Green Thumb Industries Inc. (GTII) Earnings Call Transcript & Summary

Good afternoon, and welcome to Green Thumb's First Quarter 2020 Earnings Conference Call. [Operator Instructions] As a reminder, a live audio webcast of the call is available on the Investor Relations section of Green Thumb's website and will be archived for replay. I'd like to remind everyone that today's call is being recorded. I will now turn the call over to Jennifer Dooley, Chief Strategy Officer. Please go ahead.

Thanks, Cheryl. Good afternoon, and welcome to Green Thumbs' First Quarter 2020 Earnings Call. I'm here today with Founder and Chief Executive Officer, Ben Kovler; and Chief Financial Officer, Anthony Georgiadis. Today's discussion and responses to questions may include forward-looking statements, which are subject to various risks and uncertainties that could cause our actual results to differ materially from these statements. These risks and uncertainties are detailed in the company's reports filed with the United States Securities and Exchange Commission and Canadian securities regulators. Including the annual report on Form 10-K, which was filed on April 15, 2020, and our quarterly report on Form 10-Q, which we expect will be filed tomorrow. These reports, along with today's earnings press release can be found under the Investors section of our website. Green Thumb assumes no obligation to update or revise any forward-looking statements to reflect events or circumstances that may arise after the date of this call. Throughout the discussion, Green Thumb will refer to non-GAAP financial measures, including EBITDA and adjusted operating EBITDA, a reconciliation of non GAAP financials to the most directly comparable GAAP measures is included in our earnings press release, and SEC and SEDAR filings. Please note all financial information is provided in U.S. dollars unless otherwise indicated. Thanks, everyone, and now here's Ben.

