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Operator
Ladies and gentlemen, this is the operator. Your lens will be placed on... Your conference will begin shortly. Until that time, your lens will again be placed on hold. Thank you for your patience. Again, ladies and gentlemen, today's conference is scheduled to begin shortly. Until that time, your lens will again be placed on hold. Thank you for your patience.
spk06
I've been around a while I know wrong from right Not a long time ago Things ain't always black and white Just like you can't judge a book By the cover We all got to be careful How we treat one another Skin deep Skin deep Underneath We all look the same Skin deep Skin deep Underneath, your world looks the same A man in Louisiana never called me by my name He said, boy, do this and boy, do that. But I never once complained. I knew he had a good heart, but he just didn't understand that I needed to be treated just like any other man.
Operator
Good day and thank you for standing by. Welcome to the Greensum Industries first quarter 2021 earnings call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to Ms. Jennifer Dooley, Chief Strategy Officer. Please go ahead.
Jennifer Dooley
Thank you, Lee. Good afternoon, and welcome to Green Thumb's first quarter 2021 earnings call. I'm here today with Founder and Chief Executive Officer, Ben Kovler, and Chief Financial Officer, Anthony Georgiadis. Today's discussion and responses to questions may include forward-looking statements, which are subject to various risks and uncertainties that could cause our actual results to differ materially from these statements. These risks and uncertainties are detailed in the company's report filed with the United States Securities and Exchange Commission and Canadian securities regulators, including our quarterly report on Form 10-Q, which we expect will be filed tomorrow. This report, along with today's earnings press release, can be found under the investor section of our website. Greensum assumes no obligation to update or revise any forward-looking statements to reflect events or circumstances that may arise after the date of this call. Throughout the discussion, Greensum will refer to non-GAAP financial measures, including EBITDA and adjusted operating EBITDA, a reconciliation of non-GAAP financial measures to the most directly comparable GAAP measures, is included in our earnings press release and SEC and CDAR filing. Please note all financial information is provided in US dollars unless otherwise indicated. Thanks, everyone, and now here's Ben.
Lee
Thanks, Jennifer. Good afternoon, everyone, and thank you for joining our first quarter 2021 earnings call. Since we were together less than two months ago, I will keep my remarks relatively brief and relevant to what we see ahead in 2021. Strong momentum in our business continued into the first quarter of this fiscal year. Following a solid fourth quarter in 2020, our first quarter revenue grew almost 10% quarter over quarter to more than $194 million, or a 90% increase year over year. We posted our third consecutive quarter of positive GAAP net income of $10 million, adjusted operating EBITDA of $71 million, and free cash flow from operations of $40 million. We are pleased with the quarter, but we know we are building something for the long term. Today's cash balance is over $300 million as a result of our successful debt raise, which followed the first quarter's equity raise. This puts our balance sheet in excellent position to play offense. We're off to a very strong start in 2021, and we're even more excited about the opportunity ahead for the balance of the year. We have said it many times, but it is worth repeating. We believe cannabis is the next great American growth story. Many of the classic American themes over the last 250 years exist in the story of cannabis in America in this century. We believe things are changing in America and Green Thumb is well situated to take advantage of that change for our stakeholders. Rest assured, as large owners of the business ourselves, we are aligned with shareholders. As we look at a map of the U.S., we see a lot of opportunity. Top of everyone's mind is the position in New York and how we will leverage the adult use opportunity. In a full-circle moment for the industry, Green Zone is turning a former federal prison that once incarcerated people for cannabis into our New York cannabis facility. We see this as a self-contained economic stimulus package fueled by the demand for cannabis. When completed, it will create hundreds of jobs, generate a lot of tax revenue, enable well-being, and continue to remove people's assumptions on cannabis. In New Jersey, we are expanding production capacity. We have two open stores in Paramus and Patterson and a third store opening in the coming months. This is in addition to the potential along the East Coast in places like Pennsylvania, Connecticut, Rhode Island, Maryland, and Massachusetts, to name a few. Tourism is coming back to Nevada as Americans crave experience and connection. Our Cookies on the Strip grand opening this Friday is well-positioned and nicely timed. At the end of this week, we'll be on the Las Vegas Strip with Berner and the Cookies team to celebrate. We anticipate a lot of excitement with this flagship opening. Looking again at the map, while it became common sense in 2020 to say cannabis is essential, There is still a large part of the country that does not have access, but this is changing. In April, Virginia became the 16th state to pass adult use, and just over a week ago, Green Thumb announced the acquisition of Dharma Pharmaceuticals. Dharma operates a cultivation facility, one dispensary, and was a first mover in the Virginia market. Following the close, this license gives us the ability to open five additional stores. We are bullish on cannabis demand in the Southeast. Our track record in Illinois serves as a roadmap for how to capture the opportunity ahead. Our business strategy has not changed. We enter highly desirable markets with large potential and then open and scale through methodical execution and a focus on the consumer at the right time, the right price, and with the right products. That means we open retail stores, cultivation and production capacity at the pace to support the market, which takes careful planning and capital. Most importantly, we listen to what our consumers want. Our core objective has always been to be a leader in cannabis products that create real relationships and real experiences with the consumer. We believe it is fundamental to our long-term success. It has always been about quality over quantity for us, and this has never been more important than it is today. We are seeking high quality at scale, delivering the best, safest, and most exciting products to people. We are pleased with the momentum of the P&L and the revenue contribution from retail and CPG production, which we expect will continue to accelerate. The beauty of creating high-quality, honest, trusted products is several-fold. First, great brands and products drive people to stores, whether it's our dispensaries or others. Riddle's Brownie Scout flies off the shelves, and dog walkers are sought after by name. Second, there are so many ways to continue to grow our portfolio through form factor, flavor, and experience. A recent example is our introduction of Snoozeberry under the Incredibles brand which was specifically developed to help consumers looking for a better night's sleep. We have a robust innovation pipeline across the portfolio, and our team is always looking for ways to delight the consumer with new ways to meet their specific well-beings or through creative partnerships. Last quarter, we announced our partnership with Cannes, California's number one cannabis beverage. We