Pyxus International, Inc. (PYYX) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and welcome to today's Pyxus International Inc. Fiscal Year 2020 Third Quarter Results Call. [Operator Instructions] As a reminder, this call is being recorded. I would now like to hand things over to Mr. Joel Thomas. Please go ahead, sir.

Thank you, Lisa. With me this evening is Pieter Sikkel, our President, Chief Executive Officer and Chairman of the Board of Directors. Before we begin discussing our financial results, I would like to cover a few points. You may hear statements during the course of this call that express a belief, expectation or intention as well as those that are not historical fact. These statements are forward-looking and involve a number of risks and uncertainties that may cause actual events and results to differ materially from these forward-looking statements. These risks and uncertainties are referenced in the safe harbor statement included in our press release, and are described in more detail along with other risks and uncertainties in our filings with the SEC, including our most recent Form 10-K. We do not undertake to update any forward-looking statements made on this conference call to reflect any change in management's expectations or any change in assumptions or circumstances on which these statements are based. Included in our call today may be discussion of non-GAAP financial measurements, including earnings before interest, taxes, depreciation and amortization, commonly referred to as EBITDA and adjusted EBITDA, that are not measures of results of operations under generally accepted accounting principles in the United States and should not be considered as an alternative to U.S. GAAP measurements. A table, including a reconciliation of and other disclosures regarding these non-GAAP financial measures is included with our earnings release issued earlier today, which is available on our website at www.pyxus.com. Any replay, rebroadcast, transcript or other reproduction of this conference call other than the replays provided by Pyxus International, has not been authorized and is strictly prohibited. Investors should be aware that any unauthorized reproduction of this conference call may not be an accurate reflection of its contents. Now I'll hand the call over to Pieter.

