TerrAscend Corp.

Thank you. And good morning, everyone.

And thanks for joining the call today. With me today is our Chairman, Jason Wild; Adam Kozak, our Chief Financial Officer; and also, on the line with us today is Keith Stauffer, our new Chief Financial Officer who we just announced joined the TerrAscend team this morning.

Keith officially starts Monday and we're very happy to have him with us today. As this is our first quarterly conference call, I'd like to take a few minutes to review our strategic priorities and some of our recent successes, and then Adam will discuss our financial results.

Afterwards, we'll take a few questions and start things off, though I'd like to discuss where I see us heading. So, the company has built some very strong, talented operating team and we've worked very hard to drive the business with strong financial disciplines.

We're developing a foothold across the US by focusing mostly on the high growth markets on the East Coast and West Coast. Today, we're active in California, Pennsylvania and New Jersey, and are largely going to use the western and eastern hubs to strategically expand our business.

We recently announced that we've opened up two new outlets under The Apothecarium name in the Pennsylvania market to serve the medical cannabis patients. And I'm excited to say that we continue to see very strong demand in that market despite the current pandemic.

On the CBD and hemp side, our Florida subsidiary, Arise Bioscience, has product development, sales and distribution teams that are currently distributing products to more than 10,000 retail locations across the country. And we have a very strong product development team with 30-plus products coming to market this year.

The opportunity in the US for TerrAscend is immense compared to other markets we operate today and my near-term priority remains to build a sustainable, profitable, high-growth business where we're focused on investments in time to drive immediate growth. We've taken some pretty decisive steps to right-size our Canadian operation.

The Canadian cannabis market continues to experience some real challenges in the adult use, with some real supply and demand dislocations. That being said, our capital-light footprint has positioned us well for future growth.

Similarly, I continue to see long-term opportunities for us in Europe. However, the European medical markets have grown slowly, and we continue to evaluate avenues to leverage our EU GMP certification for operation to expand prudently.

The positive impact of our strategic changes we've implemented are evident in the results today. Our fourth quarter sales have grown 400% over last year to $26 million.

The growth was largely driven by our US operation, which accounts for roughly 93% of sales in the fourth quarter. In addition, I'm excited about our Q1 reviews.

We've reported our earnings release this morning. We expect our net sales in the first quarter of this year to be approximately $35 million, which represents a 35% sequential growth.

Looking ahead, we've entered 2020 with a solid foundation in place and are on track to execute our goals by driving strong revenue, profitable growth. With our focus squarely on cementing our US operations, we have three main levers that are to propel our business in the future.

First, in Pennsylvania, we have tripled our cultivation capability, which has largely come online at the end of the first quarter 2020 and we'll continue on posting into the second quarter. We currently serve 65 out of the 76 dispensaries in the state and the addition of capacity we've been able to sell through, and we're seeing accelerated revenues in that market.

Second, we were awarded a cultivation permit in New Jersey and are developing a 227,000 square foot production facility. Construction is currently underway with the first phase covering 80,000 square foot of cultivation, processing space.

I expect that facility to be operational along with our first treatment center, branded under The Apothecarium to be operational by the end of the year, along with the option for two more ATCs. Third, the strong brand equity and reputation for our Apothecarium, we will continue to expand our network of dispensaries across our key markets, with five locations currently under development, as well as expanding our manufacturing and product development of our Valhalla brands and products.

I'd like to now turn it over to Adam who will discuss the financial highlights of the fourth quarter. Then we'll open up the line for questions.

Thanks, Jason. And good morning, everyone.

The figures I'll be going over today can be found in our financial statements and MD&A and are all in Canadian dollars. As Jason noted earlier, sales net of excise tax increased 414% to CAD 25.9 million in Q4 2019 as compared to CAD 5 million in Q4 2018.

Our growth was driven by our US sales, which net of excise tax were CAD 24 million in Q4 2019. This represents 93% of total consolidated net revenue, reflecting TerrAscend's focus on this important market.

Canadian sales net of excise tax declined to CAD 1.9 million in Q4 2019, down 62% compared to Q4 2018, as a result of the ongoing challenges facing the Canadian cannabis market. Q4 gross margin before gain on fair value of biological assets was negative 16% compared to 18% in Q4 2018.

