Delta 9 Cannabis Inc.

Good morning, everyone. And welcome to Delta 9 Cannabis Year End and Q4 2019 Earnings Call.

At this time, all participants have been placed in listen-only mode. Following the presentation, we will open the line for a question-and-answer session for financial analysts.

Delta 9 would like to remind listeners that today’s call may contain forward-looking [Technical Difficulty] future events. Any such statements are subject to risks and uncertainties, which could cause results to differ materially from those projected in the forward-looking statements.

For more information regarding risks and forward-looking statements, please refer to the Delta 9 Cannabis Inc. public filings, which are available on SEDAR.

I would now like to turn the call over to Delta 9's Chief Executive Officer, John Arbuthnot.

Thank you, Alexa, and good morning, everyone. Thank you for taking the time to join us for Delta 9’s year-end and Q4 2019 earnings call.

With me this morning is the company’s Chief Financial Officer, Jim Lawson and our VP of Corporate Affairs, Ian Chadsey. Our earnings press release, year-end 2019 financial statements and management discussion and analysis, have now been made available on SEDAR and through our company website.

And with that, let’s begin. As we all know, the Canadian cannabis industry has encountered growing pains and challenges over the past several quarters in Canada's initial rollout of a legalized recreational use market.

These challenges include delays in retail store rollouts, bottlenecks at provincial crown distributors, regulatory scandals and for many reporting issuers’ mixed financial results. More recently, the global COVID-19 outbreak has created further uncertainty for our new industry.

We'll comment more on this evolving situation and our company's response at the end of today's call. So throughout 2019, Delta 9 has reported strong revenue growth and overall financial results.

These results have generally improved quarter-over-quarter as we've expanded our core businesses and continued to execute on our business plan. Today's year-end and Q4 results demonstrate significant year-over-year and quarter-over-quarter improvement for Delta 9.

We have many positive takeaways from today's results, which we will highlight, as well as analyzing our misses, the challenges we've encountered and the changes we're making to continue to drive growth and create shareholder value. We'll begin with a discussion of operations and material milestones for the company achieved over the year.

On facility expansion activities, in 2019, the company's principal expansion activities were focused on our Delta facilities. The primary purpose of these facilities is to cultivate process and manufacture high quality cannabis products.

The company's proprietary cannabis production methodology is based around a modular, scalable and stackable production unit, which we call the grow pod. We believe that these grow pods provide numerous benefits versus traditional open warehouse or greenhouse growing, namely a high level of control over the growing environment, contributing to higher quality cannabis products, the ability to customize that and growing environment for each genetic strain of cannabis, maximizing the quality and output.

The grow pods are relatively inexpensive, providing an attractive return on invested capital. The modular format minimizes risk of contamination or spread of contamination from plant diseases or pests, and the modular format minimizes the risk of materially significant crop loss.

Over the year, the company has added significant number of grow pods to its Health Canada license. Most recently, on December 2, 2019, the company announced that it had received approval from Health Canada for an additional 95 grow pods, bringing our total number of pods under licensed by Health Canada to 297 [Technical Difficulty] grow pods approved as of the end of year 2018 and increased in licensed capacity of approximately 93% over the year.

We are now working to expand our Health Canada license perimeter to include additional buildings on our existing sites in Winnipeg, which will bring the total license square footage to approximately 135,000 square feet from 80,000 square feet currently licensed by Health Canada. The company is also working to finalize its purpose built cannabis processing center, which will allow for fully automated bottling, packaging, capping and labeling functions for its consumer packaged dried cannabis products.

We anticipate that once the processing center is licensed and operating at capacity that will allow us to process up to 25,000 kilos per year of dried cannabis flower material. We will continue to update the market on expansion progress and licensing approvals as they are received from Health Canada.

