Entourage Health Corp.

Thank you, operator and good morning everyone. Welcome to WeedMD's first quarter 2019 results.

This conference call is being recorded. For copies of our financial results, press release and supporting documents issued earlier today at 6:30 A.M.

or to retrieve a recording of this call, please visit our website at www.weedmd.com. This recording will be available online this afternoon as of 12:00 P.M.

Eastern Time. We're joined today by WeedMD's Chief Executive Officer, Keith Merker; and Chief Financial Officer, Nichola Thompson.

During the call, we will discuss our business outlook and make forward-looking statements. These comments are made based on predictions and expectations as of today.

Actually events or results could differ materially due to a number of risks and uncertainties including those mentioned in our most recent filings with SEDAR. During the Q&A portion of today's call, kindly limit yourself to one question and one follow-up.

Before we get to the Q&A, Keith will start with opening remarks. Please go ahead, Keith.

Thank you very much, Marianella. And I want to start-off by welcoming all of our stakeholders to this call, including of course, our employees, patients, shareholders, customers, analysts, and the media.

And it's a pleasure to have you join us for WeedMD's first quarter and, of course, first-ever earnings call; so, thank you for participating. 2018 marked a great year for WeedMD, and we're even more excited about what's in-store here in 2019.

So, before Nichola goes through the numbers, I'd like to take this opportunity to provide an overview of the business, as well as some highlights, and some of our major initiatives. So firstly, we continue to build upon our successful record of cannabis cultivation.

In Q1, we successfully harvested all eight of our 10,000 square-foot hybrid grow rooms at the Strathroy facility for the very first time. This was the most cannabis that WeedMD ever produced in a single quarter, and much of this product will find it's way to market in the current quarter.

Furthermore, we've significantly increased our capacity without sacrificing quality; in fact, I'm proud to say that our products are recognized as top-shelf across this country today. We hang dry whole plants, we hand manicure flowers, we do not take shortcuts.

We launched the first 44,000 square-feet of the Strathroy facility almost one year ago. By the end of 2018, we had 110,000 square feet complete licensed and online, which includes 10 of our hybrid grow rooms, eight of which are the 10,000 square foot what I call our model hybrid greenhouse flowering rooms.

As of today, a further 10 flowering rooms are complete and they are ready to grow; this will bring us to a total of 20 grow rooms in the greenhouse, 18 of which are again these model hybrid indoor almost flowering rooms; one of the most modern cultivation platforms in the industry. They are equipped with full supplemental lighting, light deprivation curtains, HVAC, supplemental CO2, and drip fertigation; all of these systems are fully automated such that our computer systems control when the lights come off and on, when shades open and close, and when fertigation happens.

I'm happy to report that all these systems and our cultivation model as a whole, have now been fully derisked, we've now been cultivating in the greenhouse for almost a full year, and we've shown steady improvements in yields while successfully harvesting every single crop that we've ever planted. Beyond the hybrid greenhouse, we are in late stages of completing another section which represents north of 300,000 square feet of traditional greenhouse or what I like to call, the juice factory.

This space is retrofitted to a lower specification than the hybrid space and is intended for the production of extract quality cannabis rather than the premium quality flower that is currently being produced in the hybrid greenhouse. And with this, I'll transition to the great outdoors.

In January 2018, when we first began to work on the Strathroy project, we had no idea that growing cannabis outdoors on a commercial scale would become possible. It was through good fortune that our greenhouse is located on a 98-acre property with a large acreage of organically certified soil upon which the former owners had been growing organic asparagus.

So that, of course, became the first step towards WeedMD putting together the strongest outdoor cultivation plant in this industry. Starting with municipal support was very important to us, I don't think you'll find many Mayor's quoted in licensed producer press releases, but you will find the Mayor of Strathroy voicing her support for WeedMD in our outdoor projects on-hours [ph].

Critically, the project is located on the same land, in fact, directly adjacent to our current greenhouse operation. For us, the outdoor project is an amendment to our existing Health Canada license rather than a new property to be licensed.