Good afternoon, and thank you for joining us on our first quarter earnings conference call. While we are all settling into a new day-to-day, one thing has remained the same. The Green Thumb team continues to execute. Of course, the [indiscernible], the star of the team is the team, and we truly have a great team at GTI. I am proud to share that we hit the $100 million revenue milestone this quarter, growing more than 30% quarter-over-quarter. As you'll see in the results, we are beginning to see real operating leverage and free cash flow from our business. We are well on our way to deepening the connection to well-being through cannabis by distributing our brands at scale. All of this, while managing and executing through a global pandemic is a true testament to our team, especially those on the front-lines. During this time, all of our stores and facilities across our operating markets have been classified as essential and remained open for business. We continue to take extra steps to ensure a safe working environment for our team and a safe and welcoming retail and digital experience for our customers. Despite the challenges brought on by COVID, it is truly amazing that I can say our manufacturing capacity expansion projects have continued and are moving forward. In response to the pandemic's immediate impact on consumer shopping behaviors, we have accelerated the development of our omnichannel infrastructure, including our e-commerce, customer service, delivery and curbside pickup platforms. This accelerated expansion of our retail capabilities not only better serves our customers during these unprecedented times, but importantly, bolsters our existing platform. Turning to progress and COVID's impact in our key markets. Illinois just completed its first full quarter of adult-use sales. Even with the stay at home and social distancing requirements that were imposed in mid-March, consumer demand for cannabis remains alive and well. The quarter had approximately $200 million in industry-wide sales, which equates to a run rate of about $800 million. This would be more than 3x 2019 sales, and it wasn't just pantry-loading. We saw strong momentum continued in April, where there was a 4% increase over March. We see the potential of the Illinois market to be at least $3 billion. And that means that even with this year's dramatic growth, there is still $2 billion of opportunity up for grabs. With our successful rollout of the adult-use program and our leading position in the state, we see Illinois as one of the highest return opportunities. We have 7 stores opened, are licensed for 3 more and remain very active in expanding the manufacturing and production of our brand portfolio. Pennsylvania continues to be a growth driver and a top priority. With a large medical program and the potential to transition to adult use, the market continues to be supply constrained, but is performing steadily despite COVID-19. We like our position and see solid growth opportunities as we continue to strengthen our vertical platform. In April, we opened our tenth Pennsylvania retail location and rolled out curbside pickup to provide patients with additional options for safe access. Strong growth in Illinois and Pennsylvania have helped offset some of the COVID regulatory-driven softness in Massachusetts and Nevada. At its core, Massachusetts is a growing and high potential adult-use market. In response to COVID, beginning March 24, the governor issued a temporary halt on adult-use sales, citing the issue of safe social distancing from out-of-state consumers. At this time, only medical sales were allowed based on this order, which is effective through May 18. Operationally, we continue to produce and distribute our brand portfolio to third-party retailers and our Rise Amherst store remains open for medical customers. We believe this is a temporary disruption and expect adult-use sales to return once the restriction is lifted. Along the same lines, regulators in Nevada required adult-use dispensaries to transition to a delivery-only model beginning March 20. We quickly adapted and ramped up our vehicle fleet to provide incremental support to our third-party delivery service. Recently, on May 1, the state expanded access to allow curbside pickup. And late last week, the state reinstated in-store sales with limited occupancy. With our earlier curbside implementation in Illinois, we were among the first to be approved and rolled out curbside service to our Nevada stores, essentially overnight, which provided a nice uptake. The temporary challenges in both states underscore the importance of our market diversification. While the pandemic created headwinds in markets like Massachusetts and Nevada, I could not be more proud of our team's problem-solving and commitment to serving the needs of our customers and partners while keeping one another safe. Right now, there is no such thing as business as usual. That said, we want our customers and team to know how much we value them by providing the safest environment, superior products and highest level of service regardless of challenging times. Digging into our first quarter results. Revenue was $103 million, a 35% increase from the fourth quarter 2019. The growth was fueled largely by the expanded production and distribution of our brand portfolio, new store openings and increased foot traffic to our retail stores, especially in Illinois and Pennsylvania. With the revenue gains, we see meaningful improvement in our operating leverage. SG&A was essentially flat to last quarter. So with 35% growth in revenue, our SG&A improved significantly as a percent of sales. Excluding depreciation and amortization and stock-based comp, the improvement is even more pronounced, as you'll hear from Anthony. Adjusted operating EBITDA for the quarter improved 85% from the fourth quarter last year to $25.5 million, and we're proud of that number as it produced positive free cash flow after taxes. Turning to our operations. Our activities during the quarter really set the stage for continued progress on our 2020 initiatives. On the consumer product side, branded product sales grew 21% on a gross basis and 13% net quarter-over-quarter, with Illinois and Pennsylvania delivering especially strong growth. Green Thumb branded products are now sold in over 700 retail stores in the United States, including our fleet of Rise and Essence stores. We have been very busy with the distribution and expansion of our product portfolio and are excited to share the latest developments. As you may know, Massachusetts' ban on vape was lifted at the end of the fourth quarter. We were pleased to see our vape -- our Rhythm vape resume sales in the state throughout the first quarter. In Maryland, with our newly added cultivation capacity, we launched Rhythm flower and Dogwalkers. We also launched Soft Lozenges within The Feel Collection. In Florida, subsequent to the quarter, we launched our Big Dog's line extension under Dogwalkers as well as Dr. Solomon's capsules. It is also important to note that despite COVID-19, we have not seen a meaningful shift in product mix away from core inhalable product categories like flower and vape. Our branded products business continues at a nice clip, even ahead of the completion of capacity expansion projects in Illinois and Pennsylvania. In addition, New Jersey and Ohio are on track to begin production over the next few months. Our retail business also delivered solid results for the quarter. Same-store sales were again strong. This quarter, they exceeded 75% of a comp base of 14 stores opened for at least 12 months. Sequential quarter-over-quarter same-store sales grew approximately 24% on a base of 33 stores. First quarter revenue included sales from 42 open stores and was driven by increased transactions and ticket size. During the quarter, we opened 3 new stores, 2 in Illinois, Rise Joliet and Rise Quincy, the state's first 2 adult-use only stores, bringing our total open stores in Illinois to 7. In Pennsylvania, during the pandemic, we opened Rise Cranberry, bringing the total count to 10 in that state. And subsequent to the quarter in April, we opened Rise Lakewood Detroit in Ohio, bringing the state total to 5 stores. And just this week, we opened Essence South Rainbow, our fourth store in the Las Vegas area and 44th store across the country. To open 3 stores across 3 states in the face of COVID is a true testament to the strength of our team. On the capital front, we continue to be prudent and disciplined capital allocators. In the first quarter, we completed 2 sale and leaseback transactions with IIP for our Toledo, Ohio and Oglesby, Illinois facilities, which provides us with about $57 million of non-dilutive capital. Given the industry and especially at this time, we believe it is a wise move for shareholders doing these sale-leasebacks with IIP. Our growth plans are funded, and we believe the best use of capital is reinvesting back in our business and in our platform. There is an abundant opportunity within our 12-state network to deploy capital, and we should generate solid shareholder returns for the foreseeable future. I am more excited than ever about our business. With that, I'll turn the call over to Anthony to review our financial results for the first quarter.

