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Edited Transcript of BYU.V earnings conference call or presentation 28-Aug-19 9:00pm GMT

Q2 2019 Green Thumb Industries Inc Earnings Call

VANCOUVER Sep 3, 2019 (Thomson StreetEvents) -- Edited Transcript of Green Thumb Industries Inc earnings conference call or presentation Wednesday, August 28, 2019 at 9:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Anthony Georgiadis

Green Thumb Industries Inc. - CFO & Director

* Benjamin Kovler

Green Thumb Industries Inc. - Founder, Chairman & CEO

* Jennifer Dooley

Green Thumb Industries Inc. - Chief Strategy Officer

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Conference Call Participants

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* Aaron Thomas Grey

Alliance Global Partners, Research Division - MD & Head of Consumer Research

* Andrew Samuel Bernstein Kessner

William O'Neil + Co., Incorporated - Equity Research Analyst

* Brett Michael Hundley

Seaport Global Securities LLC, Research Division - Research Analyst

* Eric Des Lauriers

Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst

* Graeme Kreindler

Eight Capital, Research Division - Principal

* James Young

West Family Investments, Inc. - VP & Investment Analyst

* Matthew Pallotta

Echelon Wealth Partners Inc., Research Division - Special Situations Analyst

* Michael Joseph Hickey

The Benchmark Company, LLC, Research Division - Research Analyst

* Michael Scott Lavery

Piper Jaffray Companies, Research Division - Principal & Senior Research Analyst

* Robert Fagan

GMP Securities L.P., Research Division - Equity Research Analyst of Healthcare

* Russell Stanley

Beacon Securities Limited, Research Division - Research Analyst

* Scott Thomas Fortune

Roth Capital Partners, LLC, Research Division - Director & Research Analyst

* Vivien Nicole Azer

Cowen and Company, LLC, Research Division - MD & Senior Research Analyst

* William Andrew Carter

Stifel, Nicolaus & Company, Incorporated, Research Division - Associate VP

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Presentation

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Operator [1]

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Good afternoon, and welcome to GTI's Second Quarter 2019 Earnings Conference Call. (Operator Instructions) As a reminder, a live audio webcast of the call is available on the Investor Relations section of GTI's website and will be archived for replay. I'd like to remind everyone today's call is being recorded.

I would now like turn the call over to Jennifer Dooley, Chief Strategy Offer. Please go ahead.

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Jennifer Dooley, Green Thumb Industries Inc. - Chief Strategy Officer [2]

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Thanks, Jessie. Good afternoon, and welcome to GTI's Second 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 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.

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Benjamin Kovler, Green Thumb Industries Inc. - Founder, Chairman & CEO [3]

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Good afternoon, everyone, and thank you for joining us. I am very pleased to report that we delivered excellent second quarter results with solid top and bottom line growth. We tripled our revenue year-over-year to $44.7 million, and sequential revenue was up 60% with 10 out of our 12 markets contributing revenue in the quarter. We also reached the important milestone of achieving positive adjusted operating EBITDA of just over $5 million. This is a meaningful metric on the income statement when it comes to evaluating our drive towards sustainable profitability at this stage of our development.

The momentum continues. Our monthly revenue in 2019 is starting to approach what we reported for an entire quarter in 2018. Moreover, if we exclude Integral, our core business remains strong to very strong, up over 35% versus prior quarter. Our brand portfolio is now produced and distributed in 9 markets that account for 1/3 of the entire U.S. population. And on the retail side, same-store sales exceeded 50% for the quarter.

I'd like to focus on several recent wins that will further propel our momentum. Just last week, we closed on the acquisition of a license for cultivation, processing in 4 retail locations in the great state of New York. This is 1 of only 10 licenses in the state and secures our position in the Tristate area of New York, Connecticut and New Jersey. I am very proud of our team, who closed this deal in less than 2 weeks after receiving regulatory approval.

In early June, we closed the acquisition of Integral Associates, securing retail penetration and increasing our capacity to produce and distribute our brand portfolio in Las Vegas. This complements our retail and production operations in Northern Nevada

We recently won highly coveted retail licenses in Hollywood, Pasadena and Culver City. This includes the license for a consumption lounge in Hollywood. These wins in California will give us firsthand insight in order to better evaluate the dynamic landscape of the California market in a measured and disciplined way. The teams have been hard at work with integration, and we are already seeing the benefits of this acquisition.

The most material event that happened for our business during the quarter was Governor Prizker signing the Cannabis Regulation and Taxation Act in Illinois to begin January 2020 that will legalize cannabis in the state of Illinois with 13 million people. The size of the Illinois market is projected to be bigger than where Canada is currently tracking. We continue to expand production capacity ahead of the demand coming and are active on new retail locations.

Finally, on the financing side, we completed $105 million nonbrokered debt financing, which strengthened our balance sheet for our growth plans. We are in a great position to capitalize on the opportunities we see ahead. Fiscal prudence delivers responsible growth and provides a visible path to profitability. We will continue this approach to build our brand portfolio, open new stores, drive store comps, strengthen our infrastructure and attract top talent.

As you often hear us say, we have a simple but disciplined strategy of "Enter, Open, Scale." This strategy is the blueprint for GTI to build the strongest foundation possible. It is also a strategy that takes into account the different stages of our growth trajectory. Right now, we are moving into a new chapter that is focused on maximizing all the levers we have in our business to build long-term operational performance to drive shareholder value.

The Enter phase of our business was focused on market expansion through winning or acquiring licenses in key states that add depth to our operations and enhance our ability to distribute brands at scale. A great example is our recent cultivation win in Ohio, a state where we have the maximum 5 retail locations and are completing a processing facility. We continue to build upon our first-mover advantage in limited supply states like Illinois, Pennsylvania, Maryland, Nevada, Connecticut and the list goes on, which was on our bull's-eye target from the start.

That leads to the Open and Scale phase that is focused on depth over breadth, which means building out our positions in existing markets and fully optimizing the business to ensure long-term growth and scale versus buying growth for growth's sake.

And we're doing this in 3 ways: First, we continued to optimize our wholesale consumer products business. The dislocation of supply and demand is a long-term narrative for the industry. Our efforts today remain focused on expanding our capacity and improving standardization and automation alongside the tidal wave of increasing demand. Capacity expansion projects continued in several of our markets that are experiencing incredible growth. We doubled our investment in Illinois ahead of adult-use and are continuing to expand in Pennsylvania and Massachusetts. We are streamlining and specializing production operations in Nevada across our 3 manufacturing facilities. Construction projects are underway in New Jersey and Ohio and are expected to come online soon.

The capital we invested in our infrastructure enhances our capabilities in producing consistently available and high-quality branded cannabis products. Our brand portfolio currently includes Rythm, The Feel Collection, Dogwalkers, Dr. Solomon's and Beboe, and spans across the spectrum of consumer and usage segments, price points and product categories.

Subsequent to the quarter end, we acquired the award-winning Colorado-based incredibles brand. Since 2017, we have had the pleasure of exclusively comanufacturing and distributing incredibles in Illinois, Massachusetts and Nevada and are now honored to carry the torch forward for this iconic brand.

We are optimizing our portfolio as it grows. During the quarter, we rebranded Dogwalkers, a preroll brand we created in 2016 with a vision of encouraging the enjoyment of life's journey while strengthening our communities by giving back to animals in need. Dogwalkers was inspired by our love for dogs and the natural world we live in. We rebranded the product to better reflect that purpose.

