OrganiGram - Q1 2020
January 14, 2020
Transcript
Operator (participant)
Good afternoon. My name is Rob, and I will be your conference operator today. At this time, I would like to welcome everyone to the Organigram Holdings Inc.'s first quarter two thousand and twenty earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. We ask to please limit yourself to one question and one follow-up question. You may re-queue if you have further questions. As a reminder, this conference call is being recorded and a replay will be available on OrganiGram's website. At this time, I'd like to introduce Amy Schwalm, Vice Pre sident, Investor Relations. Ms. Schwalm?
Amy Schwalm (VP, Investor Relations)
Thank you, operator. Joining me today are Chief Executive Officer, Greg Engel, and Chief Financial Officer, Paulo De Luca. Before we begin, I would like to remind you that today's call will include estimates and other forward-looking information from which our actual results could differ. Please review the cautionary language in our Q1 MD&A and financials regarding various factors, assumptions, and risks that could cause our actual results to differ. Furthermore, during this call, we will refer to certain non-IFRS financial measures. These measures do not have any standardized meaning under IFRS, and our approach in calculating these measures may differ from that of other issuers and so may not be directly comparable. Please see today's earnings report for more information about them. I will now hand the call over to Greg.
Greg Engel (CEO)
Thanks, Amy. Good afternoon, and thank you for joining us today. This afternoon, we reported results for our first quarter of fiscal twenty twenty, which ended November thirtieth, twenty nineteen. I'll provide some overall comments on the quarter, our progress on Rec two point zero products, as well as some views on the industry, and then Paulo will go over the quarterly results in more detail before we open up the call to your questions. We are pleased with our results in the first quarter of our fiscal twenty twenty year. As we expected and guided with our last quarterly results, Q1 saw a marked improvement from Q4 across a number of key metrics we tracked to assess our performance. Net revenue grew, our cost of cultivation per gram declined, gross margin substantially increased, and we returned to positive Adjusted EBITDA.
Net revenue included wholesale revenue, as well as exports to Australia. Despite pricing pressures seen by other Canadian licensed producers with lower quality product, our average selling price to the provinces fared well. It was largely consistent with our prior quarters at over CAD 5 per gram when you back out wholesale revenue. This is a testament to our indoor facility, where we have the ability to better control consistency and quality when compared to greenhouses and outdoor grow operations. We expect to see gradual pricing pressure in the market, but are in the enviable position of having one of the lowest costs of cultivation, as well as consistent indoor quality product, which better positions us against pricing headwinds. In fact, our Q1 all-in cost of cultivation decreased from Q4 to CAD 0.87 per gram. The cash component of that came in at CAD 0.61 per gram.
Overall, we executed well in the first quarter, balancing our existing Rec 1.0 business and ensuring readiness for Rec 2.0, and this was reflected in our operating and financial results. We also made progress on a number of other key fronts. As of now, Phase 4A and 4B of our Moncton facility expansion are licensed for a total target production capacity of 89,000 kilos per year, which consists of both dried flower and sweet leaf. We received licensing approval for the remaining 16 rooms in Phase 4B in mid-December, which represents approximately 13,000 kilos per year in additional target cultivation capacity. We've decided to fill these rooms at a slower pace to better match more gradual growth in consumer demand.
As announced with our Q4 earnings results, we have also decided to delay completion of our final Phase four C for a number of reasons. We believe consumer demand in Canada continues to be suppressed by the lack of retail stores, particularly in the most populous provinces of Ontario and Quebec. We can more effectively manage cash all-cash allocation and put some of the capital to better use elsewhere. And the decision to delay completion, as originally designed, allows us to preserve flexibility to use portions of the four C space for other strategic purposes. We'll continue to monitor market conditions and believe we can finish four C in a relatively short timeframe should consumer demand warrant. Our Phase five refurbishment within our existing facility is progressing largely on schedule. We are transforming 56,000 sq ft into a multifunctional space.
Designed under EU GMP certification standards, Phase 5 plans include an edibles and derivatives facility, as well as increased extraction capacity using both CO2 and hydrocarbons, as well as additional areas for formulation, including short path distillation for edibles and vape pen formulations. This past December, we also received licensing approval for the operations area in our Phase 5 refurbishment, which houses our chocolate production line, as well as the entire perimeter of that facility. Our chocolate production line has been installed, commissioned, and in the last few weeks, we completed successful bench trials and some homogeneity testing to ensure the amount of cannabinoid content is consistent in each product. The chocolate line is a state-of-the-art production line with very high capacity and high throughput, such that we are exploring co-manufacturing and white label opportunities.
In the meantime, we expect to introduce premium quality cannabis-infused chocolate products into the Canadian market before the end of March. We've worked hard at differentiating our chocolate products, sourcing the highest quality inputs, and we plan to offer a variety of SKUs. Our team benefits from deep chocolate expertise and experience at one of the largest chocolatiers, as well as research and development done with Canada's Smartest Kitchen. We've already seen great interest from all the provinces planning to sell edibles, and as I've said before, we've received very positive feedback on our chocolates in taste tests, right up there with the top-selling chocolates in the Canadian market today.
Moving on to our first 2.0 product that is now in market, our Trailblazer Torch 510 thread vape cartridges, which began shipping to provinces on the first day allowed by the regulations, December seventeenth of last year. The cartridges are designed to accommodate a standard 510 thread battery, and we currently have three core offerings: Spark, Flicker and Glow, inspired by our dried flower and pre-roll products under the existing Trailblazer brand. Trailblazer cartridges are currently available for sale in the following provinces: Ontario, Manitoba, Saskatchewan, New Brunswick and Nova Scotia. It is still early days, but we are seeing some excellent sales traction already and have even received reorders for the cartridges from at least one province. The release is the first of three-stage releases from our comprehensive vape pen portfolio.
Organigram has forged partnerships with leading trusted vaporizer hardware companies that have been selected for their commitments to consumer experience and proven track records for producing quality products. Next, we expect to launch Edison and Feather ready-to-go distillate pens before the end of this month. Feather is a well-known cannabis vape pen company currently selling products in Colorado, and we have secured exclusivity with them in Canada. We now plan to launch Edison plus PAX Era distillate cartridges in Q2 calendar 2020, following some further work targeting the optimal customer experience. Just like our efforts and strategy for Rec 1.0, we are focused on building further brand equity by striving to ensure consistent product availability while still offering a variety of SKUs, such that we appeal to all segments of the market.
So to sum up our Rec 2.0 rollout plans, we are in market with three SKUs of our Trailblazer vape cartridges, and we're pleased with the response to date. We expect to make our first shipment of our three SKUs of our Feather Edison pens as early as next week. In our PAX Edison cartridge, we expect to have out in calendar Q2. Our chocolate Edison Truffle Bites are expected to be in market soon as well, followed by Trailblazer Bars and Edison Bars. And rounding out our portfolio of 2.0 products is our dissolvable powder product. Our R&D team has developed a proprietary nanoemulsion emulsification technology that is anticipated to provide an initial absorption of cannabinoids within 10 to 15 minutes. The technology is also anticipated to be stable to temperature variations, mechanical disturbance, salinity, pH, and sweeteners.