are excited to expand our beverage offering, and we'll begin to roll out Cannes across our markets. We lost 10 in Illinois ahead of 420 to an awesome reception by consumers seeking an alternative to alcohol beverages. We are pleased with the consumer momentum and believe this is a glimpse into the future. For those of you 21 and over and in Illinois, give it a try. You can do it. We have a lot of growth in the portfolio by leveraging our current assets. And based on market conditions, M&A can be an attractive option. I'm not talking about acquiring trophy assets, but rather opportunities for geographic reach, our brand portfolio, or our infrastructure. At the end of the day, Green Thumb is an execution-driven, consumer-focused, results-oriented team. And that high standard puts guardrails around all of our decisions. As I've said many times before, everything is on the table if it makes sense for our stakeholders. And while we're in a fortunate position to have a strong balance sheet, you also know that every dollar we invest must have the potential to deliver strong returns for you, our shareholders. With that, I'll turn the call over to Anthony for his financial review and always engaging commentary. Anthony? Thanks, Ben. And hello, everyone. Welcome to what is now our 12th earnings call as a public company. As Ben just highlighted, our team delivered record first quarter financial results. generating $194 million in top-line revenue and over $71 million in adjusted operating needs of GA. Total net revenue grew 10% quarter-over-quarter, with gross CPG and retail revenue both growing by 8%. As a reminder, the difference between gross and net is in our company revenue. The key drivers to our continued strong revenue performance? First, strong and growing demand for cannabis. When we are seeing an upward trend in cannabis consumption across the country, there is no doubt that this is particularly true in the markets within which we operate. The strategic bets we placed several years ago appear to be paying dividends. Second, our CPG product portfolio. We are cultivating flour and producing products that people are choosing to buy with their hard earned dollars. Our efforts on facility design that focuses on quality over quantity as well as our product strategy that leads with the consumer, is starting to establish true differentiation in the market. Third, execution. This boils down to a few simple concepts we live by here at Greenline. Number one, do what you say you're going to do. This holds true in our daily lives, whether that's consulting with patients, consumers, or making an internal commitment to another teammate. Two, let's go the simple route. particularly to start. This business and industry has enough complexity already. Third, to break the team. We've said it before, but our team is our greatest asset. We have passion, a thirst for knowledge, and a competitive spirit that runs through all of us. Said differently, we like to win. Back to financial speed, in addition to strong top-line performance, the company continues to post robust gross margins, with Q1 coming in at 57%. I know folks are probably tired of hearing me say it, but our intrinsic goal is to keep this metric at or above 50% over the long term. On the SG&A side, excluding DMA and stock-based comp, normalized operating costs total $42 million, a $4 million increase of $38 million because of last quarter. A key goal of ours for this year was to build the company's infrastructure. So I would anticipate our gross SG&A spend to continue to increase in the coming quarters. Total labor expense in Q1 approximated $9 million, largely driven by non-cash charges and interest in war expense associated with our senior debt. As a result, the company generated over $71 million in adjusted operating UTA, close to 37% of revenue. In addition, we generated over $10 million in net income, our third consecutive quarter of positive EPS. On the capital front, We continue to manage our balance sheet in a way that maximizes operational flexibility. For you basketball fans out there, it's our version of the triple threat. With a sizable cash balance and positive cash flow from operations, we have the ability to buy, build, or sometimes our favorite move, do nothing. None of the $156 million of equity we raised in February, we ended the quarter with over $275 million of cash. As you work your way down our balance sheet, you see the following. Low relative accounts receivable, approved inventory balance, and a payable number of sub-$10 million for the first time since 2019. For you technical accounting folks, that puts our current ratio on the loose. So if we went to quarter end, the company completed a $217 billion self-conducting debt raise, adding over $100 billion of net cash to our balance sheet and an industry-leading interest rate. The Bank of Grossman cohort continues to create substantial value for shareholders. And their feed is 0%. The amount raised is fantastic. On a pro forma basis, the company has an excess of $300 million in cash.
Jennifer
We couldn't be more excited to put these dollars to work as we aggressively invest in our market to advance significant regulatory change.
Lee
And while we are proud of our first quarter results, we can't help but focus on the future. As we tell each of our new buyers, We're still in the very early days of this industry. So buckle up, hang on tight, and remove all assumptions. In the meantime, for all of our stakeholders, we will continue to run our map to map and execute our growth plan into a title waiver demand for U.S. cannabis. Back to you, Ben. Thank you, Anthony. We are off to a great start and excited about 2021. We've spent the last few years building a strong foundation brick by brick, and our position today is stronger than ever. As the green wave continues to sweep the country, there is more optimism around state and federal legislation. It is still day one at Green Thumb, so we'll keep taking a hard and fresh look at every opportunity to strengthen our business and to find innovative and new ways to delight our customers on their journey to well-being through cannabis. We are very privileged to participate in this industry. It is one of the fastest-growing industries in America today and has the ability to drive meaningful social impact, which we are firmly used to. We continue to donate first-day profits to every community where we open a new store. We have expanded our dog walker donation program to include the Bailey Legacy Fund to support animal rescue organizations. In our home state of Illinois, we have been advocating to get Illinois' social equity program started and look forward to the potential lottery for new dispensary licenses soon. The delay in the licensing process has created substantial financial burdens for social equity candidates, many of whom have been hardest hit by the pandemic. Hopefully this process is beginning to move forward in Illinois. And in New York, we believe New York can lead in this respect by starting adult use on January 1st, 2023, not only with the incumbent operators, but also by issuing new licenses in a timely manner to new licensees who, per the law, shall be heavily weighted towards social equity entrepreneurs. Finally, We are committed to outstanding corporate governance and are especially pleased to welcome Swati Malibar-Mumbu to our board of directors. Swati is a trustee of the Rhodes Trust, a world-renowned educational charity that supports exceptional students to study at Oxford University. She is also a board member for Vote.org that aims to increase voter turnout and strengthen American democracy. We are clearly aligned on our core principles. In closing, your company is stronger than ever and committed to becoming better every day. With that, we welcome your questions.
