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00:39 Thanks, Dennis. Good morning, everyone, and thanks for joining us today.

Vext’s second quarter twenty twenty one financial results were released earlier this morning. The press release, financial statements and Md and A are available on SEDAR, as well as on the next website at vextscience.com.

00:53 We would like to remind listeners the portions of today's discussion include forward looking statements. There can be no assurance that these forward looking statements will prove to be accurate.

Or that management's expectations or estimates of future developments, circumstances or results contained therein will materialize. The risks and uncertainties that could affect future developments circumstances or results are detailed in the Md and A, and Vext’s other public filings that made available on SEDAR and we encourage listeners to read those risk factors in conjunction with today's call.

01:21 As a result of these risks and uncertainties, the developments, circumstances or results predicted in forward looking statements may differ materially from actual developments circumstances or results. This presentation also includes non Ifrs financial information and such non Ifrs financial measures are subject to the disclosure and reconciliation included in our news release disseminate earlier today.

01:43 Forward looking statements made during this conference call are made as of the date of this call. Vext disclaims any intention or obligation to update or revise such information, except as required by applicable law.

Vext’s financial statements are presented in U.S. Dollars and the results discussed during this call are in U.S.

Dollars. I'm joined on the call today by Eric Offenberger, Chief Executive Officer of Vext; and Vahan Ajamian, Chief Financial Officer.

I will now pass call over to Eric.

02:11 Thanks, Jon. Good morning everybody, and thank you for joining our quarter two twenty twenty one financial results conference call.

As a reminder, for any new investors on the line, Vext’s primary focus is on the Arizona market, where we have operated successfully within the medical markets since twenty thirteen and received approval to enter the recreational market in January of this year. 02:35 We currently operate two dispensaries in Phoenix, which we believe are among the top performing dispensaries in the state.

Arizona is a vertically integrated state. We are currently operating two indoor cultivation facilities one outdoor cultivation facility and a manufacturing operation in kitchen.

02:56 We developing a third indoor cultivation facility in Eloy that is fully funded. Vapen branded product is on the shelves of the vast majority of the dispensaries in Arizona and is consistently one of the top performing brands in the state.

03:12 Turning to our Q2 results I am very pleased with our performance in the quarter. Our team worked diligently to drive record results at the dispensary level, as well as to continue building the presence of the Vapen brand on the shelves of third party dispensaries.

As a result, during the quarter, we generated record revenue was solid at nine point four million dollars with a solid gross margin of forty five percent and that was steady compared to quarter one of twenty twenty one. 03:43 Adjusted EBITDA was three point four million dollars in the quarter with the margin of thirty six point six percent compared to thirty three point four percent last quarter.

Vext continues to focus and deliver profitability, something we have done since twenty sixteen. For the six months, ended June 30th, cash flow from operations was four point five million dollars.

Our fully diluted earnings per share was zero point zero one dollars in quarter two. 04:12 In our view, Arizona will continue to be one of the most attractive cannabis markets in the over the next few years.

Both from an absolute growth perspective, as well as based on return on capital with fifty five billion dollars of committed semiconductor manufacturing facilities and the lifting of COVID related restrictions, the Arizona economy and population will continue to grow. 04:36 We are anticipating in the remainder of the third quarter and into the first half of twenty twenty two, we will see a high influx of winter visitors and tourists to the state.

According to MJBiz, Arizona will be roughly a three billion dollars revenue market by twenty twenty five. 04:55 With our two operated dispensaries in the Phoenix metro area, our investments to improve efficiency that reduces costs, the strength of the Vapen brand and recently announced expansions to both our upstream and midstream footprints.

That’s disposition to continue to solidify a leadership position in the state. 05:17 We’re on track to almost triple our indoor cultivation capacity during the first half of twenty twenty two to approximately fifty eight thousand square feet under canopy from our current twenty thousand feet.

In a growing limited license state, cultivation and manufacturing leadership are important strategic advantages that help drive margin expansion at retail support growth and wholly-owned brands and open up additional opportunities to manufacture for others or sell high quality flower to other players in the market without capacity. 05:51 In this case, is truly a situation where if you build it, they will come while we see plenty of growth ahead by our operated Phoenix dispensaries in the Vapen brand, we have signed two very interesting deals recently to highlight the power of Vext’s platform in Arizona and point toward the potential for similarly accretive deals in the future.

