TILT Holdings Inc.

Good afternoon, everyone, and welcome to Tilt Holdings' third quarter earnings conference call and webcast. Today's call is being recorded for replay purposes. A replay of the audio webcast will be available in the investor section of the company's website approximately two hours after the completion of the webcast and will be archived for 30 days. I would now like to turn the conference over to your host today, Tilt's head of investor relations and corporate communications, Lynn Ricci. Please go ahead.

Thank you, Matt. Good afternoon, everyone, and thank you for joining us. Earlier today, we issued our third quarter 2022 earnings press release. The press release, along with our quarterly report on Form 10-Q, is available on the U.S. Securities and Exchange Commission's website at www.sec.gov, on CEDAR at www.cedar.com, and our website at www.tiltholdings.com. Please note that during this afternoon's webcast, remarks made regarding future expectations, plans, and prospects for the company constitute forward-looking statements. Actual results may differ materially from those indicated by such forward-looking statements as a result of various factors, which we disclose in more detail in Amendment No. 2 to the Form 10 Registration Statement filed by TILT with the SEC and on CDAR. We remind you that any forward-looking statements represent our views as of today and should not be relied upon as representing our views as of any subsequent date. While we may update such forward-looking statements in the future, we specifically disclaim any obligation to do so, except as otherwise required by law. As of today's call, we are presenting our financial results in accordance with the United States generally accepted accounting principles, or GAAP. During the call, management will also discuss certain financial measures that are not calculated in accordance with GAAP. We generally refer to these as non-GAAP financial measures. These measures should not be considered in isolation or as a substitute for TILTS financial results prepared in accordance with GAAP. The reconciliation of these non-GAAP measures to their nearest equivalent GAAP measure is available in our earnings press release that is an exhibit to our current report on Form 8K that we filed with the SEC and CDAR today and can be found in the investor relations section of our website. On today's call are Gary Santo, Brad Hoke, and Dana Arvidsson. Following our prepared remarks, we will open the call for Q&A. During today's prepared remarks or during the Q&A session, we may offer metrics to provide greater insight into our business and or our financial results. Please be advised that we may or may not continue to provide these additional metrics in the future. With that, I will now turn the call over to our CEO, Gary Santo.

