Delta 9 Cannabis Inc.

Good morning, everyone, and welcome to the Delta 9 Cannabis Q2 2020 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 statements that reflect the company's current views with respect to 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 Q2 2020 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, Q2 2020 financial statements, and MD&A have now been made available on SEDAR.

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.

Over the past 12 months, cannabis sector participants have experienced headwinds relating to missed revenue and earnings expectations, delays in retail store rollouts, bottlenecks at provincial crown distributors and a general oversupply situation, which has worsened into 2020. More recently, the global escalation of the COVID-19 pandemic has created uncertainty for businesses across all sectors and significant volatility in global capital markets.

To date, and as you will see in the company's Q2 results, Delta 9 has been fortunate to have weathered this crisis better than many companies. We are extremely pleased today to be presenting strong Q2 2020 financial and operating results as we've expanded our core businesses and continued to execute on our growth plan.

These results demonstrated significant year-over-year 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 which we're making to continue to drive growth and create shareholder value.

We will begin with a discussion of operations and material milestones for the company achieved over the reporting period. But firstly, an overview of the impacts of COVID-19 on our operations.

On March 30th this year, we announced publicly that we had implemented numerous precautionary health and safety measures across our operations to protect customers and employees while maintaining operations amid the COVID-19 pandemic. The company's management have been actively implementing measures to protect staff and stakeholders from exposure to COVID-19.

These measures include moving many head office functions to work-from-home, or unstaggered head office shifts, implementing flexible sick time, increasing sanitation procedures in retail stores and our production facilities, encouraging proper hygiene and hand washing for staff members, providing personal protective wear for staff, for both retail stores and production facilities, enforcing physical distancing practices between our staff and/or customers and more. We continue to update these policies and procedures at the recommendation of our health professionals.

Our company, as with many others has encountered challenges with staffing in our retail and production operations and operational constraints in certain areas of our production operations, where we are limited to occupancy while maintaining physical distancing. Although to date, these challenges have not caused material disruptions to our operations.

Delta 9 has incurred extraordinary costs as a result of some of these actions and measures as we will discuss in more detail shortly. We feel it is important to note and we would acknowledge that this crisis is far from over and the company's business could be adversely affected by the ongoing crisis and economic fallout.

However, we would reiterate that the company continues to make wholesale shipments to all of our provincial markets. Our retail stores continue to operate and we continue to provide consulting services, Grow Pods and genetics to B2B clients across the country.

On the cannabis cultivation and processing side of our business, we'll begin with an update of activities from our Delta 9 facilities in Winnipeg. The primary purpose of these facilities is to cultivate, process and manufacture high-quality cannabis products.

The company's proprietary cannabis production methodology, as you all know, is based around a modular, scalable and stackable production unit, which we call the Grow Pod. On December 2 last year, we announced that we received Health Canada approval for an additional 95 Grow Pods, which brought our total number of Grow Pods approved by Health Canada to 297.

In Q1 and Q2 this year, the company's principle focus was on bringing these assets into full production. We anticipate that once the current license Grow Pods have begun to produce finished products on a recurring basis the facilities will have a production capacity of approximately 8,325 kilograms of dry cannabis per year.

On April 8th, during the reporting period, the company received approval from Health Canada for our purpose-built processing center, which allows for fully automated bottling, packaging, capping and labeling functions for our consumer packaged dried cannabis products. We anticipate that once the processing center is operating at capacity, it will allow for processing of up to 25,000 kilos per year of dried cannabis flower material.

On April 13th, the company also announced that in light of the COVID-19 pandemic, we paused our previously announced expansion plans and capital deployment for the remaining Phase II areas of our facility. The expansion will continue once the company has greater certainty regarding global capital markets, macroeconomic and public health conditions.

We will continue to update the market on our expansion progress and licensing approvals as they are received from Health Canada. On our portfolio of cannabis products, there's been a significant amount of excitement in the cannabis space over the rollout of cannabis 2.0 products.

However, dried cannabis flower continues to demand over 70% market share by category in the Canadian marketplace, with much of the consumer demand in the high potency segment. Delta 9 currently produces approximately 30 different genetic strains of cannabis, each with its own unique chemical cannabinoid content, terpene and flavonoid profiles, and with another 100 or more strains being stored on site in a seed bank to provide for product options into the future.

