Cresco Labs Inc.

Good afternoon, and welcome to Cresco Labs' second quarter 2020 earnings conference call. We look forward to speaking with you today and discussing the great progress we have made as a company.

I am joined on the call today by our Chief Executive Officer and Co-Founder, Charlie Bachtell; our Chief Financial Officer, Dennis Olis; and our Chief Commercial Officer, Greg Butler, who will available for Q&A. Prior to this call, we issued our second quarter 2020 earnings press release.

This document has been filed with SEDAR and is available on our Investor Relations website at investors.crescolabs.com. We plan to file our financial statements and MD&A for the 3 and 6 months ended June 30, 2020 on SEDAR subsequent to this call.

Before we begin our remarks, I'd like to remind everyone that certain statements made on today's call may contain forward-looking information within the meaning of applicable Canadian securities legislation, as well as within the meaning of the Safe Harbor provision of the United States Private Securities Litigation Reform Act of 1995. Such forward-looking statements may include estimates, projections, goals, forecasts or assumptions, which are based on current expectations and are not representative of historical facts or information.

Such forward-looking statements represent the Company's beliefs regarding future events, plans or objectives, which are inherently uncertain and are subject to a number of risks and uncertainties that may cause our actual results or performance to differ materially from such forward-looking statements, including economic conditions and changes in applicable regulations. Additional information about the material factors and assumptions forming the basis of our forward-looking statements and risk factors can be found under Risk Factors in Cresco Labs’ public filings available at www.sedar.com.

Cresco Labs’ does not undertake any duty to publicly announce the result of any revisions to any of its forward-looking statements or to update or supplement any information provided on today's call. In addition, during today's conference call, Cresco Labs’ will refer to some non-IFRS financial measures such as adjusted EBITDA and operational gross profit, which do not have any standardized meaning prescribed by IFRS.

We believe these non-IFRS financial measures assist management and investors in understanding and analyzing our business trends and performance. Please refer to our earnings release for the calculation of these measures and a reconciliation to the most directly comparable measures calculated and presented in accordance with IFRS.

These non-IFRS financial measures should not be considered superior to, as a substitute for or as an alternative to, and should only be considered in conjunction with the IFRS financial measures presented in our financial statements. Please also note that all financial information on today's call is presented in U.S.

dollars, unless otherwise noted; and all interim financial information is unaudited. And with that, I will now turn the call over to our CEO, Charlie Bachtell.

Charlie, please go ahead.

Good afternoon, everybody. And thank you for joining us today.

We hope you and your families remain healthy, safe, and well. I'm going to start off with some of the highlights from the second quarter.

Then, I'll review the five ways that Cresco Labs is generating shareholder value in 2020. After that, I'll introduce our recently appointed CFO, Dennis Olis, to discuss our financial results and capital position in more detail.

Our thesis remains that you win this industry by building the most strategic geographic footprint and by establishing meaningful material positions in each of those markets. And while vertical integration is key in the near-term, the greatest opportunity for creating long-term shareholder value is achieved by prioritizing the middle two verticals of the value chain, branded products and the wholesale distribution of those branded products.

After a period of investing in infrastructure, deliberately executing our strategy, and committing ourselves to our mission, we're finally beginning to stretch our legs and realize the full potential of this organization. While Q2 for Cresco Labs continued to be about building, scaling and refining our operations, we also started to see some of the fruits of our labor, as we closed the first half of the year and accelerate into the second half.

Revenue in Q2 was $94.3 million, an absolute increase of nearly $28 million, or 42% over Q1, and an acceleration of growth by 16 points sequentially. In Q2, we grew revenue by more than 30% in every single one of our U.S.

markets, with the exception of Massachusetts, where adult-use was halted for part of the quarter. We're now the largest wholesaler of branded cannabis products in the industry with nearly $55 million in quarterly wholesale revenue.

Our retail platform is outperforming with $39 million generated from our 17 locations opened during the quarter. On top of that, we substantially increased operating leverage and profitability, reducing SG&A on an absolute basis by $1.5 million from Q1 and generating $16.5 million of adjusted EBITDA.

We're also proud to announce that in the month of June, we achieved that next major milestone of generating positive free cash flow. Our Q2 performance is a testament to the value of our strategy and our ability to execute it.

And the results are showing in all of the areas that matter most, including in the numbers. We said on our last call that the true test of the Company's operational execution and their ability to manage through COVID would be seen in Q2 results, and our results speak for themselves.

I could not be more proud of our performance and of every single member of the Cresco Labs team for how they responded to the challenges this year. By being prepared, reacting quickly and effectively managing change, we are continuing to drive top-line growth and increase profitability during a very challenging time.

Consistent with our stated strategy, here are the five ways Cresco Labs is delivering shareholder value in 2020. Number one, we're investing our resources in the most strategic markets.

In the two states where we have the leading market share, Illinois and Pennsylvania, both have reached a $1 billion in run rate sales. Illinois is set to issue its next 75 retail licenses, a catalyst to more consumer demand and increase opportunities for our wholesale business.

Pennsylvania now has nearly 390,000 people registered in the medical program, roughly the same number as Florida, making it one of the most important medical markets in the country. California, which remains the largest cannabis market in the world, grew 13% year-over-year and 10% sequentially in Q2 per BDS data.

Beyond the massive growth offered from these three states, we're focused on going deeper in our other markets to further accelerate and diversify our growth in 2021. We see significant upside in Ohio and Maryland where the rapidly growing medical markets, both posted greater than 20% sequential growth in Q2.

Arizona and New York are working towards adult-use legislation and pose significant opportunities to drive brands to large consumer basis. Improving regulations in Michigan and Massachusetts are driving growth and creating increased wholesale opportunities for us as well.

7 of our 9 markets are either states or cities with populations ranked in the top-10 nationally. And the growth in these markets validates our thesis of focusing on a strategic footprint.

Second, we are now the largest wholesaler of branded cannabis products in the industry. Wholesale revenue in Q2 was $55 million after intercompany eliminations, an increase of 44% from Q1.

While maintaining the number of doors sold into during the quarter, average revenue per wholesale account increased 44% sequentially. We expanded the reach of our house of brands with the launch of good news in Illinois and California, the introduction of high supply to California and Arizona and the extension of Mindy's edibles in the Michigan.

In Q2, we completed the expansions of our facilities in Illinois and Pennsylvania, increasing our supply capacity in each state by 6x and 4x respectively. As we benefitted from our enhanced cultivation methodology faster than expected, we were able to bring incremental supply to market in Q2, providing a dramatic increase to revenue and market share in both states.

