WEBVTT - Canada's Cannabis Market So Far 0:00:09.720 --> 0:00:13.800 Hello, and welcome to another episode of the Odd Lots podcast. 0:00:13.880 --> 0:00:18.680 I'm Joe Wisanthal, and unfortunately my colleague and co host 0:00:18.720 --> 0:00:22.599 Tracy Ellaway is out this week, so you'll have to 0:00:22.720 --> 0:00:26.760 just listen to me solo. But I'm excited about today's 0:00:26.840 --> 0:00:29.760 conversation because it's a follow up to one of our 0:00:29.760 --> 0:00:33.320 episodes that we did a few months ago. So if 0:00:33.360 --> 0:00:40.320 you recall, in mid October, Canada legalized recreational cannabis that 0:00:40.479 --> 0:00:45.200 coincided with a boom and stocks relating to cannabis, lots 0:00:45.200 --> 0:00:48.680 of interest in this, but still so much uncertainty about 0:00:48.720 --> 0:00:51.600 how the market would actually play out and who would 0:00:51.640 --> 0:00:54.240 really make money, and what kind of margins there would be, 0:00:54.280 --> 0:00:56.800 and just what kind of roll out there would be 0:00:56.880 --> 0:01:03.240 in general of the operations of legalized recreational marijuana in Canada. 0:01:03.360 --> 0:01:06.160 And so a few months ago we talked to Craig Wiggins. 0:01:06.240 --> 0:01:09.360 He is a part of a trio of analysts known 0:01:09.440 --> 0:01:12.800 as the Canalysts. They have a popular Reddit page called 0:01:12.840 --> 0:01:18.000 the Canalysts where they do pretty serious, deep dive financial 0:01:18.040 --> 0:01:21.640 analysis of the publicly traded cannabis companies. They have a 0:01:21.720 --> 0:01:25.319 very big following that's grown over time and they do 0:01:25.400 --> 0:01:29.120 events and podcasts and other stuff really become They've become 0:01:29.200 --> 0:01:33.200 the sort of go to destination for serious analysis of 0:01:33.240 --> 0:01:36.000 these companies. And so we talked to Craig right before 0:01:36.160 --> 0:01:40.120 the legalization, right before recreational is about to come out, 0:01:40.480 --> 0:01:42.560 and so he wanted to go back and talk to 0:01:42.560 --> 0:01:45.919 Craig again about what he's learned and what he's seen 0:01:46.160 --> 0:01:49.920 in the first few months of the recreational market in Canada. 0:01:50.160 --> 0:01:53.120 And so we have him back now. Craig Wiggins, thank 0:01:53.120 --> 0:01:56.000 you very much for joining us. Thank you very much 0:01:56.000 --> 0:01:58.200 for having me. I. Oh, I hope I'm not the 0:01:58.200 --> 0:02:02.040 reason Tracey didn't show you are I said Tracy, we're 0:02:02.040 --> 0:02:03.920 gonna have Craig back. And she's like, oh, I got 0:02:04.000 --> 0:02:06.600 food poisoning last night. Suddenly I can't do it. No, 0:02:07.040 --> 0:02:09.320 she wishes she could do it, but due to the 0:02:09.639 --> 0:02:12.200 time zone she's in Hong Kong, she couldn't make it 0:02:12.280 --> 0:02:17.799 this time. UM, so what's your overall You know, you 0:02:17.919 --> 0:02:20.280 warned a lot about a lot of different things when 0:02:20.280 --> 0:02:24.440 we talked about the market and the impending legalization of 0:02:24.720 --> 0:02:29.960 recreational and the fact that, um, you know, there's just 0:02:30.000 --> 0:02:32.840 all kinds of issues with the supply chain, the sort 0:02:32.880 --> 0:02:37.680 of the separation between the distributors and the retailers and 0:02:37.720 --> 0:02:41.000 the provinces putting themselves in the middle. What have you 0:02:41.120 --> 0:02:46.919 seen so far? How smooth has the rollout been? Well, 0:02:46.960 --> 0:02:49.680 I'm not sure the age of your listeners, but the 0:02:49.840 --> 0:02:54.720 term gung show would probably be apropos for how adult 0:02:54.760 --> 0:02:58.600 wreck has been rolled out throughout Canada. Okay, so I 0:02:59.080 --> 0:03:02.520 take that as a negative. What has been the biggest 0:03:02.520 --> 0:03:06.680 problems of them? I think there's a multitude of problems 0:03:06.720 --> 0:03:10.600 and uh, we have no shortage of people pointing fingers 0:03:10.600 --> 0:03:14.919 at each other. In Canada, we have two distinct streams 0:03:15.000 --> 0:03:18.280 with respect to cannabis. We have the medical cannabis