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spk01: some permitting delays, and of course the hurricane pushed our timing back just a bit. We also expect to locate and construct a large greenhouse facility to be completed by the end of 2023. We are currently under contract with two potential sites and have bids for construction ongoing at this time. Going over to Pennsylvania, our most recent store opening in Anvil has been ramping nicely with consistent growth each month. In fact, in October we had record month sales for that store. We expect to continue driving organic growth across all three Pennsylvania locations in 2023 as we further improve our sales and marketing efforts. We're excited and prepared for the possibility of Pennsylvania going to adult use. In Texas, as I mentioned in our last quarterly update, we now have a go-forward plan approved by DPS to build out our footprint in the country's second most populous state. In 2023, we're hoping to open our first delivery center, All packaging, all product formulations, and other necessary components have been approved by DPS at this time. We have began staffing for the delivery center, and we hope to have that location under construction soon. Before I hand the call over to our new interim CFO, Leora, I want to acknowledge the entire consortium team for their hard work and dedication, particularly as we persevered through the disruptions from the hurricane. We had many heroes step up within our ranks. I'm grateful that all of our employees remain safe, and I would like to thank each and every one of them for working so tirelessly to help keep our business closer to normal and operations returned as quickly as possible. Finally, I wish the best to our former CFO, Patricia Fonseca, as she moves on to the next stage of her career, and to Leora. Many thanks for stepping in to fill her role as we search for a permanent replacement. We look forward to continuing our expansion in the final weeks of 22 and into 23, and and are excited to share further updates in the spring when we report Q4 and full year results. With that, I'll pass the call over to Leora to walk through the details of our financials, and then we'll open the call up for Q&A. Leora?
spk08: Thank you, Robert, and good afternoon, everyone. Please note that all figures are in U.S. dollars and all various commentary is on a year-over-year basis unless otherwise specified. I'll jump right into results. Third quarter revenues increased by 42% to 22.1 million compared to 15.6 million. The increase was largely driven by a growth of Florida and Pennsylvania as we have more stores open in each market compared to prior year. Florida revenues increased 39% to 18.2 million compared to 13.1 million in over a year ago, period ago. Our adjusted gross profit in Q3 increased 71% to 16.7 million or 75.5% of revenues compared to 9.8 million or 62.7 of revenue in a year-ago period. The increase was primary driven by improved productivity and cultivation yields for the quarter compared to prior year. Third quarter operation expenses remain flat at 8.5 million compared to same period in 2021. However, as a percentage of revenues, operating expenses decreased significantly to 38.2 compared to 54.6 in 2021 as we continue to focus on operational efficiencies. Third quarter net loss totaled 5.6 million or loss of 2 cents per share compared to net income of 7.4 million or 3 cents per share in the same quarter of 2021. Adjusted EBITDA increased by 140% in the third quarter of 2022 to a record of 11.7 million or 53.1 of revenue compared to 4.9 million or 31.3% of revenues in Q3 2021 with an increase due to improved productivity across our cultivation, more stores and better operational efficiencies. Turning to the balance sheet at September 30, 2022, we had 9.1 million of cash and total debt of 69.4 million. Regarding our outlook for 2022, we are revisiting our previously issued revenue guidelines, given some of the impact of our Florida business from Hurricane Ian. Our now expected revenues for the year to range between 85 to 90 million, which compares to our previously issued guidelines of 90 to 95 million. This reflects an approximately 37% increase from 2021 as the midpoint of our guidance. In addition, we now expect adjusted EBITDA to exceed our previous issued guidelines between 25 million and 28 million, reflecting an approximate increase of 35% from 2021. Operator, we now open the call for Q&A. Thank you.
spk03: We will now begin the question and answer session. To join the question queue, you may press star then one on your telephone keypad. You will hear a tone acknowledging your request. If you are using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star then two. We will pause for a moment as callers join the queue. The first question comes from John DeCourcy with BTIG. Please go ahead.
