U.S. Markets close in 1 hr 37 mins

Edited Transcript of SLNG.CD earnings conference call or presentation 26-Nov-19 3:00pm GMT

Q3 2019 Slang Worldwide Inc Earnings Call

Dec 1, 2019 (Thomson StreetEvents) -- Edited Transcript of Slang Worldwide Inc earnings conference call or presentation Tuesday, November 26, 2019 at 3:00:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Kelly Tyler Ehler

SLANG Worldwide Inc. - CFO

* Peter W. J. Miller

SLANG Worldwide Inc. - Chairman & CEO

================================================================================

Conference Call Participants

================================================================================

* Noel John Atkinson

Clarus Securities Inc., Research Division - VP & Research Analyst of Growth and Innovation

* Paul Piotrowski

M Partners Inc., Research Division - Research Analyst

* Robert Joseph Burleson

Canaccord Genuity Corp., Research Division - MD & Analyst

* John Vincic

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Good morning. My name is Amy, and I will be your conference operator today. At this time, I would like to welcome everyone to the SLANG Worldwide Third Quarter 2019 Conference Call. (Operator Instructions)

Mr. Vincic, you may begin your conference.

--------------------------------------------------------------------------------

John Vincic, [2]

--------------------------------------------------------------------------------

Thank you, operator, and good morning, everyone. Our speakers on today's call will be Peter Miller, Co-Founder and CEO of SLANG Worldwide; Billy Levy, Co-Founder and President; and Kelly Ehler, Chief Financial Officer. Joining them for the Q&A session will be Mike Rutherford, VP of Finance.

Before we begin, I would like to remind listeners that certain statements made during this conference call presentation may constitute forward-looking information and forward-looking statements within the meaning of applicable securities laws. These statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of SLANG Worldwide and its subsidiary entities or the industry in which it operates to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. When used in this conference call presentation, such statements use words such as may, will, expect, believe, plan and other similar terminology. These statements reflect management's current expectations regarding future events and operating performance and speak only as of the date of this presentation.

These factors are discussed in detail under the heading Risks and Uncertainties in SLANG's Management Discussion and Analysis dated November 25, 2019, and filed on SEDAR. The company undertakes no obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise other than as required under securities legislation.

And now I'd like to turn the call over to Peter Miller. Peter?

--------------------------------------------------------------------------------

Peter W. J. Miller, SLANG Worldwide Inc. - Chairman & CEO [3]

--------------------------------------------------------------------------------

Thanks, John, and thanks, everybody, for listening to this quarter's earnings call. We know that time is precious, and we will do our best to be efficient here as the message we have is both simple and timely.

SLANG continues to demonstrate strong organic growth and looks toward a profitable acceleration of these trends into 2020 and beyond. With the announcement of today's financing, we now do this with a significant amount of cash on our balance sheet at a dynamic time in the market when more than ever cash is king.

SLANG's business model was built at a time before the capital markets were focused on the U.S. opportunity. As such, the business model wasn't built to rely on those sources of capital but was optimized to rapidly scale when those sources became available. The idea was simple: produce great products that deliver on their brand promises and sell those products into scaled consumer markets. With today's equity financing, we're even better positioned to scale.

This financing comes largely from existing long-term institutional shareholders. We expect that more traditional debt will become available to profitable businesses in the space and that we will be well positioned to use it.

In the meantime, however, we are excited to focus on our expanded growth strategy rather than on refinancing or servicing the cumbersome debt instruments that are more broadly available.

In the quarter, we delivered strong organic revenue growth, increasing gross margin as we continued to optimize efficiency across the network. Through the continuation of these activities, we have a clear line of sight on positive cash flow and overall profitability.

Part of the optimization of efficiencies included in the completion of the work required to exercise the option to acquire certain supply chain assets, including ACG in Colorado, which we exercised subsequent to the quarter. We will look forward to the increase in profitability and cash generation that this asset will support in the Colorado market.

