Earnings Transcript for TER.CN - Q3 Fiscal Year 2021

Operator: Good morning, everyone. Welcome to TerrAscend's Third Quarter 2021 Conference Call for the three month period ending September 30, 2021. Listeners are reminded that certain matters discussed in today's conference call or answers that may be given to questions asked could constitute forward-looking statements that are subject to the risks and uncertainties relating to TerrAscend's future financial or business performance. Actual results could differ materially from those anticipated in these forward-looking statements. The risk factors that may affect results are detailed in TerrAscend's annual information form and other periodic filings and registration statements. These documents may be accessed via the SEDAR database. I would like to remind everyone that this call is being recorded today, Tuesday, November 16 2021. I would now like to introduce Mr. Jason Wild, Executive Chairman of TerrAscend. Please go ahead, Mr. Wild.

Jason Wild: Good morning, everyone. Thank you for joining us today. Since we withdrew full year 2021 guidance in August, we've made huge strides at our cultivation facility in Pennsylvania, and continue to build inventory ahead of adult use in New Jersey. While both had the expected impact on our results during the third quarter, we still reported solid year-over-year revenue growth and EBITDA profitability. We are building this business for success over the long-term, and we will continue to make decisions with that mindset. For the fourth quarter, we expect to return to sequential revenue and adjusted EBITDA growth with these positive trends accelerating into 2022. We couldn't be more excited about our acquisition of Gage, one of the most influential and innovative brands in cannabis and a market leader in Michigan. Our shareholders overwhelmingly approved this acquisition last week. The regulatory approvals are moving along and we are hoping that we can close the transaction early next year, ahead of our earlier internal projections. Upon closing the acquisition, it will provide access to Gage’s sought after brand and proprietary library of genetic, as well as their exclusive licensing partnerships in Michigan with COOKIES and other top brands, including SLANG Worldwide, Blue River, Pure Beauty and Khalifa Kush, some of the country's most recognized and highest grossing cannabis lifestyle brands. The combined company will operate seven cultivation facilities including three large scale facilities in Michigan in addition to Gage’s nine contracts on a gross. Combined, we will operate a retail network expected to reach 34 stores over the coming months. This includes 23 currently open dispensaries across five states, with gauge operating 10 in Michigan in addition to TerrAscend’s 13 stores in key markets including California, New Jersey and Pennsylvania. We expect to open our 14th store in December in Lodi, New Jersey while Gage is expected to open an additional 10 stores across Michigan in the coming months. Gage’s award winning retail stores generate industry-leading retail metrics including significantly above average basket sizes of $152 in the second quarter of 2021, compared to the Michigan average of $85, and premium pricing for its flower products which is 40% higher than the average price of flower in Michigan. We expect to leverage Gage’s portfolio of over 40 proprietary flower strains in addition to its brand and marketing capabilities across all of our core markets. The acquisition combines management teams with similar core philosophies, strong track records of execution and operational expertise. Pre-closing integration work is already well underway and we expect to hit the ground running upon closing. This combined talent pool along with several high caliber external candidates in our pipeline will create the Dream Team required to execute on the robust expectations we have for the combined company. I would now like to provide an update on each of the states in which we operate. Starting with Pennsylvania, we have made significant progress with improvements at our cultivation facility, incorporating proven best practices from our operations in New Jersey, Maryland and California to ensure the highest-quality flower and manufactured products. For example, we are leveraging data to optimize our crop planning process and have further dialed in our post-harvest production processes. As a result, the quality of our recently harvested flower is already way ahead of where we were previously. The ratio of quality flower trim has increased dramatically. And we have seen THC and Terpene potency reach all-time highs for this facility. These improvements have all been made without bringing any new genetic diversity into the PA market. As the Pennsylvania Department of Health recently announced, new plant genetics will be allowed imminently, which we believe will enable us to offer the most desirable selection of strains to our Pennsylvania patients. On the retail front, our six Pennsylvania stores grew 14% quarter-over-quarter, largely driven by a full quarter impact from the acquisition of KCR in Q2. Average revenue and basket size per store remained healthy. Our focus on customer acquisition and retention has led to recent milestones such as the introduction of our loyalty program, substantially increasing the frequency at which patients shop our stores. The market in Pennsylvania remains competitive and the latest headset data shows slower growth for the overall market in recent months. However, I have every confidence that our quality products and genetics will enable us to regain leadership in this still vibrant market with adult use on the horizon. In New Jersey, we had our first full quarter of contribution from our Maplewood store, which is our second dispensary in the state. We're seeing a steady rate of revenue growth in the store as well as our first