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

Good morning and welcome to the Green Thumb Industries' Second Quarter 2021 Conference Call. [Operator Instructions] I would now like to turn the conference over to Jennifer Dooley, Chief Strategy Officer for Green Thumb Industries. Please go ahead.

Thank you, Andrea. Good afternoon, and welcome to Green Thumb's second quarter 2021 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 our quarterly report on Form 10-Q which we expect will be filed tomorrow. This report, 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 financial measures 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.

Thanks, Jen. Good afternoon, everyone, and thank you for joining our second quarter 2021 earnings call. Strong momentum in our business continues. Our revenue for the quarter was $222 million, up 14% sequentially, and up 85% year-over-year. To give you a sense of the growth, this quarter's revenue exceeded our entire annual revenue in 2019 just 18 months ago. We posted our fourth consecutive quarter of positive GAAP net income. We continue to have positive free cash flow from operations and adjusted EBITDA grew 11% sequentially to $79 million, more than double the level from a year ago. During the quarter, we raised $217 million in a non-brokered private placement of senior debt, and we feel very comfortable with the balance sheet. We ended the quarter with cash and cash equivalents of $360 million, which gives us significant financial flexibility to invest for the future and strong returns for our shareholders. We continue to attract new U.S. institutional investors who are aligned with our long-term vision to create cannabis experiences that connect people and improve communities. To enact our vision, just last month, we launched a new brand called Good Green and announced the LEAP bake-off. Both initiatives dedicated to creating more opportunity for underserved communities in the areas of education, employment and experiment. In addition to high-quality products and authentic brands, our team's passion for these products is real, and I am proud that is part of Green Thumb DNA. Regardless of the current barriers limiting access to capital markets, U.S. institutions are demonstrating an appetite for greater access to cannabis investments and we are excited about the momentum. The first half of the year fell very solid and we continue to focus on execution. We are looking beyond the current year to optimize the tremendous potential when adult-use sales begin in New York, New Jersey, Connecticut, and our recently entered market of Virginia. In each of the new adult-use markets coming online over the next few years, we anticipate a surge in demand that will mirror what we've experienced first in Nevada, Zedi Massachusetts, and most recently in Illinois. History does not repeat in rims. Our home state of Illinois continues to book record sales every month and our team is preparing for the next few chapters. Demand remains strong across the country. It has been a busy few months for us as we expand and entered new markets. In addition to Virginia via Dharma, we closed on the acquisition of Liberty Compassion, a Massachusetts-based cannabis operator, adding greater capacity for us to serve a growing East Coast consumer base. We also expanded into Rhode Island with the acquisition of Vertically Integrated Summit. This broadens our footprint to 14 and 62 retail locations and puts us in solid position in the highly desirable northeastern market, where we now have operations in the contiguous states of Connecticut, New Jersey, New York, Massachusetts, Rhode Island and Pennsylvania. We love the math. We accomplished this by remaining committed to our disciplined strategy to enter markets that meet our supply-demand requirements. These are highly coveted states that offer tremendous potential as we scale distribution of our cannabis products and retail experiences. The flower and the service keep getting better and better. On a personal note, I'm excited that our acquisition partners chose Green Thumb, they didn't have to. They did so because of our reputation as a trustworthy and proven operator and a shared alignment of vision, principles, people and community. I am committed to making sure we deliver on that. I'm also very proud of what our team accomplished in the 90 days since our last conference call. As you can imagine, negotiating critical M&A deals and then integrating people, culture and systems requires considerable time and effort. The team gets this done while completing other growth-critical initiatives like the first expansion harvest ahead of schedule in order to Illinois. Moving forward with our site in Warwick, New York, which is transforming a former prism to a Canada campus and building out capacity in states like New Jersey, Ohio and Pennsylvania. We are also optimizing brand distribution, including canned beverages, which continued to perform very well. Cookies on the Strip had a rousing opening as they become a top tourist destination in base. Within our own brand portfolio, we seek to create some of the highest valued most loved brands and cannabis experiences that bring well-being to people and communities. We have brands distributed in 12 states and we continue to scale our capabilities. There is still tremendous potential to build depth and breadth of brand distribution. We are also enjoying success with limited seasonal offerings like canned Pineapple [indiscernible] and the incredible source bar. At the core, we believe that buying our Rhythm is a means the more well-being for America. We know Americans want edibles but are a bit nervous. That is why incredibles, the credible edible can build trust and help lay the path. And we know that good dream can help anyone be good, feel good and too good. Together and over time, we can actually make things better. As I mentioned before, we are pretty close to parity between our retail and CPG businesses on a gross basis. And over time, CPG growth will continue to accelerate as distribution meets the demand ahead. That is our focus every day. We have many levers for growth that will expand access to well-being through cannabis. Strong execution for our customers and disciplined capital allocation for our shareholders remain our top priorities. As we continue to deliver sustainable growth and returns. Today really is day 1 for the Great American cannabis growth story. And there is so much opportunity for so many people and communities to win along the way. I've been saying that for a long time, so let me try to quantify it a bit for you. Legal U.S. cannabis sales are currently on a run rate of $24 billion. That's because the second quarter 2021 sales were $6 billion. That's a new record. $24 billion is very big, but it's just the start. We think it more than triples in the next decade. As an example, California grew 9% quarter-over-quarter on a base of about $1 billion as the legal regulated market grows. Colorado grew 25% in its seventh year of legal adult-use sales. States like New York, Virginia, Ohio, New Jersey are not even in the $24 billion number. At 50 million Americans, Green Thumb has a nice position in each of those states. Because of this top-down and bottom-up analysis focused on the data and the consumer, we think our $80 billion industry size is too low. But even if you think it's around $80 billion, that means there's about $60 billion more of legal sales to come. We have confidence in those legal sales in the United States regardless of the federal policy. And we believe that will lead to at least $100 billion of new market cap. That's $100 billion of new wealth creation. That's an unbelievable set-up, and honestly, very American. But the real questions are how do we handle it? Who participates? And who will we be pleased in 10 years looking back? I'm focused on that for Green Thumb and for the industry and I am excited about the data ahead. We understand the privilege and we understand the responsibility of this position. With that, I'll turn the call over to Anthony for his financial review. Anthony?

