TerrAscend Corp.

Good afternoon. My name is Ina and I will be your conference operator today. At this time, I would like to welcome everyone to Tarasen's Third Quarter 2024 Financial Results Conference call. Joining us for today's call is Jason Wall, Executive Chairman, Zia Ghanem, President and Chief Executive Officer, and Keith Stelfer, Chief Financial Officer. Our remarks today include forward-looking statements, including statements with respect to the company's outlook, including the company's expected financial results for the fourth quarter of 2024, and estimates and assumptions relating thereto, and the company's expectations recording its new market opportunities such as a mile. The likelihood and benefits of the company's tax refund claims for past years, the expectations regarding regulatory reform, and the potential benefits thereof. Each forward-looking statement discussed in today's call is subject to risks and uncertainties that could cause actual results to differ materially from those projected in such statements. Actual results in the timing of certain events may differ materially from the results or timing predicted or implied by such forward-looking statements, and reported results should not be considered as an indication of future performance. Additional information regarding these factors appears under the heading with factors in the company's Form 10k file with Securities and Exchange Commission, or the SEC, and other findings that the company makes with the SEC from time to time, which are available at .sec.gov, on CDER+, and on the company's website at .tarasem.com. The forward-looking statements in this call speak only as of today's date, and the company undertakes no obligation to update or revise any of these statements. Also, the company will present both GAAP and NGAP financial measures. A reconciliation of NGAP to GAAP measures is included in today's earnings press release in our quarterly report on Form 10k for the quarterly ended September 30, 2024, which you can find on the company's investor relations website or on the S&T and CDER Plus websites. I would now like to introduce Mr. Jason Wilde.

Please go ahead, Mr.

Wilde. Good evening, everyone. Thank you for joining us. Our core business remains solid during the third quarter despite a challenging macroeconomic environment. We maintain market share leadership positions in our key markets, including the number one market share position in New Jersey. For the quarter, we reported net revenue of $74.2 million, gross profit margin of 48.8%, and adjusted EBITDA from continuing operations of $13.7 million. Importantly, the third quarter of 2024 marked our ninth consecutive quarter of positive cash flow from continuing operations, and our fifth consecutive quarter of positive free cash flow. Our strategy includes both organic growth and aggressive pursuit of M&A. For the past several quarters, we have discussed our active pursuit of greenfield expansion opportunities and possible transformational deals. We believe that TerraceM's targeted approach puts us in a differentiated position to invest in the best geographies and assets at attractive valuations with minimal competitive tension. We are pleased to have announced today the signing of a definitive agreement to enter the Ohio market through the acquisition of a high-performing dispensary. We have spoken about the Midwest being a priority for us, and Ohio is a good example as the state is in the early days of implementing adult use. This acquisition is our first entry into our sixth state. Our intention is to assemble a leading retail footprint in Ohio by acquiring high-quality stores, just as we did in Maryland. We continue to have many other ongoing M&A conversations. With that being said, I want to remind everybody that we remain disciplined in our approach to employing capital. To be clear, we do not chase deals. In each of our geographies, our goal is to be a market leader. Ohio and any other new markets we choose to enter are no exception. Building on our Michigan presence, our expansion into Ohio will allow us to leverage our existing Midwest infrastructure and SG&A, driving higher profitability across the region compared to in these two states independently. In addition to M&A, strengthening our balance sheet has been a priority. During the third quarter, we closed on our $140 million non-dilutive debt financing. This loan matures in August 2028 and contains no warrants or prepayment penalties. This financing gives us the flexibility to pursue attractive M&A transactions that are not going to be covered by the M&A. We are also encouraging the M&A to continue to provide funding for other material debt maturing until late 2027. From a regulatory perspective, we remain encouraged by the upcoming DEA hearing concerning the proposed rescheduling of cannabis. Also, the US Court of Appeals in the First Circuit has scheduled oral arguments for December 5th in the David Boyd lawsuit against US Attorney General Garland, which seeks equal treatment for legal, state-regulated cannabis businesses. This is a very welcome development. The court does not always hold the oral arguments on an appeal, nor hold them this quickly. In August, we announced our first-ever stock buyback program for up to $10 million, demonstrating our confidence in TeraSense's future and our commitment to enhancing shareholder value. Given our solid core business, strengthened balance sheet, greenfield expansion opportunities, and potential cannabis reform on the horizon, we believe our equity is undervalued. Since August, we have purchased stock in the open market and will continue to do so opportunistically within the prescribed daily volume restrictions and outside of blackout periods. As the largest shareholder, I believe our equity has compelling value. In our key states, New Jersey, Maryland, and Pennsylvania, we have organic growth levers that we are very excited about. Zia will provide more details as he discusses our progress in each of these geographies. These growth levers, coupled with ample greenfield opportunity and no material debt maturing for the next several years, position us very well for the future. With that, I'll now call over to Zia to provide an update across our key markets.

