OrganiGram - Q4 2020

Transcript

Operator (participant)

Good morning. My name is Michelle, and I will be your conference operator today. At this time, I would like to welcome everyone to Organigram Holdings Inc.'s fourth quarter full year 2020 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 you to limit yourself to one question and one follow-up question. You may queue if you have further questions. As a reminder, this conference call is being recorded and replay will be available on Organigram's website. At this time, I would like to introduce Amy Schwalm, Vice President, Investor Relations. Please go ahead.

Amy Schwalm (VP of Investor Relations)

Thank you, Michelle. Joining me today are Organigram's Chief Executive Officer, Greg Engel, Chief Financial Officer, Derrick West, and our Chief Strategy Officer, Paolo 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 today's press release regarding various factors, assumptions, and risks that could cause our actual results to differ.

Furthermore, during this call, we will refer to certain IFRS measures, including adjusted EBITDA and adjusted gross margin. 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 these measures. I will now hand the call over to Greg.

Greg Engel (CEO)

Thanks, Amy. Good morning, and thank you for joining us today. This morning, we reported our fourth quarter and full year fiscal 2020 results for the period ended August 31st. For the full year, gross revenue was CAD 103.4 million, and we grew net revenue, which excludes excise taxes, to approximately CAD 87 million. We are also very pleased to report positive adjusted EBITDA for the second year in a row. Most of our discussion today will be centered on our Q4 results as the first three quarters of the year have been addressed in past calls. Since we last spoke with you in July, our product portfolio has changed quite dramatically, as we said it would. We've launched 40 new SKUs, including some novel products across a number of categories and segments, and there's still more to come.

At the same time, this is all being against a backdrop of meaningful growth for the Canadian adult rec market. It's been exciting to do this as we continue to plant the seeds for long-term growth and challenges presented by the global pandemic. Our Q4 2020 net revenue grew 25% from the prior year period and 13% from Q3 2020. We had higher flower sales in Q4 2020 as the large format value segment continued to grow, and our expanded offerings in this segment resonated well with consumers, and of course, Rec 2.0 sales contributed to our growth as a year ago, the products were not yet legal. Lastly, we are extremely pleased to make our first shipment to Israel under our supply agreement with Canndoc, a leading Israeli medical cannabis producer. To date, this is Organigram's largest international deal, and we're Canndoc's exclusive supplier of indoor-grown cannabis.

As you may know, the Israeli Ministry of Health recently amended its quality standards for imported medical cannabis. Very encouragingly, we recently identified a plan to comply with these updated standards and believe that we can continue to supply the product into the Israeli market once it is successfully implemented. Q4 2020 gross revenue increased 32% versus the net revenue increase of 25% from the same period last year. Gross revenue better reflects the magnitude of sales volume shipments, especially since dried flower represents the largest category in cannabis by far. As average selling prices per gram have decreased in the industry, the percentage of excise tax of the gross sale price has increased significantly. Therefore, to achieve the same level of net revenue, more dried flower has to be sold as compared to last year.

As we guided with last quarter's results, we did not expect significant growth in our adult use rec sales in Q4 due to the timing of our launches as part of a broad portfolio revitalization. Introducing forty new SKUs since July has been extremely busy, particularly as the industry began growing at an accelerated pace. Coupling this with the fact that we had a leaner workforce, which not only reduced cultivation levels, but also processing and packaging capacity, these factors contributed to certain launch delays and missed purchase order fulfillments in late Q4, and to some degree in Q1, too. In some ways, a number of our products were a victim of their own success, with better than expected initial sales such that we had stockouts. SHRED was one example.

We are evaluating our processes and supply chain, including the benefit of gradually scaling up staffing, to improve order fulfillment rates and realize more sales opportunities. We are progressing well through our portfolio revitalization, with up to 18 new SKUs expected in Q2 fiscal 2021, and remain committed to offering innovative products. We conduct proprietary consumer research to help us identify the attributes that cannabis consumers want most, and we're very encouraged by the initial reaction we're getting and early signs of success for many of our new products. I will take a moment to recap some of the more notable ones. Across Rec 1.0 and 2.0, dried flower remains the largest category in the Canadian adult use rec market, and we believe it will continue to dominate based on what we've seen in more mature markets in the U.S.

There has been significant growth in the dried flower large format value segment, and competition has intensified. With the onset of the pandemic, value products in large format were increasingly the focus of consumers, as many of them either were forced to or preferred to order online or take advantage of curbside pickup or delivery. Our first value offering in a large format, originally entitled Trailer Park Buds, which is now simply known as Buds, launched in fiscal Q3, and we believe it doesn't just compete on price alone. It offers product that is indoor grown, whole dried flower, and strain-specific. Our values segment strategy also includes dried flower offerings that were launched in larger format sizes of seven-gram and 15-gram under the Trailblazer brand. In mid-September, we expanded our value portfolio with the launch of SHRED.

This product continues to perform well for us, and we are seeing retail store sell out where it is carried. It really resonates with consumers that it is high quality, high-potency dried flower that is pre-shredded for convenience at Organigram's most affordable price currently offered on a per gram basis, and it is made from whole flower. High-potency THC continues to be a key attribute for consumers as well as cultivar diversity. In early August, we launched three new THC strains under the Edison Cannabis Company brand, The General, or under its street name, Grapefruit GG4, Chemdog, and a limited time offering, Samurai Spy, or its cultivar name, Ninja Fruit. Going forward, we will consider using street generic names for many dried flower products to the extent we believe they will resonate even better with consumers.

We are making investments in new genetics and improved cultivation processes to increase THC potency, and we'll introduce new strains into the highly important dried flower and pre-rolls category. In addition to Rec 1.0, we plan to expand our Rec 2.0 offerings, which we think will become a larger relative category, more in line with mature US legal markets. At the end of July, we launched Trailblazer Snax, our cannabis-infused chocolate bar in mint and mocha flavors. With 10 milligrams of THC in every bar, each of the five sections of the bar are filled separately, which allows for higher accuracy of infusion and microdosing. Trailblazer Snax is our value segment chocolate offering and our second product type in the chocolate category after launching Edison Bytes in four SKUs earlier this year.

