Vireo Growth Inc. (VREO) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to the Vireo Health International Second Quarter 2020 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to your speaker today, Sam Gibbons, Investor Relations. Please go ahead.

Thanks, Amy, and thanks, everyone, for joining us. With me on today's call is our Chief Executive Officer, Dr. Kyle Kingsley; and our Chief Financial Officer, John Heller. Today's conference call is being webcast live from the Investor Relations section of our website, and dial in and webcast details have also been provided on Slide 3 of today's presentation, which is also available on our website. Before we get started, I'd like to remind everyone that today's conference call may contain forward-looking statements within the meaning of North American securities laws. These statements are based on management's current expectations and involve risks and uncertainties that could differ materially from actual events and those described in such forward-looking statements. For more information on forward-looking statements, please refer to cautionary note regarding forward-looking statements in today's earnings release. Now I'll hand the Kyle -- the call over to Dr. Kingsley.

Thanks, Sam. Good morning, everyone, and thank you all for joining us. Before I begin the review of the quarter, I'm very pleased to introduce to all of you our new Chief Financial Officer, John Heller, on today's call. John joined Vireo earlier in this summer and brings more than 30 years of combined experience as a financial executive to our management team. He spent the last 5 years as CFO at Lift Brands and Snap Fitness, where he oversaw the growth in development of a rapidly expanding footprint of fitness centers across the globe. In addition to its proven track record of growing consumer-oriented businesses, we're also looking forward to John's leadership in the areas of accounting, treasury, capital markets and investor relations. Now I'll shift my review -- shift to my review of performance in the second corner -- quarter, which investors should be aware, exclude the impacts of our former cultivation and processing subsidiary, Pennsylvania Medical Solutions, or PAMS, which we sold to Jushi in a transaction that closed earlier this month. Because this transaction was announced in June, PAMS' results, which include wholesale revenues in the Pennsylvania market, were categorized as an asset held for sale under discontinued operations in the second quarter. And we've excluded PAMS accordingly from the reported results from continuing operations in both the 3- and 6-month periods ended June 30, 2020, and 2019, within today's financial results, which will be filed on SEDAR later today. However, because Vireo still owned and operated PAMS through the entirety of the second quarter, we believe it's important for the purposes of today's discussion to present a consolidated view of the business, both with and without the impacts of PAMS so investors gain a better understanding of our fundamental performance in the period. Please turn to Slide 4, where we've provided a summary of highlights from the quarter. Total revenue of $12.2 million, including PAMS, was in line with our expectations and grew 70% year-over-year because we continued to experience good growth across most of our state-based medical programs during the quarter. Patient enrollments in Minnesota and New Mexico continued to grow nicely, and we're also seeing the benefits of improving average spend per customer in both of these markets. In Maryland, our wholesale channel is growing steadily as new product introductions have been well received. And in New York, our home delivery business remained a bright spot for us and continued to help offset retail traffic declines amidst the coronavirus. As we mentioned on last quarter's call, our e-commerce and home delivery channel now account for approximately 50% of our total sales in the state, up from approximately 30% last year. And we continue to believe the New York market remains one of Vireo's most attractive long-term opportunities. In Arizona, our mix of wholesale versus retail sales resulted in a flat comparison to the prior year quarter, but we still expect roughly a 70-30 retail versus wholesale mix moving forward and are optimistic about our ability to drive profitable growth within this market after we complete a planned expansion of our outdoor cultivation capacity later this year, which I'll discuss momentarily. From a profitability standpoint, the year-over-year variance in gross margin was the result of multiple factors, one of which was the temporary impacts of planned manufacturing downtime in New York during prior periods as well as the buildup for -- buildup of inventory in that market in anticipation of adult-use approval, which we know did not arrive. Our operations in New York have actually been improving -- have been improving efficiency with lower costs in recent quarters, but the above factors drove an unfavorable cost of inventory sold during the second quarter. The greater proportion of wholesale versus retail sales as compared to prior year also contributed to the variance in gross profit. As revenues across our footprint continue to ramp up with increasing demand, we expect to see consistent improvements in gross margins. And I'd also like to clarify that we expect a sequential improvement in gross margins in New York, specifically next quarter, as lower inventory begins to work its way through our results. As we've discussed on recent calls, a major focus for our team this year has been to reduce costs and improve the overall efficiency of our operations, and