Thanks, Ben, and good afternoon [indiscernible] team and shareholders for all their hard work, dedication and trust. We delivered yet another record quarter, none of which would be possible without our extensive and growing Green Thumb family. Those that have been with us since the early days, we've shown that if you planned us you're going to harvest win. For those that just arrived, the ride on the green thumb rocket ship is just getting started. So buckle that seat belt. Today is day 1 for all of us. In the second quarter, the company generated $222 million of top-line net revenue and $79 million of adjusted operating EBITDA. Total net revenue increased 14% over Q1 with gross CPG revenue growing 13% and gross retail revenue growing 15%. As a reminder, the difference between gross and net is intercompany. Similar to last quarter, there are 3 primary drivers to our top-line trajectory growth, robust consumer demand, high quality differentiated product and execution. Number one, the tidal wave of demand for cannabis is real. Across the board, in every market we operate in, consumer demand for legal cannabis is going up and to the right. Number two, our differentiated product offering continues to resonate in our respective markets. We believe in quality over quantity and leading with the consumer. No everyday busy for our crew. Here at Green Thumb, we want the fire and more of it. Last, operational execution. We've set since our first call as a public company in 2018, enter, open, scale in the face of tremendous growth and a myriad of complex regulatory environments the team makes it look easy. The net result of everything above is another highly profitable quarter where the company generated gross margins in the mid-50s. While this figure slightly declined over Q1, when we unpack the numbers, it makes sense given the ramp-up costs related to our CPG expansions. I would assume that the business will continue to incur these sort of expenses while still maintaining our intrinsic goal of keeping gross margins at or above 50%. On the SG&A side, excluding D&A and stock-based comp, normalized operating costs approximated $47 million, a $5 million increase over the $42 million incurred in Q1. As we head into the second half of the year, we plan to continue to accelerate our investments in our team and our infrastructure. We need a bigger boat and more team helping us operate the boat. In Q2, total other income approximated $2.4 million, primarily driven by noncash gains and losses associated with our investment portfolio and the refinancing of our senior debt facility. As a result, the company generated over $79 million in adjusted operating EBITA close to 36% of revenue and over $20 million in net income, our fourth consecutive quarter positive earnings per share. Moving on to the balance sheet. We ended the quarter with approximately $360 million of cash. This is $80-plus million greater than last quarter that was supplemented by the $270 million non-brokered debt rate we completed in April. With this cash, we intend to double and triple down our debts in a number of key markets. Our patients and consumers have spoken. They want with Rhythm, Dogwalkers and incredible, and our capital spend should help address this. In closing, we wanted to welcome the Liberty, Darla and Summit team into the Green Thumb family. We're excited about the additional reach new businesses and teams provide as we continue our expedition into Prohibition 2.0. We don't ever want to eat the balance of their summer. We look forward to speaking with you again in a few months. Back to you, Ben.