Operator
At this time, if you would like to ask a question, simply press star 1 on your telephone keypad. Again, to ask a question, simply press star 1 on your telephone keypad. And in the interest of time, we would like to remind participants to limit their questions to one question and one follow-up question.
Lee
All right, we're ready.
Eric Delaurier
Cue the drum roll. We got friends.
Lee
Anybody there? We saw them.
Operator
Yes, hello, presenters. I'm here. Your first question comes from the line of vision. Azra, your line is now open. Please go ahead.
Jack
Thank you. Good afternoon. My first question, Anthony, is for you. It's a little bit more of a housekeeping item. Thank you very much for the commentary around your expectations for continued growth in SG&A as you invest behind the business. Can you please clarify whether you're talking about SG&A in absolute dollars or as a percentage of sales?
Lee
Great question. Vivian, hey there. Thanks for listening. So I was referring to gross spending dollars, not percentage. We'll see how much we can grow the top line, but we anticipate over time kind of maintaining nice operating leverage within the business. But I think the gross estimated dollar spend, we could do an increase over the coming quarters.
Jack
Understood. That's very clear. Thank you for that. And then my follow-up question, Ben, is for you, and it's a little bit more of a strategic one. Clearly, on the flower side of your business, Brownie Scout has been a home run. We've been hearing about that for a number of quarters now. I recognize that the U.S. business and the way you guys run your business is very, very different than Canada, but One of the kind of unfortunate learnings out of the Canadian marketplace is that consumer preferences in terms of flower strains can pivot, and pretty quickly, or at least it seems like it caught some of the Canadian operators off guard. So I'm just curious, how do you guys keep your finger on the pulse in terms of strain preference? And then if you could offer any kind of –
Lee
sense of the the percentage of your overall flower sales that brownie scout accounts for that would be helpful thank you sure uh yeah great question and insightful and you're right uh you know taste evolved and strains evolved and things like that so we're very heavily invested in uh Breeding, evolving the strain portfolio, and delivering for consumers, essentially, the best strains around. And so while we don't talk about a lot of the other strains out there, whether it's the Sativa portfolio, Jack and Orange and Sour Diesel, which right now are just doing great, or the White Durban that we recently released in the East Coast, there's a lot of great things in the portfolio. We'd just like to talk about one since it does so well. In terms of the percentage of revenue, it's not huge. I mean, not a significant piece. that I even know it offhand. We certainly want more. Consumers want more. Certainly the effect for the medical patient and for the relaxed effect of the indica that it delivers is one of a kind. That's why it stands out. But we're not betting the company on any single strain. It's nice that the Canadians took the market to realize it, but California could have told you that for the last couple decades. Strains matter, and the genetics matter, and it's a very important nuance in the space.
Jack
Okay, great. It's great to know you're not materially over-indexed to that one strain. Thank you very much.
Ben
Sure. Thank you.
Operator
Thank you. Your next question comes from the line of Matt McGinley. Your line is now open.
Jennifer
Thank you. On the CPG business, it looks like the gross value of product you sold in wholesale increased nicely sequentially, but the amount you sold internally decreased modestly. And I would hope that you sell the product in your stores that the customer wants and not necessarily what you produce. But is there a geographic factor or something with product mix that would have caused that sort of mix shift or slight decline in product that you're selling internally?
Lee
Hey, Matt. Anthony here. You know, it was relatively flat, actually, kind of quarter over quarter. But, you know, given kind of the nuance, once you unpack that, there's a lot going on within each of the state markets that we operate in. It's really not a number that we kind of target or manage towards. It's one of these natural evolves within the business. And so, you know, while we didn't kind of see our company kind of revenue grow at the same click that we have historically, We don't read too much into it, just based off of what we're seeing within the state markets themselves.
Jennifer
OK. On the capital raising and cash balances, between the equity raise and the debt, you brought in over $250 million year-to-date, and you've proven you've been able to generate cash, and I would expect that that would only improve. But even as you spend more on CapEx and if you did a lot more M&A, almost all the deals we've seen this year, including the Virginia deal years, is very heavily related to equity consideration. So The question is how much cash you need to run this business, and are we reaching the point with the company or the industry where you just sit on bigger and bigger balances because you don't know where you may need to pivot next, kind of like a tech company where they just sit on these big balances and you don't know when they may deploy them if they'll have these larger balances. So just holistically I'm thinking, like, what's the right amount of cash that you need to run this business and thrive?
Lee
Sure. Thanks, Matt. It's been, you know, it's not an exact science. We sleep really well with a fortress-like balance sheet and cannabis being federally illegal with the lowest cost of capital, even against others, you know, in federally legal domicile locations. And we think the opportunity is immense. So we're seeing annualized numbers crossing $20 billion. We see the number going way over $80 billion. And it would make a lot of sense to have the capital on the balance sheet when investing aggressively into the business. I mean, look across the state opportunities. Illinois, Ohio, Pennsylvania, Maryland, New Jersey, New York, Connecticut keeps going. All of them have significant growth based on the size of the market, even if you take your conservative assumption and cut it by 20% or 30%. So we're not really managing the business to an amount of capital, you know, the cash equity split. People want to own our stock. We're flattered by that. We're happy with that. We don't want to give it away. Obviously, it's the treasurer here. But we're comfortable with, you know, the share count we've got. We're managing that carefully. And we believe we can create very significant accretive value on whichever part of the income statement you want to measure and put a multiple on through the M&A. Otherwise, we wouldn't do it. We would double or triple down on the business, which we're doing as well. So we like the cash balance. We don't know where the capital markets are going. Sure, one day listing and SAFE and other things are going to happen and it will change, but the business is pretty fantastic currently, and we want to continue to invest in that. And I haven't thought for a moment that we have too much cash given the current situation.
Jennifer
Okay. Thank you very much.
Lee
No problem. Thank you.