Delta 9 currently produces approximately 30 different genetic strains of cannabis, each with its own unique chemical and cannabinoid content terpene and flavonoid profile, and with another 40 strains being stored on-site in a seed bank to provide for product options into the future. We believe that the company has one of the largest in house stocks of unique genetic cannabis strains among producers in Canada.

We're continuing with our production pivot towards higher potency cannabis strains, which are the highest demand segments with the retail consumer and demand the highest pricing. We expect to begin to see the effects of that pivot in Q1 this year.

Whole flower dried cannabis currently accounts for approximately 75% of the company's overall product offering by revenue. In the pre rolls category, the company released its first pre rolled cannabis products to market in June 2019.

These products consist of blended cannabis flower rolled in a joint format for sale on the recreational cannabis market. Company seen a significant consumer response to cannabis pre rolls, even the convenience of purchasing ready to consume products, the company's pre roll products currently account for approximately 15% of our overall offering and this amount is increasing.

On blended cannabis flower, the company currently produces and sells a selection of blended cannabis products, which consists of high quality flower blended together to produce a mill finished product. The company's house blended products currently accounts for about 5% of our product offerings.

In 2020, the company will begin introducing value price blended products to compete with other low priced cannabis flower in the 14 to 28 gram settings. On oil extracts and derivative products, company was licensed by Health Canada in Q3 2019 to sell cannabis oils, extracts and derivative products.

It is our belief that these products will become increasingly important components of the medical and recreational use cannabis markets into the future. Company’s oil products currently account for approximately 5% of our overall product offering and again, this amount or percentage is increasing.

On October 17, 2019, Health Canada released updates to the cannabis regulations, which allow for the production and sale of an expanded portfolio of cannabis derivative products. The company is undertaking multiple strategies to bring these cannabis 2.0 products to market.

Firstly, the company is developing a line of dried sift cannabis products for the recreational cannabis market, which involves sifting the company's blended and cannabis products and refining it, leaving more of the high potency resin blends. We call this our dried sift cannabis material.

Delta 9 launched its first brand Sapphire of dried sift cannabis to market late in the fourth quarter of 2019. On July 24th during the year, the company announced it entered into a one year white labeling agreement with Westleaf Cannabis to purchase cannabis derivative products from Westleaf’s large scale extraction and manufacturing facility located in Calgary.

The Westleaf facility was licensed toward the end of year 2019. We feel that we will receive our first deliveries of products from Westleaf, which will take us into the vape segment in the second quarter of 2020, pending the issuance of a sales license to that facility from Health Canada.

In our retail stores, we’re currently carrying the full complement of new 2.0 cannabis products from the industry's leading manufacturers. We believe that through our retail unit, we will be able to extract valuable intel on which these new product formats are having a positive impact with the consumer and being able to pivot to capitalize on these new product opportunities into the future.

From a distribution standpoint, we believe that the domestic market for recreational use cannabis presents a major growth opportunity for the company over the next several years. Wholesale revenues from the sale recreational use cannabis products are expected to make up a large component of the company's overall business.

The company's distribution strategy will be to enter target market and look to achieve market penetration and market share as consumers adopt Delta 9 branded products. The company has undertaken a strategy to add new distribution markets incrementally as our increased supply capacity has come online in order to reach our ultimate goal of becoming a national distributor of recreational use cannabis products.

The strategy began with the addition of our supply agreement with the Province of Manitoba in 2018. Beyond our home province, the company has secured a supply agreement with the Auxly Cannabis Group to supply cannabis flower and trim for 1,100 kilos for this calendar year, scaling to 5,500 kilos per year in the middle of 2020.

As the 2019 year has progressed and supply capacity is ramped up, the company has added several additional supply agreements. Delta 9 is now licensed for distribution in Saskatchewan, Alberta, B.

C. and Manitoba, and is in active negotiations with other provinces to continue to expand our distribution capacity.

As the company increases capacity, we plan to expand our distribution into additional potential markets through supply listings or formal supply [agreements] in those markets. On vertical integration and retail cannabis sales, we've seen very strong performance from our retail segments over this year.