that improving trend in our cost structure is apparent on a year-over-year basis in our reported results as well as on a sequential basis, including the impact of PAMS, which we believe is meaningful considering we owned and operated the subsidiary through the entirety of the second quarter. Before I continue my review of highlights from the quarter, I want to make clear that the divestiture of PAMS was a complicated decision for our management team. That license was one of our first merit-based licenses we were awarded, and we were extremely proud of the quality of the team we built there as well as the products we produced in the Pennsylvania market. From an operational standpoint, we had somewhat of a mismatch in Pennsylvania between our significant cultivation and processing operations and a much smaller retail footprint. With only 2 retail dispensaries currently operational, we were more dependent on wholesale channel sales to drive revenue growth, and we expected it was going to take us a lot more time to become profitable within Pennsylvania market as compared to our other markets, where we believe we have more opportunities to increase scale and operating leverage. The divestiture actually improves our overall cash burn rate from operations by approximately $150,000 per month, which brings our current monthly burn rate to roughly $750,000. And with approximately $21 million in cash on our balance sheet as of the timing of the closing of the transaction, we're now well capitalized in our 5 core markets and have the financial flexibility to make several important strategic investments that will help us increase scale and drive stronger revenue growth and margin expansion. As disclosed in the morning's earnings release, we're planning to invest between $8 million and $9 million in development projects in Arizona, Maryland, Minnesota and New Mexico between now and the end of first quarter next fiscal year with the lion's share of that going out the door by the end of the year. In Arizona, we've begun an aggressive expansion plan that will add 9 acres of outdoor cultivation to our existing 0.5 acre site. One of the reasons we were so attracted to this operation before we purchased it last year was because the location is in a microclimate that's highly favorable to producing biomass outdoors at scale. This project will increase our square footage of cultivation capacity in the state from roughly 50,000 square feet to more than 400,000 square feet and should position us to capitalize on what we believe may be a biomass shortage in Arizona -- the Arizona market through the winter of this year if voters approve ballot initiative to -- a ballot initiative to legalize recreational use in this upcoming election and more stringent testing on the microbiological end of things becomes the standards there. Our team in Arizona has been producing exceptionally high-quality flower outdoors for many years. And if we're able to produce similar kinds of flower yields on this new acreage as we currently produce on the existing 0.5 acre site, we may reasonably be expected to produce between 5 and 8 tons of biomass on an annual basis, which should enable us to drive significant revenue growth in the Arizona market. In Minnesota, we've started rebranding our existing dispensaries in the state to the new Green Goods retail store concept. And we're moving forward with development of 4 new retail dispensary locations in Duluth, Blaine, Woodbury and Burnsville before the end of this calendar year. These 4 new dispensary licenses were increased via the legislative process in the state last year. And once opened, expect they will help us continue driving strong sales growth in the Minnesota market, which we continue to believe is one of the most overlooked aspects of our business. And we recently purchased a 110,000 square foot greenhouse facility in Massey, Maryland, and we plan to transfer our cultivation license to this new facility while maintaining processing operations at the existing 2,200 square foot facility in Hurlock, Maryland. During the fourth quarter of this year, we're planning to upgrade this greenhouse in Massey to allow us to produce 4 turns of cultivation per year as well as increase the capacity of processing operations in Hurlock. These actions should enable us to increase our production capacity in the state by nearly 12x, which we expect will allow us to continue driving strong wholesale revenue growth in Maryland. We're also planning to build out our dispensary license and anticipate this will enable us to begin producing our first retail sales in the state some time during the first quarter of next year. Finally, in New Mexico, we're planning to open 2 additional retail dispensary locations, and our intent is for these to be operational before the end of calendar year 2020. Once these projects are complete, we'll have added 7 new retail dispensary locations to our footprint and improve production and processing capacity to satisfy demand within our core markets for the foreseeable future. While the exact timing of the completion of these projects is of course uncertain, we believe that all will be complete before the end of first quarter 2021, at which point we'll still have substantial cash to fund our business until we begin generating positive cash flow from operations. Investors should keep in mind that we believe each of our core markets has the potential to enact adult-use legislation within the next 6 to 18 months, which could be transformative for the revenue growth, margin expansion and value creation for our shareholders. That concludes my prepared remarks. I'll now hand over the call to John.