As we bring additional supply to market in Q3 and Q4, we expect our revenue and market share will accelerate. As an organization, we've repeatedly proven our ability to gain leading market positions by expanding wholesale capacity and driving our house of brands on the every retail shelf.

In the first half of the year, we secured the funding to propel our next leg of growth with $50 million in tenant improvement allowances to increase our wholesale capacity in Ohio, Massachusetts and Michigan. As we grow our operations in these states in 2021, we're taking the same approach, and again, expect to gain meaningful material market shares.

Third, our retail strategy is outperforming. Our Q2 retail revenue grew 39% quarter-over-quarter.

In our stores opened for the entirety of Q1 and Q2, number of tickets increased 12% sequentially and average basket size grew 18%. Same-store sales increased 31% sequentially.

In Illinois, while state retail grew by 18% from Q1 to Q2, our existing Illinois stores grew sales by 37%. A testament to the effectiveness of our retail leaders and teams, nearly 75% of our retail revenue growth was driven by existing stores with the impact of recently announced store openings still to be seen in Q3 and Q4.

Our Sunnyside model is producing stronger same-store sales, attracting more customers and achieving a disproportionate share of the market. As we recently announced, we just opened our ninth retail location in Illinois, the most stores of any operator in the state.

Sunnyside Schaumburg is located adjacent to the largest shopping mall in Illinois and at the heart of one of the densest areas of stores, hotels, and restaurants in the state. This is another example of how our retail locations are strategically carrying outsized cultural and brand building potential.

With more store openings planned in Illinois, Pennsylvania, Ohio, and Massachusetts, we look forward to further accelerating retail, revenue and market share across our footprint. Fourth, we are taking share in California, the largest, most competitive cannabis market in the world.

Our team has been hard at work rightsizing the brand portfolio on the Continuum platform, lowering costs and optimizing our supply chain in the state. As a result of their efforts, revenue is growing gross margin is expanding, and we're increasing operating leverage.

Starting with top-line, California retail sales grew 10% quarter-over-quarter while Cresco Labs total California revenue increased by 41%. We are taking share.

Revenue from Continuum distribution was up 35% sequentially, driven by owned brands like Cresco, Mindy's, Floracal, and High Supply, as well as continued strength from core partner brands. Wholesale penetration continued to grow in Q2 and we're now distributing to nearly all of the states tier 1 dispensary's.

While we're encouraged by the substantial increase in gross margin during the quarter, we're even more excited about the immense gross profit opportunity offered by the state in 2020 and beyond. With a continued focus on increasing operating leverage, we've optimized the portfolio of brands in our platform, appointed new leadership in the state with extensive CPG and distribution experience, and completed a thorough value chain analysis to further improve the efficiency of our distribution business.

California remains one of the most important cannabis markets in the world. And with improving regulations and state retail sales projected to reach $7 billion by 2025, California will continue to be a key driver of growth for Cresco Labs.

Fifth, we’re generating substantial operating leverage as we scale. While revenue increased almost $28 million from Q1 to Q2, SG&A on an absolute basis decreased $1.5 million.

On past calls, we've discussed the necessary investments we've made within our operating platform to ensure our organization can scale exponentially. These infrastructure investments over the last 12 months are beginning to pay off.

With $28 million of incremental sequential revenue, we were able to drive a $13 million increase to adjusted EBITDA. This emphasis on increasing efficiency and operating leverage has also allowed us to successfully manage through the pandemic.

We’ve viewed the challenge of an opportunity focused on continuous improvement and executed operationally. That is how you deliver shareholder value.

We're investing our resources in the most strategic markets. We're now the largest wholesaler of branded cannabis products.

Our retail strategy is outperforming. We're taking share in California, the largest most competitive cannabis market in the world.

And we're generating substantial operating leverage as we scale. In June, we hit our next major milestone, generating positive free cash flow for the month.

We're executing on all levels and accelerating into the second half of 2020. These results could not have been achieved without the outsized contributions from every member of the team.

Over the last 12 months, we've made strategic appointments to fortify our organization with professionals that have proven track records of rolling up the sleeves and driving meaningful impact in high-growth industries. The team of leaders we've assembled are elevating Cresco Labs to the next level, promoting diversity of thought and creating step change increases in our performance.

Again, I could not be more proud of our Cresco Labs family for how we've taken care of each other and for what we've accomplished in the first half of the year. With that said, I'm thrilled to introduce our new CFO, Dennis Olis, to discuss our financial results in more detail.

Dennis joined us in July and brings with him an extensive background of management experience at large publicly traded companies including Motorola and Allscripts where he was a CFO and held other leadership positions, overseeing operations, M&A, financial reporting, corporate development, internal audit, and the list goes on. I thoroughly enjoyed working with him over the past couple of months.

And he's an exemplary addition to our best-in-class leadership team at Cresco Labs. With that, I'll pass it over to Dennis.

Thank you, Charlie. It is a pleasure to speak with you all today.

Before I jump into the second quarter financial results, let me first begin by saying that I am so excited to be a part of this industry and even more excited to be the new Chief Financial Officer at Cresco Labs. I firmly believe in the strategy of this Company and believe that our best days lie ahead.

My current attention is primarily focused on five initiatives: One, preparing for access to the U.S. capital markets and the move to U.S.

GAAP reporting; two, automation in everything we do; three, improved integration of the finance organization with operations; four, improved cash performance; and five, continued focus on cost management. Excelling in each of these areas will position Cresco Labs as a leader in the cannabis industry and maximize shareholder value.

Moving to the second quarter results. As Charlie discussed, the Company had solidified itself as the foremost operator in the industry when it comes to branded products and wholesale distribution.

I'll begin my remarks by reviewing the financial highlights from the second quarter, then discuss our balance sheet and capital agenda. Please note that all numbers are stated in U.S.

dollars. Despite Q2 being the first full quarter impacted by the COVID-19 pandemic, Cresco Labs achieved the largest top-line growth in our history and recorded adjusted EBITDA.

Most importantly, we did so while improving operating leverage. Revenue in the second quarter was $94.3 million, up almost $28 million sequentially on an absolute basis and 42% quarter-over-quarter.

We increased revenue by at least 30% in every single one of our U.S. markets with the exception of Massachusetts where adult-use was halted for part of the quarter.

