TerrAscend Corp. (TSND) Earnings Call Transcript & Summary

Good morning, everyone. Welcome to TerrAscend's 2020 Investor and Analyst Day. Listeners are reminded that certain matters discussed in today's conference call or answers that may be given to questions asked could constitute forward-looking statements that are subject to risks and uncertainties relating to TerrAscend's future financial or business performance. Actual results could differ materially from those anticipated in these forward-looking statements. The risk factors that may affect results are detailed in TerrAscend's annual information form and other periodic filings and registration statements. These documents may be accessed via the SEDAR database. I'd like to remind everyone that this call is being recorded today, Thursday, August 6, 2020. I would now like to introduce Mr. Jason Ackerman, Chief Executive Officer of TerrAscend. Please go ahead, Mr. Ackerman.

Thank you, and welcome, everyone, to TerrAscend's Investor Day. To just go through a quick run of show for the day, so we're going to start off with myself and our CFO, doing a quick business review. We have today, Greg Rochlin, CEO of Ilera; and Ryan Hudson of The Apothecarium, who will go a bit more depth into our business. And at the end, we have Jason Wild and David Klein of Canopy are going to do a fireside chat discussing the U.S. cannabis market. And then we're going to open it up for questions. So first off, I want to say that I'm really excited to be here. I've been with the company now for about 9 months, and I'm really having a ton of fun. I thought it would be helpful to give a little bit on my background. Before joining TerrAscend, I was the founder and CEO of a company called FreshDirect, which is an online fresh food business, which I ran for the past 18 years. The company is a fresh food player, kind of, like a whole foods, but 100% of our business transacted over the Internet, delivering products directly to our customers' home. We sold tens of thousands of products, buying products directly from hundreds of farms and producers from around the world. We internally manufactured thousands of our own in-house products and distributed out of a highly automated 1 million square foot facility, based out in The Bronx, New York. The business has grown over that time to over $700 million with around 4,000 employees, and we were able to achieve 72 consecutive quarters of year-on-year growth, 10 of those years competing directly head-to-head with Amazon, which was a ton of fun. I'm really proud of the brand that we built at FreshDirect, but it was also very enormously complex and fast-paced business, and it was just an incredibly humbling journey. And as an operator of that business, I learnt a ton, and honestly, a lot of it was not being afraid to try new things, moving fast and reacting quickly to mistakes, because, in any business, you are going to make mistakes, it's the speed at which you move and recover. But one of the main philosophies that I had in running that business is I believe that sometimes it's much better to go deep and build scale in places where you can play and win that is necessarily to go wide and risk being too thin. And this is what really helped us hold our leadership position in grocery versus Amazon in the Northeast over those 10 years, staying very deep and very focused. And it's really quite similar to how I see this industry today, planting flags across the states -- across the country isn't necessarily the right way to go than it is being in places that you can win, which I've had a lot of success doing historically. But how I got into this industry was really a few years back when New York announced that they were interested in legalized -- legalizing marijuana, I really thought to myself, my gosh, how hard is it to sell petitioned produce over the Internet, wouldn't it be easy to sell cannabis? And so lightbulbs went off. And I thought that this industry would be a perfect candidate to fully digitize the model, which is going to be an exciting part of TerrAscend's journey over time that I'm particularly excited about. And about a year ago, I met Jason Wild and got to know the team and quickly got pretty excited about the platform, loved the people, thought it was a real huge opportunity. And so I joined as Executive Chairman in November. And in April, I took on the full-time role of CEO. We have -- since then, built a really great team. We've had some great people. With us today is Keith Stauffer, our new CFO, which you'll hear from today. Keith has led finance organizations and several multibillion-dollar businesses in the CPG consumer space. Jason Marks, we've recently added as our new Chief Legal Officer, he joins with a lot of experience coming out of pharma, was operating in regulated industries and has a lot of M&A experience. And with us, we have 2 of our core heads of business, Greg Rochlin, who, as you probably know, was the Founder and CEO of the Ilera division in Pennsylvania. He's been an amazing operating partner. We have a ton of fun together. And Ryan Hudson, who is the founder of The Apothecarium, who you probably know has been operating in this industry for well over a decade, where the movement started in Northern California. And he really has such a great understanding and depth of the industry and the products, has a great connection with our people and our customers. It's been great to kind of take this philosophy across the country. And with us, we also have our Chairman and the key driver of our strategy, Jason Wild. In terms of our time line and history, our company started in 2017 as a Canadian LP. And that's mostly how people know us. The investment at the end of 2017 by JW and Canopy into TerrAscend Canada, but over the course of the last 18 months, the business has really pivoted from a Canadian LP to mostly a U.S. operator. Through a combination of winning licenses in New Jersey and acquiring assets in Pennsylvania and California, the business today, 90% of our revenue comes from the United States. And it's interesting, when I arrived, the company also was really not out there telling the story. We had our first ever investor call in April of this year. And I really feel that we are one of the best unknown MSO stories in this industry, and we're excited for people to get to know us. In terms of our financial backing, our 2 largest shareholders, which have the majority ownership of the business is the JW Asset and Canopy Growth. And it's really great having them personally, as partners. JW, as you probably know, runs one of the largest investment funds in the cannabis space. He's been a huge source of industry knowledge and he's anticipating in helping out with all of our financings. His group has invested approximately $115 million in our business and it's obviously a really strong backer. But also, he provides huge connections in creating a really strong pipeline for acquisitions. He's pretty much in the flow of all deals that are out there. And that's been super-helpful for us and the team. And Canopy, who has invested several times in the business is a large investor and has been a great partner as well. One of the things that I love about having Canopy as investors, they've really been very open in letting us tap into the organization as resources, passing ideas and to really get some gain share and learning, which has been super-helpful for me as I'm getting up to speed in the industry. In terms of strategy for the company, really think about it in just a few simple blocks. First and foremost, in my experience, everything starts with the customer. They're the ones who pay our bills, and we are super-focused on making great products and experiences that our customers love. And it's really important for a business to build a strong customer mindset into every part of our culture. And second is, when you look at the industry, not every state is created equal in terms of where the opportunities are, whether they're the legal environment, the regulatory environment and how things are structured. But we do believe that some of the highest returns will come from being focused on limited-license states, where we can go deep and build scale and creating operating leverage in our cost structure and also create depth in product. We do believe in being vertically integrated for a lot of reasons. One, we think that the margin structure is stronger. Second is it does create a more tax-efficient environment, as you know, 280E just creates some challenges for the industry and being more vertical does create stronger cash flows, net of taxes. And it also gives us a lot of control of our own quality, rather being dependent fully on other parties. And in addition, this is a real business, and this is a real industry, and we will strive for operational excellence in every facet of our business and maintain operating controls and disciplines. It's a foundation to how I've always thought about the business. And lastly, with my background, we do plan to be an industry leader over time in digital and e-commerce capabilities. It's a great way to make customers happy along the touch points, and it's something that I believe is really foundational to running the business in the future in retail. So when we look at our business today, as I said, we're mostly a U.S. operator, and I think about our business in the THC side as 2 components. We have the East Coast limited-license operations and our West Coast. On the East Coast, we currently operate today in 2 states, which, we believe, are some of the robust markets, Pennsylvania and soon, we're launching New Jersey. Pennsylvania, for those who don't know is really a great medical state, has a very large population, a very significant growing patient count. And Greg and team were able to grow very big, very fast and to create a stronghold is, what I believe is, we're the top provider in the marketplace of flower and a large range of manufactured products. And they've also been