Thanks, David. Good afternoon and welcome to GTI's third quarter 2019 earnings call.

I'm here today with Founder and CEO, Ben Kovler; and Chief Financial Officer, Anthony Georgiadis. Today's discussion and responses to questions may include forward-looking statements based on management's assumptions.

Actual results could differ materially from those anticipated and stated here today. Please refer to the earnings release in GTI's SEDAR filings for risk factors, which may impact forward-looking statements made on this call.

Throughout the discussion, GTI will refer to non-IFRS measures that do not have any standardized meaning prescribed by IFRS such as EBITDA and adjusted operating EBITDA, which is defined in the press release issued earlier today. Please note all financial information is provided in U.S.

dollars unless otherwise indicated. Thanks everyone and now here's Ben.

Thank you, Jennifer. Good afternoon and thank you everyone for joining on our third quarter earnings conference call.

At a high level, there is positive momentum in the U.S. cannabis industry.

programs are expanding, consumers are choosing cannabis and they are feeling better, regulations are working and the sky has not fallen. Here at GTI we are executing against our enter Open and Scale strategy to distribute brands at scale and it is delivering a clear path to profitability.

We generated $68 million of revenue in the third quarter across 11 of our 12 markets and we feel confident in the continued execution of our business plan supported by solid top and bottom-line growth. This is 52% revenue growth over the last quarter and more revenue than we generated for the entire 2018 year.

Our bottom-line growth is fueled by our focus on cost and operational efficiency. As you have heard us say before, we believe adjusted operating EBITDA is the most meaningful metric to understand the true health of our business.

We are proud to report $14 million of adjusted operating EBITDA for the quarter up from $5 million in Q2. Improving from $5 million on $44 million of revenue last quarter to $14 million on $68 million of revenue this quarter or 10% margin to 20% margin is the true operating leverage we have been working towards.

These results are proof points of our fiscal discipline since day one in managing growth while containing cost. Our base business continues to grow.

Excluding the addition of intergrowth associates for the quarter we saw over 30% gross revenue growth from both our consumer products and retail businesses. It is important to note that this includes big and fast growing markets like Pennsylvania, which essentially doubled in size over the last quarter.

And while we anticipate absolute dollar growth to continue we are seeing the proportionate quarterly growth rates at 10% to 15%. Core to our ability to execute is our proactive and conservative approach to capital allocation, especially important in light of the severe capital constraints for our industry.

This intense focus has served us well and is not new. Our balance sheet is strong with ample liquidity and financial flexibility to support our growth initiatives.

In May we completed a very timely and successful $105 million privately placed debt financing and last week we finalized a $40 million tax efficient sale-leaseback transaction on our Pennsylvania production facility. 100% of these proceeds will go on our balance sheet to be used for strategic growth.

Our cash position at quarter end was about $66 million and it is important to note this is net of all acquisitions and prior to the sale-leaseback. This puts us in a fortunate position to have sufficient capital to fund our growth into the foreseeable future, and this allows us to be aggressive with our capital allocations where the ROIC and probabilities of success are the highest.

In the near-term we remain focused on expanding distribution of our branded products, opening new retail stores and positioning our business to scale. This is a very active focus for our team here in our home state of Illinois, which will open up for adult use sales in just 41 days.

GTI kicked off Illinois medical program with the sales on day one in 2015 and we look forward to doing the same for the adult use market on January 1, 2020. The tidal wave of demand you have heard me mention over the last year is about to hit Illinois hard.

Our team is working to ensure our brands and retail stores will do their part in supplying the market while continuing to provide products to our medical patients. We expect to have at least three retail stores selling adult use cannabis on day one while we continue to prepare the rest of our adult use stores for opening shortly thereafter.

However, retail access is only half the equation. The stores must be stocked with product.

This is where our consumer products business supports our retail business. Supply will tighten across the market as demand influx [ph] and supply takes time to come online.

A rule of thumb for supply would be six months to build and six months to grow. So any capacity coming online January 1 or frankly any time in the first half of the year, means the project has to start before the bill is even signed.

We will continue to add capacity throughout the year to support this growth and we will optimize and allocate resources that generate the best outcomes for our business and customers as we have always done. So let's unpack what that means relative to our progress this quarter.