Thank you, Anthony. Before we go, I want to share a little more about the programs I mentioned earlier and our efforts to expand access to opportunity and well leading in underserved communities, especially those harmed by the Wondros. In this country today, there's a 90% racial wealth gap between white and black Americans due to systemic inequality. There is not a personal Green Thumb who is in trouble by the shocking disparity. And so in July, we joined forces with 90 to 0. This group is developing a road map to advance racial equity by growing black talent and increasing capital to black businesses. With the support of leading CEOs from companies like Starbucks, Goldman Sachs, and the United Way and with the help of 2-time NBA, MVP, Step Curry, we are honored to be the first company to represent cannabis in driving this change with 90 to 0. We also announced the upcoming launch of our new brand called Good Green. To advance our mission of expanding access to well-being through cannabis, sales of Good Green products will fund grants to nonprofits that support the brand's 3 pillars: education, employment and expungement. We encourage you or a 501(c)(3) you know or people you know who know a 501(c)(3) that fits our mission to apply in our website, good.green. To give the program a head start before actual product sales, we are proactively committing at least $1.3 million over the next 18 months and the application process is now open. The application process is a mean to figure out who and where to give the money in order to generate the largest impact. This builds on our existing social impact program growing for Good, which is committed to advancing diversity and inclusion restore justice and social equity within the cannabis industry. Our entire team's dedication to these important social issues is inspiring. I am also excited Green Thumb's branding in the #2 spot of Crane's Fast 50 list of rapidly growing companies in Chicago. We feel the growth and we are ready for more. In terms of COVID, we can only hope that the Delta variant will not lead to a repeat of 2020. Based on the data, we encourage Americans to get vaccinated to protect yourself, the elderly, and our kids. While it's still too early to determine the ultimate impact of COVID this time around, we have learned how to live with the pandemic and we fully appreciate the essential role in cannabis and our industry plays in providing well-being and comfort to tens of millions of Americans. Rest assured that your company is stronger than ever and committed to becoming better every day. And finally, I want to say thank you to Jennifer Dooley. Many of you remember heard from the roadshow, 5 years tantalizing brands, 1 IPO, 13 conference calls, lots of laps, lots of learning and lots of good fun. So on behalf of the shareholders, we appreciate your contribution and wish you well in your next chapter of life. Thank you, Jen. With that, I'll turn the call over to the operator for questions.

[Operator Instructions] And our first question will come from Matt McGinley of Needham.

My question is on retail. I'm impressed with the sequential growth in the retail business. I think most of the new unit additions in the back half will be acquired medical dispensaries and I think new medical units in Pennsylvania and Florida. Would you expect this to impact the average retail productivity? Or is there still enough momentum with the rising productivity on your overall store base where you could sustain your average unit volume in the back half?

Yes. Thanks for the question, Matt. I think one quarter is too short to judge. The last quarter, I think the number was 2%, that people said, "Hey, it is too low and now it's higher. I think over time, we're seeing very strong consumer demand. We're seeing the markets and as Anthony said at every single market go up and to the right. And so we're analyzing those. We're understanding opening the box is really the evolving consumer and what that looks like. So -- We like the retail business. And you can see, though, a majority or a significant majority of our capital is going into the production business branded consumer products and production.

And my second question is on the G&A in the back half. You made that comment [indiscernible] investing in June in the back half. Can you quantify what type of increase we should expect from that $47 million core number that you had in the second quarter? And then additionally, I would think that most of the recently acquired assets would likely be lower margin, they just operate at a lower scale than what you do at GTI consolidated. Would that have an impact on the margins in the back half? Or is it just kind of small enough for the rest of the system is just operating at such a scale, just sort of gets mixed up and wouldn't really have a margin impact?

Yes, Matt, I'm trying to set a lot there. I'm trying to understand every good question. Can you just kind of repeating it?

Yes, absolutely. So you made the comment of the core G&A in this quarter was $47 million, but you also said that you would be investing in the back half. Can you help us understand how much of an increase we should expect to see on G&A investment into the back half? And then the second part of that was, you've recently acquired these assets across these several different states, presumably, those are all lower-margin businesses than what you have with core GTI today. Would that have an impact on margin in the back half? Or is it they just not -- I think is small enough, it doesn't really have an impact on overall GTI consolidated just because you're dropping at such a scale for the rest of the business, it would just get washed away and not have an impact? Sure. Okay. Now I totally follow it out. G&A, I just got jumbled. So, look, I think we've said it before, as the business continues to grow and what we're seeing, we're building the team in advance of the tidal wave that's coming. And so our foot is on the gas in terms of the infrastructure that we're building here. At the same time, we're ramping up CapEx in the back half of the year, which will be at or above where we spent to date. And so we anticipate that G&A number to continue to increase. Now do I think that's going to result in some margin dilution kind of overtime, candidly not because I think the top line lock-in.

Now on the second part of your question, on the retail margin dilution of the acquisition, you answered it correctly. It's not a factor. We're looking out at what these assets mean and the touchpoints with the consumer, what it means about our brands in those markets, state tax revenues, state jobs. We like those assets. We're not thinking about margin dilution of acquired retail boxes.

The next question comes from Vivien Azer of Cowen.