able to achieve some decent scale giving us very strong profit margins in that region. New Jersey, which is a license, which we won, which is a younger medical market, we do believe that New Jersey will be tracking to Pennsylvania, just a few years behind. We have one of the 12 vertical license for growing manufacturing and retailing, and it will be a similar playbook being run by Greg and team. New Jersey, however, which we're super-excited about, does have a ballot initiative for rec coming up in this November. All the polls show that it's a -- it has a lot of support. So we're fairly optimistic that, that could be an accelerant of that marketplace. I love these 2 states and not to give forecasts or timing, but I truly believe that New Jersey and the Pennsylvania marketplace combined can represent several hundred million revenue opportunity for the company. Heading over to the West Coast. We operate The Apothecarium stores, which was one of the original pioneers in the Northern California market for the last 10 years with a really unique retail experience. We operate today 3 retail stores out of the San Francisco Bay Area, and we've just opened one, and we'll be adding a second this year, getting our account up to 5. And you look at the team, they've been very successful in applying for and winning licenses throughout. And we expect that thing to continue to do that and open more stores. But also taking a playbook out of my FD experience, where we had years of producing our own products for shelves, we have just finished building out our further growing operations and growing gummy manufacturing and chocolate manufacturing. And we've been able to vertically integrate our offering much deeper, and we're going to do that to continue to really improve the profit margin potential out in the West Coast. And also, we've taken The Apothecarium playbook and moved it out to the East Coast with 6 licensed stores, 3 of which are open to date and 3 of which will be opening over the coming 6 months and get a chance to hear more from Ryan today. So heading over to 2 other business units. We have a CBD business, in addition, Arise Bioscience. Our U.S. CBD business arise designs, formulates brands that we sell, mostly into vape shops, CBD stores and the pharmacy channels. Our primary brands are Funky Farms, which is a really strong vape shop brand with a full spectrum experience and pretty heavily focused on the vape format of CBD products. And then we have our original hemp product line, which is more for the CBD store channel and the pharmacies, which really comprises of tinctures, topicals, roll-ons and capsules, with targeting a pretty decent range of health and patient issues. We have more than a dozen products under development today. And we've got a lot of stuff that's coming out and launching. And I think I'm really proud of what the team has done there. And lastly, as you know, starting out as a Canadian LP, we are in Canada. It is no secret that Canada is a very challenging market to operate in today. It is fairly oversupplied. And it's fairly under-stored, which has created a challenging place. We have not been profitable in Canada. But for those who get to know me, I got to tell you, I really hate losing money. It makes me crazy. So we've been working really hard to reverse that trend. Recently, we've been working hard to right size the overhead of the business to kind of fit it for what we think the market opportunity is today, having recently significantly reduced expenses. And we've done a full review of the portfolio, and I believe, now, we're coming to market with the right products that we believe can win. The right flower strains, we've got lines of teas, lines of vapes, and we've -- also recently are introducing, brought out from our California manufacturing, Valhalla, our gummies are going to be coming to market in Canada in the fourth quarter. And really, at the moment, our goal is to reduce the losses and prepare for upside in Canada over the coming years. I do believe long-term Canada will represent some opportunities, but I think it's going to take some time for that to come to fruition. But on a positive side, being a Canadian public company has also enabled us to create a source of lower cost capital, which really afforded Canopy to participate in our cap structure. Moving forward, when you look at the growth in our business, I'm really proud of the results our team is posting. And we've got some real significant growth opportunities over the next 12 months. So sales moves up from $26 million to $35 million to $47 million that we're posting this quarter. That's almost a double from we were in the second quarter. And so here's what's coming down the pike. So in Q3, we have 2 dispensaries, which will open, in fact, Berkeley -- one in Berkeley and one in Pennsylvania, which is already opened to date. And during the third quarter, the Pennsylvania team has already completed the expansion of an additional 25% capacity, which is coming on to market into the fourth quarter. We also, during this time, have expanded our West Coast cultivation operations, which will also be coming online into the fourth quarter in October. We will be adding 2 additional dispensaries, one in California and our first one in New Jersey in the fourth quarter. And we will be in market with our very first wholesale product. I think as we announced, we are now planting in our first phase in New Jersey, and we hope to be wholesaling by the end of this year. And coming into the first half of next year, we'll be in full boat with our New Jersey operation with both our wholesale cultivation, manufacturing as well as 2 additional dispensaries, which we have leases for. And it's really interesting, New Jersey, I believe, it's got huge potential, but it's fairly under-stored at the moment. And we believe that the opportunity for the retail stores in New Jersey are quite significant. And as a reminder, over the last -- by the first quarter of this year, we will have spent nearly all of our growth CapEx that the current framework of our business requires, which is we're fully funded to today. It actually puts TerrAscend in quite a unique position in the industry as most of our assets will be in the cash flow mode versus the investment mode and as we look for more opportunities to expand. So why TerrAscend? And from an investor's perspective, we are really focused on going deep and achieving scale. And today, TerrAscend has achieved and we are among the top 5 U.S. MSOs as a leader in terms of profitability metrics. Our gross margins this quarter were running at 56%. We've been able to hold the line on our SG&A costs holding at 30%, which has allowed our EBITDA margins to accelerate to 24% and we're posting an $11 million adjusted EBITDA for this quarter, which is up from $5 million in the previous quarter. And we're getting significant leverage on our revenue of 50% of every dollar now is dropping down to the bottom line. So if you think about measuring revenue, the company is quickly becoming up to scale in terms of revenue and size. We were ranked 17th, and we're first quarter ranked 9th, and it is our intention to be a top 5 U.S. MSO player in terms of size. However, while some may say, size doesn't matter, I do feel that profitability and cash flow really are the most important metric to focus on. As a business, we do need to eat as we dream. And we will plan to continue to be a financial leader and generate significant cash flow, which will create further acceleration opportunities for us as a business. In closing, before I hand it off, outside of our business strategy, there really are some key foundational elements for me as a leader that I think are really critical for building a lasting organization. Five key points. First, customer's king. You have to live and die by it. We will keep the whole organization focused on making customers happy. We're going to do that. I love plugging in and connecting into the customer and the voice of the customer to make sure we're getting data points and really knowing where that voice stands and making sure that's embedded in every decision we're making as a business. And I also always say that businesses are easy to buy, but they are hard to run and building great talent is everything to do that. I'd like to build the capabilities and strengthen my team ahead of our growth. When I first started FreshDirect, the business got ahead of us, and I really learned the lesson of what it's like to try to scale when your management team is falling behind the growth. And here, we're really focused on continuously upgrading the talent and building great people, and we will continue to upgrade our pool over time. I also really do believe in a strong set of core values is critical to unify a team, to make sure we're all operating on the same page. And for me, values are a very binary filter when hiring people because you really want everyone to be on the same page. It just makes for stronger performing teams. Financial discipline. For me, this is also a lot about culture and mindset. You have to live it. You have to talk about it. You have to make sure the whole organization is mindful in every dollar we spend to make sure it's adding value to the business. And lastly, I do deeply believe in the value of having really strong data and technology. When I first started FreshDirect, we really didn't have a good underpinning. And I never felt they had good control of the business. And so we really put a strong data foundation and it changed our whole visibility. And I believe that the managers and frontline associates of the business can't be blind to making decisions. We have to have the right data, in the right hands, at the right time to make critical decisions. We can scale our decision-making across the business. So that's us. Again, I want to thank you for joining us today. And with that, I'm excited to introduce and hand over the presentation to Keith Stauffer, our CFO. Take it away, Keith.

