Green Thumb Industries Inc (GTBIF)

[FUNMAN]

(See Blue) GTI's Earnings Call Transcript --->>> Green Thumb Industries Inc. (GTBIF) CEO Benjamin Kovler on Q1 2021 Results - Earnings Call Transcript

(There are more good things to note than I highlighted in blue, but the highlights really perked my interest.)

https://seekingalpha.com/article/4428145-green-thumb-industries-inc-gtbif-ceo-benjamin-kovler-on-q1-2021-results-earnings-call


May 13, 2021 12:10 AM ET

Green Thumb Industries Inc. (GTBIF)
Q1: 2021-05-12 Earnings Summary


EPS of $0.05 misses by $0.02
Revenue of $194.43M (89.50% Y/Y) beats by $5.40M

Green Thumb Industries Inc. (OTCQX:GTBIF) Q1 2021 Earnings Conference Call May 12, 2021 5:00 PM ET

Company Participants

Jennifer Dooley - Chief Strategy Officer

Benjamin Kovler - Founder, Chairman and Chief Executive Officer

Anthony Georgiadis - Chief Financial Officer

Conference Call Participants

Vivien Azer - Cowen and Company, LLC

Matthew McGinley - Needham & Company, LLC

Eric Des Lauriers - Craig-Hallum Capital Group LLC

Camilo Lyon - BTIG LLC

Michael Lavery - Piper Sandler & Co.

Aaron Grey - Alliance Global Partners

Pablo Zuanic - Cantor Fitzgerald & Co.

Graeme Kreindler - Eight Capital

Andrew Partheniou - Stifel Nicolaus Canada Inc.

Scott Fortune - ROTH Capital Partners, LLC

Andrew Semple - Echelon Wealth Partners Inc.

Michael Hickey - The Benchmark Company, LLC

Operator

Good day, and thank you for standing by. Welcome to the Green Thumb Industries’ First Quarter 2021 Earnings Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions]

I would now like to hand the conference over to Ms. Jennifer Dooley, Chief Strategy Officer. Please go ahead.

Jennifer Dooley

Thank you, Lee. Good afternoon, and welcome to Green Thumb’s first quarter 2021 earnings call. I am here today with Founder and Chief Executive Officer, Ben Kovler; and Chief Financial Officer, Anthony Georgiadis. Today’s discussion and responses to questions may include forward-looking statements, which are subject to various risks and uncertainties that could cause our actual results to differ materially from these statements.

These risks and uncertainties are detailed in the Company’s reports filed with the United States Securities and Exchange Commission, and Canadian Securities Regulators, including our quarterly report on Form 10-Q which we expect to be filed tomorrow. This report, along with today’s earnings press release, can be found under the Investors Section of our website.

Green Thumb assumes no obligation to update or revise any forward-looking statements to reflect events or circumstances that may arise after the date of this call. Throughout the discussion, Green Thumb will refer to non-GAAP financial measures, including EBITDA and adjusted operating EBITDA. A reconciliation of non-GAAP financial measures to the most directly comparable GAAP measures is included in our earnings press release and SEC and SEDAR filings. Please note all financial information is provided in U.S. dollars unless otherwise indicated.

Thanks, everyone. And now, here is Ben.

Benjamin Kovler

Thanks, Jennifer. Good afternoon, everyone, and thank you for joining our first quarter 2021 earnings call. Since we were together less than two months ago, I will keep my remarks relatively brief and relevant to what we see ahead in 2021. Strong momentum in our business continued into the first quarter of this fiscal year. Following a solid fourth quarter in 2020, our first quarter revenue grew almost 10% quarter-over-quarter to more than $194 million or a 90% increase year-over-year.

We posted our third consecutive quarter of positive GAAP net income of $10 million, adjusted operating EBITDA of $71 million and free cash flow from operations of $40 million. We are pleased with the quarter, but we know we are building something for the long-term. Today's cash balance is over $300 million as a result of our successful debt rates, which follows the first quarter’s equity rates. This puts our balance sheet in excellent position to play offense. We are off to a very strong start in 2021, and we are even more excited about the opportunity ahead for the balance of the year. We have said it many times, but it is worth repeating.

