Thank you operator, and good morning everyone. We appreciate all of you taking the time to join us for today's first quarter 2020 earnings call.

As we highlighted on our Q4 call in mid-June, Flower One ended 2019 strongly with a series of major operational and financial achievements. That quarterly revenue momentum carried into Q1 of this year.

Revenue for the first quarter totaled 8.8 million, up 52% sequentially. March alone saw Flower One achieve 3.9 million in monthly sales, a record for our company.

Geoff will speak in more detail to the Q1 results shortly. Just as important as our top line revenue growth, we continued to demonstrate that our 455,000 square foot flagship greenhouse facility, which we designed, built and fully planted in less than 14 months can cultivate flower at industry leading metrics.

For Q1 we are reporting a harvest cash cost per gram of $0.49, which is $0.09 higher than the fourth quarter of 2019, but in-line with the third quarter of 2019. The variation in cost per gram is directly correlated with the variation in production of flower and extracts.

As we're all well aware, despite record sales of 3.9 million in March, the month was negatively impacted by the COVID-19 pandemic. Although cannabis was deemed an essential service from March 20 to May 9, cannabis retailers in Nevada were temporarily required to close their physical storefronts to in-store sales.

The closure of all businesses along the Las Vegas Strip until June 4 also had a notable impact on cannabis businesses across the state. In response to this temporary constriction of the Nevada cannabis market, we took the opportunity to recalibrate our cultivation strategy and revise our crop management plan to reflect the challenges brought on by the pandemic.

In developing a revised crop management plan, one of our operational team's top priorities at the time was to fully protect and preserve the quality of our existing live plant inventory. I'm very pleased to report that their efforts have resulted in a robust dry flower inventory, representing some of the highest quality flower our company has cultivated to date.

So as evidenced by our recent successful launches of top shelf cannabis brands, Cookies and 22Red. Given the quality of these harvests, we were able to effectively pre-sell both brands initial launch inventories.

And we could not be more excited about the debut of Cookies and 22Red in Nevada. I want to congratulate our entire cultivation and production teams, as well as our brand partners for their collective efforts to successfully launch both brands, which have built their reputations amongst cannabis consumers has premium level products.

As I've highlighted previously, Cookies and 22Red will be major revenue catalysts for Flower One in the second half of 2020. Kellen will speak to this in greater detail, as well as discuss other new exciting brand partnerships later in today's call.

As mentioned, COVID-19 and the recent short-term contraction we observed in the Nevada market provided us with an opportunity to recalibrate and right size our cultivation in response to market demand. We certainly didn't waste this opportunity.

We took full advantage of it and completed a thorough sanitization of all of our growing zones, conduct preventative maintenance and checks on all of our cultivation systems and made significant progress for improvements in our greenhouse to enhance our crop management and post harvest methodologies. We are confident these recent efforts to further fine tune our cultivation infrastructure and operational systems will pay dividends in the second half of 2020 through the continued and consistent output of high quality high grade flower.

Our Neeham facility will continue to operate at full cultivation capacity, with a focus on delivering premium grade flower along with refining strains specific cultivation formulas for the more than 150 cultivars contained within our genetic bank, as well as the proprietary genetics provided by our brand partners, such as Cookies. The breadth of SKUs emerging from our production facility also continue to increase reflecting our continued focus on providing the widest and deepest range of high margin derivatives available in the market today.

These manufacturing proficiencies have made us an attractive partner for some of the cannabis industry’s leading vape brands, including Heavy Hitters who we signed as our 15th. brand partner in March.

We expect to launch Heavy Hitters in Q4, making them our third vape brand launch this year. In early Q2, we launched both the clear and Old Pal’s vape products, reflecting our continued focus and commitment to expand Flower One’s product offerings to all 70 cannabis retailers in Nevada.

And in speaking about our vape SKUs and vape products, I think it's important to note that all of Flower One’s vape production focuses exclusively on using pure cannabis derived oils with no additives. You know, we take the opportunity through our extraction and lab team to basically strip terpenes and reformulate and custom blend all of our vape products specific to the needs of our brand partners.

Before I turn the call over to our outgoing CFO, Geoff Miachika, I would like to take the opportunity to introduce David Kane, who officially takes on the role as our Interim CFO today. I will speak more about David later in today's call.

As previously announced, Geoff, who has been part of the Flower One team since June 2018, has decided to step down from his position. Geoff has certainly played an integral role in Flower One’s transition to a public company.

And on behalf of our entire team, I want to thank Geoff for his many contributions to Flower One. We will certainly miss having Geoff around.

And with that, I would like to turn the call over to him to discuss our first quarter 2020 financial results in more detail. Geoff?

Thanks, Ken. It's been a very exciting to be a part of the Flower One team over the past two years, and I look forward to continuing to see the company's many accomplishments in the future.

With that, I'll speak to our results for the first quarter. As a reminder, all figures discussed today are in U.S.

dollars unless otherwise noted. As Ken noted, revenue for the first quarter of 2020 was 8.8 million, roughly at the mid-point of our guidance and representing a sequential increase of 52% over Q4 2019.