Zia? Thank you, Jason, and

hello,

everyone.

Let me share how we performed state by state for the quarter in our key markets. Starting with New Jersey, according to BBSA, TeraSense maintained the number one market share position in the state through September of this year. Importantly, our brands hold the top three positions in flower, vape, edible, and concentrate categories. Back in Q2, we returned to sequential retail revenue growth in New Jersey for the first time in four quarters, despite new retail door openings in close proximity to our stores. In Q3, we continued that positive trend with growth quarter over quarter. This is a testament to the loyalty of our customers who value our retail experience and our brand. Wholesale revenue was down sequentially and year over year due to increased competition. While points of distribution hit an all-time high during the quarter, average order size declined as new wholesale brands entered the market. We intend to maintain our number one market share position by executing the same playbook we have established in the state in recent years, focusing on quality, innovation, and the strength of our brand. Lastly, we continue to explore opportunities to expand our retail footprint under legislation that enables existing operators to take stake in up to seven additional diversity owned dispensaries. This would further increase our leadership in the state, give us additional scale, and lead to improved margins and profitability. We are making progress with several attractive opportunities and will share further details when appropriate. Going forward, we expect the New Jersey market to continue to evolve and grow. We are expanding our facility in Boonton and plan to be operational in early 2025. This expansion will provide us with additional capabilities to innovate and offer a broader product portfolio to meet the evolving needs of a more sophisticated consumer and enable to supply any potential additional stores. In Maryland, wholesale revenue increased 26% sequentially, enabled by our extended capacity that came online earlier this year, and is now on a $20 million annualized run rate and growing. We are pleased with this result, especially considering that we started from virtually zero in 2023. This added capacity has also enabled us to increase verticality in our four dispensaries, thereby enabling further gross margin improvement in Q3. Since the end of 2023, gross margin has nearly doubled from 25% to nearly 50%. Retail revenue remains stable in Maryland in Q3. While DDSA does not strike retail market share in Maryland, we believe our four retail locations are among the highest performing retail footprints in the state. In order to meet continued demand growth in Maryland, we are investing in four additional grow rooms at our Hagerstown cultivation facility, which we plan to have operational by Q1 of 2025, with first harvest expected in Q2. Maryland is a success story for Terracell. We entered the market in 2021 through the acquisition of an outdated cultivation facility. We then built a -the-art kale cultivation and manufacturing facility and quickly verticalized through the acquisition of four dispensaries in the first half of 2023. In a little over a year, we have been able to fully integrate each dispensary, increase wholesale revenue from virtually zero to a $20 million runway, increase margins to nearly 50%, and have an outlook for accelerated growth as our additional cultivation capacity comes online next year. We have now implemented our strategy in New Jersey and Maryland with the same expectations in Ohio. Turning now to Pennsylvania, Q3 was another steady quarter. While retail revenue declined 11% year over year, productivity per store remains healthy. Wholesale revenue grew 59% year over year, driven by the strong performance of our value-oriented Legend brand and our extension into the Edibles category with our Valhalla brand. We expect Pennsylvania to be a significant growth lever for us in 2025, as we are optimistic that the state will turn adult shoes next year. With a population of 12 million, the state is expected to grow from a $1.2 billion medical-only state to a $2 billion plus adult shoes market by 2028, according to BDSA. As we have stated previously, we are already fully built out at our large-scale cultivation and manufacturing facility with no additional need for investment. We have plans in place to bring on currently unused capacity and will be ready as needed in response to adult shoes implementation. And finally, in Michigan, our priorities have remained constant. To improve operational efficiency and rise healthy growth margins in order to establish a solid foundation from which to expand. Due to this focus, growth margin remains near the 40% mark year to date. At present, we have 20 retail locations in Michigan. As we said previously, we expect to scale our operational footprint in the Midwest by entering new neighboring states to Michigan, like we have just announced in Ohio. This allows us the opportunity to more effectively leverage our operating expenses. In addition, we remain focused on optimizing our state-level operating expenses in Michigan. In summary, our business remains solid during the third quarter and fundamentals remain strong. With multiple organic growth levers, a disciplined M&A strategy, no material death maturity for the next several years, and consistent positive operating and free cash flow quarter after quarter, we have a great outlook for the future of our business. I would now like to turn the call over to Keith to provide a financial update.