On the consumer products side our brands are produced, distributed and available in retail locations in eight states today underscoring leverage of the platform we have built over the last four years. As you may know, our brand portfolio includes Rhythm, The Feel Collection, Dogwalkers, Dr.

Solomon’s, Beboe, and Incredibles, and are collectively sold in over 700 retail stores. Distribution supports building brand awareness and the momentum is strong on our flagship brand Rhythm.

Now produced and sold in six out of our 12 states in which we operate, Rhythm's Brownie Scout variety was recognized by [indiscernible] and most recently, won the coveted award for Chicago's best strain. Our brands are only as good as our ability to deliver on their promise and I am proud of our team's commitment to producing high-quality products and the action extends across our portfolio.

We launched Incredibles gummies in Nevada and a torch [ph] product extension in Massachusetts and Illinois. In addition, we launched The Feel Collection this quarter in Illinois.

Dogwalkers introduced the Big Dog line extension in Massachusetts to complement our core Mini Dog multipack which we also just launched in Maryland. The full flower nature of Dogwalkers keeps the quality bar high and we are pumped with the positive feedback on our flagship pre-roll brand.

To that end, we continue to build out additional capacity and improve standardization and automation. Our goal is to produce safe, consistent and high quality output across each of our markets.

Projects remain on track to more than double capacity in adult use markets like Illinois and Massachusetts as well as big and growing markets like Pennsylvania. Opening activities for our manufacturing operations in New Jersey and Ohio continue and are expected to begin generating revenue in the first half of next year.

Turning to our retail business, momentum continues. Our core business remained strong with same-store sales continuing to exceed 50% for the quarter of a comp base of 13 stores opened for at least 12 months.

Sequential quarter-over-quarter sales exceeded 20% on a base of 17 stores. We also opened four new Rise stores in quarter, two in Florida, one in Ohio and one in Pennsylvania.

As part of our acquisition of New York based Fiorello Pharmaceuticals we had three open stores in Manhattan, Rochester, and Halfmoon and a fourth store in Nassau County coming soon. In October, we scaled our retail footprint in Connecticut with the acquisition of Bluepoint Wellness, a medical dispensary located in the city of Branford.

The dispensary complements our current assets in the state which includes a cultivation center in West Haven and a future dispensary in Westport. Year-to-date we have opened 14 stores, we have 33 stores open today, and we reiterate our prior guidance to have 35 to 40 open stores at year-end.

Finally, we strive to be good stewards and community partners and see this as a necessary responsibility given the privilege of this opportunity. We continue to be strong advocates for equitable participation in the cannabis industry through our pro bono LEAP program.

Since the program's launch in August, our in-house application team has lent their expertise to nearly 100 prospective applicants who could not otherwise access professional guidance on their dispensary license application process in Illinois. We look forward to continuing this effort with our incubation program as the winning applicants are awarded.

It is a very exciting time here in our home state. With that, I'll turn the call over to Anthony to review our financial results for the third quarter.

Thanks, Ben and hello everyone. Thank you for listening.

As our earnings release highlighted we had a successful third quarter. How successful?

Let's dig into the numbers to find out. Please note that all figures are in U.S.

dollars. In the third quarter, the company generated $68 million of topline revenue, a 52% increase over Q2 and just under 300% increase over a year ago.

In addition, we served patients and consumers across 11 different states. Both out consumer products and retail businesses continued their strong momentum, with our retail wholesale revenue split ending at 64 x 36 respectively.

This is up from the 58 x 42 ratio we experienced in Q2 and was primarily impacted from having a full quarter of Integral included in our results. In addition, it is important to note that this ratio nets out in a company revenue against our consumer products business or 15% of total revenue effectively undershading its true size.

On the consumer products side of our business, revenue increased 52% over Q2. Growth was primarily driven by market share expansion, product line extensions and a full quarter of contribution from Integral.

We are now producing and distributing our brands in over 700 plus stores in California, Colorado, Florida, Illinois, Maryland, Massachusetts, Nevada, and Pennsylvania, while a mouthful, 8 states has a nice ring to it. On the retail side, revenue increased 68% over Q2.