We believe that the company is one of the largest in-house stocks of unique genetic cannabis strains among cannabis producers in Canada. We are continuing with our production pivot towards high potency cannabis strains, which are the highest demand segment with the retail consumer.

Whole flower dried cannabis currently accounts for approximately 75% of our overall product offering by revenue. In Q3 this year, we will also be introducing several value products branded as House Indica, Sativa and Hybrid products in 3.5 and 7 gram settings.

These will be positioned to compete against other value segment products introduced by our competitors. Cannabis pre-rolls became an increasingly important category in 2019 as consumers moved to smaller packaging sizes and sought convenience in a pre-rolled setting.

The company's pre-rolled products currently account for approximately 15% of our overall revenue with our Bliss and Twist pre-roll products making up two of our top-selling SKUs in Delta 9 retail stores in Q2 this year. The company currently produces and sells a selection of blended cannabis products, which consist of several high-quality cannabis products blended together to produce a milled finished product.

Our house-blends currently account for approximately 5% of our overall product offer. In late 2020, the company will be introducing value-priced blended products to compete with other low-priced cannabis flower in the 14 to 28 gram setting.

On oils, extracts and derivative products, on October 17 last year, 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.

It is our belief that these products will become an increasingly important component of the medical and recreational use cannabis markets into the future. The company's oil products currently account for less than 10% of our overall product offer.

The company produces a line of dried sift or kief cannabis products for the recreational and medical cannabis markets, which involve the sifting of our blended cannabis materials and refining it, leaving more of the high potency resin glands and less of the low potency plant material. The final product is a powder and has a potency of up to double that of whole cannabis flower material.

We released these products for sale in the first quarter of 2020. The company is currently working with Decibel Cannabis through our subsidiary Westleaf Labs to develop a line of vaporized cannabis oil products, including a line of vaporizable oil cartridges and disposable vape pens.

The products will be branded as Harmony, Cruise and Blast and will contain distilled cannabis oil and cannabis terpenes. The company and Westleaf plan to release these vape products in the recreational cannabis market in the third quarter of 2020.

In our retail stores, we carry 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 of these new product formats are having a positive impact with the consumer, and be able to pivot to capitalize on these new product opportunities.

Overall, 2.0 cannabis products became better supplied in Q2 2020, addressing previous supply shortage concerns for many of these product categories, leading to over 12% of retail revenues coming from these categories in Q2 this year. From a distribution standpoint, we believe that the domestic market for recreational use cannabis presents a major growth opportunity for our company over the next several years.

Wholesale revenues from the sale of recreational use cannabis are expected to make up a large component of the company's overall revenue. We've 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.

As the post legalization market has progressed and supply capacity is ramped up, the company has added several additional supply agreements. At the end of Q1 this year, Delta 9 was licensed for distribution in four provinces in Manitoba, Saskatchewan, Alberta, and British Columbia.

On June 15th, during the reporting period, we announced that we entered into an agreement with Newfoundland and Labrador Liquor Corporation and Oceanic Releaf pursuant to which we will provide cannabis and cannabis related products in Newfoundland and Labrador. We anticipate that we will complete first shipments into this market in the third quarter this year.

On June 23rd, during the reporting period, we also announced that we entered into a master cannabis supply agreement with the Ontario Cannabis store pursuant to which we will provide cannabis products for sale in the province of Ontario. We anticipate again that we will complete first shipments into the Ontario market in the third quarter this year.

We are now licensed for distribution in six provincial markets representing well over 50% of the Canadian population. As the company increases its supply capacity, we plan to expand our distribution into additional provincial markets through supply listings or formal supply agreements in those markets.

On vertical integration and retail cannabis sales. We believe there are a number of benefits to pursuing a vertical integration strategy into retail, including control over the direct-to-consumer sales force and pushing product distribution of Delta 9 products, 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 and marketing strategies, et cetera.

Over the past 12 months, Delta 9 has made significant progress in expanding its retail footprint. On May 29th during the reporting period, Delta 9 closed on its previously announced transaction with the Modern Leaf Group to acquire two cannabis retail stores in the province of Alberta.