Thanks, Ziyad. Good evening, everyone. The results that I'll be going over today have already been filed on both Cedar Plus and with the SEC, and all results that I will reference today are stated in US dollars. Net revenue for the third quarter of 2024 totaled $74.2 million compared to $77.5 million for the second quarter. This decrease was mainly due to declines in wholesale revenue in New Jersey and retail revenue in Michigan, partially offset by wholesale revenue growth of 26% in Maryland. Growth profit margin for the third quarter of 2024 was .8% compared to .6% in Q2 and .0% in Q1. This positive trend throughout this year was driven by improvements in Maryland, while margins have remained relatively stable in Pennsylvania, New Jersey, and Michigan. G&A expenses for the third quarter were $31.6 million compared to $24.1 million in the second quarter. Excluding two one-time items, G&A expenses were flat quarter over quarter. These one-time items include a reversal of bad debt expense of $5 million in Q2, as well as a $2.3 million impact from a change in accounting for stock-based compensation in Q3. Net loss from continuing operations for the third quarter was $21.4 million compared to a net loss of $6.2 million in the second quarter of this year. The sequential increase in net loss was driven by a $1.9 million reduction in adjusted EBIT debt, as well as several one-time non-cash accounting items totaling $13 million, which include a reversal of bad debt expense in Q2, a gain on termination of a lease in Q2, a change in accounting for stock-based compensation expense that I just mentioned, a loss on extinguishment of debt related to our recent refinancing, and a loss on fair value of derivative liabilities. Adjusted EBIT debt from continuing operations for the third quarter of 2024 was $13.7 million, or .5% of revenue, as compared to $15.6 million, or .2% of revenue in the second quarter. The sequential decline was driven by lower revenue. Turning to the balance sheet and cash flow, cash and cash equivalents, including restricted cash, were $27.2 million as of September 30, 2024, compared to $30.5 million as of June 30. Net cash provided by continuing operations was $1.8 million. This represented our ninth consecutive quarter of positive cash flow from continuing operations. CapEx spending was negligible in the quarter, leading to positive free cash flow of $1.5 million, representing our fifth consecutive quarter of positive free cash flow. During the quarter, we distributed $2.9 million to our New Jersey minority partners and paid down $1 million of debt, excluding the debt which was retired through our recent refinancing. Also during the quarter, we closed on a non-dilutive senior secured term loan for gross proceeds of $140 million, bearing a coupon rate of 12.75%, with a four-year duration maturing in August of 2028, with no prepayment penalties. The net proceeds of this loan were used to pay off existing higher interest debt maturing later this year. With the closing of this deal, we have financial resources and flexibility to execute our growth plans. We have no material debt obligations maturing until late 2027. On August 20, we announced commencement of a $10 million stock repurchase program. During the third quarter, we repurchased 107,000 shares for an aggregate repurchase price of $133,000, with $9.87 million remaining available under the program. Finally, I would like to take a moment to acknowledge and thank the entire Terrace N team as we recently completed a multi-year implementation of an ERP system across our company. As most know, ERP implementations always come with challenges and obstacles to overcome. The Terrace N team demonstrated the resilience and endurance that we always demonstrate, with any challenge by successfully completing this implementation. We now have a very solid IT and financial foundation that will enable continued growth both organically and through M&A, as well as improved productivity, lower costs, and more effective decision making for many years to come. Looking ahead to Q4, we expect to be flat to down mid-single digits in revenue sequentially, with stable growth margins, lower G&A expenses, and relatively flat adjusted EBITDA quarter over quarter. In summary, we believe our third quarter represents another period of solid results. We delivered our ninth consecutive quarter of positive cash flow from continuing operations, and our fifth consecutive quarter of positive free cash flow. We took further actions to strengthen our balance sheet by refinancing a significant portion of our debt without dilution or prepayment penalties, which provides us further financial flexibility, the ability to refinance at lower rates, and optionality to execute our growth plans. We look forward to sharing our progress on the business during our next quarterly call. This concludes our prepared remarks. I'd now like to turn it back over to the operator for questions.