We are excited about our strategic footprint and the meaningful impact Ohio, Massachusetts, Maryland, New York, Arizona and Michigan will have on our growth heading into 2021. Revenue mix in the second quarter was comprised of 58% wholesale and 42% retail.

Even with the four recently opened Sunnyside locations and additional store openings planned for later this year, we still expect to derive the majority of our revenue from wholesale, as more supply is harvested from new rooms at the recently completed facility expansion in Illinois and Pennsylvania. Second quarter operational gross profit was approximately $44 million, or 47% of revenue, compared to $32 million, or 48% of revenue in Q1.

It's important to note that operating costs associated with the expansion of our cultivation facilities in Pennsylvania and Illinois in Q4 of 2019 and Q1 of 2020 were attached to Q2 sales, which impacted overall gross profit in the quarter. Now that the expansion costs are behind us, the revenue we will generate in Q3 and Q4 will carry a materially lower cost per gram produced.

As a result, cost of goods sold will normalize. And we expect to return to a 50% plus operational gross profit margin in the second half of the year.

SG&A expense in Q2 was $45.2 million, a $1.5 million decrease in absolute dollars from Q1 and an improvement of 48% of revenue from 70% of revenue in Q1. SG&A, excluding share-based compensation and onetime costs was 35% of revenue in Q2 compared to 50% in Q1.

This reduction to expenses during a quarter where revenue increased by 42% is a true testament to our team and their ability to create efficiencies and streamline the business during an extremely challenging operating environment. As we continue to focus on efficiencies and execute on our growth opportunities, we expect SG&A as a percentage of revenue to continue to trend downwards throughout the remainder of the year.

When it comes to managing through economic downturns and industry threats, we know that actively controlling costs is the most critical component to not only mitigate the current risk, but to put Cresco Labs in the best position to address the threats head on and grab market share on the back end. We've taken the opportunity to rationalize costs and create efficiencies, and as a result have become a stronger, leaner company.

Second quarter adjusted EBITDA was approximately $16.5, a 419% increase from Q1. In the reconciliation provided in our press release, you will see we have excluded the impact of non-cash and onetime items from adjusted EBITDA to offer a better view of how profitability is trending quarter-over-quarter.

In Q2, we increased pay for essential workers during state mandated shelter-in-place orders and incurred other expenses to keep employees and customers safe. We have adjusted for these COVID-19-related expenses as well as onetime costs associated with the integration opportunities related to Origin House and the termination of the Tryke transaction.

The positive performance of adjusted EBITDA during the quarter gives us tremendous confidence in our overall strategy heading into the back half of the year. While revenue increased $28 million, adjusted EBITDA increased by $13 million, meaning approximately 15% of each marginal dollar of revenue dropped to the bottom line.

Net loss also improved sequentially, but we continue to believe adjusted EBITDA is the best measure of our performance, as it does not include the impact of biological assets and other mark-to-market items. Turning to the balance sheet.

We ended the quarter with $71 million in cash and cash equivalents, an increase of $2.4 million from Q1. As expected, inventory and biological assets were elevated this quarter as a result of our two major facility expansions being completed.

Second quarter CapEx was $12 million, most of which was funded by tenant improvement allowances. Again, we have about $50 million in tenant improvement allowances owed that we will use to expand our cultivation and production operations in Michigan, Massachusetts, and Ohio.

We therefore expect out-of-pocket CapEx to remain low for the remainder of the year. Operating cash flow improved significantly to negative $9.9 million in Q2.

And in June, we achieved the next major milestone by delivering positive operating and free cash flow for the month. We, as a leadership team, are very pleased with the results this quarter.

Our performance in Q2 was driven by 30% growth in eight of the nine states and increased operating leverage across our footprint. We are investing our resources in the most strategic markets.

We are now the largest wholesaler of branded cannabis products in the industry. Our retail strategy is outperforming.

We are taking share in California. And we are generating substantial operating leverage as we scale.

Cresco Labs is well-positioned to go deeper and gain material share across all of our markets this year and beyond. We are exiting Q2 with a month of positive cash flow from operations and look forward to accelerated growth and profitability in the second half.

Thank you for your time today. I'll now pass the call back to Charlie for final remarks.

Thanks, Dennis. In the first half of 2020, we were required to operate differently in nearly every aspect of our business.

And in Q2, every aspect of our business became stronger. In today's macro environment, it is unceasingly important for an organization to have strong fundamentals, a true focus on culture, a proven business model and a responsible capital agenda.

At this stage in the industry's development, it's critical that we continue to provide the thought leadership needed to develop the responsible, respected and robust cannabis industry that we all want. We've managed this by maturing our organizational structure, enhancing and diversifying our leadership team and Board, emphasizing social equity and inclusion through our SEED programs, community business incubator and restorative justice initiatives, and proactively engaging with regulators and legislators at the state and national levels.

We've taken these critical steps to pursue our vision of being the most important company in this industry to fulfill the responsibilities of being a stakeholder-focused organization and to achieve the incredible potential that lies within Cresco Labs. Thank you for your time today.

I'll now ask the operator to open the line for questions.

Hi. Good evening.

So, my question is on…

Good evening, Vivien.

Good evening. My question is on your market share gains in California, please.

Given how many of your competitors have indicated this is a challenging market, I was wondering if you could dig into it a little bit. Whether you're finding particular success around certain form factors, certain price points, or is it just a function of the fact that you over index to the key retailers?

Thanks.

Thanks, Vivien. This is Charlie.

Thanks for the question. I think, we're finding success in California because we are really kind of getting our legs underneath this.

Right? Q1 was a lot of integration of the Origin House assets to really complete the Cresco Labs, California assets, and we're bringing products to market.

We've got the supply. We've got distribution optimized.

So, we've become a better operator out there as well. For specifics on market dynamics, I'm going to have Greg add some additional color.

Hi, Vivien. Thanks for the questions.

I think, this is a very similar to our question in our last earnings call on -- our answer for you is we look at that market where do we want to drive better growth. Other than that, I think if you look at what's driving our volume growth relative to the market growth of doors, we opened more doors.

So, I think part of your question was, are you getting the right doors? The answer is, we are and we're expanding our doors, the growth of our owned brands, so rolling Cresco Labs brands in the market.

We're successfully getting those brands in, they’re being reordered while we're also growing our partner brands, like Kings Garden is also showing growth to market. So, I think it's a combination of both, increasing in points of distribution with our doors and then also, improving brand velocities as we continue to scale the market.