The new eco-friendly packaging includes a box cover made of 85% recycled material and is assembled with starch-based adhesives. The tin container is 100% recyclable. And finally, a portion of the proceeds for every Dogwalkers sold goes to local dog shelters in each market in which we operate. Dogwalkers is now sold in Illinois, Nevada, Maryland and Massachusetts and is coming soon to Florida. This is just one example of connecting our products to great causes that help the communities we serve.

Moving on to retail. We continue to scale and optimize the business in 2 ways. First, we're methodically expanding our retail footprint while maintaining optionality on the rollout plan at all times. During the quarter, we opened 6 new Rise stores across Ohio, Pennsylvania and Florida. Subsequent to the quarter, we opened another 3 stores, Rise Hallandale in Oviedo in Florida and Rise Cleveland in Ohio, bringing the total open stores since April 1 to 9, and total stores opened year-to-date to 13, which includes the 3 we opened in New York. We remain on target to open our previously guided approximate 15 to 20 new stores this year. A huge thank you to our retail team, who works tirelessly to make this possible.

Today, including the recently closed New York acquisition, we have 31 total stores open and have licenses to open 64 additional stores across the nation. There's a lot of room to grow, but we are deliberate in the way in which we do it, when to open, where to open and how many to open. Our capital allocation on retail expansion is data-driven and maximizes the best return per dollar invested; second, in line with our emphasis on continual improvement, we launched a rebrand of our Rise retail stores during the quarter to further contemporize, innovate and elevate the retail shopping experience. The rebrand focuses on enhancing the look and feel of the stores while staying true to providing outstanding customer service, product selection and an authentic customer experience.

At the core, Rise has always been about empowering the rights of wellness through cannabis for our guests and communities. The rebrand kick started with our Rise Deerfield location, and we're planning on rolling out the rebrand for the rest of store fleet over time. We're excited about the future for Rise, and we hope you can all come experience it.

Finally, as we execute in a highly regulated complex operating environment, our emphasis remains on compliance and risk mitigation. From day 1, we grew the business not in the quickest way but in the right way. It is the formula for responsible growth that will lead to long-term value creation. It means adhering to the standards and regulations that touch nearly every aspect of our operations from the field to the corporate level. It means our day-to-day decisions would stand our Wall Street Journal cover test. Operating in this manner requires the diligence and dedication of every person in the GTI family, and we continue to build on this team, finding and attracting the best talent to get the job done right.

Following the closing of Integral Associates in June, the company's cofounders, Armen and Alex Yemenidjian, joined GTI as President and Board member, respectively. Armen was a cofounder and CEO of Integral Associates, the leading cannabis operator in Nevada. Alex was previously Chairman of the Board and Chief Executive Officer of Tropicana Las Vegas Hotel and Casino and MGM Studios. Armen and Alex' knowledge of navigating complex highly regulated businesses and their history as one of the most successful operators in the space are invaluable assets to GTI.

We also welcome Julie Knudson as Chief People Officer. This is an important role, and we're pleased to have found the right person to oversee human resources, talent and culture initiatives. Julie brings extensive leadership experience in market-leading companies, including General Growth Properties, Echo Global Logistics and DigitalGlobe. Her passion and service through her work in Rwanda on HIV and other initiatives resonates with GTI's commitment to our communities, and we're excited to have her on the team.

The most recent example of this commitment is our Illinois Social Equity License Application Assistance Program, or LEAP, which we just announced yesterday here in Illinois. LEAP's purpose is to reduce the barriers to cannabis business ownership for minorities and others most impacted by the war on drugs. The program extends our in-house application team as a pro bono resource to qualified social equity applicants interested in participating in the Illinois cannabis market.

With that, I'll turn the call over to Anthony to review our financial results for the second quarter.

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Anthony Georgiadis, Green Thumb Industries Inc. - CFO & Director [4]

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Thanks, Ben, and good afternoon, everyone. Now that you've heard all the fun things we've been up to, let's dig into our financials. Please note that all numbers are in U.S. dollars, unless otherwise stated.

In Q2, we generated $44.7 million of top line revenue, representing a 60% increase over Q1 and a 228% increase over a year ago. In addition, we serve patients and consumers in 10 of our 12 licensed markets.

Our strong revenue performance was supplemented by our new Rise stores in Ohio, Florida and Pennsylvania as well as approximately 1 month of contribution from Integral's Nevada operations. Consistent with last quarter, our wholesale and retail businesses experienced tremendous growth with our retail/wholesale revenue split ending at 58 by 42, respectively.

On the retail side of our business, revenue performance was driven by 3 primary factors. First, as Ben just covered, we opened 6 new stores: 2 in Florida, 2 in Ohio and 2 in Pennsylvania, 1 of which is in Latrobe, home of the banana split. Second, same-store sales exceeded 50%, highlighting the strong demand we're seeing across our platform. Third, we closed our Integral transaction in early June. Integral's Southern Nevada stores, combined with our Northern Nevada footprint, provide us with substantial market share in the Silver State. On the wholesale side of our business, growth was primarily driven by market share expansion as well as the addition of Desert Grown Farms and Cannabiotix through our wholesale fleet, both of which came with Integral.

In addition to revenue, the company also achieved record gross profit during the quarter. Before biological adjustments, we generated $23.2 million in gross profit, representing 52% of net sales. This gross margin percentage represents an approximate 500 basis point increase over Q1, and there are 500 reasons why this is good for our shareholders.

While we can't count on this type of increase every quarter, we remain bullish in our ability to continue to optimize this very important company metric. Below the gross margin line, we incurred $32.5 million in operating expense. This figure includes $1.4 million in transaction-related expenses and $6.3 million in noncash stock-based comp. Excluding these, operating expenses totaled $24.7 million or 55% of sales.

While we anticipate our total operating expenses to continue to increase, our focus is on matching this increase with even greater revenue growth. In addition to operating expenses, the company also incurred $12.3 million in total other expenses. These expenses were largely attributable to a mark-to-market decline in the value 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 portfolio consists of approximately $33 million of investments that supplement our core business.

With regard to net income and EBITDA, we posted a loss of $22.2 million and $9.4 million, respectively. As a management team, we continue to view adjusted operating EBITDA as the core metric with which to assess our business. Adjusting for the anomalies that show up in our quarterly financials; including our investment portfolio performance, stock-based comp and nonrecurring transaction expenses; the company generated $5 million in adjusted operating EBITDA in Q2, also a company record.

In Q1, we posted an adjusted operating EBITDA loss of $400,000. Seeing this swing from negative to positive in a major way was a big move for us. I knew it was a good sign when I heard our accounting team hooting and holler on the day we closed our books.

On the capital side, we ended the quarter with $136 million in cash and $96 million in debt. As a reminder, we completed a nonbrokered $105 million debt financing in May of this year. On a pro forma basis, following our recently closed New York transaction, the company has approximately $90 million of dry powder in its coffers. In hindsight, we're happy to grab the umbrella when it was sunny as this capital provides the substantial optionality heading into the second half of the year.

On our last call, we talked about our float and the fact that we had 80 million shares freely trading. As of today, that number has grown to 96 million shares or 47% of our 205 million shares currently outstanding. There continues to be a lot of ambiguity in our industry regarding share counts and lockups. At GTI, we try to get out in front of this by releasing a healthy amount of stock to our initial investor base.

In terms of what's ahead, the strategy remains the same: maintain an obsessive focus on our limited licensed markets; execute on our "Enter, Open, Scale" playbook; and work to create scenarios and partnerships where 1 plus 1 equals 3, all the while assessing each decision through the lens of shareholder value.