And part and parcel of that story, of course, it's the fact that all of the required infrastructure and human resources already exist on-site. We've got a great property, we've got great sandy loan soil that drains extremely well when there is too much rain, and we have full installed irrigation to ensure our plants are appropriately watered and feed.

The 27-acre site is largely surrounded by protected woodland which provides a natural barrier. We also purchased 60-acres directly adjacent to the grow in order to provide a further buffer, as well as to allow for future expansion in 2020.

I think one of the most critical factors here is that our growth team has been there and done that; they've successfully grown outdoors, the very same genetics that we are about to grow outdoors. We already have more than 20,000 clones cut and ready for transplant.

Of course, the question on everybody's mind is that one last piece of the puzzle, which is the license. We are very cognizant that as of today we do not yet have that in our hands.

However, we are confident in saying that we are in late stages of review with Health Canada, and we do expect something shortly. While on the topic of licensing, I thought it's useful to provide an overview of status and timelines associated with the Strathroy site.

It's important to note that we've adjusted our licensing plan overtime to adapt to a changing regulatory environment. There are two main factors here at play that I think it's important that people understand.

Firstly, under the current system, a license holder cannot have more than one license amendment in the queue with Health Canada at any one time; so a licensee must be strategic about their approach. The other factor that's -- of course, led to some changes is the introduction of the outdoor grow opportunity.

So, though we do have 10 new cultivation rooms in the greenhouse that are complete and ready for licensing, we have made the decision to hold-off and first secure the license for the outdoor growth after which we will go back and secure the license for those rooms. It all boils down to the fact that we can control the growing season indoors, but of course, we cannot outdoors.

So once that is achieved, that being the license for the 10 rooms beyond the outdoor grow, we will look to license the next piece of the puzzle in Strathroy, which is again, the 7-acres of traditional growth that should happen in the third quarter of this year. Moving on, I want to provide an overview of what's happening at our flagship site in Aylmer.

As announced earlier this week, we are streamlining our operations and converting the site to it's highest and best use that off a leading edge large-scale extraction and processing hub. To elaborate, it simply does not make economic sense for us to run a small indoor cultivation facility, now that we've proven out the Strathroy grow model and it's producing high-quality cannabis for the much larger scale and a much lower cost.

But it does make a ton of sense to utilize this license space and this owned property to create a hub that will become a focus on -- for the creation of extracts and concentrates. These, of course, will ultimately lead to the production of value-added cannabis products that consumers and patients demand.

The site is, of course, fully licensed. We've been producing cannabis extracts at the Aylmer location since 2017.

It is only now, however, that we're taking it to a full industrial scale. In fact, we have two [indiscernible] CO2 extractors on-route to the facility, the rooms are being retrofitted for extraction, and the creation of new concentrate products, and we are expecting to have it online later this summer.

Additionally, we announced this week that a newly built packaging room in Aylmer with semi-automated packaging lines is now Health Canada licensed. While the extracts capabilities on-site will provide for the production of value-added higher margin products, the addition and the efficiencies that automated packaging will provide should improve our current margins on dry flower.

It will also allow us to pull more products and push more products through the system. As for new products; we look forward to rolling out both, soft gel capsules, as well as pre-rolls in the third quarter of this year.

We also have some new exciting news coming out later this week relating to our recreational brand; so I'd encourage everyone to stay tuned for that. And lastly, I just want to take a moment to acknowledge the heart of our operation.

Our business would be nothing without the dedicated base of employees who show up day in and day out. And I don't mean show up physically to go through the motions, I mean, the best team in cannabis who shows up mentally, physically, and with spirit.

I'm very proud of the team and our accomplishments to-date, and I think I'll continue to be as we deliver further results through 2019 and beyond. So on that note, I'm going to turn it over to our CFO, Nichola Thompson for an overview of the Q1 financials.

Thank you, Keith and good morning, everyone. WeedMD delivered record quarterly revenue in the first quarter of 2019.