We currently have 33 open stores and anticipate closing the year with 35 to 40. Same-store sales remained strong exceeding 50% for the quarter.

We continue to be extremely proud of our retail team and the one patient, one consumer at a time approach they live by each day. Despite the daily challenges associated with everything retail, they make it look easy.

Similar to Q2 the company achieved record gross profit during the quarter. Before biological adjustments we generated approximately 35 million in gross profit or 51% of net sales, a slight decrease from last quarter.

Below the gross margin line we incurred $36.7 million of operating expense. This figure included $1.2 million of nonrecurring expenses and $4.7 million in non-cash stock-based comp.

Excluding these, operating expenses totaled $30.8 million or 45% of sales which compares favorably to the 55% of sales experienced last quarter. The basis points we gave up in gross margin percentage we more than made up for in operating leverage.

Our focus is the same as it has always been. Grow revenue at X, hold the line on gross margin percentage and grow operating expenses at a rate less than X.

As many of us learned in our prior lives, when you can do all three at the same time you get to experience the sunny side of operating leverage. In addition to operating expenses, the company also incurred $13 million in total other expenses.

These expenses included the mark to market of our strategic investment portfolio, as well as interest and other expenses associated with the debt raise we completed in May. As highlighted on our balance sheet, our investment portfolios now sits at just under $19 million and continues to nicely supplement our core business.

As you may recall, last quarter we accomplished a financial milestone by delivering positive adjusted operating EBITDA for the first time as a public company. In Q3 we made additional progress and we generated positive EBITDA of $1.6 million, a material increase from our $9.4 million loss in Q2.

On an adjusted operating EBITDA basis we generated $14.1 million, up from $5 million in Q2. Hitting his very important metric into 8 figure territory feels good and growing adjusted operating EBITDA by $9 million of a revenue increase of €23 million feels even better as it highlights the upside of successful execution of the scale portion of our playbook.

On the liquidity front we needed the quarter with approximately $66 million in cash and $97 million in debt. As Ben mentioned, just last week we further optimized our balance sheet and strengthened our cash position by completing a sale-leaseback transaction on our Danville, Pennsylvania cultivation and processing facility.

All in this financing provides the company with approximately $40 million of additional powder. We continue to like our balance sheet position and ability to execute on these sorts of finances for our shareholders.

On our last call, we likened our mid Q2 debt raise to grabbing the umbrella when it was sunny. In this case, we've decided to stay inside for a while key to the words in the late Robert Hunter, "If the thunder don't get you then the lightning will."

In summary, we feel good about our Q3 results. This quarter will be much the same, one with much preparation ahead of adult use going live in our home state of Illinois.

While we've seen the medical to a no use movie before in Nevada and Massachusetts we are approaching this transition with cautious optimism and our standard expect the unexpected type attitude. Last, we can't say enough about our team that is now 1300 plus strong.

We continue to challenge ourselves, support one another, all the while celebrating the victories and having some fun. With that, I'll turn the call back over to Ben.

Thank you, Anthony. As you know, the cannabis industry continues to evolve and evolve fast.

Our fundamentals remain strong and we are keeping our heads down, focus on execution despite the industry volatility. That said, we are watching and remain opportunistic.

We are on the offensive to build a capital efficient and sustainable business that will generate long term shareholder value by executing against our founding playbook to distribute brands at scale. Our consumer products and retail businesses contribute meaningfully to topline growth as we work hard to improve profitability.

Our balance sheet is well-positioned to support our plans and we believe our judicious approach to capital allocation will further support our execution. We anticipate these ongoing efforts will deliver a total revenue exceeding $200 million for the year which would mark our fourth year in a row tripling annual revenue.

But none of this would be possible without our team and I want to thank them for their hard work in delivering another solid quarter. In addition, we remain grateful for our communities, customers, and shareholders for your continued support.

With that, I'll turn the call over to the operator for any questions.

Hi, good afternoon, thank you for the question. So as I think about your adjusted EBITDA margin, clearly very, very impressive in the quarter at 20%, but I'm thinking about kind of modeling that forward and with the New York acquisition of Fiorello Pharmaceuticals having closed I mean, I assume that EBITDA dilutive, I have a hard time imagining that actually any of you guys are making money in New York.

