Cresco Labs - Q3 2020
November 18, 2020
Transcript
Operator (participant)
Good day, and welcome to Cresco Labs' Third Quarter 2020 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your telephone. To withdraw your question, please press the pound key. Please note, this event is being recorded. I would now like to turn the conference over to Jake Graves, Investor Relations for Cresco Labs. Please go ahead.
Jake Graves (Head of Investor Relations)
Good morning, and welcome to Cresco Labs' third quarter 2020 earnings conference call. I'm joined today by our Chief Executive Officer and Co-founder, Charlie Bachtell, our Chief Financial Officer, Dennis Olis, and our Chief Commercial Officer, Greg Butler, who will be available for Q&A. Prior to this call, we issued our third quarter 2020 earnings press release. This document has been filed with SEDAR and is available on our Investor Relations website at investors.crescolabs.com. We plan to file our financial statements and MD&A for the three and nine months ended September 30th, 2020 on SEDAR subsequent to this call.
Before we begin our remarks, I'd like to remind everybody that certain statements made on today's call may contain forward-looking information within the meaning of applicable Canadian securities legislation, as well as within the meaning of the Safe Harbor Provisions of the United States Private Securities Litigation Reform Act of 1995. Such forward-looking statements may include estimates, projections, goals, forecasts, or assumptions, which are based on current expectations and not representative of historical facts or information. Such forward-looking statements represent the company's beliefs regarding future events, plans, or objectives, which are inherently uncertain and are subject to a number of risks and uncertainties that may cause our actual results or performance to differ materially from such forward-looking statements, including economic conditions and changes in applicable regulations.
Additional information about the material factors and assumptions forming the basis for our forward-looking statements and risk factors can be found under Risk Factors in Cresco Labs' public filings available on www.sedar.com. Cresco Labs does not undertake any duty to publicly announce the result of any revisions to any of its forward-looking statements or to update or supplement any information provided on today's call. In addition, during today's conference call, Cresco Labs will refer to some non-IFRS financial measures, such as Adjusted EBITDA and Operational Gross Profit, which do not have any standardized meaning prescribed by IFRS. We believe these non-IFRS financial measures assist management and investors in understanding and analyzing our business trends and performance. Please refer to our earnings press release for the calculation of these measures and a reconciliation to the most directly comparable measures calculated and presented in accordance with IFRS.
These non-IFRS financial measures should not be considered superior to, as a substitute for, or as an alternative to, and should only be considered in conjunction with the IFRS financial measures presented in our financial statements. Please also note that all financial information on today's call is presented in US dollars, unless otherwise noted, and all interim and financial information is unaudited. With that, I'll now turn the call over to our CEO, Charlie Bachtell. Charlie, please go ahead.
Charlie Bachtell (CEO)
Good morning, everybody, and thank you for joining us on the call today. We hope you and your families remain healthy and well. We have the privilege of speaking with you today about the fastest-growing industry in the United States. For those who have participated in the U.S. cannabis sector for a long time as an investor, a patient, an employee, or a business owner, we echo your excitement for where this industry is heading. Simply put, cannabis is well on its way to a $100 billion industry and is now a permanent feature of our economy. Producing the highest organic revenue growth in the sector for the second quarter in a row, Cresco Labs has substantiated itself within the very top tier of the industry.
I'll begin with some highlights from the third quarter and review the five specific ways Cresco Labs has been delivering growth and shareholder value in 2020. Dennis will provide a discussion of our financial results and capital position, and then we'll conclude our remarks with some comments on the recent U.S. election and its impacts on our industry. After that, we look forward to answering your questions. Our thesis remains you win this industry by building the most strategic geographic footprint, establishing meaningful material positions in each of those markets, and prioritizing the middle two verticals of the value chain. The acceleration of our growth this year is a reflection of the value of our differentiated strategy. We're telling a unique story of strategic breadth, depth, and execution.
Because of the investments we've made, the changes we've managed through, and the hard work devoted by our team over the last 12 months, Cresco Labs entered the third quarter firing on all cylinders. Revenue in Q3 was $153 million, an absolute increase of $59 million or 63% sequentially. This is our third consecutive quarter of more than 40% sequential top-line growth. With $90 million in net wholesale revenue, we are the number one operator in the industry focused on the wholesale distribution of branded products. With nearly $63 million generated from our 19 stores, our retail platform is outperforming. During Q3, we also substantially increased operating leverage and profitability with Adjusted EBITDA of $46.4 million or 30% of revenue.
To top it off, we generated our first full quarter of positive free cash flow in addition to positive net income. We started off 2020 by completing the construction on two transformational expansions of our cultivation facilities in Illinois and Pennsylvania. We knew that focusing on the build-out of wholesale operations would be a less linear path to revenue growth than prioritizing new retail stores. But we also knew that by focusing on the middle two verticals of the value chain, we would gain leading market positions in the largest key markets, drive sustainable growth on the top and bottom line, and have a more versatile and scalable business model long term. As we look toward our next phase of growth, it's rinse and repeat. The playbook will be applied to more states, and again, we will achieve meaningful material market positions.
In Q1, we introduced the framework of five specific ways Cresco Labs are delivering growth and shareholder value in 2020. We remain committed to our plans and continue to execute on the strategy that got us here. Number one, we're investing our resources in the most strategic markets. Illinois has now crossed the $100 million a month mark and currently has an annual run rate of over $1.2 billion. There are approximately 76 retail stores supporting the market today, and as the incumbents continue to open their second locations and the state issues the next batch of licenses, we expect a significant unlock of consumer demand and an expansion of opportunities for our wholesale business. In Pennsylvania, consumer demand continues to absorb every gram of new supply.
In Pennsylvania, as well as New York, the governors have given constructive commentary on the passage of adult-use legislation in the coming year. Including Arizona's new adult-use law, this means that seven of our nine states could potentially be adult-use markets in the next 12 to 18 months, whereas only three of our states were adult-use markets just a year ago. In Q3, California recorded its first quarter of more than $1 billion of sales, an increase of 21% sequentially. In Massachusetts, growth has not only returned, but accelerated since the shutdown of adult use, and in Michigan, state sales increased 37% sequentially in Q3.
We are equally excited about the flourishing medical markets in Ohio and Maryland, both highly regulated, limited license states with the potential for exponential growth as patient accessibility expands, new product forms are introduced, and supply becomes more robust. Six of our nine states are now on annualized run rates of more than $1 billion. We've built the most strategic footprint in cannabis, and it's allowed us to take leading market shares in multiple key states and diversify our growth for near and long term. Now, let's look at how we're taking share in these markets. Number two, we are the number one operator focused on wholesale distribution of branded products. Net wholesale revenue was $90 million, an increase of nearly 65% or $35 million sequentially.