Operator
Thank you. Moving on, your next question comes from the line of Eric Delaurier from Craig Common. Your line is now open.
Eric Delaurier
You're right on another impressive quarter here.
Graham Trainler
So a bit of a follow-up to Matt's question here. He has done a great job lowering cost of capital through these non-brokered institutional capital raises.
Lee
And yet at the same time, you're cannabis stocks in general continue to be negatively impacted by the significant capital and trading restrictions. So I'm just wondering if you could provide some color on the type of institutional demand that you're seeing beyond the public markets here and whether you're seeing any broad changes in compliance risk appetite, whether institutions are shying away or warming up to the idea of taking on U.S. cannabis exposure. Yeah, I'll take that. That's a great, insightful question because that's really part of the core issue here. I would say, you know, for folks that are putting their name in press releases, there's more attention that things are not simple. However, what you've seen Green Thumb do literally in every single raise is bring new capital into space. and that you know us and others do too. We are literally bringing in the capital on each one of these rates. It's not out of other cannabis companies, but new, high-quality, long-term, aligned with management, institutional capital. And that's where the supply is going, and we're bringing it in. But it's a slow movement. There needs to be more clarity. Things are very gray, whether it's custody, prime broker, different relationships. You still can't buy the stock on Robinhood. CNBC still doesn't cover it properly or talk about it. You know, it's a very tricky situation. I think it continues to be the PMs and the investment analysts are unbelievably excited and cannot, those who see it, are sort of surprised by the, whether we call it structural irregularity or market inefficiency that seems to be sort of in slow motion. at a time when the business on the ground, bottom-up, is in accelerated fast motion, and in fact, accelerating. I mean, you had New York, you had New Jersey, you had New Mexico, and there's more and more happening, and now you've got Georgia, and hopefully you can issue these licenses, and Virginia just legalized it. maybe Mississippi, and there's talk in other places. So we see an absolute dichotomy between the capital market, the efficiency slowdown, and the on-the-ground acceleration. So that's why we want a business with tons of cash, very, very aligned shareholders, and we're bringing in new capital. I can't speak to the other companies or the other countries or whatever else is happening. People are doing it intimately. Not everybody – it's not a one-size-fits-all situation. We're building a business for the long-term for shareholders, investing capital into a market opportunity in the U.S. that we think is somewhat unprecedented. You know, we're fired up about it, and we're aligned with the shareholders. So we're not having a hard time bringing the right kind of capital. We feel very sort of privileged in the spot we're in. But I think broadly the capital markets are in their nascent, nascent stage.
Jennifer
Okay, great. That's helpful. Great color there. And then as a bit of a follow-up, with that cash balance being the largest it's been and you guys continuing to increase your cash flow generation, could you just provide some insight or some color on sort of how you guys decide whether to sort of increase the scale of your projects or –
Lee
uh sort of spread that that cash around and start to take on uh new projects new geographies maybe some smaller scale projects can you sort of help us understand um how you guys think about that trade off there thanks yeah we think about it like um i mean this is the ultimate game right the capital allocation and how we put capital where we put it in and what kinds of returns for what the business is going to be when and what the board will look like And it really is kind of a multi-dimensional situation with lots of different states and markets and things. So we look at our cards. Fortunately, you can see everybody else's cards. And we make the bets based on the most basic principles possible. I can't remember if it's this call or another one where we talk about forces of formula or the Kelly principle about how you make bought-out bets. And the way we think of our wagers on behalf of shareholders is that it's our money. These are chips. And we're pointing at a table where we're trying to take one plus one to make four. We're putting 100 to create 500. And the simple math of, you know, make it up to say $100 million investment to create $50 or $75 million of EBITDA, and whatever multiple you think the market's going to trade the EBITDA at, $20, make it up, there's $1.5 billion of market value creation. Where can we put that under to work? Well, guess what? There's many, many places we can put it to work, because there's tens of millions, in fact, over 100 million Americans who are really, really interested and want that demand for the product. So it's about as simple of a setup as possible. So we just want to play where we have the highest probability of success. based on the chips that are out there.
Operator
Yes, all right. Thank you. Moving on, your next question comes from Camilla Lime from BTIG. Your line is now open.
Graham Trainler
Thank you. Very nice quarter, guys. Congrats. particularly in light of how difficult February was. So I'm curious to know, after putting up a, call it a 10% sequential growth in Q1, what was the exit rates coming out of the quarter relative to that 10%? And any color that you could share as to the momentum that you've seen thus far into Q2 would be very helpful.
Lee
Yeah, it's a great question and insightful. I would say when we sat here, we were literally in the same seat in, I think it was March 17th, Wednesday, St. Patrick's Day, the day the stimulus checks came out. The business heard from others who've seen it in the data. Things changed in the back half of March as the market woke up. So I wouldn't say that it elevated above until it caught up. through February being low. Take the Illinois market data, you know, 88-80 in the back popping up above. You can see it state by state, and you really track the state data to show it. So I think your run rate exit is more a first-quarter flat situation versus some kind of dramatic acceleration. 420 tonight's holiday and everything, but, you know, under the coverage, usually March is a little stronger than April. Not going to be done specific, but look at the markets. Just every state gives you the data, and you can see that. So material change really in price. And for Green Film's purposes, we have more steel coming out in the back half of the year. We talked about that towards the end of the year, particularly Illinois on some things coming at the beginning of 2022.