Management believes there are number of benefits to pursuing a vertical integration strategy into retail, including control over the direct-to-consumer sales force and product distribution, control over direct to consumer branding and marketing initiatives, capturing additional revenues and gross margin from retail sales and direct feedback from consumers regarding product trends, marketing strategies, analytics, et cetera. Our intent is to build a network of dozens of Delta 9 Cannabis store branded storefronts over the coming years in markets which allow for privatized retail sales.

Over the past 12 months, Delta 9 has made significant progress in expanding its retail footprint. Company now operates four cannabis retail stores, which have produced significant retail revenues and growth over the past year.

On September 19th, the company through its totally-owned subsidiary, Delta 9 Cannabis Store Inc., entered into a binding letter of intent and definitive agreement to acquire Modern Leaf Group and all of the assets of that group, giving us access to two proposed cannabis retail stores in the Province of Alberta. This marks the company's first push west of Manitoba in the retail vertical.

The company now plans to open and operate up to 12 additional retail outlets, bringing our total store count to 16 over the next 24 months. Management is actively pursuing retail expansion opportunities in all Canadian provinces, which allow for privatized retail sales and we'll continue to expand on this vertical integration strategy into the retail segment.

On business-to-business opportunities, the company now derived significant revenues from the sale of cannabis genetics, sales of grow pods and from licensing and consulting activities provided to other licensed and pre-licensed cannabis companies. We believe that these opportunities provide the company with a number of benefits, including a complementary business vertical, which produces diversified high-margin revenue, third party validation of the company's proprietary growing platform, valuable partnerships with other pre-licensed and licensed cannabis companies and the opportunity for international expansion and non-cannabis revenue streams.

We will continue to pursue and expand on these business-to-business revenue opportunities [Technical Difficulty] other notable catalysts for the company during the year included, uplifting of the company's securities on September 3rd, 2019, to the main board Toronto Stock Exchange. We marked this event as significant as the company has in less than two years as a public, achieved all of the requisite milestones in order to qualify for listing on Canada's most senior exchange.

Now, turning to the financials, and we'll start with the balance sheets and financing activities during the year. The company ended the second quarter of 2019 with approximately $3 million in cash and approximately $15 million in working capital.

To ensure that the company remained adequately capitalized for its continued expansion and ongoing operations, management undertook a few notable activities during the third quarter. First, on July 17th, the company announced that it completed its previously announced public offering of debentures units for aggregate gross proceeds of $11.8 million and net proceeds of approximately $10.5 million.

The debentures bear interest at 8.5% and matures three years from the date of issue. These debentures are convertible into Delta 9 shares at a conversion price of $1.21 a share.

Second, on August 14th, the company announced that it had come to terms on an amendment to the company's existing credit facility with CWB [Technical difficulty] to allow the company to access up to $18.1 million in funds from the bank. As of December 31st, the company had used approximately $8.5 million of this facility, leaving approximately $9.53 million available to the company.

As of December 31st, the company showed $5.8 million in cash on hand and over $22.8 million in working capital. Management beliefs that the company is currently positioned with a strong balance sheet, and is well-capitalized for our planned expansion and continuing to operate the company towards profitability in 2020.

Total assets at the end of the year totaled $66.1 million, up from $45.9 million the year prior. Liabilities totaled $31.7 million, including lease liability.

Management would emphasize that given the company has reached a position of modest [Technical Difficulty] quarterly basis and has effectively reached adjusted EBITDA neutral and that our capital projects have reached substantial completion, we believe that we are well capitalized and with sufficient cash on hand for operations and current capital expansion plan. In terms of operating performance, management at the beginning of 2019, began to provide quarterly updates on our progress on key performance factors for our business.