Thanks, Jason. Good morning, everyone. Super-excited, just as Jason was, to be here virtually with you all today. Just going to spend a few short minutes, and I'd like to really cover 3 things. First, I'd like to provide a bit of background on me. And just like Jason said, why I joined TerrAscend. After that, I'll share a very strong Q2 results that we just preannounced earlier this morning. And then finally, I'll finish up sharing with you some of the activities that we have underway to strengthen our foundation and prepare us for continued growth into the future. So I'm 3 months into my role here at TerrAscend. And why was I attracted here? It's really a few main reasons. First, I think, as we all know, the industry is one of the fastest-growing industries in the country. And I really wanted to be a part of that. Second, through my research and my discussions with Jason and some of the other key members of the team, I concluded that TerrAscend is extremely well positioned in this industry to capitalize on that growth. And hopefully, you're already seeing that comes to life here today. Finally, I felt strongly that I could leverage my background and experience to help this company forge its path into the future. As Jason briefly mentioned, I come from a classic consumer goods background, where I have spent my entire career. And I've built international and global finance teams, processes, strengthened foundations, and partnered strategically with businesses in large and very growth-focused environments. And ultimately, I concluded that I could leverage that background to do the same here for TerrAscend. So after my first 3 months on the job and everything that I've seen and experienced, even in COVID times and all virtually, I might add, I feel even more confident about all my reasons for joining and excited about the months and the years ahead. Now I'd like to get into the exciting news of the day and share with you our Q2 results that we just preannounced earlier in the morning. Note that our full results will be announced on August 20. For revenue, when we look at revenue, as we saw just a bit earlier, we posted $47.2 million and that represents 36% sequential growth on top of the 34% growth we saw in Q1. You can also see that this represents 169% growth over Q2 of last year. This strong growth was driven mostly by the full quarter realization in our Pennsylvania cultivation expansion, but also by a new store opening in Lancaster PA, coincidentally, my hometown, by the way, which opened in the middle of April. Looking at the adjusted gross margin, adjusted meaning excluding gain on biological assets, they expanded significantly from 45% to 56%. And this significant expansion was driven by the increasing mix of our very profitable Pennsylvania business, but also by ongoing margin enhancements that the teams are driving in Canada and in our West Coast operation. And generally speaking, as we continue to achieve larger scale, this is also driving the profitability improvements. For adjusted EBITDA, it grew by 131% quarter-on-quarter to $11.4 million. And note that we turned the corner to adjusted EBITDA profitability last quarter in Q1 and have now further materialized that progress in Q2. And it's not on the page here, but we also have been IFRS EBITDA positive, meaning on a nonadjusted basis, in both Q1 and now again in Q2. And all those full details will again be reported in our results on August 20. And finally, on the EBITDA margins, they improved 10 points from 14% to 24% as we realize the full benefit of gross margin dropping to the bottom line and really driven by our continued control and discipline in managing our SG&A costs. And as Jason noted earlier, these key metrics now place us firmly among the top U.S. MSOs in the industry. And as we continue to build scale, we expect for this to continue to improve from here. And finally, we finished the quarter with a strengthened balance sheet, which included $75 million of cash and which we expect will meet our operating and investing requirements through to turning free cash flow positive. And just to put that into a little context and reiterate some of what Jason just mentioned earlier, we've been investing significantly to build out our operation and now we're starting to see those investments being completed in the back half of the year, and we'll be realizing the full benefits of those investments. We'll have minimal CapEx to spend after the end of this year outside of any new future opportunities. So to close on this part, I'd just like to say that these strong results in both Q1 and Q2 now are a clear indication that our strategies and our execution are working. Finally, I'd like to touch briefly on what's -- the work that's taking place across many of our teams that we've been initiating over the past several weeks and few months to strengthen our foundation and to prepare the company for the future growth. The first is FP&A processes. And for those that aren't familiar with the acronym, it's financial planning and analysis, and this area is very core to my background. I've spent many years in such roles across consumer goods companies and really have a lot of energy to put these processes and upgrade these processes for TerrAscend. We're building robust, forward-looking, short- and long-term financial planning processes. And they include things like clear building block approach to planning, with clear KPIs. And all these things are going to drive high-performance organization and accountability across all of our teams. The third pillar here is systems and tools and we've already initiated and we're in the middle of implementing an integrated ERP system, which is well underway. Any company of any significant size and complexity needs such a system to help operationalize the company. And we expect to be fully implemented across all areas of the company by the end of this year. And of course, that will realize the benefits of that as one might expect from such a significant project. The third area is really taking that systems and tools and turning it into analytics and insights, and that's the A of FP&A. And it's really about once we get all this automation in place, we'll be able to better access the data, analyze it and turn it into insights, which drive better decisions. And finally, the final 2 pillars around controls and also around integration and standardization. So as Jason outlined earlier, we're still operationalizing this as one company. Remember, it's been just over a year since these assets and teams have been put together. So we're putting in standard controls and processes as well as integrating the company where it makes sense. And the benefits will be many, but will include, improved productivity and efficiency; a better leverage on our costs, which we already are experiencing, but we'll experience more; and better decision-making leading to more effective management of the company overall. So to close, all of these initiatives are expected to solidify the foundation for this company and enable us to deliver the profitable growth that we're aspiring to achieve over the coming years. I want to thank you all for your time this morning, and now I will turn it back over to Jason.

Great. Thanks, Keith. And I want to introduce today Greg Rochlin, who has built the Pennsylvania business. Again, it's been a great partner, really excited to have him joined today. So Greg, take it away buddy.

