines to provide a safe retail experience for all those in our stores, as well as a safe environment in our cultivation and production facilities and corporate offices. We are grateful to local and state regulators for allowing us to continue to serve our customers and patients. Now looking at our fiscal 2020 performance, I'm pleased to report that we delivered a record $157.1 million in revenue for fiscal 2020, a 31% increase from the previous year. The growth was driven by a 13% or $12.5 million sales increase in California, and a $15 million increase in Illinois. For the fourth quarter, we generated $27.4 million in revenue, which was the first sequential decrease the company has seen mainly as a result of COVID-19 and damage to our stores as a result of looting and further employee safety precautions in early June. We'll discuss this in further detail in the financial portion of the call. Looking back at fiscal 2020, this is a transition year for the company across three main areas

Tim Bossidy: Thank you, Tom. As an introduction, I joined the company when Tom did back in March as Chief Operating Officer. I've spent a number of years in retail turnarounds and prior to joining MedMen, I immerse myself in cannabis turnarounds, what attracted me to the company was exactly what Tom mentioned on a previous call together. I've admired the strength of and broad recognition of the MedMen brand and the retail platform on which it was built. However, it was clear that there were roadblocks preventing the company from realizing its full potential as a retailer and significant changes needed to occur to unlock value for shareholders. Nothing here is too dissimilar from other turnarounds where I've been a part of successful outcomes, but the key difference as to why this is the most exciting turnaround I've been a part of as we're starting with the platform of a unique brand and sitting in a strong position ahead of significant macro tailwinds, and despite external challenges, we remain on plan with our execution and will continue to drive towards and be held accountable for a successful transition to profitability. As Tom mentioned, the ultimate goal here is to drive retail profitability. The company has premier real estate, particularly in key markets such as California, where we have some of the highest revenue stores in the state. Yet we believe historically MedMen had left a lot on the table when it came to driving revenue in a cost effective manner and when it came to prioritization of repeat customers. Some of these areas for improvement were highlighted further, once we saw the impact COVID-19 had on our business. The company had historically benefited from a significant tourist presence in places like Los Angeles and Las Vegas again, an indicator of national brand strength, but with tourism traffic declining since March, we had to rethink how to best increase store traffic with a shifting customer base, and at the same time drive conversion and larger transaction sizes. With respect to retail revenue, there are a number of initiatives we have put into place over the past several months to boost traffic. Historically, MedMen had shied away from third-party listing services that represent a jumping half point for millions of cannabis consumers and patients, we're far down the road of fully integrating a number of these services into our POS systems and we have had success testing these platforms in a number of our stores to boost awareness amongst these massive bases. We expect to see increased awareness not only on our locations and delivery and pickup options, but also our differentiated assortment. With that point, while MedMen has always prided itself on high quality product creation, we felt that our product assortment, particularly with respect to flower was below average relative to our peers, which had a negative impact on our traffic and conversion. Over the past few months, we partnered with a number of leading high-end brands, particularly in California which resulted in August being the strongest flower sales in the history of the company. In addition, we've also made significant changes to how we think about marketing your customers. As a company, we've historically invested a considerable amount of time and resources on building the MedMen brand, and while this serves the company well at the time, there was not enough focus on true customer connection. Over the past several months, we have been extremely disciplined on allocation to budget to marketing while we redefined our assortment and learned about our changed customer base. Now, we can grow our budget in an extremely targeted manner. We're relaunching our Buds Loyalty program, which has close to 400,000 members, and we will provide loyalty members with personalized shopping recommendations, priority product access, and ability to donate points to charities. In addition, we're launching a robust SMS program in California next week to give customers real time access to exclusives and to reach customers more effectively. In October, we launched a digital media campaign in California with Florida soon to follow. In Florida, we made a shift towards hyper localized marketing with a focus on physician marketing to increase our patient counts, and as mentioned before, we're deepening our relationship with third-party listing sites. While we have not returned to pre-COVID revenue levels, we have seen a significant ramp-up over the past few months, particularly in California, our conversion is up and our average basket is up, we'll just need to continue to drive traffic. As a management team, we're highly confident in our ability to continue scaling rescue. Prior to COVID, revenue was growing sequentially each quarter since the company went public, and it is our firm belief that as the economic environment improves, and the pandemic is better managed and controlled, our improved assortment, improved customer experience and marketing initiatives will drive continued revenue growth during fiscal 2021. Turning to our main retail cost drivers, I'll discuss three key initiatives that we've been focused on since March. Besides some product costs, payroll continues to be our single biggest four-wall expense. We've implemented a dynamic staffing model, which has enabled us to significantly reduce payroll spend across