I wanted to dive in on your consumer packaged goods business. Clearly, a nice quarter on that, and appreciate the desire to continue to invest behind that as you build a portfolio of brands. One of the traditional metrics, then that we talk about in CPG is ACV, right, as a measure of the distribution. But I think for you guys, it's not just about getting one SKU in a competitor door and you're calling out a win. So how do we think about sort of distribution opportunities kind of over the medium term in terms of kind of what percentage of your portfolio is well represented in third-party doors? And how much runway you have there?

Yeah. Good question, Vivien, and something we're looking at and obviously tracking which states, which brands and which distribution and what's going on with the consumer. There is elements of the regulatory of the structure of which products are allowed. Edibles not allowed in TA, no pre-rolls to Pennsylvania and things like that. But we focus on full brand distribution. We want to meet the consumer where they are. And so we're looking at 100% distribution in many of the states we are like Illinois, Pennsylvania, Maryland, as we scale product in Massachusetts, a lot of the catalysts behind the acquisition was more rhythm, more incredible, more Dogwalkers. Consumers want so we got to get it to them and we got to get it to them at the right retailers which means everywhere. I think the consumer and I think the industry is evolving fast and so we want to play where they're going to be a little bit. So sometimes we have the unfortunate decision where we can't do mass distribution to everybody or we're doing strategic things where spots go in certain places because it limited supply.

And my follow-up one along the same lines. I was wondering if you could comment on Canada. I with we had a competitive century in downtown Boston. I saw products on display. There wasn't any available for sale. You've noted in your press release the aspiration to continue expansion beyond Illinois. So perhaps if you could give us a more real-time update. Is that product available? Were those samples in Massachusetts, and how many states could we expect can be in by year-end?

We're in scale on the East Coast. If you think about some of the markets that we're really targeting, again, it's not about this quarter, the end of the year, this year or first half of next year, we're thinking a few years out to that consumer is and where they are. States like New Jersey and New York don't even have rules for how the rig program is going to go. We see Connecticut moving forward pretty quickly. Massachusetts is an unbelievable opportunity and your experience is the experience I hear about often, which is one more can I can't get it. That's a high-class good problem to have, and we're scaling operations of the business. I think the business will have a few more states by year-end or over the next 6, 8, 10 months, and we plan to go pretty big in a few of the states to be ready. We think, again, the consumer experience in cannabis is evolving and can be really a part of that. 2-milligram social experience reduces the fear of entry into the product and we open ourselves up to a brand-new to super base. It's big. And if any you were to Chicago give us a call, come on back.

The next question comes from Pablo Zuanic of Cantor Fitzgerald.

Anthony, I think in your prepared remarks, you said something about doubling capacity in Pennsylvania, New Jersey, Ohio. You also mentioned that in the Illinois just completed an expansion there. Can you give more color in terms of the timing when that kicks in? And hear you write about doubling capacity in those 4 states. And again, if you can put some metrics around it, some people do go out square feet of canopy and also timing. I'm just asking that in the context that, yes, your gross wholesale accelerated, right, plus 13% this quarter compared to 6% in the first. But in the second half last year, each quarter, you were up about 30%, right? So those capacity ramp-ups can really drive significant growth. So more color there would help.

So, we're not telling and tripling capacity, obviously, in every market. We're doing that on a market-by-market basis. But the big capital projects that we have going on right now that we anticipate will be completed by the end of the first half of '22 are in the places that you just indicated, Ohio, New Jersey, Pennsylvania. Ohio, we don't currently have cultivation online when we brand new, but we are tapping out the canopy space that the state allows us. New Jersey, we are certainly doubling capacity, and then PA, pros that amount as well. So in terms of timing, we all know that these projects take a long time. And even when they're finished and the plants need to get to a point where they can be harvested packaged and sold. And so the guidance that we've been giving at least internally and externally is that those projects should be completed by the end of the first half of next year.

And then can I ask just one on in terms of brands. When I hear some companies in Illinois, one of your competitors, licensing cookies and local funds for pre-rolls, right? How do you think about? The companies that are relying either on celebrities for brands or licensing brands from other vendors to operate in their states. I suppose you are happy with your brand portfolio. You need to rely on that. And related to that question, in the case we cookies agreement in Nevada, that's just to rebrand one store or can you sell the cookies brand itself across all your stores in Nevada?

So the last question first. In Nevada, we have a deal on one store. The retailers and wholesale product, right, cookies is a lifestyle brand that connects in many respects from products to retail experience to merchandise, etcetera, etcetera. Comp, so our deals were one retail experience. We are distributing the product. There's other products in the state and we think that there is edge in growing high-quality indoor premium product, which is really what I've seen specializes in. Anthony mentioned in his prepared remarks, we think there's edge there. So that's been a bad story and that can help drive retail business around the state, but also particularly in the strip on ship. And we're excited to welcome you out there. I don't know when you're coming. The -- in terms of Illinois brands, we just think consumer first. So consumers love those brands, they should be here and they should win. But there are quality issues, there's production issues, the distribution, the brand promise. It's very hard. It's big brand nationally. We've seen bits and starts and we've seen things go very, very well. So we're excited that the consumer gets more choice to be candid.