In time for the holidays, we also announced the launch of a fifth Edison Bytes chocolate in the seasonal gingerbread flavor for a limited time. These only came to market recently, but initial sales have been among the top sellers in their subcategories. In addition to the gingerbread Bytes, we've also offered another limited time-only seasonal product, Trailblazer Christmas Stix, an affordable 0.5 gram pre-roll in a festive green box that is a perfect basket add-on or stocking stuffer just in time for the holiday season. Turning to our vape portfolio, we offer products for the value, mainstream, and premium segments of the market already with the Trailblazer Torch cartridges, Edison Feather disposable pens, and PAX Era cartridges. Before the end of fiscal 2022 Q2, we expect to launch Trailblazer 510 Torch vape cartridges in a 1-gram format.

This will extend our lineup to a suite of trial size at 0.5-gram and full-size 1-gram cartridges for the 510 vaporizer. Lastly, rounding out our Rec 2.0 portfolio is our Edison RE:MIX dissolvable powder. This product just landed in some provincial retail stores, so we don't have an initial sales read yet. But recent data in Colorado, for example, show cannabinoid-infused powders have quickly risen in popularity, comprising 55% of the state's beverage market. In fact, 46% of cannabis consumers reported enjoying cannabinoid-infused beverages multiple times a day, according to Headset data. In Canada, estimates suggest that the cannabis adult use beverage market is a CAD 467 million opportunity, as it is expected to increase by 15-fold its current market size over the next 5 years, as per The Brightfield Group.

We also conducted a survey recently, which indicated a large majority of consumers would prefer to add cannabis to their drink rather than consume a pre-mixed cannabinoid-infused beverage. For traditional edibles, beverages, and ingestible oil-based extracts, the body spends significant time breaking down fat-soluble cannabinoid particles before they can be absorbed and before effects are felt. Our R&D team developed a proprietary nano-emulsification technology that generates nano droplets, which are very small and uniform for Edison RE:MIX. We believe RE:MIX provides enhanced bioavailability, both improved speed of absorption and improved total absorption compared to traditional edibles and beverages, potentially allowing for a more reliable and controlled experience. The nano-emulsion technology is also anticipated to have increased stability to temperature variations, mechanical disturbance, salinity, pH, and sweeteners.

The powder formulation also offers the discretion, portability, and shelf life expected of a dried powder formulation. Before I pass the call over to Derrick, I do want to highlight a couple of recent achievements that occurred subsequent to quarter end. First, as announced in October, we invested an additional CAD 2.5 million in Hyasynth Biologicals Inc., a cannabinoid biosynthesis company. The additional investment was tied to a successful completion of a milestone linked to the first commercial sale of CBDA.

CBDA is a natural precursor to the naturally occurring form of CBD, which is converted to CBD in processing. The product was manufactured through the enzymatic conversion of a protein produced from genetically modified yeast, which is the process of biosynthesis. The additional investment brings our total investment in [audio distortion] to CAD 5 million, representing a potential ownership interest of up to 46.5% on a fully diluted basis.

We believe the biosynthesis process has some definite advantage over traditional cultivation, particularly as it relates to the feasible production of minor and rare cannabinoids, and as an alternative path to producing pure major cannabinoids, so we are very excited to watch this space evolve and Hyasynth progress in it. Also, post-quarter end, we raised approximately CAD 69 million in gross proceeds from an underwritten public offering, including the exercise of the over-allotment option. We opportunistically took advantage of financing with strong institutional support that became available.

We believe that deleveraging our balance sheet puts us in a more agile position as the sector continues to see both growth as well as capital markets volatility. This raise substantially strengthened our balance sheet, which Derrick will describe further. So I'll pass the call over to him now and then come back to wrap before we take your questions.

Derrick West (CFO)

Thank you, Greg. I will start with our financial position. As Greg just mentioned, we recently closed an underwritten public offering of approximately 37.4 million units, including exercising the over-allotment option at a price of CAD 1.85 per unit. We expect to use the net proceeds for working capital and other general corporate purposes, with the majority of it being used to pay down our term loan balance. The latter was agreed as part of an amendment and restatement of our credit facility, which we just completed on Friday and is now available on SEDAR. On December first, tomorrow, we will use the proceeds from the offering to repay CAD 55 million on our term loan to reduce the balance to CAD 60 million from its current CAD 115 million.

After this term loan repayment is completed on December first and excluding the CAD 8 million restricted investment, on a pro forma basis, we would have CAD 80 million in cash and short-term investments and CAD 60 million in long-term debt. Turning to our results for Q4. Gross revenue increased 32% to CAD 25.4 million, from CAD 19.2 million in the same prior year period. Net revenue grew 25% to CAD 20.4 million, from CAD 16.3 million in the same prior year period. As Greg mentioned, higher flower sales, international sales, and the Rec 2.0 revenue were among the largest contributors to this increase. We also recorded a lower sales provision for returns and price adjustments of CAD 2.2 million, and as compared to CAD 3.7 million in Q4 as compared to Q4 2019's comparison period.

Q4 2020 cost of sales was CAD 29 million, which increased from CAD 15.5 million in the same prior year quarter, primarily due to higher sales volumes and a non-cash inventory provision of CAD 11.1 million for excess and unsaleable inventory. Of the CAD 11.1 million, CAD 8.3 million related to excess trim and concentrate, and CAD 2.8 million consisted of adjustments to net realizable value. As we indicated with last quarter's results, we expect a negative non-cash adjustment to cost of sales for unabsorbed fixed overhead costs to persist as we plan to produce below full capacity for the foreseeable future. In Q4, these negative non-cash adjustments amounted to CAD 3.5 million.

Q4 2020's adjusted gross margin increased to CAD 16.2 million from CAD 1.5 million in Q4 2019, on higher sales and a lower sales provision for returns and pricing adjustments. The IFRS gross margin for Q4 2020 was negative CAD 20.8 million, compared to a negative gross margin of CAD 11.1 million in the prior year period. The variance was largely related to higher non-cash provision and negative fair value changes to bio-assets and inventories during Q4 2020. We continue to expect some production inefficiencies to persist, which will impact gross margins while we launch new products and optimize production. Our portfolio revamp is ongoing, and we expect to gain efficiencies when the product launch schedule normalizes.

Q4 2020 SG&A of CAD 10.8 million decreased 22% from Q4 2019's amount of CAD 13.9 million, and the current quarter's SG&A as a percentage of net revenue was 53%, compared to 85% for Q4 2019. The Q4 2020 SG&A reflected our reduced spending during the ongoing COVID-19 pandemic, and it was largely in line with the current year's Q3 SG&A of CAD 10.3 million. As a percent of net revenues, the Q4 SG&A of 53% was a decline from Q3's 57% of net revenue. As in the past, management continues to closely monitor discretionary and below the gross margin expenditures. Q4 2020's adjusted EBITDA was a negative CAD 2.7 million. This improved versus the negative adjusted EBITDA of CAD 7.2 million for Q4 2019.