Thank you. Ladies and gentlemen, we will now

begin the question and answer session. Should you have a question, please press star, followed by the one on your telephone, you will hear a prompt that your hand has been raised. If you wish to cancel your request, please press star, followed by the two. If you are using a speakerphone, please lift the handset before pressing any

keys. One moment please for your first question. The first question comes from the line of Federico Gomez from ETB Capital Markets.

Please go ahead.

Hi, good evening. Thanks for taking my questions. First question on the share buyback. We saw obviously the entire sector down today trading at close to all-time bottom in terms of multiples. How do you view your valuation right now? How should we think about capital allocation considering not only your buyback, but also some of the other M&A options that you have in mind in Ohio, Michigan, New Jersey, etc.?

Sure, thanks Federico. This is Jason. We established that program a few months ago to give ourselves the optionality and to give ourselves another tool in our tool belt. We and I definitely think that our stock is a compelling value, but we're also weighing that against other opportunities to use our cash. Even after today's significant downdraft in prices, those sort of prices or the environment is definitely flowing through to private operators as well. We'll continue to be opportunistic and look for the best uses for our cash, but we are definitely seeing good opportunities to use it to do deals similar to the deal that we asked today to enter Ohio.

Perfect, thank

you. Then on the guidance for Q4, I appreciate all the color and the markets, but in terms of the assumption behind that flat to single-digit revenue decline sequentially, can you talk about your expectations for your market in terms of which ones you think are going to be up, which ones you think are going to be down? Obviously doing really well with wholesale in Maryland, but some other markets down. Can you talk about that in terms of your guidance for Q4?

Hi Fred, this is Iyad. I just want to get your attention that the numbers or the guidance we have for Q4 does not include what we announced in Ohio today because we're just not sure how it would take to approve. Hopefully it's faster. Now Q4 usually brings a lot of seasonality between two holidays that exist. When we look at our state by state and we break down the performance, we expect the same performance in each state. Maryland, we have growth levers in it and that's why we're both on the gross margin and on revenue. New Jersey is seeing the pressure that we described in our prepared remarks, but retail is steady and also gross margin is steady. Pennsylvania is seeing some pricing pressure, so we wanted to be cautious on our estimate and taking all this in consideration, we felt that you know flattish to slightly down is the right guess, but we will give it hell and bust our butts to make sure we exceed it.

Thank you very much. Thank you.

And the next question comes from the line of Eric DesLorius from Craig Harlem. Please go ahead.

Great, thanks for taking my questions. It's two for me on the expansions in Boonton and Hagerstown. First on Boonton, I think you mentioned that you're expecting to be able to I guess have new capabilities, perhaps some new innovation with that expansion that you currently don't have. I was wondering if you could expand on you know what those capabilities might be.