The next question comes from Eric Des Lauriers of Craig-Hallum Capital Group.

One thing that you guys keep hitting on is faster-than-expected growth in U.S. cannabis really across the board here. My question is if you're seeing that on the beverage side with can, it's good to hear you guys building out more distribution assets for beverages, but there has been a sort of 1% of the market or maybe even lower historically. Is this something that you see sort of increasing in share here? Is this something that you expect to move the needle in the near term? Or should we continue to think of this more as sort of a longer-term bet customer acquisition pool? Any comment on the growth you're seeing on the deverside specifically would be great.

The short answer is the beginning, no. We don't see outsized growth there. So we see major growth in U.S. cannabis and the core products. It's flower, pre-rolls, edibles make concentrates. That's 95% of the basket, I think. And that's where we're really investing the minute time versus impact time in the short and medium-term is mismatched in the beverage versus portfolio. But we like understanding what's going to happen out there. So you answered the question correctly, it's a longer-term player, customer acquisition not even know it's understanding the customer, understanding the product and being able to be a leader, understanding first mover and sort of making the mistakes along the way so that we can win as the game enters a larger states.

And then Ben, you also mentioned in your prepared remarks seeing increased appetite from U.S. institutions. I'm not sure if that's just referring to some of the purchases that you've done over the past few months here. But with these stocks seemingly trading more on sort of the capital dynamics and fundamentals, could you elaborate on that comment anymore, just provide any more detail on that increased appetite? Any color would -- I'm sure it would be helpful to anyone on the call here.

Let's set the stage a little bit. Here we are 3 years after going public and being part of really the first class, the first group of MSOs to go public and bring U.S. cannabis in the public markets for the investors sophisticated or not to try to get access to this. There's been a lot of work and have met many of the people on the call and around in our roadshow then as people were interested, they've heard of it obviously another product. They are treated. There's been issues in Canada and people having to understand what's going on in the U.S., that appetite is growing. So the comment there is -- I mean, there is no $24 billion brand new consumer product industries. It's going to $80 billion. They just give it one. You don't see same-store sales like you do in the cannabis industry, you don't see the returns on invested capital. And the business fundamentally is quite exciting. People are interested in growth. This is American capitalism and things trade on those sorts of metrics. If you go down to where we are, [indiscernible], you see $500 million, plus or minus, of new capital coming into the space. We do it without a bank. We do it with gross equals net on to half of shareholders because the return on that invested capital is so dramatic into this kind of growth. And what we're -- the fruits of today are what we plan is from basically the debt for 2019. And now with the balance sheet plus with cash, the foot oil and gas capital investment ramping, we are excited about where this is going. That's basically what we said.

The next question comes from Camilo Lyon of BTIG.

I was hoping to get a little more color on, Anthony, on your comments around gross margin, and in particular, the ramp-up costs in your CPG expansion? And then how to think about when you start to see the return of those increased investments through the greater CPG growth, which will probably have some sort of offsetting margin benefit. So if you can you can help us bridge those 2 that would be wonderful.

So look, that's a near a possible question to answer just given the number of variables, right. So obviously, as we bring on additional capacity, there's a ramp-up period. And during that ramp-up period, you've got your onboarding expense before you're bringing on revenue, material nature. And these facilities after a couple of harbors they really start to produce kind of the yields that you initially underwrote when you invest the capital. Now what's interesting with our business, if we were just doing 1 or 2 of these, the payback on that will flow through the P&L rather rapidly. But effectively, what you're going to start to see is we'll finish one and then we'll start another. And so given kind of the exposure that we have in the number of states where we've got capital projects that have either started today or that will start over the next 12 months, it's a very difficult question to answer because effectively, we're going to continue to keep our foot on the gas, as we've said before. And so I would expect that we're going to continue to run expenses that gross margin line, but at the same time, generating kind of additional scale from the capacity expansions that were reasonably completed. So I think that comment answer to your question is it's really hard for me to kind of tell you where that number is going. I can tell you, again, and I've said this a number of times, and I apologize if I just sound redundant, but our goal is to keep our gross margin line at or above 5%. If we can do that, we can drive massive operating leverage and scale into the business down to our EBITDA line. And that's going to produce great returns for shareholders.

So just real outside of the coloration expansion projects, are there any other costs that flow through in Q2 that affected the gross margin?

Nothing of material in nature.

And then just shifting gears to Virginia. I'd be curious to hear what your thoughts then on how that market is developing now that you're in at officially starting to ramp up. How do you see that the consumer behavior, if any, if it didn't at all different from other markets? I'm assuming it's not? And any sort of views on the plans roll out through the back half of this year, the expansion rollout to the back half of this year?