In conclusion, we're proud to say that all previously announced M&A transactions are now closed, and we're hard at work at integrating our new team members into the GTI family. From day 1, we focus on making sure all new team members understand the words we live by: Remain humble, play as a team, admit when you're wrong and follow the Golden Rule of integrity.

With that, I'll turn the call back over to Ben.

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Benjamin Kovler, Green Thumb Industries Inc. - Founder, Chairman & CEO [5]

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Thanks, Anthony. I want to thank our teams for their hard work in delivering another solid quarter that underscores our values in fiscal discipline, continual learning and improvement and long-term value creation. We are still in the early innings, but we are making great strides towards building a sustainable, capital-efficient business that has a clear path to profitably.

With our strong P&L and balance sheet, we are well-positioned to capitalize on the vast opportunities ahead of us. We have a foothold in several markets that can grow to $1 billion in size, and we are focused on optimizing those markets by putting our people, brands and retail business in a position to be successful.

With that, I'll turn the call over to the operator and we welcome your questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from Michael Lavery with Piper Jaffray.

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Michael Scott Lavery, Piper Jaffray Companies, Research Division - Principal & Senior Research Analyst [2]

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Perhaps on -- to tackle on your consumption lounge and how you're thinking about approaching that. How much is it more a marketing tool or a sales driver or some balance of both? And what kind of product mix should we expect to see someplace like that?

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Benjamin Kovler, Green Thumb Industries Inc. - Founder, Chairman & CEO [3]

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I had a little trouble hearing you, but I think you asked about the consumption lounge coming to West Hollywood and how we would think about that. We think this is a laboratory. The U.S. has not seen onsite consumption in a mass scale way. So we're excited to be a first mover in that space and watch what happens. We know we have several core competencies, and we look towards partnering with people who have expertise scenarios like hospitality and other kinds of service businesses in order to really optimize that asset.

In terms of what the mix is of products sold in an onsite consumption lounge, I don't want to venture to say, but we don't know what we don't know, and that's how we operate, so we want to maintain the optionality in order to serve the customer as they come in.

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Michael Scott Lavery, Piper Jaffray Companies, Research Division - Principal & Senior Research Analyst [4]

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And is that something that would be a little bit like a store in terms of what your sales expectations would be? Or is it more a branding and marketing tool? Obviously, it can be both, but what would sort of -- what would -- how do you think of its primary purpose between those 2?

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Benjamin Kovler, Green Thumb Industries Inc. - Founder, Chairman & CEO [5]

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Well, the plan would be to have the dispensary, the delivery and the onsite consumption from the same place. So we expect a robust dispensary to exist in West Hollywood but also offering square footage for onsite consumption and being creative about how to drive revenue and how to optimize that investment.

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Michael Scott Lavery, Piper Jaffray Companies, Research Division - Principal & Senior Research Analyst [6]

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No. That's helpful. And just on incredibles. It's got a strong consumer following. How are you thinking about geographic expansion for that brand? And what could you do in terms of launching that in more states?

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Benjamin Kovler, Green Thumb Industries Inc. - Founder, Chairman & CEO [7]

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A few of the states we're in have a ban against edibles, so we obviously can't launch in those. But as soon as we optimize the supply chain and have this ready for national distribution, it should be in every one of our markets in which we can do it. We think it's a long-term viable brand in the space, and we're excited about it.

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Michael Scott Lavery, Piper Jaffray Companies, Research Division - Principal & Senior Research Analyst [8]

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And what might the timing be on that capacity, removing the capacity limitations?

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Benjamin Kovler, Green Thumb Industries Inc. - Founder, Chairman & CEO [9]

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Well, right now, it's -- wherever we have the production up and running, we are basically producing it. So there's nowhere we're holding it off. It's already in Illinois, Nevada, Massachusetts, but places like Pennsylvania do not allow edibles currently. So we don't offer it. But we'll be ready if the rule is changed.

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Michael Scott Lavery, Piper Jaffray Companies, Research Division - Principal & Senior Research Analyst [10]

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Got you. That's helpful. And then just one last one on Beboe or I guess any of the ways you have CBD products but that being maybe the most prominent. How do you think about a broader retail launch or push? How much are you looking to go beyond some of your current distribution or dispensaries? And what are some of your options in terms of how that could roll out?

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Benjamin Kovler, Green Thumb Industries Inc. - Founder, Chairman & CEO [11]

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So I'd say we're spending a lot of time thinking about it. We really try to understand where our edge is, and we like playing where there's limited competition. Everybody can be in CBD right now, so we really have to understand where we can enter and expand to have a significant edge. We like playing in limited license states. We like a CBD/THC balance product, but we are evaluating and spending a lot of time on that. We obviously have the DTC. We have some of the beauty care line. We have direct-to-consumer. So we continue to evaluate it, but we want to play where we have defined edge.

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Operator [12]

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Your next question comes from Eric Des Lauriers with Craig-Hallum Capital.

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Eric Des Lauriers, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [13]

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Congrats on a great quarter. I'd like to just kind of piggyback on that one a little bit, less on the CBD side but more on Beboe overall. And overall, just how you're integrating your acquisitions, whether that's bringing cultivation, genetics or processes from the Integral guys beyond Nevada or bringing the Beboe products beyond California and Colorado. Can you just talk about your -- the near-term road map for those 2 integrations?

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Benjamin Kovler, Green Thumb Industries Inc. - Founder, Chairman & CEO [14]

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Yes. We're spending a ton of time on integration. We have integration teams, and we're looking towards -- we talk a lot inside about one GTI. And that's about the people, the products, the culture and everything we're doing all the time. From the Integral, Armen joining our senior leadership team. He's here in the office, and we're very active on integrating, whether it's the products, the genetics, what's happening at the Essence store or what's happening in Southern California.

On Beboe, the real piece for that for us is optimizing the supply chain. We don't want to be in a position of offering a product in a market and then getting a huge order and having that be bad news because we can't fill it. So we really want to have the back end solved so that we can launch something nationally. But a big part of our business is welcoming the new teams in. We had a national supply chain summit. We have a sales meeting coming up. And each one of the departments and divisions are bringing their entire teams together as we build one GTI.

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Eric Des Lauriers, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [15]

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Okay. That's great to hear. I'm wondering on the wholesale side, your retail penetration. Pennsylvania and Illinois, obviously, big states for you guys right now. Can you give us a sense of what percentage of stores you guys are in now? Where you anticipate those going over the next year or so and if there's any additional CBD brands that you're bringing in that you think might aid in that penetration?

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Benjamin Kovler, Green Thumb Industries Inc. - Founder, Chairman & CEO [16]

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Sure. So the fact Illinois, we're in 100% of the stores, and in Pennsylvania, we're in 98% of the stores, thereabouts. We don't need to bring on new CBD products in order to get the distribution. It's about having the capacity, and we're rapidly doubling and tripling capacity in each one of those states as we see the demand, the consumer side really inflecting, particularly ahead of adult use in Illinois. So we're focused on mass distribution being in every store with the right brand and matches for that store and that community, and we'll continue to execute that.

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Eric Des Lauriers, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [17]

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All right. That's great. And then just final one from me here. Obviously, great gross margin expansion. I was wondering if you could just give us a little bit more color if that was mainly on the wholesale or retail side? And it's -- are there certain brands or certain markets driving that? Just a little bit more color on the gross margin expansion.

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Anthony Georgiadis, Green Thumb Industries Inc. - CFO & Director [18]

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Yes. So this is Anthony here. On the retail side of the business, gross margins were largely consistent with Q1. So really, the benefit was realized through the wholesale side of the business. And that was really driven by additional capacity utilization from the facilities and then just also getting more efficient at each one of the operating facilities.