Terrific. Thank you for that color.

It seems like you guys have a better view of the marketplace. My quick follow-up is also on California, and perhaps Greg you've already answered it, but it's for Dennis.

You have had reorders, but as we kind of think about the sequential growth in the quarter, is there anything that we should take into account just in terms of selling, giving how many brands you launched in that market? Thanks.

Let me start and Dennis can obviously give you some commentary. I think, you're going to see -- as Charlie mentioned in his opening remarks, we've just started launching those brands.

And so, you are getting both, those first orders with dispensaries and then repeat orders with those dispensaries. I will tell you looking at the numbers though, it's not that it's just coming from the onetime orders.

This is both, new accounts plus existing accounts. We're doing more, which I look at as a healthy metric to down not only just paying to get distribution, but also getting distribution and being able to continue to sell.

And so, that's where the volume comp is coming from.

Yes. Just to add on what Greg said, we did see a pretty substantial growth in that market quarter-over-quarter, due to the fact -- of the branding and adding new products to that market.

We would expect to see that growth continue into Q3 and beyond.

Thank you. Can you give us any color on in terms of what you saw in terms of the revenues slowing through from the second quarter and into the beginning of the third?

As you've noted in the past that wholesale revenues tend to have a step function increase when they occur, but I'm not sure how much of that step function happened in the second quarter versus will occur in the third quarter.

Sure. Thanks Matt.

This is Charlie. I'll take this one.

I think what we saw in Q2 was a bit of an expedited timeframe to get to increase yields from our methodology. We changed cultivation methodology early in the year.

We had, as we've noted, the significant expansion of our facilities in Illinois and Pennsylvania. And as I noted on the last call, usually your first harvest is never as good as your second harvest is never as good as your third harvest out of a new room and a new facility.

And really what we experienced was a bit of an expedited ramp-up in the quality of the yields that we were getting out of our new square footage. So, it was nice to see a bit more of that in Q2.

As I mentioned on the last call too, new supply really started coming into the market in the mid to late-May period, so still a portion of Q2, about half of it. But we do -- we expect it to continue to increase as we go into Q3 and Q4, as we said on our last call.

Okay. And for Dennis, on the cash flow from investing activity, the number was -- I think, it was positive $15 million in the second quarter.

And you said the CapEx was 12. So, there was some benefit.

I think part of it was sale leaseback sort of helped you around $27 million in the quarter. So, I guess, the question is, what was that benefit in the quarter?

And if it was sale leaseback, I think you mentioned that you have roughly $50 million in tenant reimbursements that will accrue over the course of 2020. How much of that is left over the course of this year?

Thank you. So, we did have some sale leaseback for three sites in the quarter, were Marshall, Fall River and Barley Corn, [ph] which did represent a pretty significant increase of funds into Cresco in second quarter.

As we look at the tenant improvements that we've got remaining, the credits -- like is in excess of $50 million right now. We will use that to continue to expand into other states, now that our expansion and cultivation centers in Pennsylvania and Illinois are complete.

Okay. Thank you very much.

Thank you, Matt.

Yes. Hi, guys.

Congrats on a really strong quarter here. Just curious to know the impact on gross margin that you guys had during the quarter roughly from the expansion that you guys are undertaking in Pennsylvania and Illinois, as well as the integration of Origin House.

I know you mentioned you expect to see 50% operational gross margin over the back half of the year, but can you quantify what that impact was during the quarter?

Yes. Thanks, Derek.

This is Charlie. I will let Dennis handle that.

Thanks. So, the expense -- what happened in the second quarter is again the cost of cultivation that we incurred as we expanded our sites, both from a headcount standpoint and adding headcount and starting to build out the cultivation rooms in advance of shipping -- the development of products, that cost was attached to products that shipped in the second quarter of the year.

So, just to kind of illustrate that point, the cultivation cost per gram in the second quarter was 40% higher than the cost to cultivate the same product in Q1. So, now that we have incurred that cost in second quarter and that's behind us, we will start to see a material improvement in the cost per gram in those cultivation centers actually improve even after the Q1 baseline as we enter into the second half of the year.

So, in total, it was a couple of hundred basis points that it cost us for the quarter. And that's why I feel confident with making the statement that we will have gross profit -- operating gross profit in excess of 50% in the second half of the year.

Okay. That's helpful.

And you mentioned same-store sales were up really strong 31%. I guess, my question here is, in terms of the capacity that came on line, I think, Charlie, you mentioned you kind of only had like half of the capacity on line in Q2.

So, when I think about same-store sales, I mean, were you -- was there still more demand than that potentially could have been met or likely will be met in Q3? Just, you didn't have the supply available.

And with that same-store sales, I mean, roughly do you have a split between dry flower and concentrate?

Yes. So, I'll take the first half of it.

Yes. I think we're seeing both, in particular in Illinois and Pennsylvania, two just very strong -- two very strong markets that still are what I would classify as significantly supply constrained.

That incremental supply we were able to bring on in the second half of Q2, it was helpful. But, we still have a lot of -- and when I say we here, I mean, the markets themselves and Illinois in particular, still has a lot of new stores and new doors to open.

I think, we're still in the mid-60s to 70 and as far as the doors that are open in the state. And again, even the incumbents can open up those second locations.

So, 55 is going to expand to 110, just with the incumbents. Now, you have the additional 75 new licenses that should be granted here in the coming weeks, fingers crossed.

So, I think when we see new doors and it becomes even that much more sort of accessible throughout the rest of the state. We're going to see the demand uptick with it.

Greg, more on the overall…?

I think, the only thing I want to add to your question which you asked around rough percentages, it's pretty much what we've seen as we've gone month by month. The dry flower is about up and down around 40%.

So, that's kind of what we're seeing. From a demand perspective, I think what you look at -- if you look at even Illinois’ monthly data, this market continues to grow as more supply comes on and continues to be consumed, to Charlie's point, as it becomes easier for customers to get access to the product, that will help continue to fuel demand.

And so, we look at that as there is still headroom for us to grow.

And just last one for me. Just in terms of -- you mentioned looking into 2021, I think four states are Ohio, Massachusetts, Arizona, Michigan, how do you feel about the current footprint where you stand today?

Are there any areas where you think you can go a bit deeper? I'd imagine not looking to add to the footprint, but any areas that would be a slightly higher focus in 2021?

Yes, it's a good question. And for sure, I think there's some of those markets, even one of our largest markets, Pennsylvania.