Revenue, net of excise tax was $3.3 million, an increase of 23% from Q4 2018, and 192% increase from Q1 2019. 89% of the revenue is derived from the sale of dried cannabis to the medical, adult-use and wholesale markets.

The dry cannabis sold for the period was just over 793 kilograms, up 45% from Q4 2018, and almost 14x of the gram sold in Q1 2018. The average selling price for the quarter was $4.15 per gram.

A decrease in average selling price was expected from Q1 2018 with the onset of the excise tax, and the adult-use wholesale market. However, the decrease from Q4 2018 was mainly attributable to an unusual portion of extraction-grade products being sold.

73% of the total grams sold were of extraction-grade. Cost of goods sold was $2.8 million, a 4% decrease with the decrease being offset by the increase in sales for Q4 2018.

The average cost per gram, inclusive of all costs, direct and indirect to produce and package, Q1 2019 was $2.90, a 12% improvement from Q4 2018. Gross profit before changes in fair value increased $745,000 from Q4 2018, which is the result of improved sales and the reduction in the cost to produce high-quality cannabis.

The fair value adjustment realized and unrealized netted to a gain of $2.8 million. After the fair value adjustment, gross profit was $3.3 million, an increase of $4.1 million from Q4 2018.

General and administrative expenses include salaries, wages, marketing, rent and occupancy costs, insurance, travel and other office and admin costs. General and administrative expenses increased 4% from Q4 2018, and 139% from Q1 2018.

The increase in G&A was expected given the total footprint of WeedMD has increased 423% from 26,000 square feet to 136,000 square feet; and a head count increase of 302% from 53 employees to 148 at the end of Q1 2019. Overall, for the three months ended March 31, 2019, WeedMD reported a net loss of $2.4 million for Q1 2019 compared to a loss of $7.7 million in Q4 2018.

Some key highlights of our financial position at March 31, 2019, include a cash balance of $16.9 million with near-term receivables and short-term investments of $13.2 million, totaling $30.1 million compared to $30.6 million at December 31, 2018. Inventory and biological assets totaled $13.9 million, an increase of $5.9 million from Q4 2018.

Inventory and biological assets are valued at their fair value at the time of harvest with the fair value based on their expected selling price. WeedMD value includes the total cost to produce and the expected margin once sold.

Expected turnover from point of harvest is three to six months. During the quarter, WeedMD spent $29.6 million in capital expenditures, of which $17.6 million was in relation to the purchase of the 98 -acre Strathroy property, which was funded by a 3-year term loan from the Bank of Montreal.

In addition, $7 million was spent in relation to the retrofit of these greenhouses. The remaining additions were related to software and equipment which includes the packaging lines for semi and fully-automated solutions at both locations.

Lastly, as I mentioned, WeedMD entered into a credit agreement with the Bank of Montreal, the total fund is upto $39.1 million. At the end of the quarter, the company had drawn $35.9 million leaving upto $3.2 million available for future projects.

Overall Q1 2019, WeedMD continued a strong pace of growth and is well-positioned for future expansion plan as we move towards full production in the second half of this year. That wraps it up for the financial overview.

I'll turn it over to Marianella.

Thank you, Nichola and Keith. Operator, we are now ready to start the Q&A portion of the call.

Please proceed with the first question.

Good morning, just a couple of questions. I'm just wondering in one of the highlights said that you expect to see significant revenue increases through the balance of the year.

Is there any way of quantifying that going into Q2 and through the balance of the year?

Yes, sure. Hi, Greg, it's Keith here.

So at this point in the game, WeedMD is not making a practice of providing formal guidance to the Street, but I can tell you that you can extrapolate from the production profile to get to a place where I think you can come up with some reasonable numbers to model. So in other words, at the end of Q1 we're producing in eight of our 10,000 square foot flowering rooms, and the first harvest of which, of course, were taken down in Q1, and it does take three to six months typically to get that product to market.