Across our footprint, we increased wholesale penetration by 15%, while average revenue per wholesale account increased 25% over Q2. We've expanded the reach of our brands with the launch of Good News in Illinois and California, the introduction of Remedi to New York, and the extension of the Cresco brand with a one-gram liquid live resin cartridge. The step change in our wholesale growth this quarter was driven by the expansion of our cultivation facilities in Illinois and Pennsylvania, as well as our execution as the industry's premier wholesaler. Our competitive advantages in cultivation allow us to reach target yields faster and deliver an industry-leading portfolio of consumer brands. In Illinois and PA, during 2020, we developed our playbook on investing in infrastructure, executing in cultivation, and accelerating the distribution of our brands on a nearly every retail shelf.
We made the investments in 2019, built out the new supply, and now we're reaping the benefits in Q3. Heading into 2021, we've deployed the same playbook to build leading positions in more markets and generate high returns on invested capital. Number three, our retail platform is outperforming. Retail revenue in Q3 was approximately $63 million, a 60% increase sequentially. Same-store sales grew 178% year-over-year on a base of 10 stores, and 15% sequentially on a base of 15 stores. While average basket size was relatively flat quarter-over-quarter, number of tickets increased by 74%. Our Sunnyside retail model is producing strong same-store sales, attracting more customers, and earning a disproportionately large share of the market.
We opened two new Sunnyside locations during the third quarter, both in Illinois, bringing our total stores in the state to nine. We recently announced that our 10th Illinois Sunnyside store will be located in Naperville, which should make Cresco Labs the first operator to open our maximum of 10 stores in the state. Not only are these new Sunnyside stores contributing phenomenal average revenues, but they're also accretive to our wholesale strategy. Retail allows us to showcase our brands, build trust and education with consumers and patients, and gain important insight into what shoppers want from our brands. With more Sunnyside stores planned to open in Pennsylvania, Massachusetts, and Ohio in 2021, we will continue our measured approach to build out retail in advantageous markets. Number four, we're taking share in California, the largest, most competitive cannabis market in the world.
In Q3, while state sales grew 21%, Cresco Labs' total California revenue increased by 56%. In the world's most competitive cannabis market, our brands continue to be received exceptionally well. Revenue from our Continuum distribution platform increased 69% in Q3, driven by own brands like Cresco, FloraCal, and High Supply, up 66% sequentially. Wholesale penetration was up 15% in the quarter, while average revenue per wholesale account grew by 25%. The growth of our California business in 2020 is a result of a successful ability to integrate acquired assets, our ability to right-size and optimize a platform, and a critical focus on improving top line and gross margin. Looking ahead, we'll focus on driving increased wholesale velocity by adding new partner brands to round-out our distribution portfolio.
Now that we have operating leverage in the platform and a dominant distribution business, we expect our performance to accelerate into 2021. To build a truly national consumer brand, winning in California is a prerequisite. With improving regulations and state sales projected to reach $7 billion by 2025, California will continue to be a key driver of growth for Cresco Labs and the industry. Number five, we're generating substantial operating leverage as we scale. Comparing Q1 to Q3, we increased revenue by $87 million while holding SG&A flat. The investments we made to support our growth are paying off, and as a result, our profitability has grown dollar for dollar with gross profit. With SG&A at 31% of revenue, the Cresco Labs team is more efficient than ever and poised to deliver profitable growth ahead.
The U.S. cannabis industry has seen massive growth this year, and Cresco Labs has continued to outpace it. We have just delivered our third consecutive quarter of more than 40% sequential top-line growth, record operating leverage and profitability, and our first quarter of positive free cash flow. I'd like to take a moment to highlight another achievement. Core to our values as an organization, during the quarter, Cresco Labs was awarded the Bill Leslie Visionary Award by the Cabrini Green Legal Aid Center, recognizing our commitment to criminal justice reform and our work helping hundreds of Chicagoans take steps towards criminal record expungement. By living our core values, our team has moved mountains over the last 12 months in furtherance of our vision of being the most important company in cannabis.
The record-setting results in Q3 clearly prove the value of our differentiated strategy and demonstrate our best-in-class ability to execute it. I could not be more proud of this team. I'll now pass the call to Dennis, our CFO, to provide highlights from our financial results and to discuss our capital position.
Dennis Olis (CFO)
Thank you, Charlie, and good morning, everyone. I'll start by saying that as a company and as a management team, we could not be more proud of the results this quarter. Our team has shown an outstanding ability to execute our strategy, and after a period of investing in our infrastructure, the hard work is now being shown in the numbers. I'll begin my remarks by reviewing the financial highlights from the third quarter, then discuss our balance sheet and capital position. Please note that all numbers are stated in US dollars. Revenue in Q3 was $153 million, an increase of $59 million or 63% sequentially. Allow me to repeat that. We grew our top-line revenue by 63% in one quarter. This marks the third consecutive period of more than 40% sequential revenue growth.
Revenue mix in the third quarter was comprised of 59% wholesale and 41% retail. We're achieving growth across our footprint as we continue leading in our top three states and see increased contributions from other markets. On top of the substantial top-line growth in Q3, we also had record operating margins, increased profitability, and positive free cash flow. Third quarter operational gross profit grew 82% sequentially to $80.6 million, and margins increased by 600 basis points to 53%. As we expected, the cost associated with the expanded cultivation facilities normalized in Q3, and we saw a material increase in gross profit. We're very pleased with the margin improvement this quarter and believe there is additional upside as we strengthen our vertical operations in other states. Q3 SG&A as a percent of revenue was 31%, compared to 48% in Q2.
Including share-based compensation and one-time costs, SG&A was 26% of revenue, compared to 35% in Q2. As Charlie mentioned, comparing Q1 to Q3, our revenue increased by $87 million, while our SG&A expense was flat. As we continue to make investments in our people and our platform to support future growth, we expect SG&A as a percent of revenue will continue to trend downward. Third quarter adjusted EBITDA was $46.4 million, a 182% increase from Q2. As impressive, as impressive as the sequential revenue growth was, the growth of adjusted EBITDA quarter-over-quarter was even more remarkable. Net income for the third quarter was $4.9 million.
We continue to believe Adjusted EBITDA is the best measure of our performance, as it does not include the impact of biological assets and other mark-to-market items, which can cause quarter-to-quarter volatility. Q3 operating cash flow improved significantly to $18 million, compared to a negative $10 million in Q2, a swing of approximately $28 million sequentially. Operating cash flow would have been even more impressive, but for this year's unique concentration of tax payments in Q3. Third quarter CapEx was approximately $10 million as we opened two new retail stores and made investments in automation at several of our production facilities. At the end of Q3, we still had approximately $50 million in tenant improvement allowances available to fund the expansions of our cultivation production facilities in Michigan, Massachusetts, and Ohio.