and 0:03:18.360 --> 0:03:20.960 we have the adult rack. The medical cannabis is all 0:03:21.000 --> 0:03:24.360 done online and ship directly from an LP, a licensed 0:03:24.360 --> 0:03:27.680 producer who is licensed by Health Canada, direct to patient 0:03:28.520 --> 0:03:32.040 or Shoppers Drug Market, Canada's largest drug store chain, has 0:03:32.080 --> 0:03:36.080 gotten involved in distribution of cannabis, but not from the 0:03:36.120 --> 0:03:41.200 retail stores. Again, all online the wreck side. Each province 0:03:41.240 --> 0:03:46.360 in Canada is responsible for distribution, most of them. I 0:03:46.360 --> 0:03:49.480 think nine out of the ten major provinces all elected 0:03:49.480 --> 0:03:54.920 to be the wholesale er of cannabis, and some of 0:03:54.960 --> 0:03:59.280 them elected to also be the retailer of cannabis, and 0:03:59.480 --> 0:04:02.240 each events is different, so we really have a patchwork 0:04:02.320 --> 0:04:07.200 of different models throughout Canada. And what we've really seen 0:04:07.480 --> 0:04:11.480 is the theme that we've heard from the provinces who 0:04:11.480 --> 0:04:15.360 are strapped for inventory, so much so that the Quebec 0:04:15.400 --> 0:04:20.080 government who's actually running their own retail stores, have closed 0:04:20.080 --> 0:04:23.240 their retail stores Monday through Wednesday because there's not enough 0:04:23.240 --> 0:04:30.920 product New bruns a similar situation. Alberta stopped issuing new 0:04:30.960 --> 0:04:34.960 retail licenses. In Alberta, it is private distribution, even though 0:04:35.000 --> 0:04:38.919 the government sees the need that they have to receive 0:04:39.040 --> 0:04:43.240 the product before distributing it to the retail. So it's 0:04:43.240 --> 0:04:45.719 really been a patchwork and most of those provinces have 0:04:46.040 --> 0:04:49.560 not done a very good job of their retail rollout, 0:04:49.560 --> 0:04:53.520 whether it's private or or government run. That's just what 0:04:53.600 --> 0:04:57.279 I was about to ask. Of the two main models, 0:04:57.640 --> 0:05:02.040 neither one is looking particularly good right now. Yeah, and 0:05:02.040 --> 0:05:03.640 that's where some of the fingerpoint it comes in. A 0:05:03.720 --> 0:05:06.960 lot of the provinces said the LPs, the license producers 0:05:07.320 --> 0:05:11.000 over promised and under delivered, and there's a lot over 0:05:11.040 --> 0:05:15.719 promising going on the term funded capacity was bandied about 0:05:15.800 --> 0:05:19.200 greatly in the industry because it's clear before when you 0:05:19.200 --> 0:05:24.159 say the LPs, these are the producers, the license producers 0:05:24.160 --> 0:05:28.279 whose names investors have come to know, like a canopy 0:05:28.320 --> 0:05:33.480 growth or in Afria. Yeah, they're cultivators, primarily cultivators. The 0:05:33.680 --> 0:05:38.400 canopy has gone into the retail side. Aurora has purchased 0:05:39.000 --> 0:05:42.200 an interest in the retail operation. But yes, the LPs 0:05:42.240 --> 0:05:45.320 are are the ones that are producing, cultivating and then 0:05:45.400 --> 0:05:49.680 shipping the product, whether it is medical or whether it 0:05:49.920 --> 0:05:55.600 is adut rack, same distributor, the same growers feeding two 0:05:55.640 --> 0:05:59.840 different screens. So if there's a shortage of supply and 0:06:00.160 --> 0:06:03.359 the LPs haven't been able to deliver on what they promised, 0:06:03.640 --> 0:06:06.680 does that, in your view speak to some fundamental problem 0:06:06.800 --> 0:06:09.760 or is this just like, look that maybe there's still 0:06:09.800 --> 0:06:13.599 growing pains. They didn't really appreciate the scope of the 0:06:13.680 --> 0:06:16.800 demand for it. But you know, in a few quarters, 0:06:16.800 --> 0:06:19.640 in a few years, as they continue to build out 0:06:19.640 --> 0:06:24.159 their growth facilities, that should stabilize. Yes, and no, the 0:06:24.279 --> 0:06:27.599 quality that's coming out. There's only two form factors that 0:06:27.640 --> 0:06:30.720 are presently allowed in Canada. One is flour but and 0:06:30.800 --> 0:06:33.920 the other is oil. And it's oil that has has 0:06:33.960 --> 0:06:38.840 been provided in a diluted carrier oil like mct or 0:06:38.960 --> 0:06:41.279 or olive oil or something like that. So there's only 0:06:41.320 --> 0:06:47.080 presently two legal form factors in Canada, the edibles right 0:06:47.200 --> 0:06:50.799 that edibles and formed factor two point oh if you would. 