Total grams produced for the three months period ending December 31, 2019, was approximately 1.3 million grams. This was up approximately 50% from the previous quarter and the company has demonstrated quarter-over-quarter increases in our production capacity as we have received approvals from Health Canada.

As those expansions have taken place, we've seen corresponding decreases in our direct production cost per gram and our total [Technical Difficulty] and the fourth quarter those two metrics reached $0.91 and $1.04 respectively. The company has seen significant efficiencies as we've continued to scale our operations toward the design capacity of our facility.

Total grams released for sale in the fourth quarter was approximately 718,000. This was up 38% from the previous quarter.

Although, we have seen a setback in our number of grams sold in our medical and recreational channel [Technical Difficulty] price per gram. We do generally feel that these wholesale numbers will improve into the first quarter of 2020 with better sell-through rates across all of our provincial markets.

In our retail unit, we continue to see very strong performance, including increases in number of grams sold and number of transactions during the period. This was reflected in an increase in foot traffic in our stores over the November-December month with the holiday shopping season and the launch of new Cannabis 2.0 products in December.

In terms of revenue, cost of sales and profitability, total net revenues for the three month period ending December 31st, were approximately $10.58 million. This was versus $5.2 million for the same period the previous year, an increase of over 100% [Technical Difficulty] quarterly net revenues increased 59% from $6.6 million for the three months period ended September.

Total revenues for the year-end 2019 were $31.7 million. This was versus $7.6 million for the year ending 2018 and increased year-over-year of over 300%.

Management would point to significant year-over-year increases in net revenue as a very positive indication that the company's initial quarters of sales in the recreational use cannabis market have been able to contribute significant revenue growth. We attribute the increase in sequential quarterly revenue to strong performance in our retail and business-to-business segment.

We believe that given the relative novelty and uncertainty of the global cannabis industry, the company's diversified and vertically integrated revenue approaches will allow us to better react and respond to market [Technical Difficulty] with single business strategy. In regards to revenue segmentation by segments, we see revenue from our wholesale Cannabis business for the year ending December 31, 2019 of $9.5 million, up 336% from the previous year.

Retail cannabis revenues were approximately $15.3 million, up 390% from the previous year. Business-to-business revenues were approximately $6.2 million, up 575% from the previous year.

For the three months period ending December 31, 2019, wholesale Cannabis revenues were approximately $1.4 million. This was down from the previous quarter.

Again, we've spoken to the challenges that we've experienced in our wholesale segment and we do generally believe that that will begin to improve with our pivot to higher potency products into the first quarter of 2020. Retail Cannabis revenues were approximately $5.05 million, up from the previous quarter.

Business-to-business revenues were approximately $3.8 million, up significantly from the previous quarter. Again, total quarterly [revenue] is reflected at $10.5 million, total revenue for the year ending December 31, 2019 was $31.7 million.

Cost of sales for the three months period ending December 31st was approximately $7.3 million or 69% of revenue. This is versus $4 million or 76% of net revenue for the three months period the year prior.

This also compares with cost of sales of $4.6 million or 69% of revenue for the sequential three months period ending September. Cost of sales for the year ending December 31st was $21.7 million or 68% of net revenue versus $5.5 million or 73% of net revenue.

We are seeing significant improvements year-over-year in terms of cost of sales as a proportion of overall revenues. Correspondingly, gross profit before accounting for changes in fair value biological assets for the three month period ending December 31st was $3.2 million or 31% of net revenue versus $1.2 million or 24% of net revenue for the three months period the year prior, an increase of 150%.

Sequential gross profit for the three months period increased 59% from just over $2 million for the period ending September. Gross profit for the full year ending December 31, 2019 was just over $10 million or 32% of net revenue, versus $2 million or 27% of net revenue for the previous year.

This represents an increase in gross profit before accounting for fair value adjustments and biological assets of 399%, and an improvement in gross profitability before accounting for these adjustments of approximately 5% over the previous year. The company has begun to segment our revenue and provide indications of gross profitability by business segment.