This $50 million is in addition to the cash on hand. The combination of these items resulted in our first quarter of positive free cash flow. Cash and cash equivalents at quarter end was $57.7 million. Along with our tenant improvement allowances, we expect to be able to fund our near-term growth projects without the need for additional capital. As we look to deepen our market positions in our existing geographical footprint and evaluate opportunities in other states, we will remain opportunistic. While our track record of execution and results give Cresco Labs ample access to capital, we will continue to be responsible stewards of capital, make decisions that align with our growth plan, and act in the best interest of our shareholders.
Because of the investments we've made over the last 12 months and the hard work devoted by our team, Cresco, Cresco Labs entered the third quarter firing on all cylinders. Our results substantiate the value of our differentiated strategy, and we will continue to execute on our plan to capture growth in the years to come. Thank you for your time today, and I'll now pass the call back to Charlie for his final remarks.
Charlie Bachtell (CEO)
Thanks, Dennis. On November 3rd, five out of five states passed new cannabis use laws through ballot initiatives. Included were states like Montana, South Dakota, and Mississippi, with historically conservative constituencies. We've always known that cannabis makes good policy, but if this election has shown us anything, it's that cannabis has become both good policy and good politics, and that provides a very positive outlook for this industry. The U.S. cannabis market has become a permanent feature of the U.S. economy, growing at a faster rate than every other industry in the country, and it's doing so with one hand tied behind its back. As any responsible organization should, we've taken critical steps to prepare our business for any possible scenario related to national reforms on cannabis.
However, regardless of changes at a federal level, the reality is, the U.S. cannabis sector will continue its exponential growth, and Cresco Labs will continue to execute its vision of being the most important company in the industry. Thank you for your time today. I'll now ask the operator to open the line for questions.
Operator (participant)
Thank you. And as a reminder, to ask a question, you will need to press star one on your telephone. To withdraw your question, please press the pound key. We ask you to please limit yourself to one question and one follow-up. Please stand by while we compile the Q&A roster. And our first question comes from the line of Kenric Tyghe with ATB Capital Markets. Your line is now open.
Kenric Tyghe (Managing Director and Senior Equity Analyst)
Thank you, and good morning. I think simply wow probably covers it better than congrats this morning on the size of that beat, so, very well done to the team. If I could just quickly on a question here. Charlie, can you speak to, in Illinois and in Pennsylvania, where was demand pull for your increased capacity strongest? And to the extent you can, can you provide any color on whether you saw share gains of any consequence or rather the quantum of those potential share gains in either of those two markets?
Charlie Bachtell (CEO)
I sure can. Thanks, Kenric. Thanks for the nice compliment, too. So Illinois and PA, as it relates on where you know, I guess, more demand came from for our increased supply, I would say it was absorbed well by both states. You know, both of these states are currently and will remain for the foreseeable future, supply-constrained markets. So, you know, very encouraged by what we've seen in both of those markets and our new capacity in both of those markets. And the... Sorry, could you repeat the second part of the question on that?
Kenric Tyghe (Managing Director and Senior Equity Analyst)
And then just with respect to you know share gains in channel and your take as to-
Charlie Bachtell (CEO)
Sure.
Kenric Tyghe (Managing Director and Senior Equity Analyst)
-how your share exited the quarter.
Charlie Bachtell (CEO)
We did. And you know, I'll start it off, and then I'll ask Greg if he has some additional color, but we definitely saw share gain from the additional supply that we brought to market in both of those states, and you know, it sets us up well for 2021 as well. Greg, any additional?
Greg Butler (Chief Commercial Officer)
Yeah, no, and thanks for the question. I think, you know, if you look at Illinois, Illinois had a great quarter, it was up 31%. So this market, to Charlie's point, is a very healthy, strong market that's continuing to show growth. We're happy that we are outperforming that growth number, so taking share. Pennsylvania, as you know, a little bit more tricky on getting a volume read on the market. Our estimates kind of have us, that market's growing similar, if not even a little bit ahead of Illinois. And again, our performance really strong in Pennsylvania. And so in both of those, particularly in Illinois, where we do have state data, we are growing ahead of the market.
Kenric Tyghe (Managing Director and Senior Equity Analyst)
That's great. Thank you, Greg. And then just a quick follow-up. With respect to California, you know, what to your mind has been the single biggest change you've seen either in market or in your own operations in market, that has supported the sort of performance that you reported here this morning?
Charlie Bachtell (CEO)
Sure. This is Charlie. As far as the market, I think you're just continuing to see the development of the regulated market in California. And as we looked at California as a state, whether or not it would fit the Cresco, you know, strategic plan, California really just became a regulated market at the beginning of 2018. We fully expected that it would take some time to mature, and it does favor operators that understand how to work in a complex regulatory environment, and that's Cresco. As far as the biggest changes that we've seen from our side, this is just the continued maturation of the California assets, right? Keep in mind, we just added those assets at the very beginning of the year.
What we're seeing is a very effective integration capability, and it's also part of our organizational restructure with the RVPs that we announced earlier this year. Having local leadership on site, in state, that are managing the business with 100% of their attention is a phenomenal improvement for us. Very, very encouraged by what we've been able to develop in that state and also the way that it sets us up for the future. Greg, do you have any additional?
Greg Butler (Chief Commercial Officer)
The only I'd add, too, is, as we've talked in previous quarters, California was always a question mark on its growth, and California had a huge Q3, right? Becoming $1 billion tracked market. So I think that leaves for us, no doubt, that is a really, really important market to be in. As Charlie said, we've really focused on strengthening our position in the doors that we're in, in that state that matter, and we're seeing really strong velocity growth in those doors. And so, you know, we're encouraged, and as that market continues to grow, we're really excited about our ability to continue to take share.
Kenric Tyghe (Managing Director and Senior Equity Analyst)
Great color. Thanks so much. I'll leave it there.
Charlie Bachtell (CEO)
Thanks, Kenric.
Operator (participant)
Thank you. And our next question comes from the line of Derek Dley with Canaccord Genuity. Your line is now open.
Derek Dley (Managing Director and Head of Canadian Equities)
Yeah. Hi, guys, and I'll echo those congrats. phenomenal quarter. Look, one thing I found really impressive here was just the SG&A leverage. And you know, I get it. It looks like you built up some of the SG&A in Q1 and Q2 in advance of you know, the strong revenue growth. But can you just sort of give us some more color in terms of what you're looking at in SG&A, and is this sort of an appropriate run rate going forward?
Charlie Bachtell (CEO)
Thanks, Derek. Dennis, you wanna take this?
Dennis Olis (CFO)
Yeah. Thanks, Derek. So we basically held SG&A flat for the first three quarters. There was a little volatility in between the different quarters, but it's essentially flat from one quarter to the next. We'll, as we move into Q4 and beyond, we will continue to make some investments in our people and our platforms. We'll make some investments in automation, in our back ends, and then also in our systems. So while we will see some increase in total SG&A absolute dollars, as a percentage of revenue, it will continue to decline.