spk07: Hey, guys. Congratulations on the quarter. Some continued solid execution here, which is a good thing. So to just jump into a couple questions on Florida, wanted to just touch base on The drag in Q3 from the hurricane, you know, I know there, I think it was in the release, it said that you would have had growth in the quarter on the top line. If you could care to elaborate on that at all, that would be great. And then additionally, what did that kind of look like from a cost standpoint? Any sort of increased costs related to reopening things and to, you know, kind of shoring up things?
spk01: Sure thing. Thanks, John, for the question. It's good to hear from you. So, you know, you had two things. You had drag and cost. So I'll talk about drag first. The facility at Sweetwater is our high-quality flower production facility, as you know. It's got 11 rooms and... The fertigation room is kind of an out parcel room adjacent and attached to the facility, which included our charcoal filtering system, our smart fog system, and basically the filtering system that filters the well water going into fertigation. That room was completely removed from the premises and is yet to be found with all the equipment. And unfortunately, when it departed, the roof impacted the roof of the main structure. It flipped over the main structure and impaled it in three different locations. Other than that, the main structure held on pretty well. We got those roof leaks fixed almost immediately, had a little struggle with generator power. Our main impact from the hurricane on that facility was the failure of our rented ring power generator set to function properly. causing what would have been two days of power outages to go into four. Those rooms sitting dark for four days was a problem. We did some temporary lighting. Ultimately, the flower that was in the more mature stage, which was two rooms, we harvested, went ahead and harvested it early, sent all that to extraction, and then tried to survive the remaining three rooms once we got power back on. Those three rooms could not be saved, and those were early harvested. The result of that is The way we set up our facilities is what we call continuous harvest. And so once they're running in all cylinders, if you would, they're harvesting every week, essentially. Sweetwater's a little different because it's a little bit more harvest to order kind of scenario, but there's still a window of harvest. Well, now that facility's off cycle, if you would. We did lose a good bit of the mom stock, so we had to restock that out of existing crops. the benefit of having two or three different facilities, we were able to move product and mom stock from facility to facility. So the main drag is essentially being off production cycle. As I said, we will remain off cycle in kind of a wobble, if you would, until mid-February, and then we'll be back on cycle. We're supplanting those five rooms with some auto flowers. We're kind of growing some outdoor extraction quality material, but indoor. But it gives us a cycle because Steady feed is the important part of it. Out back in the greenhouse, it was a sheer miracle. The roof was rated for 65 mile an hour. It's a poly roof. The eye wall set on that facility for almost an hour and a half at 114 miles an hour, and the roof held. Not actually sure how that occurred. The crop inside was completely unimpaired, and we went ahead with a normal harvest cycle there. So lucky is the best word I can tell you for how it impacted that facility. The cost... The main cost was the fertigation skid, the smart fog system that was inside of that fertigation room. That cost us about $250,000. Luckily, there was a used one on the ground in North Carolina, and we had it coming the day after the hurricane. We're about a half million dollars into repairs right now. There's a little bit of repairs in the electrical system. We had some shortages. We had a good bit of power fluctuation in the lines through the storm. which is pretty typical of a hurricane. So it shorted out some electrical components, some ATS switches. We're still trying to track those down. They become a little bit of ghosts and goblins at some point. So we're looking at between $500 and $650 of total repair costs. Most of those repairs are done. We're still working on the HVAC system. One of the chillers was flooded and working off of two out of three chillers right now but the third chiller was kind of a backup so we're up and running I think we're seeing the end of the repairs as far as cost I go over to Tampa and Polk City Polk City is a small greenhouse it was completely unscathed and Tampa had a little bit of water in the parking lot but those facilities although they went on to generator power for about 12 hours those facilities were completely unimpaired and unimpacted by the hurricane So our biggest loss was the five rooms that put us out of production cycle. And, of course, the mom stock was a pretty good loss for us. But luckily we had a belt and suspender system. We have duplicate moms at the various facilities just for this type of event.