0:06:51.240 --> 0:06:57.400 The discussion period just ended last week if I remember correctly, 0:06:57.480 --> 0:07:01.279 and those new formats will be out by October of 0:07:01.320 --> 0:07:05.520 this year. But the the bud side of the equation, 0:07:06.720 --> 0:07:10.720 there's some pretty scraggly looking flower that's that's getting delivered 0:07:10.760 --> 0:07:14.040 to customers that are used to if they're they're from 0:07:14.040 --> 0:07:16.280 the black market or what we've been calling lately. The 0:07:16.360 --> 0:07:21.000 legacy market is not nearly as good. So there are 0:07:21.040 --> 0:07:23.720 some premium flower out there, no question about it. There's 0:07:23.720 --> 0:07:26.000 some gorgeous flower out there, but there's a lot of 0:07:26.000 --> 0:07:29.880 flower that's coming through that. Uh. We see pictures posted 0:07:29.960 --> 0:07:34.400 on Twitter that just do not look appeal. So one 0:07:34.400 --> 0:07:36.640 of the questions that I had, and that I've been 0:07:36.680 --> 0:07:41.640 really curious about prior to the introduction of recreational is 0:07:41.680 --> 0:07:46.280 the degree to which consumers or new consumers of cannabis 0:07:46.400 --> 0:07:49.640 would gravitate towards specific brands. Because we know that in 0:07:50.200 --> 0:07:53.760 other sort of vice industries. People of their favorite beers 0:07:53.800 --> 0:07:57.080 and they can you know, maybe they dabble with some others, 0:07:57.120 --> 0:08:00.440 but there's ones that they really like. Obviously, people have 0:08:00.560 --> 0:08:04.560 loyalty to certain cigarettes that they like. Are we seeing 0:08:04.600 --> 0:08:08.080 any trends play out where there are certain strains or 0:08:08.160 --> 0:08:12.920 certain brands that people have shown a consistent affinity towards 0:08:13.040 --> 0:08:15.520 or is it too early to know. There's a lot 0:08:15.560 --> 0:08:19.000 of brand hopping in the mid mid range and the 0:08:19.000 --> 0:08:22.720 lower priced product as people try to figure out what 0:08:22.800 --> 0:08:27.040 they like from each of the producers. The premium brand names, 0:08:27.120 --> 0:08:33.480 the Broken Coasts, the Cantalus Labs, the Supreme Pharmaceuticals or 0:08:33.559 --> 0:08:37.120 Fire is what the what their tickers and what people 0:08:37.120 --> 0:08:42.240 call them. Those Premium and Flower are doing very well. 0:08:42.280 --> 0:08:45.440 They're they're selling very well, a lot of social media 0:08:45.640 --> 0:08:51.160 on the product. So something like a Broken Coast, are 0:08:51.200 --> 0:08:54.200 we is this like this the cannabis equivalent of some 0:08:54.840 --> 0:08:58.160 you know, I p a microbrew. Yes, they don't put 0:08:58.200 --> 0:09:00.400 out a lot of product, but the product they put 0:09:00.400 --> 0:09:04.840 out is gorgeous. It's Broken Coast is my favorite. I've 0:09:04.960 --> 0:09:09.480 tried Cantaalists, I haven't tried to Fire yet, but those 0:09:09.720 --> 0:09:13.280 those those higher end quality ones, and they're a little 0:09:13.280 --> 0:09:18.120 bit more pricier. They're they're plus ten dollars Graham through 0:09:18.160 --> 0:09:22.040 the retail outlets, so they are more pricey than legacy 0:09:22.080 --> 0:09:25.280 market or black market. But at the same time, they're 0:09:25.320 --> 0:09:28.240 head and shoulders about what we're seeing from some of 0:09:28.240 --> 0:09:31.280 the mass brands that are out there. Do the mass 0:09:31.320 --> 0:09:35.680 brands also have their sort of premium lines? Are they trying? 0:09:35.679 --> 0:09:38.200 You know, they're sort of the faux indie lines that 0:09:38.320 --> 0:09:44.440 you see in beer. They have them. But there's, as 0:09:44.440 --> 0:09:46.360 I said, there's a lot of brand hopping right now 0:09:46.400 --> 0:09:48.800 as people try to figure out what's good and what's 0:09:48.840 --> 0:09:51.400 not good and uh, in this day of social media, 0:09:51.640 --> 0:09:55.800 if you ship a container of stems and seeds, it 0:09:55.880 --> 0:09:58.160 ends up on the Internet and people know pretty quickly. 