the board while still maintaining customer experience during peak hours. Historically, payroll was running at around 20% as a percentage of retail revenue. Over the past couple of months, we've been hovering around 15%, which translates to monthly payroll savings of approximately $1.5 million or $18 million on an annualized basis. As revenue normalizes and grows, we believe we'll improve operating leverage and see payroll continue to decrease as a percentage of retail revenue. In addition to payroll optimization, we're also undergoing a number of other enhancements to our stores to better utilize the tech improvements within the industry. The initiatives include but are not limited to POS improvements, session based reporting, reduction in banking and payment processing fees, a revamped procurement process will restructure the new vendor contracts with better margins, continued efficiency gains in delivery staffing, and decreasing our security spend. In aggregate, our efforts to improve four-wall economics have enabled us to achieve positive after tax retail cash flow for several months, which we'll discuss in more detail. Creating a new playbook for a retail footprint will serve as the foundation for how we grow the business over the next several years. Concurrent to these efforts, we've also been taking a hard look at each geographic market in which we operate and build a plan to achieve our growth and profitability goals. I'd like to spend some time providing an update of progress in each market, starting with our recreational markets. As an update for California, we currently have 11 operational stores across the state with a number of new stores and store expansions on account. Over the next 12 months, we plan to enhance our northern California portfolio with two new stores in San Francisco, a new store in Emeryville, which is nearly complete, and a revamp of our San Jose location. In Southern California, we have plans to open a store in Pasadena and expand our LAX location, which is currently our best-performing store in the state. In addition to operationalizing our existing licenses, we continue to monitor new cities and counties that are rolling out recreational programs. As a reminder, over two-thirds of California is still not open to recreational cannabis. We believe California will continue to be one of the top two largest drivers of revenue for the company going forward as we expand our brand cities throughout the state. Moving over to Nevada, we continue to operate three stores. Prior to the impact of COVID-19, Paradise is one of our highest revenue stores and remains excited about the prospects of our entire Vegas footprint, especially as tourism starts to pick back up in the market. As we look ahead, we will continue to evaluate new store opportunities in the broader Las Vegas market, given the grand synergies between the Southern California and Vegas markets, and given our work in addressing some of the wholesale supply issues we previously faced in the state. In Illinois, we had two operating stores at the end of the fiscal year, Oak Park and Evanston with the potential to add additional locations through those licenses. Oak Park is our best performing store in the MedMen portfolio for both revenue and profitability in our fiscal fourth quarter, which speaks to how well our brand and retail experience can extend in a recreational market in other parts of the country. Our final recreational market is Massachusetts. We've made significant progress here on the licensing front. In August, we announced that the Massachusetts Cannabis Control Commission voted in favor of granting us the provisional adult-use license for our proposed flagship retail location near Fenway Park. Final license for this location is subject to meeting various conditions prior to opening, which is expected to occur in 2021. Today, we also announced being granted a provisional adult-use license for our Newton location. Similarly, a final license for this location is subject meeting various conditions prior to opening, which we also expect to occur in 2021. We believe our Massachusetts stores can be [technical difficulty] volume locations in the state. Moving on to our medical markets, we are especially excited about Florida, which we believe can grow to be the second largest eighth commandment. We've gone through a few different iterations of our footprint in Florida, having built out over 10 locations across the state. However, due to historical issues in our useless cultivation and manufacturing facility, we did not have the adequate supply to fill each location. We made the decision to temporarily closed down a handful of locations and currently have four operating stores all of which have performed extremely well over the past six months as they have had a better and more consistent supply for patients. We are proud to say our shrink to grow plan is working, as the current team use this is doing a fantastic job improving plant yields and quality, which is driving positive outcomes that are open stores. We have plans to expand our cannabis in the east, and as our supply continues to ramp we have an additional eight stores slated to open over the next 12 months, including our South Beach Miami location. These team has embraced that in the vertically integrated Florida market, the best-in-class retail experience for our patients, we need to be a best-in-class cultivator, execution here is an excellent and from March to now our yields have more than doubled. In our other medical market, New York, we continue to operate on four store locations, including our Fifth Avenue location, as well as our cultivation and manufacturing operation in Utica. As a result of us securing vendor partnerships with a few of the larger players in the state, we've been able to perform relatively well to COVID recently hitting all-time highs on revenue and transactions. The last update I will provide is on our cultivation and manufacturing strategy moving forward. We announced in July, as Tom mentioned, we had landlord support to pursue partnerships and DHS and Mustang. We are ahead of where we thought we would be on this initiative, and we are close to finalizing agreements that will both improve amendments cash flow and be additive to our assortment. Thank you, and I'll turn it over to Zeeshan.