So you can anticipate that much of that product would -- that vastly increased production profile will be finding it's way to market in the current quarter, and then beyond, and then, of course as Q3 hits, then we start to open up the next 10 rooms and so on to the marketplace. So, I hope that's helpful.

If you've got a follow-on maybe I can help to elaborate on that. But I think that's sort of methodology and of course, that outline -- those timelines are all present in the MD&A if you want further information.

And you can sort of extrapolate from that production profile with the time lag to the market to get to a place where I think you can come up with some reasonable numbers.

I guess the $13.9 million in inventory and biological assets are good sort of indicator of where you can go next quarter?

It's reasonable, although with the caveat that a good portion of that inventory is, of course, whip. So, not all inventory as it's currently represented is finished product in other words.

So, does that make sense?

So we did get directional indicator?

Of course.

Okay. And the other thing is, when you do move to outdoor grow, can you just sort of talk about the benefit of having your facility right beside the grow and the fact that you've got 20,000 clones?

We've seen other outdoor grow licenses go forward but they're growing from seed. So can you just sort of talk about the benefits of clones versus seed and the fact that your proximity to the grow is beneficial?

How long do you have? I could talk about this all day, but it's a good question.

How long do you have?

I can't tell you how important it is that this grow -- this outdoor cultivation project is on the same property. The water's on-site, the power is on-site, the personnel are on-site, the greenhouse is right next door, the clones are currently -- actually, yesterday I was at the facility and they were transplanting the clones from their cocoa flower buds into cups with actual soil; so they are ready, they are now all in one of our veg-rooms [ph] and ready to be transplanted.

We just transferred them to the cups to allow them to root for a little while; and what we end up with that answers sort of the latter part of your question; is the plant that's much heartier I think than otherwise would be the case; so these plants will be fully rooted, they'll be in soil, we've got them getting used to sunlight with the shades open, obviously in the grow room. And so when we transfer them outdoors, they've got a much higher percentage probability of survival; whereas when you grow from seed, as you know, you've got issues not only with the fact that you're going to have to have a male-female calling, I would say, even in a situation where you think that all your seeds are female.

And then, of course, you're going to have a good loss factor, a significant loss factor when it comes to those plants germinating and developing.

And just -- I guess the other thing is you are opening the -- are converting Aylmer to a fully operational extraction facility. And I guess if you do get the outdoor grow looking forward, you should be -- with the outdoor grow in the of outdoor grow, you should have some of the lowest distillate prices in Canada.

Or the highest margins or maybe a little bit of both, Greg. But you're absolutely right.

We will certainly have a large, large quantity of feed stock. Not only, of course, from the outdoor cultivation but also from the seven acre traditional grow that we're putting into place in Strathroy.

Moring, guys. I may just follow-on one of Greg's questions there.

With respect to your inventory and biological assets, do you have any intention to holding some of that back for preparation of some of the alternative product formats that are supposed to be available later this year?

Yes, Neal. Hello and good morning.

We are holding a portion back. We have our own internal forecasts with respect to what our needs are within the new Aylmer project.

And so, it's just a balance really. There is a certain portion of that inventory that will be held back for extraction in house.

And, of course, we're making a balance between that. And of course, the space allocation in the bulk for instance, as well as selling products just to keep the turnover moving.

So, the answer is yes and no, and I hope that's helpful.

Yes, fair enough. With that announcement you made earlier this week on the extraction facility, I think you stayed in the press release up to 200,000 kilograms of input that you could process.

Are you considering doing some sort of wholesale opportunities with some of that capacity until you have all of your outdoor grow harvested and you're ready to go through those machines? Is that sort of an opportunity for you in the meantime?

So, to define wholesale activities, do you mean processing products?

Yes, product from other people or just processing it for them. Basically, just there's like -- there's lots out there that don't have the extraction capabilities that you guys would have.

Yes. That's a good question.