06:15 On July six, we signed an MOU with Source Technology Corp to explicitly produce and sell Source’s MAJOR cannabis infused beverages in Arizona. Source is a leader in water-soluble emulsion technology for integrating functional ingredients into commercially available consumer packaged goods.

Vext will begin selling MAJOR beverages in the third quarter. 06:40 On July twenty seven, Vext signed an agreement with Agtech PA, LLC to exclusively produce and sell Wynk THC seltzers in Arizona.

Wynk is currently partnering with processor across the country to become the first nationally branded premium THC beverage company in the United States. Vext expects to being selling Wynk beverages in the third quarter of twenty twenty one.

07:07 These deals accomplished two main objectives, the first is to fill gap in Vext’s product portfolio to add beverages, which are a key growth segment. Additionally, we get to cover both ends of the consumer spectrum with these two brands.

07:21 MAJOR offers one hundred milligrams of THC in a two hundred milliliter liter bottle, while Wynk offers two point five milligrams, of THC and CBD in a two fifty ml can. The addition of MAJOR and Wynk products rounds up Vapen’s offering of concentrates extracts, edibles, vapes, topicals and tinctures.

07:46 The second objective of these deals accomplished is to accretively leverage the access we have to the vast majority of third-parties dispensary shelves and the states through the Vapen brand. 07:56 Even well-known beverages like MAJOR can benefit from partnership with an established player like Vext to accelerate growth on a relatively [capital light] (ph) basis.

We anticipate that additional opportunities will arise to help out state brands access the Arizona market. 08:14 Let's turn to Ohio for a moment.

While we have a relationship in six states outside of Arizona, we view Ohio as the next leg of the growth of the company and when we can begin to leverage in parallel with continued growth in Arizona. 08:29 Ohio is a limited licensed state with a population of roughly eleven point seven million in a growing medical market.

Ohio reminds us of Arizona in many ways and has the return on capital characteristics we look for. In twenty twenty, we struck an LOI with a partner in the state for a processing license to get the Vapen brand into the market.

08:53 Currently, Vapen is being stocked on most dispensaries, shelves and Ohio is selling well and we continue to expand the product offerings. On March fifteen, we announced that we have signed an LOI that will enable facts to establish a retail presence in the state through a joint venture within Ohio LLC.

And on July twenty seventh, we announced that the current license holder had received a certificate operation by the Ohio Board of Pharmacy and was fully operational. 09:26 Once the license holder has been operational for twelve months, Vext and its joint venture partner may apply to the Board for a change in ownership of the provisional license.

The countdown has begun. I would like to point out that during the quarter, we consolidated our multi-state footprint by mutually agreeing to terminate our joint venture in Massachusetts.

09:48 While Massachusetts no doubt will be an important market over the long term, it has been very slow [developed] (ph). Combination of ongoing delays in the market with near term opportunities to accretively deploy capital in both Arizona and Ohio have led us to further focus our operations with a view to maximizing growth in returns for shareholders.

10:11 For the remainder of twenty twenty one, we already remain focused on generating organic growth through both our operated dispensaries and continued penetration and share of shelf space with the Vapen brands through the wholesale channel. 10:25 We also remain focused on building out our upstream and midstream operations which will support our organic growth objectives building additional high margin revenue stream and give us the option to accretively add to our retail footprint when it makes sense to do so.

10:43 Thanks for your time today. I look forward to continuing to update you through what we expect will be a very exciting year for Vext’s shareholders.

10:52 I'll pass the call to behind for a review of our financial results. Vahan?

11:00 Thanks, Eric, and good morning everyone. As Eric noted, Vext continued to generate solid financial performance in the second quarter of twenty twenty one.

Revenue during the quarter was nine point four million dollars compared to six point seven million dollars in Q2 of twenty twenty and nine point two million dollars in Q1 of twenty twenty one. 11:22 As a reminder, Vext provides and charges for services provided to two Phoenix dispensaries and cultivation and production operations that in accordance with current regulations are structured as not for profits.

As a result, our revenue is segmented between management fees, professional services, product sales, equipment leasing and property leasing. 11:49 Given these distinct levers we have as to when and for what we can charge dispensaries, the revenue Vext reports in its financials may not perfectly match the underlying operations of our primary customers than not for profit license holders.

That said, from a big picture perspective, Q2 was a record quarter both for our results as well as for the actual dispensaries and wholesale businesses we manage. 12:19 Last quarter, I mentioned that the state has indicated to operators in the Arizona market will be provided with guidelines to transition to a more typical four profit structure during twenty twenty one.