This improvement was largely due to the current reporting period's improved adjusted gross margin. We recorded a net loss of CAD 38.6 million, or CAD 0.199 per share on a diluted basis during Q4 2020, as compared to a net loss of CAD 22.5 million, or CAD 0.144 per share in the same prior year period, primarily due to greater negative gross margin in Q4 2020. Q4 2020's net cash used in operating activities of CAD 10.1 million was a decrease from the CAD 15.7 million used during Q4 2019. This reduced cash outflow was largely due to the prior period's increase to working capital assets, as we had scaled operations ahead of Rec 2.0 legalization. That concludes my formal remarks. I will now turn the call back over to Greg.

Greg Engel (CEO)

Thanks, Derrick, and I just want to clarify one comment Derrick had made. So the adjusted gross margin was CAD 6.2 million, so just wanted to clarify that. So looking ahead, we remain positive on the prospects for the industry and Organigram. The annualized run rate of the Canadian adult use rec market was estimated to be a record CAD 3.1 billion, based on the most recent data available from Stats Canada for September 2020. This is an increase of approximately 109% from September 2019. There are a number of factors creating tailwind to industry growth. A large factor is the much-anticipated increase in the number of retail stores in Canada. Since July, the store count in the provinces grew by 33%, driven by Ontario's cannabis retail stores growing 140%.

Ontario is now on pace to add up to 40 stores per month and sits close to 250 stores right now, so you can see that there is material growth still expected. The legalization of Rec 2.0 is another big tailwind. Product forms in these categories are still being rolled out, with new SKUs bringing enthusiasm to the legal market. Consumers are very much still in the exploratory stage and willing to experiment as a broader selection and new product forms, such as our RE:MIX powder beverage, are made available. Outside of Canada, we continue to serve international markets, including Israel and Australia, via export permits, and look to expand sales channels internationally over time.

I don't think I could end my remarks without acknowledging the recent significant political changes in the U.S. and the ballot initiatives for both medical and adult rec cannabis use. They suggest the potential move to federally legalize THC may have stronger momentum, yet the outcome and timing remain difficult to predict. As we continue to monitor and develop a potential U.S. THC strategy, we look to evaluate CBD entry opportunities in the U.S., which we've been doing for quite some time. Our view is that it is better to measure twice and cut once, and to continue to be selective on our opportunities we actively consider. We are focused on discipline, capital allocation.

Fiscal 2020 was nothing short of an eventful year for us and the industry. We entered the vapes and edibles market with a broad and innovative suite of products and continue to launch new products. We signed our largest international deal to date with Canndoc in Israel. We invested additional funds into our biotech partner, Hyasynth, as they made notable progress in cannabinoid biosynthesis work.

Significant expansion CapEx related to our facility is behind us. We strengthened our balance sheet recently for greater financial flexibility and the ability to act on potential opportunities, always with a view to enhancing shareholder value. Our strong culture of cost management and prudent discretionary spending helped us report positive Adjusted EBITDA for the second year in a row on the back of a strong revenue growth, and we have a backdrop of accelerated industry growth as retail stores expand in Canada's largest rec market.

In closing, we are excited about our products, our partnerships, and the year ahead. We are working tirelessly at enhancing our agility and execution to capture more market share and top-line growth, and as always, we are working to pursue profitable growth in an effort to generate attractive return on investment for shareholders. That ends my prepared remarks. Operator, if you could go ahead and open up the line for questions.

Operator (participant)

Okay. At this time, if anybody has a question, please press star one on your telephone keypad. Again, we ask that you have one question and one follow-up, and then you can get back in the queue. Your first question comes from Aaron Grey from Alliance Global Partners. Your line is open.

Aaron Grey (Managing Director and Head of Consumer)

Hi, good morning, and thanks for the questions. So first one for me, strictly on the vape segment, it looks like quarter-over-quarter, revenues did come down a little bit. So just wanted to know if you could kind of talk about, you know, the trends you're seeing there. Obviously, it's been a pretty competitive category, so just any further color in terms of the drivers, and which may be impacting guidance, some pricing pressure and the competition there, and the margin, kind of how do you see that evolving for you guys? Thanks.

Greg Engel (CEO)

Yeah. Thanks, Aaron, for the question. Yeah, so I mean, certainly, we're one of the companies that offered a fulsome vape portfolio, so having, you know, a premium mainstream and a value offering. We have seen more competition come into the marketplace, and with that, you know, we have had to take some pricing adjustments as well. You know, I think, you know, again, as we've seen with dried flower, consumers are looking at times to try new products, so that has put...

But, I mean, certainly, we're very excited about, you know, certainly our 510 cartridges continue to perform very, very well, and we're excited about the upcoming launch of our one gram in this next quarter, which we believe has an ability to, you know, really have an impact on the market because of the success we've seen on one grams in U.S. state markets.

Aaron Grey (Managing Director and Head of Consumer)

Okay, great. Great. Thanks for that comment. Then just second one from me before I pass it on. You know, you spoke about, you know, the increased brick-and-mortar that we've begun to see in Canada, up 30%, you know, since July. So would just like to get some commentary in terms of, you know, how you think that comes into your plan to more fully utilize your cultivation space as you start to see, you know, 40 stores, you know, per month in Ontario, like you just mentioned. And then just like, you know, any color we might be able to get in terms of, you know, the first quarter, now that we're, you know, pretty well through it, in terms of how that might have come through the top line in terms of seeing the, the benefit of the increased brick-and-mortar there. Thank you.

Greg Engel (CEO)

Yeah, I think so. We're you know, first of all, on the kind of expansion of the rec space. I mean, you know, one of the things for us, and I alluded to this in the call, is that we are looking at starting to increase our cultivation, production, and production. You know, we've got space that's not being fully utilized at this point, and certainly as the market demand is growing and increasing, we are you know, right in the midst right now of looking at plans to start to scale back up. So that would involve potentially bringing in some additional staff back in for both, you know, cultivation and downstream processing.

And it was one of the impacts, certainly, that impacted us in Q4 was, you know, we were juggling between, you know, one area and another area in terms of packaging. So, you know, you hit the nail on the head in terms of we've got the capacity, so now is the time to start to bring that on. As far as Q1, you know, I guess the comments that we make is we are still in the midst of, you know, the portfolio revitalization, and we've got new SKUs coming to market.