Following the completion of the transaction on June 9th, we opened a cannabis retail store in Calgary, Alberta, in the First Alberta Place building. And on June 20th, we announced that we opened a cannabis retail store in Grande Prairie, Alberta in the Northridge Business Center.

We now operate 6 cannabis retail stores, which have produced significant retail revenues and growth over the past year. We plan to open and operate an additional 12 retail outlets in jurisdictions, which allow for privatized cannabis retail over the next 24 months.

We are actively pursuing retail expansion opportunities in all Canadian provinces, which allow for privatized retail cannabis sales and we'll continue to expand on our vertical integration strategy into the retail segment. On business-to-business opportunities.

We derive a portion of our overall revenues from the sales 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 us with a number of benefits, including complimentary business verticals, which produce diversified and high margin revenue streams, third-party validation of our proprietary Grow Pod platform, valuable partnerships with other pre-licensed and licensed companies and the opportunity for international expansion and non-cannabis revenue streams.

A notable B2B deal for us closed during the period on June 15th, when the company entered into a definitive agreement with Oceanic Releaf Inc, Newfoundland and Labrador based vertically integrated cannabis company to provide Oceanic with certain consulting and training services in exchange for the acquisition of 5% equity interest in common shares of the company. We will continue to pursue and expand on these business-to-business revenue opportunities over the coming year.

Now turning to the financial results and the balance sheet. The company ended the quarter with approximately $6 million in cash, an increase from $5.8 million as of December 31st, last year.

And approximately $24.5 million in working capital, an increase from $22.8 million as of the end of last year. Total assets at the end of the quarter, totaled $77 million, up from $66.2 million as at the end of last year, resulting in an increase or from an increase, excuse me, in current assets investments in property plants and equipment and right-to-use assets.

Liabilities totaled $38.4 million, up from $31.7 million as at the end of last year, resulting from an increase in current borrowings and lease liabilities. As the company's asset base has expanded over the first six months of 2020, we've maintained a healthy debt to equity and debt to asset ratio.

Management believes that the company is currently positioned with a strong balance sheet and is well capitalized for our continued growth. We would emphasize that given the company has reached a position of operating profit, positive adjusted EBITDA and positive cash flow from operations, and the capital projects have been paused or substantially completed, we believe that we are well-capitalized and with sufficient cash on hand for our ongoing operations On key performance indicators.

Management provides quarterly updates on the progress on key performance factors for our businesses. In the second quarter, we produced approximately 1.65 million grams of cannabis, up from approximately 1.2 million grams on the first quarter this year.

We expect these production numbers will increase over the coming quarters as our 95 Grow Pods from our December expansion approval are operationalized, and we continue to reach full capacity and efficiency. Production costs per gram, and total cost per gram decreased slightly to $0.96 and a $1.08 respectively, versus $0.98 and a $1.10 for the first quarter this year.

We would highlight that these production costs figures are quite competitive, even when comparing to our largest competitors in the context of the current cannabis flower market. Total grams sold in the quarter in recreational and medical markets was approximately 400,000 grams, down from almost 600,000 grams in the first quarter.

Much of this decline was as a result of bottlenecks of the company's ability to bottle and release finished products to market as a result of physical distancing protocols required to protect staff from COVID-19. With the approval of our new purpose-built bottling center, we believe that this bottleneck will be relieved into the third quarter this year.

The company's average selling price declined to $3.77 per gram from $4.50 per gram in the first quarter, highlighting the overall weakness in Canada's wholesale cannabis market. Continuing to address the company's wholesale business and improving overall grams sold and average selling price will continue to be a focus for us moving forward.

In our retail business, the number of grams sold and number of transactions increased significantly over the previous quarter as we saw increased foot traffic and sales activity across all of our locations, as well as online. Average cart size increased and larger number of online purchases, which generally have larger cart sizes and more consumers adding 2.0 products to their overall purchases drove cart size in the quarter.

Average selling price per gram trended down in retail as new value products are introduced with average selling prices between $5 and $7 per gram, which compete directly with the black market. We should note as well that this figure includes gram equivalents for extracts and 2.0 products, which may obfuscate these figures versus previous reporting periods.