Great. Thank you, Kyle, and thanks, everyone, for joining us on today's call. I'm looking forward to meeting many of you over the phone in coming months and eventually in person once it's safer to travel again. I'll begin with a review of our reported results on Slide 5 of today's presentation. Please keep in mind that all numbers stated refer to U.S. dollars unless otherwise noted. Total revenue, including PAMS, increased 70% year-over-year to $12.2 million and was roughly flat sequentially as compared to the first quarter. This performance was in line with our expectations as we've not had any recent additions to our retail dispensary footprint or production capacity increases in our markets. Reported revenue was $10.8 million, an increase of 60% as compared to the second quarter of last year. Retail revenue through our own dispensaries was $9.2 million, an increase of 46% compared to $6.3 million in Q2 2019. The increase was primarily driven by greater patient enrollment and average revenue per patient in our Minnesota and New Mexico markets as well as contributions from our 2 retail dispensaries in Pennsylvania. Wholesale revenue of our branded products to third-party dispensaries was $1.6 million in Q2 2020 and reflected revenue from B2B customers in Arizona, Maryland, New York and Ohio. Before biological adjustments required by IFRS, the company generated Q2 2020 gross profit of $3.5 million or 32% of revenue as compared to $3.0 million or 45% in the same period last year. The variance in gross margin as compared to the prior year was primarily driven by temporary impacts of planned manufacturing downtime and the buildup of inventory in New York as well as an increase in the mix of sales in wholesale versus retail markets with a substantial increase in wholesale revenue as compared to last year. Total operating expenses in Q2 were $15.4 million compared to $5.4 million in Q2 2019. This increase was primarily attributable to higher salaries and wages as well as an adjustment to share-based compensation related to the vesting of out of the money warrants issued to a former executive upon termination from the company. Excluding depreciation and share-based comp, operating expenses in the second quarter of 2020 were $6.0 million or 55% of sales compared to $5.0 million or 74% of sales in Q2 of 2019 and $6.2 million or 59% of sales in Q1 of 2020. SG&A expenses as a percent of revenue improved to 22% as compared to 36% in the second quarter of last year and were roughly flat on a percentage basis as compared to the first quarter of 2020. Other expenses were $3.4 million during Q2 2020 compared to $1.8 million in Q2 2019. The increase in other expense was primarily attributable to a onetime loss on the derivative liability associated with the issuance of warrants in conjunction with the private placement completed in March of 2020 as well as increased interest expense. Net loss from continuing operations during the second quarter was $7.7 million compared to a net loss of $593,000 in the second quarter of last year. Total net loss, including the impact of PAMS, was approximately $9.0 million as compared to $1.9 million in the second quarter of last year. Excluding fair value adjustments, the loss on derivative liability and share-based compensation and impacts from discontinued operations, adjusted net loss in the second quarter was $7.4 million as compared to an adjusted net loss of approximately $4.1 million in the prior year quarter. Adjusted EBITDA was a loss of $1.8 million and roughly flat compared to the second quarter of 2019. Please refer to the reconciliation of non-IFRS items in the management discussion and analysis, which will be available on SEDAR today for additional details regarding these metrics. We ended the quarter with total current assets of $81.0 million, including cash on hand of $5.7 million. Total current liabilities were $23.2 million with 0 debt currently due within 12 months. As disclosed in this morning's earnings release, the closing of the PAMS transaction earlier this month brought an additional $13.8 million in cash. At the time of closing, we had $21.1 million in cash on hand. And as Kyle discussed earlier, our significantly improved balance sheet has enabled us to revisit opportunities to make strategic investments that will improve the long-term performance of the business. Between now and the end of the first quarter next year, we are expecting to invest between $8 million to $9 million in strategic growth investments in Arizona, Maryland, Minnesota and New Mexico. These projects should be complete by the end of Q1 2021 and are expected to contribute to revenue growth and margin expansion, giving us confidence in our ability to begin generating positive cash flow from operations around the midpoint of next year. As of June 30, 2020, there were 37,952,477 equity shares issued and outstanding and 153,203,217 shares outstanding on an as-converted fully diluted basis. For additional details surrounding our share structure, including warrants and option grants, please refer to our disclosures surrounding share capital in our quarterly financial statements filed on SEDAR. This concludes our prepared remarks. Operator, we'll now open the line to analyst questions.