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Operator [19]

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Your next question comes from Robert Fagan with GMP Securities.

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Robert Fagan, GMP Securities L.P., Research Division - Equity Research Analyst of Healthcare [20]

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Really big congrats on that fantastic quarter, extremely outstanding results. I think the strong performance you guys delivered, obviously, is driven by very good execution. But perhaps as well, there could be an element of product quality driving your consumer demand. Can you share any kind of feedback that you get vis-a-vis your product quality generally?

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Benjamin Kovler, Green Thumb Industries Inc. - Founder, Chairman & CEO [21]

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Thanks, Robert and appreciate the feedback. Look, we strive -- one of our core principles is high quality. We get a lot of positive feedback on the product, whether it's the flower, and you've seen some of the results from Brownie Scout in High Times, whether it's the flower in Florida, where Rise is doing an excellent job, and it's being noticed by the consumer, or it's the incredibles chocolate or The Feel Collection tincture. We have a very high standard on product quality, and that drives everything we do. So we're pleased with the results. We see consumers coming back for the product, and that's an everyday challenge that we continue to work towards.

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Robert Fagan, GMP Securities L.P., Research Division - Equity Research Analyst of Healthcare [22]

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Great. That's helpful. And I guess another driving factor had explaining the growth that you're getting, and just with your same-store sales growth, you can tell that you're probably outperforming the industry by quite a wide margin. So to me, that suggests you're gaining market share probably almost everywhere you're operating. Can you maybe give us some hints into where you see the most traction and where you're gaining, you think, the most market share?

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Benjamin Kovler, Green Thumb Industries Inc. - Founder, Chairman & CEO [23]

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That's a good question. I appreciate your optimism on what we're doing. But every day, we're just trying to execute on the blueprint in front of us. The markets are expanding rapidly. This is a tidal wave of consumer demand, and we really haven't seen where maturity comes yet.

How big is this category, generally? So on the retail side, we're watching both sides of the business, the retail and the production side. On the retail side, we continue to grow. You talked about the same-store sales. Wholesale, in some markets, ends up being a capacity issue. And so we are doubling and tripling capacity, particularly in Illinois and Pennsylvania. And in Massachusetts, there's big demand. We continue to distribute the products and want to serve those customers properly.

We're not obsessed with market share watching how many hundreds of basis points we're gaining against the state. We certainly are watching it. But for us, it's about producing the product at scale, driving down the marginal cost per product, keeping the quality at the highest, and we actually think, in some categories, we can be the lowest marginal cost at the highest quality, and that's achieved through scale. And that's really what drives us, and we're excited about that.

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Robert Fagan, GMP Securities L.P., Research Division - Equity Research Analyst of Healthcare [24]

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Great. That's helpful explanation. Last one from me is on -- following up on the gross margin, you guys had a great profitability in the quarter. From what I can tell, pretty much industry-leading amongst your MSO peers. How sustainable do you think that is? And can we see even some further expansion going forward in that profitability metric?

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Anthony Georgiadis, Green Thumb Industries Inc. - CFO & Director [25]

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Sure, Robert. This is Anthony. Look, it's hard to say. If you look at the markets that we're operating in, it all goes back to kind of the original thesis, which would -- which was limited licensed markets. That’s step one. That obviously allows us and sets the business up for gross margins that are quite healthy. Look, I think we obviously have to assess the market, and pricing is one thing that we don't have full control over. Now obviously, with product quality, that gives us a little bit more protection against pricing, which helps on the gross margin line of the business. But look, we remain confident in our ability to continue to execute, particularly on the production side of the business. And that's really where, as we look ahead, we think that we have tremendous upside, both on the revenue and the gross margin line, given some of the markets that we operate in.

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Operator [26]

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Your next question comes from Vivien Azer with Cowen.

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Vivien Nicole Azer, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [27]

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Just to start with a housekeeping item. Ben or Anthony, can you just offer what your mix was in wholesale and retail and what component of that was in the company sales, please?

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Anthony Georgiadis, Green Thumb Industries Inc. - CFO & Director [28]

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Sure. So we mentioned during -- and this is Anthony here. We mentioned that retail made up 58% of overall net sales with wholesale making up 42%. In terms of kind of intercompany, that obviously gets eliminated. But what specifically was your question regarding the percentage?

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Vivien Nicole Azer, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [29]

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No, no. That's it. I apologize if I missed it. I would have thought that -- because that was your mix last quarter. If I read your press release right, I thought that your branded sales were up 70% sequentially versus total company at 60%. So I would have thought that mix would have shifted a little bit?

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Anthony Georgiadis, Green Thumb Industries Inc. - CFO & Director [30]

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Yes. So that's gross. So it's funny you caught that. We talked about it before the call, but that's actually gross sales, the increase that you saw there. So on a net basis, that's how it shook out to the 58-42 split. So intercompany was the difference.

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Vivien Nicole Azer, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [31]

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Very helpful. I appreciated your answer to the last question around margin. I'm just curious, as you think about the onboarding of New York, not the best market, certainly have a ton of potential. But given the limitations around form factor, traffic seems to be kind of below what you guys would see as your corporate average. What's the risk that, that's a negative mix driver in the near term?

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Benjamin Kovler, Green Thumb Industries Inc. - Founder, Chairman & CEO [32]

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I mean, it is going to be a negative mix driver, but it's so small that I don't think it'll materialize. It's not going to impact the overall gross margin number.

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Vivien Nicole Azer, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [33]

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Okay. Perfect. And then one last question from me, please. Ben, on the new Rise concept, what I've been able to see on the Internet looks really nice in terms of the refresh. But I'm just curious about the phasing of it and the implication for like SG&A. I would presume that all the new doors that you're going to be launching for the rest of the year get that treatment. But what about the 15 existing doors? How are you think about the phasing of the refresh there?

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Benjamin Kovler, Green Thumb Industries Inc. - Founder, Chairman & CEO [34]

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Yes. Good question. Slow methodical rollout of the rebrand, not to suck a lot of dollars out of SG&A to go change them, but it'll be a state-by-state play where we want consistency within each state. But each new store we open, particularly on the eastern half of the country, will be Rise, and the new stores in Southern California will be Essence.

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Operator [35]

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Your next question comes from Graeme Kreindler with Eight Capital.

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Graeme Kreindler, Eight Capital, Research Division - Principal [36]

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I wanted to ask about the revenue. In terms of a pro forma figure, assuming there was a contribution for the full period from Integral Associates and Fiorello if you could disclose that, please?

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Benjamin Kovler, Green Thumb Industries Inc. - Founder, Chairman & CEO [37]

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Sure. Graeme, good question. We're watching everybody talk about pro forma revenue. And I mentioned this on the last call, and it's something we really believe in. I think it's unfair only to talk about pro forma revenue in the income statement without talking about a pro forma balance sheet. And that means pro forma cash and pro forma share count. So we've taken the practice of talking about the core business, giving a glimpse of what it is, where I mentioned that kind of growth and then just letting the results speak for themselves. So we're not really providing pro forma numbers.

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Graeme Kreindler, Eight Capital, Research Division - Principal [38]

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Okay. On the -- with respect to a market like Nevada, I was just wondering on the Integral Associates side if they've seen any sort of seasonality in the business to-date and whether that could possibly impact -- we could see some impacts on that going forward?

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Benjamin Kovler, Green Thumb Industries Inc. - Founder, Chairman & CEO [39]

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Yes. Good question. I think to get a sense of the seasonality in Nevada, I would look to the state data, and you can see when the peak months are or not, and the business reflects that. It's a tourist-driven market, particularly in Vegas. And so the peak months, and you can get that from the state data, will show you when the strength is and also when the valleys are.

