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Edited Transcript of SNN.CD earnings conference call or presentation 27-Nov-19 4:00pm GMT

Q3 2019 Sunniva Inc Earnings Call

Dec 18, 2019 (Thomson StreetEvents) -- Edited Transcript of Sunniva Inc earnings conference call or presentation Wednesday, November 27, 2019 at 4:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Anthony F. Holler

Sunniva Inc. - Co-founder, CEO & Chairman of the Board

* David Weinmann

Sunniva Inc. - Global Controller & Interim CFO

* Duncan Gordon

Sunniva Inc. - COO

* Rob Knowles

Sunniva Inc. - VP of Corporate Development

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Conference Call Participants

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* Bill Papanastasiou

Canaccord Genuity Corp., Research Division - Associate

* Brad Conacher;GMP Securities;Director

* Fred McCutcheon;Canaccord Genuity;Senior Investment Advisor

* Ted Ohashi;Let's Toke Business;Financial Analyst

* Shadd Dales;The Dales Report;Founder

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Presentation

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Operator [1]

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Thank you for standing by. This is the conference operator. Welcome to the Sunniva, Inc. Third Quarter 2019 Earnings Conference Call. (Operator Instructions) The conference is being recorded. After the presentation, there will be an opportunity for analysts to ask questions. (Operator Instructions) I would now like to turn the conference over to Mr. Rob Knowles, Vice President of Corporate Development. Please go ahead, sir.

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Rob Knowles, Sunniva Inc. - VP of Corporate Development [2]

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Thank you, Savis, and good morning to everyone joining us to discuss our results for the third quarter of 2019. With me on the line today are Dr. Anthony Holler, our Co-founder, Chairman and Chief Executive Officer; Duncan Gordon, our Chief Operating Officer; and David Weinmann, our Interim Chief Financial Officer.

As normal, we'll begin today's call with comments from Dr. Holler, who will provide a strategic update, followed by Duncan Gordon, who will provide a glasshouse update and then David Weinmann, who will provide a financial recap of the quarter. Following their prepared remarks, we will then open the line for analysts to take your questions.

Some of the matters we'll discuss on this call, including our business outlook, are forward-looking in nature. These matters are subject to both known and unknown risks and uncertainties, including but not limited to, those factors set forth in yesterday's news release, our MD&A and other public disclosure documents, which are available on the SEDAR website. These risks and uncertainties could cause actual future results to differ material from those expressed in this call, which are based on our current expectations. We assume no obligation to update the information presented on this conference call except as specifically required by the applicable securities laws. But with that, I will now turn the call over to Dr. Holler. Dr. Holler, please go ahead.

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Anthony F. Holler, Sunniva Inc. - Co-founder, CEO & Chairman of the Board [3]

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Thank you, Rob. Good morning, and thank you for joining us this morning. The third quarter was a very -- was very active for Sunniva with respect to capital raising and progressing on our strategy for transitioning the business to our California operations. Financially, our current business has generated $5.8 million in revenue, which put year-to-date revenues of over $21 million. I will provide an update on the operational status and forward outlook for the company in a moment, and we'll let David discuss the financial results. But first, I will address the recent management changes that have occurred and the news regarding the claims related to the glasshouse.

Kevin Wilkerson and Dave Lyle have both resigned recently from their respective roles of President and CFO. Both of these positions will eventually be replaced. But in the interim, we are very comfortable moving forward with the senior management team members currently in place. We held a strategic meeting in Palm Springs last Wednesday with the entire management team to ensure that there are no gaps with respect to the responsibilities and ownership of deliverables committed to, and to ensure that the primary objectives of completing the glasshouse is not affected from these recent departures.

Dave Weinmann, who is with me today, has been appointed to Interim CFO. Dave was brought into Sunniva almost 6 months ago as our Global Controller, with a long career in financial management in both private and public companies and in both CFO and Controller positions. David has been responsible for the design and implementation of our financial reporting structure and accounting functions. We have no reservations in David taking over the CFO role as we continue to work through our transition.