Sure, hi Eric. This is Keith. I can start with that and see if I can add anything in. So there are a lot of different product formats that are now approved in the state, so especially with regards to like other Edibles product formats and concentrate. So we already have a pretty broad array of products that we're able to sell into the market, which gives us that number one market share position, but we're just readying ourselves for what's become available more recently. So some of that investment's gone into what you can think of as like an expanded Edibles kitchen with different machines to manufacture different product formats. And then there's a second piece to the Boonton expansion, which is some enhancements to a part of our canopy square footage that we have already on site to give us the ability to yield more sellable flour and also just produce more biomass to send into extraction for distillate for the manufacture products. So that's kind of what's happening in New Jersey.

Awesome, that's very helpful. And then I guess just kind of more broadly speaking, you know last quarter sort of looked like we were at a steady run rate. As you look at these facility expansions in Boonton and Hagerstown, how significant are these from a growth perspective? And if you're sort of help us quantify that at all, that'd be helpful.

Thanks. Sure, and maybe I missed your last question if you asked about Hagerstown. Did you ask about the Hagerstown expansion as well?

No, previous one was just on the capabilities and innovation in Boonton and now this question is on overall expansion and the impact in Boonton and Hagerstown.

Got it, yes. So I think a good frame for that is the example of our performance in Maryland in Q3. So you can kind of expect similar and we gave some transparency there around 26% growth sequentially and then we framed it as we're now run rating at 20 million a year on our wholesale business in Maryland. So we expect that to continue and possibly at that clip where we could add another 10, 20 plus percent quarterly without expansion at Hagerstown. We're adding four additional rooms that'll give us a lot more capacity just to grow our wholesale business, to go more vertical in our four dispensaries. We have a decent level of verticality already but we can go a bit more and enhance the gross margins there. And then with New Jersey organically we have a pretty sizable wholesale business in New Jersey and we think we can continue to grow that and continue to preserve and grow our number one market share position there. And that would be, again kind of the frame it in the hundreds, the thousands to potentially a million growth quarter there for New Jersey.

Awesome, that's very helpful. I appreciate the call.

Thank you, Greg. Greg, this is E. Just to quantify some of the things that Keith has described, whether it's New Jersey or in Maryland, the verticality that he talks about in Maryland. If you remember when we started, in Maryland we started with zero verticality and currently we sit close to 45%. We'd like to be somewhere around 55 to 60% and that is one of the driver of our gross margin. Back to your Bunten question, this is the second phase of expansion when it comes to equipment and automation. We start running out of space but what we have increased from extraction equipment, from automation, from product launch and new form factors that we have launched in New Jersey, those were the real drivers of allowing us not only to maintain our number one market share in New Jersey but be at the same 14% that we were in in the previous quarter. When you look at some market share, when you look at some of our top three competitors, you will see that new brands that came in New Jersey were able to steal around 60% market share from NSOs where our market share stayed the same. So I'm so proud of the team, of the innovation and it was really a pilot for us, if you will, in the quarter that made us more confident to expand, to continue to protect that market share in an exciting market.

Thank you, Nikal. I appreciate it.

Thank you. And your next question comes from the line

of from Comic Court Community, please go ahead.

Good evening everyone. This is Yewon Kang on behalf of Map Bottom Me. Thanks for the question. And just my first one here is on the EBITDA performance this quarter. I didn't quite hit the guidance provided in the last quarter which called for a year over year growth. Can you comment on the drivers that caused the miss in the second half of the quarter? Thanks.

Sure. So this is Keith. Maybe just to clarify, the verbal guidance that we gave on our last call was sequential guidance and we said flat to slightly down across the P&L. So we were down in EBITDA quarter over quarter. It was really driven by the 4% sequential revenue decline. Growth margins improved sequentially, expanded by 20 base points and our underlying op-ex was flat quarter over quarter. So that's essentially the story behind the EBITDA performance.

Got it. Thank you. And just my second one here, it's regarding the top-line performance in the past few quarters. It's been declining. So I guess, could you provide any color on any plans that you have to resume growth, especially in your core markets of New Jersey and Maryland and Pennsylvania? I was just wondering if return to growth would only be contingent on M&A opportunities and new growth markets such as Ohio or Pennsylvania recreational implementation? Thank you.