The change in gross margin compared to the prior quarter was driven by a material impairment charge related to the company's Canadian cannabis inventory, which occurred in Q4 2019, as well as a short-term increase in cost of goods sold as we scaled up our US operations. Excluding the impact of these non-recurring, non-cash expenses, Q4 gross margin would otherwise have been 39%.

Q4 G&A was CAD 12.3 million, an increase of 52% compared to Q4 2018. The change was primarily driven by our focus and investment in establishing and scaling our US footprint.

These investments in acquiring talent and developing the appropriate infrastructure are necessary to ensure continued market share improvement in the high growth US market. Our Q4 adjusted EBITDA loss was CAD 5.7 million compared to CAD 4.5 million in Q4 2018.

On a geographic basis, adjusted EBITDA loss from the company's Canadian and US operations in Q4 was CAD 4.3 million and CAD 1.4 million respectively. The change in adjusted EBITDA compared to the prior year was primarily driven by a decline in Canadian cannabis revenues as a result of ongoing demand issues in the Canadian cannabis market, which persisted through December 2019, as well as an increase in G&A and an increase in cost of goods sold as the company scaled up the organization through its investments in additional headcount as it continued its US expansion.

As we announced in our reporting, during the quarter, we recognized asset impairment, goodwill and write-off charges largely due to the ongoing conditions which have impacted the broader cannabis industry. These charges include a CAD 66.2 million impairment charge to goodwill related to the acquisition of The Apothecarium and the closure of Solace RX, a CAD 7.4 million impairment charge and a CAD 4.4 million write-off related to our Canadian cannabis inventory due to an excess of stock relative to our anticipated short-term demand for cannabis products, and a CAD 2.3 million impairment charge related to our Canadian property, plant and equipment as the net book value exceeded the current market appraisal for our Canadian production facility.

In addition, during Q4 2019, we reported a CAD 61.9 million revaluation of contingent consideration liability related to our acquisition of Ilera, driven by the outperformance of the business versus our initial expectations. As a result, we now expect to pay the full final payout based on its success to date.

We ended the quarter with CAD 11.9 million in cash and cash equivalents as of December 31, 2019 compared to CAD 21.8 million in 2018. Subsequent to the quarter-end, we raised gross proceeds in excess of CAD 120 million through a number of successful capital raises, including the previously announced loan financing arrangement with Canopy Growth in the amount of CAD 80.5 million.

A portion of the proceeds received from Canopy Growth were used to fully pay off the outstanding principal and interest amount under the JW Asset Management credit facility. Before I turn over the line, I'd like to take a moment and acknowledge that with today's earnings report, my time with TerrAscend is coming to an end.

I'm extremely proud of all that we have accomplished together since I joined in August 2018. Under Jason Wild and Jason Ackerman's leadership, TerrAscend is in a great position to accelerate its US market leadership.

I look forward to continuing to watch them execute on this incredible opportunity. And I'd also like to welcome Keith to the team.

Now, I'd like to ask the operator to open the line for questions please.

Good morning. And thanks for taking my questions.

First off, on Ilera, so it sounds like your expansion is completed there. Can you give us a sense of how much of the expansion space is now planted with flower?

Yeah. Hi, Noel.

So, we have planted, as of today, roughly 3x the throughput that we had prior and that amount is already and has been sold off and continues to sell through in the market, again, as I said at the end of the first quarter and into the second quarter. We have not planted all of the rooms.

There is still room to plant additional ones. So, once this absorbs into the marketplace, we have the ability to increase that output further.

And in addition, there is an additional room that we have not finished the capital for that would add another 20% expansion if we choose, which we're thinking about in the fourth quarter of this year.

Okay, great. So, in terms of total capacity expansion, would it be fair to say that it's even more than 3x what the prior capacity was, if you get everything finished?

That is correct. We're probably slightly north of 4x if we choose to fully ramp up everything.

3x is kind of what we've planted coming out of the fourth quarter compared to where we're coming out of the first quarter.