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Graeme Kreindler, Eight Capital, Research Division - Principal [40]

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Okay. And just on -- while we're on the subject of Nevada, I was just being curious to get your thoughts on the recent news there in terms of the injunction on the second round of licensing. Obviously, you mentioned on the prepared remarks that you have quite a robust presence in the state but what your thoughts are there? And if that ends up impacting any sort of future growth, although for the time being, it looks like you're pretty set on working on the East Coast.

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Benjamin Kovler, Green Thumb Industries Inc. - Founder, Chairman & CEO [41]

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Yes. Timely question. There's been news this week and toward the end of last week. The injunction, there's a ruling out now, and as I understand it, of the 61 licenses given, 35 are not affected by the injunction and 26 are. I'm happy to report that the 8 new licenses we have are not affected by this, and we are full steam ahead on opening the stores according to our methodical plan.

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Graeme Kreindler, Eight Capital, Research Division - Principal [42]

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Okay. And then just last question from me here. You reiterated the goal of opening, getting to 35 to 40 stores by the end of 2019, and a lot of the focus to-date has been on the East Coast. So I was just wondering if there's potential to see some additions on the West Coast heading in towards the end of the year here in either California or Nevada.

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Benjamin Kovler, Green Thumb Industries Inc. - Founder, Chairman & CEO [43]

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Yes. That 35 to 40 has been the consistent number we've talked about. I would say the injunction put us at a little bit of a delay, just a little bit unsure, but we are a go. I don't want to promise a store to open in -- between Thanksgiving and Christmas. We certainly have aggressive targets. But if it's not fourth quarter, it would be first quarter.

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Operator [44]

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Your next question comes from Andrew Kessner with William O'Neil + Co.

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Andrew Samuel Bernstein Kessner, William O'Neil + Co., Incorporated - Equity Research Analyst [45]

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Congrats on the progress, and thanks for the reasonable length from your prepared remarks. Hopefully, some of your competitors start to follow suit on that next quarter.

Just had a couple questions on New York. So first, there are a couple of New York licensees who only sell their own products, but I believe most others sell third-party products as well. So is wholesaling to some of the other New York operators something that you intend to pursue? And does the current production facility have the capacity for that?

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Anthony Georgiadis, Green Thumb Industries Inc. - CFO & Director [46]

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Sure, Andrew. This is Anthony. Certainly, kind of -- it's certainly part of the game plan. As Ben kind of mentioned, the business that we acquired is still pretty small, and it's a market that we're continually assessing. Obviously, with Illinois and some of the other markets that are really ramping right now, our focus is primarily on those. But we're -- we'll continue to kind of assess the New York market in general. We actually sell other people's products in our stores currently, and I suspect that the -- that overall, the New York market will start to see more of a vibrant kind of wholesale market over the next few years.

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Andrew Samuel Bernstein Kessner, William O'Neil + Co., Incorporated - Equity Research Analyst [47]

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Okay. And just -- to your point, do you -- sort of more of a high-level question, do you have any thoughts around why the medical market in New York just hasn't really seemed to take off yet? I mean, there's some more obvious factors, no flower lab, prices are quite high. Of course, there just aren't many stores, and there's a pretty well-established and robust black market. But I mean, it's actually quite easy to become an approved patient in New York with chronic pain being a qualifying condition and with telemedicine being allowed. But it seems like overall awareness of the program is quite low. So just wondering if in studying the state market and putting together your post acquisition strategy, if you had any additional thoughts on what's needed to really grow the market?

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Anthony Georgiadis, Green Thumb Industries Inc. - CFO & Director [48]

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Yes. Look, you kind of -- you mentioned the reasons why. I think we would agree with you that those are the primary reasons why the market hasn't really grown the way that everyone kind of expected it up to this point. I will say that the products that are allowed in New York are even much more limiting as you kind of get down to the operational level in terms of some of the ratios and whatnot in terms of cannabinoids and everything else. And so I think that's also having an impact. You know I mean look, there's 20 million people there and over time, we're confident that as the regulations change, the market will start to open up. But at this point, I think you kind of nailed it in terms of why the market hasn't seen the growth that everyone kind of expected it when it went live a couple years back.

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Operator [49]

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Your next question comes from Scott Fortune with Roth Capital Partners.

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Scott Thomas Fortune, Roth Capital Partners, LLC, Research Division - Director & Research Analyst [50]

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Great quarter, guys, congrats. Real quick, I want toed talk about the Illinois market. What you're seeing there if you guys can call out the growth of that market versus some of your other states? And then step me through on the timing, the potential ramp-up to 10 stores, what jurisdictions do you think will come on board and kind of the opportunity as we look out to Illinois for the future?

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Benjamin Kovler, Green Thumb Industries Inc. - Founder, Chairman & CEO [51]

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I missed a little bit of the second part of your question, so maybe I'll ask you to repeat it. But on the Illinois, we're seeing dramatic growth. So just setting the stage and taking it back little bit. The program passed under Governor Quinn in 2013 and was unrolled in '14 when Governor Rauner came in. Republican governor was not a big fan of the program and limited patient growth.

All of a sudden, Governor Pritzker came in, and there's been a common sense approach towards patient access. You can really watch the demand curve come and the number of patients registered in the program. And the data is all online, and you can watch the shape of the line shift. And we've seen exactly that in our stores on the demand side. And as we take share or do a little bit better, we can grow a little bit faster than that or a little bit slower depending on the circumstance.

But the market is growing dramatically. The number of patients has doubled recently. You're seeing record months. I think May was a record, and it was 3,800 or 4,200 last month or some number like that, which is much bigger than it used to be. So that's being reflected in the stores as patients come into the program.

I think the second part of your question was about the Illinois store rollout plan?

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Scott Thomas Fortune, Roth Capital Partners, LLC, Research Division - Director & Research Analyst [52]

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Yes.

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Benjamin Kovler, Green Thumb Industries Inc. - Founder, Chairman & CEO [53]

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So just to set the table for everybody, the current medical stores are allowed to also offer adult use, assuming that's okay with the local municipality, cities or wherever one is located. So this process in Illinois is brand new. There has never been legal cannabis in Illinois, and no one really has a set blueprint for how to do it. So you're seeing realtime now cities, towns, counties, municipalities, whole city, town hall meetings and discussions with city council about how to regulate, where to allow and how to allow stores. So we're active in those.

I think it will be tough to predict how many cities or towns are going to have ordinances and when. We're on the steering committee with the city. We're excited about what's going on, but it's an active dialogue, and it's better to get it right than do it fast. So I think it's important that these kinds of discussions happen and people ask the tough questions and do it right because you really can't go back. So our goal is to have 3 or 4 of our current 5 stores ready for adult use day 1, and we're very active on the new-store portfolio, and it's an optionality game, and it'll depend on how the voting goes and where we can open.

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Scott Thomas Fortune, Roth Capital Partners, LLC, Research Division - Director & Research Analyst [54]

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Okay. And are you hearing any color from Chicago, kind of the bigger cities as far as their acceptance of this -- of that rollout, potentially?

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Benjamin Kovler, Green Thumb Industries Inc. - Founder, Chairman & CEO [55]

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Hearing a lot. There's a lot of discussion, a lot of conversation, but there's no answers. There's not a definitive date of when the ordinance is coming out or when the zoning board will start granting special use permits or things like that.

So it's very active. The city knows it. The new mayor is a part of this. And again, the social equity element is really important in Chicago. There are people that have been deprived of opportunity. That's part of our LEAP program of offering this opportunity for folks. We don't do that as competition. We view the market expanding, and we're excited about that. I think it's 50-50 if the city is ready January 1. I really don't know.