spk07: Okay. No, that's great. And that's a really helpful color. And, you know, it seems like by looking at the OMM view data that, You know, there hasn't been any sort of fall off in Q4 in terms of Florida demand. But, you know, kind of how are things either for you guys or kind of on a, you know, I know for you guys the guidance wasn't changed much, but just kind of from a general demand in the state, you know, are you thinking that things are tracking to kind of where you expected as it seemed when the hurricane hit that, There might have been a longer-term drag for Q4 as well, but it doesn't seem to be the case.
spk01: Right. So, and again, go back to our Q3 expectations. And I was asked this at the end of Q2, which is our Q2 was so great, why am I not adjusting guidance? It's because we anticipated Q3 to be flat. We were hoping for it to be flat or slightly up. I think we would have been slightly up, but for a hurricane, no one could predict that. But you've got to remember, we're in Florida, and our patients all leave town in the summer because it's hot. And so we traditionally see decreased sales in August and July. So we knew that was coming, and we were hoping to hold on to flat. We would have, but for the hurricane. Now, coming into Q4, sales have taken off. We have had pre-Thanksgiving, we had two. two or three days in a row, which was our second and third best Fluent days ever. So we've had a top five day, three days of the week coming into Q4. It did start a little slow, but now it's ramping kind of as we expected. And we anticipate it to go strong. The holiday period from here into the end of the year is a very strong period for sales for us.
spk07: Okay, great. And then how's the pricing environment in Florida? I hear a lot about discounting and not quite as bad as maybe last, I think it was Q3, when some folks flooded the market with some excess inventory, but still I'm hearing that there's a lot of discounting. How are you seeing the competitive landscape in the state?
spk01: Yeah, you're right. Q3 of last year was a tough time for us because we had that liquidation event. We have not seen anything like that going into this year. Pricing was very competitive coming into Q3 and stayed competitive, but actually eased a little. We keep seeing these what I call media splash events where cookies or Jungle Boys, they'll roll out a big sale, they'll roll out a big rollout, but then they go out of material and they go away again. So while they're good for media events, they're just not presenting enough stable, steady competition to our shelf to really impact pricing. So pricing has relatively stayed stable throughout the end of Q3, a little bit of competition coming in. And right now, pricing is kind of back to Q1 levels. And so we're not seeing any major price competition at this time. I expect we will see some by the end of Q2 next year, and that has to do with some of the competitor stores' construction schedule. Luckily, we're all constructing at the same time with the same challenges, and so they're just as behind as we are sometimes. But I do not see any price compression being an event between now and the end of the year.
spk07: Okay. And then one last question for me, and then I'll jump back in the queue. But, you know, as you guys look at Pennsylvania, you know, you've talked in the past about wanting vertical integration there and, you know, seeing that as a potential investment. Given the, you know, really discounted pricing environment there and cheap wholesale product. Is that still a focus or, you know, especially in the near term? And then, you know, kind of how are you thinking about next steps to grow in that state?
spk01: So I'm sticking to the plan I told you before, which is to kind of try to get some grow relationships in place. There's still quite a few of the mom and pops out there that need a relationship. They don't have access to a shelf. And the Competition hurt the wholesale market last year more than it hurt the retail market. In fact, I'm getting on a plane to Pittsburgh tomorrow morning to go look at and talk to a grower. I really like Pennsylvania as a market. It's a good, solid consumer market, a good, solid blue-collar market for us. We're not in the best regions. We have the region in three stories in the south-central region. What we're really trying to do is get a better margin on the shelf because there's a little bit of compression there because we're now buying from our competitors who have competing stores and that's always a precarious position. So trying to get our own products on the shelf to kind of pick up our margins and then just hold tight to see what this regulatory environment is going to do as they move into adult use. I think the Democratic turn there has really supported going to adult use We believe that has to necessitate the opening up of more store opportunities. But even a grow relationship for us is a little bit constrictive if we do not get more shelf space. We can only push so much out through three stores. So we're going to hang in there. Pennsylvania, we're retooling a lot of our sales strategies. We're understanding the market much better. And if we could get our own product on the shelf, that would be great. Otherwise, the plan is to keep hanging in there and see how we can grow with the state market.