Okay, great. Can you talk a little bit about your CapEx budget for 2020?

Sure. So, most of our capital plan is focused at this point on two main places.

One, the buildup of our New Jersey asset, which we're super excited about. As we said, that's a construction of an 80,000 square foot facility, both growing and manufacturing and processing.

That is currently underway. That's the largest of our capital spend.

In addition, we are rolling out five – we will be under construction for five dispensaries this year. So, that's the next group.

And lastly, we are building out on the West Coast. We are expanding our high-end grow and manufacturing operations out in California under the Valhalla brand and State Flower.

State Flower, as you know, is a premium high end of the marketplace that kind of sells at the top end of the marketplace. And that's where our capital is being spent.

Okay. Can you give us a sense of how much that would be in total?

At least the ballpark.

Sure. So, each dispensary asset ranges from US$600,000 to US$1 million.

And we've earmarked another US$15 million to US$18 million for the New Jersey build-out. And another US$3-plus-million to spend to build out the grow and manufacturing on the West Coast.

And would that be US or Canadian dollars?

Sorry, that was all US. I haven't gotten used to making my US conversion off to Canadian dollars.

So, whenever I quote, it's a good chance I'm saying US dollars.

Okay.

Thanks for clarifying.

Thank you. So, the next couple of questions here.

So, you folks look like – your Apothecarium business, based on the financial filings, looks like H1 and H2 of 2019 was kind of operating about the same level. You folks took a write-down on that acquisition.

So, I wondered if you could talk what drove that rate down.

Yeah, sure. So, as you know, the process of an IFRS to revaluate assets is a function of a set of projections, and then taking market comps under terminal value and using the volatility to calculate the discount rate.

When you look at the performance of the Apothecarium, the business is roughly holding where it was before. So, there's really no material change in the Apothecarium itself.

But when you look at the market comps, they've come down more than half since we did the transaction and there's more volatility in the marketplace. So, largely a combination of the terminal values and the discount rates has led to an impairment when you do the present value.

And honestly, coming on new and taking a look, I don't love all these accounting charges. So, I took a very conservative approach to the fair valuation because I don't want to have to address this again in the future.

So, we were very conservative and took that write-down.

Okay. Can you talk a little bit about how COVID is affecting operations and demand in the US market?

Sure. So, some pluses and some minuses.

So, largely, in Pennsylvania, which is a medical market, we have seen no drop off whatsoever. In fact, it's been a relatively strong sell-through.

And they've got some easier rules with respect to entering into the dispensary. So, Pennsylvania, I'd say, has actually had a pickup overall.

Canada, while they've had some ups and downs and closures, we've seen no real impact in the Canadian market so far. California, the rules are stricter.

They don't allow patients into the room and 100% of our business now is pickup and delivery. So, that has seen some degradation in volume out there.

And the Arise, which largely sells to retail shops, they have seen a slowdown in their business as many retailers have either closed their doors temporarily or have slowed down for online pickup. So, that's kind of break up.

But, as you know, Pennsylvania is by far our largest contributor, and that's been going strong.

Okay, great. Okay.

Just finally, so I noticed in the filings that you folks have amended the MediPharm extract deal. It appears that you're taking a much lower amount of extract for most folks than what was sort of initially announced several months ago.

Do you want to talk about why you're sort of adjusting the contract and what you see for supply in the market?

Yeah, sure. So, when I came in a few months ago, one of the many things I asked for is to review all the supply contracts that we have in the company.

And I'm not a believer in really having long-term supply given the nature of the marketplace. So, I've gone around in effort to make sure that we evaluate everything we have.

And I prefer not to make any long-term commitments. We have a good standing relationship with MediPharm.

So, we sat down and discussed and really we've shortened down the life of the contract. However, we still see that as a strong relationship between the two of us and we will continue to look to them as a partner, but I prefer not to be under long contracts with anybody.

Okay, great. Thank you very much for taking my questions.

Good morning. Thank you so much for taking the question.

My first one is on the Canopy Growth deal, and congratulations on that. I was wondering if you could just offer any color on the genesis of that relationship.

Thanks.

Sure. Hi, Vivien.