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Scott Thomas Fortune, Roth Capital Partners, LLC, Research Division - Director & Research Analyst [56]

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Okay. And then just a little more color on Florida, how that rollout's gone there and as far as the capacity and cultivation needs and how many stores you're going to bring on towards the end of year for Florida here?

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Benjamin Kovler, Green Thumb Industries Inc. - Founder, Chairman & CEO [57]

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Yes. Pretty similar guidance to what we've had. We have 5 open now. We may have 1 or 2 more opening this year. But literally, the allocation of capital game is real. There's not a unlimited amount of funds, and so as the rules change in Illinois, we're able to allocate capital to Illinois to serve this market, essentially while choosing to not triple capacity in Florida. We had plans for a large-scale cultivation facility there, still in the works. But right now, we're really focused on Illinois, Pennsylvania, Massachusetts, New Jersey.

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Operator [58]

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Your next question comes from [John Rolfe] with [Crescent Rock Capital].

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Unidentified Analyst, [59]

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My questions have been answered.

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Operator [60]

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Your next question comes from Brett Hundley with Seaport Global.

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Brett Michael Hundley, Seaport Global Securities LLC, Research Division - Research Analyst [61]

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Ben, I'm trying to read your body language on Illinois. And I think a function of this is kind of how a lot of us are scarred by Massachusetts. But against some of the rumblings that a lot of us have seen as of late on a lot of these municipalities in Illinois may be taking more of their time on getting this right. I think it's always been your goal to have 3 or 4 stores ready for adult use on day 1. But are you feeling as confident about that today? Better, worse? Can you just touch on that one more time?

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Benjamin Kovler, Green Thumb Industries Inc. - Founder, Chairman & CEO [62]

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I would say more confident because we've been through the process. We've begun to talk to our mayors, municipalities, whoever the people are. We've held the town halls. We've held the Cannabis 101 seminars. But at the same time, we really like to underpromise and overdeliver. So I don't want to come out here and say I'm going to have 10 stores open January 1 because I know that's not going to happen.

But I think the tide is turning. It's a lot of education. You want to arm people with the facts and let them make their own decisions and not tell them what to do. But at the end of the day, this can be a very positive thing for the community. It can generate a lot of tax dollars, it can generate a lot of jobs and if done right and done properly with the right kind of care, it can be a big win. So we like to partner with the communities in which we operate, and we have a successful track record of doing that. I think we're one of the only companies that has converted medical to adult use both in Nevada and Massachusetts successfully. And so we want to continue that track record.

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Brett Michael Hundley, Seaport Global Securities LLC, Research Division - Research Analyst [63]

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Okay. I appreciate you answering that. And then my other question for you. I wanted to come at your improving same-store sales performance from a macro angle. And we've been focused here on a lot of these new low-dose and micro-dose products that are increasingly hitting the market. When we think about these products, I mean we think more in terms of adult use markets, and maybe they're benefiting medical markets, too. But I wanted to ask about these low-dose and micro-dose products and whether or not you think that they're bringing a new consumer or a new patient into the space right now and helping to drive ticket size, helping to drive price points higher?

And then specifically on the medical side, it does seem like more and more states are increasingly adding chronic pain, nausea, things like that to the list of qualifying conditions. And so when you combine that with what I've mentioned on some of these newer products hitting adult-use markets, do you think we're in a place where same-store sales growth broadly across the industry as a whole can really start to show better numbers in months and quarters ahead?

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Benjamin Kovler, Green Thumb Industries Inc. - Founder, Chairman & CEO [64]

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That's a good question. We're proud of exceeding 50% same-store sales on a mid-teens comp base and strong sequential quarter-over-quarter growth. Just back to the basics, what drives same-store sales? Number of transactions and size of transaction. Up until the last quarter or 2, it's been all about the number of transactions. As we start to get into adult-use markets, we can drive the average transaction size through add-ons and other kinds of things that happen in retail. We can do it through loyalty programs. We can do it through add-ons, and we really train our staff towards that.

We like the expression socially dosed. Micro-dosed is a medical term, and we think socially dosed products that give people the comfort to use the product will generate more sales. And as we can communicate and drop the nerves and get people comfortable with this product, we think it's going to lead to more sales. So it's about educating our associates in the store in order to sell the right kind of product and having the stores armed with those socially dosed products.

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Operator [65]

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Your next question comes from Andrew Carter with Stifel.

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William Andrew Carter, Stifel, Nicolaus & Company, Incorporated, Research Division - Associate VP [66]

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I appreciate kind of your commentary around preparation for the Illinois adult-use market. You guys are obviously one of the leaders there. So you have really good insight, not only into yourself but also your competitors. So I guess my first question is how well-prepared do you think the competitive set is for the market? I think -- and then the second one is how are you thinking about kind of the pace of investing? You mentioned some expansions you're doing right now in that market before it turns into what's likely to be a really solid cash engine for the company overall?

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Benjamin Kovler, Green Thumb Industries Inc. - Founder, Chairman & CEO [67]

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Thanks for the question, Andrew. Look, we -- the pace, we're going as fast as we possibly can, and I wish we can go faster. In terms of the competitive set, we hope they're as successful as possible. The state needs the product, and it needs the capacity. And so we want to service both the medical patients that have had a successful program now for 3, 4 years and the new adult-use market. So this is a brand-new market, just putting some numbers on it in the low 20s per month right now, tracking about $250 million annual sales of the medical market. We think that's going to $2 billion to $3 billion. That's 10x as big. So there's growth as far as the eye can see quite literally. And so we're excited about new capacity from ourselves and from our friends.

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William Andrew Carter, Stifel, Nicolaus & Company, Incorporated, Research Division - Associate VP [68]

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Sounds great. And then kind of the second question is just kind of the evolution of the regulations in that market. Obviously, I think just by what capacity is out there, that's going to be tight if you're thinking a $2 billion to $3 billion category. How quickly will the state kind of -- do you think the state will open up the market to kind of ease that? Is that going to be a bottleneck? Just love to hear your perspective, and then I'll pass it on.

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Benjamin Kovler, Green Thumb Industries Inc. - Founder, Chairman & CEO [69]

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Well, the legislation, as written by Steans and Cassidy, has some awesome opportunities for new entrants in the market. So there's craft grow. There's new infusers. There's different kinds of transportation licenses. So there's plenty of opportunities for folks to get in. So far, Illinois is not a regulatory headache. Products are allowed. There's really tight testing. There's really tight packaging rules. And we see that the adult-use market is going to leverage that medical market. So they don't need to reinvent the wheel. We view the regulators as partners as we all do this together in order to serve the state and serve the adult-use market. And so that's all fine.

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Operator [70]

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Your next question comes from Mike Hickey with Benchmark.

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Michael Joseph Hickey, The Benchmark Company, LLC, Research Division - Research Analyst [71]

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Congrats on the quarter. I guess looking at Q3 as sort of 2/3 of the way through Q3. I realize you hesitate at giving guidance, but obviously, you try to have some visibility. Have you -- so how you're thinking relative to consensus of $61 million sales Q3, $1.2 million EBITDA. Obviously, getting north of $5 million, it sounds like you can sustain that from like Q2 forward. So it looks like EBITDA should go higher. I guess, what's your perspective on Q3 would be helpful as we sort of shape our model?