We have had, you know, as I said in the call, you know, we've had still some stock outs and certainly some lost sales opportunities in the near term. But, you know, again, we are excited to bring those new products into market, not only the ones we've brought in Q1, but also into Q2. So, beyond that, I wouldn't give any kind of guidance on Q1 at this point.

Aaron Grey (Managing Director and Head of Consumer)

Great, thanks. I'll jump back in the queue.

Operator (participant)

And your next question comes from David Kideckel from ATB Capital Markets. Your line is open.

David Kideckel (Managing Director and Head of Life Sciences)

Hi, good morning, and thanks for taking my question, and congrats on the quarter. I just wanted to go into your international component of revenue for a second and tie that back to flower as well in Canada. In reading through some of your financial statements, we're looking at revenues in Israel, we think, just north of CAD 3 million. So the remainder would be mostly 1.0 products in Canada and mostly flower, we think, as you've indicated in your prepared remarks and press release.

I'm just wondering, moving forward, how important and significant internationally is Israel, in particular, gonna be for you? I get that you have the exclusive supply agreement with Canndoc. That said, Israel is a relatively, as you know, Greg, and others, a small market, lots of competition, et cetera. So just trying to understand how should we be thinking about Israel moving forward as a overall line item from a revenue perspective? Thanks.

Greg Engel (CEO)

Yes. Thanks, David, for your question. Yeah, so I think, you know, a couple things I would say on Israel. So again, just to clarify, we're the exclusive supplier of indoor flowers. So, you know, that's the product line that we provide to them. You know, there has been some recent changes in Israel in terms of their medical cannabis system. So, we're working to ensure that, you know, we're in a position to continue to supply, and we've identified an appropriate path for that. You know, we've had great success with the product and, you know, that we have sold in there, and certainly, one of the strains is already sold out. And, so, you know, we see Israel as a market that, you know, will continue to grow.

While there is a lot of competition, we also, you know, struck this deal with Canndoc as a possible path for them to work to process product in the future, because of their certification and to be able to sell into other European markets. So the agreement is twofold. It's, you know, to focus on the Israeli market, but it's also for potential access to the European market, via Canndoc as a partner. So you, I think there's two ways to look at it from that perspective. And now the other point, just to your first part of your question.

Yeah, I mean, flower continues to be a very important part of our market, which is why we've invested in new genetics, and we've been spending a lot of time on bringing new genetics and new offerings to the market. Higher THC products, a broader variety as we've seen consistently, where consumers more like a craft beer type market, where cannabis consumers are looking to try different and new products on an ongoing basis. So we, you know, we continue to invest in that area.

David Kideckel (Managing Director and Head of Life Sciences)

Thanks for that color. Very helpful. And my second question, I wanna go back to Hyasynth for a second, and if I heard you correctly, Greg, you'd mentioned CBDA as one of the precursor cannabinoids there. I'm just wondering, does this mean you're gonna start leveraging that cannabinoid first in some of your 2.0 products, or is it CBD? And whichever cannabinoid it is, I guess my overall question is on Biosynthesis, is which 2.0 products do you think are most amenable right off the get-go for biosynthetically derived cannabinoids? Thanks.

Greg Engel (CEO)

Yeah, it's a great question, David. I mean, so, you know, really excited. Again, it's important to note that Hyasynth, that this was the first, you know, as far as we're aware of and they're aware of, the first successful commercial sale, production and sale of any, cannabinoid produced through biosynthesis. And you know, they had a potential purchaser or buyer that was interested in CBDA, so that was the product they ended up producing. You know, right now, their focus in discussions with Hyasynth is, you know, they have 23 cannabinoids in their portfolio. Nineteen of those are minor cannabinoids, I think each uniquely positioned. And I think, you know, I've mentioned this on previous calls, you know, where we're really excited about in the future, I think there's two paths for biosynthesis.

One is, you know, producing a pure major cannabinoid for potential use in products, and not only products that we would potentially produce, but possible partners that Hyasynth could partner with, you know, in other industries. But I think more importantly is the minor cannabinoids, and certainly there's a number of them that we are looking at, you know, and I'll give an example of THCV, for example, where THCV, you know, has similar effects to THC, but does not necessarily induce an appetite in the same manner, at least from anecdotal reports. So I think there's a lot of opportunities for some of these minor cannabinoids in the adult rec market.Okay, thanks for that, and congrats on the quarter. I'll hop back in the queue.

Operator (participant)

And your next question will come from Andrew Partheniou from Stifel GMP. Your line is open.

Andrew Partheniou (Director of Research)

Thanks for taking my questions. Maybe if we could discuss, you know, the new SKUs that you guys have rolled out and the ones that are expected to come. Could you provide any kind of metrics on how well those SKUs have performed? I know you mentioned that some of them, you know, sold extremely well and have had stockouts, but wondering if you could give a little bit more color. And you know how should we think about that? Should we, going forward, kind of be expecting that this had maybe started off with relatively lower volumes, then this will continue to ramp up, or was this more of a step change for you?

Greg Engel (CEO)

Yeah, and thanks for the question, Andrew. I think the way to look at it in the same way in the past where we've brought a few new SKUs in, right? So we bring the offerings to market, so in this place, we had three very specific dried flower SKUs, for example. We look to see what market response is. We're planning for increased production around the SKUs, but certainly, when we see a great response like in the past with our Limelight, we double down or quadruple down on production of that strain, right? Really good response. So, and there's no question, you know, that that's been the case here.

You know, one of the challenges when you're bringing, you know, new flower products in particular, and even new SKUs to market is, there is a timeline to get listings in different provinces, as you know, so you know what impact you're seeing from the market, so getting that feedback, you know, is variable, but certainly, you know, that is our plan, right, so bring those new SKUs in. The ones that are performed well, we'll, you know, we'll continue to increase production on them, and the ones that didn't perform as well, we'll reduce cultivation on them and pivot to other items, so in addition to the, you know, the three recent launches of new strains, we've got additional strains coming up in Q2 and into Q3.

So, but yeah, I think, you know, it's important to continue to supply, you know, that there's that base of products like, you know, our Limelight, for example, is our, you know, is our top-selling, you know, flower product and continues to be, which has been great. But again, I think there's opportunities for some of these new strains, in particular, the ones that are unique and are high THC to really position themselves well in the marketplace.

Andrew Partheniou (Director of Research)

Thanks for that additional color. And, maybe going on a similar topic is just on your phase five expansion. Wondering if you could give any updates on that, and kind of what needs to happen in order to get some of your hydrocarbon extraction up and running and products on the shelves.