March revenues of 3.9 million were a monthly record for Flower One. Cost of sales for the first quarter was 6.3 million inclusive of production cost expense and cost of inventory sold.

This resulted in a gross margin of 28% for Q1 2020, down from 44% in Q4 2019. We reduce production for flower and extract from Q4 levels to be more in-line with Q3 2019 levels.

This level of production was the result of our shift in focus from quantity to quality of flower to better serve our newly launched and upcoming brand partner. This has led to a reduction in the extraction output from our facility with certain fixed costs being absorbed by less output.

Resulting decrease in gross margin primarily related to these increased costs in Q1 2020 on a per gram of cultivation and production basis. Q4 2019, we harvested approximately 12.1 million grams of flower as compared to 7.5 million grams of flower in Q1 2020.

Additionally, on the extraction side, we produce 486,000 grams of distillate in Q4 2019 as compared to 135,000 grams in Q1 2020. Well, a number of our direct costs are variable.

Certain costs more predominantly in the extraction lab are fixed, which drove the cost per gram in Q1 2020 higher, resulting in higher ultimate cost of sales when sold. The recent premium brand launches will contribute to further margin growth over time.

While revenues were certainly strong in the first quarter, as a result of the COVID-19 pandemic and stay at home orders in Nevada, Flower One saw a decline in sales during Q2 2020. [Dispensaries] reacted to the shift in the market dynamics by selling through their existing inventory levels, with the reopening of dispensaries to in-person shopping since early June.

However, we are seeing sales for our company, as well as dispensaries return to pre-COVID-19 levels. Part of the workflow and crop management optimization Ken discussed earlier in March and April, in response to lower market demand, we've downsized our cultivation and production capacities.

We dedicated our cultivation and production resources in the second quarter a newer product, including Cookies and 22Red. The company's sales declined in Q2 2020 as a result of COVID-19, certain flowers grown by the company was therefore set to expire beginning in late Q2 2020 to the end of Q4 2020.

As such management determined that a portion of inventory carried on the books would be sold as distillate or related products instead of flower. This strategic decision to take a one-time non-cash write down in Q1 of 10.6 million allows Flower One to extend the shelf life of this inventory, and positions the company strongly for the opportunities presented by its newest brand partners [and strings].

G&A expenses for the quarter totaled 6.2 million, a decrease from 6.8 in Q4 2019, which is predominantly composed of consulting services, candidate taxes, wages, salaries, selling insurance and security costs. As I mentioned last quarter, since the start of COVID-19, we've been actively identifying ways to manage expenses and reducing our overhead costs.

We anticipate that we will reduce our variable operating costs in the third quarter as a result of completed operational efficiencies and our right-sized crop management plan discussed. Net loss for the quarter was 6.4 million, mainly driven by the non-cash one-time right down of the inventories discussed.

Net loss also includes 7.5 million fair value gain on biological assets produced in the period, $7.5 million gain – fair value gain on derivatives, 3.1 million in FX gains mostly related to the convertible debentures and 1.3 million in income tax recoveries, mainly related to the inventory write-down offset by the biological asset game. These items were offset by 6.7 million in finance expenses and 4.1 million in realized fair values in inventory sold.

Operating cash flows for the quarter totaled approximately 9 million as an outflow. During this same time period, we invested a net amount of 1.2 million in PP&E primarily for our greenhouse facility.

In March, the company entered into a short-term financing agreement for net proceeds of 9 million. At the end of March, working capital totaled 20.6 million, including 5.3 million in cash.

Post Q1 2020, we continued to raise funds to support our general corporate and working capital needs. In May, we successfully closed the 7.8 million private placement, which was increased from its original office size in April due to strong industrial demand.

In June, we raised another 6.2 million in a well-received non-brokered private placement. [Funds] from these capital raises have gone to support our general working capital requirements, as well as to pay 7.2 million in debt that became due at the end of March.

In addition, as previously noted on our Q4 call, 56% of our November 2019 debentures and 26% of our March 2019 debentures have been converted since issuance [as a full offer price]. As we just completed the second quarter, before turning the call over to Kellen, I'd like to provide some preliminary guidance on the past three months of sales.

Slight weakness in April and May as we previous noticed. The reopening of the Las Vegas Strip in early June, appears to be having a positive impact on inventory levels of the cannabis retailers.

As such, we continue to expect revenues of 3.8 million for the second quarter, ahead of our original guidance of 3.25 to 3.75. With that, I'll turn the call over to Kellen O'Keefe, our Chief Strategy Officer to discuss our brands and sell-through approach.

Kellen?

Thanks, Geoff. We will certainly miss your presence at Flower One and wish you nothing but the best.

As Ken noted, the past few weeks have been a very exciting time at Flower One as we prepared to launch several of our premium brands into market. Just last week, we officially launched Cookies and 22Red in Nevada.

Both brands have essentially pre-sold all of their launch inventory, and we are currently negotiating long-term supply agreements with preferred retail partners to ensure that we are able to meet market demand for both brands moving forward. These supply agreements will allow us to better forecast future demands.