The unflavored dissolvable powder formulation is expected to offer consumers a measured dose of cannabinoids, which they can add to a beverage of their choice, while also offering the discretion, portability, and shelf life expected of a dried powder formulation. Phase five plans include housing the production equipment for this product for a relatively small capital investment, especially compared to a liquor liquid beverage line. The product has generated high levels of excitement from our provincial partners, and we expect to launch in Q2 calendar 2020. In short, we are encouraged by our progress on 2.0 and the further growth opportunity from this market. Not only do we have an exciting product lineup for 2.0, we are also introducing new core strains, including Limelight and El Dorado, which have shown good success as previous limited time offers.
I'll take this opportunity to make some overarching comments on the industry. There are certainly positive developments on this front, with new retail stores continuing to open across Canada. We know recreational cannabis sales per capita are highly correlated to both the number of stores available to serve a population base, as well as the proximity of stores to customers. In this regard, we see positive progress on the horizon, in particular as it relates to Canada's largest market, Ontario, which alone represents approximately 40% of the Canadian population. Last month, Ontario announced it is taking steps to move to an open market for retail cannabis stores beginning in January 2020. Store authorizations from this open allocation process are expected to be issued beginning in April 2020 at an initial rate of 20 per month.
By then, Ontario should already have about 70 stores open from the previous lottery process. By way of comparison, Ontario currently only has 27 stores open, and many industry analysts believe that Ontario can comfortably support over 500 stores. This open market approach will not only ensure more stores are available, but market forces will help migrate stores to those operators that are ready to open and in areas that make the most sense from a business perspective. Quebec has also announced plans to double stores and plans to be at 50 soon from the current 33, adding roughly two stores a week until they get to 50. And BC has quickly expanded after a slow start to currently have 134 stores.
Alberta has been a great example of a successful retail network, with some 375 stores open to date and further growth expected. For example, it was reported that Albertans spent three times more on cannabis products and accessories in the legal market than those in Ontario in the first 11 months of legalization. This can largely be attributed to its robust retail network. The expansion of retail stores represents a significant growth opportunity for the industry and OrganiGram. It is estimated that Canadians currently spend only about 15% of what those in U.S. legal states spend per year on legal cannabis, which illustrates the potential of Canada's legal market. This variation in spending is likely not due to Canadians consuming less, but instead related to the different levels of legal spending on cannabis.
Additionally, there was a recent article which highlighted the decrease in beer consumption since adult rec legalization in Canada as more Canadians choose to substitute cannabis for alcohol. This same trend is played out in U.S. legal states and could even be more of a potential opportunity in Canada, with alcohol prices notably higher than in the U.S. Furthermore, our products in Canada are well-positioned to compete for the consumer dollar in light of the stringent conditions in the Cannabis Act around product safety, additives, and mandatory testing. The growth opportunity, however, may not be there for all of the current Canadian producers. Financial distress will be a continuing theme in 2020, as some LPs struggle to secure sources of capital. We believe we are well capitalized and have a strong liquidity position.
As I mentioned, we returned to positive Adjusted EBITDA in the first quarter and continue to be focused on cost control and prudent spending. Unlike some of our peers, our financial results are evidence that we have forged a clear path to profitability. I'll let Paulo expand more now on our financial position before he takes you through the quarterly results in more detail. I'll turn things over to Paulo.
Paolo De Luca (Chief Strategy Officer)
Thanks, Greg. Up front, I want to address our financial capacity, as it is certainly a key topic for all licensed producers in the industry right now. We have always been very careful about ensuring we have sufficient capital and capital sources available, and take great pride in keeping our spending in check. We believe we have sufficient capital to execute on our operational expansion plans. As at quarter end, our remaining spend on phase five was CAD 20 million of the estimated budget of about CAD 65 million. Our remaining estimate to spend on phase four was about CAD 16 million, of which CAD 13 million relates to finishing phase four C, as originally designed.
As Greg mentioned, and as we had previously disclosed, we have strategically delayed completion of this final phase four C, but even if and when we decide to spend the remaining CapEx, we will have the financial resources available. As at quarter end, we reported about CAD 34 million in cash and short-term investments and still have CAD 30 million in available capacity on our term loan, which remains undrawn today. In addition, we also have a revolver of up to CAD 25 million available to be drawn against specified receivables. Lastly, included in our credit facility is an uncommitted option to increase the term loan and/or revolving debt by an additional CAD 35 million to a total of CAD 175 million, subject to agreement by the lenders and satisfaction of certain legal and business conditions.
As announced with our Q4 results, we made amendments to our credit facility to further improve balance sheet flexibility. We extended the final draw deadline on the term loan from November thirtieth, twenty nineteen to March thirty-first, twenty twenty, to avoid drawing the committed portion of the term loan prematurely and postpone the principal term loan repayments to May thirty-first, twenty twenty. The financial covenants were realigned to be more consistent with industry norms, which will provide us with greater flexibility around the timing and amounts of drawdowns. Covenants will revert to the original structure on August thirty-first, twenty twenty. During Q1, we filed a base shelf prospectus for an amount up to a hundred and seventy-five million, which gives us the flexibility to issue common shares, preferred shares, debt securities, subscription receipts, warrants, or units.
The purpose of this filing is to shorten the timeline to raise funds, if needed, and to maintain maximum flexibility. Subsequent to quarter end, we established an at-the-market, or ATM for short, equity program to create further financial flexibility in this volatile market. Under the program, we can issue up to 55 million of common shares from treasury, CAD 55 million of common shares from treasury. Subject to securities laws and stock exchange requests, the volume and timing of distributions under the ATM program is determined at our sole discretion. To date, we have issued approximately 7.3 million common shares for net proceeds of about CAD 22.4 million. This leaves an additional CAD 32.1 million available that could be raised under the program.
Given our cash and short-term investments of CAD 34 million, our CAD 30 million of untapped committed credit facility, up to CAD 25 million available under the revolver, and a potential uncommitted CAD 35 million under the credit facility, plus the CAD 22 million raised under the ATM, we believe we have created the necessary capital and liquidity cushion to ride out any volatility in the capital markets. As always, we remain committed to disciplined capital allocation, as well as a strong cost management culture throughout the organization, which we believe we've demonstrated consistently. Please look at our SG&A and compare it to our peers if you need but one example. Moving to our quarterly results. Net revenue more than doubled from the prior year quarter to CAD 25.2 million.
Of this amount, about CAD 12.9 million of net revenue was sold to the adult-use recreational market, CAD 2.7 million to the medical market, and CAD 9.5 million to the wholesale and international markets, with a negligible balance of sales generated from other sources. Net revenues for Q1 were offset by a provision for product returns and price adjustments of CAD 1.1 million net of excise, largely related to THC oil that has seen less than anticipated demand in the adult-use recreational market.