So, number one, can you just comment on the EBITDA profile of New York? And then number two, how that might impact the EBITDA margin trajectory over the next coming quarters?

Thank you.

Thanks Vivien, I appreciate that. What I would say is probably your instincts on the size of New York and as you model it or not that far off, and we don’t view that single market as a big determinant in the EBITDA margin going forward.

There is a lot of moving of moving pieces in order to do it and we've stayed away from guiding on specific margin going forward, but we're focused on it. Keep in mind we have Ohio ramping, New Jersey coming online soon, and certainly the acquisition of New York, all play into it.

At the same time, bigger, larger markets continue to scale.

Okay, that's it.

Thank you. Could you just touch on the ramp-up in Illinois and there is clearly some excitement there for the launch, but what do you see and some of the watch outs maybe we should have in mind and how to think of how it could build and also maybe the margin impact as far as just if there is significant ramp up costs to make sure we keep in mind as we think about the first and second quarters and you know just kind of play out?

Sure, thanks Michael. This is Ben.

Very exciting here in Illinois, first state in the Midwest to legalize, first state in the country to do it broadly through the legislative measures and the entire industry, regulators, customers, everybody is pitching in to make this a success. So I think it is a big deal that we're going to launch on January 1, and all signs point to that.

I would say for us on the margin impact, big capital investment going in. I'm not quite sure how much runs into the P&L prior to the impact the actually margin, but we're aggressively scaling at both Rock Island and Oglesby as we get ready and spending in retail.

We have new stores coming online, we have remodels to improve efficiency and throughput and everybody is working pretty hard.

And when you talked about the six months lead time, can you just give a little more color of how you see the competitive landscape and yourselves fitting into that? It certainly seems like it will be build over the course of the year, but how do you see yourselves positioned in terms of how that plays out?

We do – everybody cooperating together to make this thing a success. There is a big amount of demand coming versus the supply that's in the market today that is already pretty tight.

So what I mean by the six months is if you are going into raw land or you are going to build a new addition to the facility which many groups are, it’s a six months process from drawing, permitting, construction, and maybe if you hustle you could do it in 90 days or 120 days would be very fast. Then you have the six months of growing which you could obviously shave that down a little bit.

But to be conservative, new supply from day one, takes a year to come on the market and we've seen that in many different markets.

Okay, that's helpful. Thank you very much.

Sure.

Hey guys, congrats on the fantastic quarter, really nice sprint there.

Thanks Robert.

Yes, so I thought I'd ask about capital allocation strategy, Ben you kind of alluded to maybe an aggressive stance perhaps. So I was wondering if you may comment a little bit on how you kind of see that being weighted on either platform development or in existing states or may be versus strategic M&A opportunity?

Sure, yes this is Ben, Robert. I will take that.

Capital allocation is the name of the game. And what I believe in and what we do is allocate to the highest ROIC opportunities with the highest probability of success, where we can take advantage of things like first move to our advantage and where we have scale and where it can work.

So by aggressive, I don’t necessarily mean tip over. I mean love our backs.

And growing somewhere where you have the probability in your favor and you can see what to do and you have a first mover, is a comfortable position and that's why we feel being aggressive. But we're not banking on capital markets to change.

We like the position we're in and we love where we're putting the capital.

Okay great, and as a followup there, I can't help but notice that the guided for $200 in sales for the year or may be a little bit over $200 million, seems a tad bit conservative given the year-to-date results. Any share that you guys can give us some goalposts as to how much above $200 million you may be thinking about and what could be some of the drivers for that next quarter revenue?

Sure, I'll give a little less of guidance and more just this confidence in where we're going, I would say we would say it's at least a dollar higher and things are good in the business, particularly without pending acquisitions, with enough cash on the balance sheet and with confidence of what's going on with new stores opening and you could think about as you ramp revenue or you model out the business, retail growth is pretty linear. We turn on a store, that gets going and it ramps in linear fashion.

As you turn on a phase in the cultivation or wholesale production facility, that's a step function of it. And as I mentioned in the prepared remarks Pennsylvania had that last quarter with a real step function forward.