And we didn't use in the unique, somewhat unique position in the industry in that we had a history of selling genetics and starting materials to a number of smaller LPs and, in fact, you've seated over, I think 20% of the licensed producers in this country. And we've generated through that a lot of relationships with a lot of LPs who quite frankly are not going to be in a position to build out their own extraction facilities.

So, with those relationships, in fact, we've already had a lot of discussions around this. We will be in a position to provide further help not only as we have historically on the front end, but now on the back end to provide wholesale and toll processing health and arrangements for other LPs.

So, the answer is yes.

Okay, good. And then maybe my last question, well, maybe it's a multipart question.

I guess two-fold. Number one, is the 20,000 clones you have for outdoors that basically everything you need for your plans for this year?

And then secondly would be -- if you assume that you get your license for outdoor tomorrow or whatever, and then you're moving on to those 10 rooms, once those 10 rooms are approved, what's your expectation for how long it takes to get those fully ramped up and cycling?

So, the 20,000 clones, I believe the number is actually 25, full disclosure here. So we've been saying north of 20, I think that they touch 25 because as we want to have several or plenty of extra clones so that they can make sure that we plant only the best of the best and hold some back as well because you can't anticipate there will be some losses in the early going.

So, yes, the answer is that is to sufficient to cover, I believe, north of 25 to 27 acres that is now fully encapsulated by the perimeter fencing. And that is the way in which we're going about the outdoor.

When it comes to the 10 rooms, if we think of timelines in sort of loose terms here and, of course, you can't hold me to these because we're talking about contingency factors with the regulators here, but if we were to achieve the outdoor license, our new license amendments that we would apply for would be for those 10 rooms. And if we think of maybe the outside of 60 days sort of turnaround time, we would anticipate getting those rooms online in August and with a three month cycle.

And then as we said earlier, it can take three to six months to get that product to market. Although we are making that, as I mentioned earlier, with more efficient packaging processes, we're making that process quicker all the time.

We would anticipate getting products to market sort of in Q4 from those rooms. There'd be an opportunity maybe to get some of it to the marketing in Q3 but we anticipate pushing out a little bit further.

It's Will here for Graham. Thanks for taking my question.

Just going back to the extraction facility, I was wondering, would this facility come online all at once or should we expect it to phase in overtime after it's completed? And more specifically, how much time does it typically take to process a batch like from the time it goes into the facility to the time that it's actually ready for sale?

Thanks, Will and a welcome to the call. So, right now we've got the facility laid out in three separate phases that get us up to that 200,000 kilograms of biomass per year.

And in Phase 1, which will be online again mid-summer, we anticipate being able to process about 70 kilograms of product per day. Once that's processed, that product then has to just go through testing, which can take a couple of weeks and be cleared by QA.

If it's going out for wholesale, I mean, it can go from there, if it's being packaged and so forth, then there's another further time associated with that piece of the puzzle, which depending on what moving pieces we have in the facility at that time, I mean, it could be as quick as a week, but I guess overall, I'm saying roughly a month would be something that we would expect to get product to market on average.

Perfect. I was also wondering, could you guys provide some color on kind of your CapEx assumptions over the next couple of quarters?

Like as it pertains to finishing the Strathroy facility and finishing the aim the Aylmer facility?

Sure, this is Nichola here. For the CapEx spend, as I mentioned to the quarter, we've spent a cash of $29.6 million and that included the purchase of Strathroy.

To bring that to completion, we expect the remaining CapEx to be $10 million. And then with the Aylmer facility transforming to the extraction facility, we expect to spend on the first phase $2.5 million.

Perfect. Thank you.

And then just my last question here. I was wondering with the new privacy regulations expected this fall, could you guys talk a little more on your droid is strategy, maybe more specifically what product segments are you guys focusing on the most and why?

Sure. Thanks, Will.

So, right now, we are very focused on the concentrate side of the business. We are not in a position currently where we will be coming to market with an edibles product line at this point in time.

We are actively in conversations with various partners who will allow us to get those products to market eventually. We are not anticipating having them on day one of new product format rollout.