Estimated Q1 cash and all-in cost of cultivation were CAD 0.61 and CAD 0.87 per gram of dried flower harvested, respectively, which decreased from CAD 0.66 and CAD 0.94 per gram in Q4 2019, as our yield per plant increased from 148 grams in Q4 to 152 grams in Q1 2020, and we kept our costs in check. Q1 cost of sales remained relatively stable, with Q4 2019 costs of CAD 15.8 million, but on much higher revenues. Q1 2020 cost of sales benefited from lower inventory write-ups than in the previous quarter and lower post-harvest costs on wholesale and international shipments.
Q1 gross margin before fair value changes to biological assets and inventory was CAD 9.3 million, or 37% of net revenue. As Greg mentioned, we focus on gross margin before fair value changes to biological assets and inventories as one of the key measures to assess underlying performance, and generally find this is what the investment community tends to track. Q1 IFRS gross margin was CAD 11.2 million, largely due to fair value changes in biological assets and inventory sold. Q1 SG&A of CAD 9.4 million decreased 32% from CAD 13.9 million in Q4 2019. As expected, SG&A declined as a percentage of net revenues to 37% from Q4 2019, as we had previously indicated. Q4 2019 was an anomaly. Notably, this percentage compares to our efficiency ratio of Q1 in 2019.
As Greg discussed, we returned to positive Adjusted EBITDA in Q1, generating CAD 4.9 million or 19% of net revenue. Our Q1 net loss of CAD 0.9 million was largely due to our operating expenses, nearly offsetting our gross margin as we continue to invest in the development of business and launch a Rec 2.0, which should significantly expand the market potential going forward. I will now turn the call back to Greg for closing remarks.
Greg Engel (CEO)
Thanks, Paulo. I spoke about the upside potential coming from new products and new stores in 2020. At OrganiGram, we believe we are very well positioned to take advantage of this growth opportunity. We have a track record of strong operational execution, due to our deep cultivation expertise and our indoor facility, designed and operated to deliver quality product at one of the lowest cost of cultivation among LPs. Not only do we generate near industry-leading yields, we have also seen cannabinoid content in our flower and sweet leaf reach all-time highs to date, which in what we view is the optimal balance. We also have a team with deep expertise in consumer packaged goods and a relentless focus on offering innovative quality products, both of which we believe are required for success in the 2.0 marketplace.
Based on our best estimates, we continue to maintain a healthy market share year to date in the adult use rec market, in part attributable to building brand equity as we strive to offer consistent availability of a variety of SKUs appealing to a number of consumer segments. Financial prudence and cost management are deeply embedded in our company culture and remain focused on delivering profitable growth to generate attractive returns for our shareholders. In closing, I'd like to thank the team for delivering strong results in Q1 and for all they have done to pave the way for a successful 2020. With that, this concludes my formal remarks. Operator, if you could please go ahead and open up the line for questions.
Operator (participant)
Certainly. In order to ask a question, you will need to press star one in your telephone. To withdraw your question, press the pound key. And your first question comes from the line of Rupesh Parikh from Oppenheimer. Your line is open.
Erika Eiler (Associate/Analyst)
Good afternoon. This is actually Erika Eyler on for Rupesh. Thanks a lot for taking our questions. So, yeah, I wanted to, you know, start off talking about, you know, Rec 2.0 here. Recognizing, you know, it is early, could you maybe talk about what you're seeing by category in the market? You know, what product categories this early in the game are performing better than others? And, you know, what are you seeing, where are you seeing the strongest consumer demand or consumer uptake thus far? And then just also curious how your vape products are, you know, performing in these early days versus other offerings out there in the market.
Greg Engel (CEO)
Sure. No, that's a great question, Erika. So, you know, a couple key points I would make. One is when we look at, certainly the landscape of Canada, there's still a limited number of offerings available, under 2.0 products, primarily vape products as well as edibles. And, so, you know, the category... Currently, we only have our vape products in the market. And but as, you know, I alluded to earlier, we've seen good response, good online consumer, you know, reviews of the product. And as noted, we've already had at least one province reorder very quickly. So, so positive response to date. You know, so good response to vapes overall.
And, you know, for edibles, you know, with our chocolates, we have already seen, you know, even though we've not shipped product yet, one of the key large provinces has already tripled the order that they had wanted to place based on the consumer demand that they're seeing in the marketplace. We know in Ontario, for example, that, by the weekend, you know, this past weekend, that, edibles were virtually sold out across all of their stores. So very strong demand both on vapes and edibles, and that's the predominant 2.0 products that are available in the market. But we, you know, certainly, have not launched our edibles yet, but in anticipation of that launch, we've had, you know, very good, you know, response in terms of pre-orders.
You know, I think certainly, so when we look at what that cycle looks like, again, as I mentioned, it's going to be critical to add new stores in Ontario to take advantage of that market opportunity. And, you know, that's gonna be one of the key aspects of what market growth going forward.
Erika Eiler (Associate/Analyst)
Okay. No, that's very helpful. And then just switching gears to the competitive environment. I mean, there's clearly a lot of distress out there in the market, with many big players obviously becoming increasingly cash strapped. Do you expect the environment to become more competitive in the near term, as competitors may be forced to, you know, sell products at lower prices to generate needed cash or out of desperation? I mean, maybe you could just talk about kind of how you see, you know, some of these dynamics playing out in the near term.
Greg Engel (CEO)
Yeah. We have seen that to some degree today, where at least one competitor has really taken significant price drop on their dried flower products to attempt to, you know, get a better market position as well as, you know, garner some return on their products. You know, I think-
... you know, one of the challenges for any company in that position, and it's one of the things that I think differentiates us, is, you know, we have very low cash cost of cultivation, and, you know, having that ability to, you know, produce at a low cost puts us in an enviable position. But we're also producing a quality product, and our average selling price is very strong. The second point I would make is, you know, when we look to the two point O products, the, you know, the success of those products is primarily driven by your ability to produce consumer packaged goods, right? So other than vaporizer, you know, vape pen, all of the edible products and any other products, it's going to be how efficient are you as a producer?
Because certainly, the cost of producing a chocolate bar, for example, is much higher than the cannabinoid input that goes into it. So that's been our focus. We're very much, and I've, you know, I've spoken about this quite a bit, you know, we, we see this as a CPG market. We operate as a CPG company, and we wanna make sure that we're doing things efficiently, so that, you know, we can continue to retain as much margin as possible. And that's gonna separate companies. And, and we're seeing that in the market. I mean, certainly there's been, you know, and some mixed reviews on some of the products that are out there, and our, our focus is very much on quality. Maybe Paulo could comment a little bit on, you know, the overall financial landscape if, if you wanted to.
Paolo De Luca (Chief Strategy Officer)
Yeah, sure. So thanks, Greg. So, just to add to that, I think, you know, what's important to recognize here is, you know, we certainly pay attention to the competitive landscape and the financial picture of some of the other companies. If you look at some of the overhead, some of the spending patterns that a lot of our peers have, it's unclear how, you know, how they can ever turn to profitability if they get into this kind of race to the bottom on pricing. So I think that would certainly be a short-term approach if that's their only lever to pull.