For the year ending December 31, 2019, the company's wholesale business segment produced gross profitability of 35%. Our retail business segment produced gross profitability of 24% and our B2B segment produced gross profitability of 40%.

Again, these are averaging out at 32% across the company's businesses. Gross profit after accounting for changes in fair value of biological assets for the three months period ending December 31 was approximately $5.2 million or 49% of revenue versus $3.3 million or 63% of revenue for the three month period the year prior, an increase of 56%.

Sequential gross profit after these adjustments increased 53% from $3.4 million. Gross profit after accounting for fair value adjustments in biological assets for the year ending December 31, '19 was $16.4 million versus $5.7 million for the previous year.

This represents an increase in gross profit after accounting adjustments of 186% over the previous year. In terms of operating expenses, in the first quarter of 2019, management implemented cost controls in order to focus the company on improving net profitability.

Operating expenses for the year ending December 31 were $18.6 million or 59% of net revenue versus $14 million or 180% net revenue for the previous year, an increase of $4.3 million or 31%. Although we would highlight that the proportionate increase in annual operating expenses has been offset by much larger increases in revenue and gross profitability, indicating that the company's business models are trending towards profitability.

Operating expenses for the three month period ending December 31 were $4.7 million or 45% of revenue versus $5.4 million or 100% of revenue for the previous year, and a decrease in expenses year-over-year of approximately $750,000. Sequential operating expenses for the three month period increased by approximately $700,000.

We would note that operating expenses have trended cyclically higher in the last quarter of the year for each of the past two years. We would again though highlight that the proportionate increase in quarterly operating expense has been offset by larger increases in revenue and profitability.

The company's net income for operations for the three month period ending December 31 was $481,000 versus a loss from operations of $2.1 million for the previous year. This is the first quarterly net income from operations in the company's history.

The quarterly net income from operations also compares to a loss of $625,000 for the previous quarter. The company's loss from operations for the full year ending December 31, '19 was $2.19 million versus $8.5 million the previous year.

We attribute the improvement in loss from operations for the year ending December 31, 2019 to successful implementation of the company's diversified business plan over the year, resulting in increased business-to-business, wholesale and retail cannabis revenues and gross profits, and decreases in overall operating expenses generally throughout the year. Management would again highlight the quarterly net income from operations for the three month period as a significant milestone in the company's history and development.

The company's adjusted EBITDA loss for the three months period ending December 31, '19 was approximately $91,000. This was versus $2.8 million for the same period the year prior.

This also compares to an adjusted EBITDA loss of approximately $850,000 for the sequential three month period ending September. The company's adjusted EBITDA loss for the year ending December 31, '19 was $3.5 million versus $8.6 million for the previous year.

Again, we would highlight the improved adjusted EBITDA loss over the previous year and the previous sequential quarters as a positive indication of the performance of the company's operating businesses in the wake of legalization. Now in closing as we look forward to 2020, management feels that the company is well-positioned to continue to execute on its vertical integration and growth strategies.

We see 2020 as a critical year for the company, which will lay the foundation for Delta 9 to become a top 10 competitor in the Canadian cannabis market and beyond. And with that, we will provide a brief commentary on the COVID-19 pandemic and the company's response to the virus’s impact on our businesses.

Our company's management has been actively implementing measures to protect staff and stakeholders from exposure to the COVID-19 virus since mid February, 2020. These measures have included implementing flexible sick time for our staff and encouraging them to stay home where possible, increased sanitation procedures in our retail stores and our production facilities, encouraging proper hygiene and hand washing for staff members, providing personal protective wear for both staff in our retail stores and at our production facilities, enforcing social distancing practices, including limiting 10 minute exposure and less than two meter contact between staff and/or our customers.

Management is meeting daily and updating these policies and procedures at the recommendation of provincial health professionals. To-date, the company has not seen any disruptions in its production and wholesale, retail or business-to-business segments.