We are, of course, with the transformation of Aylmer now in a position where we can really ramp up what we've been working on, which is, of course, again those concentrate pieces. So, I encourage you to stay tuned.

We'll be rolling out more detail shortly, of course. And this goes beyond what I mentioned earlier in the call when it comes to the very near-term when it comes to pre-rolls, which we're now in final testing phases and starting a production to roll those out in Q3 as well as, of course, gel caps, which we anticipate also rolling out to marketing Q3.

Hi, I just had one question here about the gross margins affecting the industry. As we can see from the last few days, I think there is a real concern in the market about the earnings, gross margins and such.

I just wonder what you're doing in your business to protect that. And how does the more of a medium grade -- a more medium size producer get ahead of some of the big boys in that sense?

What are you doing across all your product lines to protect and improve gross margins in the face of some of this compression that we see?

Sure. Thanks, John.

So, gross margin is, of course, something that we are very cognizant of and something that we're working towards making consistent improvements of. And I think that we've demonstrated that in Q1, although we do have a long way to go admittedly.

What's going to happen and how are we going to get there? First and foremost, our cultivation costs have shown a steady decrease over the past several quarters.

We anticipate that continuing going forward with, of course, second quarter improvement in gross margin. So, you have to remember that the product sold in Q1 was sold from the original -- was grown in the original two rooms in Strathroy as well as having some historical products in the Aylmer indoor grow as well so.

And so, there was a lot of incurred costs that were excess to what would be normalized costs during the period that these products were grown because we were ramping up in anticipation of further rooms and Strathroy coming online. The way in which we have to calculate our costs, it's you take all your costs of production in one given time frame during which a given product is grown regardless of whether those costs are associated with growth that will come in further quarters.

So, in other words, we've had ramp up in headcount, for instance, a large ramp up in headcount, and that was in anticipation of running eight rooms instead of two. And so, for a quarter we had a lot of excess costs associated with that, which of course then gets baked into our cost of goods for that material when it's sold, which is what we saw in this quarter.

Furthermore, we also, as Nichola pointed out earlier, we sold at a lower average selling price than we would anticipate going forward. And that was due to the fact that we sold a larger proportion of extract-geared products on the wholesale market.

It's much quicker to get that product to market. It does not require packaging.

And we had some space considerations which required us to move out some of that product and hence that's why we saw the lower selling price. So, we anticipate both those pieces, both the price achieved as well as the cost associated, both going in different directions on a go forward basis.

And so, with all the improvements we have there, including, furthermore, the fact that we brought in some automated packaging, we are further refining our processes. When you're in the scramble for growth, you don't always pay attention to every efficiency.

It's just not possible when you're trying to get everything online as quickly as possible. And so, now we're in a place where we're starting to refine our processes and looking back and making constant improvements in the way in which we grow.

And so, through that, I believe that we will have one of the most efficient grow and cultivation platforms in the industry. Does that help, John?

Yes, sure it does. And I just wonder sort of as a follow-on here, so, just as a capital market strategy, I mean, in my own opinion, I think we're looking at a fairly undervalued story here in terms of what the current and the future potential is.

I'm just wondering, there's going to be a little bit of a separation here and there's going to be sort of, I guess, a reckoning. How do you make sure that you're going to be on the other side of that?

How do you make sure that the capital markets will be able to recognize the story as one of the premier ones as opposed to the many others that are out there?

That's also a great question. I, of course, prefer to use the term underappreciated rather than undervalued.

But I get where you're coming from. And I guess at the end of the day, I think the capital markets are ultimately looking for revenue and EBITDA.

I mean those traditional business metrics that every other business on the face of the planet is adjudicated by, and that's where we're going. I know that our current gross margins leave something to be desired as we've just talked about, but I know that we also have a very concise plan of how we're going to get there.

And I think most importantly you'll see later this year and into 2020, those numbers really start to shine in the capital markets. I would only have to assume would appreciate that, take notice of that.