In Q2, we commented on our outlook for the more emerging markets. We shared why we thought certain markets were not on track to receive the investments needed to fully operationalize profitable businesses. These markets include newly legal states like Massachusetts and Michigan.

In Q3, we saw the growing pains in those markets persist with Massachusetts taking the most drastic position in face of concerns around liquid vaping, while the more mature markets took a more measured approach. As the situation around vaping concerns unfolded, our core markets showed the most resilience. Additionally, our diverse portfolio is able to offer alternative products to those looking. The concerns around this issue were largely resolved by the CDC determining that vitamin E acetate was the primary culprit, a product largely limited to the illicit market. However, the episode demonstrated the durability of our model and the value of having a diversified portfolio.

We certainly saw a shift to the more premium end of our liquid vape products and an increase in demand for our dry herb vaporizer. With clarity on this issue, we look forward to a clear path for the growth of our entire portfolio into 2020.

Another reason for optimism as counterintuitive as this may sound with recent commentary in mind is the Canadian market. This is a market that everybody believes has potential, but some fear always will. While distribution leaves a lot of room for improvement, it appears that the Ontario and Alberta provincial buyers are particularly engaged in moving toward Cannabis 2.0 products. As a matter of fact, the Ontario government buyers are at our Canadian network facility right now as this call is taking place, inspecting finished goods, including the Firefly Mini, O.pen cartridges and the Bakked Dabaratus.

SLANG products received great feedback at the Canadian legalization anniversary event held by the OCS, and we're getting strong indications of interest across the board for these products. We look forward to sharing developments as they unfold.

Canada is a great example, but not the only example of an emerging market, which is showing signs of growing through early challenges and becoming more conducive to SLANG's core market business model. The incredible growth in patient participation in Oklahoma is a great indication of future success and the development of the Florida market has been a bright spot for the entire sector, with our partner Trulieve really demonstrating operational excellence and focus to incredible ends. With Trulieve, we launched RESERVE in Florida in the quarter and plan to expand our offerings in that market with them over time.

Across both core and emerging markets, we also saw a huge growth potential for SLANG in product categories which we don't currently serve, such as flower.

Subsequent to the quarter, we announced a strategic partnership with the Cookies brand for the State of Colorado. Leveraging existing relationships in both the supply side and retail distribution front, we expect this to be a very successful launch, providing us with valuable experience in flower and opening doors for us to launch other flower products from our portfolio.

Flower is bigger than the entire vape and concentrates category combined, and this represents a great opportunity for us to leverage the unique distribution pipeline we've built over many years. We will continue to layer additional products into the portfolio and distribute them through this pipeline, where we see gaps in our portfolio and openings in the market.

In addition to flower, we see certain concentrate subcategories offering great opportunity for SLANG. To that end, we moved live resin and solventless products into the development phase. We're getting great feedback on these new formulations inside the Firefly Mini and O.pen cartridges and look forward to their commercial launch

Inhalable products certainly are the only area for growth, and we are keen to build upon the success of District Edibles and Pressies through the release of new flavors and delivery formats, including sours, chocolates and mints in the near term.

In general, our category managers and product teams see significant untapped potential in our core markets, and we are intent to capitalize on all of it.

Our emerging markets continue to show signs of favorable supply and demand dynamics, and we remain committed to expansion into those markets at the right time. As the market dynamics become more similar, the playbook that makes us successful in core markets is more transferable than any regulatory edge we may enjoy in emerging markets.

The regional excellence with a responsible eye to broad geographic expansion is a formula we believe will be successful for ourselves, our partners and our shareholders.

With that overview, I would like to hand the call over to my colleague, Kelly Ehler to discuss the financial performance in the quarter and the overall state of SLANG's finances.

--------------------------------------------------------------------------------

Kelly Tyler Ehler, SLANG Worldwide Inc. - CFO [4]

--------------------------------------------------------------------------------

Thank you, Peter. I will now walk you through the highlights of our third quarter. I will highlight key financial metrics in my discussion.