So we're excited as those new ones come on line in 2020.

Okay, great, thanks again guys.

Thanks Robert.

All right, great. Congrats on a great quarter and thanks for taking my question.

And so the sale-leaseback obviously a great alternative source of funding for you guys. Can you talk about any risks you see with these sale-leasebacks and how or where you think about potentially tapping into this alternative source of funding going forward?

Sure, so this is Anthony here and thanks for the question. I think we've looked at the sale-leaseback kind of opportunity I'd say for a few years at this point.

We got to know the IPR folks really even before they went public. So it was an ongoing discussion just kind of getting to understand their business and how they approach it and how they could potentially be a partner to us.

So first off, we feel extremely comfortable with that counterparty. And then when we saw it, it was a real opportunity to take advantage of an asset on the balance sheet and utilize that asset to invest further in the business for the shareholders.

In terms of future risk, we did enter the market such thing that we know extremely well where we've got obviously a facility up and running and we had 7 stores currently open and operating with more coming. So we feel pretty good about the position there and it's something that we'll certainly keep our eyes open to into the future.

All right, great, thanks guys, congrats again.

Thanks for the question and congrats on the quarter. Just quickly on gross margin, it looks like it was flat or slightly down over the quarter sequentially.

So was that mainly a driver of just a higher mix of retail? So just any color there and then how to expect the kind of line item going forward in terms of gross margin, should it continue to be more of a function of the mix between wholesale and retail?

Thank you.

Yes, it's a good observation. The retail gross margins are pretty consistent within the business.

Where do you get the real operating leverage, I mean certainly get some on the retail side, but particularly on the consumer products side of the business. So yes, when facilities are fully ramped, the consumer products margin is materially better than the retail kind of gross margin.

In terms of kind of going forward, look it's something we watch I would say daily at this point particularly the retail side of the business to make sure that we're holding exactly where it needs to hold and then on the wholesale side we're achieving kind of the operating leverage that we should as we kind of grow into the expansion of each of these facilities. So it's hard to really say where gross margin is going just because all these markets are different and where supply and demand and some of the imbalances that we currently see in some of the markets, that could have an impact at some point.

But we feel good about where it stands and our goal is to keep it where it is today and if not, try to improve upon it.

Great, thanks. That's helpful.

And then just more of a question, just in terms of capital allocation and kind of as we look ahead to next year in 2020, can you talk about maybe how you things that help on the question just kind of capital allocation look ahead to next year and 2020. Can you talk about maybe how you prioritize the states and I know you've mentioned it kind of in the past, but you would prefer to say states such as Pennsylvania, new Illinois and maybe even Nevada might be at the top of the list over other states such as Florida as you are looking at the 2020?

Sure, I'll take that, this is Ben. We were in a fortunate position with a lot of good opportunities.

Like I mentioned, we want to look at the best ROIC. We want to see the highest probability of success and one of the things is timing and how important first mover advantage is.

So certain of our markets will take advantage of that first mover advantage, where in other markets slightly putting it at second-tier, not to say it's a worse return because there is a lot of good opportunity is something we're forced to do often.

All right, great, thank you.

Sure.

Thanks, good evening. So I'm not used to saying this typically with cannabis companies, but I would have actually expected SG&A to be higher than it was given the full quarter of Integral and some ramped up spending in places that aren’t generating revenues yet like New Jersey.

So were there any existing components of your OpEx that you perhaps scaled back on during the quarter or what was the reason for the relatively modest quarter-over-quarter ramp up there?

Sure, no there was nothing that condescends out in terms of cuts that we made. Look I would say like other, like a number of other companies in our space, we have a number of open positions that we're trying to fill.

At the same time, we do watch markets that have not turned on. We're very judicious about when and how we spend those dollars.

It is something that really ever since we started this business we just had to be extremely judicious about the capital, because we really don’t - we're of the mindset that until the market is kind of - is up and running we try to spend as little amount as possible as needed on the operating expense side of the business. But there is nothing specific that we actually did.