Graham Trainler
Thank you, Ben, for that. And that actually leads to my second question about your back half expansion plans. If you could just remind us what projects are coming online in the second half in the states, that would be very helpful, and how we should think about the really robust margin that you delivered in this quarter, understanding what you said, Anthony, about maintaining kind of like that 50-plus sort of baseline. but it really seems to be it seems to be that as more cultivation and harvesting comes online particularly in the back half you have an ability to at least maintain the starting point of this 57 margin rate um through the balance of the year if i'm thinking about that incorrectly please you know correct me where i'm wrong and i think that's right you know on the ground what i would say is like anthony's mentioned we'll kind of
Lee
We're not targeting at 57. How do we get it to 59? Where do we have to trim? Instead, we feel like we're comfortable with where the gross margin is. Instead, we're more like 50. And we're okay investing into the business to scale this thing. We think there's a lot more production coming simply because there's a lot more demand. And if there's a lot more demand, people want a lot more of our products. We've got to be thinking about it in that way. So we're very comfortable making investments in the business that if it means the margin goes down, fine. It's not a core focus. So we're trying to build the infrastructure that really gets the SG&A line more with the revenues accelerating. And the growth margin, you know, scale is an amazing thing. And also you start to work on yields and you start to see real details. And, you know, sometimes we don't talk about the exact details inside the business, and that's not a coincidence because we're really working on that. We believe we have a national model. We believe we can bring premium indoor flowers to consumers across the country who want it. It's as basic as possible. And there's more upside to go. The next quarter, I don't know. But in 2023, 2024, where this business is and the scale we have based on the capital we're putting in, based on the demand we see, and just make it up New York and Virginia and New Jersey. That's as big as Canada alone. I think there's maybe only 30 or 25 licenses there currently. And it's only a first mover, and then we think there's got to be a lot more people in the industry, and there's got to be access to capital, and hopefully, you know, PC gets around to doing a few things. But, you know, it sets us up pretty well.
Graham Trainler
Thanks very much. Good luck.
Lee
Sure. Good question.
Operator
Thank you. Your next question comes from the line of Michael Avery from Piper Sandler. Your line is now open.
Lee
Thank you. Good afternoon. Just wanted to follow up a little bit. The industry certainly is an accelerating point with so much legalization momentum and your balance sheet obviously sets you up really well. Can you just give us a sense of how you're thinking about CapEx and any ability to quantify what to think about for this year and maybe arrange for something for 2022? Hey, Michael. Anthony here. I'll take it. So in 2020, kind of the gross spend ,, which is kind of before the ,, we spent about $113 million last year. Q1, our gross spend was about $32 million. So I would anticipate our gross cap-back spend this year to certainly be greater than it was last year. As you know, we're not the great device talking specifics, but with the balance sheet that we have and the markets that we have and the regulatory change that's coming, we're going to lean in pretty aggressively, as I said in my standard remarks. So now I would anticipate that Q2 through Q4, the capback should accelerate from that 32 number. Okay, that's helpful. And a somewhat related follow-up, can you – Chetron, obviously you've got the debt at 7%, which is by far the best cost of capital among any in the industry. But can you just give a sense of, you know, is there still improvement from there? Is this kind of where you expect to stay? You know, what would it take for that to move the needle again? How do we just think about, you know, what settles into sort of a, you know, maybe baseline type run rate? Yeah, I mean, for our purposes, debt's not a thing you can just play around with based on the day where the pricing is. For us, it's more alignment with the debt providers, where we think that costs the capital. Look, on your end, I talked about 6%, but 7%, you know, if we could get 5%, we're not really looking to rebuy quickly. The way the structure is for us, on our balance sheet, it's three years. We have an option for a fourth year. We think the next time we rebuy is when we're exposed to the sort of more normalized capital markets. We've been told the business performance in the P&L looks investment-grade, and if you look at U.S. investment-grade, you're sub-4%, 3%. If you look at the debt characteristics of the business, a trailing 12 months is like one times EBITDA plus or minus. And even if you say the taxes are wonky, then it's two times. You know, we're pretty much under levered for the growth we see. So we sleep really well with it, and we just like where we are. You know, certainly more interest, we can flex it up to $250. We don't need to pay the interest on more cash sitting on the balance sheet. It just doesn't make a lot of sense. We have a year to fill out the rest of it. We have the opportunities. I think I'm hopeful for everybody else in the industry to be able to continue to drive down that cost of capital also. That should happen, but the capital markets are thin, as we've all seen. So we like our position. There's no need for us to get the equity, get the debt, and now we're going to work. We did the same thing in 2019. People were a little surprised it happened in 2020, and we plan to be back in 2023 talking about where the world is with cannabis. That's really helpful, Kohler. Thanks so much. Sure.
Operator
Thank you. Your next question comes from the line of Aaron Gray from Alliance Global Partners. Your line is now open. Hi.
Aaron Gray
Good evening. Congrats on the corner. Thanks for the question. Um, so first, hey, how's it going? Um, so first question for me is a little bit around, um, you know, M&A, uh, you know, great CV acquisition, uh, you know, in Virginia with Adolius coming online there in the next couple of years and flower starting, but would love to get your perspective in terms of, you know, how you think about, you know, potential, uh, additional M&A, particularly through the lens of the chance of there being some changes to the federal level or your thoughts on that. There's been some peers or others out there who have started to make some moves in anticipation of there might be a change at the federal level and how you guys think about that in the near term in your acquisitions. Thanks.
Lee
Sure. This is Ben. So M&A, look, I mean, at the high level thesis is everything's on the table if it makes sense. We've said that for a while. We're pretty aggressive in knowing what's going on in the space. We're very U.S.-focused. We think the action is here in the United States. We think this is an American story. And we think that as the U.S. executes as an industry and a country, the world will want what we have. Capital markets and supply demand are pretty efficient here. So we're comfortable with that. You know, if you just look at our history, we raised debt, we invested in the business, we're looking at what's happening in the cycle of capital markets. The fun part about cannabis is it's at hyperspeed. So we've had peaks and famines and ups and downs and you know, we're comfortable with that. I would say that you should look for us to do M&A that's accretive to shareholders based on the exact pieces we've talked about. So whether it's going to be an enter, like a Virginia, or a scale, like, you know, whenever the last year we bought a store in Connecticut, it just scales the business. And others could teach it plays like that. We've been active for five, six years. Sometimes, like Anthony said, we do our favorite, which is do nothing. And sometimes we do a lot. think we're following what's going on in U.S. cannabis pretty carefully, and we think we understand what's going on on the ground, and therefore, you know, gives us a little bit of an edge with information by which to make decisions, whether that's data-driven or personality-driven or legislatively-driven, whatever, that that's the recipe by which we use. Last on your point, You know, that's all part of the board that we see about how to vet where it's going. The business is very good under the current situation. So I'm not likely to put a lot of capital into something that might happen later. We like where it is right now. We think there's opportunity to change, not threat. And we're excited about that. We want to play a lot of offense. But at the moment, we feel tens of millions of Americans want cannabis and don't have it. So we need to make it really fast, really good. And that's what we're up to.