Thanks, Ben, and hello, everyone. Just to reiterate, we can't thank our team enough for all their hard work this past quarter. It was quite an emotional roller coaster. On one end, we had the excitement of adult-use sales in Illinois. On the other, overwhelming fear of the unknown as news of the pandemic spread. Looking back to those dark days in March, I'm proud with how our team reacted. Were we perfect? No. Do we make some mistakes? Absolutely. Can we continually evolve and adapt? You bet. In a strange way, if we had to write the biography of create them up at this point, our excessive focus on getting better every day would be a key part of the story. Before I jump into the numbers, I want to remind everyone that we are now a U.S. domestic filer with the SEC. All reported financials are now in U.S. GAAP. Our entire accounting team at HQ has been extra busy these past few months to make this transition a reality, so a special shout out to their hard work in the midst of COVID. As you just heard, our Q1 revenue finished over $100 million. Representing a 35% increase over Q4. When compared to Q1 of last year, up 268%. Looking back, we probably should have issued new seatbelts to all team members on New Year's Day. It's been quite a ride. Having 9 digits of quarterly revenue is another major milestone for the company and one we hope to never look back on. Our Q1 growth was primarily driven by increased product distribution across our footprint, especially in Illinois, with the onset of adult-use sales and in Pennsylvania, where demand for medical cannabis continues to be robust. On a sequential basis, gross revenue for our consumer packaged goods segment grew by $8 million or 21%, largely driven by strong performance in the 2 markets I just mentioned. On a net basis, which accounts for intercompany revenue, our growth approximated $3 million or 13%. On the retail side, quarter-over-quarter, our revenue grew 45%, largely driven by adult-use sales in Illinois, new store openings and steady growth across our retail platform. Same-store sales exceeded 75% for the quarter. Our net segment revenue split for Q1 ended at 74% in retail and 26% wholesale. This is up from the 69% retail, 31% wholesale ratio we reported in Q4. As we've highlighted on previous calls, this segmented revenue split nets out intercompany revenue against our wholesale revenue, which understates the true size of our CPG business. In Q4, the company generated $15 million of intercompany revenue. In Q1, $20 million. In both cases, this intercompany revenue represented 19% of total revenue. Predicting the future of where this net mix is headed remains challenging, particularly given the number of variables at play. On the construction front, we continue to make solid progress in our wholesale facility expansions. Through today, we have completed wholesale projects in Illinois, New Jersey, Massachusetts and Ohio. The only facility not yet operational was our Toledo, Ohio processing facility, which just passed its regulatory inspection yesterday. In Illinois, we are now underway with additional expansions at both our Rock Island and Oglesby facilities. In Pennsylvania, we are a few months away from completing our latest expansion. While COVID through our construction and engineering team was quite a curveball, we're proud to say that the net impact is a matter of weeks, not months. Kudos to them for working some real magic here to minimize the impact on the business. On the gross margin line, performance continues to be solid. While we did give about 200 basis points of gross margin compared to Q4, we're hesitant to jump to any immediate conclusions given the impact our GAAP conversion had on our Q4 numbers. As a team, we continue to watch this very important metric closely and are pleased with the facility level trends we are witnessing as our wholesale revenue scales. In addition to revenue, another important story of the quarter is operating leverage, and our ability to spread our fixed costs across a greater number of revenue dollars. If you unpack our Q1 SG&A of $45.4 million, you'll see the following: $10 million of D&A, $5.1 million in stock-based comp and $30.3 million in operating costs. So essentially, 15 to 45 or 33% is noncash and nonoperating. These figures compare favorably to our Q4 SG&A of $46.7 million, which when broken down shows 13.2% of D&A, 5% of stock-based comp and 28.5% in operating costs. When you cut through the noise, on a sequential basis, cash operating costs went up by approximately $2 million, while our revenue went up by $27 million. Said differently, for every incremental dollar of revenue generated, our operating costs increased by $0.074. Now that is simple math that's fun for the entire Green Thumb family. It is also the result of successful execution of one of the key plays in our "Enter, Open, Scale" playbook. Other income for the quarter approximated $1.8 million, which represents the net effect of the mark-to-market of our strategic investment portfolio as well as interest and other expenses associated with the debt raise completed last night. The impact from these operational and financial highlights is the company generated $25.5 million in adjusted operating EBITDA in the first quarter, a new company record. The bridge from EBITDA to our internal metric of adjusted operating EBITDA is a total add-back of $5.3 million, $5.1 million for stock-based comp and $200,000 for M&A and other nonrecurring costs. We continue to think adjusted operating EBITDA is the most important metric for our shareholders as it provides the base of operating cash flows the company needs to execute on its strategy of distributing brands at scale without the need for outside capital. Turning to our balance sheet. We ended the quarter with approximately $71 million of cash and $93 million in long-term debt. During the quarter, we completed sale-leaseback transactions in Ohio and Illinois with IIP, which once construction is complete, will provide our shareholders with a total of $57 million in nondiluted capital. As I mentioned a month ago, we continue to take a close look at all capital projects, knowing that all construction projects for the remainder of 2020 are fully funded. As we look ahead to the balance of 2020, as much as things change, they stay the same. On the CPG side of our business, we will continue to invest in capacity and brand expansion in key markets. On the retail side, we will continue to be aggressive with new store openings where we think it makes sense. We also continue to accelerate our omnichannel strategy so that if and when consumer buying patterns fundamentally shift for COVID or otherwise, we're ready. In summary, we will continue to invest most heavily in markets where we have edge, all the while maintaining our consistent and prudent approach to capital allocation. In addition, we will continue to do our part to protect our team, our customers and our communities in this terrible pandemic. With that, I'll turn the call back over to Ben.