Cost overruns and delays in payments at the Cathedral City glasshouse have resulted in disputes over funding. To date, we have contributed over $22 million towards the completion of the facility. As noted in our Q3 disclosures yesterday, we received a notice of default and a 30-day notice of termination, which we received on Monday, November 25. At this time, we cannot provide much additional detail to that other than to state that we have consulted with our California legal counsel, Dentons, and we intend to vigorously defend our position. Until a resolution has been achieved, the previous Q2 2020 targets for achieving our certificate of occupancy cannot be relied on. We will provide updates on this matter as appropriate and will revise our time line guidance when we have line of sight to a resolution.

Now over to operations. As we discussed in our Q2 earnings call at the end of August, Sunniva is now focused solely on developing our operations in California and on the completion of the glasshouse in Cathedral City, California. We are steadfast in our commitment to complete this facility as we believe that despite the current issues, when completed, it will be among the premier cannabis cultivation operations in North America. We are confident that the flower produced in this facility will be of AAA quality and will capture high margin. Our vertically integrated operations, which include in-house manufacturing and distribution operations, both located in near proximity to the glasshouse, will give us the flexibility to pivot as needed to meet the dynamic market demands and to gear our sales efforts to capture the highest margin for our products, including both flower sales, high-quality Sunniva-branded flower or into our existing manufacturing facility for the rapidly expanding extracts market. All of our production will be processed through our distribution operations, which are located nearby and can deliver our products through the state. We remain confident in the future outlook for Sunniva. The questions of primary imports today are: where are we now with California construction and operations and how do we get to our target of vertical integration? In terms of construction progress, we've finished about 85% of the work required to commence operations, with a further capital commitment from Sunniva of approximately USD 8 million. Our engagement with Colliers International, which we announced at the end of August, is working well and has resulted in a number of adjustments to the completion process that we believe will be beneficial to a successful startup. Duncan will provide a more detailed update of the glasshouse progress following my comments, but we remain committed to achieving a full certificate of occupancy following the testing and commissioning of the facility.

We continue to investigate options to bring the facility into partial operations in an accelerated manner to shorten the time to first revenue. As we indicated in our second quarter conference call, as a result of analysis of the facility, we decided to add additional backup power and cooling capacity to the existing design to minimize the impact on our operations in the event of a possible temporary loss of power. We are currently evaluating the option of vendor financing to cover the estimated USD 25 million cost for both systems.

In light of the recent rolling brownouts in Northern California, we believe that this increased risk mitigation will ultimately result in significant long-term shareholder value. We have a fully operational extraction lab and packaging and distribution facility, which we are not currently directing any capital to. The sales team has been active in evaluating opportunities to utilize the manufacturing and packaging facilities as a means of generating revenue in the near term while we are waiting for our own cultivation supply.

The next question is, how do we get from here to the target? In short, the answer is that we need additional capital to complete the glasshouse. In the third quarter, we announced the sale of Natural Health Services to the Clinic Network Canada. We expect that this transaction will be completed in early December. The current proposed terms of the transaction have been amended to $250,000 in cash that we received as an initial deposit and $8.75 million in shares of Cura-Can, the parent company to the Clinic Network. The sale of NHS will be beneficial to our ongoing cash requirements as it eliminates some residual corporate costs in Canada and the requirement for Sunniva to inject cash from time to time as part of the working capital needs of that company.

The other part of the California-focused strategy that will generate significant cash for Sunniva is the pending sale of the OK Falls property in British Columbia. On the last call, we had anticipated the transaction would have closed in September. The purchaser remains very committed to this project and has since increased its nonrefundable deposit to $1.9 billion to compensate for the delays in financing. We have had ongoing discussions with both the purchaser and their capital provider, and without diving into the full details of the reasons for the previous delays, we are confident that we will get this transaction completed.

Cash proceeds at closing from this transaction will be used to repay the existing mortgage on the property, promissory note holders and some outstanding debts, leaving approximately $5 million to be added to our current cash position, which will be directed towards the capital cost of the glasshouse in Cathedral City.