Thanks, Jay. I appreciate it. I'd like to start by saying, again, I'm very proud to be presenting today. I'm extremely proud of what we've accomplished so far in the last 3 years with Ilera. And very, very excited to be part of the TerrAscend family and looking forward to the future. The strength of the team as JA and Keith just commented on is really impressive and incredible. And with JW's leadership as well, the future is looking great. I'll give you a little background of who we are. So Ilera was formed in, originally, 2016, and then we actually won the license in 2017. And we won one of 12 original grower processor licenses in Pennsylvania. And then a week later, we found out that we actually won the dispensary license as well, which made us one of only 5 growers in Pennsylvania to win the vertical integrated "Super license." We were very proud of that. As you can imagine, especially considering that we were the only GP to win that did not have a footprint in another state. So that was a very exciting time. We -- from the start, my partners and I and about half of the original group were in the pharmaceutical business. So we came at this from a very medically centered pharmaceutical approach philosophy. We've built our first facility of approximately 67,000 square feet, recognizing that the state was going to continue to grow. So we built a back of house, the processing and all the offices and the vaults, et cetera, to be able to scale, so larger than was necessary at the time, so that we could scale the business. And as JA just alluded to, we just completed in the first quarter about an 80,000 square foot addition that was primary cultivation space. And again, we started with the hybrid greenhouse, and then we added the indoor, double stacked LED grow. And again, from day one, our priority was putting the patient first, producing consistent quality products and making sure that we were using an education-driven -- data-driven education platform so that we could scale and continue moving consistently and thoughtfully. I will reference this quite a bit in this presentation, but the team is really what makes this. We have a -- from -- as JA mentioned, we believe that putting together a world-class team of professionals who were truly dedicated and motivated was going to be the key. And we've been very fortunate and very successful with that. We were also very fortunate to start in Pennsylvania. Pennsylvania has proven to be just a highly attractive market. It's a large state, along with 13 million people. And they also started off with an extensive list of medical conditions and then actually quickly increased that list to include anxiety, which has been very meaningful to our continued growth within that state. And as you can see from the slide, Pennsylvania has done just an incredible job of increasing awareness. We, as Ilera -- it was very funny, I think, our fourth or fifth hire, way before we had products on the market, was a physician education individual because we recognized very early on that making sure that the physicians in the state understood the medicinal benefits of medical cannabis was crucial. And we've really been a leader in that, and we continue today to do that day in and day out. As you can see, the patient count today is a little over 350,000. And during COVID, we've actually seen an increase in adoption as patients are now able to get certified virtually. It has really been a tremendous boon to the business in general. The number of dispensaries has grown a little bit more than twice over the last year and still has a long way to go. There will be 186 allowable, and it's about 88 now. And we're currently servicing about 85% of all dispensaries in the state. And -- again, I can't -- I could speak for a long time about the benefits of Pennsylvania, the population and the adoption has been incredible, but one of the points I want to leave you with is currently, the current government -- Governor, Governor Fetterman estimates that between 65% and 70% of Pennsylvanians in support adult-use. And we do believe that, that will be -- Pennsylvania will move in similar to New Jersey to an adult-use market in the very near future. So as I stated, we're growing in about 144,000 square feet, and we are currently the #1 supplier to the wholesale market in Pennsylvania. We have approximately a 20% market share. We have a very nice library and our professional growing team has done an incredible job. One of the things, again, I'm truly proud of is we started shipping, we were the third licensed producer in Pennsylvania. We were also the third dispensary open. But when we started shipping on May 4, 2018, we had shipped every single week since then, consistently to the market. We are the only MSO or a grower in Pennsylvania that has done that consistently. And we believe that the patient should never be without their medication. I never understood people going in and out and having weeks between harvest, just not the way we believe that is best for the patient long term, and we have been patient-focused since day one. We are currently at almost full production, as JA mentioned, we actually have 2 more rooms that are turning on that are actually -- now are flowering and will be -- the product will be in the marketplace in the fourth quarter. But -- and a couple of things that, again, super-proud of the team, what we've been able to accomplish in -- we've hired about 100 people in the last 6 months on outdoor and COVID. We continue to expand and make sure that we are properly staffed and have the quality of product and medicine on the market that the patients really need. So we're very pleased and proud that we are -- that this is -- what we're accomplishing and the growth rate that we've had. Again, consistent, profitable growth is really part of our ethos. And the other part is innovation. So we -- every single Friday, I tell this story a lot, but every Friday, we have innovation calls, which we've had from day one. And we are continually looking to innovate and add products as the market shifts and as the market grows so that we are continuing to be the choice supplier within the marketplace. So I'm truly proud of that. We talked a little bit about expansion. So we started in the greenhouse. We then went to increase with indoor grow, double stack LED. The yields have been fantastic. We're really pleased with the quality of our product increasing. We are now harvesting 6.3 harvest per year per room. We -- and we've seen our yields go up just as far as weight under the LED, but also our THC percentages continue to increase. And we -- I kind of think this sky is a limit. I mean, my -- the Head of Cultivation, Andy and his team have just done a fantastic job dialing this in, continuing to improve, continuing to look at all of the metrics and how we can have that growth, not only in square footage, but in yield per square foot improved month-over-month. And they've just done a fantastic job. We -- as I mentioned, we have another 25% that's going to be in the marketplace in the fourth quarter. And that is -- that should lead us to even larger percent of the market and continual improvement as we move forward. We also are -- as I mentioned, on innovation, we have a few product lines that we're adding right now and continuing to do so as we expand. One of the huge benefits that we've had since joining TerrAscend is being able to adopt The Apothecarium brand of dispensary. I want to give kudos to Ryan and his team. They've done an incredible job. They've been a great partner at working with us to really, what I'll call, up our game in the quality and customer experience of our dispensaries. We've seen incredible growth at our initial dispensary in Plymouth Meeting. And as Keith mentioned, we've opened Lancaster and actually Thorndale during COVID. All 3 dispensaries are well over budget and just been an incredible experience. One of the many benefits of owning a vertically integrated facilities, as Jason alluded to, is that we get a tremendous amount of data in real time from our dispensary, our own dispensary as well as the dispensary partners. As I mentioned, we're in over 85% of the dispensaries in Pennsylvania. We use this data, which we collect daily to make sure that we are manufacturing products and supplying the marketplace in a way that is what the customer wants today and tomorrow. And we get that feedback in real time, we take customer surveys from everyone that walks in our store. We also get to see what the growth rate looks like, and we currently have a retention rate of higher than 90%. Super, super-proud of that as well. So we've seen an increase in sales and an increase in patient count, an increase in new patients in the marketplace at a very high velocity. So we currently have 3 dispensaries under The Apothecarium in Pennsylvania. We have one that will open in the fourth quarter in New Jersey and then 2 more leases that will open in -- probably in the first quarter of next year. So we're excited to be running these operations. The other thing that we're very, very excited about is with JA's tremendous experience in customer service and technology. We have implemented during COVID, the state of Pennsylvania allowed us to implement curbside delivery. We also have an old bank facility in Plymouth. So we actually have a drive-through. So that's worked out very well for us to have the drive-through in the curbside. And we do believe, long term, there will be a delivery aspect and arguably, JA has done this better than anybody else in the world. So having him as our partner and that experience should bode very, very well for our future and what -- and the opportunities we have on the technology side. So we're really excited about that as well. We won the business. Our back of house is in King of Prussia, which is a great location. We have a phenomenal staff there that is very experienced. And we're able -- with joining TerrAscend and our New Jersey assets, we're able to take a world-class leadership team and implement that right away in New Jersey. So we're super-excited about New Jersey. We're one of only 4 MSOs in Northern New Jersey, one of only 12 in the entire state. And with adult-use coming on the current ballot, and everything we're understanding, we're very excited for the future there. So New Jersey is a small state by size, but a very large population state with over -- with about 9 million residents. It's actually the most densely populated state in the country. So the opportunities, as Jason alluded to, along the dispensary side are just incredible. We're starting out -- we have just got licensed the very first greenhouse ever in New Jersey, and we have plants on the ground there, which we'll start harvesting in October. And we're, again, very excited about the opportunities there. We have the potential to grow to about 240,000 square feet, and we should be able to take the lessons learned in Pennsylvania and really duplicate them in New Jersey. We think it's going to be an extremely strong market. And we're positioned to really take advantage of this opportunity. So we -- and we also are pleased with New Jersey that the top qualified mental conditions include anxiety and pain as well. So whether the market moves to adult-use or not next year, we're going to be very well positioned to increase revenue for TerrAscend, increase profitability and continue our passive growth, which, again, is what it's all about. So our growth strategy in the East Coast is to continue our expansions of Pennsylvania and New Jersey, continue to have and increase the amount of products we have in the market. Again, in Pennsylvania, our process products, we're extremely proud of. We do a variety of products including concentrates and vaporizables, tinctures, topicals, et cetera. We have quite a few brands under our -- under the Ilera umbrella. We're excited to take advantage of the brands that are in the TerrAscend family, Valhalla, et cetera. So that's a very interesting opportunity that we have, the e-commerce and data platforms, as I mentioned, that JA brings to the table and his experience will be -- give us a huge leg up on our competitors and put us in a position to be one of the strongest players, if not the strongest player, in any of the markets we're in. As JA mentioned, we believe in going deep first before we go wide. We're going to make sure that we have the infrastructure in place and move forward in a very methodical, thoughtful manner, which we're, again, excited about. And then we're going to look at other limited-license states. We're building a world-class team in both Pennsylvania, at headquarters in New York with TerrAscend and in New Jersey that can really take advantage of the experience of the individuals and the team to continue our growth. So I'm -- again, I'm very excited, as you probably can tell, to be a part of the TerrAscend family, to work with JW and JA and the team that they're building. And the -- and again, I could not be more proud of the team that I work with in Pennsylvania and New Jersey. And the future is looking very bright. Thank you so much for your time.