spk07: Okay, great. Well, thanks for all the questions answered.
spk01: Okay, thanks, John. Talk to you soon.
spk03: The next question comes from Russell Stanley with Beacon Securities. Please go ahead.
spk05: Good afternoon, and thanks for taking my question. Congrats on the quarter and the DOM margins in 2020. In particular, you're at or near the tops in the space. I'm just wondering, you know, how sustainable you think these margins are outside of the repair costs associated with EN. What kind of headwinds do you foresee over the next few quarters? And I guess related to that, how meaningful a drag might startup costs in Texas be?
spk01: Okay. Hey, good to talk to you, Russell. Thanks for the question. So EBITDA margins, yeah, it was a bit of a surprise to me. And watching our EBITDA margins, EBITDA develop as it is, as you know, we elected to adjust guidance because we're going to be a little under on revenue. But we're going to be over or right on on EBITDA. And so that just means that the efficiencies we've put in place are continuing to be seen in the EBITDA line. We are reaching, I think, our maximum efficiencies in some areas. There were several target areas. And as you know, this company has come up a very steep slope of improvement since 2020. And the low-hanging fruit is gone now. And so we're working on the fine-tuning. We really focused this last quarter on overtime, overtime and temp help, temp help and overtime. We're still suffering from labor shortages in some of our areas. And so that was a big add on savings this year. I'm sorry, this quarter. As far as Texas goes, it's not going to be much. We've already got the facility. We're already stacking distillate. We went right to THC right when the legislative effort changed. We've been stacking distillate now. We've got good manufacturing and lab equipment out there, even though it's a small cultivation footprint. The real challenge with Texas is figuring out how to navigate the legislation hurdles that were put on us. And we have DPS as a partner out there. They really want to do something. And so we've worked with them to remove or navigate around some of the many obstacles. And now what we've come out with is the opportunity to have a delivery center, which is not a store because a store is not allowed. A product cannot maintain on those shelves for longer than 24 hours. And so the truck has to take them back every day. We've identified a market in Katy, Texas, which is about an hour from Schulenburg, which is where our facility is. Got a couple good sites there. From the consumer's point of view, it's going to look like a store. We've got some really neat edibles coming in. We've got all our formulations approved. We've got all our packaging approved. And we're picking all this up, supporting it from Florida. So a lot of the work is being done in Florida to support Texas. And because of that, it's just kind of an add-on to the existing labor and product pool that we already have going. So not a lot of cost there. The big cost will be I'm about to add a staff member. I need a sales director for that market, and that will be a pretty expensive add. And then, of course, getting the TI for the physical facility to get open, a couple hundred thousand dollars there. So I think half a million dollars will be the Texas entry at this point from here. And, of course, we've already put in a decent amount up to this point. Not a big amount. I've asked the board whether we would consider a capital call or not on that. We are cash flow positive. We do have cash now at this point. So it's a concerning amount from an entry point, but considering we're opening up a new state, it's just not that large of an amount to worry about.
spk05: Thanks, Colin. If I could, pardon me, add one more with respect to Florida. You know, you've got your next several sites already mapped out and under development, but just more generally, given, I think, almost 500 dispensaries in Florida at this point, how are you finding or approaching site selection at this point? Is it becoming any more difficult to identify white space for new locations, given competitive efforts to expand their retail footprint as well?