Aaron Gray
Great, thanks. That's a super helpful caller. And then second question for me, so just given your strength and balance sheet, you know, We've talked about Florida, you know, a couple times, you know, more recently. Obviously, there's been some action there in terms of acquisitions this year. You know, hasn't been a ton allocated down there for you guys. We had some other high-priority states. But just given, you know, your strength and balance sheet, you know, you've often talked about you like the market, you know, longer term. So does that kind of give you some, you know, capital to maybe put towards that market and look to grow there, especially with the potential of, you know, those being on the ballot there in 2022? Thanks.
Lee
Yeah, I think that's insightful. Yeah, as we have more cash, exactly right. We looked at it through that lens, and that would lead you to think that conclusion. And, yeah, we're not going to just sit with a lot of cash for a long period of time. We've seen 20 million Americans who have a high interest in a very nice market, people who have done a very good job down there. So it's an interesting market, and we're studying it. All right, great. Thanks. I'll jump back in for Q. Sure.
Operator
Thank you. Your next question comes from the line of Pablo Duranic from Cantor Fitzgerald. Your line is now open.
Cantor Fitzgerald
Ben, can I ask about, I understand this is a growing industry and you have a lot of levers, but the 2% same-store sales grow sequentially. Can you help give some context around that number? I mean, I could interpret it as Pennsylvania, maybe too many stores. I know that market is growing, can go wreck eventually, but Or other states, you know, Illinois, new stores have opened only recently. I'm surprised about the 2% same-store sales number. Can you give some context around that, please? Thanks.
Lee
Sure. I can start. We don't see any issues in the business. There hasn't been any major new turn-ons or things like that, whether it's adult use or new store openings or conversions that sometimes give tailwind there. You know, the thing I would do is look at state over state, you know, what's happened fourth quarter to first quarter, first quarter over fourth quarter by state. We don't see ourselves giving up a lot of market share. These are the ebbs and flows of the market. First quarter was pretty slow until March 17th. Like, no doubt about it, February was pretty rough in the country. There was four days of snow, and I think, like, Ohio, Pennsylvania, and New Jersey had multiple feet in snow, and nobody wanted to go out, and the store wasn't open every day, and it's a 28-day month. So I don't see any real read-through there. March came strong, but it is 2% on 48 stores. The other big thing is it's a big base. So the numbers, you now have a comp base over a year of 40 and a sequential of 48. So you're not moving the needle, you know, 48 stores, 30% across 10 states. That's tough. The business is much bigger than it was before in terms of the amount of retail business we're doing on a daily, monthly, quarterly basis. I mean, it's a big barge and big market share, yet the market's going to quadruple in front of all of us.
Cantor Fitzgerald
Right. Thank you. And then just to follow up on New York, how are you thinking about the potential there to open, you know, to have eight medical stores? You have a view on that, timing? And your views in terms of when the state can start selling flour, if you have some insights on that. Thank you. On the medical side.
Lee
I can take that also, Ben. Look, within New York, there's an awesome market. We've made the structure of the market set up well, and now it's about execution. We've seen a good intent draw, stumble in execution. Illinois yet still has a chance to emerge successful. We believe, to just put a dart out there, that 1-1-23... January 1st, 2023 would be a date that New York could open adult use. And they could do such where it's not the current incumbent of which GTI is one of them only, right? No grandfathering. And then instead, based on the timeline and based on the laws and the commission and all the things that New York's doing, and they're pretty focused on doing a nice job, they could get new licenses and applications. And those licenses would have a focus on social equity. And day one, You could have new people enter the industry, new entrepreneurs with a chance to generate new wealth. We think that's a big part of it. There's no real product rules yet in terms of the market, the law. I think you said, yes, the flower. We've heard others who are really carrying the load, and we're appreciative of that, pushing this forward because obviously the medical patients shouldn't have access to the flower for well-being. It's common sense, yet rules are tough. Regulators are in need of the space. There's a lot of education and hard work that has to go on to bring that about. But in any way, it's likely to be a great market. There's going to be plenty of demand. We'll go for our eight stores, three of which can be dueled and really execute into it. Okay. Thank you.
Ben
Sure.
Operator
Thank you. Your next question comes from the line of Graham Trainler from Ape Capital. Your line is now open.
Graham Trainler
Hi, good afternoon. Thank you very much for taking my question. I wanted to follow up on some of the earlier comments you made, Ben, with respect to the potential setup in the event the market has an interstate commerce element to it. The early days of the GTI story really talked about branded distribution at scale. And I'm wondering if you could elaborate a little bit more. There's been significant ads and diversification across the brand portfolio at GTI. over the last little while. But when you talk about the distribution at scale, how did your potential war chest or your existing asset base factor into a situation where you're looking at distribution coast to coast? You know, the existing... cultivation coming online, you know, that's very much served to expand on the existing state markets and the demand coming on there. But do you see opportunities to leverage any of that infrastructure from a regional basis? Or would this really require some large greenfield type of investment or potentially using more third parties in the supply chain? Thank you very much.
Lee
Sure. Hey, Graham. Yeah, I mean, it's the same story. The truth is there's huge demand within the markets. And like we talked about in the last call, We said on this call, business is very good under the current situation. We think there's an opportunity more than a threat with interstate. Certainly, they need more, but you've got to think about the supply chain becoming more fragmented. There's more opportunities there. We think our brands win with the consumers. Exactly what the supply chain looks like today is not something that we lose a lot of sleep over. We know what the products are. We're going to be able to make them at scale. We're making them at scale in markets that have 12, 13 million people, 20 million people, 40 million people out in California. Those are huge markets. Obviously, there's regionality and there's other things, but there's other models of consumer products that have built these sorts of things. We don't think we're behind in any way, shape, or form. We feel like we're in a pretty good spot and like where we are. I think what's also really crucial is consistency of the product. You can't just make it everywhere and ship it and then you're, like, good to go, especially as you get closer to the flowers. You move further away into the refined products you've done with isolate, it's easier. But the consistency of the product is very important.