store in Phillipsburg. Our third New Jersey location in Lodi is on track to open in December of this year. This 5,000 square foot store is located in a high traffic area off of I-80 and Route 17 and is built for high throughput and also has ample parking – sorry, ample parking in addition to a plant drive-thru. We believe this store has the potential to be our highest revenue generator nationally. As mentioned on our last call, in anticipation of a dramatic increase in demand once adult use goes into effect, we made the strategic decision to increase the allocation of our branded products to our own Apothecarium dispensaries in New Jersey. As a result, we believe that our dispensaries will be among the best supplied in the state upon adult use implementation. There are currently a limited number of dispensaries open in the state only 23, actually, and we are now expecting a significant increase in the near-term. With adult use around the corner, we think our three stores have the potential to exceed $40 million each annually. With one of the largest cultivation footprints in the state, we are prepared to fully supply our own stores at that level of medical adult use demand. Our three locations are the exclusive cannabis establishments in the town which they are located, and we believe this will be the case for some time. Also, fueling this optimism is the exclusive licensing agreement we signed with COOKIES, one of the most recognized brands in the world with a reputation for quality and exclusive genetics. We will be cultivating, manufacturing, distributing COOKIES products in New Jersey and also plan to add COOKIES corners, a store within a store concept to each of our retail dispensaries in the state. Having seen the success of COOKIES in Michigan, we expect to be attracting customers from across the region, as well as realizing above average basket sizes. We expect to launch COOKIES in the first quarter subject to regulatory approval. As you can see, we set the stage for our New Jersey business have a breakout year in 2022. We believe adult use will most likely go into effect during the first quarter of the year, and we are fully prepared to meet this demand once the program goes live. Turning to Maryland, we are excited to have entered this pre-adult use limited license market that is currently on a $550 million plus revenue run rate. Since the closing of our HMS acquisition earlier this year, we have been focused on expanding our capacity to cultivate high-quality indoor flower, and produce a broad portfolio of manufactured products. As announced this morning, we closed on the acquisition of a facility in Hagerstown, Maryland. Work has already begun on the buildout of a state-of-the-art 156,000 square foot cultivation and processing facility, and we expect to commence operations at the new facility in the first-half of 2022. When completed, this will dramatically increase our capacity similar to PA and New Jersey, positioning us as one of the leading producers in Maryland. We also see the opportunity to further expand our operations in this attractive state by vertically integrating up to the four dispensary limit in the state. We have multiple acquisition opportunities at our pipeline at attractive valuations, and hope to get at least one of them over the finish line by year-end in Maryland. Turning to California, overall the business has been stable, while we saw an increase in our Berkeley location when students returned to campus, the ramp up to this store was partially offset by the latest wave of COVID, which affected foot traffic at our three Stores in Downtown San Francisco. Our super premium state flower brand has performed very well in in the face of an oversupplied flower market. Our full capacity of State Flower product is committed through the end of this year at consistent pricing levels. In Canada, the quarterly sales trends tend to be trough choppy given the multi-tiered go-to-market structure. Following strong Q2 upsell into the provinces, the performance in Q3 was weaker which was expected. We have had some top selling strains including Retrograde and Indigo Daze, but our supply cannot keep up with demand. Our team is working on diversifying the base of suppliers to ensure more consistent supply going forward. We made significant changes to the Canadian business over the past year, particularly with respect to our cost structure. And our commercial and product portfolio initiatives are expected to drive better results in the coming quarters. It is also worth noting that with the closing of the Gage acquisition, TerrAscend will have the exclusive right to operate COOKIES retail dispensaries in Canada. Next, I'm going to briefly comment on another initiative that we have underway and something that we have not previously discussed. A key focus for the company is the continuous development of our e-commerce platform and digital experience. We believe that having a one of a kind shopper experience whether that's in our stores or on our e-commerce platform will be a key differentiator. As part of this effort, we have been developing an app for our Apothecarium stores, which is expected to go live in the coming weeks. We believe it will offer a shopping experience to our customer base unlike any other in the industry. We have begun exploring new payment options as well, including the ability to accept Bitcoin and other cryptocurrency as a means of payment. In closing, 2022 is going to be a breakout year for TerrAscend. We will complete the Gage acquisition, the State of New Jersey will turn adult use, we will introduce COOKIES into that market, and we will see further benefits of the actions more recently undertaken in Pennsylvania. We will continue to have the financial capacity to execute on our organic and inorganic growth initiatives as well. I would now like to turn the call over to Keith, to provide our financial update.