We have room to grow in Pennsylvania from a retail footprint standpoint. We have currently licenses to open up six stores and you can have licenses to open up 15.

So, there's definitely still headroom there. And Dennis had mentioned too, we have the tenant improvement allowances in the Michigan, Massachusetts and Ohio markets to build out the capacity in both of those markets.

So, I think, we're going to go deeper in each of those markets that we talked about. We have the room to be able to do it and we have the funding.

So, we're really excited. It's nice to see again the expansions we did in Illinois and Pennsylvania on the production side earlier in the year, dovetailing nicely into the expansion opportunities we have in those markets, leading into 2021.

Thank you. Good afternoon, everyone.

Charlie, can you -- I mean, congratulations on the quarter of course. But, I realize that these are supply constraints market, but you are not the only one increasing capacity in Illinois and Pennsylvania in particular.

There's a number of other companies doing that. So, help me understand, in the case of Illinois, you have nine stores; Pennsylvania, I think three.

Right? Pennsylvania, go to 150; Illinois, like you said 175.

If you can talk, one, about wholesale market share in Illinois and Pennsylvania, and particularly Pennsylvania market, where so few stores compared to the total, how do you build the brand, right? And is your wholesale share skewing to certain formats more than others?

I just find that right now it's a great place, right, markets are supply constrained. You're bringing new capacity.

But, things could change in 6 months or 12 months. Help me understand that.

Thank you.

Sure, Pablo. Thanks for the question.

I think, the way that I would answer it was almost in the question. Right?

So, I don't -- we don't rely on our retail to build our brands. We rely on our wholesale to build our brands.

We rely on other doors being open and not selling into them. It’s always been the focus of the organization.

So really, market penetration is the way that we believe you build brands in this space, especially in these markets that are supply constrained. So, you have to have the capacity to be able to produce the brands and you have to have that distribution ability to make sure that you get them into those stores.

So, really, we’re encouraged by more and more stores opening. We don't look at it as we only have a small amount out of the total stores available in the marketplace.

We're big advocates for more retail doors. We think that's the future of this industry.

That's why we've laid out our sort of strategic plays focusing on the middle two verticals of that value chain. Brick and mortar owned retail is definitely important.

But we think long-term value is driven by us distributing our products, our brands, into all of the other stores too.

Are we already at a place in the industry where some of your larger competitors begin to not take your brands, because of different independent players? Just trying to understand if your growth, wholesale through a third party stores, it's only mostly smaller independent stores, if you can help me give some column there?

Because it sounds like others are following a similar strategy. But at some point, I will assume that those doors begin to shut, unless you have a brand that has to be a must have.

And I don't know of any brand that’s a must have right now really, but help me understand that. Thank you.

Yes, absolutely. And I think, I'll start and then I'm going to have Greg do some follow-up.

But again, I think this is where our thesis comes into play, especially in these markets that we've been talking about. When there's caps on the number of doors that you can actually own yourself, it really limits the ability for any of our -- us or our large competitors to really dominate from a retailer side.

There's only a couple of markets out there that are relevant to the discussion and the strategies of our peer set that allow you to have a significant number of own brick and mortar. So, I think there will always be more independents.

There will always be those shelves and new products on them, and still at this stage of the industry itself, talking about for the foreseeable year of futures here now, there's a demand from the consumer side that you have variety in your stores. So, having brands from other producers is the best way to provide a good consumer experience for the consumers that are coming into your own retail.

Greg, anything to add?

Not much to add, other than if look at our California marketplace where we are driving our brand growth through wholesale doors, we successfully sold into that market in both the larger players and the independent players, on both sides. And so -- and we are also selling into the MSOs across markets where we operate.

So, I think we actually are showing that in an assortment strategy, to Charlie's point, customers are looking for different options. And much like any other industry, we're just seeing that you can get on both your doors and other doors, and we're seeing it in California and in our markets.

One last one Charlie, and I know it's hard to predict from a regulatory perspective. But, if New Jersey goes red, right, everyone assumes that the states that are around it will follow, Pennsylvania in particular.

But, if the lag were one or two years as legislators try to agree on the path forward, how damaging could that be to the medical program of Pennsylvania, if New Jersey flips the switch on 1st of January and then Pennsylvania takes another year or two to follow, or the demand is so strong, there is not something to worry about? Thanks.

Yes. I think, I agree that New Jersey has the ability to be a catalyst.

Right? But, I think those states are already having these discussions independently.

I think, that's one of these -- if you want to look at the other side of the coin of COVID, and we talked about this on the last call, there are opportunities that get created from that sort of an event. And regulatory changes that could have taken years to develop, get expedited because of the need for jobs and for tax revenue generation.

So, I think, Pennsylvania is -- I don't think Pennsylvania is looking at New Jersey, as they're having this conversation. They started their process last year.

They did their listening tour, they went around every county in the state. I think, now again, it's been expedited a bit with a 5 billionish dollar hole in their previously balanced budget.

But, I think, your -- second part of your question on if they take too long, it takes time for them to put proper legislation together. This is why the government affairs side of the industry has been such a focus of Cresco from our very beginning is that we have always been -- this is us being the most important company in the industry, right?

It is making sure that this industry develops in a responsible way that we're seeing as resources for legislators as we’re thinking about how to do this that we've given ourselves the ability to be in the room with the people holding the pen that are going to design the way that this industry looks going forward. And so, it's -- well, it's not only our responsibility it’s a responsibility of all top operators, but we took that responsibility very seriously to make sure that we are there and we're resourced to help those pieces of legislation and regulation get developed and get launched.

So, we like the challenge, we definitely accept it. It's part of our part of our foundation.

Thank you. Good evening.

You mentioned automation as a priority. Can you elaborate a little bit on how that may play out and what we should expect and how much, if any of a driver it is towards near-term gross margin boost?

I know, you called out the mechanics of how this quarter was a little depressed and seems like it will pretty naturally snap back, but how much maybe over and above that should or could this give a lift in the next few quarters or is it a little further out? Just kind of bring to life your thinking on automation a little bit, please.

Sure. Michael, thanks for the question.

And I’ll let Dennis provide some color.

Yes. So, what I think about automation, I think of it in two ways.

One is, as we continue to improve our cultivation and the yield that we're getting out of our cultivation centers, we've got to make sure that we automate the backend packaging to allow us to maximize the sell-through of finished goods into the marketplace. So, that's one -- one process, and we're going to make the necessary investments to help expedite the packaging and the backend processes to keep up with the improved yields that we're seeing out of our cultivation centers.