The significant improvements we've made to our post-harvest and curing processes over the past few months have had a tremendous impact on the quality of our product. These improvements could not have come at a better time, allowing us to launch premium brands such as Cookies and 22Red and to continue to attract additional premium brand partners such as Heavy Hitters and Lift Tickets to Flower One.

I'd like to take a moment to commend both our cultivation and production teams for their hard work and dedication during a very challenging time. Both teams continue to execute and as of today, we are producing the highest quality products in our facilities brief history.

In less than a full year of operation, we have produced some of the best quality cannabis ever cultivated in a greenhouse. Our cultivation and production teams worked very closely with all of our brand partners to improve the quality of our products, increase efficiencies, and reduce production costs.

This collaborative approach between brand and producer is instrumental to our success at Flower One, and a key differentiator when compared to other vertically integrated or White Label producers. We continue to unlock unique competitive advantages by collaborating with Brand Partners that bring extremely valuable cannabis experience to the partnership.

In the first quarter of 2020, we welcomed California's leading vape company Heavy Hitters as our 15th brand partner. Heavy Hitters will be a strong addition to Flower One's vape portfolio, following the successful launches of both the Clear’s and Old Pal’s vape products, both of which debuted in dispensaries this April.

Cookies, lemonade, mints, and [runs] 22Red and several other brand and White Label partners will be launching vape products throughout the remainder of the year. As we continue to expand our product offerings into new categories it is imperative that we enter into strategic partnerships with brands that utilize the most innovative and efficient production methods.

In June, we announced an exclusive brand partnership with Lift Ticket Laboratories, an industry leader in pre-roll innovation in manufacturing. We are currently in the process of implementing several of Lift Ticket’s proprietary, pre-roll production methods at our facility that will be utilized across all of our Brand Partners pre-roll production in addition to the Lift Ticket’s, pre-roll brand Lift Ticket’s product quality, user experience and list of brand collaborators is second to none.

We look forward to launching their infused pre-rolls and signature glass tip joints featuring Cookies and other free premium Flower One genetics later in the third quarter. In the most unprecedented times Flower One never stops evolving and innovating.

Our team has made the best out of the difficult operating conditions of COVID-19, by taking this opportunity to improve our overall efficiencies and enhance our processes. I cannot emphasize enough the superior quality of the team we have assembled, who together have built a platform that is now well positioned and extremely capable of expanding into new geographic markets.

And with that, I'll turn the call back over to Ken for his closing remarks.

Thanks a lot Kellen. Before I speak about the second half of 2020, I'd like to take this opportunity again to thank Geoff for his many contributions to Flower One over the past two years as our CFO.

I would also like to again officially welcome David Kane as our Interim CFO. David brings more than 30 years of capital markets, accounting, and operations experience to Flower One, including within the cannabis and wholesale industries.

At Nevada native, David will further enhance our connectivity to the local market. His presence on the ground in Las Vegas will be a benefit to our team as we continue to enhance our overall operations.

Please join me in welcoming David to Flower One. Let's now turn to the second half of 2020.

As discussed the real [meaning] of Las Vegas casinos has had a positive impact on our revenues today. In fact, our June sale grew 144% over May and 78% over April.

This strong pace of sales reflects just how well we have managed our in market strategy to continue to drive revenue growth and market share, even in more challenging market conditions. As we emerge from COVID-19, we will focus on the following three areas.

One, leverage our connectivity with all cannabis retailers in Nevada to quickly but strategically respond to shifting market and consumer preferences; two, anchor our retail channel fueling strategy around [indiscernible] cannabis brands in large demand by the cannabis consumer; and thirdly, identify and execute on the best opportunities to strengthen our value proposition with all 70 retail accounts in Nevada. I will now go into a bit more detail on each of these three points.

First, our connectivity with cannabis retailers. We all know and appreciate the importance of commuting to our market, going deep in that market, and understanding everything you possibly can about that market to identify the greatest opportunities for success for your business.

Flower One's business model is unique, and has a number of competitive advantages, including the fact that we are one of a few, if not the only cannabis company in Nevada, that interfaces with all 70 retailers in the state. That interface and those touch points provide us with current up to minute market intelligence, which our operational team uses to improve our value proposition to our retail accounts.

For example, we continue to appreciate the strength of flower skews in the Nevada market. Flower based products and pre-rolls represent a very strong 60% plus, of all products sold in Nevada.

And BDS analytics show a 27% increase year-over-year in flower sales as of the end of May 2020. Understanding this demand for flower, we currently offer retail accounts a single source supply of the widest range of brands and price points in the flower and pre-roll category.

Our offerings include value based brands like Old Pal, all the way to the top shelf brands like Cookies and 22Red. These early choices of brand partners for Flower One have served us well in gaining a strong foothold in the Nevada market.

Our retail partners appreciate Flower One’s scale and production capabilities, and know that they can rely on us for a diversity of skews, as well as scale driven offerings such as white label products to strategically manage their shelf space. Second is the importance of brands as the cannabis industry matures.

Flower One continues to believe in the critical importance of brands to the ever evolving cannabis consumer. Brand recognition drives traffic count and market share for our retail partners.