You know, I think what would make a lot more sense for the entire industry is for everybody to adopt a bit more of a, you know, a prudent approach to spending, so that the business model is reflective of, the fact that it's gonna take a while for the black market to be displaced. So from our perspective, you know, we think we have a business that is right sized from a spending perspective. I think we're one of the first, if not the first, to show EBITDA positive in the past, and certainly we return to that this quarter.
You know, I would certainly hope that the industry just operates in a reasonable manner, and they just become a bit more disciplined in their spending. Because you know, a price war doesn't really leave anybody as a winner, and I just don't think it's sustainable for the long run, so.
Erika Eiler (Associate/Analyst)
Great. Thank you for all the color. I'll pass it on.
Operator (participant)
Your next question comes from the line of John Zamparo from CIBC. Your line is open.
John Zamparo (Director and Senior Equity Analyst)
Thanks. Good afternoon. I wanted to get some thoughts on the balance sheet, and in particular, the use of the ATM. Just, just wanna get a sense of why you'd rather use this as a vehicle for capitalization rather than the available debt, particularly at these valuation levels. And just to confirm, the $25 million revolver, is that entirely at the company's option, or do you need to get approval from your bankers for that?
Paolo De Luca (Chief Strategy Officer)
No, it's not our option, but it's dependent on the level of receivables that we have with the provinces. We haven't chosen to utilize that yet because we still have, obviously, room on our term loan. The at-the-market offering, you know, as you can see, it's, we raised some money. We haven't raised a ton of money, but, you know, part of it is just us even just testing the market to see how it works. And, you know, we were certainly cognizant of the... There was a lot of this, essentially, a lot of downward pressure on the entire sector, in the fall.
We wanted to raise a little bit of money in advance of our earnings, just because I think there seems to be a perception out there that we certainly don't share, that we have, you know, potentially more capital needs. I think with the fact that our Moncton campus construction is in its final stages, we certainly are comfortable where we're at. The term loan, certainly, we intend to draw most of it, if not all of the remaining CAD 30 million at some point. We've got an extension on that, so that gives us flexibility.
So our goal really here is to have as many levers as possible to pull if and when needed, but right now we're doing this cautiously and drawing funds on a kind of reasonable basis, but not drawing unnecessary debt that will obviously cost us interest as well.
John Zamparo (Director and Senior Equity Analyst)
Okay. That's, that's useful. Thanks. Maybe move to wholesale revenues. And apologies if I missed it in the call, but we had a pretty significant composition of your revenues from wholesale. How sustainable are these? Have you seen them in Q2 to date? And just what should we expect over the coming quarters in the wholesale market?
Paolo De Luca (Chief Strategy Officer)
Yeah, I think where, John, we, you know, certainly as a quality producer and producing at a reasonable cost, I mean, you know, there has been demand. We know that a number of companies have based a significant part of their future on wholesale purchasing. And I think we've heard comments from those companies publicly in the past, or at least one of them, that they were discouraged with the quality of the product that was available out there. And so that's why we have had, you know, a couple companies turn to us as a potential source.
So, you know, we look to diversify our revenue base, and I think, you know, we also see this as an opportunity to, you know, we're very focused on two point O, and, you know, certainly even in the pre-roll, in the retail marketplace, not that we're not supporting dried flower. Dried flower is always gonna be a very strong part of our market. And we know based on the product we have, I mean, we talked about launching a couple new strains, and Limelight, the one strain, that we're, you know, moving towards really national distribution on in the provinces where we have sold it, it's sold extremely well.
So, you know, part of the decision to move forward with it was. I would say, in part, driven by inbound interest based on the quality of our product and also for us to look to diversify our base. I mean, one of the challenges we faced in the past, as you know, was some of the inventory management that was happening, you know, with. There was a lot of lumpiness, and having the ability to kind of diversify your demand rate is more consistent for us in our facility. It's been a positive for us, so we do see continued demand. You know, certainly our expectation in the future is, you know, certain players, it is part of their business case. So it's how they're built out.
But I'm not sure what that demand will be. But I mean, certainly in Q2, we do have demand at this point. I can't comment any further on what that demand is, but you know, certainly, it's been successful for us, and as I said, it helps us diversify our revenue stream.
John Zamparo (Director and Senior Equity Analyst)
Yep. Okay, understood. And then last one from me. Any commentary you can give on market share by region, and how it's trended over the past quarter or the past year, and in particular, Alberta, where we do see more fulsome store build-out?
Paolo De Luca (Chief Strategy Officer)
Yeah, it's probably our... Listen, our market share is growing in most provinces. You know, we just entered Quebec a few months ago. Alberta has been a very strong province for us historically and remains so to date. You know, we only really get detailed market information from three provinces, Ontario, Nova Scotia, PEI, but we kind of get ad hoc information or kind of anecdotal information on some of the other provinces. But we're very happy with our national position, certainly.
I think with the addition of our new strains, which have shown very high receptiveness by consumers, and Greg alluded to them earlier, Limelight, which is a high THC strain, which has sold out in our kind of limited offers that we've had in Nova Scotia and Alberta historically. We're just entering with that strain in Alberta now and Quebec shortly and Ontario, hopefully next month. I think you'll see a little bit of bouncing around once new entrants come into the market. I think what's important is to look at strains and brands that have consistent market share over a sustained period of time.
We're, you know, we're very happy, and we look forward, obviously, to the addition of stores in Ontario, where we've had a very good market position historically.
Greg Engel (CEO)
Yeah, the only comment I would add, John, I mean, certainly in Atlantic Canada, where we had such a dominant position, we, you know, we've certainly had declined market share as new entries and new products have come to market. You know, there was a period of time in the early days, as you know, in the rec launch, where we were the only product available in one of the provinces at a minimum. But, you know, still have a very strong market position, a leading market position, but certainly not at the same level we were for the first six months of rec launch. But, again, expect to get back to that point or in a strong, you know, continue to have a strong position with our new product entries going forward.
John Zamparo (Director and Senior Equity Analyst)
Great. Okay, understood. That's it for me. Thank you very much.
Operator (participant)
Your next question comes from the line of Graeme Kreindler from Eight Capital. Your line is open.
Graeme Kreindler (Analyst)
Yeah. Hi, good afternoon. Thanks for taking my questions here. I wanted to start off with the composition of revenue. Looking through the filings here, it looks like there was a CAD 1 million sales provision recognized this quarter. So I just wanted to go through the particulars in terms of what types of products those were related to. You know, how much of that provision subsequent to the quarter has been cleaned up, and, you know, what does the outlook look like for any additional provisions moving forward, I guess, with any of the products that have been identified in the past as being part of the returns there? Thanks.
Paolo De Luca (Chief Strategy Officer)
Yeah, Graeme, it's Paul here. So it's mostly THC oil and we had the provision for it Q4, and we had a bit more this quarter. You know, one of the things that I can tell you. So just to answer the last part of your question, we don't see any kind of icebergs on the horizon in terms of provisions or returns. There's obviously gonna be always gonna be dribs and drabs here and there, but one of the things that we've done that maybe we weren't doing six months ago is much more proactively looking at inventory levels at each of the provinces.