The other aspect that I look at from an automation standpoint is just -- is really, a backend operation really affects SG&A more so than the manufacturing costs. And there, I'm talking about your payable systems and ERP system, those types of expenses that we're going to have to make in this company to get us to the next level, to get us GAAP ready, so that we can list on the U.S.

exchange when that becomes available to us, and just to improve the overall internal processes, mechanize that, reduce some costs in the long run, but actually improve the efficiency as -- of our backend operations.

Okay. That's helpful.

Thanks. And you touched on preparing for a U.S.

listing. So, I assume that’s some of the answer to this follow-up.

But, it looks like there's some potentially politically favorable wins at the federal level for the industry near term. What, if anything, are you doing differently to prepare for that or just to be in the right position to take the most advantage of what might be coming?

Yes. I mean, it's a great question.

And it's a little bit of looking at the proverbial crystal ball here. But, I think we're doing the things to -- that we need to be doing in order to be ready for it, both from a strategic nature, from an operational nature and then definitely from a legal compliance and regulatory perspective too.

So, yes, I would agree with you. We're bullish on there being some favorability in the relatively near term.

I think, we're all of the position that these conversations -- it's possible that they're better depending on the outcome in November. But, I can tell you, the conversation is happening in all of the potential administrations that would be in office, in the next session.

So it is -- things are headed in a good direction. Those conversations are happening in rooms and behind doors that they've never happened behind or in before.

So, yes, it is incumbent upon us to be ready for the access to the U.S. exchanges, and also everything that goes along with that.

Great. Thank you very much.

Thank you.

Good afternoon and congrats on quarter. Thanks for taking questions.

Real quick, I want to focus back on California. And you're selling into top doors there, kind of what the overall penetration of those doors?

And picking up here, more local jurisdictions are looking to add retail doors and sales in California, and kind of your sense of that occurring. And what’s the strategy moving down the [Technical Difficulty] of California?

And then, just follow-up on that, where we will see Origin House synergies and finalizing those efficiencies from the integration side of things?

Scott, thanks for the question. Greg's going to take that one.

Yes. So, I think -- Scott, thanks for the questions.

Two parts to your question. One is, overall penetration in the state.

And I think the second part is just on the quick update on how we're progressing and synergies. We're really pleased on how we're opening doors in the state.

As we look at -- I know it's always somewhat of a changing number, but as we look at doors in that marketplace, with 650 open legal doors, and we tend to be in the 75% penetration of those doors. So, we have a really good, strong presence in the state.

Obviously, that also means as they open more doors in the state should hopefully -- the proof is in that number that we can get into the doors as they open up. And so, more access to products, as I mentioned before, does drive overall growth, and so, increased points of distribution in California for us is a real driver of growth.

And we feel like we are quite confident that we can continue to hold that market penetration as we go forward. The second part your question on synergies.

The last call, we gave an update as we're in the middle of integration. We highlighted some of the comments we're looking at.

One was doing labor review, and we are on track of delivering that number that we committed to. And now, as Charlie mentioned in his opening works, we're now doing a go-to-market value chain assessment of where else can we find incremental synergies, which we will.

So, there's no risk on us not delivering against our previous commitments, and we are currently looking for more.

Okay, thanks for that color. And then, just to kind of follow up, your 17 operating retail doors right now, stores, you're adding one more in Illinois.

What’s kind of timing in Pennsylvania and is there a number you target for the end of the year, 2020 here, as far as stores here for you guys?

Yes. I think, let me start by saying, Illinois 10 doors is our max in the state, 9 currently open, 1 more to open, which our goal is to hopefully have that completed in this year.

In Pennsylvania, as we look at the state, our goal is to have our Philadelphia stores, as we previously mentioned, opened in the back half this year with two additional as well.

Hello, everybody. First question just coming back again to the sequential growth in wholesale and understanding in Illinois and Pennsylvania there was additional supply that makes that possible.

But, just in terms of actually selling the product, how much of that growth really was into the new stores that opened in those markets as opposed to existing wholesale customers? And just wondering, you look at your wholesale customer base now versus maybe three to six months ago, is that base in terms of sales now more diversified or less?

Any color on that would be great?

Thanks for the question, Russ. So, Greg's going to add some color there.

Hey, Russ. Thanks for the question.

Just to kind of recap to make sure I'm following your question, how much of that new inventory are we pushing through our own retail versus our partner retail? You can see the numbers.

Our wholesale business actually grew faster than our retail business. We've always committed to ensuring that we have a fair and equitable approach to how we treat our supply.

We’ve continued that approach in Q2 and I think you're seeing that in our financials. And so, I can say as you look at that -- the growth of our cultivation isn't fueling at the expense of our other partners in the state.

Okay. And just for my follow-up, just specifically Illinois, I wanted to ask about two dispensaries in particular, the Danville and South Beloit locations, because those are interesting.

I guess, can you provide any color on how they're performing and what the sales split looks like between residents and out of state, and I guess how that experience informs site selection going forward?

This is Charlie. I'll take that one.

So, both of the stores are performing well. They’re set up also to provide a different level of accessibility.

I mean, they're newer stores for us. The number of points of sale are 15 to 20 plus.

So, they're bigger stores. They're positioned from a location selection standpoint that way also.

So, they have a bigger -- they cast a bigger net and capture as much or if not more foot traffic or throughput than some of our city stores. So, they're performing well in the higher level of our operating stores.

And then, as far as Illinois resident to out of state mix, I think they index a little higher for out of state mix than some of our other stores that are in the Chicago land area but not fairly significant expense. So, still mainly driven by Illinois.

Thank you.

Hi. Congrats on the good quarter.

And thanks for taking my questions. Most of them have been answered.

But maybe if I could dig a little bit on your store productivity, obviously, has grown substantially both on basket and ticket sizes this quarter. Just wondering, with the stimulus checks and potentially further stimulus coming, how would you say that trend is sustainable into Q3?

Thanks, Andrew. Thanks for the question.

Greg will take that one.

Thanks for the question. I think, if I just repeat your question is, if you look at our trends on same store sales across our customer transaction trends versus average basket size trends, what you are seeing is more product supply comes in the market, you're seeing growth on baskets, which is very encouraging.

But you are absolutely correct that most of our growth in retail is coming from incremental trips. I would say, more of that growth is coming from both, our ability to get people in and out of our stores efficiently, open stores in new locations.