Great. Greg, thanks so much. Appreciate you giving a review. So with that, I'd like to introduce Ryan Hudson, our fearless leader out in the West Coast. As I said, Ryan has been the industry for a very long time, and we're really proud to have him part of our leadership team. And with that, I'd like to hand it over to Ryan. Take it away, Ryan.

Thanks, Jay. Thanks, Greg. Good morning, everyone. It's a pleasure to be with you. As Jason said, my name is Ryan Hudson. I'm a co-Founder and CEO of The Apothecarium Group, here in California. And I live just north of San Francisco now with my wife and our 2 boys who are 3 years old and 4 months old. And I mentioned that because you're likely to hear my 3-year-old busting my office any minute, but apologies in advance, but that is life in a pandemic. So let me give you some background on our organization. I cofounded The Apothecarium about 10 years ago -- actually about 11 years ago now with my 2 cousins and family friend in San Francisco, which is the birthplace of medical cannabis. And as probably most of you know, California and the Bay Area have a long history with cannabis. In fact, Proposition 215, the first law to legalize medical cannabis was actually drafted across the street from our first dispensary in the Castro. Every day, new patients come in who have just received a diagnosis, they have begun chemotherapy or they're dealing with a health crisis. They need compassion, personal attention and information. And this is a responsibility that we take very seriously and that continues to inform every element of our business even in the recreational era. The lightbulb moment for The Apothecarium came from my experience to the patient. I became a cannabis patient after my doctor recommended it for pain and the resulting loss of sleep and several injuries I received while playing ice hockey as a young man. At first, I was pretty skeptical, but I was interested in avoiding traditional pain medications and the strong side effects and, of course, the risk of addiction. Unfortunately, the dispensers that I visited did not provide the patient experience I wanted. The staff simply did not know much about the medicine they were selling at that time. They could help me enhance my Saturday on movie experience, but they couldn't help me select a team -- excuse me, couldn't help me select the products that would help alleviate my pain or my insomnia. I wasn't alone. Every time I was at my local dispensary, I was struck by the number of women of my mother's generation and grandmother's generation who are also struggling to find solutions to their medical issues. I was looking for a more professional, health-oriented dispensary, and I wasn't able to find one. But it was clear that seniors, working professionals and people with serious medical issues were all completely underserved by existing dispensaries. And we've created The Apothecarium to address those customers. And we did this through several vectors. First, by creating a beautiful environment, I'm really proud to say that we've been recognized by architectural digest for the design of our stores. Our new Berkeley store, which opened last week, is the most beautiful one yet. We create high-quality products with producers that we trust that we know personally and who conduct business with the same values that we do. We are dedicated to educating our staff and customers on how to use cannabis safely and with intention as a medicine or for pleasure, and this continues to be our calling card even in 2020. All the new competing stores we see opening every day are lovely. They don't resemble the city clubs of the past by any stretch, but virtually no one has prioritized education and training the way we have. Since our first day in June of 2011, we are focused on providing the best patient experience possible. Today, in the middle of a crisis, this means enhanced online ordering options and online customer service to better meet the consumers' needs during this tough time. Online purchasing has more than quadrupled since the crisis began. We offer multiple types of fulfillment and everything as a safe and hygienic as possible. We also now offer our famous one-on-one consultations by telephone and chat. Now the strength of our team is one of the major foundations of our success. We take pride in being a good employer and for attracting and retaining excellent employees. We promote from within and have team members who have been with us since our first year. We also have multiple employees who have risen from entry-level positions to leadership roles, which creates a culture where our people truly take responsibility and go the extra mile to ensure we are offering world-class customer service. Every employee starts with a comprehensive, highly structured orientation. Employees also receive ongoing training that is constantly evolving to meet the needs of our consumer. Now at the heart of The Apothecarium business is our retail operation. Our approach to expanding assets has been marked by operationally sound business decisions, minimizing capital deployment, and on the retail side, we've been focused on winning assets in San Francisco and Northern California to efficiently leverage our management infrastructure and serve the customers we know. As Jason mentioned, we now have 4 operational dispensaries and Capitola will be opening in Q4 of this year. All of our licenses have been acquired through applications, which we're still pursuing in strategically important locations in Northern California. We're targeting limited license markets with strong demand. Even as the competition for new licenses increases, we have made an incredibly high rate of success. In each of our communities, we have fostered deep relationships with our patients and our neighbors. And we have earned a reputation for operational excellence, but as one as praise from the regulators. There's almost nothing more valuable than that when it comes a time to apply for a new license. We're also very proud to be a vertically integrated operation in California with an in-house edibles brand and a cultivation brand. And this enables us to do several things, enables us to provide our customers with a known, high-quality product, improve our margins and bring in additional sources of revenue and growth by growing sales, our wholesale sales across California. State flower recently underwent an expansion to quadruple our Canopy. We're really excited for the growth of that brand. As our cultivators, Dan and Jeremy, are some of the best growers in the business. In careful attention to genetics and growing practices, they are growing amazing flower that we will sell-through our outlets and across the state. Valhalla, our edibles brand, recently moved into a new facility, and we are seeing extremely promising results. We recently launched 4 new flavors of gummies with more on the way, and we have introduced a chocolate product line that is catching on well with our customer base. We have a couple of other irons in the fire with unique and competitive product formats, and we're excited to launch those into the market soon. Our experienced manufacturing and cultivating wholesale products serves our customers and profit margins well, but also has residual benefits across the TerrAscend portfolio. By competing in the most established market in the country, we -- with our own edibles and flower offerings, we can take our product insights across TerrAscend and drive innovation in Pennsylvania and New Jersey. And that's extremely gratifying to be able to help TerrAscend grow by implementing our insights, our scar tissue, et cetera, across the organization, watching our brands get traction in markets outside of California. And across our verticals, we've built a platform of best practices with the best people in the business. We're efficiently leveraging our infrastructure to deliberately expand our operating footprint. We've improved our profitability and revenue streams through our in-house wholesale businesses, and we have continued to evolve our channels in a safe and clean way to serve our customers during these challenging times. Now everything that I just touched on forms the basic pillars of our West Coast strategy. And strategy is key. But to my mind, it's a close second behind culture and values. I'm very pleased to be able to say that after knowing JW for 2 years now, I'm working closely with the JA since he took the reins, that I know our people and our combined culture are in good hands. I truly believe that the future is bright for our California operations and for TerrAscend as a whole. Thank you for your time. Back to you, Jason.

Great. Ryan, thanks so much for that. I appreciate your perspective. Okay. So that concludes the management part of our presentation. I'm now excited to move over to the fireside chat. We've got David Klein in house from Canopy Growth, Jason Wild. As you know, and Tim Seymour, who is a contributor to the CNBC to discuss the U.S. cannabis market. So with that, we're going to head over to the chat. Let's give a little pause for our tech and camera crew to kind of move it over.