0:09:58.240 --> 0:10:02.200 So if you're if you're trying to build a brand, 0:10:02.320 --> 0:10:05.520 it's probably not a good idea to build the brand 0:10:05.559 --> 0:10:08.800 without the quality there first. So let's talk about this 0:10:09.160 --> 0:10:11.720 side of it, because obviously, as you say, ay, there's 0:10:11.760 --> 0:10:15.000 not enough supply, and be when there is supply, a 0:10:15.000 --> 0:10:18.440 lot of times the flower is mediocre and it looks 0:10:18.480 --> 0:10:22.679 really terrible on social media. Is this is that again? 0:10:22.840 --> 0:10:24.720 I'm still trying to wrap my head around this question 0:10:24.760 --> 0:10:28.520 of how much is just growing pains demands strain on 0:10:28.600 --> 0:10:33.079 the system versus maybe they're not that good at growing 0:10:33.240 --> 0:10:35.480 at scale, or maybe there's going to be some issue 0:10:35.640 --> 0:10:40.319 that's going to permanently be an issue with growing at scale, 0:10:40.320 --> 0:10:43.000 Like how much of this is do you expect to 0:10:43.040 --> 0:10:45.640 be solved over the coming years. Well, I think a 0:10:45.679 --> 0:10:48.120 lot of it gets solved through genetics. Yet you have 0:10:48.160 --> 0:10:52.040 to remember cannabis has been grown in small scale in 0:10:52.160 --> 0:10:56.360 Canada indoor simply because you have to hide it. So 0:10:56.600 --> 0:11:01.400 going to these mass greenhouses, the genetics are going to 0:11:01.480 --> 0:11:04.320 take a while to dial in. The genetics have to 0:11:04.360 --> 0:11:08.800 come along to be able to grow in a different, 0:11:08.960 --> 0:11:13.520 less controlled environment than an indoor shop, the indoors. And 0:11:13.600 --> 0:11:16.880 it's interesting because the three premium brands I mentioned to 0:11:16.920 --> 0:11:19.439 you are the ones that I see premium. Broken Coast 0:11:19.480 --> 0:11:23.520 is indoor grown, U Tantalus is a craft greenhouse that's 0:11:23.559 --> 0:11:28.360 only an acre in size, and fire Is is also 0:11:28.400 --> 0:11:32.920 a hybrid greenhouse. So growing in greenhouse, which a lot 0:11:32.920 --> 0:11:35.559 of people thought, you know what, it's not gonna work 0:11:36.679 --> 0:11:41.319 because the genetics weren't there. We're seeing it so it's 0:11:41.360 --> 0:11:45.079 a matter of the genetics and really dialing in these 0:11:45.160 --> 0:11:50.120 large facilities. It just hasn't been done before, especially in 0:11:50.200 --> 0:11:54.000 greenhouses on this level. So the genetics will take a 0:11:54.000 --> 0:11:56.640 while to dial in. Is there growing paints. There's always 0:11:56.640 --> 0:11:58.800 going to be growing paints. We even hear from the 0:11:58.840 --> 0:12:01.280 indoor guys that it's a two year dial in to 0:12:01.360 --> 0:12:06.760 get get what they're growing perfectly right. So you can 0:12:06.800 --> 0:12:08.800 only be as good as the plant you're growing. So 0:12:08.840 --> 0:12:12.600 the genetics are really important, but also the genetics need 0:12:12.960 --> 0:12:18.280 certain things to thrive to be their best. And if 0:12:18.320 --> 0:12:21.120 you've taken indoor genetics and you're trying to transform into 0:12:21.120 --> 0:12:23.439 a greenhouse environment, it's going to take you a while 0:12:23.480 --> 0:12:25.920 to dial that in. We know the big some of 0:12:25.920 --> 0:12:29.680 the big names, your Canopies, Auroras and so on. What's 0:12:29.720 --> 0:12:34.160 the actual number for how many publicly traded cannabis companies 0:12:34.160 --> 0:12:37.760 that are in Canada? Wow, publicly traded. I've got to 0:12:37.800 --> 0:12:40.560 think it's north of fifty right now. I think there's 0:12:40.600 --> 0:12:46.400 a hundred licenses. One company can hold multiple licenses like 0:12:46.480 --> 0:12:49.760 Canopy and and Afrian and the like. But there is 0:12:49.800 --> 0:12:53.240 a there's a lot of companies out there, and