On revenue and revenue segmentation, total net revenues for the 3-month and 6-month period ending June 30th, we're $13 million and $24.7 million versus $8.9 million and $14.5 million for the same period last year, an increase of 46% and 71%, respectively. Sequential quarterly net revenues increased 11% from $11.75 million for the first quarter this year.

From a segmentation standpoint, revenue from wholesale cannabis sales was $1.44 million versus $2.99 million for the first quarter. Retail cannabis revenues were $8.2 million versus $5.85 million in the first quarter and B2B revenues were $3.07 million versus $2.98 million in the first quarter this year.

We would point to significant year-over-year increases in net revenue as a positive indication that our diversified revenue and growth strategies have been able to contribute significant revenue growth. We attribute the increase in sequential quarterly revenue to strong performance from our retail and B2B segments.

We believe that given the relative novelty and uncertainty of the global cannabis industry, that the company's diversified revenue and vertical integration approaches will allow us to better react to market challenges that our competitors with single business strategy. Gross profit, before accounting for changes in the value of biological assets, for the 3-month and 6-month period ending June 30 was $4.6 million or 35% of net revenue and $9.5 million or 38% of net revenue.

This compares with $2.95 million or 33% of net revenue and $4.7 million or 33% of net revenue for the 3-month and 6-month period the year earlier. This represents an increase of 57% and 100%, respectively in gross profit.

Sequential gross profit, again before accounting for changes in the value of biological assets, decreased 6% from the first quarter this year. Gross profitability before accounting for these biological asset changes improved by 2% and 5% versus the same period last year.

The company's gross profit by segment during the period was 64% for our wholesale cannabis business, 24% for our retail cannabis business and 56% for our B2B business segment. The weighted average total was 38%.

In the company's wholesale cannabis business, we anticipate that as production capacity increases that the cost of production and cost of sales will continue to trend down as a percentage of overall revenue due to incremental efficiencies and labor costs and increased purchasing power for key inputs. In the company's retail cannabis business, we anticipate that the addition of higher margin cannabis extract products will assist in improving overall gross profitability into 2020.

These strategies are intended to drive gains in overall gross profitability for us in 2020. Gross profit after accounting for changes in the fair value of biological assets for the 3 and 6 month period was $7 million and $14.7 million versus $3.5 million and $7.7 million.

This is an increase of 100% and 90% respectively versus the previous year. Operating expenses for the 3-month and 6-month period ending June 30 were $5.4 million and $10.1 million versus $4.6 million and $9.8 million for the same period last year.

This also compares with $4.7 million for the 3-month period ended March 31. We would highlight the cost controls implemented in early 2019 have been largely successful and have allowed the company to reach profitability as revenues have grown and expenses have represented a much smaller percentage of net revenue.

And most notable increases in operating expenses for this period have come from amortization and personnel expenditures. However, we would note that the company has been able to achieve significantly higher revenues with only modest increases in overall operating costs.

As discussed previously in response to the COVID-19 pandemic, management has implemented a number of measures to ensure health and safety of staff and customers, as well as to ensure continuity of our operations. Many of these measures such as increased sanitation, equipment and supplies, increased PPE for our staff, temporary pay increases and temporary staffing services have contributed to increased costs.

Management estimates that the COVID-19 pandemic has resulted in an additional $530,000 in extraordinary expenses to our operations during the 3-month and 6-month period. The company's net income from operations for the 3-month and 6-month period was $1.7 million and $4.6 million versus a loss from operations of $1.1 million and $2.1 million for the same period last year.

This also compares with a net income from operations of $2.9 million for the first quarter of this year. This marks the company's third consecutive quarter of positive net income from operations.

We attribute the improvements in net income from operations to a successful implementation of the company's diversified business plan resulting in increased B2B wholesale and retail cannabis revenues and gross profits, as well as proven cost controls over operating expenses during the period. The company's adjusted EBITDA for the 3-month and 6-month period was $706,000 and $2.35 million versus a loss of $660,000 and $2.6 million for the same period last year.

This also compares with adjusted EBITDA of $1.65 million for the first quarter of this year. We would highlight the significant improvements in adjusted EBITDA versus the previous year as a positive indication of the performance of the company's operating businesses in the wake of legalization.