I think as you know, Canopy has been a long-term investor in TerrAscend. They've invested in the past.

They've also, as you know, put an additional investment today and they have a new management team under David Klein and Mike Lee, who are really doing a fantastic job there. And we've really strengthened our relationship.

They see TerrAscend as an important, I would say, horse for them to bet on the future because they have an interest post federal legalization to be involved more in the United States marketplace. And so, that relationship has gone very well.

And we speak to them literally every week of strategy and other thoughts. So, that relationship is a great relationship and I view them as an important strategic partner for us.

Terrific. Appreciate that color.

And then, just a second one, please, on COVID just to follow-up to the last analyst. Just in terms of the California marketplace, appreciating obviously that they were very proactive in putting social distancing restrictions and other safety measures in place that have created some logistical challenges for your business, but are you noticing at all, like, any variance kind of week to week?

Do you think there's pantry loading and then pantry destock? Or conversely, do you think per capita consumption is up just based on, like, whatever internal data you have for any kind of consumer tracking capabilities that are in place for that marketplace?

Thanks.

Yeah, sure. So, I think all of us saw right when the restrictions were about to be put in place that there was a pantry load, if you would.

So, there was a big spike we saw across all of our dispensaries assets and the register ring was almost 2x what it normally was. So, there was clearly a loading.

But that lasted only for about the first week what I consider to be that pantry loading. First 10 days.

And in Pennsylvania, we just saw continued strength overall. I think with everyone being inside, there are those who have nothing that – not allowed to do so, obviously, consumption is up.

In California, given that we cannot have patients come into the stores, we had seen a degradation. That degradation has leveled within the first two weeks and we see now a consistent pattern, with 100% of all of our purchases now being done through the online channels.

And just as a side note, by the way, I think it's actually really exciting. As we've seen people move into the digital channels, there's a real tremendous opportunity to advance the digital capability of this business because I think, in the future, digital is going to be a very important part of the overall retail experience.

But we've largely seen, at this point, there's been a fairly strong leveling of demand that took place where we are.

Terrific. Appreciate the color.

The last thing I'd say is, in California, in San Francisco, we're mostly in commercial districts, so that might be affected more than others as there's no one in the offices in that space, but it's been leveled off. Thank you.

Understood. Thank you so much.

Hey, good morning, guys. And thank you for taking my questions.

I was wondering if you might be able to give us some insight on to organic growth trends, whether you could shed some light on organic growth that we saw occurring for Q4 2019. And then, kind of going forward, how we should think about your store opening cadence, California and New Jersey?

That would be helpful. Thank you.

Sure. So, as you note on the numbers, we've seen some good organic growth other than in Canada.

And just shedding some light on the Canadian market, when I came in, I felt it was very important to put in a lot of disciplines, and not all revenue is created equal. So, in Canada, we put more disciplines in not chasing growth that is not profitable.

So, largely, what I expect to see in Canada is a continued to pressure on making sure that what revenue we take, we do it profitably. I think that the downward pressure we saw in the fourth quarter, we'll see it strengthen back up post, but we're going to be very disciplined in that marketplace.

I continue to think there are great opportunities in Canada, but I think it's going to be much more disciplined and controlled. And I think when we think about organic growth, as we said in Pennsylvania, that's a strong opportunity.

New Jersey coming online is going to add strong growth to the business. And in terms of cadence of dispensaries, we see that, in Pennsylvania, we will push through our three licenses, and I would expect that we will continue to pursue opportunities to expand.

There's a 15 license cap limit in Pennsylvania and our objectives would be to continue to find ways to move up to that mark. New Jersey, we will build out our three licensed dispensaries.

And I do enjoy and like the California market. I think we've got a great operating team in The Apothecarium.

We have two that are under construction. We have a third that we're applying a license for.

And I think there are many other opportunities for us to expand. So, we're going to keep on pushing in the markets that we're in, and I expect to see continued expansion of those dispensaries.

Okay, thank you. Just switching on to the margin side and if we look at the Q4 gross margin level, which if we back out some of those inventory write-downs and some of that depreciation and amortization that's buried in there, we're getting to somewhere in the area of 45% gross margin, which is a great improvement from last quarter.