So turning to revenues, our third quarter revenue increased 29% to $9.3 million, up from $7.2 million in the second quarter and pro forma revenue of $5 million in the first quarter of 2019. These solid results are a testament to having a diversified portfolio of products and the value of the strong distribution network.

Turning to our gross margin analysis. Third quarter gross profit increased 39% to $4.6 million, up from $3.3 million, reflective of the fact both sales went up as emergence. Product mix and pricing improvements for the drivers in this success. Our third quarter gross margins of 49% were closer to our target of 50-plus percent, which we consider our sustainable targeted level.

We are seeing a positive impact from the integration of certain operations, a process that has been ongoing for several months. More upside is targeted as we continue integration processes and seek out synergies. The end result for the quarter is our -- our bottom line net income was $400,000.

I'll now break down some key areas in our financial performance. A significant line item on our income statement is impairment charges and derivative valuations, both of which are noncash items.

In the third quarter, we booked derivative and exchange gains totaling $106 million and a corresponding $95 million noncash impairment expense charges of goodwill. This reduces our goodwill to 0. Goodwill calculations at the time of acquisition back in January 2019 were driven by market valuations at the time. Since then, market valuations for us and the entire sector have reduced, and we've adjusted our goodwill balances to be more in line with current market conditions.

Also, as discussed, we have exercised the option on ACG so this aspect of the quarterly derivative liability revaluation should no longer occur with respect to that option. Depreciation and share compensation expenses, they were in line with the last quarter and will remain a material noncash expense going forward.

With respect to our EBITDA, our EBITDA loss was $2.8 million in the third quarter. After adjusting for certain nonrecurring expenses, adjusted EBITDA loss was $1.6 million, approximately the same as the second quarter.

To reiterate, our goal is to become EBITDA positive, as Peter outlined. Factors to achieve this will be increasing sales volumes, consolidating and streamlining portions of the SLANG Network, prudent expense management. And there were a number of expenses we identified in our ongoing integration process that we reduced without affecting operations or capacity. This will result in a reduction of cash outflows of $3 million per year. On a go-forward basis, half of this will be effective by the end of the year and the remainder over the 2020 year.

How has our cash position evolved? We had $18 million at June 30. September 30, we had $11 million. Of the $7 million utilized, $2 million was at the SLANG corporate level and the balance in operations. As noted, our adjusted negative EBITDA was $1.6 million for the quarter. Our announced $15 million private placement significantly adds to our cash balance. We are well capitalized to take advantage of growth opportunities in a profitable way.

With respect to our KPIs, just a reminder, revenues increased when taking into consideration our KPIs for the quarter. Our branded units and servings declined from the second quarter levels. Branded units were 913,000 in the quarter versus 1.1 million in the second quarter. Branded servings were 64 million in the quarter versus 74 million in the second quarter. Again, a reminder that branded units and branded servings will not necessarily match quarterly revenue trends for the following reasons.

We recognize revenue upon shipment of the product. Unit and servings are based primarily on timing of retail sales, and the serving is based on a 5 milligram of cannabinoid content so we expect to see fluctuations quarterly.

Back to cost management and to reiterate, we said last quarter that we have been working on integration of the acquisitions we completed at the time of our IPO. And as noted above regarding cash, total reduction between the net working direct entities is over $3 million in annual savings. We are well positioned to execute our growth strategy and take advantage of market opportunities. Our primary goal is positive cash flow and profitability for 2020.

At this time, I will turn the call back to Peter for some concluding remarks.

--------------------------------------------------------------------------------

Peter W. J. Miller, SLANG Worldwide Inc. - Chairman & CEO [5]

--------------------------------------------------------------------------------

Thanks, Kelly, and thanks, everybody, for listening. We're proud of the third quarter results, our current capital position and are more enthusiastic than ever about the prospects for SLANG. The investments we made in our operating and corporate infrastructure from Q1 to Q3 position us very well for the balance of 2019 and 2020. Aggregate consumer demand continues to grow, while many political, regulatory and technological tailwinds all point to an incredible overall opportunity for our industry. Things will not be perfectly smooth, but the overall opportunity we see in the market is thrilling, and we are incredibly motivated to capitalize on it.