Cookies and 22Red are prime examples of this phenomenon. Based on the recent launches, we know these brands help our retail partners dramatically increase their in store and online daily customer count, a key metric for retailers and maintain and growing their market share.

For that reason, we believe brands will continue to be a key driver of shelf space in Nevada. Flower One is not only identified the best way to work closely with these industry leading brands, but we also have demonstrated our ability to scale and consistently deliver these brands to retailers in a turnkey manner.

As a result, retailers are able to not only strengthen the brand power on their shelves, but they're also able to strategically and easily fill any skew gaps with Flower One’s broad range of brand, skews, and white label offerings. Turning to the third topic of continually strengthening our value proposition to retail, one of the most important aspects of our overall approach to the market is continually identifying new ways to best service our customers, which for the most part are the 70 cannabis retailers across Nevada, as well as the producers to which we sell bulk products.

We recognize that cannabis retailers are looking largely for two specific things, one to increase their margins and two to strengthen their shelf space. In both cases, they can accomplish their goals by leveraging Flower One’s low cost cultivation, as well as our breadth of skews and product offerings.

From our low cost, high quality cultivation and full production manufacturing capabilities to produce everything from packaged flower to boutique concentrates to our market leading scale, fulfillment, proficiencies, and unparalleled reach in the Nevada market, we believe we are truly the all-in-one solution for our 70 Nevada cannabis retail customers. The value and power of working with Flower One has never have been stronger or better understood by the market.

And we believe this will only continue to increase over time. So, we all look forward to the second half of 2020.

Flower One certainly plans to build off this momentum. As the Nevada cannabis market re-emerges from COVID-19, our collection of Brand Partners from Cookies, 22Red, and Old Pal to name just a few will be key revenue catalysts as we position ourselves strongly to meet market demand.

And speaking of demand, our sales team has done a tremendous job continuing to broaden our reach, adding 11 new bulk and retail accounts in the second quarter, which has allowed us to maintain a market penetration rate of over 90%. More importantly, as Kellen mentioned, we started to execute long-term supply agreements with larger accounts continue to purchase an increasing amount of inventory from Flower One.

Our sales team is working with our largest retail accounts to develop new ways to leverage our premium brands and white label services to maximize total key account purchases. We hope to be able to announce some of these new developments soon.

Our cultivation and production teams have also been hard at work continuing to refine our growing processes and expanding our product offerings. In the second quarter, we added additional fresh frozen capacity, expanding our capabilities to produce in demand concentrates and derivatives, such as live resin sauce, and other premium products that several of our Brand Partners require to launch.

We continue to optimize our fresh frozen harvest process to enable Flower One to produce the best concentrates in the market. The breadth of skews emerging from our production facility continues to increase and our production facility is now delivering, as I mentioned previously, more than 100 skews to the Nevada market.

Our 55,000 square foot production facility, the largest in Nevada has also made improvements and gained efficiencies in upstream extraction. These enhancements ensure that very stringent quality standards of our brand – our premium brand partners have resulted in improved yields and reduced operating costs.

As our portfolio continues to expand, we've also begun development of several brand collaborations, such as the one Kellen mentioned earlier between Lift Tickets and Cookies. This ability to work together with our brand partners to enhance their product offering is a distinct advantage of partnering with Flower One.

We are currently working on some exciting product collaborations, and Kellen and I look forward to sharing more of these collaborations in the coming months. If the events of 2020 to date have demonstrated anything, they show the depth in overall cannabis competencies of the Flower One team and that they are amongst the best in the industry when it comes to large scale cultivation and extraction, brand portfolio development, product manufacturing and retail fulfillment.

Our ability to optimize our operations and seamlessly modify our crop management plan, all while reducing our variable costs shows just how flexible and efficient we are as a company. On behalf of our Board of Directors, our Senior Leadership Team, and all of our employees, I want to thank you for your continued support of Flower One.

We hope you continue to stay safe and healthy, and we look forward to speaking with you again on our second quarter call. Just a quick note before we open the call to your questions, while David Kane is listening in today, all financial related questions should be directed to Geoff, and we look forward to David's participation on our second quarter 2020 call.

And with that, I will turn the call back over to the operator for your questions.

Yeah. Hi, good morning, and thank you for taking my questions.

I wanted to start with, just following up on the crop management plan, and I believe, as of last conference call, the metric that you guys provided was a 60% reduction in the direct costs compared to where that was in Q1. So, I know you had some comments on the conference call in terms of continuing to implement that crop management plan, but I was wondering if you could give any color as to how much of the total savings or how close you are to that 60% goal?

Thanks.

Yeah, I can speak quickly to that and Ken can chime in too. We haven't disclosed any of those costs for Q2 and obviously we're very early in Q3 at the moment, but we are definitely seeing or did see a significant reduction latter half of Q2 and so far in Q3 in regards to some of those direct variable costs associated with the production side.

Obviously, if you're reducing your – you’re right sizing your cultivation plan and you're going to have much less labor and as I noted on the year-end call, a lot of our crop labor is all contract labor for us. So, we have the ability to right size it really easily, but I can't really speak at this moment to sort of the percentage drops and stuff at this time, There will be more information on the Q2 call.