So, what's driving that? And how can we kind of think about the evolution of your gross margins going forward, obviously, with maybe revenue mix shifting towards the MSO block.

Yeah, that's correct. So, when you think about the mix, let's first talk about Pennsylvania, which will continue to be a larger percentage of the business as Canada continues to be a smaller part.

So, as you probably recall, when we first did the acquisition, we reported that Pennsylvania had an 59% EBITDA margin. And so, as we triple our capacity and we continue to operate very profitably there, you can imagine how that will continue to put positive pressure – positive upward momentum on our gross profit margins as that gets larger and larger.

Also, in our California operations and the dispensaries, we operate at the mid to upper end of the normal margins that you would find in the dispensaries. The industry average ranges between 45% to 55%.

And I would say that we operate well within that range. In California, as we continue to open dispensaries, I expect to see those margins hold.

In addition, in Arise, I've worked very hard to dissect the P&L and make sure that we're driving very profitable growth and we've seen an expansion of the margins in Arise as well. And then, Canada is the place we have pressure, but most importantly, I expect that the business that we do in the future, we should continue to find opportunities to operate with better margins.

While they have been very low in Canada and they do drag down the average, I expect them to contribute less of a drag and, overall, that weighted [ph] ourselves to continued positive momentum.

Okay, great. Thanks for the color there, Jason.

Maybe a little bit if you could switch to the M&A environment and how you guys see your opportunities lining up there. Obviously, there's some good values out there and maybe a little bit of a smaller buyer pool now with some of the capital challenges that have constrained the industry recently, but how do you see your competitive positioning to acquire assets in the context of how attractive are valuations to you generally here, mainly focused on the US side?

Yeah. So, I'm super excited about what's going on in the marketplace.

I started my career in the late 80s in investment banking when the world was blowing up and high yield was falling apart and fortunes were made in the face of that sell off. I see that we're in a very – we're heading towards a similar place where there are a lot of assets that we've seen.

And, obviously, I can't disclose any conversations that we're having, but there is an enormous amount of transactions that we're seeing that are very different and price-wise and opportunity-wise than there was even four to five months ago. And as you know, my partner, Jason Wild, who runs one of the largest cannabis funds, is very much in the deal flow.

He has an enormous pipeline of stuff that comes his way, and which is one of the reasons honestly why I'm here is I believe there's going to be a tremendous opportunity to take a moment of weakness in the industry and I think we're very well positioned with both our capital partners, with JW and the operating team that we've built. And I'm super jazzed up to take advantage of the situation.

I think it's a great unique moment in time for the industry. And I think those who were able to capitalize on this moment of weakness will come out a lot stronger.

Okay, great. Well, that's encouraging.

If I could just squeeze in a quick one, and it follows on a little bit the first question about the write-down in California, so I can understand that maybe the delta there has more to do with valuation multiples than it does forecast variation. But what prompted the review and decision to even look at that asset for potential impairment if you don't mind?

Oh, yeah. It's a requirement annually for us.

So, every year, it is a requirement from the Canadian securities under the IFRS to do a valuation every year of your assets. So, that is an ordinary course of the annual audit process.

It's the first time I've been through it with the team. And as I said, my objective was to take a very conservative approach to it, but this is something we will do every year.

It's just a matter of process. It wasn't spurred by anything.

Okay, great. Thanks again.

Hi, good morning. Thanks for taking the question.

Just curious, with regards to the Canadian operations, I understand that the focus is more on the US these days, but perhaps you could talk about – you did mention that it was going to bounce back a little bit perhaps as we look into 2020. And in the press release, you highlight having signed some distribution agreements and the ability to increase capacity there.

So, perhaps, maybe you could just give us some more color on what the thought process is for 2020 in Canada? And of the guidance that you've provided for Q1, perhaps what portion of that is similar to Q4 as far as the Canadian contribution or has it changed significantly?

Yeah. So, first, what I'd say when you look at the fourth quarter numbers, there is a returns provision that was deducted from revenue.

And the amounts are in the notes. That was really taken because the company had not taken returns reserves throughout the entire year.