Keith Stauffer: Thanks, Jason. Good morning, everyone. As a reminder, the results I will be going over today can be found in our financial statements and MD&A on SEDAR. In Q1, we transitioned our reporting currency to U.S. dollars, so all figures discussed this morning are in U.S. dollars unless otherwise noted. Net sales increased 29% year-over-year, and declined 16% sequentially to $49.1 million. This significant year-over-year growth was driven by 2020 cultivation expansions in Pennsylvania and California, the initial ramp up of both wholesale and retail sales in New Jersey. The continued growth and ramp up of our three Apothecarium dispensaries in Pennsylvania, and two newer locations in California, as well as the acquisitions of HMS in Maryland and KCR in Pennsylvania. The decline sequentially was primarily driven by the yield declines at our PA facility, and a planned for sequential decline in our Canadian business. As discussed on the last quarterly earnings call, the PA facility impact was most pronounced in the third quarter. We've begun to see a recovery in Q4 as the first harvest of high-quality product from each of the converted rooms have begun to hit the market. Regarding net sales by channel, our branded manufacturing business was down 33% sequentially, and was roughly flat year-over-year. The sequential decline was driven primarily by lower PA yields, but also impacted by our decision to build inventory in New Jersey during the lead up to adult use, and a quarterly decline in Canada that I mentioned previously. Retail sales grew 11% sequentially and 100% year-over-year. The sequential increase was largely driven by a full quarter of the KCR acquisition and the continued ramp up of our two New Jersey stores, partially offset by some softness in our core San Francisco stores related to the latest wave of COVID. The doubling of retail revenue year-over-year was driven by the increase from seven stores in Q3 of last year to 13 currently open stores as of this last quarter. Adjusted gross margin for Q3 was 46% compared to 61% in Q2. Note that adjusted gross margin is a non-GAAP measure, which excludes fair value of biological assets and other non-recurring adjustments. The 15 points of sequential decline in adjusted gross margin was primarily driven by a full quarter’s impact of the lower yields in Pennsylvania, resulting in lower absorption of fixed costs and a larger percentage of retail versus wholesale revenue. We expect gross margin to improve in Q4 as the PA operation begins to sell product from the newly planted rooms in the second-half of the quarter. In the midst of these revenue and margin challenges, we have maintained our strong focus on cost control with SG&A spending flat quarter-over-quarter. Q3 adjusted EBITDA was $10.5 million representing a 21% adjusted EBITDA margin. The sequential decline in adjusted EBITDA was primarily driven by the lower yields at the PA operation, and secondarily driven by our decision to build inventory in New Jersey in preparation for adult use in early 2022. We’ve reported a positive net income for the quarter of $62 million, mainly driven by a gain on fair value of warrant liability of $69 million. Turning to the balance sheet, we ended the quarter with a healthy cash position of $103 million. This level of cash positions us well to further invest in the business both organically and through M&A. In Q3, we used $17 million in cash from operations mainly due to a $21 million tax payment made in the quarter. During the quarter, we also made a $25 million payment related to the partial buyout of our New Jersey partnership, taking our total ownership up to 87.5% from 75%. The final payment also $25 million in cash will be made before year-end. CapEx spending during the quarter was $16 million, mostly related to the ongoing buildout in Pennsylvania and the completion of work at Lodi. Also of note, over the course of the coming months, we expect to receive approximately $40 million of proceeds from in the money warrants that will expire in mid-January of 2022. And approximately $15 million of proceeds from warrants that will expire in August of 2022. Lastly, before turning the call over to questions, I'll take a minute to discuss our outlook. On a year-over-year basis for full year 2021, we expect to deliver solid growth in revenue and adjusted EBITDA, while continuing to expand both gross profit and adjusted EBITDA margins versus 2020. For the fourth quarter, we expect to return to sequential revenue and adjusted EBITDA growth, and we anticipate these positive trends to accelerate into 2022. Finally, I'm pleased to report that on November 2, we filed a Form-10 registration statement with the SEC to convert from a foreign private issuer to U.S. filer effective January 1 2022. As part of that filing, we converted from IFRS to U.S. GAAP, our year-end 2021 filing will be a Form 10-K with the SEC. The company is now prepared to list on the U.S. exchange once permissible. This ends our prepared remarks, I'd now like to ask the operator to open the call for questions.