12:34 We have now received tax guidance, which was very favorable and as it stands now, we expect to be in a position to transition to an owned four profit structure beginning in January twenty twenty two. We will aim for a clean break from not for profit to ownership on January first to keep our quarterly reporting as clean as possible.

12:59 This shift would make it easier to understand our financial results, reduce quarter to quarter fluctuations and make our results easier to compare with those of operators and other states. 13:12 Gross profit in Q2 was four point two million dollars compared to two point five million dollars in the prior year period and four point two million dollars in Q1 of twenty twenty one.

Gross margin in the quarter was forty five percent compared to thirty seven point eight percent in the same period last year and forty five point four percent in Q1 of twenty twenty one. 13:36 Vext has always operated very lean with a keen eye to return on capital.

As a result of this approach, we generated three point four million dollars in adjusted EBITDA in the quarter compared to one point nine million dollars in the same quarter last year and three point one million dollars in Q1 of twenty twenty one. 13:55 Adjusted EBITDA margins remained very strong at thirty six point six percent.

Vext has generated six point five million dollars of adjusted EBITDA in the first six months of this year, which compares to six point eight million dollars during all of twenty twenty. 14:13 We generated positive fully diluted EPS of zero point zero one dollars in the quarter and operating cash flow before working capital of three point six million dollars which was well above the two point four million dollars generated in each of Q1 twenty twenty one and Q4 twenty twenty.

14:31 Vext ended the quarter with a solid balance sheet. We had eight point two million dollars in cash at June thirty and as Eric mentioned, the expansion plans we have outlined for the next twelve months are fully funded between that cash balance as well as internal cash generation.

14:49 Thanks for joining us for our Q2 financial results conference call. I'll now turn it over to the operator for your questions.

15:30 Good morning and congrats on the quarter, and particularly on the cash flow performance. Just around the update [Technical Difficulty] cultivation there, just wondering in your press release, of course, you mentioned on the call, expecting that to be online in early twenty two.

Just wondering what your timeline then is for first harvest first revenue, and how long you think it would take for that facility to ramp up to full capacity?

16:05 Well, Russ, we're going to build it out in stages. And obviously, we're doing the permitting process right now, the mechanicals and stuff like that.

Fortunately with that building, there wasn't a lot of demolition needed or anything along those lines. So it'll be a relatively quick process.

The biggest obstacle [to giving] (ph) you a firm date right now is the supply chain as you're while aware of. So we use freezer panels to build out our rooms.

It's just a lot more and quicker and those are on back order for roughly five to six months right now. 16:43 We're hoping to get some earlier and we'll bring up rooms.

If that happens, our plan is to be able to have some plantings done as soon as the first rooms come up, everything else will be done in the meantime, so that we hope to start seeing some production in the late first quarter that actually is harvested because obviously, we don't have to do [indiscernible] or anything like that. We already have the genetics in Arizona.

17:09 Fully operational and on a typical nine week cycle for production, we anticipate to be probably by the third quarter of twenty twenty two that will be fully as you’d say up and running. So we'll keep you updated as we see what happens with the supply chain, but that's the biggest hurdle right now.

17:31 Got it. Thanks on that and moving on maybe to the beverage announcements congrats on those efforts.

I think you mentioned that both sales both product lines are expected to start this quarter, I guess what are the remaining steps to actually getting products on shelves, how far down the progress are you on that?

17:55 Well, they – we actually started this week with doing the encapsulation of the THC which is really the key to the whole thing, and that's really where source came into play. As you know, it's tough to keep the THC in a beverage consistent, so it doesn't separate, and they've got some better that does that.

Actually, Wynk also uses that technology, so that's kind of why it really fit in well. 18:22 So, I would assume everything goes well by the end of this month, we'll have made the THC, [modified THC] (ph) and then we'll start producing the MAJOR beverage.

The labeling done the bottles are in place. So, hopefully by second to third week of September, we'll start shipping products.

I would guess by the first week or second week of September we'll start taking pre-orders on it. 18:49 And we want to definitely get it out there before the holiday season and candidly before the tourism season in the winter [snow birds] (ph) come down because we think that's where the recreational market will start to hit a little bit better again in Arizona and the temperature will break.

So we think that that product line will go really well into that marketplace.

19:14 And maybe if I could just sneak one more before getting back into the queue on Ohio, I think the state is expected to open up another round of licensing on the retail front. Just wondering if you have color on that on that process and your plans to participate in it?

Thanks.