So, there's really a kind of falsely weighted for the fourth quarter hit that really should be proportioned around, so that the actual numbers were stronger than presented if you look at it from that perspective. And so, largely, it's a kind of a repositioning of the type of business that we're going after.

And I think that, if you kind of adjust the reserve requirements – sorry, the reserve, that's probably more indicative of where the business is heading. We are participating with RRTs.

We've got 2.0 products in the marketplace. Our 1.0 products are good.

And I think what I see honestly is – the key thing is to make sure that we have a consistent view of the types of products that are selling today in the marketplace, the right strains, the right potency, and so forth. And so, the fourth quarter and the first quarter were very much around getting clarity and focusing the team on exactly where our right to exist in the market is and where the demand is selling.

And the team has done a good job repositioning that. So, I think off of this base, I expect to see ourselves to kind of grow from this point, with a very sharp focus on making sure that the business we do, we do profitably.

And that's really where I see ourselves going forward.

Okay, thanks for that color. And then, just quick, you probably saw yesterday, a new poll out in New Jersey about a support for legalization there for adult use as kind of in line with what we've see in the past.

So, that's a positive. But maybe in Pennsylvania, with your ear to the ground, so to speak, can you give us a sense of what you guys think the opportunity is for adult legalization in the medium term there?

I actually can't comment on Pennsylvania turning. I think we both know that New York and Pennsylvania, which border New Jersey, if New Jersey goes, there's going to be a lot of pressure for that to convert.

So, I do believe that New Jersey has a high possibility of turning. It clearly has the populist support.

A little bit strange in the COVID situation kind of how that plays out. But we know that the support is there.

And I also know that, in speaking to New York, which I'm very tight with, everyone's very concerned about customers going to the New Jersey side. So, I think that's going to be a catalyst for the East Coast in general.

So, that's my broad view that I think is going to happen with respect – I feel pretty bullish about New Jersey turning. I think if you look at Pennsylvania, which is – my estimates next year is I think it would be north of a billion dollar market as they continue to open retail.

As long as New Jersey follows suit, so we're getting the retail stores opened, New Jersey could be just as strong as Pennsylvania opportunity, in my view.

Okay, great. Thanks for the color.

[indiscernible] I think it could be stronger. Yeah.

Yeah. Thanks.

Thanks. Just a couple quick follow-ups.

The SG&A costs were down pretty sharply in Q4. It looks like that was, as you folks said, heavily weighted to sort of right-sizing the Canadian business.

Do you see any further opportunity to streamline the business, reduce costs in the operations?

Yes, I do. So, in Canada, we are continuously challenging ourselves on how to run a leaner and leaner operation.

And even into the first quarter, we've continued to take further moves to streamline the operations in Canada, and that will continue in the first half of this year. In addition, as we triple our capacity in Pennsylvania, the additions in our SG&A were relatively small.

So, you'll see as a percentage that continue to be leveraged down, and that will be slightly offset as we're building our team in New Jersey prior to driving sales. There might be some increases on that that could offset that, but that's leveraging in preparation for our opening.

But I think as you get to know me – my previous life, I've operated in an online grocery business, which I built from scratch in 20 years. Living in the online grocery world, it's an incredibly tight margin business and you have to operate very, very effectively and efficiently.

And I don't care what your gross margins are, the team has to constantly be challenged on how to run this lean as possible. And that's a discipline that we're going to continue to put in place.

Drives me absolutely nuts to not make money. And I don't care how well we're doing, we're going to continue to ask ourselves if we're running as efficient as we can, and that's the attitude we're going to bring to the table.

Okay, great. And then, finally, you folks noted in the filings that the JW Asset Management credit line was paid off, I guess, with the proceeds from the Canopy loan.

Do you want to talk at all about where JW Asset Management stands now with that line? Is it available?

Do they continue to be a credit backstop for you guys?

Sure. So, yes, we did pay $47 million down on that line.

And the JW fund is committed to continue to support. So, we are in the middle right now of working through an extension of a new line.

The shape and form of that is yet to be determined. As an operator, I'm not a fan of having debt.