[Operator Instructions] Your first question comes from the line of Graeme Kreindler with Eight Capital.

Much appreciated the level of detail with respect to the initiatives throughout the rest of the year and into early next year. Just thinking about the core portfolio right now and the expected growth that's going to occur from now until the other projects get ramped up here, considering that the retail revenue is a substantial part of the mix and becomes more so given disposition of the grower-processor in Pennsylvania, I was wondering, can you provide any sort of detail in terms of what you're seeing from that same-store sales growth perspective on the retail side of things?

Graeme, are you speaking specifically of the 2 dispensaries in Pennsylvania or just on a general basis of the other states?

I'm speaking on a general basis in terms of the other states

Yes. I mean, I think we've got a lot of growth investments to make in the back half of this year that are going to help in -- contribute to retail store growth. That's going to be a big driver for us beginning next year. We're continuing to see, like we talked about on today's call, pretty good characteristics in Minnesota, New Mexico. So I think we'll maybe continue to see decent growth on a -- probably won't see significant growth on a sequential basis through the next quarter or 2, but we could see a nice uptick beginning in Q4 and especially in Q1 next year.

Yes, Graeme, specifically, as far as same-store growth goes, we've continued to see just perpetual uptick in Minnesota and Pennsylvania on the retail side. We're all familiar with the New York market, that's a little bit flatter. And the biggest thing is, we're excited, we're currently slated to add 7 additional dispensaries, 4 in Minnesota, 1 or 2 in New Mexico and 1 in Maryland, sort of completing our vertical integration there in Maryland. So we expect pretty substantial retail growth. May be humble through the end of this year, but as we bring these additional dispensaries online, that will continue. But we can work on getting you some more granular same-store numbers.

Yes. And Graeme, just keep in mind, in the financials we're going to have on SEDAR later today. We will break out the state-by-state revenue year-over-year in both the retail and wholesale channels. That should be online later today.

Understood. Okay. Then to shift gears a bit here, the expected CapEx range of the $8 million to $9 million. In terms of how that's going to be distributed from now to the end of Q1, what should we be expecting? Is that going to be more front loaded, back loaded or spread out even?

Yes. So I would expect that to be primarily in Q4 of this year. A good chunk of it is being spent in Q3, most of it in Q4, and then we'll finish up in Q1 on the timing of the payments.

Okay. Understood. And then to follow-up on that. I saw some nice sequential improvement on the gross margin side this quarter. As you are going to be spending more dollars ramping up facilities here, just wondering if there's any material expected drag on the gross margin as you're investing more on the cultivation side? Or could that potentially be offset by some of the dispositions and the other assets ramping up? How should we be thinking about that gross margin moving into the back half of the year?