19:34 Yes, we haven't seen final regulations from the state. We’ve seen some of the preliminary guidelines in that.

Yes, we're active in participating right now. It looks like we're still going to cap it at five that you can own in the state on dispensaries.

19:50 We have secured property in three spots at the current time for applying for licensing, which obviously knows that's one of the key parts just to get your properties down. Fortunately, we've been able to do them similar to what we do in Arizona where we don't have to commit firmly until we obtain the license.

So, yeah, we're active in that and we think that's going to be continue to be a good thing. 20:18 Without getting into too much detail, we continue to see Ohio as just a tremendous opportunity for Vext and really lines up with Arizona for us very well.

20:30 Got it. That's great color.

Thanks again. I'll get back in the queue.

20:43 Hi there. Good morning, everyone, and congrats on the Q2 results.

20:48 Thanks Andrew.

20:49 Yeah, hi Eric. My first question here, when we look at the peer group and kind of your Q2 results, many of signaled some headwinds for gross margins as they ramp up production facilities across the country.

You're generating costs without immediate offsetting revenue. I just want to pose that question of Vext, would you anticipate any margin headwinds in the next couple of quarters as you begin to ramp up production at the Facility?

Just given your unique accounting structure how will that look from an accounting perspective?

21:29 Yeah. Andrew, I think it's anytime you're in an expanding market, people got really euphoria of adult use in Arizona.

You're going to have some margin pressure or pricing pressure, whichever you want to call it. The advantage we have right now is that we sell more in our dispensaries than we produce.

If we do the ramp up like we've talked about on production the first parts we'll be able to consume and really won't get hit to that wholesale market until later in twenty twenty two. 22:05 At that point in time, I expect to see some margin pressure from my standpoint, having background and commodities and stuff like that.

We're working on our costs and our efficiency. So with the outdoor growth coming in on the second year in Prescott Valley, we'll have a cheaper input cost on the biomass we'll be able to control a little bit of that.

22:32 Because to me, you don't want to get engaged in a price war with this stuff and that, you know tends to be what happens when people over produce. So we'll control the volume, we won't run everything full-out if it doesn't make sense economically, the less is more philosophy.

But that's yet to be determined because if I'm right and that the market continues to grow with the influx of the semiconductor and the population, you will probably be able to absorb most of that just from natural growth so you won’t end up into that price pressure or that margin pressure, demand will take care of that added supply that's coming on.

23:11 That was great color. Appreciate that.

I just want to ask on the wholesale conditions in the Arizona market. I believe premium is one sort of kind of product category that you mentioned.

You would love to add more of your own supply. In that kind of category.

Are you able to tap the wholesale market to keep your shelves full with Premium flower, do you feel that format in general is still supply constrained in the Arizona market?

23:45 Yes, we're able to keep our shelf full. It's readily available.

Some of it – it's price point is somewhere in the three thousand three two hundred per pound at retail. That's fine.

Where you find the biggest disconnect is not on the premium side, because obviously that's more of a niche smaller product group that you're going to sell in total. Our north store does a lot better for us on that product than the main store, which is more in an urban setting as we've talked about over the past.

24:19 So that's a much more price sensitive and that really comes into play with like our outdoor growth flower or something we’ll buy from somebody on the wholesale market that’s doing a greenhouse house or not quite the quality of an indoor flower or will run rooms that are producing more volume versus the quality of the flower and that's always subjective but it's you want to get it at a lower cost point and price point to that store. 24:50 So, yeah, so far, no, we've not had supply interruption where we don't have the products or anything like that.

It's just more of if you could produce more yourself, you could probably increase your sales, but you would end up running more specials or promotions to drag the people in.

25:09 Understood. Great.

And great to hear that beverages will be launching in kind of the near term in Arizona just given kind of the uniqueness of the operating procedures there for building out beverage product line, just wondering how the margin profile on those products might compare to kind of the existing branded product portfolio?

25:37 Well, obviously, in the retail spot, the margin will be well. It will be similar, a little bit less than our typical we fully control it on the wholesale sale, the margin will be less obviously because you're doing a licensing arrangement.

But on the back end, you don't have the R and D cost or trying to develop a flavor profile that really works. And that's really what you see in the competition.

You know, the flavors aren't that great. 26:08 MAJOR has great traction up in Washington great following.

They really know what they're doing on the flavor profile and the taste. Wynk is really geared towards that seltzers kind of like the [white quality] (ph) type of a product or the [indiscernible] seltzers and it's a lower milligram dosage.