Thank you, Anthony. Stepping back, our thesis is proving out. Owning licenses in limited license markets is a very good thing, and we have an entire portfolio of that. While there will be things we cannot predict, it sets up very well for our shareholders. We believe that our strong fundamentals and solid financial position will help us navigate through these challenging times, and we will emerge even stronger and more resilient. We continue to be bullish on the industry and view prohibition 2.0 as inevitable. We are actively monitoring the intersection of COVID, the upcoming presidential election and the role of cannabis in providing much-needed tax revenue and new jobs. I want to thank all the key stakeholders in our business. Our over 1,700 strong team members, our customers, partners and you, our shareholders, for your continued support in Green Thumb's growth. Stay healthy and safe, everyone. Take care. With that, I'll turn the call over to operator for questions.

[Operator Instructions] The first question comes from Lee Cooperman of Omega Family Office.

First, let me congratulate you on an outstanding performance. Very nice to see. It's a small question or a minor question. We have debt of under $100 million. I noticed interest expense in the quarter was a touch over $5 million. What's in that interest expense number? And is that really in excess of what the run rate will be going forward?

Good afternoon, Lee. This is Anthony here. So embedded in that number is a cash interest expense, which is a little over $3 million as well as some interest expense that runs through that line item that's non-cash that's related to the warrant issuance that was part of the debt. On a go-forward basis, the cash interest expense should continue to be a little over $3 million.

Your next question is from Eric Des Lauriers of Craig-Hallum Capital.

All right. Great. And I'd offer my congrats as well, a really impressive quarter. I was wondering if you could talk a bit more about some of the insights you guys have gained on the digital e-commerce side of things with curbside pickup and delivery mandates in your markets? And what we might be able to expect from omnichannel for you guys going forward?

Sure. Thanks for the question. We're not breaking out the different channels. But what we see like everywhere is people want the assistance of a digital menu, they want the preorder and curbside. People are not going into retail at the moment. So this is already a priority for us, and it's continued investment, continued development of that. But we're essentially able to handle a similar number of transactions or more a transaction size of equal or greater value in less hours to be candid with you. There's shorter times as baskets are prebuilt. And whether it's pickup, delivery, curbside or otherwise, we're able to take advantage of that. But we got to meet the customer where they are. We believe in the full-scale relationship with them. And frankly, with the national retail platform, we think we can build that.

Okay. Great. That's great to hear. And then last one for me. Could you guys give us an update on the timing around your production facilities in Illinois and Pennsylvania, I'm not sure if you've disclosed those yet, but any kind of sense on the timing of those being completed would be helpful.

Sure. This is Anthony. Let's start with Illinois. So we have 2 facilities here. They both have construction projects currently taking place on-site. In Rock Island, that should be completed at some point in the third quarter. And in Oglesby, that should be completed near the end of the third quarter/early fourth quarter. In Pennsylvania, we expect to be finished with that expansion by the end of the third quarter.

Your next question comes from Matt McGinley of Needham & Company.

My question is on the CPG revenue growth. Your growth in revenue overall has been fantastic, but the net revenues in the wholesale segment have been in the kind of mid-$20 million range for a couple of quarters. And I know you're selling your own product through your own stores. But is there something that is limiting the growth in that segment relative to retail? And should we kind of expect it to stay in that sort of range, excluding any COVID impact in the second quarter until the production facilities open up later in the year in those key states?

Sure, Matt. This is Anthony here. I think you nailed it. One of the challenges that we have is, obviously, we have capacity issues in a few markets where demand currently exceeds supply. And so as the capacity -- as the construction projects are complete, we anticipate a step function up in terms of revenue across the wholesale channel. The one thing that will continue to temper that is intercompany revenue, where we're supplying our own stores with product. And so that's why we made the decision to break it out separately here on the call, just so folks could see it. Because while on a net basis, it's hard to see a lot of growth. We can certainly feel it within the facilities themselves that are producing and shipping more units than the -- than you would necessarily think when looking at the performance on a net basis. But again, it's the way the capacity works, it's -- instead of being linear, it's step function up once the capacity is ready. Plants go in the ground and they get harvested and then effectively, the additional revenue turns on.

Great. On the gross margin side, what drove the gross margin down by that 190 basis points sequentially. I would think that selling your own product through your own stores will be a very high gross margin sale, but that you did have some compression there. Is that lease expense related? Or is there some component of mix or seasonality that would have driven that down? I'm just trying to deconstruct what happened with that rate in the quarter?

Yes. It's a tough comp over Q4, just given kind of the number of things that were in the gross margin line in Q4 related to our GAAP conversion. One of the things that we did on packet, we did see -- while we don't have the biological asset treatment now with GAAP, we are still capitalizing some cultivation costs. And if you look at the total number of plants in the facilities, and the age of those plants, what we noticed is that in Q1, they were much younger. And so we capitalized less cost. In addition, we did operationalize some -- a number of assets in the fourth quarter that resulted in increased depreciation cost in Q1. And so this is something we'll be watching closely over the next few quarters, but I think just given the noise, it's tough to do a direct kind of apples-to-apples comp.

Your next question is from Vivien Azer of Cowen.

Thank you. I hope everyone is safe and healthy. Just sticking with the gross margin question, Anthony. So you guys have New Jersey and Ohio that are going to be coming online. So should we be expecting some operating deleverage at the gross margin line as you scale back? How should we think about that?