Zeeshan Hyder: Thank you, Tim. Before we jump into the financials, let's discuss our transition from IFRS to U.S. GAAP. As of June 28, 2020, the company no longer met the qualification as a foreign private issuer as a result of more than 50% of the company's outstanding voting shares being held by residents of the U.S. We are now considered a U.S. domestic issuer under the rules of the SEC. As such are audited financial statements for fiscal 2020 were prepared in accordance with U.S. GAAP. In addition, we filed an initial Form 10-12G with the SEC on August 24, 2020, which included our audited fiscal 2019 financials under GAAP. We filed an amendment number one to the Form-10 on October 07, 2020, and this week we'll file a second amendment, which includes our fiscal 2020 financials and MD&A. As of October 23, 2020, our registration as domestic issuer will become effective. We are excited about the change to U.S. GAAP and believe this will also be welcomed by our shareholders. Let's now jump into the financials. 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 fourth quarter and full-year fiscal 2020. System-wide revenue for fiscal fourth quarter 2020 was $27.4 million, down 24% from $35.9 million in the same period last year. We'll get into the specific impact of COVID and writing in Southern California had on our revenue when we discuss our retail financials. Gross profit for the quarter was $11 million, which represents a margin of 40% compared to $16.1 million or a margin of 45% in the prior year period. For the full-year gross profit was $58.1 million, which represents a margin of 37%, compared to $55.9 million or a margin of 47% in the prior year period. It's important to note that under GAAP there were significant differences in how we were calculating gross profit given the change in treatment of biological assets. Operating expenses for the quarter totaled of $56 million and 18% decrease from $68.6 million in the prior year period, and 2% increase from the previous quarter. Within operating expenses, general and administrative expenses, which totaled $39.9 million, declined by 19% from the same period last year, and 13% from the previous quarter. The reduction in G&A expenses were primarily driven by significant reduction in corporate related expenses, including payroll. We estimate that our fourth quarter cash based SG&A totaled approximately $40.5 million, a 24% decrease from the same period last year, and 10% decrease in the third quarter. It's important to note that there were substantial changes to overall SG&A accounting under U.S. GAAP compared to IFRS, particularly related to the treatment of leases, which makes the comparison to previous quarters difficult. Turning over to profitability, overall adjusted EBITDA loss for the quarter was $23.9 million, compared to $37.7 million in the same period last year, and $26.1 million in the previous quarter. Several initiatives which we undertook as a company towards the end of fiscal 2020 are not yet reflected in their entirety in our adjusted EBITDA numbers. For example, our cultivation and manufacturing operation, which we estimate contributes to over 20% of our adjusted EBITDA loss will be significantly improved through our cultivation partnerships in California and Nevada. Let's now take a deeper look at our retail business. Retail revenue excluding Arizona for the fourth quarter totaled $27.4 million, down 25% year-over-year, and down 40% sequentially, which is primarily driven by reduced store traffic and temporary store closures resulting from COVID-19 and right related damage to our stores in California. With respect to COVID-19, California and Nevada saw tourism come to a halt soon after the pandemic began to pick up steam on the West Coast. Several of our stores including stores like LAX and Abbot Kinney in California and Paradise in Las Vegas drive a substantial amount of revenue from tourist traffic. As a result, traffic in certain stores were down over 50% early in our fiscal fourth quarter. While our stores in California remained open despite reduced traffic. We closed down our Nevada retail footprint for eight weeks due to a state level