Good evening, everyone, and thank you for joining us. Two years into our One Tomorrow initiative, we've made significant operational progress against our strategy to transform the business and become a purpose-led company. With products spanning more than 5 different categories, Pyxus is well on its path to become a truly diversified agricultural technology and consumer product goods company. Across all of our business segments, we strongly believe that our commitment to transparency, sustainability, quality and growth based on market demand will position us as a stronger company prepared to meet the requirements of the international market. As we look towards our capital structure, we continue to evaluate and develop the plans for a potential partial monetization of interest in subsidiaries in the other products and services segment, and to address the company's long-term debt maturing in calendar 2021. Our target is to achieve run rate positive adjusted EBITDA across our global specialty products division during fiscal 2021. Our lease business continues to focus on enhancing efficiency and growing market share. Although volumes were down compared to the same quarter in 2019, these results were largely driven by timing and shipments and the delay in processing in Africa. We're encouraged by signed agreements with key customers in Argentina and Tanzania, which further position us as strategic partners on a global basis. Additionally, we remain focused on reducing uncommitted inventory that is near the upper end of our stated range of $50 million to $150 million. The North American region continues to be impacted by trade disputes. While we are pleased that tobacco is included on the list of agricultural products in Phase 1 of the U.S.-China trade agreement, additional steps are needed to restart leaf exports from the United States to China. We are also closely monitoring developments with respect to the coronavirus. While our fourth fiscal quarter has historically been the strongest revenue quarter of the fiscal year, and we anticipate it to be so again this fiscal year, due to these and other uncertainties that may impact results for the fourth quarter, we are not in a position to update our previously issued guidance for the current fiscal year and are withdrawing that guidance both with respect to revenues and adjusted EBITDA. FIGR Brands, Inc., our wholly owned indirect subsidiary, furthered its strategic growth in terms of capacity expansion, product innovation and geographic expansion during the quarter as the cannabis market responds to a slower-than-expected rollout of retail availability in Canada. However, we are pleased that the market is continuing to grow. Latest estimates from Health Canada showed the legal cannabis market grew to approximately CAD 135.75 million in November 2019, bringing it to an annual run rate of over CAD 1.6 billion 1 year into legalization. FIGR has continued to maintain strong market share in the provinces in which it operates. Our FIGR's market share has been impacted by price compression in the market due to its position as a premium brand. Our plan is to maintain price discipline and growth rate by shifting product mix to higher-margin products through innovation. FIGR launched in the Ontario market on December 5, with flowers, oil and pre-rolls and released its THC vape products on January 17. Following the initial push into Ontario, we shipped vape products to New Brunswick and Nova Scotia, and are now lined up to sell vape products in all provinces it is legal. We're excited that over the weekend, Alberta announced that it is now accepting vape products. With a rapidly expanding footprint of 341 stores, Alberta has the most extensive retail footprint in the country, and we're currently going through the process of obtaining the necessary approvals to sell product there. Our cross-country expansion is supported by the growth of FIGR's operational footprint. FIGR has recently increased its footprint to approximately 250,000 square feet in Prince Edward Island and Ontario with a potential capacity of up to 30,000 kilograms per year. In the near term and following the completion of its PEI facility expansion and approvals from Health Canada, FIGR will operate approximately 350,000 square feet across both locations with potential capacity of up to approximately 45,000 kilograms per year. We are continuing to build a portfolio of CBD brands, each of which is being developed to meet the unique needs of distinct consumer segments. In December, our Criticality joint venture released its first set of Korent combination packs, and we were pleased that the Korent cooling liniment received the 2020 best topical award from Hemp Business Magazine on January 30. Humble Juice Co. is also developing its own CBD line which we expect to roll out to the market in the first half of fiscal '21. Additionally, following the receipt of its industrial hemp license from Health Canada, FIGR successfully contracted and harvested industrial hemp and has begun extracting cannabinoid oil from the crop. Criticality continues to expand its extraction capacity to meet growing consumer demand for quality traceable CBD product. By the end of the first quarter of fiscal '21, Criticality expects to complete its current expansion product -- project and triple its extraction capability. Criticality also expects to receive GMP, Kosher and Organic certifications by the end of the fiscal year, essential components of our commitment to quality products and the international expansion efforts. Through our Pyxus Agriculture U.S. affiliate, we have purchased approximately 760,000 pounds of industrial hemp this fiscal year. We believe Pyxus is well positioned in the evolving nicotine e-liquid regulatory environment as we have been anticipating and planning for since the establishment of our first e-liquid joint venture in 2014. Following the September 2019 vaping illness crisis, which we suspect is due to black market products, the industry was impacted by fast-moving misinformation about the illnesses, government restriction on access to products and general consumer confusion. The FDA guidance released in January was a positive step forward in addressing these issues, and we hope future regulation will strengthen consumer confidence in the category. In fact, following an initial drop in sales in September 2019, internal projections for Purilum, Humble and Bantam are anticipated to grow following the filing and acceptance of May 2020 Premarket Tobacco Product Application, PMTA submissions. As the industry evolves, we will continue to hold ourselves to a higher standard and accountable to our marketing commitment that include specific measures to help ensure we are marketing to legal-age consumers. Our value-added Agricultural Products division is continuing to advance both its sunflower and groundnut initiatives and the Pyxus Agriculture Tanzania subsidiary is proceeding with plans to bring a consumer product to market in fiscal '21. Since the launch of our One Tomorrow strategy 2 years ago, we have benefited from the progress of our diversification strategy, innovation efforts and global presence. As we execute against our plan, we are committed to building a stronger Pyxus for our shareholders as well as employees, contracted farmers and the communities in which we operate. With that, let me hand back to Joel.

Thank you, Pieter. Looking at the quarter ended December 31, 2019, sales and other operating revenues decreased $161.2 million to $363.3 million when compared to the same quarter last year. The decrease was driven by a decrease in volume and average sales price. The decrease in volume was attributable to flue-cured oversupply conditions, the timing of shipments in the Leaf - Other Regions segment in Africa and Asia, and the impact of Hurricane Florence reducing the prior year U.S. crop size has impacted carryover shipments as well as foreign tariffs on U.S. tobacco reducing Leaf - North America segment volumes. The decrease in average sales price was driven by the Leaf - Other Regions segment product mix, having a lower concentration of lamina in South America. Cost of goods sold decreased 31.5% to $308.1 million for the quarter when compared to the same period last year. The decrease was mainly due to a decrease in the Leaf - North America and Leaf - Other Region segment sales and other operating revenues; and favorable foreign currency exchange rate fluctuations in the Leaf - Other Regions segment, resulting in lower leaf raw material prices in Africa and South America. Gross profit as a percentage of sales improved to 15.2% this year compared to 14.2% last year. The increase was driven by favorable foreign currency exchange rate fluctuations in the Leaf - Other Regions segment resulting in lower leaf raw material prices in Africa and South America. This increase was partially offset by higher Leaf - North America and Leaf - Other Region conversion costs due to lower volumes. Selling, general and administrative expense increased $4.2 million to $45.9 million for the quarter when compared to the same period last year. This increase was primarily related to branding, marketing and advertising expense to support growth of the FIGR cannabinoid brand and costs incurred to evaluate and develop plans for a potential partial monetization of interest in subsidiaries in the Other Products and Services segment. These increases were partially offset by current year savings due to restructuring initiatives enacted in the Leaf - North America segment in the prior year. Income tax expense decreased $18.3 million to a $900,000 benefit for the quarter when compared to the same period last year. The decrease was mainly due to the change in the effective tax rate and the occurrence of certain discrete items during the quarter this year. The company's liquidity requirements are affected by various factors including crop seasonality, foreign currency and interest rates, green tobacco prices, customer mix, crop size and quality, branding, marketing and advertising to support new business lines, increased legal and professional costs associated with developing plans for a potential partial monetization of interest in certain subsidiaries and the extent and timing of facility expansions. As of December 31, 2019, our available credit lines and cash totaled $396.4 million. The company will continue to monitor and, as available, adjust funding sources as needed to enhance and drive various business opportunities that maintain flexibility while meeting cost expectations. We look forward to continuing to execute against our plan in building a stronger Pyxus. We are focused on delivering enhanced value for our shareholders as well as our employees, our contracted farmers and the communities in which we operate. On that note, operator, please open the line for questions at this time.