We'll see. The reality is that the scale of the facilities in Illinois and Pennsylvania, I wouldn't be surprised if that counters, kind of the -- what you just described with the upfront cost of getting those facilities operational. In Ohio, it's a processing-only facility. And so really, the start-up costs are going to be relatively limited because we're going to be buying trim on the market and then converting it into processed products. That's not the case in New Jersey, but that's -- we're kind of building our capacity over time there. So I don't anticipate a big hit to the P&L in any one-time period.

Great. And if I can just squeeze in a follow-up. Ben, when you were describing the 13% growth for your consumer branded goods business, you said that growth was being driven by Pennsylvania and Illinois, and that makes sense given the healthy velocity in those markets and access to wholesale channels in those markets. But just as a point of clarification, were there markets then outside of Pennsylvania and Illinois where your wholesale would have been down?

Sure. Thanks, Vivien. It's Ben. Often, we don't have it specifically on states, but I think effectively, no. The other businesses remain strong, just the large numbers and moving it up. We look at the 21% sort of gross, which is the amount of new product growth that's happening, which I think is the real way to measure the business from the gross product manufactured and produced, that's sold. No, we have strength everywhere, but as we put in the capital, we can get the growth. And you sell everything you make every month. It's hard to squeeze more out of that rag.

Your next question is from Michael Lavery of Piper Sandler.

This is Jeff Kratky on for Michael. How should we think about the pace and potential locations of store openings in the remainder of 2020? And how much of a headwind or disruptor could COVID be?

Sure. Thanks for the question. This is Ben. We opened 5 stores this quarter, and we have some visibility on the rest of the pipeline. We're not really guiding on the back half of the year because we have the ability to sort of play to throttle as needed based on the market based on what's going on. I mean the last time we talked to is March heading into the eye of the storm. So we'll be in a better position to really comment on it after we get through June and July on where we go. But just to give you some color, with 5 open, we see another Illinois store opening later this quarter, and with the other 2 licenses, we're actively working on, we remain flexible. But Pennsylvania, Illinois, Nevada remain really on the schedule and working in Los Angeles, but COVID presents some issues, but no changed priorities.

Great. And then as a follow-up, how has the competitive landscape changed during COVID? And is this disruption a bigger headwind for operators with less capital? And could it create an opportunity for you to gain share.

Yes. I would say, as this is happening, we're focused inside on executing. There's a lot of demand. People are interested in the product, medical patients to feel better. Consumers to handle what's going on. And we're just focused on executing. We're not really monitoring the details of what's going on with each individual competitor, but we like the supply demand set up in our markets, and we're very sensitive to what's going on in the capital markets. This is not an easy business. It's not a cheap business. So broadly defined an economic slowdown restricts capital. And so it makes those with capital and the ability to execute in a better position. But we are 100% consumer-focused. We're thinking about the consumer every day and how we make that better and more well-being for them across the country and we're just going to go execute on the opportunity we have.

Your next question is from Robert Fagan of GMP.

Congrats on another fantastic quarter there. Yes, I thought I might just ask about the previous guidance range that you guys gave for Q1. Obviously, you're well exceeding that. And just given the timing of when you issued those numbers, can you give us any color on what was the driver of the beat versus your own expectations?

Thanks, Robert. It's Ben. I would say, coming into the end of the quarter in March, let's remind ourselves where we were then, a lot of uncertainty heading into the end of the quarter. And we saw strong demand, but wanting to put numbers out there, we know we feel comfortable with. I think there was some pantry loading, but I think overall, we've seen strong demand all the way through. I think you've seen the April sales in Illinois comp, 4% better than March. And I would say just broadly, it's nice to get some good momentum into the industry here in the United States. This is a real viable, multibillion-dollar industry, and I think there's good credibility behind it.

Okay. Great. That's helpful. And just on a follow-up. I thought that was interesting what you mentioned, Ben, about the ability to curbside service in a more rapid fashion. And I don't know if this is something you could quantify. But does throughput actually increase with curbside service at retail stores, given, like you said, baskets are already predetermined. Just a matter of running them out to a car. Is that something you guys are seeing?

Yes, we're spending a lot of time on that. It certainly can be. I mean, you can move faster if you're moving lots of cars simultaneously with runners and WiFi outside and debit transactions and at-the-car service. We're trying to optimize the right experience for the consumer, but we can certainly run a very throughput oriented curbside, not quite drive-thru yet, but curbside experience for consumers to get the product that they want, that they can engage with digital experience.

Your next question is from Aaron Grey of Alliance Global.

Congrats on the quarter as well. So I think it's good to see the strength that you guys are seeing in PA and Illinois, but just if I could ask about the Nevada market, now that you're going to have curbside coming back -- coming online in the new stores opening as well. But can you speak to potentially what you saw in terms of impact of sales from your stores just when you did not have access to that? And then obviously, with tourism being a hit in that as well? Just kind of what trends you're seeing specifically in that market?