Okay, understood. Then just a follow up question regarding the demand planning side of things, it seems some articles about, you know, I guess early on in the shutdown, stores were definitely working through their existing inventory levels, which – and not, you know, in anticipation of stores being shut down or operating at reduced capacity.

So, what I'm wondering is, with respect to where Flower One is competing and the nature of their customers, do you expect your sales, as things continue to recover or open up a bit more? Do you think that that might lead or lag the actual demand or the actual market trends that we're going to see in Nevada, how should we be thinking about where you guys sit into the whole supply chain picture as it relates to actually cultivating and wholesaling a product down to where we'll actually see the overall sales figures for the state trend?

Thanks.

Maybe – thanks Graeme for the question. It's Ken here.

Maybe I'll start and I think Kellen can probably add quite a bit to this as well. So, a couple of things.

I think, again, you know, part of this as I referred to in my formal remarks has to do with really understanding where the market is today in terms of, you know, the overall product mix of the market. I think one of the things that we've really been able to take advantage of is the fact that there's no denying that flower remains a very dominant part of the market.

And as I mentioned, you know, on a year-over-year basis, you know, just pure flower SKUs have gone from about 40% of the market to well over half the market today. And when you combine pre-rolls into that, I tend to like to bundle flower and pre-rolls together, that’s about 60% of the market.

So, you know, when we look at sort of coming out of COVID I think a big part of where Flower One is positioned is obviously, you know, we, for the last year, I think really demonstrated our strength to not only grow flower at scale, but we've made vast improvements on the ability to grow high quality flower at scale. So, I think that that, you know, “raw inventory” has a lot of leverage.

And we're seeing that today with Cookies and 22Red, which will be very significant brands and drivers of revenue for us not only in 2020, but beyond. I think, you know, Kellen can speak to, I think, and give you some color on the amount of demand that we're seeing for those two brands, and that we've seen even before our formal launch of those products.

So that ability to supply the market and that strength of being able to offer retailers, you know, additional strength to their, you know, the brand representation on their shelf space, coupled with the diversity of SKUs, I think positions us really well. One of the things we've seen in the market is, Graeme you mentioned about inventory levels, our salesforce has given us indications that obviously with the demand we're seeing and the amount of orders we've seen in the last, you know, four to six weeks here, it's been extremely favorable and positive and we're really seeing sort of this week-over-week growth.

That's driven in-part certainly by the fact that, you know, inventory levels have now normalized again. And so the buying pattern of retail accounts is becoming first off, you know, more frequent and more consistent.

But the other thing that we're seeing with our accounts is that one, the basket size of the accounts, particularly our larger accounts, is widening. So, you know, rather than, you know, purchasing a, you know, historically defined number of SKUs, we're seeing them inquiring and committing to SKUs that are much broader to really leverage our full portfolio of products.

The second thing we're seeing, particularly in recent weeks, is that, you know, it's not only the pace of orders, but we're seeing many of our accounts start to move to standing orders either every week or every other week. So there's clearly demand in the market and those accounts are coming to us to fill that demand.

You know, part of it as well, just might be the inability of the rest of the market coming out of COVID to sufficiently supply and meet that demand. You know, I think that that's something that we can't speak to definitively, but that's certainly the sense of our sales force.

So I'll leave it there and maybe just give Kellen a chance to add a little bit more color in terms of, you know, just our brand positioning in the market and how that's being received by the retail accounts.

Sure. Ken, I think you covered it very well.

So there's not much, but with regards to, you know, the brands and how retailers were behaving in April, you know, coming into COVID there's no question that, you know, there was, you know, a lot of retailers because of the fact that 4/20 in the middle of April, a lot of retailers had stocked up very aggressively to prepare for 4/20 only to have the dispensaries closed. And so there was, of course, an immediate contraction in their buying practices that, you know, had a big impact across the board, but I think what we've now seen and what we're seeing coming out of this, and what will be very important moving forward is the product mix inside the stores, and you know, the local market suffered and the customers without question, were not as pleased as you know, with the offerings inside the stores.

And that has an impact on the store’s traffic, and that overall ticket volume that Ken mentioned. And so the brands are becoming more and more important to drive traffic into the stores and more and more of a necessity to have on the shelves, those brands that do matter.

And then as Ken also mentioned, what we're able to do is leverage our white label and other products to be able to allow the retailers to capture even more margin than they will on the premium branded products. So, I think we, you know, in doing so we're able to secure more and more of the shelf as we go, and as more and more of our customers become more dependent on us, you know, to deliver a larger volume of their shelf.

Alright, appreciate the color. Thank you very much.

I'll get back in the queue.

Good morning and thank you for the questions. As far as the consumer shift, are we seeing any of the spend moved down a little bit to the value you mentioned kind of the brand side of things, and then we'll get into obviously the gross margins and kind of expectations of that moving forward?

I can certainly speak to the pricing and value. I think that really brings up a really great point Scott.