Before handing it over to Duncan, I would like to reiterate our commitment to delivering a cultivation facility in Cathedral City that will be the prized centerpiece of our vertical integration strategy in California and to become a model for large-scale cannabis production and become the gold standard for the industry.

I will now turn the call over to Duncan Gordon to provide a short update on the progress made on the glasshouse over the past several months.

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Duncan Gordon, Sunniva Inc. - COO [4]

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Thanks, Tony. With respect to the current status of the glasshouse, we have finished about 85% of the work required to commence operations. Specifically in the greenhouse, approximately 90% of the work required to commence operations is finished and 75% in the header house. The header house status does not include the dispensary as that portion of the building is now planned to be completed after we achieve occupancy. I will highlight some of the items that we have completed or have made notable progress on over the past 3 months since Colliers assumed management of the project.

Permanent power has been delivered to the property. With respect to heating and cooling, the chiller has been installed and powered and the boiler has been enclosed. With respect to site work, paving of the driveways has been completed and landscaping has commenced. Inside the glasshouse, roll up and side doors have been installed, cameras have been installed to meet state and city requirements, glow lights have been installed in all zones and IT cabling is now complete.

I will now turn over the call to David Weinmann, who will go through the details of the third quarter and provide an update on our current financial position and outlook.

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David Weinmann, Sunniva Inc. - Global Controller & Interim CFO [5]

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Thank you, Duncan. I will jump straight to the financials. Please note that all figures I will mention are in Canadian dollars unless referred to as otherwise and that the financial results for NHS have been removed from the revenue and expenses and is captured in the discontinued business line.

Revenue from continuing operations for Q3 came in at $5.3 million, which is about 4x higher than Q3 of last year and an increase from the $3.5 million reported in Q2 of this year. Full-scale distributors contributed $2.8 million with CP Logistics coming in at a $2.6 million compared to $2 million and $1.5 million, respectively last quarter.

Gross margin increased $1.5 million from $784,000 in Q2 and up from $214,000 last year. Overall, the net loss for the quarter was $20.5 million, which increased $13.7 million from the same period last year and increased $5.5 million from the previous quarter.

However, the net loss from continuing operations was $9.2 million compared to $7.1 million last year. The net loss includes about $2 million in impairment booking and interest charges. Loss from operations was $7.1 million, which compares to $6.9 million operating loss in the same period last year and $11.8 million operating loss last quarter. The quarter-over-quarter decreases in cash and operations are mostly due to the ongoing capital requirements for the glasshouse. Fixed cost of the extraction facility and U.S. operations combined with reduced sales of cannabis products. Year-to-date, we have generated just over $21 million in revenue from continuing operations, which exceeds the amount that was generated in all of 2018.

The reported SG&A of $8.7 million included an accounting adjustment of approximately $1.3 million in production facility costs and $1.4 million account receivable provision. Excluding these adjustments, corporate G&A decreased about 15% quarter-over-quarter primarily due to the completion of the costs associated with transferring corporate functions from Vancouver to California.

Net AR declined $2.2 million or 34% from Q2 to Q3, which was due to the reclassification of the NHS AR and then an increase in the accounts receivable provision. Inventory decreased roughly to $2 million from quarter-over-quarter, which was driven by an increase in inventory revision, consistent sales yet reduced production throughout the quarter to concentrate working capital to glasshouse construction.

We continue to be very active in the near-term with the management along with our capital resources (inaudible) of proceeds with sale of the Canadian assets (inaudible) and working capital needs. Financing has been (inaudible) approximately (inaudible) in the process with these (inaudible). We've already mentioned the (inaudible) closing of the sale of (inaudible) on the challenging short-term cash situation, which we will continue to work towards resolving. Our current capital obligations for the glasshouse are about USD 8 million. Given the current dispute on the outstanding amounts related to cost overruns, we will not be deploying any additional fund towards the project at this time. When we have resolution to a dispute, we will update on the spending plans for bringing the glasshouse into operations.

We continue to evaluate various capital-raising initiatives to satisfy both near-term and longer-term needs and hope to have more information to share with you in the upcoming months. Thank you for listening. And with that, I'll turn the call over to the operator to open it up for Q&A.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Ted Ohashi with Let's Toke Business Newsletter.