Operator: Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Your first your first question comes from Andrew Partheniou, Stifel GMP.

Unidentified Analyst: Lawyer [ph] speaking on behalf of Andrew. Just wondering if I could get your updated thoughts on when New Jersey rec sales could start? And how do you see your position and competitive environment with the new medical and rec licenses being issued?

Jason Wild: Hi, good morning. So we are -- I mean, this is not a highly scientific view of when rec is going to start in New Jersey, but we believe rec will start in the first quarter hopefully towards the beginning of the first quarter of next year. In terms of the competitive positioning versus the other licenses that were awarded a few weeks ago, we actually felt like they were very pro incumbent. The thing that makes us think that is the canopy limit on the new cultivation facilities is 30,000 square feet, while the original licenses that we are part of have 150,000 square foot canopy limit. So obviously, we can get to five times the canopy in the state and we think that that's going to serve us very well. And then we're going to need to every bit of that canopy. The other thing that we think was pro incumbent is that since the state is very focused, and rightly so on making sure and ensuring that medical patients have access to product, all of those new licenses are only allowed to sell into the rec market after they have sold into the medical market for a full year. So, we are looking at figure it takes from the day of the award of a cultivation license, figure it takes about a year and a half or so to bring the facility online, then another year for those facilities to be operated for medical patients. So, we're talking about two and a half years or so, before we see any further product in the market selling to rec.

Unidentified Analyst: Okay, great. Thank you. And then for my last question for Gage, prior to closing consensus estimates had a meaningful ramp up in revenue and margins. Now that you've closed in the transaction, how do you see that progress? And can you give any color on the magnitude or cadence? Thank you.

Jason Wild: Yeah. Sorry, we haven't closed on Gage yet. We will be closing at Gage early in 2022.

Unidentified Analyst: Okay. Thank you.

Jason Wild: Hello. Sounds like we have another call on there.

Operator: Your next question comes from Kenric Tyghe, ATB Capital. Kenric?

Kenric Tyghe: Thank you. Good morning, Jason. Could you speak to Pennsylvania, specifically was there any sort of further challenge or perhaps degradation either of market or in your ability to ramp through the back-end of the quarter? Just trying to better understand sort of how we got from where we were perhaps when you reported Q2 to where things sort of settled out in terms of margin compression, but also sort of the revenue headwind. I think the better we can try and get out that the more constructively we can try and look to the fourth quarter.

Jason Wild: Sure. We have Ryan McWilliams, who is our EVP of the Northeast. Maybe Ryan, would you like to answer that?