Greg Engel (CEO)

Yeah, we're you know, the area is fully licensed, and certainly our expanded CO2 extraction is up and running in that space now. We are still working through the commissioning process on the hydrocarbon extraction, so I can't give a definitive target, but our team is working hard to you know, to look to bring those products to market. But again, it is dependent upon commissioning, which as you can imagine, there have been some challenges with you know, throughout the last nine months with COVID to getting through commission.

We've been successful in the past with commissioning new equipment, for example, on RE:MIX and bringing in new offerings in chocolate. It just takes sometimes longer than originally anticipated, 'cause you're, you know, dealing with some of the challenges related to COVID and travel and to trying to do things remotely, so.

Andrew Partheniou (Director of Research)

Thanks for that additional color. I'll get back in the queue.

Operator (participant)

And your next question will come from Adam Buckham from Scotiabank. Your line is open.

Adam Buckham (Associate Director of Equity Research)

Morning. Thanks for taking my questions. So I just wanted to start with maybe talking about production output versus demand. So there was some commentary around missed opportunities when it came to POs in the queue, and also how you might be looking to increase staff to help resolve these issues. When we think about the bottleneck, is it on the packaging side, or was fiscal Q3's decreasing output a partial driver of this? And then, maybe more broadly, when we think about the current output of roughly 44,000 kg per year, is that aligned to where you think near-term demand is, or do you see the need to increase output further?

Greg Engel (CEO)

Yeah, it's a great question, Adam. So I would say, you know, it certainly has been. It's a combination of both, in terms of, you know, cultivation, and the levels of cultivation. And the one thing to keep in mind as well is that, you know, when you're planning cultivation, that's you're planning twenty to eighteen weeks out from when the product actually is available. So, you know, some of those near-term PO misses were, you know, just the alignment on the, on the strains in which product was available as we see a continually dynamically shifting market. So again, it's important for us to get consumer feedback and be able to quickly, you know, make sure that we're bringing the right product to market.

The bottleneck has been a combination of cultivation, but also staffing, certainly on a packaging and processing side. One of the positives we have seen, if you can say there are any positives related to COVID-19, is that, you know, we have gotten more efficient. We are able to do more with fewer people. We've improved processes quite dramatically because we've had to focus on, you know, how do we operate in a leaner environment and in a safe environment for our employees, which is really important. I think, you know, ramping back up to some degree is important. You know, at the same time, you're always going to have some overage of product in terms of production.

I mean, you know, one advantage we did have and do have is that we had some sufficient working capital to go through in the quarter, but at the same time, it's not always the, you know, in terms of inventory, it's not always the strains that are in high demand. And I mean, that's always the challenge to balance. So, so I think, you know, when we talk about we're ramping back up, we're talking about, you know, slowly over time, looking to kind of bring some of the facility back online.

Adam Buckham (Associate Director of Equity Research)

Okay, that's great color. And secondly, I just wanted to touch on the commentary on Israel. Are you able to give any color on expected timing of the remediation plans? And were you able to get some shipments out in fiscal Q1, or did that change in regulation push these out into fiscal Q2?

Greg Engel (CEO)

Yeah. So I mean, I can confirm we did not have a shipment in Q1 into Israel. But you know, and I can't necessarily give a timing target here. I mean, certainly we're confident, and so is Canndoc in working with the Israeli government that we, you know, we have an appropriate path and a solution going forward. So you know, we expect and hope to be able to do that within Q2. But again, it is contingent upon you know, the Israeli government as well as working with some inspectors as well to do things remotely. So that's going to take some time, but you know, certainly, hopefully we can work through that.

Adam Buckham (Associate Director of Equity Research)

Okay, great. Thanks.

Operator (participant)

Your next question will come from Graeme Kreindler from Eight Capital. Your line is open.

Graeme Kreindler (Principal and Senior Equity Research Analyst)

Hi, good morning, and thank you for taking my questions. Maybe as a follow-up to what was just being discussed there with respect to the international market and taking the previous comments with respect to some of the, you know, the staffing levels and other efficiencies that you're looking to increase throughout fiscal 2021. To me, that sounds like it looks like, you know, Q2 might be the real inflection point that we should be looking at in terms of the new SKUs launching, whether it's the 40 that have been launched, the other 18 you're looking to launch in Q1, and then a potential restart of international shipments starting in that Q2. Is my thinking correct there? I'd appreciate some further commentary with respect to the cadence of potential revenue growth. Thank you very much.

Greg Engel (CEO)

Yeah, Graeme, thanks for the question. I mean, what I would comment on it. So first of all, just to clarify, the 40 SKU launches since July were Q4 and Q1, so and then Q2 will have an additional 18. So yes, there is additional growth, you know, that we're expecting. For example, the Trailblazer 1-gram vape cart that I mentioned to come in Q2. So I think, you know, again, we are optimistic about, you know, the growth coming in the near term. You know, again, we historically don't give, you know, guidance in terms of revenue.

But I think, you know, as we're seeing the impact of new, of the new SKU launches and continue to see new product launches, even our RE:MIX, for example, you know, in market, we're only in a few provinces right now, so we expect in Q2 to get, you know, an offering in the provinces, where they will accept it and have accepted it. So, you know, it's not full distribution as of yet, because as I said earlier, there are lead times.

Yeah, I mean, I guess the key comment I would make is, you know, we're on the right path, and we continue to bring new products to market, and it's just a matter of, you know, market acceptance and getting those products into market in a timely fashion, which, you know, again, we've done and I believe our team has done a great job in challenging times in doing so.

Graeme Kreindler (Principal and Senior Equity Research Analyst)

Okay, understood. I appreciate the color there. Then just, as a follow-up, with respect to, the, the gross margin, there was CAD 11 million of inventory that was written off or impaired this quarter, impacting that gross margin. I was just wondering if you could provide some more details on what sorts of products were included within that CAD 11-million-dollar charge. And, you know, at this point, does the company feel comfortable in terms of where its inventory position is sitting in terms of how things are costed within there, that it's through the bulk of these charges? Thank you.

Greg Engel (CEO)

Yeah, it's a great question, Graeme. Maybe I'll turn it over to Derrick to answer that question.

Derrick West (CFO)

Yeah. Thank you, Greg. Yeah, for the fourth quarter, there was CAD 11.1 million in overall provisions around inventory, including adjustments from that realizable value. Of that CAD 11.1 million, CAD 8.3 million is pretty much contained to extract materials in terms of the concentrates and the trim. So that was the bulk of it. And historically, the company had built up a certain quantum in regards to these categories. And what I can say is that at this time, we've stopped harvesting the trim, and the prior adjustments to the carrying value of the trim was a significant contributor. As I look at the balance sheet, our inventory and bio assets now have declined 37% than as compared to a year ago, and 28% compared to our Q3 2020.