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Ted Ohashi;Let's Toke Business;Financial Analyst, [2]

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Tony, thanks for the update. I need to get into what has happened with David Lyle and Kevin Wilkerson. And the reason for that is, of late, in the cannabis industry, there have been other instances of CFOs and senior people leaving and the subsequent news hasn't been good. So let me start with Michael Barker's resignation and then their legal action 1 week later. I mean, I have to believe those 2 events were related. And I have to believe it was an issue before it was announced and before Michael Barker resigned. I mean, is that correct? I mean, is this something that's been brewing for a while?

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Anthony F. Holler, Sunniva Inc. - Co-founder, CEO & Chairman of the Board [3]

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I -- it's difficult to respond to that question because I -- Michael Barker has been on the Board for a significant amount of time. And yes, there were disputes over payments and things like that, but there was no indication that he was going to leave the Board. And I just suspect -- I can only speculate that probably his attorneys recommended that he step off the Board.

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Ted Ohashi;Let's Toke Business;Financial Analyst, [4]

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Okay. I don't clearly understand what the ramifications are of their action. Let's assume that their action is successful, what does that mean?

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Anthony F. Holler, Sunniva Inc. - Co-founder, CEO & Chairman of the Board [5]

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You know, Ted, I'm not going to discuss their action because our law firm in the U.S., Dentons, is going to be responding to that, and I don't want to speculate as to what our response would be. So I really can't answer that question.

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Ted Ohashi;Let's Toke Business;Financial Analyst, [6]

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I mean, is part of the motivation here, I mean, I know Barker wanted you guys to start paying rent. And I guess, there are certain things that have to be met for them to do that under your agreement. I mean, is that part of the puzzle here?

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Anthony F. Holler, Sunniva Inc. - Co-founder, CEO & Chairman of the Board [7]

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Well, we can't pay rent till we have something to rent, right? This facility has to be finished before we rent it. So that's how I'd answer that question.

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Ted Ohashi;Let's Toke Business;Financial Analyst, [8]

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Okay. What needs to be done to resolve this issue?

I mean, now all of a sudden, the completion of the glasshouse is contingent on this legal action. So I mean, I'm trying to get some sense of the delay that we might be looking at.

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Anthony F. Holler, Sunniva Inc. - Co-founder, CEO & Chairman of the Board [9]

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And again, it's difficult for me to answer that question in terms -- because we don't currently have a resolution. But I think what has to happen realistically is the interested parties have to get together and figure this out.

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Ted Ohashi;Let's Toke Business;Financial Analyst, [10]

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And that's you and Barker?

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Anthony F. Holler, Sunniva Inc. - Co-founder, CEO & Chairman of the Board [11]

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Yes. And Barker's equity holders, et cetera.

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Ted Ohashi;Let's Toke Business;Financial Analyst, [12]

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Okay. Okay. The Natural Health sale, the way it ended up seemed to be pretty much a giveaway of that asset. You ended up -- or you will end up with $0.25 million and 6 million shares of a private company that nobody knows anything about. I mean, what percentage of Cura-Can is 5.83 million shares? Do you know?

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Anthony F. Holler, Sunniva Inc. - Co-founder, CEO & Chairman of the Board [13]

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It's a relatively small percentage of Cura-Can, I don't know the exact percentage. But Cura-Can is a multistate operator in the U.S. and has an ongoing business in a number of different states. And their plan eventually is to go public. And we also have the opportunity if the Clinic Network Canada goes public that we would -- that we could convert into those shares. And their intention is to go public in the next 6 months.

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Ted Ohashi;Let's Toke Business;Financial Analyst, [14]

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Okay. All right. Then the other -- the way the NHS sale turned out, it kind of raises a lot of issues about Okanagan Falls. I mean we've chatted before about Okanagan Falls, the sale was priced 6 months ago, and 6 months ago the cannabis industry was quite different than it is today. I mean are you working toward closing the Okanagan Falls deal as we understand it or is it going to be something completely different?