Ryan McWilliams: Yeah, sure. Hey, Kenric. I think we touched on this during last quarters call. But I think the most important thing for us to keep in mind is that it requires anybody, not just TerrAscend, but any of these cannabis operators about three or four months to truly recognize the benefits of any work or change that's been effectuated downstream or upstream in the production cycle, right. So this includes the lifecycle of the plant from clone to harvest all of the post-harvest processes, such as drying and curing, then distribution, or selling to our wholesale partners, and then how that product sells through to the patients, right. So you're talking about four months minimum, to really see that type of progress show up on the P&L or in some of this external headset data, for example. What I can tell you anecdotally, because I'm looking at it hour by hour, minute by minute, is we're starting to see -- we've seen a couple of those what we believe that truly changed or greatly improved harvest come down over the past few weeks, and at least the visibility that we have in our own stores. And keep in mind, there's also a ton of optionality on everybody's menu in terms of flower options. We've seen some of this more recently harvested flower testing at THC potency is in the low to mid-30s and being our best sellers in our stores by longshot. So I think that will definitely begin showing up in the Q4 results and then even more so as we get into 2022.

Kenric Tyghe: That's great color, and sort of almost answers. But I'll push it anyway the discussion around brand and any potential sort of read through or contagion there with respect to Ilera and Ilera’s positioning. Do you think that what you've done here and on this reset that not only you'll be able to mitigate some of the sentiment perhaps or some of the challenges around the name in the last quarter or two, and have some good momentum not just through fourth quarter, but as you said, building into 2022. This will be more hiccups and pause in terms of brand, brand positioning and the cachet around Ilera.

Ryan McWilliams: Yeah, absolutely. And I think part of our overall strategy as we kind of go back to the integration subject is really, having the entire market not just Pennsylvania understand that this is no longer Ilera that this is a TerrAscend operation, and we're looking at things through a completely different lens. And I think that based on the strategy that we have to go and redefine ourselves in the Pennsylvania market, starting with our relationship with all of our third-party distribution partners, and the bud tenders at each of those locations, right, I think that we will absolutely be able to win that back. And then, in addition to that, I think that we're going to have all this new opportunity with some of the brand equity from M&A, like Gage. That's going to be also in our product roadmap as we look further down the field.

Kenric Tyghe: Great. Thanks for color, gents. I'll get back in queue.

Jason Wild: Thank you.

Operator: Your next question comes from Noel Atkinson, Cloris. Please go ahead.

Noel Atkinson: Good morning, Jason and Keith, thanks for taking our call this morning. First on Pennsylvania on the expansion, are you still planning for a 60% capacity increase with your ongoing expansion there? And is it still expected to kind of be done late Q4?

Jason Wild: Keith, do you want to take that?

Keith Stauffer: Hey, Noel, good morning. We are still planning an expansion of that size. And the expansion is completed in terms of -- or will be completed on the timing that we talked about. And then it's really just a matter of kind of dialing up the volume as necessary and as we see following along with the market. So yeah, I think Ryan outlined some of the dynamics there, and everything's on track in terms of the new rooms to be completed on the time we talked about before.

Noel Atkinson: Great. And then secondly now, in New Jersey, so you're talking about having supply to be able to ensure $40 million a year of potential sales per store, which sounds amazing. Does that provide supply for wholesale as well in 2022? Or do you need to do the expansion that you folks have been talking about in order to start doing some meaningful wholesale?

Jason Wild: Yeah, I'll take that. We think we could fully supply those stores at that $40 million or so run rate with our own wholesale. But in reality, we are going to buy other wholesale brands and stock them on our shelves as well. We are believers that people that come into our store should be able to choose the products that they want to buy, not just the products that we want to sell them. With this we can make the most profit on them. So if you assume that there will be a decent percentage of other products on our shelves, then that will free us up to sell products wholesale to other dispensaries in the state. But the point we were making is we could fully supply our own stores if we needed to.

Noel Atkinson: Okay, great. All right. Thanks very much.

Operator: Thank you. Your next question comes from Matt McGinley, Needham. Please go ahead.