Derek Dley (Managing Director and Head of Canadian Equities)
Okay, great. That's really helpful. And then, you know, your comment on sort of rinse and repeat what you've done in some of your core states, like, you know, Illinois, Pennsylvania. I guess when we look ahead to 2021, you know, what additional states are gonna be more of a focus in 2021 versus 2020?
Charlie Bachtell (CEO)
Sure, and this is Charlie. So, you know, for us, I think we'll and you know, not only have we we've sort of built the infrastructure here in these critical markets, the Illinois, Pennsylvania, California, that have continued to develop and pay off as we go into 2021. But as we've talked about, you know, and especially with the rinse and repeat repeatable playbook here, we did some sale-leasebacks earlier in the year to get the capital needed to build out infrastructures in Massachusetts, Ohio, and Michigan. Arizona is another state, too, where we've got opportunity to optimize the asset that we have there.
So I think those are really the four states where we see the same playbook that's already started to be deployed, that'll have, you know, material impacts as we get into 2021, really the second half of 2021.
Derek Dley (Managing Director and Head of Canadian Equities)
Great. Okay. Thank you very much.
Charlie Bachtell (CEO)
Thanks, Derek.
Operator (participant)
Thank you. And our next question comes from the line of Vivien Azer with Cowen. Your line is now open.
Vivien Azer (Managing Director)
Hi, good morning.
Charlie Bachtell (CEO)
Good morning, Vivien.
Vivien Azer (Managing Director)
Good morning. Given the substantial beat relative to certainly our estimates as well as consensus, I was wondering if we could revisit your philosophy around guidance? Thanks.
Charlie Bachtell (CEO)
Yeah. Thanks, and fair question. You know, for us, this year, all of this is new, right? The scale, the investments in infrastructure, the organizational restructure that we started to develop and deploy in 2019. These were all very new components. As we talked about in our Q4 call at the beginning of this year, there was a lot of execution risk. So for us, it was a lot of matters of first impression, mixed with a global pandemic that, you know, we had to change the way that we operated as a business at the corporate level, at the production level, at the retail level. So I think what 2020 has proved for us is that we're capable of creating the infrastructure that can create this type of scale.
We can execute with these new investments and tools that we have, and that we manage change well. And so we're optimistic about what that means for 2021, 2022, and going forward. As far as guidance, we're not in a position. You know, there's still a lot of unknowns as we enter 2021 at a macro level and outside of the industry. So we'll continue to evaluate, we'll continue to communicate, and we'll continue to deliver.
Vivien Azer (Managing Director)
Certainly, that's fair, and my follow-up question, you know, I love asking about California. I've been hearing from some other operators in the space that there have been some impacts from the wildfire in terms of just market pricing more broadly. I was wondering if you could comment on that at all. Thanks.
Charlie Bachtell (CEO)
I'll start, and then I know Greg's got some great insight on this. The wildfires could potentially have an impact on the market out there, but keep in mind, there's also pretty significant outdoor cultivation that happens in California, too, that gets harvested right around this time of year. So there's kind of the tale of two different events converging. Greg, additional insight on that?
Greg Butler (Chief Commercial Officer)
Good morning, Vivien. I think just to add on that, you know, we are what they call in Croptober, which is where you do tend to see some softness on price as inventory hits the market. I think to Charlie's point, those two factors of fires and then the harvest period are likely gonna blend themselves out. We're not seeing anything significant that would be of meaning for us to highlight concern on.
Vivien Azer (Managing Director)
Thank you.
Charlie Bachtell (CEO)
Thanks, Vivien.
Operator (participant)
Thank you. Our next question comes from the line of Pablo Zuanic with Cantor Fitzgerald. Your line is now open.
Pablo Zuanic (Analyst)
Thank you, Charlie, and congratulations on a great quarter. Look, obviously, we know the market data, so we have a good sense of what's happening at the state level in terms of growth in California and Illinois and Pennsylvania, right, so sounds like we all, even though I was at $124 million, you know, I was still $30 million short, so obviously, you know, we miscalculated the share gains that you're having, so it's a two-part question. Number one, is there anything that we should consider in the fourth quarter that could imply share loss, either, you know, you're seeing other operators adding a lot of cultivation capacity in Illinois and Pennsylvania, or, you know, even some phenomenon in California we should consider?
But also related to that, walk us through the math into the fourth quarter, if you're not giving guidance, in terms of how much more capacity or yields or productivity are you getting on the assets in Illinois and Pennsylvania in terms of output for the fourth quarter? And same question for California, right? Your revenue per account up 25%, the market is up 20%, total wholesale up 56%, so you're gaining your accounts. How much room do you have to add more accounts in California, or is it gonna be more an issue of revenue per account? Just help us model that out in terms of how to think about the fourth quarter next year. We have the market data, so we have that number, right? But congrats again. Thank you.
Charlie Bachtell (CEO)
Thank you, Pablo. As it relates to share loss in PA and Illinois, I don't think we're anticipating share loss in Q4, and as much as you know, both of these markets need more doors to open, right, so in Illinois, I think in the Q3 data there were 72-ish contributing dispensaries. I think there might be 75 or 76 that are open today. As you can see, that's only like an incremental 21 doors that have opened in the state this year, and we're four of them, so you know, we need some more additional doors to open. As we mentioned, that'll be an unlock in the prepared remarks. I know that there's more second stores from the incumbents.
There's the 75 additional licenses that hopefully will come online here after the new year. So we need some more doors to open. As far as, you know, the way that we're looking at revenue for Q4, you know, we're thrilled with how we've been able to execute the expansion this year. Our results prove that the strategy of focusing on wholesale is the most valuable approach. But now that we've harvested from all rooms in the full quarter, now is a stage where we're investing in that automation, optimization, downstream ops to increase fulfillment, and believe that'll manifest in more growth in the first half of the twenty twenty-one. And then we'll also have additional capacity projects, openings that'll be happening, you know, on the front part of next year as well.
As far as California, California is a little bit different, again, because of the access to the flexibility, I guess, that's associated with that market structure out there. So it's not only your, your own internal capacity, but you have the ability to source. It's, it's more of the business model out there. So there's more flexibility. I don't know, Greg, additional color on California and, you know, share going forward?
Greg Butler (Chief Commercial Officer)
Good morning, Pablo. I think the only thing to add is similar to what you said in Illinois, as we think of California, it's really about volume through the doors as we go to grow. And so we expect that market will continue to show healthy growth going into Q4, and that we want to increase our velocities across the doors that we have exiting Q3. But on Illinois, to reference Charlie's point, too, you know, while we think the doors need to open in this state to really continue to drive some significant growth in the state, we have no anticipation to give up any inch of share as we go into Q4 or into 2021.