Thank you, Lynn, and good afternoon, everyone. As we near year end, TILT is not lacking in terms of in-flight initiatives, which range from signing new brands such as Coda Signature to launching new products with longstanding partners such as Old Pal, debuting new hardware at this week's MJBiz conference in Las Vegas, or negotiating refinancing that will put TILT on firm financial footing for years to come. At the same time, we continue to put in place the foundational elements necessary to support growth across all of our business lines. And we happen to be doing all of this with an active stock in a market suffering from macroeconomic headwinds, regulatory inconsistencies, supply and demand imbalances, and the cannabis industry that is entering its adolescence. Given the number of distractions readily available, I do remain impressed by the ability of our team to convert external noise into energy that drives execution throughout the organization. A few words regarding that organization. Earlier today, we announced several adjustments within our senior leadership team designed to reflect the demands of our business as we enter our next phase of growth. As we've previously said, and certainly as this quarter's numbers show, while we believe there is still growth to be had across TILT's existing assets, we can no longer rely solely on organic growth to achieve management's vision for the company. TILC will need to become more transactional, as evidenced by our sale, leaseback, and debt refinancing activities, as well as in pursuit of accretive M&A opportunities. We're fortunate to have the bench strength to be able to do that. Effective December 1, Brad Hoke will become our Chief Accounting Officer. Our transition to becoming an SEC registrant that resulted in U.S. GAAP compliance requirements has strained our finance organization. And with Sarbanes-Oxley compliance on the horizon, we need to have a dedicated senior leader focused on implementation and optimization of our accounting function. Since I joined Tilton 2020, Brad's been an incredible and selfless partner. So when he and I were discussing this need, I was not surprised when he offered his services in that capacity. Assuming Brad's former role of CFO will be Dana Arvidsson, with whom I've had the pleasure of working with since the early 2000s when we were both in the finance sector. Dana and Brad already have a strong working relationship, and over the past few months have been discussing how best to improve the capabilities of our finance organization. Dana's expertise in capital markets, debt financing, M&A, and financial planning and analysis position him for success, and together with Brad, we could not have a stronger finance team. Finally, I'm also pleased to announce the promotion of Chris Kelly to Chief Revenue Officer. Chris joined us earlier this summer after previously working at Trulieve, and his contributions since then have been invaluable in helping TILT develop a demand planning strategy designed to help guide our cultivation and production teams as we become more CPG-focused. I am proud of the work that Brad, Dana, and Chris have accomplished to date and look forward to seeing what they can do together as a team in 2023 under this new structure. Before discussing the quarter in more detail earlier today, we announced the extension of the maturity date of our remaining senior notes that total just under 10Million dollars until the end of December earlier in the quarter. We announced a similar year end extension with regarding the closing of the sale and lease back of our Pennsylvania facility. Through a series of ongoing negotiations with new and existing investors, TILT has reached an agreement in principle for a new debt arrangement that, when signed and closed, will allow the company to address not only the remaining senior notes but its junior obligations maturing in April 2023. While we are still working through transaction documents and usual deal mechanics, we look to have all related transactions ready to close at once and believe we will be able to do so by the end of this year. Addressing tilt capital structure has been a focal point of mine since stepping into the CEO role 18 months ago, as it is impossible to think about substantive growth without first addressing the balance sheet, and we believe these actions should allow us to do exactly that. Turning to the business, expectations for the cannabis industry continue to change with each passing quarter. At the start of the year, various sources had the sector growing north of 30% annually. That number changed to the low to mid-teens, depending on which analyst's estimates you looked at, and following the second quarter, where it was determined that there would not be a dramatic second-half recovery as previously thought, now sits somewhere in the low teens to single digits. The number of contributing macro and industry factors have been well-documented and do not require my repeating them, but suffice to say, being a cannabis operator is not for the faint of heart. As I mentioned earlier, I believe that the cannabis sector is entering its adolescence. And while many have spoken openly about commoditization associated with a fully legalized cannabis marketplace, I believe that is already happening under the current regulatory environment. The number of cultivation facilities coming online is outpacing demand in several markets, causing operators to rethink the value of maintaining large grow facilities. I suspect that retail will be next in line, as we've seen reports of store closings in more mature markets. And given the overhead needed to maintain a dispensary, it's not surprising at all. In short, cannabis is growing up, and consumer behavior is growing up with it. This anticipated change was the basis for the pivot in TILT's business model last year to avoid a commoditization by owning that middle space of craft cultivation, specialty manufacturing and processing, and maintaining a portfolio of hardware and plantware product offerings that consumers are demanding. Our asset-light approach has served to reduce our margin requirements, which in turn allows more margin stability. And by not limiting ourselves to our own retail footprint, we're able to develop deeper and more meaningful relationships across all retail outlets, not just our captive stores. So in the case of Massachusetts, instead of being limited to our own three stores, we have another 250 or so that we can sell into as well. To do this requires actively managing our brand partner offerings to ensure the broadest possible portfolio of products that cover as many form factors, quality, and price points as possible, and regularly evaluating the performance of each offering to identify opportunities to improve upon the status quo. That also means being tactical with our garden production, as well as processing and manufacturing to ensure that we maintain a regular inventory of all active products that our customers can depend on. Understanding the intended purpose for every strain selected, seed planted, and clone created requires demand planning and discipline for a company that only a year ago was primarily selling bulk flour and distillate. As a result, the ramp to scale is a little slower than many of us would like, but it is necessary not only for our brand partners as they learn new markets, but also for our operations in order to avoid becoming victims of our own success. Over the course of 2022, we have signed five new brands, most recently adding Coda Signature, one of the industry's leading infused confectioners, renowned for holding the top slot for adult-use chocolates in Colorado over the past three years. During the third quarter, we had four brand market launches with three more planned before year-end. We also added 10 new product offerings with another 23 planned by year-end, increasing the total number of brand partner product offerings to more than 145 across all markets. Each product offering rollout is done on a small scale to bench test strength of supply chain, pricing resilience, and sell-through capacity so that brands and tilt can adapt launch strategies without the need to discount product. To this point, we have not had the ability to optimize our portfolio offerings, choosing instead to activate brands as they became ready. In some cases, that meant first launching brands that tended to favor the value end of the spectrum due to their less complex specifications. However, once all products are in market by year-end, the next step will be to achieve portfolio optimization. There is no doubt that we experienced growing pains during this quarter, as our legacy products lacked differentiation in the marketplace, combining tired flower strains and old and dated packaging. Additionally, a change in the wholesale sales landscape required the addition of field marketers in support of salespeople in the field. And with deliveries going from 25 orders per week to as much as four times as many, a more robust approach to demand planning was required to ensure that the right products and the right quantities were available on time and every time. Before I turn the call over to Brad to review the financials, I want to spend a bit more time on the hardware side of our business than I typically do, as we just announced an important expanded partnership, and this is also a big week for Jupyter. Last week, we announced an exclusive manufacturing and distribution agreement with Curaleaf International to bring Jupiter's proprietary Liquid Q vaporizer to new territories abroad in 2023 and beyond. Curaleaf is and has been an important partner for Jupiter, and we look forward to continuing to strengthen that relationship with this five-year agreement in Europe and other global markets. As we continue to expand our portfolio of product offerings across use case and value spectrums, we have experienced an improvement in gross margin profile, and in the third quarter, saw our hardware margins rebound to levels not seen since 2020. Early indications appear to support this shift in strategy, with our hardware sales team successfully recapturing lost customers, as well as maintaining and improving our existing customer base. We believe Jupyter's innovation will help continue this effort. A few comments about the products we will be debuting later this week. We believe very strongly in the solventless sector on both the plant-touching and hardware sides of the business. Concept LVT was designed with this in mind, as it is a first-of-its-kind, rigless dab solution providing consumers with a higher level of cannabis taste from cannabinoids and terpenes in an on-the-go resin consumption format. Our patent-pending technology is a high-performance advanced vaporizer in the 510 format that heats products as a dab rig would, but looks and feels like a regular cartridge. Concept LVT is a convenient and approachable solution, meeting the market demand for concentrates at a price point better suited to the broader market. Future iterations are expected to incorporate wax and hash capacity and will likely be available sometime in 2023 as part of a Phase II rollout. Also debuting this week will be Threads, a power product by Jupiter and manufactured by S'more. A simple, intuitive, and patented stackable 510 cartridge, Threads allows two cartridges to be pulled on at the same time while utilizing the same 510 battery and cartridges that are already widely adopted in the industry. Consumers will be able to customize their experience, creating an opportunity for brands to experiment with different formulations, including non-cannabis products. Finally, Jupiter has also entered into a distribution agreement with Aden to make their patent-pending Blend Pen available throughout the U.S. and Canada. The Blend Pen is a precision device that holds two cartridges inside and allows for controlled dosing levels of CBD, THC, terpenes, and flavor between the two. In the future, we expect the Blend Pen to have an accompanying app that will bring the power of data to cannabis consumption. These new product innovations will be available at our Jupiter booth at MJBiz in Las Vegas later this week, with the expectation to officially launch each in the months to come. With that, I'll now turn the call over to Brad for more detail on our third quarter results.