And we're, you know, in particular, Ontario, which I think if you know, if you have conversations with other LPs, you know, historically had some issues with inventory management. So right now, we're being proactive about how much inventory we keep at each of the provinces, and we're making sure that we de-risk kind of any large volumes that could bite us, you know, in the future. So I don't see that as an issue right now at all. But you know, keep in mind, we're just launching rec 2.0 now, so there's a whole new learning curve with some of those products.
But, right now, in terms of dried flower and pre-rolls, I don't see anything really on the horizon.
Greg Engel (CEO)
Yeah, and maybe I just add, Graham, you know, a comment on that is, you know, we've seen a big shift in order patterns, as Paul was alluding to, particularly in Ontario and Alberta, which are the biggest provinces. Like, you know, they're not holding as much inventory as they were historically, and so it is much more demand-based, and other provinces have gone to a more similar model, right? You really are. And even the approach, I mean, you know, I know there was a number of stories about this over the last little while since OCS launched live, you know, with their Rec 2.0 products. You know, they've had to reorder a significant number of products because they started out with very low inventory.
So it's a very different approach than historical, which means as an organization, A, we have to be flexible, but B, it also doesn't give you, you know, you don't have inventory that's going to go in and get, you know, not move. And that was part of the issue, right? We had certainly significant large orders for Ontario in particular, that did have an impact on exposure. And, you know, we're not the only company that went through having to take provisions or write-downs. But as Paulo said, we don't see anything else in the inventory levels at this point that provide any significant exposure.
Graeme Kreindler (Analyst)
Okay, thank you. I appreciate the color. And then on a separate note, looking at the gross margin, obviously, a very nice improvement this quarter compared to the previous quarter. I was wondering if you could provide some color on, you know, how quickly you think that the gross margin might bounce back towards, you know, the historical levels of 50% plus. And with the launch of these derivative products, are you expecting any sort of, you know, shorter-term margin headwinds as you get your supply chain down for those products? Thank you.
Paolo De Luca (Chief Strategy Officer)
Yeah, it's Paolo here. So I would say that, look, I mean, making a prediction of on anything in this industry is always challenging, and our margin obviously is a function of two things, our selling price and obviously our cost of production. On the selling price, we're obviously in a competitive market. So, you know, we think that our brands have good stickiness in terms of pricing that we have out there now. And we have obviously a sense of what prices we can get on our Rec 2.0 products. I do think it's a fair point on the costing for Rec 2.0. There is a learning curve, like there is in any other product launch.
So, do I think that the margins out of the gate are going to be as good as they will be a year from now? Probably not, or at least in terms of costing. But certainly, we target margins of kind of in, at that 50% range, and that's something that, you know, we've hit in the past. And given our culture in terms of cost management, our history of keeping costs under control, and just being prudent operators, we don't spend a lot of unnecessary money. I think we're best positioned or one of the better positioned LPs to hit those targets.
Greg Engel (CEO)
Yeah, I think just to add color.
Yeah.
Graham, I mentioned this earlier with Erika's call, comment was, you know, when you look at, you know, again, having that deep expertise in CPG with a manufacturing mindset as, as, as many of these 2.0 products, especially edibles, and our dissolvable powder, when we bring that to market, you know, it really does come down to, you know, how efficient are you producing the food product or the beverage product, right? It, it, you know, the cannabinoid cost is marginal, and I think that's where, you know, we have that expertise. We've invested in the automation and the equipment that will allow us to produce that, you know, at a, at a very good- at a low cost, right? But I mean, as Paulo said, there'll be some...
You know, there's some R&D processes you go through when you optimize a line and get it going at first. And, you know, but certainly, I would say the flip side of that was on dates. Like, I mean, there was really no... We did some initial very small formulation batches and, you know, then we went right into production batches successfully. So, you know, chocolate, we've had to do a bit more testing, but we're already at the point where we're, you know, we're into production batches, so.
Graeme Kreindler (Analyst)
Oh, okay. Thank you. And then, a final follow-up on that, I guess, as it relates to Phase 5. I saw there's disclosure of the remaining budget that needs to be spent at Phase 5, but I'm not sure if I missed it. Are you putting an exact timing of when you're expecting the facility to be fully commissioned for all the various products? Or, you know, how you're expecting the remaining, I believe, it's CAD 20 million to be spent over the next couple of quarters here?
Greg Engel (CEO)
So you know, certainly always dependent upon Health Canada from a licensing perspective, the perimeter of Phase 5 is completely licensed, and a portion of it is where our chocolate line is, where some of the dry rooms, some of the packaging is currently licensed. We did make a submission at the end of last year for that expansion space for the remaining 100% of the remaining areas within Phase 5. So you know, that is ongoing investment. And I think you know, certainly our expectation is currently you know, within this quarter and into the early in the next quarter, everything would be completed. You know, again, we are dependent upon Health Canada for licensing, but we've got a very strong historical track record with Health Canada on the licensing process.
So, you know, and again, it's always helpful that the premise is approved, so.
Graeme Kreindler (Analyst)
Understood. Thank you very much.
Greg Engel (CEO)
Thanks.
Operator (participant)
Your next question comes from the line of Douglas Miehm from RBC Capital Markets. Your line is open.
Douglas Miehm (Managing Director and Senior Equity Analyst)
Great. Thank you. Greg, when you think about the 89,000 kilograms that you're at right now in terms of capacity production capability, are you going to be running the operation at those sorts of levels, let's say, starting maybe by calendar Q2 of 2020? I'm just curious about that.
Greg Engel (CEO)
Yeah. I think we've already guided, even in this, you know, kind of here, that we, we even when Phase 4B was licensed, we started, you know, we're filling 4B, but historically, what we would do is start to fill the first room on the first day, and then within two days, we're filling another room or three days. So, we delayed that slightly. So to your point, Doug, so you know, we. We did not move on the typical acceleration schedule for filling that we have done historically. We will get there eventually, and, you know, we, we have a couple of rooms that we kind of have moved in and out of as storage space periodically as well. So, we have the capacity to grow that much, but we're not necessarily always, you know, growing that much.
But I think, you know, so to your point, by the summer, you know, are we going to be on that run rate? Yeah, reasonably, yes, but we're not, you know, we're not there right now in terms of what's actually going to be fully available for sale.
Douglas Miehm (Managing Director and Senior Equity Analyst)
Okay, but it's your intention to get to that level by the summer, so that if you had excess supply, you'd have to be selling that into the marketplace at, on the wholesale basis?
Greg Engel (CEO)
This is why, and we alluded to this, right? Our phase five facility is designed and built completely to EU GMP standards, so we, you know, we are working through that process. We, you know, again, getting the EU GMP is always dependent upon, you know, the regulatory authority in the jurisdiction you're working with, but certainly starting from scratch, designing the facility to that, you know, may provide an opportunity for us to expand more in the international markets. I mean, we have been selling to Australia for a number of years. We're seeing growth in that marketplace, but certainly we're looking at, are there other opportunities outside of Canada, so.