Pablo Zuanic (Analyst)
That's right. Just a quick follow-up. So, you know, the other day I was looking at your total number of operating stores, right? 19. That looks very small compared to peers, but obviously it's not having an effect on your numbers. I mean, sales up 60% in retail. Just remind us of the plans to add more stores, whether in the fourth quarter of 2021, or that's just definitely not a priority, it's all about wholesale capacity.
Charlie Bachtell (CEO)
It's a great question, and this is Charlie. I think we have one more store in Illinois, right? That'll be our 10th store in Illinois, which will make us the first operator to get to all 10 stores open. We anticipate that that comes online before the end of the year. It's possible that that slides into the very beginning of next year. And then we have a couple of more that'll be coming on in the first half of 2021. So we have a couple more that we think first half 2021 towards the end of it. But, you know, retail, it's not that it's, as you mentioned, it's not that it's deprioritized from our perspective.
It's a valuable asset, but we do believe that investing and continued investment on the production side and the ability to produce the branded products and get those onto all of the other shelves that open provides the longest term value for the organization.
Pablo Zuanic (Analyst)
Got it. Thank you.
Charlie Bachtell (CEO)
Thanks, Pablo.
Operator (participant)
Thank you. Our next question comes from the line of Michael Lavery with Piper Sandler. Your line is now open.
Michael Lavery (Managing Director and Senior Research Analyst)
Thank you. Good morning. How do you think that interstate commerce could evolve in the event of federal legalization? And how does that impact how you make and think about cultivation investments?
Charlie Bachtell (CEO)
Good morning, Michael. So, and this is Charlie. The prospect for interstate commerce, look, I will tell you, when I thought about getting into the industry, the idea of interstate commerce was front and center, right? And so, from the early stages of developing the strategic approach to the industry, that was always a component of building a long-term, viable, successful, sustainable business model. And so it's not a coincidence that we focus on the middle two verticals of the value chain. At some point, if interstate commerce or when interstate commerce is available, focusing on brand and distribution of brand will help us mitigate the risk that some that aren't as focused on the creation of branded products and the distribution of branded products into other people's stores.
It mitigates risk to a greater extent than potentially some other strategic models. Now, you know, looking into the crystal ball, do I think that interstate commerce is a near-term possibility? You know, I would say it's less likely than likely. But we're prepared for, you know, however this develops at a federal level. And, you know, we pride ourselves on the level of engagement that we bring to government affairs. So it's, you know, we're present. I'll put it that way.
Michael Lavery (Managing Director and Senior Research Analyst)
That's helpful. And then, just to follow up on vapes, can you just give a little color on the live resin vape launch and what you're seeing there, how that's progressing?
Charlie Bachtell (CEO)
Sure. Greg, do you want to add some color on that one?
Greg Butler (Chief Commercial Officer)
Good morning. I think your question is, you know, we've had Cresco Liquid Live across all markets for some time now. We've obviously launched that into some of our newer markets. So far, Liquid Live, as a segment of vape, continues to show some very nice growth. So that trend, right now, is a great segment to be in. We still have a dominant share in our core markets and a very strong position in our core markets with our vape products. We are seeing that growth in our new emerging markets, too.
Michael Lavery (Managing Director and Senior Research Analyst)
And yeah, I was thinking more like Illinois, California. On the California side, how much was that a driver of your gain there? Or was it some of it, but really, the upside was some just execution on distribution and things like that?
Greg Butler (Chief Commercial Officer)
Yeah. Thanks for this follow-up on that. I think the, if you look at California, you know, as we've talked about in previous earnings calls, our plan for that state was to get to a healthier core set of both accounts and core set of brands. And so the growth you're seeing in Q3 is us not only getting to that right set of customers, but driving velocity growth across those customers. And right now, we would contribute more of that velocity growth, of just the incredible flower, that we're seeing in our facilities in that market, and also strength in driving partner brand growth in California across those existing doors.
Michael Lavery (Managing Director and Senior Research Analyst)
That's great color. Thank you very much.
Greg Butler (Chief Commercial Officer)
Thanks, Michael.
Operator (participant)
Thank you. And our next question comes from the line of Andrew Partheniou with Stifel GMP. Your line is now open.
Andrew Partheniou (Analyst)
I'll echo pretty much everybody's comments on the absolutely incredible results here, guys. Well done. Maybe just continuing on California, you know, we've heard a lot of, you know, operators struggling to have a successful business model there. But it seems like you guys are generating good traction. Could you give a little bit more color on kind of, you know, the pitfalls that maybe other operators have done that you guys are successfully avoiding? And is it really just, you know, getting the right customers and driving revenue through those doors? And how much, how many more doors throughout the state do you think that you guys can still have more runway to go?
Charlie Bachtell (CEO)
Thanks for the question and the compl.ment, thank you. This is Charlie. I'll start, and then Greg has more context. But you know, I think California, look, I don't think anybody argues against the fact that California is the largest cannabis market in the world. But also true is, it's very competitive, and it's also, you know, sort of very, I would say, protective. There's a cultural component to operating in California, and you've got to figure out how to solve the riddle, and you'd have to execute. You have to execute operationally at a different level. And that's why I think if you're looking at the, you know, the peer set and reluctance to go into the state, look, it's complex.
It's not easy to figure out how to solve the California riddle, and I'm far from saying that we've figured it out. I think we're just bringing our model to California. We're bringing a level of engagement and focus, and we're putting the resources there that we traditionally do in every one of our other markets, and that is proving to be successful for us. You know, more detail than that, specifics, Greg, you want to touch on?
Greg Butler (Chief Commercial Officer)
Sure. And good morning, Andrew. You know, as Charlie said, you know, California, obviously a very large market, which makes it on top of mind for everyone, but one of the most competitive markets, probably also in the world. So you're absolutely correct. It is a difficult market to fight in. If I were to say, you know, what's driving our growth to date, one is we've got just an incredible team out in California. Across the board, we have just amazing cultivation coming down with some great genetics, which is helping us really win in the flower segment of the market, you know, with some of the most astute flower consumers out there.
We also have a really, really strong team that we acquired through Origin House on the Continuum platform, who are out there ensuring that we're in the right doors and driving growth in those doors, and so that's something we're very pleased about. I know we've talked about what we're doing with that asset in the last two calls, and it was a bit of me explainin, here's what we're doing, you're gonna have to trust us, and now you're seeing the results of that come to life in Q3, which we're very encouraged with. As we look forward, you know, obviously, we do wanna stay within the doors that matter in the state, and that changes quite a lot.