And then I realize it's difficult to know how the markets unfold, et cetera, but do you think sort of 3 to 5 years out, given your level of investment your 95 retail licenses and assuming some of those stretching points leave over time so that meeting the long term. Can you give us some perspective or visibility on how you're seeing sort of your annual run rate on sales and EBITDA performance? And I have a follow-up.

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Benjamin Kovler, Green Thumb Industries Inc. - Founder, Chairman & CEO [72]

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Thanks for the Mike. We really don't give guidance. There's a lot of changes going on in the industry. A lot of the things we thought for sure end up not happening and then a lot of surprises happen. And it's not quite daily, but it's probably weekly that things change. Laws change. Stores are allowed, not allowed, lawsuits this or that. So it's really tough to be in a position to guide.

I don't spend a lot of time looking at the consensus numbers, so I'm not exactly sure what they are. We're head-down execution-focused on delivery against the business plan in order to drive shareholder returns. That's what we do, and that's where we think the numbers will go.

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Michael Joseph Hickey, The Benchmark Company, LLC, Research Division - Research Analyst [73]

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Okay. Fair enough. This question is a bit in left field, but it was buried deep in the Q and today it's sort of interesting. There's been sort of some vape related health issues that have surfaced that seem to be more tobacco related, although, I'm not sure if anyone knows where the cause is? But obviously, it's making people sick, putting them in hospitals, et cetera. I'm curious your view on this and maybe the broader consumer, and that's not as educated on what's happening and if you see the need sort of pull back in vape sale in retail.

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Benjamin Kovler, Green Thumb Industries Inc. - Founder, Chairman & CEO [74]

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Yes. Mike, timely question and good point. Something we take really seriously, something we're watching every day. We launched a responsibility page. We think it's the first of its kind on our website talking about youth cannabis education and abuse prevention. We adhere to the strict marketing guidelines and the product guidelines in each of the states we're in. We're totally unaware of any health issues connected with any of our products, and we're obsessively focused on quality and safety in those. It's a safety-first operation at all times. But we're watching the news, and we want to be educated on what's going on. We've seen no evidence of any of our products or frankly cannabis products across the country. But this is brand new as this news breaks. So we want to be in the forefront of it, and we want to be winning with education.

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Michael Joseph Hickey, The Benchmark Company, LLC, Research Division - Research Analyst [75]

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Are you seeing any pullback at retail with the consumer being nervous now about vape related products in general?

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Benjamin Kovler, Green Thumb Industries Inc. - Founder, Chairman & CEO [76]

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Zero.

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Operator [77]

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Your next question comes from Matthew Pallotta with Echelon Wealth Partners.

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Matthew Pallotta, Echelon Wealth Partners Inc., Research Division - Special Situations Analyst [78]

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Just had a question circling back to Nevada. You commented that your 8 licenses that you guys have still that you -- to open an additional stores in the state that you want under Integral have not been affected by the injunction. Would you expect that all 8 of those could be open by the end of next year? Is that a possibility? Or do you see that stretching out over a longer period?

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Benjamin Kovler, Green Thumb Industries Inc. - Founder, Chairman & CEO [79]

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So obviously, not being affected by the injunction, we could open them. We have the capital and the bandwidth to do it. A few of them are located in municipalities that currently have caps and things like that, so we have to work with them. So I don't want to guide saying we'll open, which would involve rule changes and things like that. We have visibility on about half of those, which we're really excited about. But it's day-in, day-out as we go.

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Matthew Pallotta, Echelon Wealth Partners Inc., Research Division - Special Situations Analyst [80]

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Okay. And then quickly on Pennsylvania. Obviously, you have a lot of room there, continue your retail expansion. Are you guys sort of trying to time that with the expansion that you spoke about on the production side of things and how you see the buildout ramping up in that state? Obviously, from what we've seen, demand in the state is incredibly strong for a medical market. So obviously, general stores open as fast as possible to capitalize would be great. But obviously, you want to time that with your production increase. So if you just talk about the ramp-up in that state and how you see that moving forward.

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Benjamin Kovler, Green Thumb Industries Inc. - Founder, Chairman & CEO [81]

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Yes. It's a good question. Pennsylvania is very strong. I would say the new store opening plan in Pennsylvania is not contingent on the wholesale side. So we're not holding an opening based on production size or anything like that. It's difficult to get a lot of these open. We have 6 open today. We have plans for another 2 to 4 this year, and that path continues into 2020. We have licenses for a total of 18 with only 6 open today. So we're incredibly excited about the pipeline. And obviously, that can feed the confidence to build out the wholesale side.

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Matthew Pallotta, Echelon Wealth Partners Inc., Research Division - Special Situations Analyst [82]

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Excellent. And then also just quickly on the incredibles. Did that transaction close post-Q2 or in Q2?

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Benjamin Kovler, Green Thumb Industries Inc. - Founder, Chairman & CEO [83]

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Post-Q2, end of the day.

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Matthew Pallotta, Echelon Wealth Partners Inc., Research Division - Special Situations Analyst [84]

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Okay. And is there anywhere we can look for data on exactly what you guys paid for that or -- because I didn't see a press release on it, so I missed it.

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Benjamin Kovler, Green Thumb Industries Inc. - Founder, Chairman & CEO [85]

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We did not issue a press release on that. Given the size of it is an immaterial size, we did not disclose the details. We're just looking here for the exact date at which it closed, so I can tell you it was at the end of the second quarter on June 18, and it's in the press release.

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Operator [86]

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Your next question comes from Russell Stanley with Beacon Security.

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Russell Stanley, Beacon Securities Limited, Research Division - Research Analyst [87]

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Just on New Jersey. Mentioned under construction there, just wondered what the latest is on the time line for completion. When do you expect to get your first dispensary open and where you stand on locating your second and third allowed under that license?

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Anthony Georgiadis, Green Thumb Industries Inc. - CFO & Director [88]

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Sure, Russ, Anthony here. So we expect to open up our first store in Paterson before the end of the year. And obviously, hard at work at operationalizing the wholesale facility as well. In terms of kind of licenses 2 and 3, that's something we're working with the Department of Health on. We obviously have identified a number of locations that look attractive to us and then also engaging some of the local municipalities on their appetite to host us.

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Russell Stanley, Beacon Securities Limited, Research Division - Research Analyst [89]

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Great. And if I could, I might have missed it, but what is the time line for the buildout around the 3 licenses in Southern California?

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Benjamin Kovler, Green Thumb Industries Inc. - Founder, Chairman & CEO [90]

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We haven't given exact guidelines, but we're going as fast as we can. You've seen with some of the wins, there's is a little bit of a pause in some of the places where they make sure that the results are fine, and as they get going, we're hustling as fast as we can. I would say that 1 or 2 of them will be open first half of 2020.

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Operator [91]

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Your next question comes from Jim Young with West Family Investments.

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James Young, West Family Investments, Inc. - VP & Investment Analyst [92]

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Your sales comp posted this quarter is very impressive. And I'm just wondering how much of that comp number is due to increased prices? And are you at this stage in your evolution of the business exercising pricing power or not? And I've got another question after this one.

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Benjamin Kovler, Green Thumb Industries Inc. - Founder, Chairman & CEO [93]

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Thanks, Jim. It's Ben. It's not driven by price and taking price up. It's really driven by transaction volume and number of new users. There's a monstrous amount of demand on this product as we continue to say, and as new legal users, whether it's through adult-use or simply through expanded medical programs are able to come into the store, that drives the comps right now. And there are some markets where we could take price, and particularly in medical. We are not focused on raising medical prices as a business practice.