Okay, and then-
You know, and one of the comments, Doug, and we've talked about this before, is we've gone through a significant shift in terms of our product mix. So we know it was one of the, you know, the key aspects of our early success in having significant product in the market. We were able to get feedback on which strains were successful and which strains was high demand and high throughput. So, you know, we have shifted our production pretty significantly towards those, as well as designating a certain portion to limited time offers, right?
We are taking with a portion of our facility kind of a craft brew approach, where we'll be cycling different genetics through to bring something new, because there is a certain part of the market segment that's always, you know, looking for, "Hey, what's new?" And they're kind of more like a craft brew approach, so.
Douglas Miehm (Managing Director and Senior Equity Analyst)
Yeah. Great. And then, Paulo, just a quick housekeeping item. As we look out to the next couple quarters, number one, how will data be presented given the Cannabis 2.0 products? I imagine you're not going to be talking about grams in that case. And then maybe you could just also speak to it looks like a decrease in the carrying value per gram for flower and trim relative to August. And I was just wondering what happened there as well. Thank you. And that's it.
Paolo De Luca (Chief Strategy Officer)
Yeah, Doug, on the first question, I am actually probably going to wait and see just what, how the industry peers report, because they'll be reporting before OrganiGram, given many of the peers have December thirty-first, either year ends or quarters. But I don't anticipate reporting, you know, vapes and edibles in dried flower equivalent. So I have a bit of time to figure out exactly how we intend to report that, but I don't think, especially for edibles, that it's the appropriate measure to show kind of margin analysis, just because the vast majority of the cost of an edible is not the cannabinoid, but rather the input ingredients and the packaging. On your second question, yeah, that's it's good that you caught that.
You know, I think it's just where we are as an industry. There certainly is an abundance of you know trim and sweet leaf available in the marketplace. And from our perspective, we just think it's appropriate to carry that at a lower value given that the market dynamics have changed. And there's certainly from everything that we're reading between the Statistics Canada reports and other industry analysts, that that is not an in-demand product like maybe high quality dried flower would be. So that's why we've decided to take that as a measure of conservatism.
Douglas Miehm (Managing Director and Senior Equity Analyst)
Okay, thank you.
Operator (participant)
Your next question comes from the line of Neil Gilmer from Haywood Securities. Your line is open.
Neal Gilmer (Director and Head of Research)
Yeah, good afternoon. Paulo, maybe just to follow up on some of your comments, your prepared remarks on the operating expenses obviously did come down from the prior quarter, which you had an anomaly. Any sort of color you can provide us on sort of how you expect that to trend going forward? Obviously, as your revenue grows, I get that it'll decline as a percentage of revenue, but are you expecting more, much, you know, growth on an absolute dollar basis as you proceed through fiscal 2020?
Paolo De Luca (Chief Strategy Officer)
Yeah, look, from our perspective, we're going to obviously pull any discretionary spending in check where there's an opportunity to do so, and in particular, where we're in an environment where the growth isn't as accelerated as it maybe was a year ago. So, you know, from Q4 to Q1, we were very careful about our spend. It'll probably go up a little bit in Q2 just because we launched a marketing campaign that started in December. But again, well in line with where we would be comfortable at having that expenditure. So there will be growth in expenses, and we'll toggle it up and down, depending on how we view the forecast on sales and how we view the market developing.
I can't give you specific guidance, but I can promise you that it is always top of mind for us, and we will match our expenditure to make sure that it is consistent with where our sales are trending and that it is commensurate with the growth opportunities that may or may not exist.
Neal Gilmer (Director and Head of Research)
... Thanks. And then just a clarification question from when you ran through the CapEx numbers, CAD 20 million on phase five remaining to be spent. And then on the 4C, so I hear correctly, it was CAD 16 million, but CAD 13 million of that is what was earmarked for what you plan to do at some point, so that you've got a net CapEx right now, are expected of 23?
Paolo De Luca (Chief Strategy Officer)
No, sorry. It was of the CAD 16.3 million related was just like the final piece on 4B and 13 for 4C. I would say of the 4C, about half of it, we are kind of committed to spend or at least have deposits on equipment and materials to spend, and the other half we can defer. But again-
Neal Gilmer (Director and Head of Research)
Okay, so in and around CAD 30 million.
Paolo De Luca (Chief Strategy Officer)
Yeah, CAD 30 million, and we're very comfortable with our cash position in terms of all that, because we always get the CAD 34 million plus the undrawn term loan, plus the ATM. And so from our... And we just don't spend a lot of money, so it's not like we'll have some unexpected expense come through. So we're comfortable from our position, and we wanna always be in that position where we have sufficient capital resources.
Neal Gilmer (Director and Head of Research)
Great, thank you.
Operator (participant)
Your next question comes from the line of Rahul Sarugaser from Raymond James. Your line is open.
Rahul Sarugaser (Managing Director and Senior Equity Analyst)
Hey, thanks. Evening, Greg, Paulo, and Amy. Thanks so much for taking my question, and congratulations on the strong quarter. I just wanted to dig a little deeper on the CAD 9.5 million sold into the wholesale market. So I wanted to ask, so what volume of biomass was sold in this channel? What was the average price? And, given the higher quality nature of OrganiGram's product, how does your wholesale pricing compare to the spot prices you're seeing out there?
Paolo De Luca (Chief Strategy Officer)
Yeah, our volume in that market was approximately 2.6 million grams, and so the ASP would have been in the high $3 range. And sorry, what was the second part of your question?
Rahul Sarugaser (Managing Director and Senior Equity Analyst)
No, just the margin. But again, understanding that, you know, again, you're not packaging it, you're not putting labor against it, you're selling it in bulk.
Paolo De Luca (Chief Strategy Officer)
Yeah. So from our perspective, obviously, there's much less labor involved in wholesale and, obviously, less packaging because we're just shipping in large bags. So, from a margin perspective, it's pretty neutral. From our perspective, though, for the quarter, it was more a decision to make sure that we diversify our revenue base, and also, we have plenty of product coming off the harvest schedule. So we're, you know, it was an opportunity to develop those markets, and we look forward to bringing on some other wholesale buyers in this quarter.
Rahul Sarugaser (Managing Director and Senior Equity Analyst)
Great. That, that's really helpful. Thanks. And then just as a quick follow-up, I wanted to ask for an update on the development of your biosynthesis activities with Hyasynth, and in particular, how you see this as a potential input for your chocolate line, both private and white label.
Paolo De Luca (Chief Strategy Officer)
Yeah. So, you know, we'll certainly, we're seeing a lot of focus from Hyasynth right now in terms of optimization before going into commercial production, as well as continued development of minor cannabinoids. You know, they've certainly disclosed publicly, and, you know, we have to be cognizant of that, that they've been, you know, certainly successful to date in synthesizing both THC and CBDV. And, you know, they are working on a number of other minor cannabinoids. And I think, you know, the combination of producing major cannabinoids at large scale, as well as producing unique minor cannabinoids, is the future of biosynthesis.