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Anthony F. Holler, Sunniva Inc. - Co-founder, CEO & Chairman of the Board [15]

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No, that sale is contemplated to be as you understand it.

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Ted Ohashi;Let's Toke Business;Financial Analyst, [16]

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Okay. And can somebody comment on your current cash position? I mean how serious is liquidity here?

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Anthony F. Holler, Sunniva Inc. - Co-founder, CEO & Chairman of the Board [17]

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I'll let David comment on that.

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David Weinmann, Sunniva Inc. - Global Controller & Interim CFO [18]

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So the question was how serious is liquidity? We do have enough cash and we feel that we have a runway to provide us time to get these deals closed, but we're looking into -- towards the end of Q1 on that.

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Ted Ohashi;Let's Toke Business;Financial Analyst, [19]

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Okay. So on a burn rate basis, you're covered until the new year?

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David Weinmann, Sunniva Inc. - Global Controller & Interim CFO [20]

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Yes. Until -- actually until the end of Q1 is where we feel comfortable.

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Ted Ohashi;Let's Toke Business;Financial Analyst, [21]

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Okay. So 4 months or so, 4.5 months, something like that?

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David Weinmann, Sunniva Inc. - Global Controller & Interim CFO [22]

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Correct.

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Ted Ohashi;Let's Toke Business;Financial Analyst, [23]

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Okay. Now the $8 million to complete the glasshouse, is that what we're talking about? It wasn't quite clear to me what that $8 million figure was.

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Anthony F. Holler, Sunniva Inc. - Co-founder, CEO & Chairman of the Board [24]

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Yes, that's Sunniva's contribution to the completion of the glasshouse. There's approximately $20 million to complete. And when we say complete, that's to get it operational. Remember, that excludes the boilers and the -- sorry, the chillers and the backup power, but -- about $20 million. And that's been allocated between Barker and ourselves.

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Ted Ohashi;Let's Toke Business;Financial Analyst, [25]

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Okay. And then you're delaying the completion of the dispensary area and all of that?

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Anthony F. Holler, Sunniva Inc. - Co-founder, CEO & Chairman of the Board [26]

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Yes, we are. Into the second phase, that's right.

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Ted Ohashi;Let's Toke Business;Financial Analyst, [27]

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Okay. What specifically is being delayed there, deferred?

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Anthony F. Holler, Sunniva Inc. - Co-founder, CEO & Chairman of the Board [28]

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Well, it's just that we want to focus all our efforts on getting the facility into production. So we don't -- the dispensary isn't, at this point, an important part of that facility. So we really want to focus every dollar on getting the facility up and running and growing plants.

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Ted Ohashi;Let's Toke Business;Financial Analyst, [29]

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Okay. Tony, I guess, what it's coming down to from the market's point of view is your ability to commit enough time to this project to get it done. I mean, you're -- I know that you're doing other things in your business life. And I mean, what is your commitment here?

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Anthony F. Holler, Sunniva Inc. - Co-founder, CEO & Chairman of the Board [30]

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It's a total commitment. With Kevin leaving, obviously, I have to put -- I'm actually putting more than 100% of my time in a day because obviously, I have to. And just to show you the commitment, I'm totally committed to this. And people who know me, know when I say that, I mean it. I'm not a guy who quits. I am not a guy who taps out. I want to see this completed. And as you know, I have significant financial resources involved in this company and significant time I've put into developing this company. It's not that I'd be willing to give up. I am not a quitter, just so -- I want to be very clear about that.

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Operator [31]

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Our next question comes from Brad Conacher with GMP Securities.

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Brad Conacher;GMP Securities;Director, [32]

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Question for -- could you give us some understanding of your level of confidence on OK Falls closing? It seems to have been dragging out, and I'm sure you're as frustrated as everybody else with dealing with it. But what -- just a little bit of a color as to how -- why you're so confident that it actually will close?