we 0:12:53.280 --> 0:12:56.920 are seeing some of them do well in the first 0:12:56.960 --> 0:13:01.200 quarter because the wholesale markets still surprisingly strong. So we 0:13:01.320 --> 0:13:04.920 have some of these big companies, despite their growing capacity, 0:13:05.320 --> 0:13:09.000 are still buying wholesale to leave it to sell out 0:13:09.040 --> 0:13:13.800 to retail, which is quite shocking given some of the 0:13:13.800 --> 0:13:17.839 the amounts of inventory we see on their books and 0:13:18.480 --> 0:13:37.680 what they should be growing versus their square footage. So 0:13:37.760 --> 0:13:42.000 let's talk about metrics, because, as I mentioned in the introduction, 0:13:42.679 --> 0:13:47.160 your crew, the Canalysts are known for really top shelf, 0:13:47.720 --> 0:13:51.400 deep dive analysis into these companies and you really sort 0:13:51.400 --> 0:13:54.520 of pick apart the financials and as you just mentioned, 0:13:54.520 --> 0:13:57.280 you also tour the facilities. You really sort of get 0:13:57.320 --> 0:14:00.960 to know them on an operational scale for an investor 0:14:01.040 --> 0:14:04.000 who's looking in this space. And it's worth noting that 0:14:04.360 --> 0:14:07.400 many of these cannabis companies have had a phenomenal start 0:14:07.440 --> 0:14:10.040 to the year in the stock market. After slumping after 0:14:10.080 --> 0:14:12.800 the bubble or the boom last year, they slumped, now 0:14:12.920 --> 0:14:17.079 they're really back on fire. What should people look at 0:14:17.200 --> 0:14:22.440 now to see who's getting traction in the recreational space 0:14:22.760 --> 0:14:25.960 and who's growing in some manner that you know, looks 0:14:26.000 --> 0:14:29.640 like they're growing efficiently and uh, scaling nicely. What should 0:14:29.640 --> 0:14:34.920 people look for in their earnings filings and so forth. Well, 0:14:34.960 --> 0:14:38.640 what I look at and we run not only peer groups, 0:14:38.640 --> 0:14:41.920 but we run trends on individual companies. The sales growth 0:14:42.000 --> 0:14:45.720 is important. The gross margin they are all over the 0:14:45.760 --> 0:14:48.840 map these days. The gross margin. I'd like to see 0:14:48.840 --> 0:14:52.160 gross margin in the companies that I invest in start 0:14:52.200 --> 0:14:56.000 creeping into the seventy percent range. Canopy, just to give 0:14:56.040 --> 0:14:58.560 you an idea. Their last quarter they were at they 0:14:58.640 --> 0:15:03.320 dropped from two and I even think are the folks 0:15:03.400 --> 0:15:06.160 over at Aurora dropped a little bit down to fifty? 0:15:07.520 --> 0:15:10.840 You're not going to get good returns on the amount 0:15:10.880 --> 0:15:14.480 that they're spending below the line without a strong gross margin. 0:15:14.920 --> 0:15:18.600 Explain that. So what is going on in the business 0:15:19.240 --> 0:15:23.480 that is causing gross margins to deteriorate. Well, there's a 0:15:23.520 --> 0:15:26.520 lot of launching of new facilities. So as those new 0:15:26.560 --> 0:15:29.640 facilities come on, you might not be matched against your 0:15:29.640 --> 0:15:31.920 revenue in that quarter, so there might be a lag. 0:15:32.400 --> 0:15:35.920 Like for instance, Aurora Sky finally got all their licenses 0:15:35.960 --> 0:15:38.760 and we're actually touring a Roora Sky today with video cameras. 0:15:38.760 --> 0:15:41.280 So I'm actually looking forward to seeing what my colleagues 0:15:41.320 --> 0:15:44.520 bring back on that. But Aurora Sky just got all 0:15:44.600 --> 0:15:48.400 their licenses. They've actually planted the flag. They said in 0:15:49.000 --> 0:15:51.480 UH for their fourth quarter of this year, which is 0:15:51.520 --> 0:15:55.320 actually second calendar quarter there, they planted the ebitda flag 0:15:55.360 --> 0:15:57.680 and said they're gonna be ebit de positive. They've got 0:15:57.720 --> 0:16:00.800 a hill to client. They're they're running at a bout 0:16:00.880 --> 0:16:04.760 minus thirty three million and adjusted. But it does as 0:16:04.840 --> 0:16:11.320 I calculated, and it's interesting to see will they be 0:16:11.360 --> 0:16:14.960 able to bridge that gap in order to adjusted. But that, 0:16:15.160 --> 0:16:17.520 just for your audience, is one of my favorite metrics. 