I would say going forward obviously that number should continue to grow and it is just a matter of how that grows relative to our revenue. We don’t have a set kind of -- we obviously have budgets and everything else, but we take a close look at operating expenses as a percent of revenue and as long as we feel like, that’s heading in the right direction or at least is at a manageable level, then we’re comfortable with that.

Got you, okay. That’s helpful, thanks and good luck.

Thanks Andrew.

Yes, hi and thanks for taking my question. I just wanted to discuss the CapEx line specifically.

It look like it was elevated in the quarter and I know you've laid out the number of stores you want to end the year with as well as some investments on the cultivation side of things. But I was just wondering in terms of how that figure is expected to trend quarter-over-quarter.

Are we seeing it reach sort of close to a peak year as the portfolio continues to get all out or can we expect that line to continue to ramp-up as you continue to invest at retail and at wholesale? Thanks.

Sure, hey Graeme, it’s Ben. I would say the real exercise here is what the sources are to determine the uses of capital.

We have huge opportunities and a lot of good allocations to make and we're watching the balance sheet to see how - where the cash is in order to make the best possible decisions. So I would study the sources in order to figure out what the uses are, as we have plenty of opportunity for that capital.

But a lot of the capital that went in last quarter and will continue to go in this quarter is some of that step function up on wholesale capacity expansion, more expensive than retail, its step functions up and it’s long lasting and very durable.

Okay, I appreciate the color. Thank you.

Hey guys, good afternoon. I have two questions, so the first one is on Illinois.

Can you talk about what options you might have in response to the decision inside Naperville or is it simply just that you have to wait for a potential March 2020 voter referendum? And then I just have a follow-up on Florida.

Sure, I'll take that. This is Ben.

Yes, as you mentioned, so just backing up a little bit. Every one of Illinois 55 open medical stores has the ability to open a same site adult use facility, that's so long as the local municipality, city, county, whatever is the governing body opt in and allows it for zoning and other things, and so Naperville opted out.

And like you mentioned that in March 2020, there'll be a voter referendum that could change that course. But until then, the Naperville store does not have the ability to open adult use, because the local governing body has said no, which is totally fine.

We think sometimes these things take time, we value being a very good positive member of the community. We've been operating in Naperville since 2015.

And we're excited about the future there. Currently moving existing medical facility and caring that adult use is something still under discussion and we think over time, different kinds of options may open up.

I appreciate that. And then on Florida, can you just -- can you update us on your strategy in Florida?

And kind of next to that question, do you have to be in this state, like is Florida critical to you guys? And I appreciate the comment.

Thank you.

Sure, I don’t say the high level, Florida is a really nice business for us, it's growing, but with everything in this business in this industry really time and capital allocation means everything. So we do have to be in this state?

No, we love the state though. An excellent market, high growth, loyal customers, our flowers doing great.

Five stores opened now, more coming another one opening this quarter, we think. But again, we have to weigh all the options.

So I think there's six months or some kind of delay in Florida doesn't hurt us given the first mover advantage. That's a big deal in places like Illinois and Pennsylvania.

So we're planning to play that.

Good afternoon, thanks for taking the questions. Little bit of follow-up on some of the states, I know wholesale you are really well penetrated in Illinois, 100% dispensaries in Pennsylvania.

Are there other states like Massachusetts or they're going to get additional penetration in your view?

Sure, this is Anthony. There are obviously in addition to Illinois and Pennsylvania, we have a great business, great wholesale business in Massachusetts and another state, Maryland.

The biggest challenge in Massachusetts candidly is product. We could probably service all the stores in the state but the reality is we wouldn't do a great job because we just don't have the product available to do so.

So we've had to be pretty, pretty selective in our partners there. Same goes in Maryland, that's a business that I still think that we have the top selling vape pen in that state.

We have incredible penetration in something we are very focused on the flower coming online here in the near future. But it's not in addition to that, obviously Nevada and few of the other markets that we operate in.

We feel pretty good about our wholesale position in some of the other markets.

Okay, thanks and then real quick, any color on Beboe and the CBD offering and kind of expanding that going forward here?

Yes, it continues to go well. We recently launched in Nordstrom and we love the brand and really I would say most importantly, the consumers are loving the brand.