We wanna ensure that we are bringing both our manufactured goods now to the market as well, in addition to really strong flower growth, which we believe we have upside there. And as we've right-sized the cost structure of the Continuum platform, we're in a really nice position now, too, to start looking at other partner brands that we could service in the platform, which would help us grow. So there's a couple of ways in that we can get growth in the future out of California, but if you're asking what was the secret sauce, I really think we've got a really great team in the market that's putting out some incredible products and building some really strong relationships with customers.
Andrew Partheniou (Analyst)
Great, thanks for that additional color. And just switching gears on capital allocation. You know, you guys mentioned, you know, this is the first quarter that you're generating free cash flow, likely not the last. But you also have, you know, apparently CapEx funded through sale-leasebacks in your other states. So, with that in mind, you know, what would we say is? What would you say is the prioritization of your free cash flow? You know, could we see potentially a return to the M&A market to enter new states or maybe something else?
Charlie Bachtell (CEO)
This is Charlie. I'll start, and then Dennis has some perspective on that as well. Look, we're observing what's going on in the industry. Again, 2020 was big for us to prove execution and confirm the playbook, so rinse and repeat becomes a reality. You know, we're looking at, of course, continuing to invest in the portfolio that we built. We strongly believe that we've built the most strategic geographic footprint in the space. But there's opportunities, if there's especially if they make sense from a balance sheet standpoint, from an income statement standpoint. We're evaluating opportunities, and we'll just continue to be very strategic in the way that we move forward with those. Dennis?
Dennis Olis (CFO)
Yeah, thanks for the question. So, we're very pleased with the cash flow performance that we had in Q3. We talked a little bit about this coming in, in Q2, and we saw June have a positive operating and free cash flow, so that's continued. We actually had a $10 million income tax payment in Q3, which normally would have been paid in Q2, so the numbers that were reported for both operating cash flow, free cash flow on Q3 would have been a little bit better. Having said that, you know, we certainly have access to capital markets. We'll continue to invest in back-end automation, in branding and marketing.
As you noted, we do have over $50 million of funds available to us through the TI funds that we acquired in Q2, so that does give us the opportunity to make investments in Michigan, Massachusetts, and Ohio to build out additional capacity in those spaces. As far as M&A goes, we are, you know, constantly looking at options. We have, I think, proven ourselves to be very diligent and good stewards of capital, making sure that we get a proper return on any investment that we make. But I think the flexibility that we have from generating free cash flow and the performance that we had this quarter gives us a lot more optionality going forward.
Andrew Partheniou (Analyst)
Thanks for taking my questions, and congrats again.
Dennis Olis (CFO)
Thank you.
Charlie Bachtell (CEO)
Thank you.
Operator (participant)
Thank you. Our next question comes from the line of Neal Gilmer with Haywood Securities. Your line is now open.
Neal Gilmer (Equity Research Analyst)
Yeah, good morning, and, yeah, obviously, a great quarter. Many of the questions been answered, but maybe, one of your responses to an earlier question. With respect to Pennsylvania and Illinois, your comment that they're supply-constrained states, and you expect it to stay that way for some time, you know, maybe with your sort of philosophy, I know you just completed expansion in each of the respective states, what's your philosophy going forward? Are you gonna look to do further capacity expansion, to address that market?
Charlie Bachtell (CEO)
Thanks. It's a great question, and this is Charlie. You know, again, we'll continue to evaluate where to spend the next dollar. And I can tell you, the team, we've built out a phenomenal team in-house here that really helps us think through all the options that are on the table, and we do the analysis and confirm, you know, where that next dollar should be spent. So Illinois and PA are definitely not off the table. There's an argument for, especially just, you know... The expansion that we did in PA wasn't as large as the one that we did in Illinois. But we'll just continue to evaluate all options and make sure that we're making the most strategic decision with the deployment of capital, best interest of shareholders.
We'll continue to do that in 2021.
Neal Gilmer (Equity Research Analyst)
Okay, thanks for that. And then maybe just on, you know, the, the tenant improvement, the $50 million you guys have for the tenant improvement allowances across those three states, do you have any timeline for that you're communicating to the market as far as when you expect to, you know, use that capital?
Charlie Bachtell (CEO)
Yeah, you know, I think it's same playbook. And we've already started the projects in all three of those states. So, you know, we're happy to have them underway. And if you look at sort of the way that Illinois and PA unfolded for us, you know, that's why we think second half of 2021 is when you'll really start to see the benefits from the consistent approach in how we build out capacity, and that capacity comes to market.
Neal Gilmer (Equity Research Analyst)
Okay. Thanks very much. Appreciate it.
Charlie Bachtell (CEO)
Thank you.
Operator (participant)
Thank you. Our next question comes from the line of Matt McGinley with Needham. Your line is now open.
Matt McGinley (Managing Director)
Thank you. So you on the gross margin side, you had previously expressed that you thought you'd be in the 50s% in terms of rate in 2020, and you obviously got there in this quarter. How much of a margin differential do you have between states where you operate at scale, like Pennsylvania and Illinois, versus states where you have smaller operations? And does gross margin improvement from here come from these smaller states that are ramping or more from efficiency in your larger facilities?
Charlie Bachtell (CEO)
Thanks, Matt. We'll let Dennis answer that.
Dennis Olis (CFO)
Yeah, thanks for the question, Matt. So we're extremely pleased with the gross profit performance that we had in Q3. We talked about the expectation that we would see a step-up improvement from Q2 to Q3, and we saw that. So we couldn't be more pleased with the results. As far as the gross profits by state, you know, certainly, with the larger states that we have, they do get a larger margin. Part of that is scale. As these other states come up to scale, they will continue to see improvements. But we don't report on gross profit at a state-by-state level, but clearly, in Illinois and Pennsylvania, those margins exceed the other states.
Matt McGinley (Managing Director)
Okay. And maybe for Charlie, I'm probably asking the same question probably for the third time on this call. But on the investment in the strategic markets, as you think through that capital deployment, does it make more sense from a risk and return profile to, I guess, expand existing facilities, which presumably are, you know, less risk, but maybe lower return? Or does it make more sense to expand your footprints in new states where you could have a longer runway for growth, but, you know, presumably that would have more risk? I guess, is it more important to have a footprint at this point, or is it more important to operate at scale in your existing markets?
Charlie Bachtell (CEO)
I mean, you know, excellent question because this is the million-dollar question. What we've done over the last two years, right, is it's given us the opportunity to even have the thought of if the current, you know, platform is successful enough and offers enough long-term viability and value to just continue to invest in it. And the answer is, of course, yes. You know, the nine states that we have, you're talking about, you know, seven of those markets are in the top 10 from a population standpoint at a state or at a city level. It's possible that the majority of those have adult use within the next 12 to 18 months.