Thanks, everybody, for listening. And at this point, we would be happy to take any questions.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) Your first question today comes from the line of Noel Atkinson of Clarus Securities.

--------------------------------------------------------------------------------

Noel John Atkinson, Clarus Securities Inc., Research Division - VP & Research Analyst of Growth and Innovation [2]

--------------------------------------------------------------------------------

Congratulations on a really solid quarter overall. I just have a few quick questions here. In terms of the ACG, exercise of that purchase option and congrats on moving forward on that, are you still structuring this as a payment of 33 million SLANG shares for that acquisition?

--------------------------------------------------------------------------------

Peter W. J. Miller, SLANG Worldwide Inc. - Chairman & CEO [3]

--------------------------------------------------------------------------------

Yes. Noel, thanks a lot. And yes, that's exactly right.

--------------------------------------------------------------------------------

Noel John Atkinson, Clarus Securities Inc., Research Division - VP & Research Analyst of Growth and Innovation [4]

--------------------------------------------------------------------------------

Okay. Is there any cash component to that?

--------------------------------------------------------------------------------

Peter W. J. Miller, SLANG Worldwide Inc. - Chairman & CEO [5]

--------------------------------------------------------------------------------

There is not. No. It's straight shares.

--------------------------------------------------------------------------------

Noel John Atkinson, Clarus Securities Inc., Research Division - VP & Research Analyst of Growth and Innovation [6]

--------------------------------------------------------------------------------

Okay. Are you -- can you provide a targeted closing date for the transaction?

--------------------------------------------------------------------------------

Peter W. J. Miller, SLANG Worldwide Inc. - Chairman & CEO [7]

--------------------------------------------------------------------------------

That will just be regulatory driven, but we've exercised -- we have our ducks in a row, and we think it can happen very efficiently.

--------------------------------------------------------------------------------

Kelly Tyler Ehler, SLANG Worldwide Inc. - CFO [8]

--------------------------------------------------------------------------------

I'll just say from an accounting perspective is that we will be consolidating their financial results, notwithstanding that the license is not like transferred at this point.

--------------------------------------------------------------------------------

Peter W. J. Miller, SLANG Worldwide Inc. - Chairman & CEO [9]

--------------------------------------------------------------------------------

Yes. The auditors will require financial consolidation as the control shift has taken place through the exercise of the option. But the close, we'll be moving towards as quickly as possible.

--------------------------------------------------------------------------------

Noel John Atkinson, Clarus Securities Inc., Research Division - VP & Research Analyst of Growth and Innovation [10]

--------------------------------------------------------------------------------

So what would be the date in which the consolidation of the revenues would begin?

--------------------------------------------------------------------------------

Kelly Tyler Ehler, SLANG Worldwide Inc. - CFO [11]

--------------------------------------------------------------------------------

November.

--------------------------------------------------------------------------------

Peter W. J. Miller, SLANG Worldwide Inc. - Chairman & CEO [12]

--------------------------------------------------------------------------------

Yes. Roughly around now.

--------------------------------------------------------------------------------

Noel John Atkinson, Clarus Securities Inc., Research Division - VP & Research Analyst of Growth and Innovation [13]

--------------------------------------------------------------------------------

Okay. Great. Are you able to provide any pro forma details of the financials for ACG in Q3 or H1 '19?