Sure. I would say it's rapidly evolving, right? In the last 6 weeks, there's been a dramatic change. But primarily, what I would say is, it's regulatory-driven softness, right? As soon as you can't come in the store, it's harder to shop. So delivery was ramped up quickly, and then curbside has a big uptick and then in-store. From all business to the tourist economy, right, with the strip essentially shut down, we're in a fortunate position where most of our vast majority, as I think we've talked about, is a traffic local consumer, not tourists. But at the same time, how is an economic recession or depression or major downturn going to impact consumer dollar share into cannabis, which I think is at the core of your question. And I think the answer is, it's early. But we're not overly worried or panicked. We've seen certainly other sectors that have good resilience in recession as people look for the products. And so we're seeing it in the stores. It's a very warm environment. People were able to come out of their houses. It's also been over 100 degrees in Vegas, but people like the experience and they like the product. So curbside has certainly ramped it up. And we'll be able to watch the state data as it comes out with about a 60-plus day delay. So we'll be able to see that.

All right, great. And then just second one on the state of Florida. Obviously, a lot of uncertainty in terms of expanding brick-and-mortar wise just given COVID, but you guys have done a good job of that in the past couple of weeks. But as you look at the next couple of quarters, I understand you don't have a lot of transparency. But is Florida kind of a market that is kind of secondary to some of those other ones? And how do you think about kind of expansion in that state, as you're still at 6 stores today? The cap has come off in that market. So you still have -- some of your competitors are continuing to expand even that can go beyond the prior caps. So how do you think about that market and both capacity and retail expansion?

Sure. Florida is a great market. We love it down there. The one unique thing about the Florida market is the forced vertical integration. So as we really think through opportunistically allocating capital, we have higher priorities, especially weighted against time. And what I really mean is first-mover advantage in several of these other states, matters a lot for us. And so we prioritize every day, every dollar, and we have to look to the highest, best, quickest shareholder returns on the capital that's going to fortify our position over the medium and long term. But that's not to say anything bad about the Florida market, to your point, very robust, certainly -- still no edibles, which is on the horizon and a medical market with talk both ways about an adult use. So it's going to be a bigger market. There's 20 million people down there. There's a lot of old people who would benefit or older generation folks who would benefit from well-being through sleep and pain management that cannabis can provide.

Next question is from Glenn Mattson of Ladenburg Thalmann.

I'm curious on Massachusetts, if you can give us a little more detail as to how it performed since the ability to shut down. Just I think some color there would help us get a better understanding of maybe what to expect in terms of snapback when it reopens up there.

Yes, I mean, the Massachusetts market is made up of a medical market and an adult-use market. And overnight, the adult-use market was over. So it went from full adult-use to 0. So you've seen a lot -- you've seen incremental more demand on the medical side, if people try to get hard. So you've seen a little bit of strength there, but essentially, it's a full stop for all the adult-use product in the state. We think that it has no impact or it will lead to pent-up demand actual consumers' needs. And so when it's lifted, we're excited about that market. We think it will resume with strength.

I don't know if you've broken out historically what your mix is there for medical versus direct, but would you be comfortable doing that now?

We haven't talked about it specifically, but it's not materially different, maybe slightly more medical than the state numbers, which are public. But that's a pretty good gauge. States do a pretty good job being transparent with the information. Massachusetts has really good daily sales.

Your next question is from Graeme Kreindler of Eight Capital.

This is actually Pat Sullivan on for Graeme. I just wanted to say -- I just wanted to ask about the positive operating cash flows that you guys saw this quarter. Is this something that you guys expect to persist this year? And I guess, further to the cash conversation, are CapEx figures by magnitude kind of expected to hold in at the current levels or subsist as the schedule is impacted by COVID?

Yes. So Anthony here. Look, if we can keep our adjusted operating EBITDA at around or above these levels, then absolutely. The way we look at it, we try to keep things pretty simple. When we're kind of sitting around the table, we look at our adjusted operating EBITDA. And we take a look at the impact of tax, we net out our cash interest expense. When we look at the working capital kind of swing that we see from over a given time period. And our job is if we're generating sizable adjusted operating EBITDA, we should be able to drop cash through the operations so that it can help fund kind of future growth. And so that's one of the core things that at least our FP&A and accounting team kind of focuses on is just ensuring that the cash flows that we generate can be reinvested back into the business and that we're generating positive cash flows.

Okay. Great. And then on the CapEx figures, do you expect those to hold in at the same levels? Or with the sale-leasebacks and tenant improvements and then schedule issues with COVID, will that be tempered?

Yes. So let's break that down. You essentially have 3 types of CapEx. We have maintenance CapEx. It's not a lot, but it's ongoing. It's a relatively nominal number. You have wholesale CapEx, which is very lumpy, particularly kind of quarter-to-quarter, depending on the progress that we make with the construction projects that we have ongoing. Those are all fully funded. And then you have our retail dispensary build-outs. And we've built out, call it, 44 of these stores at this point. So we've got a pretty good beat on how much they cost and how long it takes to build them out, depending on the jurisdiction. Going forward, there's probably going to be some lumpiness quarter-to-quarter. But when we look at our estimated CapEx for the year, it's probably at or above the annualized number for this quarter.