So there's just a ton of opportunity that's in the platform currently. But yeah, you know, I think you have to balance that with, we're not, we're not building the company to win Q4 2020, right? We're building the company to have success in 2022, 2023. So we definitely are looking down the path. There are some opportunities out there that we think would even add to the strategic footprint that we built, but they've got to be the right, the right opportunities at the right time. So all of that's part of the evaluation process. There's no perfect answer to it. It's an ongoing process.
Matt McGinley (Managing Director)
Okay. Thank you.
Operator (participant)
Thank you. And our next question comes from the line of Graeme Kreindler with Eight Capital. Your line is now open.
Graeme Kreindler (Analyst)
Hi, good morning, and thank you for taking my question. Just wanted to ask a question following up on the comments made earlier with respect to gross margin by state. I understand that's not something that's segmented out. But just with respect to California, you know, seeing the really strong sequential growth on revenue and really that trend continuing since Q1, I was wondering if you could provide any color in terms of how that gross margin has trended relative to the rest of the portfolio. Are we seeing a significant increase in those gross margins, or you being able to leverage costs just over a higher revenue base? Would appreciate any thoughts regarding that. Thank you very much.
Charlie Bachtell (CEO)
Thanks, Graeme. Dennis will take that one.
Dennis Olis (CFO)
Yeah, thanks for the question, Graeme. So we continue to see sequential improvement in our gross profits in California. So it's been more of a gradual improvement over the last several quarters. We expect to see that continue going forward. It, as we've talked about in the past, it still lags a little bit of, from some of the other larger states like Illinois and Pennsylvania, but we continue to make the appropriate investments, and we're starting to see the returns from those investments, and we would expect those to continue. Like I said, it will be a gradual increase rather than a step function improvement from quarter-to-quarter.
Graeme Kreindler (Analyst)
Okay, thank you. I appreciate that and then, you know, maybe to take that a step further, you mentioned California reaching the $1 billion mark, quarterly sales mark. We're seeing that market continue to come into its own and mature, you know, whittling down the share of the illicit market. When you think of the long-term potential of that state, particularly on a gross margin standpoint, you know, where do you think those that could ultimately level out or trend to? I think all the general consensus or thought is that that'll be a state that will continue to have less attractive margin characteristics.
But based on what you're building and how we're seeing the growth there, do you think there's room for surprise relative to where expectations might be on a go-forward basis? Thanks.
Dennis Olis (CFO)
Yeah, thanks. And like I said, we continue to see sequential improvement. And as we continue to build out our capabilities in the state, we do expect to see a, you know, a margin improvement over the next couple of quarters. In terms of, you know, absolute percentages and growth, that's not something that, you know, we typically do provide, but we will expect to see, you know, I would say, you know, a couple hundred basis point improvement over the next couple quarters.
Charlie Bachtell (CEO)
I think to add to that-
Graeme Kreindler (Analyst)
Sorry.
Charlie Bachtell (CEO)
Good morning, everyone. Just a reminder, yeah, in California, it is a structurally different market for us in that we are both a wholesale provider and a distributor, and so as you look at the market, just a reminder is that distributor margin that we make off partner brands will always be a little bit different than what we make off of brands that we manufacture ourselves, and so comparing California to the rest of the portfolio isn't a perfect comparison point because of the differences on how we operate in that state.
Graeme Kreindler (Analyst)
Understood. Thank you very much for that.
Charlie Bachtell (CEO)
Thanks, Graeme.
Operator (participant)
Thank you, and our next question comes from the line of Scott Fortune with Roth Capital Partners. Your line is now open.
Scott Fortune (Analyst)
Good morning. Congrats on an impressive quarter. Just real quick, Charlie, kind of timing, I know it's crystal ball, the timing of the new states, Arizona and New Jersey, coming on board and the states surrounding them, if you're looking at kind of capital allocation in the key states of 2021, any thoughts around that timing side of things?
Charlie Bachtell (CEO)
Yeah, so, you know, with the results in Arizona, and New Jersey, you know, we're thrilled. I think it's, you know, every additional state that passes an adult use law means, you know, two more senators in D.C. that have constituents that wanted adult use cannabis in their state. So it's encouraging at a macro level for the industry. And I think that doesn't get enough attention, when we focus just on the states. Love Arizona, glad it happened. We'll continue to build out and optimize our operation there and look at opportunities to increase our market share.
New Jersey, you know, we're not in New Jersey, but we love the impact, the halo effect of that New Jersey passing because we do, you know, we kind of have New Jersey surrounded. And I think that will encourage the efficient move forward by New York and Pennsylvania to move in that direction as well. So I just think it's setting these states up very, very well for long-term success and also for it to be good, good contributing components to our platform for a long time to come.
Scott Fortune (Analyst)
Great. Appreciate it. And then, real quick, looking out with the step function of growth in the second quarter and third quarter now, how should we look at the growth sequentially in fourth quarter? And looking out into 2021, as you add cultivation, are we gonna see other step function quarters, or is that gonna be more linear as we look out to 2021? Just kind of help us understand the growth sequentially in 4Q after you know, Illinois and Pennsylvania have come on board here now.
Charlie Bachtell (CEO)
There we go. So sure, you know, I think it's fair to say that as far as Q4, and as mentioned earlier in the call, the growth that we saw out of the investments that we made in those two strategic states, really, we got a full quarter of production out of those, the new square footage. We're gonna continue, you know, with the plans and the execution of the optimization, the automation, downstream ops improvements to increase fulfillment. That'll be seen, though, you know, come after the new year. And there will be some other components that come online. You know, we expect some additional.
As I mentioned, that the retail stores that we're going to be opening in the first half of the year, that includes hopefully some early in the year of additional retail in Ohio through the Verdant acquisition. But I think for, you know, it's fair to say that in Q4, we've got some additional investment optimization that'll pay off in 2021, and then the additional cultivation development in 2021 in those new states that we mentioned coming in later in the year.
Scott Fortune (Analyst)
Got it. Thank you.
Operator (participant)
Thank you. And our next question comes from the line of Andrew Semple with Echelon Capital. Your line is now open.
Andrew Semple (Equity Research Analyst)
Hi, and good morning, and congrats on the impressive results. I just wanted to touch on California again. Did you introduce any new third-party brands onto your distribution platform that have recently outperformed, or has the strong performance been mostly driven by a consistent offering relative to the prior quarter, and if you could also touch on how Cresco branded products continue to perform as part of that mix.
Charlie Bachtell (CEO)
Sure. We'll have Greg take that one.
Greg Butler (Chief Commercial Officer)
Good morning, Andrew. So your first part of your question, did we add any new partner brands, quarter-over-quarter? We have not. Most of that growth has come from strength of the relationships now we've had, as part of our kind of focusing on the core partners in that market. Second part of your question is our performance. You know, we are really, really pleased with our performance in California on two fronts. One is, you know, as I said, mentioned before, we're able to drive partner growth in the state. But then also, within our own brand portfolio, we're driving significant growth. Our FloraCal flower brand, which is our largest owned brand in California, continues to show nice growth.