Yes. So when we think of growth levers, here's how we break down our core business versus our M&A strategy. So internally, we have growth levers which include wholesale in New Jersey. And the reason why I describe it where I think we're confident that we'll see that grows, because around our stores, in our retail stores, we've seen 100 plus stores that were open around our retail stores. We have absorbed the impact on retail. We went back to flats to growing. We are opening in different MSAs outside of our trade area where our stores exist. So we will benefit from wholesale as a growth lever, and then retail is not impacted by those openings. In Maryland, Keith described the improvement that we've seen in our wholesale will continue because we're dividing the expansion of the previous new four rooms and the four new rooms that will come in between verticality improvement to continue to strengthen our growth margin and with spreading our brand in other dispensaries and growing that wholesale business. PA, we expect it to be sluggish as it continues to be a medical program, but we're optimistic that in 2025, the state turned recreational, this will be a major growth lever for us. That's internally. So you'll see the same trend, you'll see the same fundamentals, and you'll see the protection on the gross margin and on those growth levers. Our excitement comes in on the M&A strategy. And we announced today, Ohio, that we're not happy with the pace of our acquisition. But if you allow me just to explain the justification or why it's taking us longer, when we decided to go into Ohio, we had the intention to go in and acquire a level one license that is already vertical and has growth and retail. Because the assumption was if a new state going recreational, you cannot go without verticality. We quickly learned by comparing stores, comparing data to our states, comparing border state stores, supply versus demand, we quickly gained confidence that we can enter Ohio just by retail. And at any point, especially with the relationship that we've built with other level one, we can continue this conversation. We have the optionality to add one store at a time quickly, but then at any time, increase the verticality. So again, the M&A is a major level of growth for us. But at the same time, we've mentioned multiple times about transformative deals. Those conversations have never stopped. Those conversations are still ongoing. We can't share more about them, but the environment continues to change a little bit at a time with the political environment, with the reform environment, with other things that are happening. And that is also impacting the pace. We would have loved to share a lot more already in 2022 and 2023, but we will continue to work diligently because we believe on top of our fundamentals, we can bring those creative deals and really will take us not only from being one of the great cannabis companies, but will be one of the bigger companies. What I meant is in New Jersey, going deeper in New Jersey, we've talked about that multiple times. We have the opportunity, and I've talked about it in my prepared remarks, we have the opportunity to be part of seven additional diversely owned stores. We are in advanced conversations in some cases, and we have a lot of interest from great operators and great potential businesses that we can bring under our New Jersey business. And this is one of the reasons why we are confident in our expansion in New Jersey, not only for our wholesale business, for our retail stores that are stable, and for the potential additional stores that we will bring in.

Appreciate the caller. I'll pass on the line.

Thank you. Once again, should you have a question over the phone, please press star

4 by the one on your telephone keypad. Your next question comes from the line of Noel at Kensington from Carers Securities. Please go ahead.

Hi guys. Thanks for taking our questions. Congrats on expanding into Ohio. It's great to see. Just a follow-up from what Deb was talking about. So, are you guys still active on other sort of mom and pop acquisition opportunities in Ohio? Like, is there something that you are hoping to

We are definitely active looking at mom and pops. We feel like that is the, we've come to the realization that we can pave much more attractive multiples to buy single mom and pop dispensaries, as opposed to some of those level one operators that we were looking at, especially since we've come to the realization that there's not a major risk of not having cultivation, which is what, so definitely looking to do more of those. We look at it as sort of a string of pearls acquisition strategy, which is looking to get to that eight dispensary cap, but sort of building it a little bit a la carte, as opposed to buying a level one that came along with several dispensaries, maybe some of which were not high performers. And when it comes down to it, Noel, it's very similar to what we did in Maryland, getting to that four dispensary cap before rec turned on. Thank you for the congratulations on the Ohio dispensary. One thing I'd like to point out is that the location is pretty amazing. There are no other dispensaries within 20 miles of that dispensary. I believe we have a slide on the deck that people logged in online to this conference called. There's a slide that shows the state and where the store is located, and you really couldn't ask for much more in terms of being surrounded by many towns that have opted out, and we don't see any stores coming into that 20 mile radius anytime soon.