It rises a lot with the other markets we've seen. This is a medical program where there's access, product offering is limited, power is not available yet. And we're seeing big demand. I think there's 5 stores it in the state plus-minus. We opened the most recent one, which was the first remote stores, stand-alone store, not connected with one of the cultivation sites. It is infancy. There's exactly people, plus or minus, in Virginia. And the story on the demand is pretty simple, story on the supply, the CapEx. We're really bullish on what the demand will look like, both with flower and with dub use. And the math is just like as basic as you could do and you do a lot of the grain worker in a lot of the stuff. I mean it's that simple for us. But we've got to build the infrastructure. Massive a figure, we're approaching 9-figure CapEx projects combined in the state from all the operators. I believe it's the largest CapEx project as an industry in the state. There's supply global supply chain issues. We're able to wrestle through those in order to put the infrastructure here as there's a progressive thought to put this infrastructure in place. This is going to create hundreds of millions of dollars of state tax revenue if you want to employ thousands of people and it's going to be a net positive for the community, for the economy. So we're positive on it. We're excited to be there. We love the new team. We love the product coming out of it and really the consumer -- I mean right little bit last week, 10 days ago or so, rousing reception. People are very excited as we can bring the rise of consumer experience to people in Virginia, we're really excited about that. We're going to learn you better along the way. So look for to go up and to the right.

The next question comes from Michael Lavery of Piper Sandler.

Just following up on -- quick question on your trajectory. It looks like you're in Health Service Area 3. Is that geographic limitation intact still? And if so, will that change with recognitional use comes on board?

So I'm not going to comment on the rules that aren't written, but we have the geographic situation based on the current rules in medical. There is delivering. There are stores. Consumers are moving around. Product is moving around. There's limited supply, limited product set look forward to evolve over time, but I'm not interesting enough on the details to give you any guidance on that. Again, I think the state will see up and to the right and I think everybody understands first it's about the patient and then it's about the adult-use market, safe, regulated, 21 and over, generating productive jobs and massive state tax revenue.

And then just following up on a comment you made earlier when you were given some of the industry color and pointing to the momentum at about $24 billion now. You -- one of the first states you called out as part of that was California. What does it take to get that more interesting for you to be directly involved there?

It's a good question. It's really the same script here. We're studying it. There's a lot of consumers there. You've seen the market in California goal 9%, like I said, quarter-over-quarter, which was $950 million to $1.40 billion quarter-over-quarter. That's tremendous growth. So what's happening, what is going on in the supply chain, what does our return on invested capital look there stand-alone. And then however you want to think about it, we call it optionality maximization, weighted probability or other things against everything else happening in the business, what's our cost of capital, what's our access to capital and what's the best move for shareholders based on where we think this is going to be being in our position kind of in the wave out where we are. So it's very much on the table. We're constantly evaluating it, but we really like what's happening east of the Mississippi. We like to set up and we like participating in California being close to the consumer, understanding the participants there. Certainly, you've seen us do 2 significant things with brands out of California and we think we're very close to the consumer there and it hasn't caused shareholders any money. We like that setup and we continue to really invest in it and be a part of what's happening there. I think time in cannabis has really accelerated. So I think you're seeing several turnovers in the market. I think you're seeing accelerated consolidation or whatever capital market cycle you want to call it, eventually, there will be profitable entities that capital will go to the strength. So I think that's where we're already watching and kind of waiting for that to go down.

The next question comes from Aaron Grey of Alliance Global Partners.

So first question for me, I want to dive back to CPG. So it looks like the percentage of your products flowing through your stores, at least looking at percentage of retail has come down over the past 2 quarters. So I understand part of that looks to be because of supply. But as that supply kind of comes up for you guys, I just want to kind of think about how you look to allocate product either between your own stores or rather if it's near-term higher margin or the argument to kind of maybe bring about more brand awareness and distributing to other stores. So just how best to think about that when you're in this kind of supply constraints to stay with your CPG brands?

There's not a really silver bullet to answer the question. I think the way we approach it is on a market-by-market basis. And so certain markets really require us to supply more of our own product to our own stores. Other markets, there is a healthy amount of available supply out there and that provides a better offering to the consumer than we go with that really. What we try to do is optimize the situation in each market. And sometimes, what we're looking to optimize is different, right? If we were just looking to kind of optimize the top line, we may do one thing in the market, we're looking to optimize profitability, we do another. So for us, it's really kind of looking at each market on a market-by-market basis and then really each week that can buy and the allocation decisions that have to get made on products coming out of wholesale, that's something that we spend a lot of time looking at and looking does because it's in important to the business.