--------------------------------------------------------------------------------

Peter W. J. Miller, SLANG Worldwide Inc. - Chairman & CEO [14]

--------------------------------------------------------------------------------

No, we're not guiding to that specifically. But I will say as part of the consolidation of the Colorado assets and what we're modeling in other core markets, when we bring these things together, you start really seeing the profitability. And in the case of Colorado, generation of cash that's really encouraging. Because ultimately, I've said this in a few different places and at different times, but we see Colorado as one of those markets that gives you insights into future markets. It's been around longer than any other market from a legal recreational standpoint. There's been a lot of competition come and go. We've seen wholesale prices decline and then rise again. You're starting to see, I think, as close to a market equilibrium as you're going to see. So when we can generate cash in that kind of environment, it allows us to, I think, make longer-term models and grow with a lot more precision. So Colorado excites me a lot on the profit side and in terms of, I think, being a bit of a bellwether for markets that have similar regulatory structures over time and the mature -- and maturing rec markets, all share common traits as they grow. So we think it's going to be a great model for what we can do elsewhere.

--------------------------------------------------------------------------------

Noel John Atkinson, Clarus Securities Inc., Research Division - VP & Research Analyst of Growth and Innovation [15]

--------------------------------------------------------------------------------

Right. And it also appears to have been your -- by far, your strongest state or area in Q3 as well?

--------------------------------------------------------------------------------

Peter W. J. Miller, SLANG Worldwide Inc. - Chairman & CEO [16]

--------------------------------------------------------------------------------

Correct. Yes.

--------------------------------------------------------------------------------

Noel John Atkinson, Clarus Securities Inc., Research Division - VP & Research Analyst of Growth and Innovation [17]

--------------------------------------------------------------------------------

Okay, cool. On the cost savings side of the $3 million that you're targeting over the next 12 months, can you provide any sort of insight in terms of how that rolls out? And what you think you can accomplish in Q4 versus Q1, Q2, Q3 of next year?

--------------------------------------------------------------------------------

Peter W. J. Miller, SLANG Worldwide Inc. - Chairman & CEO [18]

--------------------------------------------------------------------------------

Yes, I'll start at a high level and maybe Kelly can go into more detail. But ultimately, we did bring together a few entities with their own corporate infrastructure. And there were just very basic efficiencies to find from just back-office consolidation, et cetera. But if you have any other...

--------------------------------------------------------------------------------

Kelly Tyler Ehler, SLANG Worldwide Inc. - CFO [19]

--------------------------------------------------------------------------------

Sure. I mean, half of the $3 million, I mentioned, will be effective by the end of the year. So that will be on a go-forward basis in terms of reduction of cash outflows, and the balance will occur throughout the course of 2020. And we still have some other areas that we think we can still drive some synergies and efficiencies that could actually make that number even bigger.

--------------------------------------------------------------------------------

Peter W. J. Miller, SLANG Worldwide Inc. - Chairman & CEO [20]

--------------------------------------------------------------------------------

Yes. So high level, you've got HR implications, you got purchasing, collective sales, et cetera.

--------------------------------------------------------------------------------

Noel John Atkinson, Clarus Securities Inc., Research Division - VP & Research Analyst of Growth and Innovation [21]

--------------------------------------------------------------------------------

Okay. You folks had a pretty solid rental revenue reported in Q4 of 2018, do you folks expect something similar to that in Q4 2019?

--------------------------------------------------------------------------------

Peter W. J. Miller, SLANG Worldwide Inc. - Chairman & CEO [22]

--------------------------------------------------------------------------------

Yes. Since the rents are coming from a seasonally sort of revenue-generating business, i.e., a firm and since this year was successful for that firm, I think we're going to see similar performance.

--------------------------------------------------------------------------------

Noel John Atkinson, Clarus Securities Inc., Research Division - VP & Research Analyst of Growth and Innovation [23]

--------------------------------------------------------------------------------

Okay, great. And then just my final one before I get back in the queue. It appears from the industry data that vape sales have stabilized overall industry-wide in the past couple of months. And can you talk at all from your guys' point of view as you're seeing it firsthand? What's going on in the vape market, the THC vape market right now?