spk01: Yeah, so the three that are going to be completed by March have been in queue now for some time. In fact, they are behind schedule, quite frankly. I wanted them open in November and December, and now we're looking at one coming out by the end of the year, one in January, and then two by March. Those have been in queue for a while. I'm now locating three more. And, of course, the trick that I always preach is balance. And our existing cultivation square footage, if I follow the throughput full, forward, I still have three more stores that I could feed without worrying about inventory at all. Maybe I could go to five more. But that's why you heard me say I'm now starting on the expansion of the cultivation side. Because once one silo of this business is starting to max out, you have to go to the other silos to feed it when you're vertical. So we've got three slots open. I've just started relocating those. We've developed a store locator model over the last year or so. And it's a It's an average model. It's not perfect, but it does help us. And so to specifically answer your question, my next three, I'm going to go for two open spots. I have a hit them where they ain't policy. So we've got two more open spots to locate. And there are space there. There are B market spaces. But as we've learned with our Hanover store in Pennsylvania and some of our Florida stores, being the only game in town is not a bad place to be, even a B market space. So Florida is a big state. There's still a couple of real opportunities in B markets. They are no longer clean or easy. Some of them are empty parcels. We're going to have to do a build. And so we've got those two narrowed down to five possibilities. And then I'm going to come back into one of the two A markets. We've got two A markets in Florida that I've identified in our own store sales. One is Orlando and one is Jacksonville. Those markets have good competition in them, but really, to be honest with you, Orlando could use more stores, at least on our side, and more coverage. So we're going to go two B markets and one A market for our next three stores, and then I'm going to sit tight and get cultivation increased again, and then I can be set to add another 10 stores.
spk05: That's great, Kohler. Thanks. I'll get back in the queue. Congrats again.
spk01: Thank you, Russ.
spk03: The next question comes from Phil Larson with Mill Street Capital Management. Please go ahead.
spk02: Hey, Robert. Congrats on a great quarter here, especially given some of the quite literal headwinds that you guys faced. Most of my questions have been addressed. I was just wondering on the hurricane if you can kind of quantify the lost sales or EBITDA impact from having the 12 dispensaries closed.
spk01: so we had I could try we had 12 dispensaries kind of blink closure and if you remember that storm it it it it almost traversed the entire state but for the last minute when it jetted out into the Atlantic it turned went in and then went up the center of the state we thought it was going to roll all the way to Georgia but luckily it exited so almost everything in its path was closed or in advance of its path was closed for some period of time you know as far as revenue impact You know, we were talking in the 200s, 200 to 300,000 was a revenue impact from that, what I call the blink of those closings, because most of those closings were early closures in anticipation of the storm. And as you know, you know, the most important thing in these storms is your people. And what happens is that well in advance, the schools close. And when schools close, then the concern for their children outweighs the concerns to work in our stores, and it outweighs it for us too. So we're pretty aggressive about our closure times. So we closed those. Then we had the two stores that were actually impacted, and those two stores were closed for about a week or so. And here's the phenomenal thing. They obviously registered zeros during those stores, during those closure times. But right before the storm, we had a tremendous spike in those sales in those stores. In every impact zone, we had a tremendous spike. And then as soon as we got them open, we had a tremendous spike. It just goes to prove that clean water, drinking water, toilet paper, and cannabis are the three things that you need in front of a storm because the sales were tremendous. And so what happens is if you level those out over a week or two period, it really wasn't that big of a sales impact because we had such tremendous buildup before. And then the St. Pete store was open on generator power with a line around the block. People just really wanted to get in there even though they didn't have power. So because we had the pre- and post-storm spikes, our total loss was under half a million dollars of revenue at that time. And so we just didn't have that much of a store sales impact. Our real impact was in production, and we saw that production impact kind of decrease our inventory available to be competitive in the weeks following the storm. And, of course, as you know, we had a storm right behind it. And so we determined that our first storm event was not an anomaly because sales right behind it on that east coast, they spiked right around the Melbourne area again before the impact of that storm.
spk02: Interesting. It's interesting to see with that kind of consumer staple impact. Really appreciate all the color, and, you know, again, congrats on a great quarter. Thanks a lot, Phil.
spk03: The next question comes from Daniel Hung with Contrarian Capital. Please go ahead.