However, we feel it is important to note for investors that the company's business could be adversely affected by the effects of the outbreak, which has caused widespread health crisis that has affected economies and financial markets around the world. This COVID-19 outbreak may cause staff shortages, reduced customer traffic and increased government regulation, all of which may negatively impact our business, our financial condition or results of the company.

But we would conclude by reiterating that we have not seen any of these issues to-date. We feel that in light of these challenges, management believes that the company has sufficient liquidity and financial resources to weather the current macroeconomic environment and continue to operate our relative business segments.

And with that we'll close off the management commentary, and turn the call back over to the operator for questions.

Just wondering if you could provide a little bit more color on your B2B expectations for 2020, I have a few questions maybe we'll start with that one.

So on the B2B side, Kim, it's been rather remarkable I think for us in light of the capital markets environment over 2019 that we continuing see just an increase in business activity. Demand for grow pods for these consulting services seem to grow throughout the year.

We have released now formal KPIs for that business unit for 2019. So we were able to reach 89 grow pod deliveries over the year versus six in the year prior.

In terms of any formal guidance, as you know, we don't necessarily provide formal guidance, but I would generally say that we are continuing to see quite positive demand in this segment in terms of new companies looking to get into the Canadian cannabis space. Also, as we pointed to historically, this does give us the opportunity to seek out international market opportunities where we perhaps can't sell Cannabis products but we can sell grow pods.

So, I think generally, we continue to see growth in this segment, larger number of projects in our pipeline than we have seen previously over 2020, and we expect to continue to see growth in that segment over the full year 2020.

And do you think it'll be a less lumpy than it was in 2019?

I think that is generally improving. Although, this is one segment that we would see as [Technical Difficulty] in terms of the volatility of revenue again, these are effectively larger construction projects.

We have implemented some changes that should smooth the revenue out throughout the year, but that is one segment where we may continue to see those types of issues.

And then maybe just on your sales for the quarter. Can you provide a little bit more color on the volumes released versus sold.

And I guess you made a comment that you expect to see better sell-through going forward. Maybe just some specifics on the sales initiatives or what you've done there where you would expect those volumes to pick up?

So, I mean, we speak about it fairly generally in terms of the discussion and analysis documents. But to be more specific, the challenges that we've seen is that every provincial market across the country has different rules and regulations around things like labels, UPC codes.

Obviously, tech stamps are differentiated by provincial market and each with different requirements around case packing, case labels, shipping protocols. So for each provincial market that we've added throughout the year there have been, I'll say, a learning curve associated with entering those markets.

Generally it’s taking us a quarter or so after approval to sell into a market to be ramping up distribution into that market. And we pointed to previous challenges for the company things like case pack sizing, distribution of our products that are in smaller packaging sizes or convenience packaging sizes, pricing, et cetera, as being limiting factors for us in terms of wholesale sales.

As I spoke to on the call, I generally feel that our sell-through rates and grams sold will bottom in the fourth quarter of last year and will generally see an improvement into early 2020. This will include increased wholesale sales across all of our provincial markets and we will start to provide a breakdown of those provincial market sales into 2020.

But again, generally, we feel that this pivot towards higher potency products, really positioning our products from a pricing standpoint to be competitive in the market and pivoting towards those product categories like pre-rolls and derivative products where we are seeing significant sell through and uptake with the consumers, as we'll all be positive for our wholesale outlook for this calendar year.

And then maybe last question, a bit more detail on the ongoing expansion plans. You kind of highlight two in the MD&A, one is the perimeter expansion and then the other one is the expansion, land acquisition, maybe just an update on those two?

So in terms of the expansion of the perimeter and the approval of our purpose built processing center, that has all been submitted through [Health Canada] [Technical Difficulty] pending approval from the government on those expansions that would clear the way for us for the additional part of our phase two expansion, which has been previously press released, which would involve up to proximately 128 additional grow pods and additional capacity. Now all of those plans have been fully formalized for us, it'll be a function of timing in terms of when we are looking to proceed with that capital project, as well as the acquisition of the larger facilities and land here on our Winnipeg site.