--------------------------------------------------------------------------------

Peter W. J. Miller, SLANG Worldwide Inc. - Chairman & CEO [24]

--------------------------------------------------------------------------------

Yes, sure. So I think at the initial signs of trouble, the most, I don't want to use the word reactive because it's not what it is. But ultimately, the newer states had a much smaller opportunity cost. And so they were more inclined to be very conservative and imposed bans. So a state like Massachusetts didn't have much at risk in saying we're going to delay the sale of vapes, whereas you have a market like Colorado, where vapes have been in the market for many, many years without abuse product liability issues. And in terms of dollar and cents, vape sales are hundreds of millions of dollars at the cash register, which represents a pretty significant tax revenue for the state. So it's not so much an opportunity cost. It's a really hard cost and without the right data, it's dangerous to make these decisions. So they took more of a collect information position. And ultimately, as the information came out, they didn't wind up having to do too much. And the local consumers that were used to purchasing these products over many years, we didn't see changed their behavior too much and the most sort of behavioral changes we saw were in the more touristy retail locations.

And so then in more mature markets that still imposed limited bans, like you saw in Washington and Oregon on the flavors side, we ultimately saw certain rollbacks and a return to the status quo. But in that period of time, there was a shift towards more premium vape devices certainly in our portfolio. So that was Craft Reserve. And in some cases, we offered stores the opportunity to swap certain products for Craft Reserve.

So again, we saw the biggest differences industry wise in these more touristy destinations, where people didn't have the same experience. But during the media attention on this, we did collect a lot of information and participate in a lot of industry discussions and speaking on some panels with peers of ours in the vape space. The general theme was that there wasn't a response to sales sort of equal to the amount of attention the situation was getting. So it's no doubt a very serious situation. The CDC pointing to vitamin E acetate as the likely cause of the issue, I think, cleared some concerns for certain consumers. And ultimately, it's a situation we continue to monitor closely.

--------------------------------------------------------------------------------

Operator [25]

--------------------------------------------------------------------------------

Your next question comes from the line of Bobby Burleson of Canaccord.

--------------------------------------------------------------------------------

Robert Joseph Burleson, Canaccord Genuity Corp., Research Division - MD & Analyst [26]

--------------------------------------------------------------------------------

So yes, a couple of quick ones here. When you talk about the $70 million to $100 million revenue guidance for 2019, I know there's some completion of announced deals that could happen in that time frame and that could be a big swing factor between the $70 million to $100 million. If we kind of take out that aspect of the guidance, what is the kind of variability around the remainder of the year? Is it in your vape line, whether or not there's some lingering fallout in terms of inventory reduction from the vape bans and kind of overall vape crisis? Is that the most volatile part of your portfolio at this point? And once again, so stripping out whether or not those transactions close is a swing factor between that $70 million and $100 million?

--------------------------------------------------------------------------------

Peter W. J. Miller, SLANG Worldwide Inc. - Chairman & CEO [27]

--------------------------------------------------------------------------------

Yes. Thanks, Bobby. So I think there's going to be some stabilization that takes place, for sure, as I mentioned in Oregon where certain stores that weren't capitalized to take or hold big inventory through the period of time. Certainly, industry-wide scaled-back purchasing of certain goods and now are getting comfortable again. So I think there'll be some element of variability there.

In terms of the acquisitions closing, I don't see that -- we're not seeing that as a factor right now, and we're not going to guide specifically to where we land. So obviously, at year-to-date being pro forma in the $65.5 million range, we're on the doorstep of that $70 million to $100 million, but we haven't guided any more clearly than that.

--------------------------------------------------------------------------------

Robert Joseph Burleson, Canaccord Genuity Corp., Research Division - MD & Analyst [28]

--------------------------------------------------------------------------------

Okay. And then Lunchbox Alchemy LBA, I know the FDA recently sent out a bunch more letters to folks with products in the market where they are marketing health benefits and other things that are considered a violation. Do you think that the competitive environment is going to get a little bit more benign going forward, given the way you're positioning your product line vis-à-vis some of the guys that are maybe bad actors? What's the takeaway from the FDA's latest move ahead of releasing more specific rules?