Maybe just add into that, this is Keith, is that taking it back to our Maryland strategy and how we were very deliberate and patient on landing those Maryland deals last year, and that gave us the opportunity to acquire some of the best dispensaries in the state that are very well situated, and we feel like we're starting to do the same here in Ohio first with this one, but the other ones we're looking into finding these sort of diamonds in the rough that have moats around them and opt-outs within 20 or 30 mile radiuses and things like that. Yep, absolutely, and the good news is

we can get to at least eight dispensaries as opposed to Maryland was four.

Right, okay, and then second question, so Terrason stock got caught in the downdraft as you said along with pretty much everything else in the sector today, but Terrason's not active in Florida, so you kind of went along for the ride. What is there in terms of interest from you guys in the Florida market now considering that imagine there's going to be some weaker or more cash constrained competitors maybe looking to exit the market?

Yes, so obviously yesterday's the voting results in Florida were definitely disappointing. The sector definitely could have used that win. There was a large amount of revenue for the sector as a whole, but as you pointed out, we don't have any exposure to Florida. We've been looking for a while, but we always sort of felt like we wanted to wait to see the results of the vote because otherwise we were going to have either done a very good deal or a very bad deal, so we're sort of we've been around. We've been meeting with multiple different operators in the state over the last year or so, and we will now dig in and look to hopefully enter the state, but the prices are going to be much different because there's, you know, because rec is not currently on the horizon.

Okay, thank you very much.

Thank you, and the next question comes from the line of Andrew Semple from Benton, Minnesota. Please go ahead.

Hi there, good evening. So CapEx was at a fair bit like this quarter. You did note some expansion projects coming up next year. Could you maybe quantify the capital expenditures associated with those and maybe the timing of when that cash might be deployed?

Sure. Hi, Andrew. It's Keith. Good question. So yeah, I mean Q3 was we really didn't have anything happening in Q3. We had completed a previous project in Hagerstown that we mentioned earlier, so that was behind us. Now these two projects that we're focusing on that we've talked about, New Jersey and the next phase of Hagerstown in Maryland, the payment streams for those will come over the next eight months or so. So just call it the next three quarters and and they'll be two to three million a quarter in total. So we're looking at like seven to nine million in total for the projects over the course of about eight months.

Great, that's helpful. And then in the outlook for Q4, there's comments about expense reduction quarter over quarter. Could you maybe quantify the magnitude that you're expecting to see as it relates to that and probably also be helpful to understand where you're able to find some room for some cost savings within the business?

Yeah, Andrew. Keith again. So we are, so with our operating expenses, we're constantly being vigilant about that and ensuring that we stay within ranges that we've prescribed. Our goal is really to be at 30% off X as a percent of revenue in the kind of immediate term. So not committing to that right now, but that's really our overall goal. But in the short term in Q4, we think we can save somewhere in the plus or minus million range, just to kind of give that a guidepost. And we're being really aggressive about it in terms of how we're building our 2025 plan. So we have organization wide efforts, kind of a zero based budgeting type approach to it. And doing all the things that you would expect looking line item by line item involving the whole organization, even going as far as staffing it with kind of an internal allocated PMO to manage through the program and just really being responsible. Because again, it's not an easy business that we're managing. And we need to make sure that in our core business, we have a healthy operating expense structure. Yeah, go ahead.

So I just wanted to add from an up perspective, including Q3, we have decided to spend or to increase our up X around our wholesale business to continue to grow that business, continue to protect it and continue to grow with the state. Just to give you an example, in Q3, we have built around 116 displays and around 60 different wholesale accounts that shows a mini corner for our brand, whether it's kind three, whether it's legends and others. So married to the quality of our brand to the relationship that the consumers have with our brand, we have now the visuals that the customer can see every time to come to that store in that also included some of the up X. So while we were able to save some, we invested some of it back and we continue to balance this, but just some qualitative color versus the million that Keith talked about.