This has reduced our exposure to future valuation adjustments that would negatively impact our future gross margins. In the interim, it's just unreasonable to expect that there's not going to be some ongoing non-cash adjustments for excess aged inventory and net realizable value adjustments due to the combination of price compression in the market, combined with the ongoing changes to consumer preferences. Having said that, we do feel that over the last few quarters, we've had a heightened review of these matters, and with the provisions now taken, we are comfortable with the carrying values that are on the balance sheet at this time.

Graeme Kreindler (Principal and Senior Equity Research Analyst)

Okay, understood. Appreciate the color. Thank you very much.

Operator (participant)

Your next question will come from Rupesh Parikh from Oppenheimer. Your line is open.

Rupesh Parikh (Managing Director and Senior Analyst)

Good morning, thanks for taking my question. I also wanted to follow up on gross margins. So near term, is it fair to think about the 30% level as maybe a base to build off of? And then longer term, just thinking about how you guys are thinking about the longer term scaling of gross margins from here.

Greg Engel (CEO)

Yeah, maybe Rupesh, thanks for the call, the question. I'll maybe let Derrick answer that one as well.

Derrick West (CFO)

Yeah, for fiscal year 2020, our adjusted gross margin was 33%, but as you correctly note, the Q4 period that we've just filed had an adjusted gross margin of 30%. This has had the impact of significant price reductions in the market, but it has occurred over the current fiscal year, and also includes a certain level of production inefficiencies, but to some extent, we do believe that it should somewhat persist as we continue to launch 2.0 products and continue on the learning curve to optimize production, but the Q4 30% margin, you know, does reflect, you know, where it was with regards to the pricing in the market and our production levels, and so at this time, it's a fair indicator.

Rupesh Parikh (Managing Director and Senior Analyst)

Okay, great. Any commentary on just longer term scaling on gross margins from here as we look forward?

Derrick West (CFO)

Yeah, I would say that we stay away from providing any guides or long-term target for gross margins, just as a consequence. It is too dynamic of an industry, you know, with increasing competition, uncertainty, especially related to the duration and impact of the pandemic. And again, we do believe we do have the potential to optimize our production and efficiencies as we work through the learning curve, particularly related to 2.0 products and improving the packaging costs that Greg was talking about earlier. And as we move to larger format offerings on 28-gram or the three-pack pre-rolls. But it's difficult to vary. It's ever-changing dynamic market, and so that's the most we could provide for guidance at this point.

Rupesh Parikh (Managing Director and Senior Analyst)

Okay, great. Thank you.

Operator (participant)

And your next question will come from John Zamparo from CIBC. Your line is open.

John Zamparo (Director and Senior Equity Research Analyst)

Hey, thanks. Good morning. I just want to stick with that same topic of gross margin over the next few quarters, and maybe we can simplify it a bit. But particularly as it relates to new SKUs and SHRED in particular, those seem like that's quite popular. I'm trying to get a sense of the impact of those. And maybe the way we can frame this is if there's no further pricing compression in the market, is it fair to say that the cost optimization efforts you've put in so far and the higher volumes you're expecting and the new SKUs you're launching, that in a similar environment in terms of pricing, that you'd see margin growth?

Greg Engel (CEO)

Again, maybe, maybe Derrick, answer that question.

Derrick West (CFO)

I guess as the question is framed, sure, if there's no changes in the pricing in the market, as we increase our volumes, just inherently increasing volumes, we do absorb the fixed overhead amounts and have less of the unabsorbed fixed overheads from not operating at capacity, along with improving the efficiency at the facility. So, under that parameter, yes, margins would move up under that scenario.

John Zamparo (Director and Senior Equity Research Analyst)

Okay, thanks. And then my follow-up is on Ontario. Greg, you mentioned your optimism about this province just because of the store growth, which I think is fair. Can you talk about your performance in Ontario relative to other provinces, whether it was in Q4 or in Q1? And even without giving specific numbers, just trying to get a sense if you think you're adequately participating in the industry growth in the province. Thanks.

Greg Engel (CEO)

Yeah, it's a great question, John. I think, you know, Ontario, we see, is probably the most competitive market across the country. And, you know, we certainly see more SKUs listed in Ontario than any other province. And, so when I think, you know, because of the size of the market, it is the one where we've seen the most significant stock outs, which, you know, on one hand, you can look at and say is good news in terms of, you know, there's product and demand. But it has impacted us in terms of, you know, market share and revenue because of the size of the market growth.

I mean, we knew the market was going to grow, but certainly the rate, you know, again, as you- if you think about the timelines in the cannabis space, the rate of growth kept moving up at a faster rate than anticipated. And you know, with kind of a sixteen-week, you know, twenty to sixteen-week planning cycle for certain product types, you know, being able to adjust. You know, on the other hand, it's good news. And you know, it's, again, that market growth, I think, is strong and will continue. And even, you know, even with COVID and some of the restrictions put in place in the Toronto and Peel Region, you know, I think we'll continue to see good growth.

I know on the construction side and the licensing side, they expect that to continue at the same pace. So, but, you know, we were impacted, I would say, in Ontario, a little more than other provinces, with stock outs and you know, because of success. And as you said, SHRED, for example, which was alluded to earlier, I mean, you know, was one of the highest demand products, through the OCS website and through many stores that carried it, in the first few weeks of launch. And so certainly for us to continue to supply that as we were bringing it into other provinces, you know, that was higher than expected demand for us. So again, it, you know, you get strong growth, and then you're in a position where you're not able to resupply the market quickly.

But again, we're adjusting that accordingly and hope to be in a position to continue to supply that on an ongoing basis and have it available, which I think is critical, so.

John Zamparo (Director and Senior Equity Research Analyst)

Okay, that's helpful. Thank you very much.

Operator (participant)

Your next question comes from Matt Bottomley from Canaccord Genuity. Your line is open.

Matt Bottomley (Managing Director and Senior Equity Research Analyst)

... Yeah, thank you very much. Good morning, everyone. Just wanted to expand a bit further on John's prior question there, which sort of framed it around Ontario. But when you look at the overall market growth, certainly at the retail level, and you've mentioned this in your outlook, you know, just use the one month of September, it looks like it's about a CAD 3 billion market. Do you have any color on dynamics of how much LPs as a whole are sort of losing, you know, their market share to the provincial buyers? If, you know, pricing at the retail level aren't coming down at the same degree, I imagine more of the economics might be going to the provinces and some of the wholly owned retailers, if there's a dynamic there to explore.