Graham Trainler
Understood. Thank you very much. And then just as a quick follow up here, with respect to the acquisition of Dharma in Virginia, there's been some chatter about the potential timing of the start of adult use being brought forward. As that relates to your capital allocation decisions and the CapEx expectations that were outlined earlier in the call. How much of that might get directed to Virginia, or how quickly could you start deploying capital based on what Dharma has built or potential plans that they've drawn up for significant expansion? Thank you very much.
Lee
Sure. This is Ben, but Anthony, don't be shy. What's happening with the legislation, like I said, I think the legislation in state or federal, federal being more so, is a trailing indicator. So we see 8.5 million people that have a huge amount of demand, so we're putting in the pieces in place to serve that demand. We understand it's medical. We understand it's going to wreck. There's a lot of nuances for how that works, but it really doesn't impact the capital decision. If we saw like a do not enter sign and a no chance for adult use, we might change the plan, but the plan is 8.5 million people, billion-dollar-plus market, What's the multi-phase approach? You know, we've done this in many states. We know that consumers are going to want the brand and product, and now we know how to make them at scale. And it's scaled enough at 8.5 million people. You know, we're also thinking what states are around, how does this look, and what happens regionally to your question. But Virginia is a great market. It's a pleasure to see, you know, cannabis coming to an area of the country that really does not have it. I think that's a big deal.
Graham Trainler
Got it, understood. Thank you very much. Sure.
Operator
Thank you. Your next question comes from the line of Andrew Parsons from C4GMP. Your line is now open.
Andrew Parsons
Hi, thanks for taking my questions and congrats on the good quarter, guys. Maybe if I can, you know, come back to the discussion of of dynamics in March and into Q2. Could you talk a little bit about the pricing or promotional environment? You know, people receiving stimulus checks was highly anticipated and wondering if there was a, you know, prior to normal promotion to capture, you know, that strong traffic after a tough January and February. What does April look like? And now what does May look like after the 420 and the stimulus check period?
Lee
Andrew Amity here. I'll take that. So I think what I'm trying to read into the question a little bit. You're essentially asking if we ran promotions in March to combat the softness that we saw in the early part of the quarter. It's really not the case. We continue to just kind of run the business. I'll remind you that one of the benefits for our business is that we still operate in a number of supply-constrained environments. And so even other operators don't have a huge appetite to do a lot of promotional activity. Some of the markets are getting more competitive, but that's just natural evolution. And obviously we're kind of studying that, watching that, but there's nothing kind of abnormal or anything that we did where we had a discussion, you know, sitting around a table saying, hey, we need to do something about this.
Jennifer
So we ran the business, ran the playbook, and, you know, the stimulus checks came in and people did exactly what's kind of been mentioned during our last call.
Lee
They purchased more products. And I think, you know, we probably weren't really beneficiary of that.
Andrew Parsons
Thanks for that. And maybe just talking about New York a little bit more. You know, the regulations haven't been out yet. Within the law, it gives the regulator a lot of power to place any kind of caps or restrictions. And yet, you know, you've already secured your platform for production there. Just curious if you could give us a little bit more color on your thoughts on how you think the regulations will play out, whether you think there will be any production caps, and how your strategy with your production footprint that you've already acquired plays into that.
Lee
Sure. This is Ben. I can take it. You know, we talked about it. I'm not sure how much new news there is. We think there's going to be an immense amount of demand. We want to build the high-quality products we know we can make. We have an aggressive capital spend plan. The state has not issued the rules yet. The committee, you know, they were pretty early on. You can go to the website. We think that's a strong sign. There's a lot of intent to make this work and make it work well, and we're here as a partner to help. Like I mentioned, some of the current ROs are working pretty hard on getting flour out, and we're all kind of in it together, along with the new entrants. So similar to what we did in Illinois with the LEAP program, which is an application assistance program, it's hard to apply for a license. So as we can educate folks on coming into the space, we're going to make the product, have our stores, we hope others can have stores, Like I mentioned, we're going to start on 1-1-23. That's not based on any exact science and zero lobbying. It's just based on what we think would set up well for the industry, for everybody who's invested in this going really, really well. If it's three or six months earlier, three or six months later, you can make it work. But we want to set someone with a pretty lofty goal, like bring others in day one, and we're going to aggressively build what we know how to make. We think that we've had version 1, 2, 3, and 4 and made a lot of mistakes, and hopefully we can not make the same mistakes in New York.
Andrew Parsons
Thanks for that. Congrats again. I'll get back in the queue. Sure.
Operator
Thank you. Your next question comes from Scott Fortune. Your line is now open.
Scott Fortune
I'll be brief. Real quick thoughts on California, Ben. You opened up the Pastina store. I know it took a while, but you're there in color on kind of trends there, momentum, and thoughts around building out California at all.
Lee
Thanks, Scott. Yeah, that's, you know, open. You know, we see a lot of COVID restrictions still going on in California. I think that's opening up. So it's off to a nice start. It's a good momentum, you know, up and to the right, as we say. We'll continue to refine menu, selection, build loyalty in the state. We're aggressively looking at what's going on in California. I think it would be foolish not to, but we're not aggressively spending. Things will make sense or they won't, and, you know, we'll go there. But the places that we mentioned earlier, for aggressive spend are like in the now. Uh, so California, we're watching, we're studying like our position, which is not a lot of capital at risk.
Scott Fortune
Got it. And then two other states, the mentioned like is Nevada and Massachusetts. As things open up here, are you, are you seeing, um, favorable trends from that standpoint? And, and, you know, these two states that like the, the can, uh, investment, um, make sense to move forward into other states outside of Illinois? I think you'll want some other states going forward.