This also marks the second consecutive quarter of positive adjusted EBITDA for the company. The company's positive cash flow from operations for the 6-month period was $2.24 million versus negative cash flow from operations of approximately $6 million for the same period last year.

This metric is perhaps the most positive highlight in today's statements. The company is reporting earnings per share of $0.01 for the first quarter of this year and $0.04 for the 6-month period.

As we continue to look forward for the rest of 2020, we feel that the company is well positioned to continue to execute on our vertical integration and growth strategies. We will continue to push forward to maximize the utility and efficiency of our existing assets, increase our production output and increase our ability to supply volumes of cannabis across all of our markets.

As our capacity increases, we will continue to add new markets to bring our high quality products to consumers. We will add to our retail store chain and distribution capacity by adding new stores.

And we will continue to cultivate long-term and value added relationships in our B2B segment as we deliver on Grow Pod projects across the country. There was little doubt that we will face challenges as a result of COVID-19.

However, we believe that through these types of tough environments, there is a significant opportunity for strong operators like Delta 9 to emerge as a winner. We see 2020 as a critical year for the company, which will lay the foundation for Delta 9 to become a major competitor in the Canadian cannabis market and beyond.

Thank you everyone for taking the time to join our call this morning. And with that, I will turn the call back over to the operator for questions.

Hi guys. Thanks for taking my call.

Just had a couple of questions. So recently we've seen a large trend with some of the LTEs moving to value oriented products and trying to pull in customers from the black market.

I'm just wondering if you could provide some color to what brands you're currently selling at the Delta 9 dispensaries? And have you seen any of these brands in particular outpace others?

And any other color you can provide us on your thoughts on value oriented products lines? Thanks.

Hey, good question, Bill. On the value segment, I think the first introduction to those types of products, probably occurred late last fall.

I believe the Original Stash brand was one of the first to actually hit the stores in the 28 gram setting. Since that time we've seen a number of introductions of similar products.

I do want to say we're carrying probably half a dozen of what we would consider the value products in the 14 to 28 gram settings in store right now. It is making up, I think, an increasingly important proportion of cannabis flower revenue.

And as you noted, consumers are certainly pivoting into those segments in terms of the value products versus black market. Our company's approach will be a little bit different in terms of approaching our House Indica, House Sativa and House Hybrid products, which will be introduced across a number of our markets in the third quarter.

We will be introducing these products in 3.5 and 7 gram settings. And the thought process there is that we are looking to really attract consumers that do not necessarily have the buying power to be buying products that are in the 14 to 28 gram setting.

So really trying to cater to those consumers that are looking for value. So those products will be introduced over the near future.

We will have more color and feedback on these smaller packaging sizes in the value segment through the balance of our third and fourth quarter of this year. But I would certainly acknowledge the fact that the value segment is becoming increasingly important.

And while this may put a strain on gross margin from our wholesale segments, overall again, we believe that as production costs continue to decline as we ramp up our capacity and find efficiency that there will be a very healthy business there for us in the value segment.

Great. Thank you.

And then just a quick second question, obviously, with COVID and everything -- times have changed we're in a new world now. Have you seen any changes in customer preference recently?

Whether it be their shopping styles or I know basket size have gone up, but are you able to provide any other color in terms of maybe shifts in product purchases and so on? Thanks.

Yes, absolutely. Beyond the previous commentary, in terms of more consumers, again, pivoting towards a certain value products, we have certainly seen an increase in cart size which really originated in the [first] [ph] quarter of this year.

I want to say in line with the escalation of COVID-19. While initially our sentiment was that these increased cart sizes were due to -- effectively pantry loading activity as we saw during COVID, the increased cart sizes have continued.

What we are seeing is that generally carts that include 2.0 products are quite a bit higher than carts that are individually 1.0 cannabis products. So it does appear that 2.0 cannabis products are having a positive impact on overall cart sizes.

People are not, or excuse me, the purchases of these 2.0 cannabis products are not necessarily cannibalizing sales of flower or pre-rolls, but they seem to be incremental. So again, people are opting to choose to add certain 2.0 products to their cart, which I think is overall contributing to that increase in these buying patterns.