26:28 I see that really selling well to like the lifestyle. Like you're promoting it like [Norman and Rock] (ph) type of picture, you're going to a holiday party.

Take a week it won't put in the cell, but you know it'll take the edge off to those family gatherings and for people that don't want to drink alcohol. So, we're really happy with that mix.

26:49 So from that standpoint, Andrew, it's worth giving up some margin. To be able to have a good quality product and what it did for Vext is, if you look at the Vapen brand portfolio, it's now complete.

So, it's concentrates, extracts, edibles, beverages, we can become a more complete provider to somebody as they start to try to cut their cost down over – internally, like most businesses do, less vendors that type of stuff, more frequent deliveries. We think that positions Vapen a lot better as the market matures.

27:28 Understood and yes, that makes sense. Congrats again on the Q2 results, and I'll get back into queue.

Thank you.

27:35 Thank you.

27:52 Hey, good morning, guys and thank you for taking my questions. and congrats on the quarter.

Eric, I wanted to follow-up on the comments you made about expecting a stronger back half of the year with more snow birds and more tourism. Regarding the company's inventory situation, I know, there was some careful management of inventory at the onset of rec where you wanted to balance both the medical patients needs and an influx of demand.

How is that going to work in the back half of the year as there's more cultivation coming online, but is there anything you can do in the interim in terms of stockpiling or managing that position to make sure that you're ready as more volume comes through the stores here? Thank you.

28:32 Graeme, that's a good question. A couple of things that we did do is, we bought heavy on biomass input that obviously feeds the Vapen brand product in Arizona.

We ran a bumper crop up in Prescott this spring from the standpoint of the yield to hope on snow, but from standpoint of cash and that, it's really positive. The crop right now and Prescott we expanded on that outdoor growth.

So, we're anticipating a big harvest come October and it will start going down in stages in September. So we're anticipating that that will do it and take us through that seasonality.

29:19 On the flower side, we've got some relationships with some people that are just cult that don't operate retail that are doing this lease license thing from some other or multi owners. So, we have some of those established that provides decent influx.

Now, I think we're fine. Then if it ramps up like you like we anticipated to those and I'm knocking wood right now Graeme, I hope it does.

You don't raise your price. You know so you'll make more money for what you sell.

29:54 And that'll be the way you regulated it. So, I hope it does that is such an influx that we can't keep I hope that happens, because I'd sure like to see some pricing move up on some products.

30:08 And just a reminder for others to prevent any confusion, the inventory we're talking about right now is the inventory at the actual store or license level the inventory that shows up on Vext’s financials is not that because it is not our inventory given the not-for-profit system just to clear any possible confusion there for others. Thanks.

30:31 Okay, understood. Thank you.

Thank you, Eric and thank you, Vahan. And a final question from me, just with respect to the staffing levels at the dispensary, lots of conversations across multiple companies multiple industries about the tight labor market here.

I'm wondering if that's been an issue for Vext at all, have you had to increase any of the wages there. Are you seeing any of that pressure?

Thanks.

30:57 Candidly, it's pretty easy to hire people in cannabis. People still see the industry as a growth industry and somewhere to be.

And I think that you attract some people that are cannabis users that they don't have that stigma of potential random drug testing for other industries. So I see that as being an employer that tried to hire people in other industries.

I've really noticed that. That said, yeah, you have some pressure on wages.

You're competing against seven eleven the QuikTrip's, the CBS pharmacies. 31:32 So, we're moving closer to a fifteen dollars starting wage.

The bud tenders are getting tips, we have an incentive program that's kind of like a profit sharing for the most part that we use in there, and our people do well. Then they participate in that.

So that's not been a problem. And we don't have a big turnover.

31:57 So, normally on retail, Andrew, I think turnover runs somewhere in the fifty percent range. On our dispensaries, it's in the low to mid teens for turnover.

So it's quite a bit different than industry standards and cannabis, cultivation, outdoor little bit more of a challenge because it's more farming. And it's a tougher job obviously, but so far, so far so good.

And then we we've invested a lot. 32:24 Thank you for the shareholders that have given us the funds we've invested a lot in equipment to help us produce things faster and more efficiently, and we're really starting to see those come online and we think our labor cost actually is going to go down as we go into twenty twenty two and the manufacturing comes on-stream and all those investments start to make their way into the marketplace.

32:55 Okay. Understood.

Thank you very much for that.

32:57 Yes.