0:16:17.720 --> 0:16:21.080 I'm an old school commercial lender, so that's how you 0:16:21.120 --> 0:16:24.560 get paid back. Looking at that line. So what you 0:16:24.640 --> 0:16:27.720 need to drive that is you need your sales growth 0:16:28.480 --> 0:16:31.840 to drive uh the top line. Then you need your 0:16:31.880 --> 0:16:35.880 gross margin to convert it into how much money after 0:16:35.960 --> 0:16:39.280 my production cost do I have to pay my s 0:16:39.320 --> 0:16:42.960 g n A and my operating expenses? Just just to 0:16:43.000 --> 0:16:48.360 give you an idea, last quarter, Canopy did eighty three 0:16:48.400 --> 0:16:51.200 million in net revenue net of excise tax, and they 0:16:51.200 --> 0:16:54.560 had a hundred and seventy million in our backs. And 0:16:54.640 --> 0:16:59.320 the folks over at Aurora also had over two of 0:16:59.400 --> 0:17:02.800 their sale was at x so it's tough to make 0:17:02.800 --> 0:17:07.080 money when when when you're ax is outpacing your sales 0:17:07.119 --> 0:17:10.720 at the two to one level. So do these companies 0:17:10.840 --> 0:17:13.520 I mean, I'm thinking of like and it's kind of 0:17:13.920 --> 0:17:17.439 unrelated from a business model standpoint, but the question, the 0:17:17.440 --> 0:17:21.200 fundamental issue, man is like thinking about some of the 0:17:21.240 --> 0:17:24.800 fast growing startups in the US, say like an Uber 0:17:25.080 --> 0:17:29.040 or a Lift, and they obviously have spending growth that's 0:17:29.160 --> 0:17:32.000 much fast, that's incredibly fast, and they're losing money, but 0:17:32.040 --> 0:17:34.080 they say, well, this is all worth it. But then 0:17:34.080 --> 0:17:37.560 the question that investors faces like, okay, but when is 0:17:37.600 --> 0:17:39.919 the spending going to slow down? Like, what is the 0:17:40.000 --> 0:17:42.800 timetable for when you're gonna be able to stop investing 0:17:42.840 --> 0:17:47.959 and actually produce growing cash flow and growing margins and stuff. 0:17:48.200 --> 0:17:52.000 Do these companies and obviously because of the demand and 0:17:52.040 --> 0:17:56.600 the growing pains, obviously they have rapidly expanding costs and 0:17:56.680 --> 0:18:00.919 new facilities. Do they have a timetable for when this ends? 0:18:01.040 --> 0:18:03.960 Or is their view that look, there's a lot of 0:18:04.000 --> 0:18:06.800 growth ahead, We're just going to keep investing in the future. 0:18:06.920 --> 0:18:10.240 And at this point it's premature to talk about slowing 0:18:10.240 --> 0:18:13.920 down the expense side. I think there's some In each 0:18:14.119 --> 0:18:17.560 each of those camps, we hunt inflection points. We are 0:18:17.600 --> 0:18:21.280 looking for when will the break even and sales and 0:18:21.320 --> 0:18:24.359 the break even for a positive net operating profit on 0:18:24.440 --> 0:18:28.520 a break even for adjusted EPA. We're hunting those inflection points. 0:18:28.520 --> 0:18:31.040 That's what we do with with our charting and our graphic. 0:18:31.640 --> 0:18:34.240 We're trying to see when that happens. And we're we've 0:18:34.240 --> 0:18:38.119 seen some inflection points last quarter. Do those inflection points 0:18:38.160 --> 0:18:41.600 become trends and at the end of the day, like 0:18:41.880 --> 0:18:46.679 I think Canopy went from last quarter uh SE, s 0:18:46.720 --> 0:18:50.520 g n A or APEX to sales, so that that's 0:18:50.600 --> 0:18:53.800 a big improvement, all driven by the sales line. So 0:18:53.880 --> 0:18:56.879 what we're hunting is to see are the gen A 0:18:57.040 --> 0:19:01.359 is going to plateau? Are the selling expenses going to 0:19:01.400 --> 0:19:04.000 start trending down as a percentage of sales And we're 0:19:04.040 --> 0:19:06.959 starting to see that in some companies. So those are 0:19:06.960 --> 0:19:09.760 the things we're hunting, and we believe the investors should 0:19:09.760 --> 0:19:13.520 be paying attention to those things because depending on where 0:19:13.520 --> 0:19:16.239 you are on your your investment horizon. I'm fifty two 0:19:16.320 --> 0:19:18.000 years old, I don't want to take as much risk 0:19:18.040 --> 0:19:20.560 as say someone in their early twenties. I don't have 0:19:20.640 --> 0:19:24.080 the runway to recover versus versus some if I make 0:19:24.080 --> 0:19:27.399 a mistake at my age versus someone who's much younger. 