And then if you can give any color on, you know, the product SKUs and formats that you're focused on, maybe the edibles side and the beverage side, or the powder beverage side. You know, I know it's very nascent right now, but, you know, where you think you rank in the overall Canadian landscape, as those obviously have longer term growth profiles than what we're seeing in dried flower.

Greg Engel (CEO)

Yeah, I mean, thanks for the question, Matt. I think when you look at, you know, when you look at the market, I mean, certainly, you know, and I'll look back over the last six months or 12 months even, you know, for example, when, you know, pricing reductions come into place, and those predominantly are shared with the province, so you're, you know, it's not just the company taking a pricing reduction, you know, it's shared. So in many aspects, some of the strategies are done jointly with provinces to move product or to react to competition. So I think there is some sharing that happens even on that side of things. You know, I think we're seeing, you know, an evolving landscape.

I mean, we keep hearing discussions about how some of the systems, you know, may change in the foreseeable future. I mean, we know, for example, New Brunswick is looking at going to a private, tender for their program. You know, there's some discussions about Alberta shifting some of their models. So I think it, you know, it's an evolving landscape and one that you've got to be flexible to work with. You know, I think for us, one of the things that's been really positive is we've seen some consolidation on the retail side. And, so certainly, the, you know, the partnerships and the companies where there has been consolidation are partners that we have strong, ongoing relationships historically with.

So, you know, that's a positive and those are, you know, national presences in both cases with the consolidation that's happened, so that's a positive for us. I think to get to the second part of your question, when you look at the, you know, expanded offerings, I think, you know, in the near term, you know, again, getting out in the vape portfolio, getting out of one gram is important. You know, we've seen a competitor just launch last week, and, you know, we need to get that product out of market in this quarter. We had plans to do so, but again, sometimes those are impacted by COVID and some of the equipment supplies and things like that. But, you know, and RE:MIX, we're focused on getting national distribution.

We're looking at how do we increase the production levels on it, and I think it's, you know, when you go to the future, and if you look ahead to calendar year 2021, you know, it is gonna be important to have that ability to produce, at some point, you know, live resin, whole plant extract, vape pens. We know they have a very strong position, you know, in a market like California, which is why we've invested in hydrocarbon extraction equipment ourselves. You know, again, I can't give a timeline on when we plan to launch those, but you always have to be looking ahead with these new forms as to kind of where the market's going.

In some cases, the U.S. state data can give you a good indication, and others, you have to do your own market research, which we do quite a bit of as well. We are excited, too, even in the near term. I mean, we put out a couple seasonal offerings. That's been in partnership with a couple of provinces, our Christmas Stix and Gingerbread Bytes. I think, you know, again, those are just seasonal, but, you know, so far, good response on those as well.

Matt Bottomley (Managing Director and Senior Equity Research Analyst)

Appreciate that. And then just a quick follow-up. You know, maybe overall, you know, just sort of a, you know, management risk assessment or maybe, you know, a higher level view on as this market continues to expand. So, you know, that CAD 3.1 billion dollar number, I think is very encouraging, but when you look at the LP landscape overall, it's not really dominated by profitability at this point. You know, where do you see the opportunity to really lock in, whether it's margin or things that are more specific to Organigram, you know, strategies and core competencies when, you know, we see a lot of price moderation in dried flower?

Is this a risk that the vape pen category, you know, given the high competition, could see a similar dynamic in the next year here? As the market gets closer and closer to what I think the, you know, the overall headline number in terms of market size might be closer to CAD 10 billion, and we'll see where that falls. You know, where do you assess the risk of subsequent product categories potentially being commoditized as the overall macro that the industry continues to grow pretty healthy?

Greg Engel (CEO)

Yeah, I think, Look, it's, it's a great question, and I think to some degree, we've already seen, you know, the pricing changes happen in the vape market, right? We, you know, early on, there was limited competition, and as more products came into market, we saw, you know, we saw pricing. And again, I, as I mentioned, we did share some of that pricing reductions that we took with, you know, with, with the provincial partners and our private retailer, but I mean, really with the, the provincial partners on the distribution side. You know, I think what's important, though, is for companies like Organigram is you're, you know, you are improving your efficiency, right?

So as the pricing compression has happened, you know, in flower, and you go to larger volume SKUs, you know, certainly your packaging costs go down pretty dramatically, and I think on 2.0 products, it's the same. As you're producing more of the product, you're producing it more frequently, you know, you're doing it more efficiently and more effectively, you know, while you're getting some price pressure, but I think it's, you know, we've talked about this all along. I mean, when we spoke about, as a company, you know, part of our focus is to bring quality, differentiated products and even, you know, for example, our Trailblazer Snax chocolate bar, which, you know, which participates in the value category, you know, arguably is one of the best tasting and differentiated, you know, chocolates in the market.

I mean, it's, you know, it's a five-piece bar and 42 grams. Each piece is filled, kind of independently, so it does allow consumers some flexibility in terms of dosing. It's not just one big bar where you may not have a homogeneous kind of distribution of cannabinoids in it. But again, I think it's important to continue to focus on the new products, and not just, you know, new flower offerings for that consumer that's always looking for something new and unique. And also, the differentiator products you can bring to market, like RE:MIX and the quality of our chocolates.

Matt Bottomley (Managing Director and Senior Equity Research Analyst)

Great. Appreciate all that. Thank you.

Operator (participant)

And your next question will come from Rahul Sarugaser from Raymond James. Your line is open.

Rahul Sarugaser (Managing Director and Senior Equity Research Analyst)

Hey, Greg, and Derrick, and Amy. This is Mike here for, on for Rahul today. A couple of questions from me. So, I know we talked a lot about, production and how we can, enhance efficiencies going forward. Wondering if I'm looking at the, your yield per plant figures year-over-year, and they, they seem to have gone down from, you know, about a hundred and fifty grams per plant to around a hundred at the end of this year. Is this a problem that you can resolve with staffing, and how, how, how important do you see the sort of yield per plant issue as it flows into the rest of your business?

Greg Engel (CEO)

Yeah, I mean, maybe I'll start off and answer that, Mike, Michael, and then, if Derrick has anything to add. I mean, so certainly two things to keep in mind, so is, on a per plant basis, we stopped, keeping trim byproduct, a couple of quarters ago, right? We had sufficient extract inventory and sufficient extractable material, so that's a roughly 30% production drop in kind of yield per plant, right? So if you look at it from that factor. And then we've been focused on increasing THC, with some experimentation on different, you know, different techniques, different styles, also different strains.