Overall, we are seeing consumers start to shift into 2.0 product categories, there's been increased uptake in the vape segment, which was the first segment I would say to be well supplied. But again, the second quarter this year for us was really the first quarter where we began to see that product segments like edibles, drinkables et cetera, began to be adequately supplied.

So I think the next quarter or two will really give us a strong indication into long-term buying patterns for these categories, but it has been overall positive to see, a) new consumers coming into the stores to be looking at value segments and as well, the introduction of all of these 2.0 products has given us, I would say, a strong value proposition to be attacking the black market and really providing a buying opportunity that consumers simply cannot see elsewhere.

All right. Thanks a lot.

That was really helpful. Appreciate you taking my call.

Thank you.

So I noticed that the retail business is growing really fast and obviously COVID hit and that probably slowed down your rollout. But I was wondering when do you guys plan to have the next store open?

Good question. So the company has now completed construction on our next location here in the city of Winnipeg.

We are ready to open that location pending the issuance of a license from Manitoba Liquor & Lotteries and the Liquor & Gaming Commission here in Manitoba. So really just a subject of authorization from government.

Again, from there our retail store rollout in Manitoba will continue to add stores incrementally over the next 18 to 24 months. We have publicly released that our plans in Manitoba will take us up to 12 stores in total.

Beyond that, again, the company is actively seeking expansion opportunities into, I would say, particularly Alberta and Saskatchewan markets that allow for pure vertical integration and as well we are exploring opportunities into British Columbia and Ontario, which are slightly different. They do require, I would say, more of a franchise structure.

But again, we are actively pursuing expansion across these other markets, but to clarify or elaborate, I don't believe that COVID-19 has caused any significant delays in terms of retail store rollout. We are -- I would say experiencing modest concerns around construction timelines, although this has not been necessarily or concerningly impactful to our timelines for retail store development.

Great. Thank you.

Thank you.

Thanks for taking my call, guys. I have two questions.

So the first one here is over the long-term, given current canvas oversupplying Canada, do you see a shift in sales of Grow Pods from Canadian customers to U.S customers? And could you outline your strategy for penetrating the U.S., the Grow Pod?

Yes. Good question.

So, the company has already made for sales of Grow Pods into the United States. This started, I believe in the third or fourth quarter last year with first deliveries down into Michigan.

We built on that into early this year, developing a small facility in the State of Maine. The real challenge for us has been that the COVID-19 pandemic has obviously closed border travel between Canada and the United States.

So where we had several marketing events and U.S based marketing initiatives planned through the early part of this year, much of that rollout or expansion and marketing activities has been limited due to COVID. I would certainly agree that over the long-term the growth in that B2B unit likely pivots from the Canadian market to the U.S and other international opportunities.

So the U.S market, now that I would say things at least in Canada have started to stabilize, we are starting to look outward again. We're considering pivoting those marketing initiatives, which would have included things like trade shows or boots on the ground into the United States, we'll have to take more of a digital platform over the near-term.

So that pivot is underway for us. But I overall feel that the Grow Pod offering really the state of the art turnkey solution that we offer in terms of the Grow Pods will be a very attractive value proposition for U.S customers as well the relative strength in the buying power of the U.S dollar versus the Canadian means that our Grow Pod systems are very economic solution for facility expansions in the United States.

So, again, certainly acknowledge and agree that the U.S market will form a large part of our B2B strategy into the next, call it 3 to 5-year period.

Perfect. And my second question here is as you're well aware, Ontario represents a huge market for cannabis in Canada.

Do you have any update or timeline or why we should expect to see the first wholesale shipments to the province of Ontario?

Yes, so first, I believe our supply listing there was completed very end of June. First shipments will occur in the third quarter of this year.

From there we should be in a position, I would say, over the next or through the back half of this year to be getting to more routine shipments. So obviously it takes us a certain amount of time to structure our product listings, things like that with the province that has now been completed for shipments will occur.

You will see products in the Ontario cannabis store over the very near future. And again, to become much more routine shipments into the back part of this year.

Sure. And are you seeing, like you said this quarter, is it going to be the end of the quarter, or like imminently?

Yes, I would say in the next few weeks, we're confident that those products will be on shelves, but it's nice to know that you're eager.

Thank you.

Perfect. That being all of the questions for today's call, again, we want to thank everyone for taking the time to join us and have a great day.