Thanks, Gary. Before I get started, I want to say I'm excited for this new, refined position on the team. We have accomplished a lot this year, and I'm looking forward to working with Dana in his new role. Now, jumping into our results. Revenue in the third quarter of 2022 was $40.5 million compared to $53.4 million in the prior year quarter. The decrease was primarily driven by lower sales volume in our hardware business. For our hardware business, we generated $28.3 million in revenue compared to $42.1 million in the year-ago period due to the timing of sales order patterns from its top two customers. Regarding our cannabis operations, revenue in the third quarter increased 8% to $12.2 million compared to $11.2 million in the year-ago period. Although the brand partner wholesale ramp was slow by design in 2022 to allow for signing and onboarding partners with state-by-state launches, we believe growth will start to accelerate in 2023 with anticipated product line expansion and optimization. Gross margin in Q3 remained flat at approximately 24% compared to the year-ago period. At the operating expense level, OPEX less non-cash adjustments for stock compensation, depreciation and amortization, and impairment charges in the third quarter totaled $10.3 million, down slightly from the $10.6 million in the year-ago period. Adjusted EBITDA in Q3 was $600,000 compared to $5 million in the year-ago quarter. The decrease was primarily driven by the lower sales volume in our hardware business as well as pricing contraction for non-brand partners in our wholesale cannabis operations. It's worth noting that this was our 11th consecutive quarter of positive adjusted EBITDA. Year-to-date cash provided by operations was up significantly to $8.3 million compared to cash used of $3.9 million in the year-ago period, driven primarily from the sell-through of inventory and accounts receivable collections. The ability to generate positive cash flow against a challenging backdrop speaks to our disciplined approach to management and sets us up well for 2023 when we believe the company will start to branch. Turning to the balance sheet, cash and cash equivalents as well as restricted cash was 16.6 million at September 30, 2022, compared to 7 million at year-end 2021. The increase in restricted cash was driven by amounts held in escrow from a sale and lease back in Massachusetts. On an unrestricted basis, cash as of September 30 was 6.6 million compared to 4.2 million at the end of 2021. As Gary covered earlier, the cannabis industry has had a challenging year. Due to the evolving macroeconomic environment, inflationary impacts of consumer spending, lower cannabis wholesale pricing in markets where we participate, and adjusting for customers' demand planning at Jupiter, We are revising our outlook for 2022 and now expect full-year revenue guidance to be in the range of $175 to $180 million, with adjusted EBITDA expected to range between $5 million and $6 million. We also expect to remain cash flow positive and will continue to fund our business and growth objectives through internal cash generation. I'd now like to turn the call over to Dana.