0:19:27.840 --> 0:19:32.240 So if you believe in the story that cannabis is 0:19:32.280 --> 0:19:36.600 going to be everywhere and global and the light, maybe 0:19:37.280 --> 0:19:41.959 maybe you're more bullish on that story. But for me, 0:19:42.240 --> 0:19:47.000 I'm still concerned about can you produce a product at 0:19:47.000 --> 0:19:50.480 a decent gross margin to cover those those expenses. That 0:19:50.640 --> 0:19:53.400 that's what I look at. I want something that that 0:19:53.960 --> 0:19:59.240 I can believe in with respect to their fundamentals. Fundamentals 0:19:59.280 --> 0:20:02.280 isn't always the answer, but for where I am in 0:20:02.359 --> 0:20:07.479 my investment horizon, I am looking more for fundamentals than um. 0:20:07.920 --> 0:20:10.520 I care about the stake, not the sizzle so much, 0:20:10.680 --> 0:20:12.440 And there's a lot of people are throwing a lot 0:20:12.440 --> 0:20:15.240 of sizzle out there for sure. You know, Craig, I've 0:20:15.320 --> 0:20:19.359 been meaning to ask um, what's happened to the medical 0:20:19.400 --> 0:20:21.919 side of the market, because everybody knows a lot of 0:20:21.960 --> 0:20:26.520 the medical marijuana consumption, probably in the US and Canada 0:20:27.400 --> 0:20:31.960 was just recreational consumption in disguise. What is the future 0:20:32.280 --> 0:20:35.320 of the medical side now that someone can just go 0:20:35.359 --> 0:20:39.320 onto a dispensary without a prescription or anything like that. Well, actually, 0:20:39.520 --> 0:20:41.920 for for a lot of the bigger companies so far, 0:20:42.200 --> 0:20:46.760 their medical actually either stayed relatively stable, a little optick 0:20:46.840 --> 0:20:49.400 or a little downtick. So we did. We're through our 0:20:49.440 --> 0:20:53.920 first reporting quarter of full rack, which was October November seven, 0:20:54.480 --> 0:20:57.880 so companies like Canopy and or are reporting full quarters 0:20:57.880 --> 0:21:00.600 of that. So I think Canopy went down a little 0:21:00.600 --> 0:21:03.320 bit and Aurora went down. But also the other thing, 0:21:03.359 --> 0:21:06.720 and here's the crazy thing in Canada on the medical side, 0:21:06.800 --> 0:21:11.600 our government is charging an excise tax on medical cannabis 0:21:12.480 --> 0:21:15.480 because and I think this is a very lazy way 0:21:15.480 --> 0:21:18.720 of approaching it. They're they're seeing it, well, if you 0:21:18.760 --> 0:21:21.159 want to game the system and you want to pay less, 0:21:21.240 --> 0:21:25.240 well you'll go into medical. Uh. But what they've tried 0:21:25.280 --> 0:21:28.040 to do is even the playing field and thrown excise 0:21:28.119 --> 0:21:30.959 tax on it. And there is a lot of medical 0:21:31.000 --> 0:21:33.760 benefit with respect to cannabis. I use it from my arthritis, 0:21:34.040 --> 0:21:36.840 I use it for for sleep as well. And I 0:21:36.880 --> 0:21:40.359 shouldn't be that dismissive of medical consumption and just saying 0:21:40.400 --> 0:21:44.200 it's recreational and disguise, you'll really get get the folks 0:21:44.240 --> 0:21:47.480 that that use it riled up quite frankly, but the yeah, 0:21:47.480 --> 0:21:50.000 the excise tax that are that our government as has 0:21:50.040 --> 0:21:53.720 put on it is crazy. And you asked, like, what's 0:21:54.480 --> 0:21:56.320 part of the problem, and I said, there's a lot 0:21:56.359 --> 0:22:00.560 of finger pointing. These excise stamps, which are about half 0:22:00.600 --> 0:22:04.120 an inch wide by by an inch long, are by 0:22:04.200 --> 0:22:08.240 province and every producer, every license producer who ships it 0:22:08.280 --> 0:22:11.760 out has to put one on all these disparate packages 0:22:11.800 --> 0:22:16.840 from pouches, tubes, bottles, boxes, and they didn't get the 0:22:17.040 --> 