And so, that's what's driving our growth and also customers coming in. I would say, the basket side, in addition to supply, of course stimulus checks does help with that.

And so, like all retailers, we saw some growth associated at the same time that those checks were issued. So, any further issuance would definitely be a driver for basket growth.

But, if you look at the volume of growth that is coming from, it's coming from just more customers entering our stores coming into the industry, which has been a steady trend pre-stimulus issuance and then post. So, I wouldn't say that that's overly driven by checks.

Thanks. That's helpful.

And maybe on a separate topic, could you just remind us what was your utilization in your Illinois and Pennsylvania expansions in Q2, and where you guys at are in Q3? Obviously, it takes time to ramp up.

And the SG&A, cost control that you guys have had is really impressive, kind of looking to see how that trend in Q3.

So from -- and this is Charlie. From a utilization standpoint, again, I think, we saw a limited utilization of the new square footage into the marketplace in Q2, really in the back half of the quarter.

And so, again, I think, we expect that to ramp up throughout Q3 and into Q4. And even though we saw the improved performance out of those facilities, maybe a little faster than expected, we still expect ramp to continue through the coming quarter.

Excited about it. Anything you’d add there, Dennis?

Yes. This is Dennis.

From an SG&A standpoint, the savings that we saw in Q2 was really across all functional areas. So, it was a concerted effort to drive costs and some inefficiencies out of the organization.

As we look forward into Q3 and beyond, we certainly expect to continue to see some leverage improvements as a percentage of sales. But, we will make investments in people and processes, some of the automation that I talked about will continue to market our brands and drive -- to drive retail sales up.

So, there will be some continued investments. We're not afraid to make investments to generate long-term growth opportunities, but nowhere near at the same rate that we expect revenue to grow.

Hi. Congrats on the results also.

And like the previous questioner, I was -- most of my specific questions have been answered. But I was curious about, Charlie, maybe your thoughts industry wide on the trend over the last, 9 or 12 months or so has been to kind of retrench and really for the better operators to really focus on key markets and drive profitability.

Now, we're starting to see pretty good profitability from a number of names. So, I'm curious as to what you think, in terms of your thoughts about when the -- maybe just philosophically when you think you would switch towards maybe looking at other territories again, and when you think the industry might also start to move back towards that trend?

Sure. Glenn, thanks for the question.

And I think it's fair to say that we -- we've always kept half an eye on what's going on in the markets around us. It's just, when you come back to our thesis of making sure that we're in the most strategic states with the most strategic geographic footprint, we're pretty selective in the states that we do go after.

As I mentioned on the call today, 7 of our 9 markets are either in the top 10 from a state population or from a city population in the country. So, we're -- we've had our eye on what's going on.

I think most of us are understanding that the best and highest return on a dollar invested right now is probably in your own infrastructure, as it exists, as these markets are growing, as you've already made investments, as you've already established infrastructure, and you have management and executive teams in place. But, there's definitely still some -- there are some strategic markets out there that we've continued to look at.

And I think all of us are making sure we're on firm, solid footing. And we'll look opportunistically at things that become available but also very selectively.

And just as a follow-up, more specifically on Massachusetts, can you just tell us -- you called that out, obviously, you had issues with the adult rec. So, adult rec has been back almost for three months now.

Give us a sense of how you feel like that bounce back is going. And remind me, I think you have two more retail stores.

But, is there an update on when those would open? If you're working on that…?

You're right, we do. We have two more opportunities in Massachusetts.

And Greg will address some of the specifics on the market dynamics.

Yes. You're absolutely correct on your statement, that question, which is how is our business performing?

We obviously saw that Massachusetts as stores with metal link. And so that had an impact in the market.

But coming back from that, we're seeing our results, not only getting back to where they were pre-shutdown, but now accelerating faster as we go forward. So, that's pretty encouraging.

And as we look forward, we -- our sales team out there has done just a fantastic job opening up wholesale doors, and getting our brands where we can into those shelves, and our retail business showing some really healthy ticket growth as well in the market. So, we're really encouraged as we look the results coming out of out of Mass after the reopening.

And to Charlie's point, I think, we've always said on the next door, and I'm sure you're aware in Massachusetts with town licensing, now approving to open can be tricky and timely. But, our goal as we said is to have our stores open -- at least next our store open by end of Q4 or early Q1 of 2021.

Okay, great. Thanks.

Thank you.

Hi, guys, and congrats on the excellent quarter here. If I'm doing my math correctly -- and I'm looking at the retail business, your average store is running at over $9 million in annualized sales, and I'm looking at $39 million in your retail business and 17 locations.

That's very impressive and probably amongst the highest in your peer group. But I'm just wondering, are there any concerns about you being able to handle higher volumes at these locations?

Does throughput and capacity become an issue in growing same-store sales in the second half of this year, particularly in markets like Pennsylvania, where perhaps demand is much, much stronger than anticipated?

Thanks for the question. Greg, do you want to take that?

Yes. Let me give some context.

I think one of the things -- first, we're so proud of our retail team and what they've been able to accomplish, given everything that's been thrown at them this year. And I think as you look at those numbers, we're pretty proud of those numbers as well.

I think, it's a testament to that team's ability to figure out how to restructure our stores, how to get people in, and how we’re processing customers, how we’re managing inventory and our assortment. And so, we feel good.

We're confident that we can continue to show results like we have over the last couple of months. Obviously, there are some things that would help us with throughput, which is incremental POS stations in the store; our ability to expand our stores will help.

But, from a team perspective, we're head down figuring out how do we just continue to process the demand that we know exists.

Perfect. Switching gears to Ohio, just wondering if you had any information for Ohio stores that are pending final closing?

Would you be able to provide any pro forma sales figures there? And any change in the timing of consolidating those four locations?

This is Charlie. We haven't provided pro forma revenue out of those stores.

They're good stores, good locations, we're excited to bring them into the portfolio. As far as timing, it really is -- it's a regulated, mandated sort of period where you can transfer ownership.

So, again, Q4 and Q1 are when those stores will become eligible for closing and then consolidation in our numbers. But yes, good stores.

We're excited to bring them into the portfolio, very, very excited to round out our full vertical integration in that state. That state's going to be a phenomenal state in 2021.

Thanks for the color.

Thank you.

If I just circle back to same-store sales, particularly at basket growth, could you speak to what shift you saw in terms of digital versus brick-and-mortar in the quarter, and so how sticky you think some of those changes may prove to be in the world we live in today?