Lee
Yeah, then we see a little difference between Nevada and Massachusetts. Massachusetts remains strong, and they get really transparency into that market. We plan to scale production. We need more of our product there. And we plan to expand retail. Not a mystery. We're sitting with one. So look for action to come in Massachusetts. In Nevada, we see our business has not been heavily leveraged in tourism. So it didn't soften the way it did, and now you see the surge, you know, with 60 going to 80 on a monthly basis, a lot of tourism. Obviously, that's a heavy play of what we're doing with cookies and burner, which we think is great. So we'll plan to play that. But both of those states give you pretty good transparency on a monthly basis. You can come back. Pricing's firm in both states. There's a lot of momentum for our products and others as there's just good growth. both those markets. We have a couple more stores we can open in Nevada. We should have this year one in Reno and one more in the Vegas area, which are in the pipeline.
Scott Fortune
Great. I appreciate the call. Thanks. Sure.
Operator
Thank you. Your next question comes from the line of Andrew Snipple from Excellent Capital Markets. Your line is now open.
Lee
Hi. Good afternoon, everyone, and congrats on another solid quarter. Ben, I think a couple months ago you gave us your kind of priority list.
Graham Trainler
in terms of capital allocation and certain markets where you're looking to prioritize capital spend.
Lee
You know, just given the developments in New York and Virginia since that update, could you kind of slot those in and kind of give us a sense of where those fit in terms of priorities? Do you think, you know, New York's kind of at the top of that list and maybe a little bit more clarity on Virginia? Yeah, I mean, Both of them come in strong tier one capital allocation opportunities. I mean, it's a pretty basic math problem. 20 million people and 8.5 million people. And what's the current market size? Where's it gone? You've seen the movie before. It's called Illinois or Pennsylvania. It's just literally, it's not about anything that fancy. It's about how much product the consumers want. No major red flags in legislation, meaning some structural irregularity or like vertical force or no product or potencies or something wonky. Most of these markets have a pretty set structure for how they're going to unroll. New Jersey right there as well, right? Nine million people are waiting on the rules and waiting for this thing to get going. Huge amount of demand. That's great. And just to follow up, you know, I wanted to ask on the gross margin profile, you know, there's been a very nice trend. The gross margins have been ticking up every quarter since Q1 2020. I'm just wondering on your thoughts on where we start to find the kind of normalized gross margin profile going forward. Do you think we're kind of approaching that level yet, you know, kind of in the Q1 period, or do you continue to see waiting room for that to move higher as you scale your production and cultivation activities?
Jennifer
Yes. Look, it's a great question, but it's a really hard question to answer.
Lee
So, you know, part of the reason is because given the growth of the business, you know, we are –
Jennifer
What we have going on is we're obviously investing heavily on the CPG side of the business. So over time, that should become a greater percentage of the overall business.
Lee
And when you unpack the gross margin, the gross margin at retail is relatively static. CPG is where you can get real gross margin leverage within the business. you know, these sites take a while to kind of turn on and then get to scale. And so what you have is if you unpack the portfolio and you lay them out, you have a number of facilities right now that are achieving scale or call it operating at scale and continuing to refine and get more efficient.
Jennifer
And then at the same breath, you also have a number of facilities that are just now turning on that are not terribly efficient, right? So there's a bit of a drag, I guess, on that gross margin line. So I think it's, you know, I think it's,
Lee
It's difficult for me to sit here and tell you where I think it's going or where I think kind of the true kind of potential is in that line item. And one of the benefits of the business is that with solid cash flow from operations and a healthy cash balance, we don't have to sit here and manage the gross margin to a specific number. We can make bets that we know will pay off in two to three years from now if we've got the luxury of doing that where we have these other states that are operating at scale. And so that puts us in a really nice position. It puts the shareholders in an even better position. And so, you know, I think you'll continue to see us just lean in on the CPG side of business where we know that over time we can get more kind of gross margin leverage. That's great color, Anthony. Appreciate that. And congrats again. Thanks.
Operator
Your next question comes from the line of Mike Kiki from Benchmark Company. Your line is now open.
Eric Delaurier
Nice. Hey, Ben, Anthony, Jennifer. Andy, congrats on the quarter, guys. Two quick ones from me. Just curious how you think about investment or development of cannabis lifestyle or cannabis media assets as sort of an ancillary growth opportunity for you. And then secondly, with your canned beverage product line launching in Illinois, obviously it sounds exciting, but just curious to double-click maybe on the learning there in terms of manufacturing, maybe initial demand in the category potential outside of California. Thanks, guys.
Lee
Sure. Taking the second one first, canned, we're excited about the launch. We continue to see that beverages are not a big part of the category. We talked about off-prem versus on-prem, where all cannabis is off-prem, and we think that's changing slowly. I want to be a part of that. We've made some plays for that. The launch went well. We don't have any major news to share except for the product. It's fantastic. And for those of you that haven't tried it, you should because it's socially dosed. This is a light 2 milligram. You're not going to accidentally drink 10 cans, which would be the equivalent of two gummies. You might accidentally eat two gummies, and that might be over-serving, whereas one can is not going to be over. You could have a half. So bringing in people that don't smoke pot and aren't really familiar with that and don't want to get too messed up or whatever ends up a very, very attractive entry. And it's an instant situation where people love the flavor. It says I've done an excellent job formulating the product, the brand, it works. And, you know, that's what attracted us to it. I'll come to your first question on media assets. Well, I don't know. I would say everything's on the table if it makes sense. We're open. There's a lot more conversations happening broadly. It seems like everybody's interested in cannabis. Here we are with a series of unique assets and perspectives on what's going on. So we're open to lots of conversations. Thank you. Sure. Next question.
Operator
Thank you. And there are no further questions at this time. Presenters, you may continue. Great.
Lee
Thank you, everybody, for dialing in. We'll be back in a few months. We'll see you in Vegas and enjoy the ride over the next 90 days. Thank you.
Operator
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation.
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