mandate beginning at the end of March through mid-May. In California, while we get their stores open given our statuses and essential retailers with the exception of Seaside, we have to significantly modify our retail operations based on CDC guidelines and local ordinances to limit in store traffic. As an example, our stores that were used to servicing hundreds of customers per day had to limit in-store occupancy to 10 people for much of the quarter, which created long lines and temporarily reduced our conversion rates. We were able to offset some of the impacts by quickly rolling out curbside pickup and improving our delivery efficiency thanks to our technology team. Aside from COVID-19, which we believe impacted retail as a whole in most markets within the U.S., we were also forced to close certain stores in California because of the looting that took place in early June. Several of our top performing stores in California were shut down for close to three weeks because of the damage, including Venice Beach. Downtown L.A., and Beverly Hills. All of our California stores were closed for at least a week. Overall, we conservatively estimate close to $3.5 million in lost revenue due to the damages over the three weeks. Despite the hit that we took from a top line perspective as a result of COVID-19 and the looting, we made significant progress, as Tim mentioned, with respect to optimizing our full operation by putting in place new systems for payroll, supplies, and payment processing. As a result of these cost initiatives and our ability to maintain our gross margin with vendors, we were able to achieve positive adjusted EBITDA at our retail footprint despite the macro factors that impacted our sales in the fourth quarter. With Q1 fiscal 2021 complete as of the day of this call, we'd also like to report our preliminary Q1 retail revenue, which totaled $37.4 million, representing a 37% increase from the previous quarter on a comparable basis. We continue to see revenue increase, and while the pandemic has impacted us, we firmly believe in our ability to return to the revenue levels we were seeing earlier in the calendar year. In addition to revenue, we are seeing the various operational initiatives translate into cash flow as well. In July, we were able to hit approximately cash flow breakeven with adjusted EBITDA across all stores at over 13%, and adjusted EBITDA in California surpassing 15%. We expect even better results in August and September. As a result of our ability to transform our retail operations we are expecting to achieve companywide breakeven adjusted EBITDA within our fiscal 2021, which we now have a clear line of sight into with the narrowing down of our business focus. Moving on to the balance sheet, we ended the year with $10 million in cash and cash equivalents. There were a number of capital-raising transactions we announced subsequent to the quarter end, including $10 million in proceeds due to the sale of a retail license, and a $20 million financing through a combination of expanding existing credit facilities, and securing additional convertible proceeds. We continue to work hand in hand with our large equity holders and lenders to capitalize the business permanently through free cash flow positive. A quick note on our cap table as well. Given our multi-class structure, as of last Friday, we had approximately 448.2 million subordinate voting shares, and an additional 197.3 million redeemable shares which are convertible into subordinate voting shares on a one-to-one basis. As of next month, there will no longer be legacy shares that are locked up, which also eliminates the go-forward overhang. To wrap up the prepared remarks, I along with the rest of the team am very optimistic and excited about the fiscal 2021. We've gone through a lot as a company over the past 12 months, and while there is still more work to do with the revamped management team, a renewed focus on our retail business, and additional capital, we are well positioned to reach profitability this year, and return to growth as a leader in cannabis retail within the U.S. We will now open up the call to your questions. Operator?