spk04: Hi, Robert. Congrats on a great quarter, and thanks for taking the question. Maybe to follow up on the hurricane impact, in terms of being off cycle in the production now, what might that impact be going forward? Would we see that on revenue, margin, maybe both line items? And do you have access now, I guess, to the wholesale market due to lost crops?
spk01: Thank you, Daniel. Yeah, so the DOH was very generous. They immediately contacted us and said, you know, from the storm track, you appear to be the most impacted company. They did not know, nor did I know. I was not able to physically get to the Sweetwater facility until day two after the storm because the roads and bridges were out. And so it took a long time to get in there. And of course, we expected it to be completely flattened, and it wasn't. And so the DOH said to us, you know, do a rough calculation of what your losses could be, and you can go ahead and buy. And then we had this extraordinary scenario where we had multiple competitors reach out and say, hey, if you need to buy from us, we'll sell to you. And that's unusual in Florida. We're not a wholesale market, so we're not wholesale oriented. And so the idea of selling to your competitors is just not something that is available here. And so for them to reach out, it was just a tremendous, generous move on their part. However, because we early took down those rooms and because two of the rooms were already in an advanced stage and because the greenhouse survived, we actually did not see an immediate impact. So while we were cleared by DOH to do some buys, we kind of held back and didn't do those wholesale buys. Florida allows a crop loss purchase, which means if you have an approved loss of your crop by the DOH, you can replace that crop through wholesale purchase. It's the only exception in the rule. And so we went ahead and manufactured and produced and got that crop into production just to see before we panicked, if you would, and started buying. And what we've seen is that we're continuing to be strong in inventory and we have not made a crop loss. We now have gone through the process of getting our crop loss certified. It's not yet certified. Again, DOH said we could, as an interim, go ahead and purchase, but we didn't need to do it. I anticipate we will see the results of this in January. So if I look at the charts that are coming out of production, we're gonna still continue to be on an upward inventory build through December, and then we're gonna start to peak, and we'll need to start doing some supplementals probably in January, and I'm anticipating one or two supplemental buys. Although, quite frankly, I thought it was gonna be December, and then now I've pushed it to January, and sometimes that's what happens in production is plants come in a little stronger than you thought. You have a little bit less demand, and so, We will feel it internally, but here's the beautiful thing. We're no longer living hand-to-mouth here. Because of our increased production capacity and our increased inventory, we still suffer all the same casualties, not hurricanes, but all the same casualties that every company does. But we're inventory-rich at this point to the point where we can afford a one- or two-day impact, something in manufacturing or even a hurricane with some limited impact. without the customer seeing on the shelf because we now have a robust inventory. And that was one of my goals. My goal was to get to the point where everything that happened on the inside was not directly felt by the customer on the shelf. And so this hurricane tested that. And as a result, we took an impact from a hurricane and we might not even see the effects until January when we need one or two small supplemental buys. So that's how it's laying out right now. It's a very fluid scenario. If you would have asked me this question day after the hurricane, 10 days, 30 days after the hurricane, I might have given you a different answer. But right now, I'm looking at making it through the end of the quarter of the year without any need for supplementation.
spk04: It's great to hear and hats off to the team for making that happen. And then as a quick follow-up, you talked about some plans, a larger greenhouse in Florida, and I guess you addressed Texas. But Is there a sense of capex for those build-outs in the next year?