I think during the growth phase of the business, you want to be more equitized. And when you're more established and generating a ton of cash is the right time for debt.

So, we're in the middle of discussing the right way to draw down the line. So, there is lots of availability on the JW side.

The shape and form is something that we're working through as we speak. And hopefully, in relatively short period of time, we'll have that announced.

Okay, great. Thank you.

Hey, good morning. Hey, Jason.

Welcome aboard. I have a kind of a two-part question.

So, the first one is really a function of – you were the executive chairman, moved over to the CEO role. You mentioned a little bit on the call before about what you – why you did it, but this is a full-time job.

You've, obviously, built a business What sort of got you to jump back into this sort of full-time operating role? Just curious to that.

And the second part would be, I really wanted to follow-up on sort of the digital opportunity and delivery opportunity, especially in light of COVID and your background. Thanks.

Yeah, sure. So, first off, building FreshDirect for 20 years, I've always said, 'My gosh, wouldn't it be easier to convince people to buy cannabis online than it would be to buy fish.'

And I said, if they ever legalize, that's going to be a great play. So, I've always had, in my mind, the thought of digitizing the cannabis space.

So, it's always been on my mind. And then, when I retired from FreshDirect and took some time off, I realized that retirement is not kind of part of my bloodline.

And I've known JW and we spent some time. So, I took the role as executive chairman to shape up the operations and get to know the business.

But as I began to see the opportunity, one, with a really great asset base; two, with a really great team; and three, particularly as the world is getting completely dislocated between capital and what people have to do, there's nothing better I love than building companies. And I realized that this opportunity was amazing.

And I'm only happy when I'm building stuff. And I just got too excited.

So, I got over myself and said, all right, you're going to work and this is just too much fun. So, I'm super excited to be here and do this with Jay.

Great. And then, just on the digital, you mentioned digital.

And then I wanted to just push on the delivery a little bit on the – especially in light of COVID and how you sort of see that evolving. I know some of the stores have that.

But if you can sort of elaborate on that and maybe if there's a possibility to quantify, over time, how that can actually reshape some of the revenues. Thanks.

Yeah. It's an interesting question, but there's something I say.

My whole life in being a digital first retailer, what I found in the grocery business is that those who run retail, digital is an afterthought. For me, digital is the primary thought.

And when you look at the industry, it should have, in my opinion, on the front end, 30% to 40% of all transactions should be through a digital format, not just through the physical, people walking into the store. You look across the industry, everybody is using some standard format.

And the digital experience is so much worse relative to the time that people putting care into the retail experience. So, I would expect over time that we will develop very proprietary software around my knowledge of a digital first perspective that I think will be a sustained competitive advantage that will really be bespoke to what we do and using my experience.

And I think more and more, as we build out our retail base, that will become an important part of our future. And I've got lots of really great ideas.

And it isn't just about delivery itself because store pickup is going to be also an important part of that operation. And what we're seeing right now, as an example, and even in Pennsylvania, where people can walk into the store, 60% of the transactions are happening online for pickup or drive through.

And I believe that, on a sustained basis, going forward, that is going to be a way that people want to operate because you don't always want to talk to the budtender. You want a fast transaction if you know what you want.

So, I see this. So, my goal is, as we build out a bigger retail platform, that digital is going to be a very important part of that strategy.

That's great. Appreciate it.

All right, great. Thanks for taking my questions.

And welcome onboard, guys.

Thanks.

You guys mentioned sort of using your West Coast and East Coast hubs for future expansion and provided some color on – specifically focusing on Pennsylvania retail opportunities. Can you give us any sort of color on what other markets are sort of attracted to you guys?

And then, sort of as a follow-up to that, do you have any sort of de facto limitations on which markets you can expand into given your relationship with Canopy and their agreement with Acreage? Thanks.

Yeah, sure. So, first, what I would say is that it's really easy to buy a company, it's really hard to run a company.

And the first thing that I think about is building very strong operating teams in regional hubs. And so, as we think about acquisition expansion, it's critical than any move that we make, we are building our operating talents ahead of that, so that we have the ability to effectively absorb it in the acquisition.