Yes. So on the retail side, you'll see just a little bit of drag on margin as those stores open up. Most of those are probably not going to come online until later in the fourth quarter and into Q1, so of course you'll see a little bit of margin drag as they ramp up. And then on the growth side, especially in Arizona and in Maryland, of course, you're not going to see the incremental revenue on those until the grow is harvested in sale -- is harvested and sold. So there will be some incremental cost at those locations. But you'll see the revenue ramp up fairly quickly amongst those harvests come in, and in New York as well.

Okay. Understood. And then finally, just to take that a step further. I appreciate the monthly burn rate of $750,000 a month that you disclosed. With respect to working capital and in the context of these capital projects here, is there a substantial investment on the working capital side that you're expecting for these projects? Potentially more so, I guess, for the cultivation-manufacturing side of things. How should we be thinking about that?

Yes. I would say that if you look at that $8 million to $9 million we're targeting in CapEx. Over the next 6 months, I would expect that you'd see working capital grow maybe $1 million to $1.5 million related to these incremental locations. Both retail and the grow facilities.

Your next question comes from the line of Eric Des Lauriers with Craig-Hallum.

All right. I was looking for an update on your branded products, specifically in Maryland. Can you give us an update on which brands you're selling in Maryland now, and any kind of anecdotal updates of how those are selling? And then kind of as a follow-up, as you look to Arizona and potential adult-use, can you give us a sense of your overall wholesale and retail strategy as it relates to your branded new products and third-party branded products?

Yes. Eric. So the primary 2 brands that we're seeing sell in Maryland right now are the 1937 flower and vapes and then also the LiteBud slightly decreased THC pre-roll and then sort of our standard suite of Vireo products. We've seen interesting increase in 1937 vape sales here over the last few quarters, which has been a pleasant surprise. In Arizona, which we consider to be sort of a primary flower market. Our strategy there is obviously economies of scale with these 9 acres coming online here shortly. And pretty excited about an aggressive sort of diversity of selection for people on the retail end. And what we're seeing is that diversity of availability of strains is critical in driving retail sales, it's also very helpful on the wholesale side. So we sort of equate strain diversity with liquidity of our inventory. So that's a major focus for us. We have also rolled out 1937. And LiteBud bud will also be a focus in Arizona moving ahead. But we do have the single dispensary right now in Arizona, and we feel that we have significant capacity to increase sales there. As you know, people still aren't entering our dispensaries. This is curbside and sort of walk-up purchasing. So we're confident we can substantially increase our retail sales at Arizona with the existing facility. Another big part in Arizona that's interesting of our retail strategy, given our limited bricks-and-mortar footprint, is home delivery. And we're interested in implementing that here in the near term. Our dispensary is set up such in Phoenix that it will be a very interesting staging center for a more robust home delivery service. And given the glut of biomass that we're going to have in Arizona, potentially entering this biomass shortage, we're very interested in chunking as much of that through our own retail apparatus as we can, obviously. We consider home delivery as part of that.

Okay. Great. That's helpful. Good color there. And then I'd also like to touch on just your base markets of Minnesota and New York. Both obviously restrictive medical markets currently, but multibillion-dollar illicit or total markets. Obviously, you guys would benefit greatly from any progressive legislative changes. Can you help us understand your current production capacity in those states? And then comment on your ability to expand, whether that's how much land you have; or your size of facilities, if you can expand those? Just any kind of helping investors understand pretty much what your current capacity is and your ability to expand to meet those increasing markets.