Great. Is everyone there? All right. With that...

I'm sorry. This is Jason. Yes. Thank you, Tim, and thank you, David Klein, for taking the time this morning to join us for our Investor Day. I wanted to take a moment to thank the entire leadership team and our staff throughout the organization for the tireless work they put in day in, day out that's brought us to this point. I have personally never been more excited and proud to be the Chairman of this company. At this point, I'd like to open up to Q&A session to wrap up our 2020 Investor Day. Joining us for the Q&A, Jason Ackerman, Keith Stauffer, Ryan Hudson, Greg Rochlin and myself.

[Operator Instructions] Your first question comes from Andrew Partheniou from Stifel GMP.

I just wanted to dig a little bit into your Q2 results maybe. Really impressive growth here. Congratulations on these results. And kind of super impressed with the cost control, especially on the SG&A line, essentially flat quarter-over-quarter despite significantly expanding your production in Pennsylvania. And as I understand it, your revenues there are continuing to ramp up, potentially even ahead of the slightly increased cost that you have. But my question is, given the fact that the costs haven't really increased that much compared to your production increase, what can we kind of expect going forward? And how exactly did you guys manage that?

This is Jason. Well, there's a lot going on inside the business. We talk about achieving scale. There really is an enormous economies of scale in the grow operations when you achieve a certain size. So there's a couple of things to unpack inside there. First of all, as the team has expanded their operation, the amount of additional labor required relative to the growth is relatively small to the revenue. So for example, you can see a 60% increase in revenue with only a 20% requirement of additional costs. So there's a huge flow through as we scale, which again, which is why we believe in achieving those economies. And in addition, I'd say that across the business, since I come on, we're taking a hard look at our SG&A costs everywhere, making sure that everything is fruitful. And then we have been trying to trim in the right places. So those all combined. But with that, Greg, do you want to add a few thoughts there?

No, I was just going to add that a lot of this was baked in. When we knew we were expanding, we increased headcount earlier, and we've also had a tremendous amount of efficiencies. We started doing our own fertigation, our own fertilizers in-house versus buying them at exterior, for example, is something that was really a great efficiency builder. But a lot of it had to do with, as you had mentioned in your initial comments, Jason, we planned ahead and make sure that we were properly staffed for the expansion prior to the products hitting the market. So a lot of that overhead was prebuilt in.

Okay. And also really impressed with your gross margin. I mean we kind of expected perhaps some additional costs coming in due to managing COVID. And curious, actually, now that we're well into the third quarter, how can we see that evolve? Do you see maybe some COVID pop coming off on perhaps your gross margin level? Or do you think that could be sustained going forward?

We -- while we're not giving any forecast, I do think it's rational to assume that, that is sustainable. I think if you look at the effort that we put in across every division in our business, our CBD business, our Canadian business, the work that Greg has done and Ryan, we focus on making sure that we've got strong gross profit margins and there are initiatives across all of our business lines to challenge and make sure -- it's a very simple question, are we making the right amount of money to sustain our desired profit margins? So there is active work going on, on that. This isn't about a COVID pop. This is really about the real basic blocking and tackling on the margin side and continue to press ourselves to make sure we get our costs down and raise our revenue.

Okay. And if I could just sneak one more in here on California. How would you see the environment of back-to-school evolving? Do you have any color there?

Well, I think, as you know, California has been a little challenged with COVID. None of the schools have announced. But we do think that back-to-school will probably be a bit challenged in that marketplace. So we are a bit cautious. We did open our Berkeley store. There's no announcement yet. But we do think online will be largely how California onboards in the early quarter, at least in Northern California. So we're cautious as COVID is going to take a time to work its way through in that market.

The next question comes from Noel Atkinson from Clarus Securities.

On the Q2 revenues and specifically for Pennsylvania, can you give us a sense of how much of that existing capacity sold through into the market in Q2? And it was -- is there still some potential growth there in sales in Q3 before that 25% expansion comes on in Q4?

Sure. Greg, do you want to take that?

Sure. So we've been very fortunate that we really sell-through everything that we're producing pretty much month in and month out. That being said, there is -- we are continually improving as we discussed. So we are looking forward to seeing some growth in just efficiencies and yield during this time frame, with the majority of the growth happening in the fourth quarter.

Okay, great. On the New Jersey front, so you mentioned in the prepared remarks that there's 2 additional stores besides Phillipsburg that have been -- that are leased now. Can you -- and that they're in Northern New Jersey. So can you give us any more sense of -- about their locations, their convenience to [ major centre d’affaires? ] Or are they subject to municipal zoning, all that good stuff?

Yes, sure. So as you know, we're in the northern zone and the 2 locations that we have under lease today are situated, what I call, kind of in the New York City side of New Jersey. So running through a lot of the main highways and commuting towns into New York. So it's really the densest part of New Jersey itself. If you kind of run our analysis where we look at population within a 20-minute drive of each one of the locations, you'll see well in excess of 2 million people or a 20-minute drive from both these 2 locations. So we're pretty excited and we're midway through the process of municipality approval, and then we've got to get approval from the state of New Jersey. So there is a process we have to go through. But the towns have indicated they're very supportive, and we're optimistic that we will be able to push those through and bring them all the way.

Okay, great. And then on the New Jersey production site. Your corporate presentation mentions that capacity is, I guess, 30,000 pounds a year or so, and I presume that's at full capacity. Can you tell us a little bit about what your capacity is in the first phase of 35,000 square feet and as you add this next 140,000 square feet?

So Greg, do you want to take that?

Sure. So again, we're starting in the greenhouse. And then we'll have our indoor -- our first indoor operations. We'll be able to start vegging in there in October, which is approximately an additional 70,000 square feet, 76,000 square feet. So we're expecting to have a pretty robust production facility both flower and extracted production by first quarter of 2021.

Yes. No, I was just going to add, that if you kind of look at what Ilera has achieved today, we look at what are kind of -- what I call a real first phase, although it's phase in 2 steps. The throughput and output of that facility is just slightly less than where Ilera is today prior to the expansion that's about to happen in size and opportunity.

Okay. Great. And then just finally before I go back in the queue. Maybe this is for Ryan, what would you like to see The Apothecarium scale up to, to be in California over the next few years? Is there an opportunity for The Apothecarium to be a chain of 10 to 15 stores? And is there a potential for you to expand down into Southern California?

This is Jason. Ryan, just sent me a text that he just got attacked by his kids. So I'm going to answer that on behalf of Ryan because we have spoken a lot about this. So yes, no, I think we do believe that The Apothecarium chain -- [ in ascension, ] you've picked 10, we do want to get north of that number. If you look at our footprint, Capitola is heading a little further south of the San Francisco Bay Area. We're really, really focused on making sure we've got operating talent and management leverage around that. We've got a number of applications that we're working on today in and around the northern cannabis farming market. I think Southern California is a whole other place. I would say that strategically, we're more focused on building really good density up and around and central to Northern California than Southern at the moment today. So I would expect us to continue the process of going through the application process, given how well seated the team is and what connected it is within the government bodies, and that's where I think we're going to push our growth.

Your next question comes from Glenn Mattson from Ladenburg Thalmann.