[Operator Instructions] First up is Bryan Hunt, Wells Fargo Securities.

My first question is you mentioned a couple of agreements. You had an announcement -- 2 announcements last week and then you talked about the Argentina and Tanzania agreement. So I was wondering if you could describe or give us an idea what the economic impact is of Argentina, Tanzania as well as the announcements with Smoore and Turning Point Brands.

Yes. So as we look at the tobacco-related agreements, what it does is continue the strategy that we've been talking about, which is to look at opportunities in various origins that will allow us to continue to grow market share, take costs out of the supply chain and enhance our ability to deliver the most effective solution for our customers, and that's exactly what those do. We haven't really put any dollars around any of that, that we've put out publicly, but know that it is helping to provide long-term viability related to those markets, again, take cost out and pick up additional volume. So it's going to do all of the above. As it relates to the contracts that we disclosed with Smoore and Turning Point Brands, those help to spread the cost out related to the PMTA process. And so the good news there is that you can tell from the agreements that have been reached that we have market leaders that we're working with and that there's commonality across the PMTA platform that allows us to work together and, again, to take those costs and greatly reduce them versus any one player having to handle all the costs themselves.

To add -- yes, I think just to add to that, I'd just like to say, I mean, I think we're really excited about that e-liquid category and the regulation that's being put into place, combining our capabilities, extending supply contracts, having additional distribution into the market. And when you really think about what is going to happen to the vapor market post May 12 next year, I think we'll see a considerable contraction in the number of brands out in the marketplace, which gives us, obviously, very significant opportunities to grow the brands that we already have out there and really expand and accelerate the growth and the profitability of that part of our business.

Great. Next, you all talked about market share losses, I guess, with the price compression that's taking place as there's considerable inventory available in certain markets. Can you talk about how your share is holding up in Nova Scotia, New Brunswick, PEI as well as Ontario, including the 2.0 products in light of what's going on in terms of price compression?

I think what we're seeing up there, Bryan, is in terms of the existing products and really think about 1.0 there, our market share really varies from week to week. It really depends according to when one LP or another LP is essentially relieving themselves of some inventory that they have and they put a below-cost product into the marketplace, then you -- that there are some instant consumer uptake. We lose share that week. And then the following week, we go back up again when the product is not available again on the shelves. And if you really think about it, with these stores who are getting a fixed, really, commission or add-on on top of the products, it's actually not particularly beneficial for the retail outlets that are selling that. But FIGR was always grown for the long term. It set itself out as a premium, high-quality product. That's exactly what we've done in terms of the build-out of the facilities and equipment and everything else. And now with the expansion that we have, we're really starting to see acceleration in distribution across the country. And then talking about the 2.0 products we launched in Ontario, obviously, we've delivered last week also to New Brunswick and Nova Scotia. And initial reviews, initial sell-through is looking very positive, I would say. We're not releasing specific numbers. I think pricing of the product looks good versus the competition, although it's still a nice high-margin product in the marketplace. And we're really looking forward to acceleration in that product. One of the exciting things, particularly with the FIGR Master Vape, it's -- I think FIGR is the only company that launched its own proprietary kind of razor-blade model device. Others are working on another platform, put out by packs. And right now, the reviews, I think the sales and the sell-through is looking very positive there. And now with Alberta just having announced on Friday night last week that they are now willing, having studied the situation, to launch vaping products in that province as well, we are really excited and looking forward to going and getting products and retail out in Alberta as well. As well as in the near term, we're looking forward to launches in British Columbia. So all in all, with the products, and it's -- in some ways, there's a little bit of the uncertainty we have, we're excited about launches. We're excited about the first harvest coming off the new facility. We're excited by the products we have in the marketplace. There's a very rapid expansion going on up there. And then it's just a question now of how quickly we can accelerate the sales and the volumes and the products that we have out across the whole country.