--------------------------------------------------------------------------------

Peter W. J. Miller, SLANG Worldwide Inc. - Chairman & CEO [29]

--------------------------------------------------------------------------------

I think -- so first of all, they were not on that list of names that came out yesterday. And I think that generally speaking, we would prefer some strong regulation and understanding of exactly where the rules lie and then be able to compete on a level playing field. CBD is still a huge opportunity for growth for the whole industry. There's no doubt. It's becoming more competitive every day. And ultimately, the lower barriers to entry and combined with the opportunity brings a ton of people into the mix. I think we as well as most of the other folks trying to do things the right way would appreciate strong regulation and guidance from the FDA. So we'll see. I think that goes across the board for all the categories we operate in. But certainly, as you've identified, CBD is going to get more scrutiny and guidance across the board.

--------------------------------------------------------------------------------

Robert Joseph Burleson, Canaccord Genuity Corp., Research Division - MD & Analyst [30]

--------------------------------------------------------------------------------

Okay, great. And you guys are doing pretty well in terms of market share in certain states, gummy is #3 in Nevada, #2 distillate in California with Bakked. O.penVAPE, obviously, you are dominating in Colorado. What's the opportunity for sort of cross-pollinating across states for those brands? And where do you see the most upside in terms of maybe picking up share where you don't have significant share in a given state for a given product line?

--------------------------------------------------------------------------------

Peter W. J. Miller, SLANG Worldwide Inc. - Chairman & CEO [31]

--------------------------------------------------------------------------------

Sure. So taking these brands to other states is absolutely something we're focused on doing and that we've done. But we see taking the brands to other states that are more emerging markets for us, like Florida, is best done with a strong partner. We're seeing kind of quarter-over-quarter in the peer group that some of the more regionally focused names are executing incredibly well and partnering with groups like that allows us to, at worst on a cash-neutral basis, get brands into market and start testing the feedback and response.

I think, though, the opportunity within our core markets in the short term is even bigger because of what I was mentioning before, you have clear regulation, you know where you stand and the largest category of them all, flower, we haven't made a strong push into yet. So with the deal we announced with Cookies for Colorado, we see that as sort of just the tip of the spear of what we're going to do in flower. And it's the same stores that carry all of our other products that are selling all of the flower. And now we have a brand that is in high demand and that they're very keen to get access to.

So we take the same supply chain relationships that we use to purchase inputs for our other products, expand their relationship with those suppliers to also include collaboration on premium flower SKUs and then -- so we are bolstering relationships on the supply side then we're bolstering relationships on the retail side because the stores want that brand, and that gives us a conversation about our other flower brands, Strain Hunters and Green House Seed Co for example, which also sit at the premium end, but we haven't even touched value flower. And we've seen other groups do extremely well on value flower, when they've had the right distribution relationships. So I think organic growth in core markets just through categories that we're not currently participating in represents huge growth.

And then separate to flower, you have certain concentrates subcategories that we don't compete in. Now they're not as massive as flower. When you're talking about live rosin, live resins, solventless, you're talking about very -- much smaller subcategories on a relative basis, but you're talking about subcategories experiencing triple-digit year-over-year growth in a lot of cases. And when you're talking about these ultra-premium concentrates, the process to make them is a lot more artisanal, which doesn't allow for the same level of scale, but it also defends against price fighting because you are talking about a process, for example, with fresh frozen solventless that has to go through a handful of steps that do require as much art as science. So we're doing some really interesting things with that product line and putting them in different pieces of hardware that we sell, and we're really excited about what that looks like. So that will be high margin, smaller growth in absolute terms, but flower represents solid margin, but very significant growth in absolute terms.

--------------------------------------------------------------------------------

Robert Joseph Burleson, Canaccord Genuity Corp., Research Division - MD & Analyst [32]

--------------------------------------------------------------------------------

Okay, great. You did touch on Florida and truly I think they are obviously doing very well as a state. You guys are rolling out your partnership there. How should we think about the linearity of that rollout? Are you guys able to go statewide right away? Or is there other several step functions involved?