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James Young, West Family Investments, Inc. - VP & Investment Analyst [94]

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Okay. Great. And then secondly, regarding New York and New Jersey. Can you give us -- I understand that you're not producing revenues there yet. But how much capital have you invested into those 2 states? How much have you -- how much was expensed in the second quarter? And can you give us a sense as to how you see this unfolding from the revenue ramp over the course of the latter part of 2019 and out into 2020?

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Anthony Georgiadis, Green Thumb Industries Inc. - CFO & Director [95]

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Yes, Jim, so we don't disclose state-by-state spend or anything related to the P&L. I'll tell you that the capital -- the attention that we dedicated New Jersey is greater than New York, particularly given we just closed the New York transaction. I would say that we'll have better visibility on those 2 markets my guess is over the next 6 to 9 months. So probably stay tuned on that.

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James Young, West Family Investments, Inc. - VP & Investment Analyst [96]

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Okay. Then lastly, while you may not want to give specific state-by-state information, can you give us some sense as to out of any of the 10 states you're currently operating in and generating revenue from, are any of the states profitable excluding overhead costs at this point in time of the evolution?

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Anthony Georgiadis, Green Thumb Industries Inc. - CFO & Director [97]

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Many of them.

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James Young, West Family Investments, Inc. - VP & Investment Analyst [98]

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Many as in 5?

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Anthony Georgiadis, Green Thumb Industries Inc. - CFO & Director [99]

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Look, we're pretty pleased with our operational performance across a number of markets. Like I said, we don't like disclosing specifics about each state. But again, it all comes back to the "Enter, Open Scale" playbook. Once we enter a market, we get open. Then the next phase is really to scale. And that's really where you see the profitability run through the business.

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James Young, West Family Investments, Inc. - VP & Investment Analyst [100]

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Understood. And I do appreciate the path to profitability and recognize that given when you're entering the market that, obviously, that's going to overshadow the overall profitability of the company. But it would probably be helpful at some point in time to let the investors know and understand where the profitability metrics that are being realized in some markets, et cetera? And as time passes, we would expect to see some of those EBITDA margins and other profitability metrics follow in due time.

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Anthony Georgiadis, Green Thumb Industries Inc. - CFO & Director [101]

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Sure. So would our competition.

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Benjamin Kovler, Green Thumb Industries Inc. - Founder, Chairman & CEO [102]

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I think just the one thing that I would add on that, Jim. You can learn by what we do. We're putting capital into the best opportunities, and so it's all about capital allocation. We're putting capital into the place for the best returns for our shareholders. So the markets that are getting the most amount of capital are those that we have the most confidence in that are now profitable.

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Operator [103]

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Your next question comes from Robert Fagan with GMP Securities.

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Robert Fagan, GMP Securities L.P., Research Division - Equity Research Analyst of Healthcare [104]

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Guys, a quick follow-up, and I promise I won't take too long. I just wanted to circle back on the preparations for Illinois. And if I recall back in time, you had been awarded 3 licenses for production. Not sure if one of those was forgone or replaced or substituted. But obviously, that's going to have a big impact on your total maximum footprint that you can go to in the state. So are you currently in possession of those 3 licenses still? Or are you down to 2 at this point?

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Benjamin Kovler, Green Thumb Industries Inc. - Founder, Chairman & CEO [105]

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Good memory, Robert. It's Ben. We won 3 and we activated 2. So within, I think, it was 30 or 60 days from the original win in February 2015, we've had 2 cultivation processing licenses in Illinois.

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Robert Fagan, GMP Securities L.P., Research Division - Equity Research Analyst of Healthcare [106]

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Okay. So just if you were to have the option to activate the third and then go to, I guess, the maximum 600,000 square-foot footprint, is that an option available to you?

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Benjamin Kovler, Green Thumb Industries Inc. - Founder, Chairman & CEO [107]

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No. We don't have a third to activate. We have 2. They're both active. And that's our portfolio.

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Operator [108]

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Your next question comes from Aaron Grey with Alliance Global Partners.

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Aaron Thomas Grey, Alliance Global Partners, Research Division - MD & Head of Consumer Research [109]

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Congrats on the quarter. Just following up again on EBITDA and EBITDA margin. We touched on gross margin a little bit earlier, but talking more about SG&A, which has come down as a percent of sales. Just wanted to know how to expect that kind of trending going forward, especially as you're going to have more exposure to adult-use states, so if we just can get some color on that, especially with the closing of the Integral Partners acquisition. If that's going to change that as well, just anything on the SG&A clip going forward would help.

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Anthony Georgiadis, Green Thumb Industries Inc. - CFO & Director [110]

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Sure. Look, this is Anthony here, and good question. I think I said in my remarks, the operating expense line is going to continue to increase. We still have a lot of infrastructure to build, and as the business continues to scale across a number of markets, both horizontally and vertically, we have to add team members here to help manage that growth. So again, our biggest focus is on watching our top line and making sure that we're seeing real operating leverage within the business. It's something we're maniacal about in terms of making sure that every incremental dollar of revenue that we generate that as much of it hits the bottom line. At the same time, we obviously have a corporate team we need to build out, and we've got growth that we need to manage. So hard to say exactly how much the operating expense line is going to grow over the next couple years because it's really kind of tagged along with the revenue growth that we're seeing.

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Aaron Thomas Grey, Alliance Global Partners, Research Division - MD & Head of Consumer Research [111]

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Great. That's helpful. And then just -- you obviously, have a robust pipeline for your own stores to open up with your licenses. But any color you can provide kind of on what you're seeing from M&A landscape either from brands or retail and whether or not you feel there are some assets out there that are attractively priced in the market?

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Benjamin Kovler, Green Thumb Industries Inc. - Founder, Chairman & CEO [112]

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Sure. Since going public and even since our inception, we've been very active in the M&A space looking for deals and partnerships. I would say the turmoil in the capital markets is affecting the private valuations, and we remain excited about the opportunities out there. We're not willing to reach or stretch or go past our goals. We're always looking what's best for the shareholders, and we're not going to pay up. But as capital availability and a federally illegal business remains limited, there are very attractive opportunities because these businesses need cash. And we're in an advantageous position, and we look forward to taking advantage of that.

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Operator [113]

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Your next question comes from Vivien Azer with Cowen.

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Vivien Nicole Azer, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [114]

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Thanks for the follow-up. I'll keep it quick. I was just hoping you could comment on the Amherst location, recognizing opening up in mid-May is perhaps not optimal, given that 5 colleges are going on summer break, and they're just coming back now. But curious how that store in the quarter was comping against other adult-use stores in your network?

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Benjamin Kovler, Green Thumb Industries Inc. - Founder, Chairman & CEO [115]

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Sure. Thanks, Vivien. Thanks for the follow-up. Yes, opening right after the students all left not ideal, but we're not complaining at all getting it open, and it's a complicated regime in Massachusetts as we all know. So we're proud to have gotten open. We saw the store double right away, and it continues to comp month-over-month at a big rate, and frankly, we're looking forward to September being a record month there as the population is in, as we have the product optimized and we're able to begin to talk about the store. We think one of the reasons that it didn't quadruple overnight is people are just not aware that the store is there. First-mover advantage in Massachusetts is material. And so we continue to raise awareness about Rise. We continue to offer educational seminars and opportunities. And we continue to be a spot that people can go for the product.

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Operator [116]

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There are no further questions at this time. I'll turn the call back to management for closing remarks.

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Benjamin Kovler, Green Thumb Industries Inc. - Founder, Chairman & CEO [117]

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Great. Thanks, everybody, for joining us. We're excited about what's ahead and look forward to updating you in November. Thank you.

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Operator [118]

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This concludes today's conference call. Thank you for joining us. You may now disconnect.