So first, just on the margin, just building on that a little bit. Can you talk about -- is there any kind of like accordion effect next year when like New Jersey first comes online? I imagine you might not be at scale as quickly or there might be some efficiencies to be worked through. So do you expect kind of the first half the margins might contract a little bit before expanding back? And then next question, I guess, of that would be, do you have an outlook for what you think maybe just with New York -- I'm sorry, when New Jersey and Pennsylvania are fully up to scale, what the margin profile of the business would look like?

Yes. So it wouldn't be uncommon for, obviously, for us to have a ramp-up period. In fact, we're already absorbing the losses of pre-revenue today in our numbers in New Jersey and as we come into the fourth quarter, we'll be ramping up our staff on a pre-revenue basis as we're planning and working today. However, I would say that given that we're going to see a continued expansion in our Pennsylvania market into the fourth quarter, I do think that, that will offset any pulls that New Jersey might have on the ramp-up side. And we do think that fairly quickly, we can get the margin structure pretty close to where we are today. So it's a little hard to tell how that's going to move. But I think we feel generally good in and around this range, some plus and minus that we'll be able to hold with some upside over time.

Great. And then I'm curious about your talk about having top market share in the wholesale market in Pennsylvania. Can you just talk about the ability to maintain that share? There's a lot of -- more capacity coming online. And maybe, I don't know, probably likely that some of the success of the products plays into that. But just maybe the puts and takes of how you maintain that share over the next period of time or so?

Sure. Greg, do you want to take that?

Certainly. That's a great question. So a couple of things are at play. One, you're correct, there is some more capacity coming online, from ourselves as well as others. Fortunately, we're in a position that they -- again, within the medicinal market, the growth rate of the marketplace is actually outstripping the increase in supply. So we are still going to be at a supply-demand, a little bit of supply-demand imbalance for the foreseeable future. And then, of course, if adult-use comes into the market, we're expecting to see a pretty large increase in demand from that, which puts us in very good stead for -- for, again, the foreseeable future. But currently, we track very heavily the rate of increased participation from the populace as well as we work very hard to make partnerships with the current dispensaries. And we are -- as again, we're in with pretty much everybody, every group within the state. And we are -- we consider them and they consider us a vital part of their organizations.

Your next question comes from Kenric Tyghe from ATB Capital Markets.

Just wanted to add my congrats in terms of the strength of that first -- the second quarter results, obviously, a big positive surprise and stock reacting accordingly this morning. If I could just build on one of the earlier questions. I understood a lot of the expansion and labor additions in Pennsylvania were ahead of the most recent expansion. If you were to sort of step back or build out that comment on the SG&A, is it reasonable to say that your end year targets and what you think Pennsylvania cannabis level will deliver, can be delivered with the current labor count, [ for want ] of a better view? In other words, did you sort of pre-build in terms of that capacity sufficiently sort of support a full year? Or could we see some sort of further uptick here in the back half on G&A costs? I just want to sort of build on that initial question and make sure I'm fully understanding how to think about that evolution.

Yes, yes. I'll...

The short answer is...

Short answer is 3 people. Okay.

Yes, we did -- and yes, we are staffed appropriately at this point in time. We do not foresee additional staffing because of Pennsylvania coming -- come into play. That being said, we are continuing to build up New Jersey.

Right. And I think from the comments there, I mean, the key takeaway there, to my mind, is that your current margin profile reflects a lot of those pre-revenue costs. So it's not as if on the build on New Jersey, there should be any material step change or rather what you're doing in Pennsylvania should offset some additional or increased drag out of New Jersey, is that a fair characterization?

I believe so.

Yes. New Jersey is ramping up and those numbers are kind of moving in. We do believe the expansion will -- [ the Penns ] will offset those expenses.

I appreciate that. And if we could maybe just sort of switch or pivot here a little in terms of the competitive dynamic. The last question, obviously dealt with share and maintaining your leadership. But could you speak more broadly beyond supply constraints to the competitive dynamic? And perhaps also particularly touch -- so competitive dynamic, competitive intensity, but also perhaps just speak to this whole issue around the clinical registrant, which is a little bit of a side door in that market -- how to think about their entry? How to think about the impact that could have on competitive dynamics? And any color you could provide on that. Because that certainly is a discussion [ list ] we had around Pennsylvania looking forward.

Do you want me to take that, Jason?

Yes.

It's funny. And actually, I meant to mention this earlier in my remarks, and I just missed it. But we hired a new individual this week who started on Monday and first week, he's working in Pennsylvania. And he comes out of a very large MSO. And his comment to me yesterday, because I asked for comments for my presentation today was -- one of his comments was, "Greg, I've been here now 3 days. And I will tell you that your -- Ilera's facility, the amount of the -- the product -- the company that I worked for prior," this is his words, "thought they had an incredible product offering. You guys are light years ahead of them in your product offering, your staffing, your expertise, your professionalism and your facility." So -- and which was very humbling to me that he said that. But I want to share that coming from his experience. We worked very hard, and we try to be very thoughtful in our product offerings and our continued innovation. So that is one of the things that I think is very important. It follows right along with the CR. So we've been -- we had a CR philosophy since the day we started. Again, we are in the -- we're in the pharmaceutical business, we are making medicine. So -- and the research part of it is something that we -- was literally built into our DNA. So we're excited to have the CRs in Pennsylvania. We think it's good for the program in general. We love the research aspect and that people, more and more, becoming used to the fact that this is medicine. And there are people who we are out there helping, day in and day out, live better lives. So this gives a lot of credence to that. We're excited about that. Also, all of these CRs are able to open 6 dispensaries. So it increases the dispensary. So I think it increases physician comfortability with medical cannabis. I think it increases patients' comfortability and increases the market in general and gives us another outlet to market our products. So we're really excited about what this opportunity brings.

That's great color. If I could just squeeze one quick one here on New Jersey. Beyond the ballot initiative -- that obviously provides for and assuming it went through, would provide a bit of a rework of the legislation. And I understand that in terms of the amendment of the legislation. But there's also a lot of i's to dot and t's to cross from when that amendment could potentially be voted in favor of and getting to recreational adult-use in that market. How does one think about or handicap that evolution or time line? I mean it's a very different dynamic to what we have in, in Arizona, where we kind of have a [ foot in the sand ] on assuming adult-use gets voted on, they will be in market or are committed to being in market by date-X in 2021. How do you think about that? And more importantly, how do you position your business around that? Or is it really a case so that's in the nice to have and we're positioning for the bogey we can hit today, which is medical. Maybe just some color there from whoever is happy to take that one.

Yes. Yes, sure. This is Jason. Around the timing, first and foremost, we view Rec as a nice to have, not a need to have, for sure. And we're planning and building to the medical market. Typically, when talking to the regulators, we kind of expect it could be plus or minus a 9-month period from the day it goes to vote. So the regulators kind of get their process together for the recs really to be out there. So it will take a little bit of time through the end of next year before that really comes through. But if you know right now, New Jersey is really in the early phases. There's only 12 or 13 stores that have been opened. You've got a lot of the current players who have their licenses. We're going to get to 24, 25 in the marketplace very quickly. So we think over the next year, rec is absolutely not needed to kind of quickly build our plan in our marketplace. But now I'd say that as we're designing our dispensaries and thinking about our go-to-market strategy, obviously, we're prepared to quickly pivot them to rec. But we don't view that as a necessary part of the success in the marketplace at all. If you look at the [ retrospectives ] and the patient reason codes, they're very, very strong and that in itself, we believe, is going to build great patient counts.

Your next question comes from Vivien Azer from Cowen.