Does the change in the pricing in the marketplace alter your outlook for profitability or long-term margin out of the FIGR facility?

Not at all. We always expected that there would be some price compression and lower-priced players in the marketplace. We have not sold a kilo of product, LP-to-LP. And we really intend to focus on the premium brand, the premium products, the premium qualities and then the value-added products that we believe FIGR is uniquely positioned to put out in the marketplace. And you may have seen many other companies delay their launches. FIGR is out in the marketplace on time and is excited to start getting reorders but also to extend the range of the FIGR family of vaping products that we'll be rolling out across the year.

All right. And then my last question is when you look at the volume declines, I was wondering if you could dig into it a little bit more. Have you all lost any share with any of your customers? Or is this a timing issue? And then lastly, can you describe how an oversupply would lead to a sales decline in the flue-cured business?

I mean I think the best way you can compare our performance is to really look at other players in the marketplace that also publish results in terms of leaf tobacco. You look across 3 quarters and you look at the decline across those 3 quarters, it's, I think, in some respects, we're going to -- we're slightly better off. I think the vast majority of this is a timing issue. And I think I also described in the last call that we had that in Africa, because of the power cuts and because of the weather, it was a late start and a late processing season. In fact, we did complete our processing in time, but the whole market has to complete that. So in some ways, others have held us back in terms of shipping schedules for certain customers, so we see that moving over. And those shipments are -- it's not a very good comparison, obviously, year-on-year. But at the same time, we just see those products moving out a quarter later than they did last year. Deliberately in South America, I would say, we did make certain decisions in terms of purchasing the crop in comparison to the quality of the crop. And we decided not to go long in certain styles that we thought would be slow moving out of the last Brazilian crop, in particular. I think that turned out to be a good decision. So -- and that's given us opportunities to sell a market product in -- from other geographies that will also move over time. So absolutely not, I would certainly not describe that as a change in market share. And we strongly believe that with the announcements that we've had, we're growing market share, certainly in Argentina and Tanzania, but also in other geographies and vast majority of what we're dealing with here is timing.

I mean sort of maybe frame up vast majority, are you talking about 90%? Or closer to 100%? And are we looking at, in over a couple of quarters, that will all be recouped and you'll get back to kind of the run rate you were at last year?

Yes. So Bryan, that's part of what we've been trying to assess, and right now it is timing. We just don't know exactly what the timing looks like. And so that's the challenge. We're pushing as hard as we can for this quarter. But -- for the fourth quarter, but we'll just have to wait and see how it plays out. I mean the good news is, is the order's there. We've got the tobacco and now it's just a matter of getting the sale to go all the way through. So...

Our next question will come from Mary Gilbert, Imperial Capital.

Yes. A few questions here. So kind of following on Bryan's question around the timing and that the vast majority is related to the timing and the delay in shipments coming out of Africa. Would you say that by the end of the first quarter, if we look at just the leaf tobacco segment, could we get back to that sort of 1 80 to 1 90 LTM EBITDA, maybe even at the lower end of the range, 1 80 which is sort of what we are looking for? Could we get there by the end of March or by the end of June?

Yes, Mary, we don't know exact timing right now. And I think it's Africa, as we talked about, but I also think that North America plays in there. We've got some quantities out of North America as well that are going to Asia. And so the current challenges related to the coronavirus and how that's affecting shipments into Asia as well as shipments out of Asia, that's one of the big drivers that we've had to assess. And it's literally hour-to-hour type assessment at this point, but we're pushing as hard as we can to get the best result we can for the full year. And again, we just don't know the timing yet.

Got it. So in other words, when we look at the fiscal year, I get it that some of those shipments may push into the first quarter, but then the coronavirus, given that there are a number of shipments going into China, could impact even the first quarter just because we don't know what's going on with the coronavirus. Is that fair to say?