Great. Thanks for adding Keith. Appreciate the color.

Thank you. And your next question comes from the line of Michael Vega

from Exel Shore. Please go ahead.

Thanks for the question. So for the Ohio acquisition, can you help us understand,

I guess I know you don't really know the exact timing, but sort of the timing you're hoping for and sort of what hoops you have to jump through to get that approved. And also, you know, does this would have to be approved before you announce more? Can you have multiple applications in Thanks.

And I, this is yet here's what we have learned. We have heard learned and heard about the regulators in Ohio from very trusted source from our external counsel from counsel that work with the regulators. The Ohio has really built a department, a leader, a regulators that is pro business, that is pro cannabis and their pro fair treatment to businesses, small and big that will result in good practice for patients and customers. So that's reputation. That reputation makes us feel good about the length of the approval. It's hard to get exactly how long will it take, but here's what we learned in the past. Once the regulators dig into us as a new MSO in the state and they see that, Hey, our founder and executive chairman is a pharmacist and has that reputation where he's never ever been sued or been in trouble in the past, except one time where he got paid more than what he was sued for. And then myself as a leader of the team, also being a pharmacist and keep track record in compliance. So when they check into our credibility, we learned in Maryland and other the first time could be the longest by a week or two or three, but then the second, third and fourth will come back to be much quicker because they already dug and they know who they are. So I will bust my butt to go meet the regulators, tell them who we are, but to tell you how long it takes, we think it's around six to eight weeks. Hopefully

it won't be queued where it hopes up. And the only other thing I'd add is there's nothing that would hold up other approvals. The license

limit is a... Jason, you're still there? Yep, I'm here. Did you

hear me? Yeah, I'm sorry. I think I had finished speaking. I was just saying we don't think we'll be held up by... It's not where they need to approve them in any sequential way where one dispensary acquisition would get held up by another approval as long as we're under the eight dispensary cap.

It sounds like it's also just getting to know you. So hopefully if you're good for one, you're good for two, three, four, and it may even accelerate. That's great to hear. And then on the verticality, I guess you're saying you don't need to have cultivation day one or you don't need to ever, ever have cultivation in Ohio. I kind of guess you'd want some at some point for verticality, but you know the market better than I do.

So initially we thought that we cannot go into Ohio without having cultivation and production because we assumed that the demand is going to be higher than the supply. We learned pretty quickly after spending time in the state and looking at the data from BDSA and modeling and using all the knowledge that we had in Maryland and New Jersey, we learned pretty quickly that we can actually go without cultivation. So that's how we're entering. So instead of buying a group of stores that some of them are big bomber stores, some of them are bigger store, we are picking stores that are high volume similar to what we did in Maryland to build a retail network that is a market leader in Ohio. By having those stores that are high volume with the supply existing in the state, we believe that we can negotiate good deals and we can protect the gross margin. And then being a multi-state operator, also we have strategic accounts with some of the cultivators that exist in the state that they use in other states. So we will improve that gross margin. As far as whether we will eventually bring cultivation, we will continue the conversation with those level one operators. Most of them have only three or four stores. So even if we add one, two, three, or four stores as we are building this, we can eventually bring in a level one that has three or four stores with a grow. We can look at independent growth. So we're pretty open on how we will build this business. The only strategy that we are determined to have is to become a market leader in Ohio. And seeing what we saw so far, we think we can get there with what we're doing and how we're doing.

Got it. Great. Thanks a lot. Thank you.

Thank you. Once again, should you have a question, please press star and one on your telephone keypad. Okay. There are no further questions at this time. I will now hand the call back to Mr. Watt for any

closing remarks.

Thank you all for joining us today on the call. We look forward to seeing you at our fourth quarter year end results call in the coming months. Thank you.

This concludes today's call. Thank you for participating. You may all disconnect.