spk01: Yeah, so we've been blessed with investor groups that support us through various types of scenarios. We have avoided the sale-leaseback scenarios that some of our competitors have gotten into. It's just not the right answer for us, so we look for other alternatives. We are cash flow positive. That helps us now build our stores without the need for any type of capital raise or any kind of loan funds. And so this next project, we're looking, we've got three investment groups that are interested in being involved. We've actually talked to our lenders about being involved. And so I feel like a greenhouse project, which is, you know, it's a $10 million to $15 million project all in, You know, that's a very digestible capex amount for an investment partner or even a loan. And so I think we can get that done pretty easily. You know, we're not talking about one of these 30, 40, 60, 90, you guys pick it, million dollar indoor projects that you hear about. The type of feed I need, because if you remember, we have the BHO came online. And so we have now switched over to BHO. We're soon to ramp in full production on that. And we have live raws and that's come online. those two product lines they really need high quality but not indoor high quality flour they need b b plus flour to you get a high yielding high quality flour so that we can make those derivative concentrate products and that's really our focal point um right now because it's these are product lines that we don't yet offer and the ones we offer we we sell out pretty quickly so i need my in feed my my biomass feed to match my output expectations which isn't high-quality flower. We have enough high-quality flower. We have two facilities dedicated to that. So because of that, I don't need to build a big indoor facility at $30, $60, $90 million. A good environmentally controlled greenhouse at $10 million will get me there. Plus, I could put a lot more square footage. I'm looking at probably 70,000, 75,000 square foot of cultivation space, which will then, of course, push us to that next level.
spk04: Thanks, as always, for the detailed response. Thank you.
spk03: The next question comes from Adam Wilk with Greystone Capital Management. Please go ahead.
spk06: Hey, guys. Thanks for taking my questions. I appreciate it, and congrats on the incredibly impressive results. Really phenomenal, especially when taking into consideration what's taking place across the industry and given the hurricane, et cetera. I'm sorry if I'm not following this correctly, but I was hoping maybe you could reiterate or help me understand your commentary surrounding Q4 EBITDA as it relates to the guide. And I appreciate the revised guidance, especially on that line, the EBITDA line, but can you maybe give some additional color or let me know what I'm missing in terms of where you'd expect to end up? Revenue seems to be coming in flat or slightly above sequentially. And I was maybe thinking we would see similar profitability to Q3, but that comment around 30% to 35% EBITDA growth from fiscal year 21 would maybe imply that Q4 is down. So am I off there? How should we be thinking about that?
spk01: Well, I don't expect Q4 to be down. I expect it to be right on guidance. You know, if you look at – Where we've been on adjusted EBITDA, we have, of course, the biological inventory, which continues to grow, and that factors into the adjustment as you bring on the new facilities. Our efficiencies realized throughout Q3 helped us have a much higher EBITDA than we anticipated. So we anticipate that trend to continue, but slow a little. And so we're already sitting at, I think they suggested we're at 28, so we're already sitting in the mid-range now. I don't expect it to change much from that. I think we'll probably increase at that point a little higher. But we don't expect a major downshift at this time.
spk06: Okay, that's helpful. Thanks. And then in line with some of the efficiency improvements and increased cultivation, you did talk about some of the puts and takes on gross margins, which are appreciated. Is that mostly related to the cultivation improvements? Is exiting Michigan a factor there? Is there a way we can kind of peg maybe a normalized number at this stage or moving forward?
spk01: I think exiting Michigan was an anomaly. Michigan was a drag for us. We had a series of events in Michigan prior to my arrival. We gave it one more good try. the Michigan market is too volatile to be competitive in in the situation we were sitting in. So an exit was the right answer. I think everyone sighed relief in the markets when we finally pulled the plug on that. And so if you take that out a little bit, I think what you're going to see is Q4 will be normalized. And again, a lot of the low-hanging fruit on efficiencies now, we've realized that. And so I think we're starting to settle in now. You know, there are There are a few more things we can do, but we're kind of getting to the top of the improvement pyramid as to those efficiencies. So I think what you're going to see out of Q4 is really going to be the normalized scenario for us.