Thanks, Brad. As a management team, we pride ourselves on running this business with a high degree of operating discipline and prudent financial management. For the first nine months of 2022, our cash operating expenses as a percentage of revenue were approximately 25%. This compares very favorably to our industry peers who tend to operate at rates closer to 30% to 35%. Having said that, we will continue to evaluate the operating budget within each of our business units to identify opportunities for savings, especially as we enter the 2023 budget season. I'm also happy to report that our management of working capital has improved substantially. Through focused customer relationship management and tightening of terms, we have reduced our accounts receivable balance by $6.3 million since the end of 2021, and reduce the portion of AR that is 90 days past due from 5.4% in December of 2021 to 3.6% in October of this year. Similarly, our inventory levels within our hardware division have declined by approximately $11 million since the beginning of the year, as we have actively worked to bring down our inventory of slower-moving items. These improvements have greatly contributed to TILT's $8.3 million in operating cash flow generated year-to-date. To this point, TILT's business model has been singly focused on living off of cash flow from operations. This approach has allowed us to build the system's underpinnings in corporate infrastructure to enable growth without the need for external capital, which we have not received in three years. With our platform in place and the operations in our existing markets fully functioning, we will look to M&A as a source of growth. Whether single or multi-state operators, public or private companies, we believe that there are numerous companies with plant-touching assets that would greatly complement TILT's eastern U.S. footprint. These arrangements would also allow our brand partners quick entry into new states. Further, there is an opportunity to find duplicative costs, such as professional fees and corporate overhead, that will enable value creation to the combined entity. I intend to make inorganic growth a key priority as TILT enters 2023. Another area of focus for me will be the continued refinement of TILT's financial planning and analysis functions, with improvements in financial modeling, cash flow management and forecasting, and reporting of key performance indicators. these along with the rollout of our company-wide erp system in 2023 will be paramount as we look to grow in a conscientious way with that said i'm very excited about the opportunity to take on this new role and i'm grateful to gary and to tilt's board of directors for their confidence in me i want to acknowledge the vital role that brad and his county team have had during the past few years highlighted by the conversion of our financial reporting from IFRS to GAAP earlier this year, which was an incredible lift. Brad and I will continue to work very closely together to make TILT a best-in-class finance organization. I'll now turn the call back over to Gary.

Thank you, Dana. As a company, we've made incredible progress throughout the year. The financial results only tell part of the story, as the unglamorous but necessary work that we have had to undertake is critical to repositioning TILT in the marketplace. These efforts can be seen in the achievements on both sides of the business, the foundation we have in place for growth, and the team we have assembled to take us to the next level. On the hardware side of the business, we have achieved our goal of margin stability at more competitive prices. This was clearly seen in the Q3 margins. And our R&D labs have brought innovation back to Jupiter, where we are now delivering cutting-edge products, which we expect will drive increased market share. And we are diversifying our supply chain with these new products, establishing new partnerships that should quickly help us ramp in the market. Our plantware business has improved during the year, despite the macroeconomic environment, starting with the rebooting of our cultivation across all markets with remarkable results to date. including increased strain diversity, higher testing cannabis, and delivering yields better than four times and seven times 2021 levels across our facilities in Massachusetts and Pennsylvania, respectively. And perhaps the most positive momentum is in building a strong brand portfolio. As we continue to evolve our product portfolio with our brand partners in 2023, we will refine across brand categories, price points, and quality to assure the best portfolio in the cannabis CPG space. And lastly, we have built out our wholesale team to complement that portfolio by introducing field marketing to the organization to better support brand partner expansion. While 2022 will not be a year of growth for TILT, the steps we have taken throughout the year are no less relevant and no less important. And for that, I thank our teams and the brands who have put their trust in us. Thanks for joining us today. Operator, we're ready to open the call for questions.

Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchstone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster.

And our first question will come from Aaron Gray with Alliance Global Partners. Please go ahead. Hi, good evening. Thank you for the question. It's nice to see you guys continuing to clean up the balance sheet. So first question for me, I want to talk about some of the transactional commentary you had. Looks like you're maybe getting a little bit more aggressive on the M&A front. So I want to take that from a view of, you know, one of the changes you guys had, Gary, kind of when you came in, on being more B2B on the plant touching side. Obviously, something that's in the marketplace has been increased verticality of a lot of the MSOs, such as Pennsylvania, where you guys operate. So I'm wondering, as you now look to increase on the M&A side, is there a reason to potentially deepen your guys' retail exposure as well? Because I was listening to two of your adult use dispensaries up in Massachusetts, so I could really see how you highlight the brand partners that you have there. So is that potentially an avenue that you can have going forward on the M&A front, especially because I think I heard Dana mention potential MSO partners as well. So does retail potentially become a bigger part of this business as well? Thank you.

I mean, you never say never from that perspective. I think as we look out at the market and you heard in my comments, we're seeing that there is some saturation occurring in the retail front as well. And I think it's a little late in the game to try to play catch up. I think what we're trying to balance right now, if you look at Pennsylvania, the new brands that we just launched there have given us the ability to sell into some of those same MSOs that we heard were closing ranks and only buying their own product. I think if that continues, really the need for us to expand retail goes down substantially. Because one thing I will say is retail involves a significant amount of overhead. We've watched our employee count go up significantly by probably 50 or 60 heads over the course of the year just to support our dispensaries. Understandably, these might not be the highest compensated employees, but they still come with a cost. And as we see retail numbers going down and as we see, you know, these retail shops struggling a little bit, I'm not sure we want to necessarily jump into it. But as I said, I mean, we never say never, and pretty much everything is on the plate. So when we go out there and Dana starts looking at these things, if it's compelling and it makes sense and it fits into the model and how we might think of retail, which we've talked about a little differently than how others think of retail, I think it's always a possibility.

Yeah, I think just to add to that point, I mean, it's, you know, it comes back to, and Gary, I think has said this in the past, you know, any retail entry from our standpoint would involve a heavy dose of our brand partner SKUs being put on the shelves, right? It's probably, you know, 20% of our products and 80% of our brand partner products somewhere thereabouts. So that just gives us that better ability whether it's sort of on an R&D basis looking at new products or just simply, you know, increasing the number of doors where those products are available, it would be done in that type of context.

Okay, that's really helpful, Carter. I appreciate that. And next question, we want to talk a little bit about the accessories business. It looks like that was down pretty meaningfully quarter over quarter. You talked about sales order patterns for your top two customers being the reason for that. Just as we kind of look going forward, just given the broader environment of what we're seeing in flowing sales, delays in new adult use markets, do you think the growth for the accessories, you know, might be slow? They're going forward as well. You know, great to hear about CureLeaf on the international front, but, you know, obviously slower growth overall that we're seeing outside of North America there. So we'd love to get some color in terms of the outlook for the accessories, you know, segment as well.