And with this production platform we have online as well as the newly announced downstream piece in Aylmer with the full extraction capabilities that will have to produce higher margin, higher value-added products that we'll be in great shape as a company. We've always taken a very capital efficient approach to this industry.

This is a company that's raised $65 million or they’re about to date, which I think in the scope of what we've built and when compared to the rest of this industry is quite efficient. And I think that that in and of itself kind of describes our approach in the way in which we've attacked this opportunity.

And again, I think that we've built a bulletproof platform going forward that will be recognized ultimately when it comes to shine with the numbers behind it.

Okay. And just the last question, if I may, on the capital markets front end, unlocking some value might we see a day where the Aylmer facility might be standalone or is it always going to remain integrated into your operations?

So, we look at all options and all opportunities of the company. It's certainly not my company to make my own, this is a shareholder's company and my goal is to increase shareholder value any which way that I can, of course, with an eye on the long-term.

We're not here to create a short-term bump for shareholders. If we have shareholders that are looking for that, then I'm afraid you're invested in the wrong company, in all frankness.

We are here to build something strong, bulletproof for the long-term. And if there's ways in which we can unlock value within what we own and operate as WeedMD, then we will of course, pursue or at least analyze and make sense of all those opportunities with, of course, the goal of, again, unlocking and creating value for our shareholders.

Okay. And lastly, what is your strategy on hemp?

So, we haven't publicly announced anything to this point. John, I can tell you that with the Aylmer facility, being transformed into extraction hub that there will be some opportunities there.

And we are exploring further opportunities and ways in which we can expand on that. And once again, I'd encourage you to stay tuned.

There will be some announcements coming over the next quarter or two with respect to how we will be approaching those large quantities of biomass associated with head for instance.

Just one question Keith, with the changes in Alberta accelerating the number of stores, how does that -- if it does impact your business; and maybe, just your general thoughts on what you're seeing with the regulators, certainly on -- I guess, a couple of the big provinces and getting more product for the market?

With respect to Alberta, it's great news that they are opening up the door again and allowing for -- and feeling more comfortable I should say with the supply that they are seeing available. Our sales and marketing team of course is in close contact with all the provinces that we distributed to including, of course, Alberta, and the demand is there.

The demand has always been there to bring in more product; so the good news on the WeedMD side is that especially with this new automated packaging that we're implementing with vast improvements that we've made just in our packaging systems overall, and of course with the exciting news that we're rolling out next week as I mentioned earlier to do with our recreational brand, you can anticipate seeing larger quantities of a fantastic new WeedMD product coming to market shortly and that will include Alberta. There was a second part to your question with respect to what we're seeing overall, in the marketplace?

Yes, in terms of Ontario; your conversations with those kind of control boards.

No, it's very much the same as I mentioned. It's a situation where all of the provincial agencies are looking to get as much product as they can.

As I think everyone is pretty well aware at this point, there is a large bottleneck when it comes to that packaging and processing part of the supply chain. There are other challenges along the way but that's probably the largest or the most efficient way that I can describe it.

And each company, of course, is making it's own moves to remedy those and fix those issues and of course, meet those challenges, and I think I've mentioned how WeedMD is going about it. And from the WeedMD standpoint, we look forward to delivering a lot more product very shortly across this nation.

So, to answer your question; they want product and I think we're starting to see some more trickle-in but they are not quite where they need to be at. We as an industry are not quite where we need to be yet but we are getting there.

Just a follow-on; does the sale -- I guess the extraction grade sale to the wholesale market; was that multiple buyers or was that just one buyer?

Multiple buyers.

Just wanted to clarify a few things that you said on the call; you indicated that out of your wholesale, 73% was extraction-grade sales. Is that correct?

I believe so. Nichola, yes?

Yes, that's correct.

So does that mean, doing the math yet roughly about $3 million in dry wholesale. Does that mean $2.2 million went to extraction-grade and only $800,000 or so went to adult rack [ph]?