Operator: [Operator Instructions] Your first question comes from Matt Bottomley from Canaccord Genuity. Please go ahead.

Matt Bottomley: Afternoon, everyone. Thanks for taking the questions here. Just wanted to start off may be talking about capital allocation in the near-term here, just given that it is pretty tight, so it looks like you have about $30 million of cash currently. So you mentioned a lot of different initiatives, opening up retail in some prime place in Massachusetts, potentially four more stores in 2021 in Florida, and just given the current state of the balance sheet I'm just curious on what the capital plan is going forward. Obviously, I know you'll be opportunistic where possible, but it just seems like just keeping the operations going as is, is somewhat of a challenge, and factoring in some of the positive things that you guys have mentioned on this call in your prepared remarks subsequent to period end, but it just seems like it's getting tighter and tighter as these quarters go on, and any sort of comfort or color on what the near-term plan could be to actually execute on some of these other growth initiatives just given the current state of the balance sheet right now?

Tom Lynch: Yes, Matt, this is Tom. Thanks for the question, good question. You should take as an indication the fact that we're even mentioning our growth strategy and getting specific about some of the markets that we've identified and that we're actually working on really is a statement about how we feel about the trajectory of the business. Our story essentially now is, god willing, with all this going on in the macro space, it's simply a traffic story. We feel like the fundamentals of the business within the four walls of the store, which were not there, are there now. Our conversion is -- it's outstanding, basket size is increasing. All of the key metrics that I would look at as a traditional operator are there, and they're lining up, and they continue to improve. So, our story is a traffic story. One of the things that we mentioned briefly in this, that folks should take note of, is that for very obvious reasons that I hope everyone will understand, our marketing spend over the period that we just discussed really has gone down next to nothing, right. So, the idea from my seat, the seat that I occupy, of spending significant marketing dollars into an operation that was not necessarily operating at best-in-class, right, and potentially disappointing consumers is not something I was going to do. So we've pulled back significantly on that so that we could fix, get the house in order, and now we're ready to deploy again and start speaking to the consumers and driving that traffic. We're going to need some help. We still have municipal and state restrictions that we're going to -- we obviously are going to abide -- and federal that we're going to abide by, but we're starting to see that turn, and that's really simply all that we need. We, when we talk about these growth plans our assumption is, in the very short-term, everything that we've described to you is self funded, right. So there may be a discussion, there may be short-term need that maybe needed to address, but long-term, we're talking about a healthy company that self funds these initiatives, and that's what our goals are. Tim, anything you want to add to that?

Tim Bossidy: Thanks, Tom. I think the one important piece to add to that and especially when we talk about how exciting the opportunities are in front of us in Florida are, is our plans to add canopy to our use dislocation are in the scheme of things a relatively small amount of CapEx, and we have eight stores that are already built out or substantially complete within our Florida footprint. So as we grow our canopy and as the youth team continues to execute and do a fantastic job down there a big portion of our growth pipeline can actually be turned back on without -- with little to no additional CapEx spend, and then also a reminder is that we've got another store substantially finished with our Emeryville location. So we do feel good about our ability to continue to drive that growth pipeline without spending a lot of additional CapEx dollars.

Matt Bottomley: Great, understood, and then just one follow-up for me, so you had about $10 million come in subsequent to period end on a retail disposition. What's the climate right now in the market for potential bids on some of your assets given sector valuations on the whole have been pretty healthy since July, and I know there's a lot of excitement over potential catalysts in the next -- or the upcoming election rather. So is there more interest, is there more activity, more conversations on some of these assets? I know it's been quite in certain states, and maybe other states, like Arizona, have been more attractive with ballot initiatives there. So just your overall portfolio of maybe capital you'll be able to extract out of some of these non-core things, and if that's materially different in your prospecting versus when we spoke last time when you reported your last quarter.