Matt McGinley: Thank you. So in Pennsylvania, appreciate the commentary on how long it takes to effect change in cultivation, but the state is better supplied and prices come down there. Are you actually seeing product from that capacity expansion currently being sold in the market at present? Are you banking on that recovery? I guess, more critically, are you seeing recovery in the trends that you saw from a few weeks ago? Are you just waiting for that in the back-half? And I guess more back-half of the quarter, I should say. More specifically in the third quarter how much of the sales decline in Pennsylvania was volume versus price?

Jason Wild: Sure. Thanks, Matt. I think Ryan would be the best person to answer that question.

Ryan McWilliams: Yeah, let me try to break that down a little bit, Matt, and happy to talk to you this morning. So, I think as it relates to the capacity side of that question, the most important thing to keep in mind is that just because that capacity expansion is completing on track, we're not going to bring every square foot of that capacity online they want, right. We're going to do it in a very sort of intentional and thoughtful manner. And we're very much focused on the improvement of that quality and the improvement of our brand recognition and capturing more share in the Pennsylvania market. And then we can more deliberately bring that additional capacity on as the trends allow for it, right. One thing that -- and obviously longer-term when adult use kicks in, it's going to be a very nice to have to take advantage of that full capacity. But regardless of what the current supply demand dynamic is, in Pennsylvania, I think one thing is true in PA just like every other state and cannabis market is that high-quality, high-potency product is always going to sell regardless of the of the amount of flower, the volume of flower that's on the market. So we believe if we can be the best in that area, so that we can use all the capacity that we have, and then some hopefully.

Jason Wild: And Ryan on pricing?

Ryan McWilliams: Yeah. And on pricing, I know we talked about this one last week or last quarter as well. From where I sit, it's still very much the same where there's been little change on the wholesale pricing side and much more of what you see in terms of pricing dynamic or changing pricing dynamic is happening on the retail side through discounts, promotions, et cetera. And one way that we think we can combat any future wholesale pricing pressure is by improving the quality, right. So if everybody else is continuing to sell the same quality at a, let's say, 10% discount, if we're instead going the opposite direction improving quality, then we should be able to protect that price on the wholesale side quite a bit more.

Matt McGinley: And sales trends in the first-half of this quarter are better than what you saw in the third quarter? Or they're kind of steady state, and then you expect that in the next six weeks or so before year-end to begin to pick up?

Ryan McWilliams: Yeah, it's definitely been -- just we've been looking at the October headset data and it's been pretty steady state. And I think that in our retail locations that it's marginally better than what the overall market is looking like, which I think speaks a lot to our retail team and some of the efforts that we're making to promote more customer loyalty and retention. But, in the last month or two, it's been steady state. And then I think just based on pure seasonality we see a smaller spike not like we were seeing in around this time last year, but a spike in overall demand in the PA market as we get into the holiday season.

Matt McGinley: Great. And then, my second question is on the cash flow. I guess, the other broader concern of weakness in Pennsylvania is that that state is the primary source of cash flow generation for the company. So weakness here makes TerrAscend more reliant upon external cash generation of fund, CapEx and M&A and all those things. Can you provide some color on the big projects you have through ’22, I guess, in terms of CapEx? And then what other cash outflows can we expect like that $25 million payment you mentioned in New Jersey that would occur in the fourth quarter?

Keith Stauffer: Yeah. Hey, Matt, Sure. So yeah, that's the one big payment and we've also noted now several times the warrants so the proceeds from the warrants coming both early and mid-next year, and then the cash on our balance sheet. So we feel pretty good about our cash position, in terms of the internal projects we have finishing up the project in Pennsylvania. And then we have the Maryland, the Hagerstown project that will start to kick in. And those will be the two key focal points. And then as we roll into the next year, we'll also finalize our plans on how we move forward with additional expansion in New Jersey. So, those continue to be the three focus areas. We don't have specific numbers for you by project but kind of ballpark I think you can kind of depending on the scope and scale anywhere from $15 million to $20 or so million per project. But again, the PA once finishing up, so it's really the focus going forward is Maryland and then New Jersey.