I believe that's the case, sorry, Nichola with that -- the 73% is that in kilograms or in dollars?

That will be in kilograms, sorry; of the 783 -- 793 kilograms, 73% was extraction-grade sales.

If you -- looking at your wholesale figures for the quarter then, of -- roughly $3.3 million. How much went into adult rack versus your wholesale for extraction-grade?

So, I think that the number -- sorry, we're just pulling it up here.

Sorry about that.

No, no, it's fine. I think that the number that went to adult rack was probably in the neighborhood of -- Nichola, is it as high as 20%?

Approximately.

I think it's approximately 20%.

20% of the $3.3 million?

That would be correct. And as I said, I mean, this is a matter of fine tuning the packaging piece of the equation which I think we've now solved for so that we can obviously get more finished product into the market.

Some of that product as well, I should also point out was held back from the standpoint of this new recreational brand that we're rolling out next week. And so that product will be delivered starting -- I believe, now, to the provisional agencies and through early June you can expect to see that coming online later in June.

So, it's part of that evolution to the new brand with which we did whole back and finished products so that we could properly rollout things here in June.

That leads me to my second question. Your finished inventory; I think at one point you indicated that your finished goods might not be finished.

Could you define your finished goods for me? Are your finished goods through QA/QC and not packaged?

Like -- what is your litmus test for finished goods?

Yes, so our inventory line item includes anything that's been harvest and that can be in bulk and in finished goods form. About 53% of our dried finished cannabis was recently harvest, and I don't have the exact split of how much was in the curing process at that time, so essentially for the standards anything that -- after it's harvested, it becomes an inventory item.

Yes, so it becomes an inventory item but I guess where I'm having problems is reconciling your harvested whip [ph], I'm trying to figure out the difference between what you guys consider harvested whip and harvested finished goods? Are your harvested finished goods in saleable form I guess is my quick cut.

Yes. I think Craig, I might have misqued when I said -- when I called it whip, I was meaning the bulk product which, of course, could be sold as bulk; in this case we would call it whip internally because it's meant to be packaged for finished products.

Does that make sense?

That makes sense. Thank you.

I'm sorry about that, there was a miscommunication there.

No worries. And last question, as you know, I'm [indiscernible] with respect to your gross margin, and if you're not going to provide guidance as to percentage, can you provide guidance as to when you believe you will be at a steady state gross margin from your present facilities?

Right. So we would anticipate that happening in 2020.

I think quarter-wise, we would probably anticipate coming into the second quarter so to speak as we get to a place where some of the outdoor profit is coming to market where we've got the 10 rooms online and it's gone through a couple of cycles. I'll say that with the caveat though Craig, that -- this is an industry where we're doing a lot of things for the first time, in all frankness.

And it's tough again to reconcile that growth with efficiency; you can't really have both to the fullest extent, and so while we're in growth mode, we're never going to know what that ultimate gross margin can be and once we complete all this growth and get to a place where the gross margin is in comfortable spot, it's then that we're going to start getting sigma [ph] on this stuff and really start to make those fine tuning pieces come to play. And I would -- this is a never-ending goal is what I'm trying to tell you; so even if we get to a place where we've got really comfortable gross margins in the second quarter of 2020, we will still be striving from improvements and looking for ways in which we can make increases then.

Now, you indicated your outdoor facilities in that. If we were just looking at your present facilities that are licensed, would your gross margin steady state -- again, tweet for efficiency once you can capture breath; would that change your timeline if we just focused on your existing facilities and not the outdoor?

Is it still Q2 2020?

Yes, I believe that's fair to say, Craig.

Great, thank you very much. And of course, thanks to everyone who has been on the call, for your participation today.

I'd like to remind everyone that our AGM is being held on June 25 in Toronto, and for those that are interested the details are posted on our website. Finally, I'd just like to say thanks again.

We look as the WeedMD team looks forward to delivering a great 2019 and beyond. And have a wonderful day everyone.

Thank you.