You know a lot of people talk about price and value in cannabis. There's no question that they're both very important, but I think the differentiation is one customer shops just solely for the cheapest item in the store, and another shop and where we see actually the largest growth in my opinion, in both California and really every market is in the highest quality product that's available at the lowest possible price.

So what we really define as value, and that is really, really important because that's really the thesis of Flower One and what we're able to deliver with our high quality, low cost production model, we're able to deliver indoor quality flower at significantly lower cost than the indoor product that's available and we believe our product to be, if not indistinguishable from indoor approaching an ability to actually produce, you know product that has superior qualities to that of indoor flower at some point. So we're very excited about what that means and what that means for the value that we're able to deliver back to customers, and we think that will, you know, hold true across all the categories.

Yeah, and if I – Scott, if I can just add to that, I think, you know, Kellen’s really emphasized quality here and our ability to, you know, to price those products, those high quality products in the Nevada market competitively. And I think it's not something that any of us should really overlook.

It's so important in the market right now. And we've, I think, as a company, really come to respect and appreciate the significance of quality, I think when you look back and again, we're really about a year, you know, just literally a little over a year in terms of harvesting in the greenhouse.

And so, you know, it's still relatively early days, but I can tell you over those 12 months, we've learned a lot. And what I think you know, and for those of you that have sort of followed the ramp up of Flower One in the Nevada market, I think, you know, the first, you know, four to six months of our cultivation, there was a real focus on throughput.

You know, I think we wanted to prove and demonstrate to the market our ability to produce or to cultivate cannabis at scale. And I think, you know, one of the major learning’s coming out of that, and we're obviously, I think, thankfully there today is, you know, in the tail end of 2019, I think there was a recognition by the full team, including our cultivation team, but there had to be a real change and a real focus on quality.

And that's no easy exercise, but you know, I think we knew with, you know, brands like cookies coming on board, and just generally as Kellen mentioned, you know, this is the expectation of the market, that it's not just about, you know, pumping out flower, you really have to bring quality into the market. So, just as an example, you know, and Kellen spoke to sort of this indoor versus greenhouse, as most of you know, we have, you know, the 400,000 square feet of cultivation in our greenhouse at are Bruce facility, but we have a Neeham facility as well.

And one of the internal exercises we did, you know, just to give you a little bit of a simplistic comparison, is to look at a number of strains. We took about 10 strains, that ones that we've grown at Neeham and ones that we've grown at Bruce.

And, you know, I don't want to make the mistake of narrowing in on THC because that's clearly not, you know, really a true measure of quality, but just to give you a sense of performance, and certainly, you know, I think our terpene profiles of our most recent harvests have been, you know, really some of the best that we've produced, but just if you looked at simplistically as a comparison at THC levels between the two facilities, you know, we're showing THC levels that are equal or even slightly better coming out of the greenhouse. So, there's clearly an ability for us, you know on a number of metrics to show that the quality is definitely there now, coming out of the greenhouse, and then Scott with your second question on gross margin, maybe I can just turn that over to Geoff and ask him to comment on that.

Yeah, Scott, are you are you asking gross margin for the quarter or gross margin on go forward basis?

Go forward basis.

Go forward basis. You know, we went from 44% in the last quarter.

Now we're at [28%] first quarter [indiscernible] gets a sense of the trend and where do you expect gross margins to sit with the new product launches that you're rolling out and right sizing and stuff to trend towards the end of this year.

Yeah, I think you know, it's key point out that, you know in Q1, it was, you know, I think we had some reductions in production that really drove that margin down, and, you know, a lot of the sales that were coming out of the facility were, you know, lower, I would say lower margin products, whether it's bulk or, you know, the value brand as we launch – got, you know, Cookies and 22Red into the market and the clear and these types of things that garner a premium price and you're going to see some margin growth there for sure. You know, they – from a pure cost of production basis, they are relatively the same as value brand product, although, you know, you have a bit more labor going into the trimming and making sure that it's manicured properly and whatnot, which you wouldn't have quite to that extent with the value brands.

So, we believe that those higher premium brands are going to bring some significant margin going forward.

Okay, thank you. I will jump back in the queue.

Hi, guys. Just a couple of questions, I just wanted to sort of get a snapshot of what's been happening in the Nevada markets since it just opened.

And also, maybe a snapshot on how some of your competitors are doing because I know that some of that have been challenged and that might give you opportunities to pick up further market share.

Yes, so I'll start, Greg. I think, you know, we touched on a few of these items, but, you know, just to kind of recap, one, you know, from an inventory level perspective, we knew some of the levels were quite high, as Kellen mentioned, going into April.

Those inventory levels now, certainly, have normalized and what that's created in the market for us from a – in terms of a – sort of a wholesale brand fulfillment partner is that we're seeing those retail accounts really increase the size of their orders and the frequency of their orders. So I think that that's definitely encouraging for sure.

There's really more of a routine or regularity to how we're interfacing with our retail accounts today than – and quite different than what things looked like back in April and May. So that would be the first thing.