I think that there are a lot of challenges in general moving into Asia and out of Asia at this point. And remember that there will be a catch-up type effect that will be occurring globally. It won't be limited to just our industry. And so there is a lot -- there are a lot of moving pieces related to what will happen with trade flows globally. And so that's I think part of what we've had to evaluate and consider as we looked at how we're going to talk about the remainder of this year and going into next year.

When you really think about it, we've got over 100 staff in China. They're all at home. We initially expected them to come back to work, obviously, a week ago after Chinese New Year. That was delayed by the government for a week. Just on Friday, it was delayed by the government for another week. The people that we're dealing with, just to inspect and get containers loaded and shipments moving out, are not back at work. So -- and we're hoping that takes place in the next week or so. And then the same thing, when you're looking at having discussions and negotiations on moving product and particularly here from the U.S., it's really complex. Because we can't fly to China to have a meeting to make those final discussions and plans happen, or we get quarantined on the way back or we endanger people in the country by having to come out for a meeting, so we don't want to do that. So it's just -- it's very opaque at the moment when things will open up again and we can have the discussions to get everything moving again. So the good news is that we have lots of business backwards and forwards from the rest of the world to Asia and from Asia into the rest of the world. The bad news is that we have lots of business because right now it's just simply not clear as exactly when that product can move.

Okay. And then can you give us an update or like a current metric in terms of cash and how much is outstanding in terms of notes payable? So you were at $580 million at the end of the quarter and cash was at $72 million, and this is your biggest cash-generating quarter. Can you give us an idea of where that stands as of today or Friday or whatever metric you have?

Yes. So I think the best way to think about it is this is a big quarter for us, and we have a lot of sales occurring. And Asia is not the only part of the world that we have sales going into and coming out of. So I think, generally speaking, the quarter is moving as we had anticipated. And we've got a lot of cash generation occurring related to those sales. So things are moving very nicely. We actually are seeing shipments moving -- going forward to Asia. It's just a matter of what will they exactly look like, what will the timing exactly be like and are there certain orders that get held up for extended periods. And so that's all part of what we're working through right now. But I think, generally speaking, the rest of the quarter, we're shaping up pretty nicely.

Okay. But you can't give us any specific metrics around those figures.

We haven't published any other numbers, no. And the quarter's going well. And cash coming in from the quarter is as expected outside of these pieces that are a little bit more difficult to know exact timing on.

Okay, got it. And then with regard to the oversupply conditions and flue-cured, when will those be resolved, and how will that continue to impact you going forward? And then I have a couple more questions.

Okay. Well, I think as we look forward, we're seeing smaller crop sizes coming up in South America and Africa, both in flue-cured and burley. It's partly weather-related in Brazil, just 1 state, Rio Grande do Sul, and 1 area of that that's causing a reduction. But obviously, we hope for a better quality crop and the opportunity to make up on some of the qualities that were not available in the past year. But obviously, also, when you have lower crops, you also have the opportunity to move product that's in inventory out to customers as well. So that is already what we're seeing in terms of volumes and adjustment being made. So -- and I wouldn't even call this a dramatic oversupply in terms of flue-cured product. It's more in certain styles than it is in total volume as a whole. And the market is changing a little bit. But I think the most important thing is to grow and purchase smartly and meet the developing customer needs as we go forward. And that is what we do, and that's what we have done in this year as well.

Okay. And then I have a two- or three-pronged last question. One is with regard to FIGR, and of course, the metric that you provided, 250,000 capacity and -- per 30,000 grams. And so I wondered -- and of course, you talked about that you haven't really sold below, I guess, a certain price per gram. So in other words, are you able to reach -- one, reach positive run rate EBITDA by the end of March, which you previously guided to for FIGR? And then number two, within FIGR, when we look at these metrics you provided, does that infer using more conservative, let's say, $4 to $5 per gram, so not factoring in the benefit of the higher-margin product with cannabis 2.0, that revenues could come in around, let's say, USD 100 million and EBITDA of like $28 million? Is that possible in fiscal '21, not even factoring in the incremental 88,000 square foot that is currently awaiting Health Canada approval? There's that. And then also around the partial monetization, where do we stand with regard to that process, and how will the company address the upcoming maturities?