Tom Lynch: Yes, there's no question, and this is Tom again. There's no question that portfolio is attracted and that we feel -- we feel the steady stream of calls weekly on a number of assets, but honestly, we've identified and we've articulated what the key, the core assets are for us and the go-forward strategy, and while we listen to inbound calls, we are not actively in the market really across the piece. We'll be opportunistic as always, and I will always say that we will, but yes, the environment has definitely strengthened and the interest is high. And Tim or Zeeshan, anything you'd like to add to that?

Tim Bossidy: Yes, the only thing I would add to that, Tom, is if you look at product evaluations, they've held pretty steady even in light of what's on the public [technical difficulty] seeing a shift toward focus in highly profitable markets. So, if you have a license or an asset that's producing cash that will trade out a premium over footprints that maybe go multi-state. So, to answer your question directly, we have not seen the same drop off in private sales as we have kind of in the broader market.

Tom Lynch: Right.

Matt Bottomley: Okay. Thanks everyone.

Tom Lynch: Thanks, Matt.

Operator: Your next question comes from Vivien Azer from Cowen. Please go ahead.

Vivien Azer: Hi. Thanks for the question. So appreciate the transparency in terms of the more recent quarterly revenues, that's helpful. Can you unpack that a little bit in terms of the key drivers of the sequential growth? Thanks.

Tom Lynch: Tim, why don't you lead with that, and I'll jump in.

Tim Bossidy: Yes, absolutely. So, we mentioned the growth pipeline that we feel especially strongly about and some of the opportunities there, but as far from a same-store sales standpoint one of the things that I mentioned earlier, and we believe is going to be a really key initiative for us is, one, prior -- in MedMen past, the decision was made not to partner with a lot of these third party listing services, and that is a jumping off point for millions of customers. We've, in our initial testing, while we're being obviously very disciplined about our marketing budget, we've seen extraordinary initial return on advertising spend with some of these initial partnerships. So as we fine-tune that and partner with these listing services on a long-term basis we do expect to drive substantial and awareness through those. And the other big piece of this I would say is you can keep an eye out for within the next two weeks here we'll be launching our SMS marketing which is something, again, historically the company has shied away from, but with what we've seen and what we've looked in to, a lot of our customers and patients, especially in California, prefer to be communicated with via SMS versus through email, and so, even though we had the broad reach through our substantial email list serve fantastic engagement through that, we think there's another level to open up here through SMS marketing. So with those to sort of open up the top of the funnel, I think and the combination of the fact that we have seen conversion get better, we have seen ADS get better. We really feel that the pieces are starting to come together here, both from a future growth pipeline standpoint, but also from just the ability to drive same-store sales.

Vivien Azer: That's helpful, and just one follow-up for me, last quarter you guys offered some color around, and I believe it was a California-specific metric around roughly $15 million in run rate delivery revenues. What does that look like for fiscal 1Q, if you can answer that, please?

Tom Lynch: Yes, go ahead, Zeeshan.

Zeeshan Hyder: Yes, in terms of delivery revenue, the way we think of that is kind of combined with curbside now kind of since COVID hit, and we've stayed pretty consistent with where we were before. There's a few markets where we had to kind of shutdown operations and delayed the delivery because of COVID early on, which are now back up. On an adjusted basis we're kind of where we were before, and to Tim's point, some of these initiatives that we're rolling out over the next couple of weeks are going to have a direct impact on delivery sales as well.

Tom Lynch: And the only thing I would add to that is we put a lot of focus and effort in making sure that margin for us was there, and efficiency for us was there for a curbside pickup and for delivery. We've put a lot of those pieces in place. So the awareness piece of this is now the next step here to make sure that we're driving people to that platform now that it's ready for the traffic to come.

Vivien Azer: Got it, and I know I said that was my last one, but just to clarify so that we're all on the same page on what we just heard. You were perhaps a little bit more judicious, I don't want to say slower, but that there was perhaps the need for more incremental analysis around how to deploy that strategy, because it seems like a lot of your peers were able to -- did it pretty quickly.