And so we're really pleased that both partner brands and our own brands and portfolio are both growing in the state.
Andrew Semple (Equity Research Analyst)
That's great color. I appreciate that. I also want to spend a little bit more time on the retail operations. You know, 60% quarter-over-quarter growth there. What was the principal drivers behind that? Was it just having better availability of supply on the shelves in some of your key markets, or you know, just getting the right type of products? Or were some of your new store openings superstar contributors, or are you just seeing impressive same-store sales growth more broadly across the network? If you had any color there, that would be appreciated.
Charlie Bachtell (CEO)
Yeah, you know, great question, and, I'll start it and then hand it over to Greg for more detail. But, you know, I think it goes back to, again, the beginning of the year, changes that we made in the retail component of our business are just fundamentally different. And I think we entered the year as a company with retail, and I've said this before, I think we've grown into, you know, I think now we can call ourselves a retailer, which is different. So, you know, just I couldn't be more proud of what that team's been able to put together throughout the year so far. Greg?
Greg Butler (Chief Commercial Officer)
The only thing I'd add to that, maybe a little bit more context color is, you know, to Charlie's point, we are seeing same-store sales growth of about 179% versus the same stores that were opened a year ago, which, to Charlie's point, is really encouraging as we continue to grow our retail. But then also in this quarter in particular, we were able to open some really solid stores that were able to drive new growth for us quarter over quarter through the new store growth.
Andrew Semple (Equity Research Analyst)
Congrats again, and thanks for taking my questions.
Charlie Bachtell (CEO)
Thank you.
Operator (participant)
Thank you. And our next question comes from the line of Glenn Mattson with Ladenburg Thalmann. Your line is now open.
Glenn Mattson (Managing Director of Equity Research)
Yeah, hi, thanks for taking the question, and congrats also on the quarter. So just building on, Charlie, on another question on the halo effect after the New Jersey passage, obviously, we've all heard comments from the Governor of New York about, you know, rapidly converting to adult rec as well. But he's said this now for a few years in a row. So, be curious what your thoughts are and if you've had any discussions about how, you know, effective he'll be this time around, number one. And then number two, like, how do you plan for that, and how do you ramp in the event that, you know, it does happen and you know, the potential around that? That's it for me. Thanks.
Charlie Bachtell (CEO)
You know, valid question, and, you know, I think the simple answer would be it's a different set of circumstances this year. You know, not only at a state level, but country level. We're in a different position, currently and from an economic standpoint than we were at the beginning of the year or last April when the last discussion happened about adult use in New York. So I think different set of circumstances will more likely than not lead to a different result. And what we do to get ready for it is, again, it's the playbook. It's investing in capacity.
It's the thing that we've done in the other states, Illinois, Pennsylvania, et cetera, of making sure that we are ramping up to be able to meet that demand that'll come from the flipping of the switch like that. So we'll be ready for it.
Operator (participant)
Thank you. And our next question comes from the line of Russell Stanley with Beacon Securities. Your line is now open.
Russell Stanley (Managing Director of Equity Research)
Good morning, and thanks for taking my question. First of all, with respect to Illinois, and this has probably been asked in a couple of different ways, but maybe I can try it this way. When you think about your current capacity, plus whatever sort of optimization plans you can implement, how do you think about the number of dispensaries you can support, given the, you know, the number of second sites still to come and the additional 75 that you predicted should be issued early next year?
Charlie Bachtell (CEO)
Good morning, Russ. It's a good question. You know, at a high level, we can support more, and we'll have the ability to continue to support more, especially as those downstream optimizations continue to develop this quarter and into 2021. But we need them to open. So, you know, we have a good read on a calendar of the next three months of what that looks like, and there's definitely stores opening. But we need more, and we need those 75 new licenses to actually get issued. We need those stores to get open. We need those doors to open. You know, that's the main unlock. Greg, any additional color on that?
Greg Butler (Chief Commercial Officer)
Sure. Good morning, Russell. The only thing I'd add to Charlie's point is, you know, we feel we've got capacity that's gonna support door growth. Just an interesting context. If you look at a state like Michigan, Michigan currently has 271 dispensaries open, and right now, Illinois, 73, right? So clearly, Michigan's showing some really tremendous growth. As those doors open up in Illinois, it makes it a lot easier for consumers to access the product. And so that would be a pretty nice growth thrust behind the Illinois market. And from a supply perspective, we feel like we're in a good position that as those doors open up, we can fill them. So maybe it's echoing Charlie's point, getting those doors open in Illinois would really help.
Russell Stanley (Managing Director of Equity Research)
Great. Thanks on that. If I could, just as a follow-up with respect to Pennsylvania, and I understand retail is secondary to wholesale distribution, but I think on a prior call, Charlie, you mentioned having appetite potentially for additional retail in Pennsylvania, given currently a three license for six and a cap of 15. So just wondering, are you still, you know, evaluating opportunities there, or have the valuation expectations climbed, you know, following a vote in New Jersey? Thank you.
Charlie Bachtell (CEO)
Yeah, fair question. And, yeah, again, we're evaluating additional opportunities in Pennsylvania, just the same way that we're evaluating additional opportunities across the country, and other states in the platform already. So it's an ongoing analysis. If we find the right opportunity, we'll move forward with it. If we don't, and if there's other opportunities that are more accretive, we'll pursue those.
Operator (participant)
Thank you. And our last question comes from the line of Jesse Pytlak with Cormark Securities. Your line is now open.
Jesse Pytlak (Equity Research Analyst)
Hey, good morning. Just a quick question from me. Just, you know, as we hear news of the resurgence of the pandemic and states and cities beginning to impose new restrictions, just wondering if you, if you've seen any change in consumer trends or behavior just in the past few weeks or even days as some of these restrictions take hold, and just, you know, maybe some areas of concerns that you're watching for?
Charlie Bachtell (CEO)
Good morning, Jesse. You know, very, very valid question. Look, I think it's something that all businesses are constantly evaluating and identifying risks and making sure that you're putting processes in place to mitigate to the greatest extent possible. I think, you know, the benefit that we have is we've been doing this now for, let's see, we're eight months, and, you know, we've got great processes in place. We've got a great team in place, so we're better prepared to handle the challenges of COVID now than we were first time around. And we've become a better operator because of it. So it's something that we'll continue to manage and, you know, we're encouraged by the latest news that's come out with regard to, you know, potential promising looking vaccines.
So, you know, hopefully, this is something that, you know, won't be an ongoing event, but it is something that is front of mind, and we're constantly managing.
Operator (participant)
Thank you. And this does conclude today's question and answer session, as well as today's conference call. Thank you all for participating. You may now disconnect. Everyone have a great day.