Your next question is from Andrew Semple of Echelon Wealth Partners.

Congrats on the excellent quarter. Just on the strength of the Q1 results, you've obviously set a very high hurdle for growing your business in Q2. Just wondering with the impact on COVID-19 on some of your key markets, I'm thinking Nevada in particular as well as Massachusetts, how comfortable you are in growing your Q2 sales over Q1 at the rate you've done historically in the double-digit range?

Sure. This is Ben. We don't give specific guidance and, obviously, it's been a big step function this quarter. So I think it would be foolish to just plug in the same kind of numbers. But I can tell you that the second quarter is still early. Here, we are halfway through, but it's performing at expectations. And while we did see, like I said before, some entry loading in March there's no change to net demand. We saw Illinois, for example, to your question, the 4% growth in April over March. So we remain excited, putting head down and focused on the business, and ready to perform. We're not really managing on a quarter-to-quarter basis, but we're excited about what's going on in our future for later this year.

Okay. Understood. And just a follow-up to that. We are heading into a period here, a tougher economic period. Just wanted to get your thoughts on where you think your in-house product stacks up in relation to third-party products in terms of pricing levels? I'm wondering if you're seeing any notable shifts in demands between your product portfolio between your various brands.

We talk about that a lot inside, and you've got to be careful to make blanket judgments on short-term data into supply-constrained markets, which is really a predominant part of our business or the supply-constrained markets. So we don't want to pass judgment. People like things. Value, obviously, is important. But how is our product ranked up in different states for premium quality flower. And in general, we'll know with the highest quality flower in several of our states from Illinois, Pennsylvania, Maryland, et cetera, and that can take premium price. So we're fine with that. But at the same time, it's important to understand the consumer and understand that there's a value offering and a premium offering and several different things in between. So it's important to have a portfolio of brands that can appeal to the consumer.

Your next question is from Bill Papanastasiou of Canaccord.

Congratulations on the quarter. So for my first question, I was hoping to get a bit more detail in regards to the Illinois adult-use market. Now I understand that management might not want to delve into state-by-state specifics, but perhaps you can help me fill some gaps. When I compare your store count to the readily available data online of 65 approved adult-use licenses, I guess that implies a market share of approximately 10%. Now I don't think this metric does you guys justice because I mean your results indicate that. But I was hoping you'd be able to provide us with a bit more detail on the development of the store openings in the state and perhaps share some comments on whether this modeling approach to see how GTI compares to the competitors is fairly in line with what you guys are seeing?

Sure. Bill, this is Ben. So I'll just set the table a little bit. The end of 2019, there were 55 medical cannabis dispensaries in Illinois. Each one of those has the ability to also offer adult-use product, if approved by the state in local. And I think 48, 49 of those are able to do that, plus or minus. In addition, each one of the 55 get an additional license to open an adult-use only stores, non-medical. And we have been the only company -- or we're the only company in the first quarter to open -- and we actually did 2 of those stores, 56 and 57 in the state. And now there are 58 open stores, 3 of which are adult-use only stores. So we have 7 stores open now and a pipeline on the other 3, which we're excited about, as I mentioned, one of those coming up later this quarter. To your point on market share and what's going on, we're not really public with our market share or talking about that, instead we just like to leave with the numbers. But I can tell you, there's some publicly available data on it that clearly, we're over-indexed. We've been a leader in the space, first mover, and we're good at operating these stores, serving customers, serving patients with care and offering selection and service that people want, and they'll come back to, especially in the supply-constrained market. So we really like what's going on here in our home state, and we frankly think it's a setup for many other states to watch what's going on.

Okay, great. And just one follow-up question, well, a separate question. So there's a number of your peers in the MSO peer group, who seem to be hitting a funding crunch as of late and have already announced their intentions of monetizing or spinning off assets. Now I know you guys get a lot of questions on M&A, but with a continual slide of the cannabis' fate , has your strategy changed at all? Are you seeing any interesting opportunities? Are you still finding it more worthful to allow to reinvest in your business due to perhaps higher ROI?

No change to strategy. We continue to look at everything, and everything is on the table, if it makes sense for shareholders or within our business. But I can tell you, the bar is high. We've got an amazing business and an amazing platform in the early innings. So the M&A world, I'm not interested in inheriting other people's problems. We like our business, and we continue to see it as the highest priority and best use of capital for what we have today.

Your next question is from Russell Stanley of Beacon.

Just a first question around Ohio. Talk about opening the processing operation soon. I guess you just got the final inspection completed. Congrats on that. Just wondering what the raw material supply is like in Ohio? And I guess, what you've done so far to secure supply?

I guess, just to make sure -- Ross, Anthony here, just to make sure I heard you right, you're asking about the availability of trim.

Yes.

Strong, very strong. There's a lot of product on the market. To be candid with you, the pricing trim was when we started chatting with folks, we were pleasantly surprised. And so it's clear that some folks are sitting on a lot of weight, particularly kind of material that may have not passed kind of the stringent testing requirements in Ohio. But we don't see any issue with being able to fill that facility with good plant material to get things going.