Jason Wild: Yep. And then the other thing I would add there is in terms of cash flow, obviously New Jersey, we think is going to have a huge positive impact on cash flow starting in the first quarter. So, that would help from that perspective. Also, Pennsylvania, we see Q3 as the low point. So Pennsylvania should start generating significant cash. And even as you look at last quarter, if you adjust for taxes, or you take out the $21 million tax payment that we made in the quarter, we were actually cash flow positive from operations. Obviously, we can't just disregard the taxes. But at least it shows from an operating perspective that the business is in pretty good shape, and would have generated I think about $4 million in cash if it wasn't for those tax payments. The other thing to point out is that, we do have between the warrants that need to be exercised by January of ’22, and then the $50 million or so of warrants, that need to be exercised by the middle of next year, that will do a good job in terms of helping to replenish our balance sheet. The second amount the $50 million in the middle of the year, those are warrants that my firm owns, and we will not be out there selling the stock on the market. We also have in addition to all of those, in addition to those warrants, there are over another $200 million worth of warrants that are in the money that will be exercised probably in the next couple of years. So we don't see any need for any capital raises or anything like that, unless we found a very large acquisition that required a big cash payment.

Matt McGinley: Okay. Thank you very much.

Operator: Your next question comes from Eric Des Lauriers, Craig-Hallum Group. Please go ahead.

Eric Des Lauriers: Great. Thanks for taking my questions. Can you remind us where you are in New Jersey right now from a production capacity standpoint? And then, kind of walk us through the various expansion phases that you guys are contemplating at this point? Thanks.

Jason Wild: Sure. Keith, do you want to take that?

Keith Stauffer: Yeah, just as maybe to level set on our current footprint, we have 140,000 square foot facility, 80,000 square foot indoor cultivation and processing, and then 40,000 square foot greenhouse. And so that's our current footprint. And we're still in the process of evaluating exactly how we expand from there in New Jersey, and the timing. But we're progressing along. And as we start to see more clarity around adult use and how that's all kicking in, we're going to start to refine and finalize those expansion plans, and pull the trigger here in the coming months to get that project started.

Eric Des Lauriers: Okay. And should we think of that 80,000 indoor and 40,000 square foot greenhouse as basically being fully up and running for this potential Q1 start? Or would there be sort of a phased ramp up into kind of full production with that footprint?

Keith Stauffer: No, that's our current operational footprint. So that's all fully up and running already.

Eric Des Lauriers: Okay, great. That's helpful. And then, I guess, similar question. As you look towards Maryland with this new facility you guys are getting into, any kind of commentary there on expected pace of expansion or pace of that coming online.

Jason Wild: Keith, do you want to take that? I can take that. We're going to be bringing that on live in the first-half of next year. The demo and construction is already well underway. And we believe that we will have -- the facility will be operational in the first quarter of the year. The lab will open first to make manufacture products. And then cultivation will come on, most likely in the second quarter of next year.

Eric Des Lauriers: All right, thanks. Appreciate the color.

Jason Wild: Sure.

Operator: Your next question comes from Glenn Mattson, Ladenburg Thalmann. Please go ahead.

Glenn Mattson: Hi, yeah, thanks for taking the question. So, I think the Gage announcement was made after the last earnings call. So perhaps is the first time you can broadly kind of speak to it. I realized the acquisition hasn't closed yet. But you mentioned that integration work is underway. So, clearly you have a more in-depth knowledge of the company now than you did a few months ago. And just so curious about your early take on the new acquisition, and just the market in general, and the idea of competing in a limited license market. I realize it's an extremely attractive market, but it's been a tough spot for a lot of people to really succeed there. So just your general thoughts on the acquisition and the market in general will be great?