Thank you. Sure. I mean, you used to be able to set your watch by the ordering patterns of Jupiter back before probably the vaping crisis and even coming through COVID a little bit. We saw, you know, sort of a chunky ordering pattern during the COVID years of 2020. I think that caused people to run through their inventory more. And I think in hindsight, 2021 probably was an outsized year and that people had to restock their pantry, so to speak. They had run through a lot of their inventory. They weren't ordering frequently in 2020. and suddenly had to make up for lost ground. There was also the anticipation of certain states going to adult use sooner than they did. And you saw a lot of outsized ordering, especially towards the end of the year. Some of our biggest customers were amongst those big orderers in the third and the fourth quarter last year, and they are still working through some of their inventory. That said, I think Dana's comments earlier about how we've worked that inventory position down. These folks have not left the market. They've not left us. They continue to be our customers, and we would fully expect them to return to ordering. And, in fact, some already have in the fourth quarter. Normally, they might have started in the third quarter. We're also seeing a slightly different pattern in how much they're ordering. Used to be very episodic, massive size orders that we have to put out there and get on water or air as quickly as possible. We're seeing the evolution, I think, of smaller orders that we would expect to become more frequent. which is going to, I think, change a little bit how we manage our supply chain to make sure that we have a good working stock as well as a good working customized inventory to support. So, you know, definitely a little bit of a change there. Again, the customers haven't left. In fact, we've added customers and brought some back into the fold. So all of our meaningful customers, all of our top customers are still around. But we do expect them to begin ordering again since they've spent most of this year running through their stock. I don't know, Dana, Brad, is there anything else you want to add?

No, I mean, the only other thing I would add is I think some of the ordering pattern from late last year was driven by an expected ramp of New York and New Jersey that really didn't manifest itself in the early part of 2022. It's taken quite a bit longer than I think most of us expected. And so that's created somewhat of a delay in the drawdown of those inventory levels. But otherwise, I agree with your points, Gary. Okay.

Okay, great. Thank you for that. Last question for me, I just want to talk about on the margin front, you know, I know you guys have improved efficiencies, you know, within the plant touching assets, and you had some new pricing from S'more on the Jupiter side, but just wanted to know kind of going forward as we continue to have, you know, pricing pressure, you know, in the environment, and what other levers you guys might have available to kind of help improve that profitability? It seems like you guys have done a good job on the working capital side and cleaning up to ensure you've done a good job on the operating cash flow, even relative to EBITDA, you know, the past few quarters. But it seems like that's only a temporary, and eventually you guys need to make sure you're improving the EBITDA as well. So I just want to get some further comments in terms of what leverage you guys might have outside of improving the sales. And then just secondly, in terms of the accessories, how that pricing from the broader environment might be impacting the pricing on the accessory side as well. Thank you.

Why don't I cover the top line? You cover the EBITDA side here? All right. So I think on the top line side, I'll hit the hardware first. You know, returning to our margin levels from 2020 was important. You know, I think that was something that, you know, again, was a very consistent component of the Jupiter business. We saw, you know, the way the pricing, you know, was getting pushed down over the years and just how the construct was built and just the way it was not distributing effectively. you know, those downturns as well as it should have. So I think that's a big piece that suggests that we don't need quite as much revenue to generate the good margins there. On the plant touching side, I'll say this, when you look at our brand partner products and you look at, and we talked about this, I think on the last call, there is a stability in the pricing of those brand partner products It's a virtual straight line over the last two or three quarters from when we launched. No discounting, no buy one, get one sales. If you look at, let's say, Massachusetts, at the same time, retail and wholesale pricing for, let's say, Tilt-branded products, not our brand partner products, and even others out there we've heard report, those have all been coming down. I don't know what the exact percentages are for this past quarter. I know last quarter retail sales prices were down, I think, 11% in Massachusetts. So, of course, wholesale prices supporting that would be down as well. But by maintaining that steady level, when I talked about portfolio optimization, that's really what I was speaking to. We launched some of the more value brands like Old Pal. Those are the ones that we launched early on. And that heavily influenced the amount of brand partner products that were available at a valuable space. Our goal is to move that flat line up now higher and higher by introducing these additional products. The Koda Premium Chocolates, the Heisman brand that's going out there, Black Buddha, and so on. So as we roll these additional products and the different skews within the products, We anticipate that line remaining flat but now starting to creep a little bit higher because the absolute price points are going to start to go up on the more premium products that we're filling out our portfolio with. Does that make sense?

No, it absolutely does. I really appreciate that, Keller, and I'll go ahead and jump back into the queue.

Did you want to answer the EBITDA piece?