Tom Lynch: Yes, so from a technological standpoint we were able to make that transition very seamlessly both from a efficiency standpoint, we didn't think we would be able to drive a lot of scale there without seeing significant margin dilution, and now where we are -- and I think you've seen that reflected with some of the commentary around the industry, but I think where we are now is we feel that we're able to provide a very positive customer experience without the same margin impact that you might be seeing elsewhere.

Vivien Azer: Helpful, thank you.

Operator: [Operator Instructions] The next question comes from Scott Fortune from ROTH Capital Partners. Please go ahead.

Scott Fortune: Good afternoon, and thanks for taking the question. I will kind of follow-up on the focus on Nevada market, kind of what it will take to get back to breakeven, or could you just provide a little more color without the tourism there kind of the foot traffic where you're at, kind of from a pre-COVID standpoint to now and expected going forward here?

Tom Lynch: Go ahead, Tim.

Tim Bossidy: So, over the last few months, as tourist traffic has rebounded in those markets, we've seen a nice recovery. So, we will be able to update everyone as that continues to progress, but I mean, with obviously from the impact of first the regulatory impact that earlier this spring and then tourism traffic upwards of 60% to 70% in those markets, we definitely felt the impact, but I think we're seeing a nice rebound in those markets this fall.

Scott Fortune: Okay, and then kind of the same in California, you guys have mentioned it again start driving more traffic to get there, but it sounds like a lot of the stores in Southern California they're all open here now, but have a lot of room to get back to similar foot traffic levels you were at prior to pre-COVID from that standpoint?

Tom Lynch: Go ahead, Tim. Go ahead.

Tim Bossidy: Yes, absolutely. I mean, what we look at really here is that from where traffic was prior to COVID, we're achieving those numbers with what we feel was a assortment that we're not nearly as happy with now, and connection with the customer around our Buds program and targeted offerings, again, they are not at the levels as to where we think we are now and where we'll be rolling forward with, and so from us, we look at the pieces that we put in place, and then the ability to drive some more traffic through to our stores. The things that we've seen, for example, August being the highest month for flower sales in the company's history, that as the assortment gets better it's really just an issue of continuing to drive traffic to our stores in a normalizing environment, where we should see a nice pickup.

Scott Fortune: Got it, and just one last question for me in kind of Florida, I know you've kind of been waiting to build out adequate supply there, and you're only operating four stores right now, you can operate, what kind of step as soon as the timeline for that, and kind of fully wrapping that up as your supply comes on board for the other stores for the rest of this year and going into 2021 I guess?

Tom Lynch: Yes, absolutely. So, the way we're looking at it now is eight stores that are substantially complete, that we'll be able to turn on over the next 12 months as we ramp our supply.

Scott Fortune: So, you see a gradual ramping, adding those stores as supply comes aboard over the next 12 months based on it?

Tom Lynch: Exactly, exactly, and that's really the key underpinning of the strength to grow here is we had our supply chains far too stretched to the number of stores that were open, and so it wasn't a positive customer or a patient experience at those stores. You come in and the shelves would be fairly bare, and so, we're not going to repeat any of those mistakes. The plan is as we have enough supply come on to be able to turn on a store to where it's at the level that our patients deserve, that's when that store gets opened. So, it will be gradual. It won't be everything turning on at once because as soon as we continue to have the supply to fill those stores, that's when those stores get turned on.

Scott Fortune: Okay, thanks for the color.

Tom Lynch: Absolutely.

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

Tom Lynch: Well, we certainly appreciate everyone taking the time to listen to our presentation. We're as you can tell from the report, we remain very optimistic even within the pandemic and the challenges facing us all on a macro level, but in terms of the restructuring and the process and where we're versus where we thought we'd be, I would argue that we're ahead of where we would thought we'd be based on my experience in restructuring companies like this. So, again, we remain tremendously optimistic. We think that this is a very, very interesting and exciting growth story going forward, and we look forward to communicating with you every step of the way. So again, thanks for your attention, and we look forward to speaking with you again soon.

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