Yes, absolutely, Eric. So great question. Minnesota, New York are both very substantial opportunities for us. They're, by our standards, our most mature markets, multiple years in. We're currently -- and again, just roughly speaking, we're less than 50% capacity from a cultivation standpoint in both of these markets. And so we have significant upside, and we've been very encouraged by the sequential decreases in operating expenses in both of these markets despite very -- quite substantial increase in the number of units produced. So that's been very encouraging. So we have a lot of existing capacity. And again, we were anticipating potential flower in Minnesota and adult-use in New York this year. It looks like they may put both of those changes may be pushed into next year. In New York, we've cleared 250,000 square feet of additional space, cleared the land for expansion there. In the event that it's a highly favorable adult-use arrangement, and we have the ability to expand there into that space. In Minnesota, we also have access to additional land to expand there as needed. But we're confident in the short term, with legislative changes, that our existing capacity will be able to accommodate the bulk of demand in the short term.

Yes. And Eric, I'd also just remind you that in Minnesota, we had a significant expansion of capacity there last year and that is not kind of fully utilized at this point. So we got some room to grow there as well without needing to build additional facilities.

All right. So less than 50% capacity in both states. And looks like significant room for expansion with both. Very exciting, very encouraging.

Our next question comes from the line of Matt Bottomley with Canaccord Genuity.

Just a quick just housekeeping item here. Apologies if this was mentioned in the opening remarks. But in Pennsylvania, I just wanted to confirm if the retail segment of that business is included in that PAMS subsidiary. Or if the retail revenues are still in your adjusted top line? And in the Maryland retail store, just to confirm, do you guys have an existing license there to build out? Or is this something you're still applying for or potentially buying?

So I'll address the Pennsylvania retail. Those 2 stores are still included in our -- in the published numbers. So yes. That's -- those are the dispensary numbers. Those are in both years.

Yes. The $10.8 million, Matt, basically just excludes wholesale sales from Pennsylvania. It includes the 2 retail dispensaries.

And then -- so just before on the Maryland question, just on Pennsylvania. Is that something you're still investing into with respect to your CapEx plan? I know it's not a core market, just given the option that therefore you purchased along with the cultivation?

Yes, Matt, we're not actively investing there, but we do see good growth on the 2 retail stores there. As far as the Maryland question goes, we have a license, and we are actively executing on that with the goal of having that dispensary up and running by the end of this year. We're excited about that, again, because of the substantial capacity we're bringing online with the Massey facility expansion. And so we're going to have a pretty significant advantage there on the retail end with that capacity backing it up.

Great. And just one more on my end. So a decent cash balance now given your operating burn after disposition PAMS. And just looking at the a little over $20 million of cash, the OpEx burn right now that looks like it's somewhere around $8 million a year or less annualized and then the CapEx of $8 million to $9 million, it looks like you're fully covered with respect to what's on your balance sheet. Is there anything that you guys have in your portfolio that would be considered rainy day should you want to expedite other growth initiatives? Whether it's other dispositions, potential sale-leaseback where you can extract some capital. I don't know what the sort of debt markets are like right now from what you're gauging temperature is. But just anything else that might be able to pad that should the [ deck ] move faster than you're anticipating?

Yes, we do have an open mindedness with our noncore assets. So you look at Massachusetts, Puerto Rico, the Ohio processing license, our Nevada license, we basically put that on mothballs and absolutely minimized the cash burn there. But we're open to monetizing those. The Massey site, which we did purchase here this month, that's unencumbered right now. You could look at a potential reap there. And yes, we're -- I agree with your analysis. As far as where we stand, it's very nice to be able to focus on the business instead of sort of the perpetual capital-raising. But there is an open mindedness to jettisoning these noncore assets for some additional cash.

Your next question comes from the line of Russell Stanley with Beacon Securities.

First, just a follow-up on the noncore assets. Are you seeing increased demand for -- or increased, I guess, buyer interest in those assets now with kind of a broader improvement in sentiment around the cannabis space? And I guess, at the same time, are you -- how much a hurry or how much urgency is there to move forward on transactions there? Given that you've closed PAMS, can you kind of afford to sit and be patient at this point?