And then the second question for me is on M&A. You guys have gotten a little more active this year, just entered a new state of Rhode Island. It seems to be on the prices of adult-use legalization. So just would give some color. You talked about really like an east of the Mississippi. So kind of going forward, how do you think about other new markets, especially looking at Delaware, that's another small one, you have main which recently legalized. So just maybe where you guys are thinking today in terms of the M&A landscape, where you guys are seeing valuations in the marketplace, how you think about it?

Not super keen to show too many colors. It's the same deal. Everything is on the table that make sense. We got a lot of phone calls. We very active in the industry. We want to put capital to work for shareholders to make sense. Although we're not looking to reach too much. We love our portfolio. I mean Ohio, Pennsylvania, New York, New Jersey, Connecticut, Virginia, all have monster this opportunity and we're pretty head down focused on executing there. At the same time, we're paying very close attention to everything else going on. So the number of states is even that many have an opinion on what's going on. The bar is high in order to go there. It's the same thing I've said, but each one of these deals sets up as meeting that kind of criteria. And it's not even that complicated of math for us as things make sense or don't. We're happy to say no, we do a lot, as always. But really, everything is on the table that makes sense and we are here for the long term.

The next question comes from Scott Fortune of Roth Capital Partners.

Just real quick in lighter the modest sequential growth in kind of May and June and reporting 14% since growth here in the second quarter. What's the exit rate coming out of the quarter relative to the 14%? Any color on the momentum from July and third quarter so far would be helpful? And then are you seeing consumer shift purchasing more it's COVID or reopening kind of traffic in the stores and helping out average ticket size? How should we look at kind of the consumption side of it from the consumers from a basket size, I think?

Yes, we're not a thing we had stuff we saw in March, April, May, with COVID changing consumer behavior. We continue to see increased demand in consumers finding cannabis. We continue to see, I mean, Anthony said it, every state is up and to the right. If you go week-by-week and what happened this weekend versus that weekend is not our style. I think quarter-to-quarter $6 billion as you go through every single state and look at what happens in every single state, even monthly, if you want a doubling in that screens to us if there's any issues, which is sort of, I think, at the core. We think this thing is going to go up and to the right. That's called the sustained sales, same state sales, meaning the states that are already open at least a year, what they're going to come out. And then the states that open like a store are new stores coming online, new states coming online. And literally, the horses in the stable that hasn't gotten out to track yet are [indiscernible] strong and going to run really fast. The names are like New York and Virginia. And then we like our position over putting capital to make those sources really work, work for shareholders, work for the market and work with states. And that's just as simple as we look at it. So no cause of any worry, which I think we hear about. But if you're worried coming out to any of the stores are or otherwise in any of these states and I think you can feel in a few days.

And the really big picture, glad to see your initiatives towards social equity with 90 to 0, Good Green and LEAP programs. And you can now spoken about forward in Illinois for some licenses. We're starting to see that unlock and also in New York as Martha is come on board. But big picture, what do you see as key to accelerate and implement these equity programs is safe banking at the federal level critical and really helpful to gain the jump-start to cause, unlike senate brokers we believe from that standpoint? How do you look at that from a federal level and kind of accelerating in the so equity part of this?

First, no, we don't think it's a federal move to accelerate this. I wish I did the answer to the core of your question, which is how do you get state governments to move along the line of logic and common sense. It's difficult. We're learning along the way. We're trying to be proactive on us here to talk, here to meet, here to move the ball. We have a very unique perspective because we're active in so many states. We understand the mistakes or from them and we try to put them in place in the new state. And so how is New Jersey, Connecticut and New York, for example, which all 3 governors signed legalization going to implement social equity, are they going to learn from what happened in Illinois, which was slow, but now here we are. We've had 2 rounds of lotteries 110 new licenses, great group of many different people. We're going to do a bake-off. Other operators are very in it in order to make sure there's new successful people in the industry. But I don't know how to get state governments to move faster and function on the decision tree that we do, but I'm hoping to suggestions along the way. The next question comes from Andrew Partheniou of Stifel GMP. Please go ahead.

Maybe talking about consumer behaviors and trends that you're seeing. Obviously, during COVID there wasn't a lot of tourism happening. But now with COVID restrictions easing, could you give a little color on what you're seeing with regards to the tourism front? We've got some pretty good data out of Illinois on out-of-state sales, but hard to put a finger on some other states. Any color around that could be useful.

I think the best example of the tourist bid comes from Nevada. You're seeing records out of there. You're seeing big operators there, be successful in growing to it. So just looking at the data here, and obviously, this is all public, but you're seeing numbers around $80 million, $87 million, even March '21 was $97 million in Nevada. Obviously, the weather was cooler, it's 108 degrees outside there in these few months. But more tourists is going to be more cannabis pine. We think that's pretty basic. Going underneath to see what's happening in this state it's pretty difficult. You're seeing the out-of-state bit in Illinois like you mentioned, which is very nice to provide that kind of transparency. How much is tourist versus people over the border, not really clear. But not something we super focused on. Again, we see a huge amount of consumer demand for the products we want to operate safely, compliantly and the way that creates better experiences for consumers.