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Anthony F. Holler, Sunniva Inc. - Co-founder, CEO & Chairman of the Board [33]

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Well, I think the first thing is that the company has put almost $2 million as a nonrefundable deposit, and normally people don't throw $2 million around, first of all. Secondly, we have been discussing with their lenders this deal, and there's a commitment from the lenders that they are going forward with this transaction. So I think the -- I think there is a reality in the cannabis industry right now where everybody is being a bit cautious, whether it's lenders or anything else. But it's -- I certainly feel confident that they're going to close. Everything that I've heard is they're closing.

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Brad Conacher;GMP Securities;Director, [34]

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Okay. Another question. The -- Michael Barker was on the Board. He retains a significant shareholding in the company, does he not?

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Anthony F. Holler, Sunniva Inc. - Co-founder, CEO & Chairman of the Board [35]

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He does.

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Brad Conacher;GMP Securities;Director, [36]

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Yes. And do you know -- do you have any idea what the size of that is or...

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Anthony F. Holler, Sunniva Inc. - Co-founder, CEO & Chairman of the Board [37]

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You know not off the top of my head, but he's a significant shareholder. I think if you look at the last insider trading reports, you'll see that he's a very significant shareholder.

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Brad Conacher;GMP Securities;Director, [38]

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Okay. And finally, like the plan going forward, like options for, sort of, financing of the final -- we're basically on the 5-yard line here, ready to -- with this project. What are the options going forward for getting it completed? Like how much can you elaborate on those?

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Anthony F. Holler, Sunniva Inc. - Co-founder, CEO & Chairman of the Board [39]

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Well, I can't elaborate a lot on those because we're working on some of those, but I think the reality is that this project has to be refinanced and that's what I'm working on right now.

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Brad Conacher;GMP Securities;Director, [40]

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Have you got like interested parties? Or you -- are you having to beat the bushes? I mean how, sort of, receptive is the market? I mean as early as this stage -- as early as this might be?

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Anthony F. Holler, Sunniva Inc. - Co-founder, CEO & Chairman of the Board [41]

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We have parties that have expressed interest but it's still early stage.

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Operator [42]

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Our next question comes from Bill Papanastasiou with Canaccord Genuity Corp.

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Bill Papanastasiou, Canaccord Genuity Corp., Research Division - Associate [43]

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Just a follow-up on a previous question in regards to the departure of senior management at Sunniva. I understand you won't comment on, kind of, past history and why they've left, but on a forward-looking basis, has the company devised a strategy to retain future -- the newly appointed management members? Hope you can discuss a bit more on that.

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Anthony F. Holler, Sunniva Inc. - Co-founder, CEO & Chairman of the Board [44]

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Yes. Well, obviously, our middle management group who reported to Kevin and Dave Lyle. I had a meeting with them last week after Kevin's departure. And to a person, they're committed to the company. And obviously, we're going to take good care of those people because of their loyalty and commitment and dedication to seeing this project through. So it was very encouraging to see that even though 2 top management personnel left, the people who are actually doing all the work felt confident to stay and work through this. So I mean, that's very heartening. And obviously, I very much appreciate that. So I think, obviously, you never like to see someone leave but then to have the people who do all the work really support the company, I mean, I'm very encouraged by that.

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Operator [45]

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Our next question comes from Shadd Dales with The Dales Report.

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Shadd Dales;The Dales Report;Founder, [46]

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Just from a pure like PR media standpoint, obviously, I mean, I've been following a lot of like, shareholders and their responses online. And there's obviously -- there's a lot of people that are scared right now. There's been 2 press releases in the month of November that basically have described, like, 2 executives leaving on personal reasons. And obviously, with the announcement that came out last night, there's a lot of shareholders that are worried that you're going to run out of money and then this thing is going to be done in like within a month or 2. So if you're sitting down with a lot of those people right now, I know the question was asked before, but like how confident are you of these deals closing? This operation's being completed? And moving ahead with what you're stating, it's a thriving company in the next 6 months to a year?

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Anthony F. Holler, Sunniva Inc. - Co-founder, CEO & Chairman of the Board [47]

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Well, I'd answer the question this way. It's very clear that, that the most important step going forward is the closing of OK Falls because it deals with some of our promissory note holders, a little bit of debt and the first mortgage, and then gives us a nice handful of cash, about $5 million. So that's critically important. So I think that's obviously #1. And obviously, that cash we can deploy directly to the glasshouse to get to work to get that finished.