You know, it's challenging to give a timeline because it is in part dependent upon the optimization process, but, you know, good progress, certainly, especially on optimization and then on minor cannabinoids as well. So, I mean, I know you know the CEO at Hyasynth well, so, you know, feel free to reach out to him for further color. But, you know, as an investor we're an investor in the company, so, you know, I guess that's the most disclosure we could provide at this point.
Rahul Sarugaser (Managing Director and Senior Equity Analyst)
Fair enough. Great. Thanks a lot. Thanks a lot. I'll hop back in the queue.
Paolo De Luca (Chief Strategy Officer)
Okay. Thanks, Rahul.
Operator (participant)
Your next question comes from the line of Greg McLeish from MRCC. Your line is open.
Greg McLeish (Analyst)
Hi, Greg. Just a quick question. How does the deferral in Alberta change your outlook for your Cannabis 2.0 products? Well, it's on the vape side, so how does that change your outlook for this year?
Greg Engel (CEO)
Yeah. So you know what's interesting is, you know, certainly, you know, that was a last-minute change. I mean, there were, you know, certainly, you know, was unexpected. You know, we knew early about Quebec, and then, you know, Newfoundland kind of, I guess, came out of, with that amount of notice as well. What I would say is that, you know, when we look at, U.S. states, for example, like Massachusetts, that put a hold on vaping products, and once they go through a fulsome review, they're in a position to say, "Okay, let's release it." Massachusetts didn't do that.
You know, I think there's a coordination going on here, both provincially and federally, to understand, you know, as we know, the vaping health-related illness cases out of the U.S., the CDC has reported that they are linked to vitamin E acetate, and they're linked to illicit vapes and counterfeits, you know, e-cigarette vapes. And the same is true in Canada. You know, there's been 15 cases reported to date, illicit vape products or counterfeit tobacco products. And I think, you know, Health Canada is. You know, there are prohibited substances, vitamin E acetate, propylene glycol, polyethylene glycol. Out of an abundance of caution, Health Canada is also, you know, they haven't prohibited MCT, but they have given direction to companies that they would not want to see MCT.
So I think part of the kind of review process that provinces are going through is just understanding in more detail what the risks are associated with. So we're optimistic, you know, that you know at least one of the or two of the provinces will make a decision to move forward at some point later in the year. You know, and again, it does allow us, because we see chocolates as such a big part, to also look to say, you know, "Can we pivot to that market now without vapes to provide more edible products," right? Because we have seen very good response to the edibles in the marketplace.
Greg McLeish (Analyst)
... Great. And just a question on the edibles. I was actually out at a couple stores last week, so I looked at it, and for the edibles, I was paying anywhere from $0.90 per milligram to $1.46 per milligram. So, you know, it was a $8-$12.95 edible. You know, that compares to about, you know, upwards of $0.10 per milligram in the black market. How fast do you think we're gonna see price compression come down on the edibles to make it more competitive with that, you know, with the illicit market?
Greg Engel (CEO)
You know, I think one of the things we've heard this now, even though, you know, in different parts of the country where edibles have been out since before Christmas, we've heard it in Ontario as well as... You know, one of the things that, you know, I think we've always known was that a lot of what's stated on an edible in the illicit market may not be factual, right? So people may think they're buying something, and it has this. Because we've heard commentary now that people, I know David Kideckel, for example, on BNN today, was talking about, you know, some of the responses and the surveying work that they've been looking at, you know, to see what people's responses to the edibles. So, you know, it's been a positive response.
The effect that they're looking for, they've received, and I think, you know, that's always the disconnect. You know, in an uncontrolled market with the illicit space, they can make a lot of claims, but doesn't actually factually have that product. And, you know, I think that's one of the key aspects, is understanding that. You know, I think you know, for people with that are concerned about contaminants, concerned about, you know, quality of the product that they're receiving, I think that's going to be important. And I know, you know, a lot of times we see the media focus on pricing as a differentiator, but, you know, in the industry, we need to continue to separate ourselves in terms of quality and testing and rigorous controls. And that's not only on edibles, but I think on vapes as well, right?
You know, consumers can be confident that they know that all of the vapes from the regulated market do not contain any of these prohibited substances.
Greg McLeish (Analyst)
Yeah, I agree with you on the vapes, because my... The vape I bought was CAD 0.26 per milligram versus CAD 0.075 for the black market ones. So, and just a housekeeping note, what amount of depreciation was in your cost of goods sold?
Paolo De Luca (Chief Strategy Officer)
It's typically it's about the non-cash the depreciation and the share-based comp is about a quarter of 25%. I don't have the breakdown within that, like, if you-
Greg McLeish (Analyst)
So was it around... You know, because your, the depreciation number for the quarter was CAD 3.7 million. You said it was CAD 240,000 in the G&A. So is the balance all in cost of goods, or is there some spread out of, in different areas?
Paolo De Luca (Chief Strategy Officer)
Yeah, if it doesn't go straight to the SG&A, it's going into our inventory, which then flows through the cost of goods sold.
Right.
Greg McLeish (Analyst)
Okay, so that means that your gross margin without it is up in the high, you know, 50s%.
Paolo De Luca (Chief Strategy Officer)
It's. We had the cash gross margin would certainly be higher than what's reported. Yeah, because we have-
Greg McLeish (Analyst)
Yeah
Paolo De Luca (Chief Strategy Officer)
... non-cash expenses. Absolutely.
Greg McLeish (Analyst)
Yeah. All right. Great. I'll get back in the queue. Thanks, guys.
Operator (participant)
Your next question comes from the line of David Kideckel from AltaCorp Capital. Your line is open.
David Kideckel (Managing Director, Senior Equity Research Analyst)
Hi, this is actually Frederico filling in for Dave. Congratulations on the results, and thanks for taking my question. So it's more of a big picture question. Given current industry conditions, what's your view on... Do you expect to see possible increased consolidation activity in the Canadian market in 2020? Do you think that that may be a key theme going forward?
Greg Engel (CEO)
You know, I think we get asked this question a lot, so I think there's kind of two aspects to look at, right? One is, there are a lot of companies that are struggling today. We've seen, you know, two companies, with Wayland and AgMedica, file for bankruptcy and insolvency protection. You know, they will not be the last company to do so. I think the capital markets are very tight. I think whenever we look at opportunities to, you know, to acquire companies, you have to. You know, our focus is very much in terms of, do they have technology that differentiates them? What is their costs? You know, what, what's the rationale for doing an acquisition?
So I think, I think with consolidation, you know, it's really dependent upon, you know, what is available and what the assets are, right? I think, you know, ideally, you want to look as you would in any industry, at accretive acquisitions. And if it's not accretive, is there technology or efficiency aspects that come along with it? You know, that's my perspective in terms of, you know, how we've approached them. You know, there's well over 200 licenses right now. Many of those companies are not going to survive, but it certainly doesn't mean that they'll be acquired or rolled up into other companies.
David Kideckel (Managing Director, Senior Equity Research Analyst)
Okay, great. Thanks.
Operator (participant)
And your next question comes from the line of Matt Bottomley from Canaccord. Your line is open.