And maybe following up on a previous question around M&A. I appreciate you want to keep your cards close to your chest on strategy, but maybe looking at valuations, we've seen public market shares retreating to present runoff levels. Wondering if you're seeing something similar on the private side or any kind of color you can provide on that?

Yes, good question. The public markets mark-to-market every day. There's a bit ads, the markets are in or not and it moves around. It doesn't happen in the private market. So the short-term swings of public stock prices and seller's sentiment on what their value is do not correlate 1:1 into the reaction. When there's been big droughts in the market, things are different, people understand there's no capital available and they may change a little bit. But it's much more about the sentiment. I think it's a little less on the mark-to-market of the current public markets. And to your comment just on the pricing, it's not to be focused on much. We just think it's good for the buyers essentially. We're building a business of a boat for what's to come out for a while. So that's exciting for me and for us for this kind of opportunity.

The next question comes from Graeme Kreindler of Eight Capital.

I appreciate the comments at the top of the call on Q&A with respect to the capital spending and setting the stage for the large projects expected to come online in the first half of 2022. I was wondering, given the balance sheet strength of the company right now, I was curious what the thoughts are with respect to capital allocation in the state of Florida. That's a market that I think you've been very, very strategic in how you wanted to allocate capital there. And with the resources that you have, is there an opportunity to potentially to advance some spending there, get a bit more aggressive or maybe look at that as a growth platform sort of in a 2-years out situation? Just would be curious on thoughts on that.

Anthony here. Yes, I mean, look, we've got a lot of cash on the balance sheet. And I would say that we've got a lot of opportunities to deploy that capital within the business. We talked about the projects that we have kind of currently -- that are currently underway in Ohio, New Jersey and Pennsylvania. We also have very large other projects that are contemplated that have not yet started, right? So think of a place like New York, Virginia, we're going to continue to deploy capital in these other markets. Those projects have not yet started. Specifically, as it relates to Florida, given the cash on our balance sheet, given the cost of capital, we are going to start to deploy capital. We have a great site [indiscernible] right off Highway 75, and that will be a project that should get started here within the next 3 months or so. Obviously, there's a lot going on. There's a lot of capital being deployed there by other operators as well. And so my guess is we'll deploy the capital, see how the business performs and then reuse it.

The next question comes from Andrew Semple of Echelon Capital Markets.

Just the first question here. I just wanted to see if you guys have any insights or perspectives on the New York and Virginia medical programs and when we might see timing for smoke body flower products approved within those medical markets?

Yes. The core answer is [ murky ]. Obviously, some signed in the law. The former governor in New York is not a huge family. We have a new governor, press perspective at that pace. So my guess is it would be quicker now than it would have been before, but I don't really know. It seems to be part of the law. It's some more ridiculous than medical patients who would benefit from this and now it's a low to not have access pros available in the market. We know a lot of operators and team are working on this. In terms of Virginia, I think the timing is -- I don't want to say the wrong thing, so we'll have to circle back. But I think it's known and that will be coming soon. We anticipate similar to you've seen in every other market, the power comes on, there's increased demand as the core product of the category and obviously a core part of our focus, which is high-end indoor premium fall. We think in year Rhythm works and we're excited to bring the Rhythm brand to New Yorkers versus Virginian's and then everybody across America.

My next question here. I just want to go back to your comments about significantly expanding your production capacity in several of your core markets. I guess it just raises the question about how you feel about your current supply situation today. Do you feel supply-constrained at all in any of your core states? And is this activity -- or is this investment activity kind of proactive move in anticipation of faster growth ahead?

The answer is both. We have more products, we have more sales and the markets are growing. Our products are good, people want. It doesn't mean every single day, every single one is what we can learn as we go and we develop and innovate. But that's a core more incredible more doors, more vivo is a path to win. We'll be coming out with good doing and we will need more supply. We anticipate monsters at sales there as the consumers want the value proposition of that product and to feel good and do good about how they buy. So again, both. We have more sales today in the current markets but look at the month-over-month growth in some of our core markets. And I think Illinois was 10.7% last month. That's a serious growth curve and how there's going to be a doubling of the points of sale for consumers to go get the product. So inventory in the system is going to go up and sales are going to go up. It's like not a mystery. So we need more product to serve both of those. And as it goes and as people say they won't get market share in retail go down so that's fine. And just using to go with more there's consumers, there's more wells to be created, there's more participants and we see that all the net positive.

This concludes our question-and-answer session. I would like to turn the conference back over to Ben Kovler for any closing remarks.

Sure. Thank you, everybody, for joining us. We'll be back in about 90 days with an update. I have said end of summer. Bye.

The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.