In terms of my view on what has to happen next, the facility itself has to be refinanced. And so I think that's critical to get it completed and operational. And so that's a big focus of buying right now. So if we can accomplish those 2 things, then I think we've got a great runway ahead. So that's how I'd answer it. None of those things are easy, as you know. But we -- just because they're not easy, it doesn't mean you don't work day and night on them.

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Shadd Dales;The Dales Report;Founder, [48]

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Yes, I get that. So I think a lot of the thing is right now that if these deals close, then obviously a lot of shareholders are going to feel a lot more confident, secure and feel like there's a longevity plan that's actually going to be executed, which I know there's only so much that you can emphasize on, but again, the question goes back to like how confident you feel that these deals will end up being closed?

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Anthony F. Holler, Sunniva Inc. - Co-founder, CEO & Chairman of the Board [49]

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As I said, I'm confident the OK Falls deal will close. I've been working with these people for a few months now, and although there have been delays, I am confident that this deal will close.

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Operator [50]

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Our next question comes from Ted Ohashi with Let's Toke Business Newsletter.

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Ted Ohashi;Let's Toke Business;Financial Analyst, [51]

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I just wanted to piggyback off of an answer that you gave. And so the refinancing of the glasshouse, what are the kinds of things that you're talking about? I mean, are you talking about bringing in a partner? Are you talking about doing one single large financing? I mean, what sorts of things are we considering here?

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Anthony F. Holler, Sunniva Inc. - Co-founder, CEO & Chairman of the Board [52]

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We are considering everything, Ted, okay? We're considering everything.

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Ted Ohashi;Let's Toke Business;Financial Analyst, [53]

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Okay. But can you narrow that down a bit?

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Anthony F. Holler, Sunniva Inc. - Co-founder, CEO & Chairman of the Board [54]

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Well, we have to consider everything. We are having discussions with potential senior partners. We are having discussions with financiers, but I can't narrow that down any further but to say that we have to look at all these potential possibilities.

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Ted Ohashi;Let's Toke Business;Financial Analyst, [55]

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Okay. And would you refer to that as sort of a plan B to Okanagan Falls not closing? Or is that -- is this something totally separate from that?

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Anthony F. Holler, Sunniva Inc. - Co-founder, CEO & Chairman of the Board [56]

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This is totally separate. As I said, Ted, I am confident that OK Falls will close. And so for me, OK Falls closing is #1 because then we can start injecting cash into the glasshouse. And #2 is refinancing that whole facility so that we can get operational.

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Ted Ohashi;Let's Toke Business;Financial Analyst, [57]

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Okay. And finally, again, as part of your answer, the -- you're not injecting capital into the glasshouse right now. I mean, what has to happen for you to start that up again?

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Anthony F. Holler, Sunniva Inc. - Co-founder, CEO & Chairman of the Board [58]

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Well, obviously, the -- for us, the -- we have some commitments to inject capital into the glasshouse. So I wouldn't say that we're not injecting cash into the project, I would say that currently we're not, but that could change very quickly once we have the financing or get the moneys from OK Falls.

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Ted Ohashi;Let's Toke Business;Financial Analyst, [59]

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Okay. So it's not related to the Barker lawsuit and -- or the Barker legal action?

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Anthony F. Holler, Sunniva Inc. - Co-founder, CEO & Chairman of the Board [60]

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Well, they're all related. But still, remember, our focus is finding a solution whereby this facility gets finished.

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Ted Ohashi;Let's Toke Business;Financial Analyst, [61]

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And I would presume that's Barker's objective as well. I mean, they must have a lot riding on this.

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Anthony F. Holler, Sunniva Inc. - Co-founder, CEO & Chairman of the Board [62]

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As you can imagine, the -- even if you're 85% complete, there's a lot of work to be done and a lot of expertise in finishing that facility and a lot of that expertise lies with us. And so I think it's in everyone's interest to figure this out.