I think the second thing is, again, as the market evolves, I think the retailers are realizing that how they manage their shelf space becomes critically important to their competitiveness and market share, and, you know, Kellen’s highlighted and I think we spoke to this at the front end of the call in our formal remarks that, you know, we continue to believe as we build our brand portfolio with, you know, really the leading cannabis brands, that places or positions us really well in supporting our key customers those retail accounts, and those retailers with the ability to strengthen their shelf space and drive traffic and volume to their stores. So, you know, I think we've highlighted, you know, Cookies and 22Red a lot this morning, but I think there's a reason for that.

You know the demand in the market for those brands and the recognition by retail accounts on significance of having those brands on their shelf space is it's very tangible in the market. So, we're really excited.

You know, we certainly have lots of confidence that Cookies and 22Red would do very, very well in Nevada and very well for Flower One, but I think the response has been, you know, really overwhelming. So we're quite pleased with that, and obviously, that's something that we can look forward to and certainly have to manage as we go through the remainder of the year.

The last thing I'll say and, Kellen, I'm sure will have a few comments here as well, is just that, you know, our sense in the market is that the retailers are a little bit more challenged in managing their supply chain and filling their shelf space coming out of COVID. And, you know, I think in our case, you know, our scale has given us a little bit of an advantage to, you know, survive, manage, be resilient and prepare for that reemergence of the market.

We had many discussions internally back in sort of March and April about how to prepare for this eventual return and to really use that downtime, you know, intelligently and methodically to prepare our sales force, prepare our production and fulfillment teams to really capitalize on that opportunity. And I think we're seeing, you know, the benefits in some of the, you know, material upside to that today.

So, Kellen, I don’t know if you want to add to that as far as other color as to what we're seeing on the ground.

I think you hit on it, you hit the nail on the head in the start, Ken, about, you know, just in time delivery, and how we're truly able to offer value to the retailers by having a consistent supply available. The cannabis industry has evolved, you know, quite a bit over the last few years and this is something that happens in every market where dispensaries in the past used to have to buy all of the good products and as much of them as they could possibly afford to assure that they would have an inventory of those products moving forward because they weren't certain when the next batch or order would come.

What Flower One has done and as our promise always has been is that, you know, we are here to be able to provide that just in time delivery and be able to fulfill on a weekly basis in all of the selection that the brands desire. Of course, as we launch, you know, brands that are extremely in demand, like the ones we've mentioned, you know, those will be limited in nature on their early runs because of, you know, how in-demand they are.

But as we scale back up, our goal will be to, just like with every product, be able to allow the retailers to purchase on a weekly basis that will allow them to manage their cash flow much better than they have in the past and I think really will allow us to continue to take more of the shelf, so to speak, because of the service and value we're able to provide there.

And maybe one final point on that, Greg, that I didn't mention is just really, you know, again, I think in this challenging market, the retail accounts are continuing to, you know, want to protect their margin. You know, pricing might tighten a little bit here in the near term, and some of the suppliers in the market don't have as much room to move on their wholesale margin in dealing with moving that product to retail.

And again, I think scale matters, scale and efficiency, but certainly scale matters in being able to, you know, help the retailer's manage that tightening margin. And, again, that's a real strength for us in the market today.

Maybe just digging a little deeper, I mean, when June was up, you know, significantly over March and April, so, or sorry, April and May I believe, and then, so what I'm wondering is, are we sort of seeing that trend continue into July? Or [indiscernible] a lot of the retailers is through a restocking, so now they've got cannabis in their stores, so July might not be as strong as what we potentially thought?

Yes. Greg, I – from my perspective, I think it's – you know, in this environment, it's hard to predict where the market is going to go in July and what demand will look like in July.

The one thing I'll say in trying to be predictive is that, when we look at the buying pattern of retail today, through certainly since when the casinos officially and the strip officially reopened on June 4, we're seeing really more of a regularity and a frequency to that ordering by the retail accounts with our sales team. So that to me, suggests that we'll continue to see that occur and it's not sort of a one-time kind of restocking and then try to, you know, burn through that inventory.

You know, the retailers just generally don't operate that way. They – you know they want their customers to be loyal and return into the store and they can only do that if they know that they've got a consistent supply of the brands they carry.

So, I don't think this is sort of a bulk bind by the retail accounts by any means, but what will the pace of the ordering look like? Much harder to predict in this environment for not only us or in cannabis, but I would say across most sectors out there, so I don't really want to comment on that, I think that would be challenging.

But what I will say is that, you know, we certainly, now with the launch of some big brands, expect, you know, the overall, you know, net, I shouldn't say net sales, but gross sales to continue to increase and largely because, you know, I think, Cookies and 22Red will be real catalyst for that and we've just started that launch. So, you know, we think as long as the market demand continues the way it does, we'll see a little bit of incremental growth as well as a result of bringing Cookies and 22Red online.

In really all of our brands, you know, we have a brand portfolio that is, I think second to none, and we're starting to see them all emerge and penetrate. And as we get ready to roll-out all of those products in Nevada, that product mix and the market share that those brands are going to capture should result in us having a larger percentage of the market regardless of whether or not the market is growing.