Just wanted to follow-up on Pennsylvania. Perhaps this is a question for Greg then. Greg, you noted the popular support for legalization. You noted, obviously, the incrementality that adult-use could bring to your business in Pennsylvania. My understanding, though, was that the governor and the lieutenant governor went on a listening tour, I believe it was last summer. They kind of came back with that same conclusion that the voters in Pennsylvania wanted adult-use, and I thought they put it to the state legislature to advance that. We haven't really seen any movement there. So I'm just curious how you're thinking about the various pathways? Because it seems like kind of the collective will is there. But in terms of like execution, we haven't seen much.

No, that's a great question. And yes, that was last summer. It was really an interesting tour that they took. The lieutenant governor went to pretty much every small town in Pennsylvania and spent quite a bit of time on it. And I was fortunate enough to be able to talk to him afterwards, and he had a great experience. He learned a lot. And the overarching theme was that there was a tremendous amount of support for legalization in Pennsylvania. The real answer to this question is the world has changed. COVID has really changed the world dramatically. I think that Pennsylvania, along with most states in the country, all states in the country are experiencing budget deficits that have a little greater than what was ever experienced before or budgeted for sure. And that -- it's quite possible that, that conversation has really accelerated the time lines on some legalization of adult-use throughout the country. I think it's quite possible that Pennsylvania will fall into that same mindset. And that's what we're hearing out there. So we do believe that it will be an accelerated path towards adult use.

Okay. That seems reasonable. And I appreciate your commentary around how healthy Pennsylvania is certainly for you, given your position in wholesale and your widespread distribution of your own products through a dispensary network. But I think my team and I find that Pennsylvania tends to be about the most opaque market in the country from an analyst perspective. So without giving any kind of forward forecast, can you offer any context on what you think the size of the market was maybe in 2019? And what the run rate growth rate looks like?

So from a patient count perspective, we're probably a little bit better than double where we were in the average of '19 from a year ago. And again, we track daily new patients that are coming into the market within our 3 dispensaries, which we obviously have a tremendous amount of view on. And the -- since -- over the last couple of months, since everybody is really -- since they allowed virtual registrations, we do a tremendous amount of consultations. We have a very professional pharmaceutical staff within our facilities. And we're doing a tremendous amount of comparatively, and it's really been on the rise continually over the last 6 months. So the amount of patients that are coming into the marketplace is really expanding very quickly. So I can't give you really solid forward-looking numbers. But at the pace that we're at today, we are seeing approximately a 50% increase in the amount of patients versus where the program currently stands on an annualized basis.

Great. And I'll just sneak one last one in. Do you have a revenue estimate for Pennsylvania in 2019?

Big.

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

And offer my congrats on a very strong Q2 as well. Jason, you mentioned at FreshDirect, you felt you didn't have control of the business until you invested in some data and technology. Can you give us a sense of what data and technology capabilities you have now? And which capabilities you look forward to incorporating over the next year or 2?

Yes, sure. There's -- it's actually quite a big set of data in terms of operating metrics around the business. But it's a couple of things. Think about one, product database, two, customer database and three, kind of financial and operating KPIs to the business. So a lot of things -- if you think about how to run a business, you really want your frontline managers to having good information in making decisions. So how much information do we have with the growers at their fingertips [ around heels ] and what we're doing. And I think that is actually -- Greg and team have done a good job, and that's getting better and better. I think that where I look holistically across the business is leveraging all the customer knowledge. So we're in the process of building a centralized database across the business. So what's going on in the dispensaries in Pennsylvania, what's going on in California? What are the retention rates, what are the baskets? What are people doing? What are the behaviors? What are the segmentations? So it's a lot of taking that customer database, putting it together and integrating much greater insights to the business, just kind of helps make better decisions for driving growth throughout the whole business. And lastly, I'd say is that I'm a massive believer in insights. And we're in the process of putting together what I [ consult, ] it's just kind of a daily pulse inside to the business. I've learned a ton from having customer feedback on a daily basis. So if you kind of look at journey points throughout the customer experience, we're in the process of plugging in and identifying when those journeys occur, automating a process to kind of get the right question and the right feedback at the right moment, so that we have a real pulse and sense of satisfaction on a daily basis throughout the business. And we know what levers are driving satisfaction for our customers. It's not just whether someone's happy or not, but how does that happiness or not affect their propensity to want to shop with us or shop with our competitors. And it's a lot of that insights, which isn't coming through the data, through the numbers or to the financials. Those are really around the customer sentiment and driving pulses of that information to the business and to the manager, really helps making decisions. It could be on product, could be on -- was the wait time too long in store, and do we really know if a patient feels that they're waiting a little bit longer and how is that affecting their willingness to come back to us. It's all those types of insights that help us really fine-tune different aspects of the business that allow us to make incrementally better decisions every day.

That's very helpful. One more for me. I'm not sure if this is best for you, Jason or perhaps for Greg. So with Ilera, you guys obviously have very strong wholesale brands, #1 wholesaler in Pennsylvania. From my perspective, it seems like there's a real focus on precise formulation, different product formats. And then when you compare that to State Flower, obviously, ultra-high premium out in the West Coast, much more competitive environment for product brands. So my question for you guys is, how should we think about your CPG strategy over the next few years as New Jersey and Pennsylvania are expected to flip to adult-use? Should we expect more of the precise formulations that Ilera has been very successful in? Or should we sort of expect some of those more ultra-high end West Coast type products out of you guys post- adult-use in -- on the East Coast?

Yes. I'll answer that real quick, and then I'm going to hand it over to Greg, actually. But I think if you look at the marketplace, the market even in Pennsylvania today, while it's medical, there's a lot of just call "adult-use people" coming into the market. We're already seeing that in product development. So our view is you have to be great at both. There are adult-use users and there are medical-use in the marketplace, and they have different views of products. And so we are absolutely continually developing products, formulations, excitement, colors, efficacies that address that, and it's a big part of the DNA. And Greg, maybe you want to give a little color on kind of how you -- how you see that evolving?

Well, I was wondering if he was listening into your and my constant conversations, Jay, because we are -- Jason and I talk about this quite a bit as a matter of fact. And it is definitely, as Jason pointed out, part of our DNA. So we -- we've added quite a bit of new products to the marketplace that are not the -- where we came out in the pharmaceutical formulation perspective. That is definitely in our DNA and how we started, and it's an important part of our business. But if you look at the product offerings that we've offered over the last, I'd say, 12 months, 9 months, it really has moved more towards that real high quality, more adult-use user, and we're going to continue to do that. So Jason hit the nail on the head. We're going to have a variety of products that will meet the consumer where they want to be, whether that be on the everyday product and the mid-tier as well as the very high end specialty user. So we're fortunate that we have the facility and the personnel and the expertise to be able to "play across the spectrum" in the marketplace.

Yes. And our California team is very engaged with our East Coast team. One thing that's great about New Jersey, if they do allow additional form factors like edibles and pre-rolls that don't exist. And the -- Pennsylvania today and those conversations around what people love in California is definitely part of our dialogue and what we talk about. And they're very engaged out in the West Coast with our conversations.

There are no further questions. I will now turn the call back over for closing comments.

Great. Thanks, everyone. So that closes it out for the day. I really appreciate everyone participating and joining us today. And we'll hopefully speak to a few of you again in a few weeks at our earnings call. Again, thanks to my team, everyone involved, I really appreciate it, and have a great day. Thanks. Signing off.

Ladies and gentlemen, this concludes our conference call for today. We thank you for participating, and we ask that you please disconnect your lines.