And in addition, I also believe it's important as we go into – we think about expansion that those expansions have strong adjacencies geographically to our teams. So, our teams have the ability to touch, feel, drive, get to know the people, touch the people on a weekly basis.

And so, if we look at building a beachhead in Pennsylvania and New Jersey that is being run by the Ilera team, and we've continued to beef up the talent in that team. So, as we think about expansion, you can draw circles around that marketplace that I think are opportunities.

And to the extent that – and I happen to be a big fan of the limited license states as a way of expanding. So, you will expect to see us evaluate opportunities.

And to the extent that we leave the adjacent marketplaces, we'd have to do so with a very strong operating team in place. And on the West Coast, I actually am a fan.

While it's a competitive marketplace, I do think that there are – and I've seen many opportunities to expand. We will be focusing where we have existing dispensaries, so that we can get leverage with customer recognition, marketing and the team as well.

California is a fairly substantial market. And as you know, we're adding more dispensaries.

We will be opportunistic to look to buy additional dispensaries in that marketplace. And we're also committed to meaningfully increase our manufacturing because I believe deeply in building house brands.

And so, while we're building dispensary revenue, we will be building more and more of our own capacity on grow and processing of consumer base goods ourselves through our own shelves.

Okay, great. That's helpful.

And then, are you able to comment on any potential limitations that you might have with expansion, given your relationship with Canopy and their agreement with Acreage?

Yeah. There are no restrictions on our ability to expand with that relationship.

So, there is no restrictions.

Okay, great. All right.

Thanks, guys.

Thanks, guys, for allowing a quick follow-up. Just on the payment cadence, I guess, for Ilera.

Obviously, you guys are going to be expected to pay the full earn-out on that. And I think there was a mention of CAD 20 million and thereabouts having been paid recently, but some deferral over the next 12 months for other payments.

Can you just, guys, give us an idea of when some of those bigger bullets that are remaining are likely to be required? And does it all have to be paid by that 2021 timeframe?

Just some cadence on those would be interesting to know about.

Yeah. We made a payment earlier this year.

And so, there is only one payment cycle left. And that's at the end of March of 2021.

And that's when we expect to pay the full amount, which is in cash. And just as a matter of course, we have an opportunity to buy 100% of that asset in cash.

It is not a requirement that we buy 100% of it. So, it could end up being less if we so choose.

But that's the final last payment and that's when it's due.

Great. Thank you.

And one last one is, on Canada and the entry to the 2.0 product spectrum, we've seen you launch the tea products, but just wondering if you have an update as to – if you're still interested in going into the edibles or vape category and rough timing around when we could expect some market penetration for those products that you are pursuing.

So, I can't comment on any new product development that we're making. We currently have a range of vape products.

We have our teas. Those are the main primary assets that we're focused on at the moment, and as well as on the 1.0 products.

We do a lot of pre-rolls and bagging. So, that's the main focus at the moment.

Okay. Thanks.

Good morning, Jason. Thank you.

It's very enlightening and encouraging. In fact, exciting to see your strategy in North America.

Would you please kindly shed some light on your strategy in Europe since TerrAscend [indiscernible] rightfully so to be the only company which can do business with in US, Canada and in Europe?

Sure. So, what's interesting about the European market is it is actually a lot less developed than the US.

If you look at, for example, the German market, there's roughly, I think, 60,000 plus patients compared to almost 200,000 patients in Pennsylvania alone. So, while we think that there are opportunities and we have been able to sell GMP flower that heads to the European market, I still see that market as a small relative opportunity to the size and scale of other places.

So, we will be very selective on how we decide to play. But we don't see that as an important growth vehicle for the business.

#still see that the US and other states in the US is really the biggest opportunity.

Thank you very much for taking my question.

Great. Thank you all for joining us today.

First off, I want to thank Adam Kozak for his service. He did a great job and wish them the best.

I'm very excited to have our new CFO join the team. And as I said earlier, this, to me, is an incredibly exciting opportunity.

I'm having a ton of fun. I love running teams, and I think this is going to be really exciting.

And for those of you in the analysts, I appreciate your questions. And as you know, you can reach out to me at any time.

So, thank you, everybody.