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Operator [63]

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Our next question comes from Fred McCutchen with Canaccord Genuity.

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Fred McCutcheon;Canaccord Genuity;Senior Investment Advisor, [64]

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I just want to follow-up on some points that have been briefly addressed with regard to the construction of the glasshouse. Just to clarify, I know you're not deploying more capital at the moment to the glasshouse but does work continue at a slower pace? And is that Barker's workers that are doing that work?

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Anthony F. Holler, Sunniva Inc. - Co-founder, CEO & Chairman of the Board [65]

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Well, there are workers on site right now. And you're right, it is at a slower pace. But there are workers on site. I was just -- I just got back from Cathedral City.

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Fred McCutcheon;Canaccord Genuity;Senior Investment Advisor, [66]

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So as I understand it, Colliers is managing that process, but -- or Barker...

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Anthony F. Holler, Sunniva Inc. - Co-founder, CEO & Chairman of the Board [67]

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They are.

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Fred McCutcheon;Canaccord Genuity;Senior Investment Advisor, [68]

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But are Barker's people the actual people conducting the work?

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Anthony F. Holler, Sunniva Inc. - Co-founder, CEO & Chairman of the Board [69]

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Well, the contractors. They're not actually Barker's people, they're contractors.

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Fred McCutcheon;Canaccord Genuity;Senior Investment Advisor, [70]

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Right. Okay. Let me rephrase it. Is Barker involved in that process underneath Colliers?

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Anthony F. Holler, Sunniva Inc. - Co-founder, CEO & Chairman of the Board [71]

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Absolutely. So Sunniva, Barker and Colliers are working together, although Colliers has -- oversee some management of the construction project.

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Fred McCutcheon;Canaccord Genuity;Senior Investment Advisor, [72]

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Okay. So things are still moving along, just not at the same pace?

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Anthony F. Holler, Sunniva Inc. - Co-founder, CEO & Chairman of the Board [73]

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Slowly, exactly.

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Fred McCutcheon;Canaccord Genuity;Senior Investment Advisor, [74]

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Okay. And then that can change rapidly when you get some capital and/or settle with Barker?

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Anthony F. Holler, Sunniva Inc. - Co-founder, CEO & Chairman of the Board [75]

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Absolutely. Absolutely.

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Fred McCutcheon;Canaccord Genuity;Senior Investment Advisor, [76]

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And then would you -- is it fair to describe the issue with Barker as a not uncommon client-builder dispute?

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Anthony F. Holler, Sunniva Inc. - Co-founder, CEO & Chairman of the Board [77]

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It's complex. I don't want to describe it.

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Fred McCutcheon;Canaccord Genuity;Senior Investment Advisor, [78]

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Okay. I mean, these things happen but I mean...

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Anthony F. Holler, Sunniva Inc. - Co-founder, CEO & Chairman of the Board [79]

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These things -- yes. In big projects like this, these sorts of things happen, you're right.

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Fred McCutcheon;Canaccord Genuity;Senior Investment Advisor, [80]

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But your interests are aligned, so hopefully, you can come to some sort of meeting of the minds.

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Anthony F. Holler, Sunniva Inc. - Co-founder, CEO & Chairman of the Board [81]

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Yes. The value of this project is when it's completed. A partially finished project, as you know, is devalue. So if we can complete this project, all interested parties are going to be happy because they're going to get their money out of it and they're going to get a return.

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Operator [82]

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This concludes the question-and-answer session. I would now like to turn the conference back over to Dr. Anthony Holler for any closing remarks.

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Anthony F. Holler, Sunniva Inc. - Co-founder, CEO & Chairman of the Board [83]

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Thank you. I would like to conclude by stating that I share your frustration and disappointment. I would add that I will do everything humanly possible to find solutions to our issues and work tirelessly in the best interest of the shareholders. As always, I would like to acknowledge the hard work, commitment and dedication of the Sunniva team towards achieving our goals. Thanks. Thank you to everyone who joined our call today and for your continued interest and support of Sunniva. Thank you.

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Operator [84]

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This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.