Yes. We can be patient across the board. We don't have urgent need for additional capital. And so we can wait for the appropriate deal. Obviously, it depends on the market as far as level of interest, a little more limited interest in a place like Puerto Rico than in places like Massachusetts and Ohio. So yes, I would say, generally, we have seen a slight uptick in interest in some of these noncore assets.

Great. And if I could ask on Arizona, just on the wholesale business there. Just wanted to get an update, I guess, as to how many dispensaries you're selling into and with that planned expansion of the grow capacity, is the focus on adding additional dispensaries to your wholesale network or selling into your existing customers, especially given the state seat up for an adult-use vote?

Yes. Russel, I do apologize. I don't have the exact number. I can say it's fairly limited penetrance right now on the wholesale land. We do try to route the bulk of our biomass through our own dispensary. That's going to change fairly substantially with this new 9-acre facility. So we'll give you some increased granularity on that moving ahead.

And just my last question around -- sorry? Did you have more to add? Sorry.

Yes, just going to say, comfortable to say we have a lot of room for expansion and growth there.

Okay. Great. And sorry, my last question, just around the target for being cash flow positive by mid-2021. I just wanted to clarify to what extent, if any -- is that target predicated on any regulatory changes around adult-use in Arizona or flower in Minnesota or anything else? Or is that a target you've modeled out as being achievable based on a static regulatory framework?

Yes. That's based on kind of a static regulatory framework. You can imagine, from a free cash flow standpoint, these dramatic regulatory changes can work against us a little bit if we see a huge CapEx need in a place like New York in order to build that out. I don't think that's likely that we'll have huge CapEx needs. It's basically the current model is predicated on no substantial regulatory changes. And it's more important that we execute promptly on sort of our existing CapEx plan to achieve that.

[Operator Instructions] Your next question comes from the line of Paul Piotrowski with M Partners.

Could you talk a little bit more about state-by-state margins and if any one state drove the improvement this quarter?

I'll speak in generalities, and then I'll hand it over to John here. Our most substantial margin improvement was in Minnesota. Definitely comfortable saying that we have seen decrease in sequential operating expenses despite a dramatic increase in units produced certainly year-over-year. I'll hand it over to John here for some additional color.

Sure. On a sequential basis, we had margin growth essentially across the board on a year-over-year basis. We had very strong margin growth in Minnesota. In New York, our margin declined for a couple of reasons. One, we were -- we had a shutdown, planned shutdown in our processing facility late last year which worked its way through our cost of goods sold in that we had some higher cost we had to absorb into fewer units. And we had a high unit volume sales on a year-over-year basis in Q2, which led to a higher COGS dollar amount in Q2, which we view as somewhat of an anomaly and it should improve going forward. And then also, we've increased the -- our -- the products. Our mix shift is, this year, is leaning more wholesale than retail on a year-over-year basis, which comes in at a lower margin. And also, we're ramping up in Maryland. And so as we grow our revenue there, we expect some actually lift from -- so on a year-over-year basis, we had much higher revenue but also higher COGS dollars in Maryland. And so again, you'll see that start to moderate and hopefully turn positive in the first half of next year as that grow comes online. Does that answer your question?

Yes. Yes, that's great. And then just 1 more on Goose lending. Can you guys give sort of a time line on when you expect to close?

Yes. Yes, we closed on the purchase of the Massey Maryland facility. I don't have the exact date.

Yes, yes, sorry. Yes. I don't -- yes, that deal closed last -- I want to say last Thursday...

The purchase, I believe...

The purchase of the land.

There are no further questions. I'll now turn the call back over to Dr. Kingsley for closing remarks.

Yes. I'd like to thank everybody again for joining us this morning. We appreciate your continued support and look forward to speaking with you all again on our third quarter earnings call in November. Thank you.

Ladies and gentlemen, this concludes today's conference call. Thank You for your participation. You may now disconnect.