So, I feel confident that, you know, again, those brands are going to perform and be able to make sure that they carry us through in, you know, whatever might be – whatever might occur relative to challenging times, you know, due to COVID. So, I think the brand portfolio and the product mix really protects us against some of that, you know potential downtrend.

Yes. And you know, specifically on that front, we're continuing to see Old Pal remain to – continue to have a very strong, you know, position in the market and that's a very – even though it's a value brand, it’s a very high volume brand.

I don't think that there's another partner or operator in the Nevada market that could supply that consistent level of inventory into the market for a popular brand like Old Pal. And we're certainly seeing even in other categories edibles is a very stable market, you know, relatively speaking year-over-year, but we continue to see real strength with the Kiva etcetera and a number of those other brands without a doubt.

Great, thank you for taking my question. First question is on understanding a key metric, so I know we've been very focused on cost per gram, but as you transition to quality over quantity as just part of your mix at very least as well as product mix away from flower-only deeper into your extraction facility, how should we think of either revenue per gram or gross profit per gram, not on a quarter-to-quarter basis here, but kind of longer term, what is the opportunity there?

And how should we think of that, you know, value proposition? And the second question I have is on the white label offering that you commented on in your prepared remarks, how big is this opportunity?

And obviously, it seems to me that your value proposition to retailers there is enormous. And so, if you could share, ideally quantitatively kind of what the margin opportunity for something like that would be bringing, you know, your brand expertise and strain expertise to the equation, what would a relationship like that look like?

Well, I can…

Thanks Peter.

You know, good morning Peter.

Yes, go ahead, Geoff, go ahead.

I'll speak, you know, personally to the margin questions, but like I said, you know, Q1 and even in 2019, you know, it's a predominantly bulk and value brands that were being sold out in the market. And I think, you know, as we step into Cookies and 22Red going forward, I mean, you've got some large variance between your revenue on a per gram basis or a per pound basis for those specific brands.

I mean, you know, Cookies, you're up close to 3,000 a pound, you know, [2500 to 3,000] a pound potentially, where your value brands are much, you know, half that roughly. So, you're going to get a lot of margin push on those premium brands as they come out into the market.

And like I said, I mean, you're going to have increased costs just from a labor perspective, and you know, probably from a packaging perspective. Some of those brands are in, you know, glass jars, which, you know, cost a lot more than a mylar bag kind of thing.

But we should see some significant uptick on margins on a skew basis for those brands. And of course, it's all dependent on the revenue in the market for those, but we expect that to be pretty significant going forward.

Yes, I will [indiscernible]. Peter that, you know, again, when you look at our product mix and what, you know, our sell-through into the market, more and more of our revenue will be driven by finished goods and as that continues to occur – and again, even, you know, speaking of the product mix in the market, you know, we touched on how significant Flower is, but again, over time, we do believe that will continue to shift to, you know, more advanced product derivatives, and I think as that happens, you know, those are clearly higher margin opportunities for the company.

So that certainly would be reflected in terms of translating positively on a revenue per gram basis. And on white label, you know Kellen’s really been spearheading our white label strategy on the ground there.

So, I'll let him speak specifically to that.

Yeah, I mean, that's a very rapidly growing part of our business, as you can, you know, understand we have a greater margin on those premium branded products, and then a slightly lower margin on things that we will white label, and then, you know, moving on down into the bulk and biomass. In the past, we have sold a lot of bulk and biomass to other licensed producers, in order for them to make their own products.

We are transitioning a lot of that allocation over to white label and have a number of new clients that we’ll be purchasing, you know, white label products instead of the bulk or biomass that they were buying from us before. And so, to quantify it, I mean, ideally, you know, in the past where I had said that you know, about 20% of our sales would be, you know, bulk or biomass, 20 were brand and 80 were bulk or biomass, and I actually talked about desiring to flip that to about 80% branded sales, and about 20%, you know, bulk or wholesale.

Within that 80% branded sales, we've now seen, you know that white label will probably make up a percentage of that, or a good component of that, you know, we still are working through the longer-term supply agreements with the retailers to determine what their product mix is going to look like. And so a lot of that isn't really certain where I can give you a definitive number as to what percentage it's going to represent.

My guess is probably around 20% to 30% of our business, but you know, it is growing very rapidly, as retailers do have a number of their own house products or their own brands that they desire to push. So, we do expect that to continue to grow.

Thank you. If I could sneak one last one in, can you give us the updated cash breakeven?

Hey, Peter. You know, we don't we don't speak to sort of current cash balances on these calls, but of course, we’ll update at Q2.

Thank you.

Well thank you, operator. I just really would like to thank everyone for joining the call.

And again, thank our team. It's been, no certainly Q1 was an incredibly strong quarter for the company.

Since then there's been a number of challenges for the business that aren't unique to Flower One, but we've really managed very well through that. And obviously with the uptick we've seen occur in June and certainly into July.

We're very excited about the back half of 2020 and the opportunities that exist for us in the Nevada market. So the teams worked really hard to get to this point.

And I want to thank them again on behalf of the management team and the board, and obviously, we'd like to thank all of you for joining the call. We appreciate as always, your time and effort to be part of these calls on a quarterly basis.

Thank you.