--------------------------------------------------------------------------------

Peter W. J. Miller, SLANG Worldwide Inc. - Chairman & CEO [33]

--------------------------------------------------------------------------------

Ultimately, it's a strategy that we have to set with Trulieve about what's strategic, which stores we launch with, at what point in time. So I don't think that it's as simple as one-to-one, they open a store that carries X units of product and we proportionately represent the same number in each place because we will have different brands that might resonate with different socioeconomic sort of demographics, similarly to any sort of retail environment. Trulieve is opening, I believe, their 40th store right now, and those stores exist in different neighborhoods, different locations. And I think there's different consumer behaviors in each of those places. You can use alcohol analogies or other industries where certain premium labels or certain value labels just do very differently in different places. So it's not one-to-one, but their growth is ultimately our growth as well in that state. And we're really proud to be growing with them in that market.

--------------------------------------------------------------------------------

Operator [34]

--------------------------------------------------------------------------------

Your next question comes from the line of Paul Piotrowski of M Partners.

--------------------------------------------------------------------------------

Paul Piotrowski, M Partners Inc., Research Division - Research Analyst [35]

--------------------------------------------------------------------------------

Just a quick question on NSH. Can you give an update on how that's going?

--------------------------------------------------------------------------------

Peter W. J. Miller, SLANG Worldwide Inc. - Chairman & CEO [36]

--------------------------------------------------------------------------------

Sure. Yes. So NSH, their primary assets are a manufacturing facility in California, one in Oregon and then a handful of minority shareholdings. And ultimately that is a more complicated set of financials that have to come up to public company reporting standards because you have assets that were live during a transition from one regulatory program to another, in the case of California, particularly. So we're still working through, making sure that we have every single nut and bolt understood, accounted for and are in a position to exercise with everything in mind that comes from that process.

--------------------------------------------------------------------------------

Paul Piotrowski, M Partners Inc., Research Division - Research Analyst [37]

--------------------------------------------------------------------------------

So can you give a time line?

--------------------------------------------------------------------------------

Peter W. J. Miller, SLANG Worldwide Inc. - Chairman & CEO [38]

--------------------------------------------------------------------------------

We're not guiding specifically on that right now because unlike ACG, we really have a very short-term line of sight on exactly the steps. There's still work to be done in terms of making sure the financials are where they need to be.

--------------------------------------------------------------------------------

Paul Piotrowski, M Partners Inc., Research Division - Research Analyst [39]

--------------------------------------------------------------------------------

Okay. And then any updates on what you intend to roll out with -- in Canada in December?

--------------------------------------------------------------------------------

Peter W. J. Miller, SLANG Worldwide Inc. - Chairman & CEO [40]

--------------------------------------------------------------------------------

Yes. We initially showed the Firefly Mini and the O.pen line of 510 cartridges and the Bakked Dabaratus as well as some Green House Seed Co and Strain Hunters flower SKUs. So it was pretty thrilling to see a live and compliant version of each of those products in the facility, get developed and start building inventory over the past couple of months. And I wish I could be there right now as the OCS takes a look with their QA folks, but those are the products we're initially targeting and I think they're set up for success due just to simplicity and what we know the market demand is for them elsewhere.

--------------------------------------------------------------------------------

Operator [41]

--------------------------------------------------------------------------------

(Operator Instructions)

--------------------------------------------------------------------------------

Peter W. J. Miller, SLANG Worldwide Inc. - Chairman & CEO [42]

--------------------------------------------------------------------------------

Okay. If there's no more questions, thank you very much, everybody. We're happy make ourselves available to anybody who thinks of a question later or just wants to generally reach out with any questions, comments, et cetera. Thanks, everybody.

--------------------------------------------------------------------------------

Operator [43]

--------------------------------------------------------------------------------

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.