We continue to allocate capital and time at the most attractive opportunities. So we have people specifically working on the supply chain as we begin to scale that nationally on the THC side, and unroll the CBD.

Okay. Thanks for the color.

Sure. Thanks Scott.

Hey, Ben, and Anthony, congrats guys on a solid quarter. Great to see that profitability ramp.

Just curious on the touch back on your $200 million guide for the year. Sorry to make this completely obvious, but on a sequential basis from three to four and you have gotten new stores open and have seasonality any reason you should expect sequential decline in sales for - could again make obvious the headwinds that you could face in that?

Thank you and then I have a follow-up.

The short answer is no, there's no headwinds, you should not expect deceleration. We've never given guidance.

People ask about it a lot, we're trying to talk about where the business is going and show confidence in where we're headed.

And on the vape side, I thought it would be nice if you could sort of color in some of your thoughts in the regulatory environment. How you see the opportunity there or risk what is impacting your business.

Consumer behavior around vape obviously it looks like maybe that's key, so I would like to get your thoughts there and what you’re doing I guess to ensure your consumer safety as it relates to vape products? Thank you.

Sure, thanks. Good question.

So I would say high level of consumer and patient safety is our number one priority. Rhythm cartridges are always whole plant extract using terpenes from the plant.

And big picture as this happened, I think there's short term, a lot of attention on this, but this sets up very well for the regulated and tested products. So we test all of our hardware, all of the oil and every one of our pens is tested, and ingredients are listed.

So our hardware assessing for things like heavy metals, which have been issues in some markets, and the CDC conclusion that the vitamin E is the root cause of the problem recently, and particularly in the illegal markets, people buying product from the illegal market is what's creating the problem, not product from regulated states with tested products, that’s the key. And of course, no vitamin E in any of our products, never been, no chance.

I would say for some of the market stats peak to trough, we saw maybe three to 500 basis points decline in the category and actually that started to rebound. But interestingly, we don't see the pie shrinking.

We saw consumers electing alternative methods and often looking for quick consumables. So it ended up switching over to pre-rolls and edibles.

Okay, guys thank you. Happy holidays.

Sure, same to you.

Hi, guys. Thanks for taking my question.

Two quick ones, first in the note you guys put out in the press release, you stated that the Illinois, Pennsylvania and Massachusetts cultivation and manufacturing facilities are undergoing expansion, obviously with the sale leaseback in Pennsylvania the additional $19.3 million that's going towards expansion. With Illinois and Mass, are the plans you’re speaking of, or the expansion plans you are speaking of here incremental to what you were planning say last quarter or two quarters ago, you are expanding beyond that level?

And then the second thing is just on EBITDA on the incremental sales from last quarter it looks like you had about a 37% margin. Is that something that you guys seeing maintained over the next few quarters or do you expect there to be a bit of lumpiness due to some costs in certain states where you're ramping up?

Thanks.

Sure. I'll hit the first one and then may ask you to repeat the second one.

I'm not sure, I totally followed it. But wholesale production capacity expansion in Illinois, Pennsylvania and Massachusetts, so obviously the sale leaseback can further the growth in Pennsylvania as we've seen that market just high level.

We have seven open stores in Pennsylvania today with licenses to open 18. The market is growing and everybody needs more product.

So we've continued to ramp that. Illinois plan currently is looks much different and is much bigger than it did at the beginning of 2019.

The passing of legalization changed things, and we're excited about that. In Massachusetts, I would say, has had the littlest change in the last quarter or two.

And I'm actually excited to say that the inspection for the additional wholesale flower rooms happened a few weeks ago. And I believe we have approval to begin growing here very soon.

So that's at the tail end of that expansion and the market is excited for that flower. And then maybe if you could repeat the margin question, I will let Anthony hit that.

Yes, basically on the incremental amount of sales, looking at how EBITDA jumped from last quarter and onward sales jumped from last quarter, the margin on that incremental sales was about 37% and just asking if you see that as you continue to ramp sales in the coming quarters, do you see the operating costs underneath that being a little bit lumpier, or if you have some costs in other markets where you're still ramping up, such as New Jersey that's pre-revenue, or with the expansions going on in these markets, we just spoke of that might slow down that EBITDA margin on the incremental revenues?