spk06: Okay, perfect. Yeah, so I think I've sort of at a high level have heard a lot of things on this call that I didn't expect to hear in a good way, and that's great as it relates to you mentioning that the low-hanging fruit has been addressed and is sort of behind you, and then talking about the potential greenhouse build, which is really interesting. We spoke about this previously, but I'm wondering if you can just kind of talk about maybe at a high level of your desire to keep growing the dispensary count and whether you feel like you're kind of stuck at this stage, you know, cycling between working on the cultivation growth and improvements, and then trying to build the footprint. And I'm aware of the strategic plan in terms of cultivation improvements and then flipping footprint growth and vice versa. But given where the industry is right now, and your, your guys' competitive position in the state of Florida, And the fact that most operators seem to be actually pulling back on things like expansion, CapEx, M&A, et cetera, it seems like a really attractive time to sort of pivot toward more store growth so you can really sort of press the gas on market share gains. I mean, you guys are finally generating significant cash. So I'd just love to hear maybe what sort of gives you the confidence to maybe make these increased investments right now or any thoughts there would be really helpful.
spk01: So we've come a long way. And in coming from where we were to get to where we are, we learned a lot about efficiencies, and we learned a lot about balance. This company and many companies back in the day were way out of balance. Because we are in Florida, and Florida is our primary revenue producer, we are strictly vertical. And as I said before, in the most strict sense, if you don't grow it, you can't sell it. So because of that, You have to stay in a balanced scenario where you have adequate inventory compression in your stores to drive your sales. And if you get too many stores, you can't feed them. That's where Fluent was the day I arrived. We had more stores than we can feed. We were 12 to 14 hours from truck to the customer bag. That sounds like a great thing, but it was a terrible thing because the company was in constant volatility as far as inventory and demand. So staying in balance is very important to me. Right now... we will continue to increase cultivation output based on the realization of an annual realization of what's already in place. Let me tell you that specifically. When we finish Q4, we will only have two crops coming out of Polk City. Polk City's 24,000 square foot greenhouse. And so because we brought Polk City online mid-year, it will only have two harvests in all of 22. So 23, Polk City is going to realize it's full harvest ratio, five and a half harvest. Same thing with what we call new Tampa. It's about 8,000 square foot of high quality flower. Its first harvest was only in October. And so only in this last part of the year did you see any benefit or contribution from that. So those two facilities coming into full production rate and giving a good annualized contribution are going to cause growth in 23 anyway. So now I need to make sure I have the stores online to fully realize that potential. And that's why I've picked, in addition to the four, the next three are already ready for citing. If I cite those three now, we get those cited in the next few days, we're looking at August, September of opening those stores, if everything goes right. Once those stores are open, maybe up to five, then we're in perfect balance. We will realize the benefit, the annualized benefit of those two new facilities at the same time we're putting the new stores on, at the same time the other four stores are coming up to speed. Because remember, we've got those four to feed as well. At that moment, we are in perfect balance. The company is solid. It's cash flow positive. It's in perfect balance, which is really my goal from day one is to get to this moment. Well, now we've got to grow. And, you know, start low and go slow is kind of the industry motto, and I believe that's the right answer for us as well. We already did the over-expansion and the over-horizontal expansion game, and that was no fun. And pulling back from that was a tremendous effort. So let's just grow in sequence and grow in balance. To grow in balance at that point, you don't need more stores. You've got to feed more stores. So you've got to go back to the other end of the stream. Our prior investments on the middle segment, which is manufacturing, extraction, and packaging, and labeling, all of that, is still capable of handling more cultivation in feed. Think of it as three distinct silos. And so we have the manufacturing segment, which still has plenty of capacity. I can add about another 70,000 square foot of cultivation into that facility, and the manufacturing facility will handle it. My stores are now balanced. I'll go back to cultivation, get the cultivation up and running, move that cultivation through the stream and then i can open up more stores that cultivation ad that i mentioned to you allows me to go to 42 stores just by math if you guys want to know it at 42 stores with the additional cultivation that puts us as we're number six in the state right now that puts us the number three in the state um so that's the plan uh it's not even a secret plan anymore because i just told it to you
spk06: All right, well, yeah, you hit on the key things I was looking for, and I really appreciate all the tremendous color. Thank you for taking my questions, and keep up the great work.
spk02: Okay, take care, Adam.
spk03: As there are no further questions on the phone lines, this concludes the question-answer session and today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.
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