You know, some of the strains, yeah, as you know, certainly, and you've been to our facility, some strains, you know, have a higher yield per plant, others have a lower yield per plant, and it's finding that balance on a THC and yield basis, right, where you're still COVID. I think, you know, I think as, again, the focus for us has to be, you know, I mean, when we speak about increasing staffing at all, I mean, we're talking modest increase in staffing, right?

Just bringing, you know, a limited number of people, you know, back into the facility and increasing our staffing. But I think, you know, I wouldn't say that's gonna have an impact on yield and plant care per se. It's more about the genetics we would choose to grow, and I think that's the most important one. So hopefully, that answers your question.

Rahul Sarugaser (Managing Director and Senior Equity Research Analyst)

Yeah, that's, yeah, that's really helpful. And just, staying on the topic of staffing, I mean, in New Brunswick recently, there's been some enhanced COVID-related restrictions, and they left the Atlantic Bubble recently. Are you seeing sort of the recent uptick in cases in New Brunswick, specifically affecting your operations and maybe your capacity to restaff even modestly?

Greg Engel (CEO)

No, it's a great question. I mean, so certainly we have worked closely with the government, and actually, we actually had a you know a squad inspection last week where you know public health, WorkSafe, and RCMP came in, and they've been visiting sites across the province to ensure kind of safety protocols are in place and a safe workplace for employees. And they were satisfied with everything they saw on site. So I think what you know yes, we have seen an increase in the province, but I think for us you know we've been focused since the early days of COVID to make sure that we could and do have a safe workplace for employees.

And I think you know our employees appreciate that and it's been a big part of what we do. So to date, it has not had an impact on our facility and our operations. You know, again, I think the greater impact of COVID sometimes is more, you know, equipment and/or getting third-party contractors in to, you know, to do work on equipment and things like that, which has been a challenge, so.

Rahul Sarugaser (Managing Director and Senior Equity Research Analyst)

Gotcha. That's terrific. And if I could just one more in there. If we could, you know, we focus closely on biosynthesis and Hyasynth specifically, and you know, your recent investment and their recent announcement of recent CBDA is a big deal in this space. How do you see partnering with Hyasynth as a potential route into the United States, given that biomanufacturing through contract research or contract manufacturers can happen almost anywhere?

Greg Engel (CEO)

Yeah, that's interesting, and Michael, I'm not sure if you've spoken to Kevin or not, but actually, this first production and sale was actually completed in the U.S. So, they're working with a contract site there. They transferred over, you know, their yeast strains and enzymes to do an optimization process. So yeah, I think, you know, the big difference with biosynthesis versus cannabis plant production is, you know, it doesn't have to be country-specific, and certainly, there's lots of opportunities for, you know, for Hyasynth to operate either in any jurisdiction where it's legal and/or to operate in jurisdictions and do product transfers, right, of pure cannabinoids, and certainly ones that don't have the same control mechanisms on them as others at this point or in the future ones that there's been changes.

So I think that is a big part of their strategy right now, so.

Rahul Sarugaser (Managing Director and Senior Equity Research Analyst)

Mm-hmm. All right. That's really helpful. Thank you very much.

Operator (participant)

... Your next question comes from Douglas Miehm from RBC Capital Markets. Your line is open.

Douglas Miehm (Managing Director and Senior Equity Research Analyst)

Yeah, good morning. Just a couple quick questions. Number one, Greg, you're really close to the industry, and I'm just wondering what your thoughts are on M&A right now and what you see unfolding in Canada, but also north and south of the border with respect to the Canadian market?

Greg Engel (CEO)

Yeah, I mean, we are, you know what? We have seen some consolidation now in the retail space, and I think that we expect that to consider potentially, Doug. But I think, you know, when we look at the space, you know, and I've said this publicly before, I mean, we are continuously approached by, banks and/or companies directly, where companies are looking to be acquired or have a strategic investment into them. And I think one of the challenges is always when you evaluate those companies, is looking at, you know, what's their differentiator? What's their innovation? What's their kind of brand? I mean, if you have, you know, all three of those and/or a couple of those that can be quite unique, then certainly something to evaluate.

So I think, you know, that's the challenge, to be frank, in the space, is there are many companies that don't really have that differentiation. So, I think it's one of the things we focus on when we assess people, is what is the differentiation? How do you supplement? I mean, certainly there's public, you know, public companies and synergies that can happen in any activity. But I think the more important things along with that are, you know, how do the two companies combine, and what are the synergies, you know, in terms of the market opportunity?

So, north and south of the border, I think, you know, that's still very much dependent upon, you know, what happens in the US. And I think, you know, if the Republicans control the Senate, you know, with these two upcoming runoff elections in Georgia, that sets one tone. If the Democrats were able to garner both those seats, that might send another direction. So, you know, we'll see what happens.

Okay. And then just, I did want to continue on with the U.S. market. And you said you are doing some work about how that could unfold and how you're going to move as a result of that. Can you elaborate on what the company might be thinking? We've seen other companies move into the market, and I'm just wondering, given your relationship with the company in Colorado, how you're thinking about it.

Yeah, I mean, look, we continue to monitor the U.S. and certainly, you know, one of our key staff is on a board out in the U.S. in the industry. And I think, you know, we've certainly been a big part of our focus even on the GR side is to kind of keep our finger on the pulse of what's happening there. You know, I think when you look at the market as a Canadian company that's dual listed, you know, in the near term, our focus is, you know, are there CBD opportunities? And I think that would potentially be a way to enter the marketplace in a legal fashion. But we do follow THC as well. I think, you know, part of our focus as well has been very much about creating innovative products.

So for example, our RE:MIX, we've had a number of inbound licensing, you know, contacts from companies on both the CBD and the THC side for that technology and innovation, and you know, certainly at this point, we haven't concluded or gone final with anyone. If we were to do so, we would only do it with a CBD company at this point, due to the legal implications related to THC revenue, but I think as a company, you know, we are continuing to follow and focus, and we have looked at CBD opportunities. We're just not at the point that we've found something that made sense to us.

Douglas Miehm (Managing Director and Senior Equity Research Analyst)

Perfect. Thanks very much.

Operator (participant)

Thank you, everyone. This will bring us to the end of our Q&A session today. I would like to thank everyone for joining our conference call today. This will conclude our conference call. You may now disconnect.