Matt Bottomley (Analyst)
Yeah, thanks. Just wanted to follow up a little bit on your responses to some of Doug's questions about potentially how Cannabis 2.0 is going to be shown in the MD&As across the industry and what your plans are for that. So, you know, hearing that it's still early stages for that, is there any other color you can give us with respect to maybe the proportion of the retail price that LPs or yourself specifically is getting? We see typically for dried bud, it's anywhere between 50% or 60%, whether you're looking at it net or gross. Is that a fair way of looking at it when it comes to a vape pen or an edible in terms of that ratio?
Or is it all over the map, depending on availability of product right now?
Paolo De Luca (Chief Strategy Officer)
... Yeah, I'm not sure. If your question is, is the markup the same on these products at the level or the margin that we-
Matt Bottomley (Analyst)
Yeah, I guess, you know, we can see, you know, that the high end of vape pen goes for $125. So is an LP getting $60 of that on the wholesale if we use the same proportion for dried bud, or is it a completely different animal?
Paolo De Luca (Chief Strategy Officer)
From what I understand, I don't have a definitive answer on this. My understanding is the markup model is similar, and you know, we've certainly gone through a competitive bid process similar to what we did a year ago with flower, and there's you know, some back and forth with the provinces, but my understanding is that they're looking to get pretty much the same markup on their end, and from our perspective, we're trying to obviously make sure that we have sufficient margin that we can live with as producers.
Greg Engel (CEO)
Yeah, I, you know, I'd add, Matt, you know, we've worked in concert with all the provinces and jurisdictions, you know, on Cannabis 2.0 products, you know, with the exception of Quebec at this point. I mean, although we, we certainly see a tremendous opportunity for our dissolvable powder for beverages there. And, you know, I think what we've been cognizant of is, you know, as Greg McLeish asked earlier, you know, what ultimately is your price in the market? We, you know, we certainly want to make sure that we've... It's a partnership approach, so that when you're looking at pricing, you're looking at margin, is it going to come at a reasonable price? But there is some slight variations. A couple provinces have taken a little bit of a different approach by category.
You know, we have seen, for example, already some differences on taxation, right? We know, BC has taken an additional tax on vapes, you know, as part of their e-cigarette tax. But I think in general, the market margin approach should be, is very similar, you know, based on our pricing going in. But yeah, it, you know, it. There may be exceptions to that, and I think one certainly, you know, there's also going to be that period of time. You know, we saw this on gel caps, for example, right? The gel caps set company. We didn't have gel caps, but companies that had gel caps out in the market, at the end of the day, they were priced too high. And they were, in conjunction with the companies, they pulled back pricing, right?
You know, was there consumer pushback on it? And there was. But at this point, you know, pricing has not seemed to be an issue, I think, except for the, you know, you mentioned kind of some of the vape products that are well over the CAD 100 mark, that might be out of reach for a lot of people, but it depends on what the product is.
Matt Bottomley (Analyst)
Got it. And then maybe just one quick follow-up. You know, looking into the next quarter or two, obviously, there's a dynamic process going on right now, where it seems like the... And this may not impact OrganiGram as much, but it seems like there's a huge influx of inventory coming in for dried bud at these wholesalers that might stifle growth of provinces rebuying or buying more dried bud. And then you have Cannabis 2.0, that's sort of coming online at the same time. So given the fact that you had significant wholesale this quarter, that you could tell me if you can, in terms of the magnitude that that might repeat, I imagine it could be lower.
So is that gonna be offset by what's happening in Cannabis 2.0, or, or can you just maybe tighten up some of those dynamics with respect to what's happening right now on those levels?
Greg Engel (CEO)
Yeah. So I think I answer that in two ways, Matt. One is that, you know, we've had companies approaching us about purchasing wholesale product, right? Because they have had challenges, they've purchased product from other companies. You know, this is new to us as a business model, and we've chosen in the past not to do so, because of the quality of our product, right? So this has been very much driven by consistency, quality, opportunity. So, you know, I believe, you know, certainly we already know in Q2 that we continue to have wholesale sales. You know, will that continue at the same level? I think it's really dependent upon, you know, the other product, because there is, we all know there are big differences in terms of product quality.
You know, the second point to Cannabis 2.0 is, you know, we are striving, you know. We've given as much guidance as we can to when we are going to launch different products, with, you know, the Feather product as well as our chocolates, and our future sales of PAX. But I mean, always you are, you know, it's timing issue, but certainly, the demand is there, and when you get the product out. So we, you know, that's why we are not giving guidance for the, you know, for Q2 at this point, because it can have a significant fluctuation based on an order date. We've had that happen in the past, right?
Where, you know, a significant order went out in, you know, in one quarter, went out, you know, two days before the end of the quarter, landed, was counted in the quarter. In another instance, you know, we shipped to Quebec a couple of days after the quarter, right? So those can have big variations on its revenue on a quarterly basis. And I think you have to look at trends and look at kind of what those things are going forward.
Matt Bottomley (Analyst)
Perfect. And sorry, just within that answer, are you able to comment on if the provinces are decelerating the purchases of the dried flower, given where inventory levels are at the provinces?
Greg Engel (CEO)
I would say they were. I think in general, overall, they're not. They haven't decelerated, but they haven't. They're not holding as much inventory, right? There's still a demand for flower. You know, what's interesting with 2.0 is it's brought a lot of new consumers into the store, as well as people from the black market now looking, but we have seen their general inventory levels decline, but their order frequency increasing.
Matt Bottomley (Analyst)
Got it. Thanks a lot, guys.
Operator (participant)
We only have time for one more question. Your final question comes from the line of Justin Keywood from Stifel GMP. Your line is open.
Justin Keywood (Managing Director and Healthcare/Special Situations Analyst)
Thanks for taking my questions, and glad to get it in. Just with the Ontario market opening up with many more stores, I'm wondering, how does the sales and marketing strategy evolve here? Will you be making more investments to maintain or gain market share, or are there any new initiatives to implement?
Greg Engel (CEO)
So, Justin, thanks for the question. So, I think when, you know, we had anticipated, certainly in advance of the rec launch, you know, we have a national sales team across the country. We also have a training group that focuses on, you know, training budtenders and staff. So, it's a combination of sales and training. And, we have been fully staffed up for Ontario since day one because they, you know, kept being signaled they were gonna expand, gonna expand. So, we already have the footprint, and our focus very much continues to be enhancing the retail experience, working with, you know, the retailers, to make sure that they understand our products. We do do some marketing in store, depending on the province.
In Ontario, there, that is allowable, so you do see some, but it's limited in terms of the spend. It's really more about, you know, the sales team and the trainers spending time, as well as providing tools, right? We were very early. We're the first company to have a terpene guide out that's routinely used across all the stores, things like that. So, you know, as the store footprint grows, yes, at a certain point, we will have to expand the sales force. You know, but we certainly have a pretty good footprint today versus the next six months in terms of the number of stores.
Operator (participant)
Ladies and gentlemen, this concludes today's call. We thank you for your participation. You may now disconnect.