Yes, look this is Anthony, it's a great question. We're looking at this now really as quickly as we can, at the end of each month to get some good visibility into it, to really project out the business.

I think that there's so many variables at play, it's really hard to say if the future operating leverage is going to be at, below or above that call it high 30s mark. Our goal is to get that number up as high as possible, because obviously the more we can, the more leverage we can get out of the revenue dollars, the better it is for the business.

But right now, I'd say it's really tough to say. And ask me, ask us that question in two quarters, and we'll probably have a much better answer for you, because look, this business is scaling very fast and again there's a tremendous number of variables at play here that will impact that true operating leverage.

Thanks very much.

Congrats on the quarter and thanks for the question. Question, my question is around Nevada.

Just wondering what your latest plan is there for the build-out of those, those retail licenses in the context of the state and the legal disputes and certain municipal moratoriums. Can you give us a sense as to what your latest plan is there?

Sure. Two stores currently under construction, I think we'll see one in January and maybe two or the second one at the end of the first quarter, maybe early second quarter.

So with the litigation and various lawsuits settling, we're excited about going forward.

Great and if I could follow-up with a similar retail oriented question in Pennsylvania, given the growth, you've seen licenses for 11 more locations there, can you give us a sense as to what the build-out cadence might look like into 2020?

Sure, I think we're really comfortable with the low single digits per quarter, so one or two a quarter. I'm not sure if that's the exact in rollout for all of 2020, but we're excited about these.

So King of Prussia coming online very soon, Newcastle behind that, and looking at several of our different markets there. The Pennsylvania market has been an example of success in a tightly well regulated program that is serving patients very well.

Excellent, thank you.

Thanks Russ.

Hey Ben and Anthony, thanks for taking my questions and congrats on the very strong quarter.

Thanks Alan.

I have a big picture question and obviously since the last call things have changed greatly for the capital markets and the leaders are separating themselves from the pack, and you would be in that group. And I'm just wondering if you could address your outlook for the whole market, in terms of what's going to happen to some of the distressed operators that are holding assets that may not be able to perform due to lack of capital and you guys have shown ability to raise capital and garner confidence in investors.

What do you think is going to happen in the market overall and what role do you expect GTI to play?

Thanks for the question, Alan. I appreciate that.

We’re working hard every day to do that and it's a major team effort. So the big picture in the industry what we see if we just step back and look at it, we see legalized regulated cannabis revenue in the U.S.

coming in north of $1 billion every month, literally. So that's 10x the size of Canada, Canada is under $100 million.

So we see that continued growth and continued going forward. You mentioned operators, I think like I mentioned in the prepared remarks, our priority is head down execute, but we're not and not paying attention.

We have a deep team. We know the operations, we understand every single state.

And we're prepared to be opportunistic to move fast and to be aggressive and at the same time, like Anthony said, we're prepared to stay inside and continue to execute on what we have because we love what we have. Personally, I don't think it's at the end.

I think the cycle continues to unfold and I think the market particularly in the biggest market is also the toughest market. And that's okay, we don't need to play in the hardest games out there.

We like playing when the deck is loaded in our favor, and the probability of success is highest for shareholders. That's been our info since we started and we're going to continue with that.

It sounds good. Just a quick follow-up on Illinois, it sounds like you have a little bit of a trade-off between starting of new adult use market and your existing patients.

Can you just kind of walk us through the limitations that you see and how you're going to handle that?

Sure, so look at some of the numbers, Illinois is doing as a medical program a plus or minus $25 million a month in sales, so it's running at $250 million to $300 million run rate. We think direct market, the adult use market in a state with 13 million people is $2 billion to $3 billion from the local population, so that's 10 times the size.

So it's not possible for the industry to scale 10x in six months. In fact, new supply is going to take a little while to come online.

So it's incredibly important for us to serve the patients in Illinois. They've been the start of this program.

We're loyal with them and I think over time, things will balance out.

Right, thanks for that and my congratulations again.

Thanks Alan.

Sure. Thank you all for joining.

We look forward to updating you again in the New Year and in the meantime, have a happy and healthy holiday season.