Yes. So Mary, maybe to take the first part of that series of questions first. So as we look at the business in Canada, it is progressing very nicely. Pieter talked some about some of the challenges related to certain LPs that produced lower quality and have higher levels of it and some of the pressure that that's put on the market. But again, it comes in these -- it ebbs and flows. And so we've stayed very disciplined with more of a premium position. And so it's worked generally pretty well for us. The 2.0 products have been very well received, and we're continuing to see expansion of those. And those have a higher margin associated with them as does the pre-rolled products and sublingual oils. As you move into flower, there are different quality levels, and prices have been under more pressure. So we will start to talk more about sort of a blended selling price per gram, and we will look, as that business continues to grow, to provide some level of guidance as to exactly where we think we're going to be for '21. But I think right now, the business is growing nicely. We've got the additional capacity that we needed, and we've got the rollout of the new products. And we're also working on our innovation pipeline, right now related to the next-gen products and what will be 3.0 actually for us, so -- or a continuation of 2.0. So at any rate, we're doing all of that right now. And that will all get layered into the timing of when that business moves to EBITDA positive with the full brunt of an SG&A allocation from corporate as well. So at any rate, we're in the middle of working through that now. And what we have stated is that we believe in fiscal '21 that we will be turning that corner. The timing of that, though, at this point, I think it's a little bit early for us to try to nail that down. But the good news is, is that we've hit, I think, a lot of the marks related to the build-out, the rollout into other provinces in Canada. We should be all the way across Canada by the end of March. There may be 1 province that drifts into April. And again, that last -- just under 100,000 square feet that we've completed construction on, and we're just waiting for the license extension to be received. So I think, generally speaking, in very good shape and have executed pretty closely to what we've laid out that we're going to do up there.

Okay. But can't confirm those metrics, the $100 million of revenues and EBITDA?

Yes, we have not given guidance related to '21. And again, we will be looking to provide guidance related to the tobacco business and in our other businesses as well, when we announce our year-end numbers as we typically would do.

Okay. And then with regard to the partial monetization, is that ongoing despite the deterioration that we've seen in enterprise values for cannabis companies? And then...

Yes, it is. And I think as we've talked about before, some of the market pressures that you've seen on the valuations of the public companies relate to very heavy valuations that were in place, call it, 9, 12 months ago. The market has been adjusting, looking more to cash flow and where cash flow will be as the market looks out a year from now to 1.5 years from now. And so that's where, going to EBITDA positive, there are a few of these companies of the kind of what I would call second-tier LPs that are now EBITDA positive. There are a bunch of the larger LPs that are not EBITDA positive and you can see them aggressively cutting SG&A and spend, basically. But even on the cost of goods sold side, not commissioning facilities or decommissioning facilities as they're trying to get their cost structure right. The good news for us is that we have built our footprint in Canada appropriately. And the production that we have supports the sales growth expectations that we have for the various provinces that we're currently in and the ones that we're expanding into as well. So we are very well positioned based on the size of our operation and have not overbuilt, have not used capital in ways that would be outside of what the market can support. So we feel very good about our strategy and plan, and we just need to continue to execute on it, and it should deliver nicely.

Karru Martinson from Jefferies is up next.

I was just looking at the FIGR business and I was kind of wondering, how is it that we are seeing the top line constrained? Is that just the timing aspects because there's certainly the potential there but I'm just not seeing it translate into the numbers. So is there a timing aspect that we just -- a hurdle that we need to get over here?

Yes, it's definitely timing, Karru. So our first crop in the expanded facility in PEI is occurring right now. It is a great-looking crop. And when you think about some of the less-than-flattering stories that you've heard related to other facility expansions in the Canadian marketplace, ours has gone -- and I knock on the edge of table here. It's gone very well. And that facility has been loading in over the last 1.5 months. And again, we have the beginning of the first harvest starting to occur and the crop looks fantastic. So you're going to start to see the revenue from that additional space start to come through as we look at the fourth quarter, which is what we laid out earlier in the year. And we're largely on track to start to see that come through. So as the crop is being harvested, it will go through the process that it needs to go through, to handle the tying and get it packaged and/or into next-gen products and then get those on the shelf and getting them sold through. I think the other timing issue is that we were -- we started off in Nova Scotia and Prince Edward Island. We were -- have been able to expand into New Brunswick here recently. And then Ontario was the market that we just entered here a few weeks ago. And so we really haven't seen the biggest market in Canada and the potential for it to start to come to our numbers. And not only do we come in with the 1.0 products in that market, but the 2.0 products were very well embraced by the consumer, and we should start to see that when we report the fourth quarter numbers.