So I would consider both of those elements to be discretionary. In terms of the current environment of uncertainty around the COVID-19 issues, both of those projects are effectively sidelined until we have a little bit more certainty in terms of the global macroeconomic environments and what if any.

The implications will be for our businesses, whether this will require store closures or cut back in terms of our ability to make shipments into provincial markets. Obviously, that uncertainty is not creating a positive environment for continued capital investments.

But for us, I think really the focus is simply continuing to operate, continue to operate our businesses profitably and obviously, monitoring the company's cash position and liquidity quite closely through the crisis.

And are you expecting any store closures, I mean right now you haven't had any? I guess what's the thought there?

Is it just too early to say?

We've not planned any store closures to-date. I mean, this is changing day-to-day on the advice that we're receiving from health officials.

I mean, things that we've implemented in store are really protections to keep our staff and customers safe. I will say that generally, we have seen an increase in foot traffic in store, as well as an increase in average cart size since the beginning of March.

I don't want to say this, this is like toilet paper, but it seems that people are stocking up on their cannabis products to be spending more time at home. So again, no planned closures but an announcement from government tomorrow may change that.

Obviously, the health and safety of our staff and customers is top of mind throughout.

But you'd [Technical Difficulty] for the most part?

Yes, we would still operate home delivery even in a shutdown of our physical retail stores. And we have seen an uptick in our online and home delivery again through beginning of March.

And does this impact the Alberta stores at all and the timing there?

We're still working through the due diligence process with AGLC. We are effectively ready to close that transaction pending their completion of due diligence on the company, and would be ready to operate those stores soon after.

Again, we'd have to throw that in the context of the situation as it’s evolving in the province of Alberta, where we may consider those decisions around store opening or store closing as separate and apart.

My question is more on the retail side and kind of supply side, more specifically on the cannabis 2.0 products. I'm fortunate enough to live in Winnipeg, so I often get to drop in on the location near Osborne Village or the one on Dakota.

And what I've seen as soon as edibles specifically arrive the supplies often get on within hours, which is great to see. And I'm wondering if there's anything going on some kind of supply agreement to get a better overall inventory available to Delta 9 to sell these products?

I mean, just generally speaking, we have seen a very positive reception from consumers to, I'll say, all of the cannabis 2.0 products. We are seeing a fairly even distribution of revenues across edibles and vapes as the main categories that have been received to-date.

Although, as you pointed to, generally, we will receive in shipments of edibles and they will sell out very quickly. So there seems to be a restriction to the revenue we would otherwise be able to capitalize on if the supply side were a little bit better.

Speaking to the supply of these products, we've seen that quite quickly producers have ramped up the supply of the vape products. We are well stocked on vapes and vape oils across our stores.

Edibles continue to be a challenge. The feedback that we are getting from the [Technical Difficulty] is that there are goals and ramping up capacity, and maintaining the quality parameters that are necessary under Health Canada's regulations.

But generally, this seems to be improving. I would point to this as being a similar circumstance to what we experienced last year around this time in even the dried flower market, where it became difficult to stock retail stores simply with dried flower.

I think really, these are simply growing pains for the industry that will be worked out on the supply side likely over the next three to six months as those producers continue to ramp capacity of these edible products. Of course, we're always engaged on seeking partners where appropriate for products that are not necessarily being produced at our facilities and we would point to our recent announcements as we commercial rights agreements with Auxly Cannabis to commit supply of edibles for sell through our retail network.

But again, they are one of many producers that’s ramping up capacity in that vertical as we speak.

If there are no further questions, I’d like to thank everyone for taking the time for the call this morning. And we appreciate you making the time for our Q4 and year-end financial analysis.

Thank you.