Jason Wild: Sure. Thanks, Glenn. I'm more excited than ever about the Gage acquisition. We've been interacting a lot more closely, obviously, since we signed that deal several months ago. Many of the senior members of the team have gotten to know the many of the senior members at TerrAscend in the last few months. And everybody is getting along really well and is really, really excited. The Michigan market, it's obviously a large market. And if you can compete and do well there, which I think Gage amongst the best operators in Michigan with one of the best brands, if you can do really well in Michigan, then our view is that you should be -- it should be not very difficult to compete in these limited license states, where the larger operators are in that position, not necessarily because they're the best competitors, but because they were the best at either winning licenses, or they built the largest capacity the quickest. So our view is we take some of the brands and the genetics and the knowhow. And we combine that with what we already have in our strong operations in New Jersey and Pennsylvania and Maryland. We take in, we combine sort of the best of the best, and we think we are going to be really, really strong competitors in all of the states where we operate. We will also be, as Ryan mentioned earlier, the Gage brand is on the roadmap for us, in practically every market, which we operate in, that will happen mostly in the first-half of next year. But not only that, it's their exclusive genetics that we'll also be launching into all of these additional states. It's probably worth noting in Pennsylvania, Pennsylvania, is very strict about genetics. And you can only use the genetics that you brought into the state when you won your license. So our genetics in Pennsylvania are over three years old. And the state a few months ago announced that they were going to be opening up a 30 day window, we think it's imminent, that the 30 day window will be open. And we will go from having some of the older genetics in the state to having the newest and in our view the best proprietary genetics in Pennsylvania. So we are really excited, we've got we got the facility has been really straightened out. And we mentioned, we're growing the best product in Pennsylvania that we've ever grown, not the best since we had our issues, our yield issue starting towards the end of the first-half, but we are growing the best flower that we have ever grown in the state of Pennsylvania. When you combine that with the new genetics that we will be launching next year, we think it's going to be -- there's no reason that we shouldn't be able to go back and gain a significant amount of the market share that we had earlier this year.

Glenn Mattson: Thanks for that color, Jason. Keith, one more for you if I could, just a lot of moving parts with Pennsylvania coming back online, but the market being a little bit different by the time it does but then New Jersey kicking in next year. Just like, I guess broad based, is your expectation leaving Gage aside for a minute because it hasn't closed yet. And there's always some risk perhaps that like, it doesn't happen or whatever. But so leaving that out for a minute, just in terms of margins like when New Jersey is fully ramped, do you expect to be kind of back to the old highs in terms of adjusted EBITDA margins or better or just slightly below? Just directionally, your sense of where you can get to with the assets you have right now? Thanks.

Keith Stauffer: Yeah, Glenn. Obviously, without getting specific, but I think you have the moving parts directionally. So as New Jersey kicks in a huge way for us in 2022, as we've talked here, and we've said before how our margin structure and business in New Jersey and the pricing environment and our cost structure of our scale facility and everything that's very favorable. So, we'll kind of have like a PA like margin profile in New Jersey that starts kicking in and really contributing to the mix and the overall EBITDA or gross margin and EBITDA structure. And so that'll flow through into 2022. And as that ramps up, then we'll see margins. I can't say right now, exactly back to where they were before. But I can say that we'll be heading back towards those levels fueled by New Jersey and also fueled by the recovery in Pennsylvania.

Jason Wild: Yeah. And the only thing I would add to that is, in terms of our internal budgets, we're using similar pricing per pound in New Jersey to the Pennsylvania pricing. And, in actuality, we think that New Jersey pricing has the opportunity to be significantly above that if you look at where pricing has been in Massachusetts for a good period of time now ever since rec legalization. If you apply that price and Massachusetts pricing for New Jersey, it would be a lot of upside versus what we're currently assuming. We don't need that if we assume Pennsylvania pricing, we're looking at in New Jersey next year, we're looking at just a massive 2022 from a financial perspective.

Glenn Mattson: Great. Thanks for the color, guys.

Jason Wild: Thank you.

Keith Stauffer: Thank you.

Operator: There are no further questions at this time, I will turn it back to Mr. Wild.

Jason Wild: Thank you. So, thank you everybody for joining the call today. As you can see, we're very, very excited about the accomplishments that we made this quarter in terms of rectifying our issues in Pennsylvania and getting ready for to really fully launch into adult use in New Jersey in the coming months. We will see you all on the next quarterly call.

Operator: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.