Great. If I could follow-up on New Jersey. We talked about this on the last call. Just wondering what the latest is on that first dispensary and its performance since the opening? And what your latest view is on the second and third locations if those might be 2020 events? That's for me.

Yes. I mean, that's the hope, that's an accelerated time line. So New Jersey remains a very attractive market. Not something we spend a lot of air time on the way we do in Illinois and PA, but we see it coming up third right there. A very attractive 9 million-plus person market, medical, limited operators, huge demand, a state that's looking for the tax revenue. We've got it on the ballot in November. We opened the store in Paterson. The performance is above expectations, and we expect that the second store licensed and approved, it's a little hard to handicap construction and time line. So I don't want to give you an exact time line, but it remains a priority as we continue to scale product into a state that is tight on supply.

Next question is from Neal Gilmer of Haywood Securities.

Number of them have been covered off. But maybe you obviously made a number of initiatives with respect to the COVID-19 pandemic both to protect, obviously, your employees, consumers, et cetera. Is there anything that we should expect in Q2, maybe a slight uptick in whether it be OpEx or maybe some of the stuff flows through cost of goods sold back? All those initiatives maybe weren't necessarily planned 3 months ago, just wondering whether there's anything there that we might see in the Q2 results that we should be aware of.

Sure, Neal. So look, obviously, it's still early. I don't think that you'll be able to see it rolling through. Obviously, we're spending more on PPE and other things and some additional kind of processes that may be adding some incremental labor here and there. But I think just given the scale of the business, I think it'll -- it won't be noticeable. And we'll look to other areas to cut back on to make sure that there's no kind of inherent impact on the business.

Your next question is from Scott Fortune of Roth Capital Partners.

Very impressive quarter. Congratulations. Real quick. I want to follow-up on the disciplined capital approach you guys are taking. Yes, you have a lot of opportunities within your own markets and states. But what are you seeing -- you've talked about the private sector really hasn't come down much as far as a pricing standpoint, but are you starting to see that occur a little bit more here and can potentially look opportunistically from an M&A side as some of these private potentially comes down from that standpoint?

Sorry, Scott, this is Ben. Was your question about private sector M&A?

Yes. And those valuations coming down, they remained pretty high as far as some of the good operators. But are you seeing overall some of that starting to come down?

Yes. Really, the same lens, public or private or whatever is going on, [indiscernible], take your pick in cannabis. We're looking at the true business and the operations of that business, various metrics, not so much public or private. I don't have a strong comment on the valuations in the private sector versus public by what's going on. But we remain looking at things and everything makes sense. If it on the table if it makes sense, but the bar remains high, public, private or otherwise.

Okay. And then one follow-up. Obviously, there's a number of transactions that's driving strong retail growth here. In store, flip side, you have delivery, are they all producing higher average tickets for you going forward as kind of lower in-store volume is offset by curbside delivery, but is each kind of channel producing higher ticket sizes for you?

It's a little hard to comment specifically, again, as there are short-term swings and various things. But I can say, broadly, with COVID, people want to go less often, so they're buying more. So we're seeing tickets go up through that. And as we enable the transaction, we can enable people to spend. So whether it's debit, curbside, delivery and other things and obviously running delivery fees and different incentive programs and loyalty to drive that ticket to scale the business. But people aren't afraid to spend on cannabis, especially as they know they want.

Your last question is from [ Keith Neumeyer ] of MaryJane Stocks.

I was interested in trying to break down the Illinois revenues. Are you giving any forward guidance on Illinois and what you're expecting for the year?

Sure. Thanks for the question, Keith. This is Ben. No, we're not providing forward guidance on it, but I can talk to the numbers, like I mentioned, and the state does a pretty good job at disclosing and being pretty transparent about what's going on. So you've seen about $200 million of sales in the first quarter. So that tracks to an $800 million annualized business. And we don't think that that's an accurate measure of demand. We think that the market is entirely constrained by how much product is out there. Product hits the stores, ours or others, and it sells as there's big demand. So we think that the size of the market will be dependent on how much supply comes online. And as Anthony mentioned, we continue to ramp supply. The other friends in the state continue to ramp supply as well. And we think the demand will beat that. So I'd be surprised if it's flat 4 quarters in a row. And we think the net size of the market is in excess of $3 billion. And that's a material amount of money. That's a material amount of tax revenue. That's a material amount of jobs and CapEx into the state that continues to look for jobs and other things. So we're bullish, obviously, on Illinois here for the citizens and for the program.

Your current Illinois capacity. Have you released a detailed amount of capacity for Illinois?

We have not. This is Anthony, Keith.

There are no further questions at this time. I will turn the call back over to the presenters for closing remarks.

Well, thanks, everybody, for joining. We're obviously excited and focused on the business here, but everybody out there stay safe. We look forward to talking to you in a few months. Thank you.

This concludes today's conference call. Thank you for your participation. You may now disconnect.