Absolutely. At a high level, and then Greg’s going to add some detail to it.

But, at a high level, I think what we found is, we find a shift in consumer sentiment, like I think you're finding in all sectors when it comes to consumers and their purchasing habits and that digital online, order in advance, pick up at the window, so to speak, is becoming a normalized way of purchasing products. And so, I think that's something that -- not only do we see that trend starting to build, pre-COVID, but through COVID I think not only did it become a requirement, but now I think it's becoming part of the norm.

So, I think that's something that we fully expect to continue going forward. Greg, do you want to…?

A little bit of commentary. Again, thanks for the question.

One thing I should start with is, we made a pretty big switch, as COVID was coming to require online pre-ordering for our stores. And so obviously, that has a pretty piggyback on your question about, is it a brick-and-mortar or is it a pre-order, we somewhat forced that behavior.

And so, we're seeing that. I think, as stores open up, I don't believe that everyone wants to pre order their purchase.

There's a lot of impulse purchase that will happen. So, I do believe you'll see some returning to the stores as their primary purchase.

I think, we are seeing though a difference and where we’re changing even our approach is that more customers are engaging and connecting with our health advisors online through our tele sales, tele service group, and I think that behavior might stick, which is -- does the role of our stores become more of a last point pick-up and where a lot more of the advisory information of a product actually happens online, which would be a shift on how things were operating pre-COVID. So, I think if you're looking at where the biggest impact to the business is going to be, it's that our stores being that pick-up, pay, move along, and more questions being potentially asked elsewhere.

Like I said, we're still early as we're evolving through COVID. We're going to keep watching it.

But that is where I'd say is the biggest shift in consumer behavior we're seeing year-to-date.

And just a final quick follow-up for me. Just Pennsylvania, if I understood you correctly, your saw results taking share in wholesale in the quarter.

Could you just speak to what your sort of door penetration is within that Pennsylvania market, and how as Pennsylvania moves from where it is today to that sort of 150 cap, how you can continue to both, differentiate your offering and your in-stock position such as you can sort of continue to index or maintain that door penetration as that market ramps?

We have a 100% market penetration there. So, we're in every store.

And again, how we maintain that as the additional stores and doors start to open is that we do prioritize making sure that we are a branded products company. And this is where the true strategy of Cresco can be potentially differentiated from the peer set where we all talk about building brands and distributing brands.

But, this has been our model since day one. And so, what we've learned is that the way that you keep those relationships strong and that you keep your products on their shelves, is it's very simple, it's dotting i’s and crossing t's.

It's taking care of the fundamentals. It's making sure that you have that quality, consistency and availability, like the three pillars of really CPG and how you get shelf space.

So, we continue to execute -- will continue to have that penetration rate in that state.

Great. Thanks, Charlie.

And congrats.

Thank you.

Hi. Good afternoon, and thank you for taking my question.

I appreciate the commentary about the sequential growth and that 30% that you're seeing in all the markets outside of Massachusetts. I was just wondering, could you provide any details with respect to profitability in the individual markets?

How many markets in the portfolio right now are profitable, or were in Q2? And I guess, from the acceleration that you're seeing into Q3, how many other that you are on the cusp of reach that breakeven point or close to approaching that?

Thank you.

Graeme, thanks for the question. Dennis, do you want to…

Yes. Thanks, Graeme.

We don't provide individual state profitability. That's just something that we just don't disclose.

I can tell you from an operational margin perspective, other than the issue that we saw in Pennsylvania, we saw margin -- operational gross margin improvement in most of our sites. But again, in terms of profitability, we don't disclose it at a state by state level.

Okay, understood. Thank you very much.

Thanks, Graeme.

Hey. Thanks for taking my question.

And like the questioner before me, first of all, I congratulate you guys on such a fantastic quarter. If my math is not mistaken, you have shown the highest quarter-over-quarter growth from Q1 to Q2.

So, you're definitely separating yourself from the pack. What I wanted to -- most of my questions have been asked.

Just wanted to know if you're seeing any trends from a product category platform as we've seen this nice growth across all your markets? Are we starting to see differences in terms of growth in edibles over flower?

I know, you're in a number of different markets, but any overarching themes that you're seeing from a product category level?

Jason, thanks for the question and the commentary. I think, this is best suited for Greg.

Hi, Jason. Thanks for the question.

So, I think you're asking, as we look across total market and then individual markets, any major shifts we're seeing across forms? I will tell you, flower is and remains king.

It continues to be the largest segment of the market as flower is available, and quality flower comes into the market, it continues to help it increase its average run rate share of 40% of total sales. I think, one of the hypotheses that many of us had coming into the COVID crisis was, do we think that because of respiratory concerns that this disease would have an impact on inhalables and where we see a shift to edibles.

And that was back in March, everyone kind of planning it out. I think if you look at the data, it's not really playing out that way.

We're seeing that most the segments are holding their responses -- their respective shares. Now, some of the markets we operate in, shares are evolving as forms become available.

So, some markets are a bit more mature, like California has a very mature edibles market vis-à-vis some of our other markets we play in, and see good growth as quality products come into market. So, once you get to that kind of level state, there isn't a huge variance this year at least year-to-date on how these major segments are performing.

Okay, great. That’s good color.

Just if I could ask another question. I believe I heard you say that you were in all the tier 1 dispensaries in California.

Correct me if I'm wrong on that. But, what I'm looking for is, what's your definition of a tier 1 dispensary?

Is that a certain sales level, what -- can you comment on that?

Let me take it. So, I think, just to clarify our comments, we are not only entering California, but we're also gaining doors in tier 1 accounts.

So, I don't know if we said all tier 1 accounts, but clearly, we are moving it up with those accounts. We look at them from a combination of -- in our definition of a tier 1 account, which is total revenue, and the square foot of that door, the importance of that door or just its position in the market.

That's how we define it. And so, that would be, as you hear comments from us, between tier 1 and tier 2, it’s a combination of both, absolute volume that's going to the account or its relative importance in that market.

Okay, great. Thanks for the clarification.

I just want to thank everybody for joining us today on this earnings call. Again, I couldn't be more proud of the team for what they were able to put together in the quarter, which was, by all accounts, very challenging quarter to have to manage, work, life and everything else going on in this environment.

So, thanks, everybody, for joining today. And we look forward to talking to you in November on our Q3 call.

Thank you.