The only other thing I would add is around just better managing, you know, logistics and how we move product around the world. You know, we've seen some instances where, you know, potentially customers on the Jupiter side might, you know, to Gary's point about sort of unpredictable inventory ordering. They might need a custom product in a very short period of time. We'll, you know, we'll complete that order and bring it onshore, but we have to ship it by airfare, which traditionally is, you know, can be significantly more expensive than ocean freight. And we're not always able to pass all that cost on through to the customer. And so one of the other ways that we're looking to protect margin is through doing more of this customization work onshore. In other words, holding a stock inventory onshore and then working with either our internal resources or third parties to do the customization work, in other words, decorations that a particular MSO might want, that will allow us to still meet that just-in-time inventory request, but to maintain more product being shipped from an ocean freight basis, which obviously is substantially cheaper. So those are the types of things, as an example, that we're looking to implement going forward.

Okay, great. Thanks for that call. I'll jump back in the queue.

Thanks. Our next question will come from Bobby Burleson with Canaccord. Please go ahead.

Hi, thanks for taking my questions. So just quickly on the M&A commentary, it sounds like you're talking about organic growth really not being what you want in order to drive the growth story going forward. You need to get more aggressive on M&A. I'm wondering, Which of your markets, which of your business lines did you kind of witness a downshift in organic demand that in your minds is a little bit more of a long-term issue that's kind of prompting you to get more aggressive on M&A?

I think it's a little bit across the board, right? Two out of the three of our markets, forget about New York for a second because we're not open there yet, are still medical only. And we're hoping that there's a pathway to adult use, but the approval process for even rolling out new brands and SKUs is somewhat problematic. It takes months, not days or weeks. So I think that trajectory, once we roll a new product out, these are skew-strained markets. So when we launched Old Pal in Pennsylvania, uptake and the sell-through was there. Same thing with Heisman. Same thing with Black Buddha when we launched. So it's not a question of do we have the right portfolio. It just takes a while to get these things approved. Same thing with 1906. I think in Massachusetts, what's interesting there is you hear all about the excess flour. I look at that as a great opportunity for us because now there's more biomass available to us at cheaper prices than ever, whether it's in the form of distillate, whether I'm getting live resin, whether I'm getting actual flour. So now we have a really unique position to decide whether we're going to grow something ourselves or actually just take advantage of the market, and that plays into our ability to be more of a specialty manufacturer. so if we're going to do for example solventless there's certain kinds of flour that are better for the wash process that you would want to grow that maybe you wouldn't otherwise grow if you're busy focusing on doing pre-rolls or other types of things so i think from that perspective there's flexibility so for us it's more about the trajectory and the velocity We still believe there's growth in Massachusetts. We still believe there's growth in Pennsylvania. And especially when Pennsylvania and Ohio go adult use, it goes without saying there will be, you know, growth there as well. It's just not going as fast as we'd like. And certainly I think the amount of new growth coming online and some of the regulatory overhead are contributing to that. But I don't think this is like raising a white flag in any way, shape, or form. It's just, you know, we're at a place where once our balance sheet is clean and tidied up, We've always said all along, once that was done, we were going to get more aggressive on M&A. And I think that's exactly, you know, we've earned that right once we close this other deal.

Yeah, and I think it's also more about leveraging the infrastructure we have, right? I mean, we've built out our corporate team, all of these support functions that are providing resources to each of the individual state-level business units. Our feeling is that, you know, adding an incremental state or multiple incremental states can be done, you know, without a high degree of investment in, you know, new people from a corporate resource standpoint, right? I think there's also a lot of overlap, certainly if you look at other public companies that are either our size or smaller. There's a lot of overlap in terms of, you know, accounting work that's being done or, you know, professional fees or public company kind of costs, so to speak, that where you sort of take two companies that are in that same boat and eliminate that duplication, you get to a situation where one plus one equals three. And that's kind of our approach is that, you know, we think we can add incremental states without, you know, the long ramp time to getting from point A to point B, and without, you know, significantly diluting investors. In fact, we think we can create value by doing those types of transactions.

With, again, the one last thing is with the brand partners, too. This was something I think we mentioned one or two calls ago that our brand partners have told us through the experience they've had that even though they might be in some of these other markets that we're not in, if we were to get into those markets, they would happily work with us there. So it sort of gave us a different view in general on what markets we might suddenly want to look at and what way we might choose to enter the market. So I think it's a combination of those things together that certainly have given us just a general different view on the types of things we might be, you know, ready to do. Great. Thank you.

Thank you.

Sure. Thank you.

This concludes our question and answer session. I would like to turn the conference back over to Lynn Ricci for any closing remarks.

Thank you for joining us today. We look forward to speaking to you next quarter.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.