0:22:20.160 XI stamps still about two weeks before RED kicked off, 0:22:20.440 --> 0:22:23.720 and there was no glue on them. So they all 0:22:23.760 --> 0:22:27.400 these companies designed all their packaging and then we're given 0:22:27.400 --> 0:22:30.360 these excise stamps that that have to go on the 0:22:30.440 --> 0:22:33.720 opening and when the products opened, it still has to stay. 0:22:34.040 --> 0:22:37.240 It'll tear, but it has to stay affixed. So that 0:22:37.240 --> 0:22:41.199 that's our government helping out. I was touring Afrey yesterday 0:22:41.280 --> 0:22:46.400 and they are hand sticking excise stamp stickers on the pouches, 0:22:46.440 --> 0:22:50.160 on the bottles and that that is just not efficient. 0:22:50.640 --> 0:22:53.320 But because all the packaging is different and these stamps 0:22:53.359 --> 0:22:56.200 have to be affixed and they have to stay affixed 0:22:56.240 --> 0:22:59.880 after opening. Mond, you torn, it's a silly silly person 0:23:00.640 --> 0:23:03.040 in this day and age in my mind. But the 0:23:03.080 --> 0:23:06.720 government once they're they're sharing the excise stamps, go on it. 0:23:06.720 --> 0:23:10.359 It's very very colonial, colonial British, I think, Craig, I 0:23:10.400 --> 0:23:13.640 remember the last time we chatted, you used the phrase 0:23:13.800 --> 0:23:16.280 to describe the government's role in this. You said, you 0:23:16.280 --> 0:23:18.680 have to put yourself in the position of a greedy 0:23:18.720 --> 0:23:22.919 provincial finance minister to understand both their role as a 0:23:22.920 --> 0:23:28.119 middleman but also their desire to maximize taxation revenue. What 0:23:28.400 --> 0:23:31.879 kind of taxation revenue are they seeing, are they happy 0:23:31.920 --> 0:23:35.360 with it? And how is it impacting expected profits within 0:23:35.400 --> 0:23:38.919 the industry. Well, you know what, I'm glad that resonated 0:23:38.960 --> 0:23:42.840 with you, because it certainly is the case between the 0:23:42.920 --> 0:23:46.200 federal and the provincial taxes. I think they're taking forty 0:23:47.080 --> 0:23:51.320 of the net purchase price into taxes in one form 0:23:51.400 --> 0:23:54.560 or another, whether it's sales tax, excise tax, or what 0:23:54.640 --> 0:24:00.040 have you. The the government's role as a middle in 0:24:00.560 --> 0:24:04.400 the provincial government, it is slapstick comedy. If you look 0:24:04.400 --> 0:24:08.080 at Ontario. We had a liberal government when C. Forty five, 0:24:08.119 --> 0:24:12.440 which was the legislation was coming out uh provincially in Ontario, 0:24:12.480 --> 0:24:15.000 and they said we're gonna open forty stores, will run 0:24:15.040 --> 0:24:18.200 them ourselves. They probably got three on the drawing board 0:24:18.240 --> 0:24:22.680 before they lost power income the Conservatives. The Conservatives take 0:24:22.720 --> 0:24:24.600 a look and say, you know what, We're gonna open 0:24:24.640 --> 0:24:27.520 this up to retail, private retail. We're not going to 0:24:27.600 --> 0:24:30.000 own the stores. Everyone was very, very happy about that. 0:24:30.880 --> 0:24:34.760 Then the Conservative government looked around and looked at Quebec 0:24:34.800 --> 0:24:38.320 with their operating hours or their operating days being cut 0:24:38.359 --> 0:24:43.080 to Thursday through Sunday, and uh and Alberta stopping giving 0:24:43.080 --> 0:24:47.359 new retail licenses because the short store shelves were empty. 0:24:47.440 --> 0:24:49.399 So the government had the idea that they were going 0:24:49.480 --> 0:24:54.159 to do a lottery system for twenty five retail licenses. 0:24:54.720 --> 0:24:59.200 And this wasn't a vetted licensing system for the lottery. 0:24:59.560 --> 0:25:03.399 They a actually took anybody's seventy five dollars who wanted 0:25:03.440 --> 0:25:07.080 to put in an application, and there were twenty five 0:25:07.080 --> 0:25:10.480 winners drawn. More than half of them are sole proprietors 0:25:10.960 --> 0:25:15.199 and they cannot, under the rules of the lottery change 0:25:15.240 --> 0:25:19.040 their ownership for over a year. So we have twenty 0:25:19.040 --> 0:25:23.200