We believe cannabis is the next great American growth story. Many of the classic American themes over the last 250 years exist in the story of the cannabis in America in this century. We believe things are changing in America and Green Thumb is well situated to take advantage of that change for our stakeholders. Rest assured as large owners of the business ourselves, we are aligned with shareholders.

As we look at a map of the U.S., we see a lot of opportunity. Top of everyone's mind is the position in New York and how we will leverage the adult-use opportunity. A full circle moment for the industry, Green Thumb is turning a former federal prison that once incarcerated people for cannabis into our New York cannabis facility. We see this as a self-contained economic stimulus package fueled by the demand for cannabis. When completed, it will create hundreds of jobs, generate a lot of tax revenue, enable wellbeing and continue to remove people's assumptions on cannabis.

In New Jersey, we are expanding production capacity. We have two open stores in Paramus and Paterson and a third store opening in the coming months. (FYI, North Jersey is the most densely populated area in the country. These might become some of GTI's biggest revenue generators. - FUNMAN) This is in addition to the potential along the East Coast, in places like Pennsylvania, Connecticut, Rhode Island, Maryland and Massachusetts to name a few.

Tourism is coming back to Nevada as Americans crave experience and connection. Our Cookies on the Strip grand opening this Friday is well positioned and nicely timed. At the end of this week, we will be on a Las Vegas trip with Berner and the Cookies team to celebrate, and we anticipate a lot of excitement with this flagship opening.

Looking again at the map, while it became common sense in 2020 to say cannabis is essential, there is still a large part of the country that does not have access, but this is changing. In April, Virginia became the 16th state as adult-use. And just over a week ago, Green Thumb announced the acquisition of Dharma Pharmaceuticals.

Dharma operates a cultivation facility, one dispensary and was a first mover in the Virginia market. Following the close, this license gives us the ability to open five additional stores. We are bullish on cannabis demand in the Southeast. Our track record at Illinois serves as a roadmap for how to capture the opportunity ahead. Our business strategy has not changed. We entered a highly desirable market with large potential and then open scale through methodical execution and a focus on the consumer at the right time, the right price and with the right products. That means, when opened retail stores, cultivation and production capacity at the pace to support the market, which takes careful planning and capital. Most importantly, we listen to what our consumer wants.

Our core objective has always been to be a leader in cannabis products that create real relationships and real experiences with the consumer. We believe it is fundamental to our long-term success. It has always been about quality over quantity for us, and this has never been more important than it is today. We are seeking high quality at scale, delivering the best, safest and most exciting products to people.

We are pleased with the momentum in the P&L and the revenue contribution from retail and CPG production, which we expect will continue to accelerate. The beauty of creating high-quality honest, trusted products is several fold. First, great brands and products drive people to stores, whether it's our dispensaries or others. Rhythm’s Brownie Scout flies off-the shelves and Dogwalkers are sought after by name.

Second, there are so many ways to continue to grow our portfolio through form factor, flavor, and experience. A recent example is our introduction of Snoozzzeberry under the incredibles brand, which was specifically developed to help consumers looking for a better night's sleep. We have a robust innovation pipeline across the portfolio, and our team is always looking for ways to delight the consumer with new ways to meet their specific well-beings or through creative partnerships.

Last quarter, we announced our partnership with Cann, California’s number one cannabis beverage. We are excited to expand our beverage offering and we will begin to rollout Cann across our markets. We launched Cann in Illinois Ahead of 4/20 to an awesome reception by consumers seeking an alternative to alcohol beverages. - Some of these actions like adding COOKIES stores and brand, and Cann beverages will lead to even bigger GTI same store year over year growth numbers than already exists. - FUNMAN We are pleased with the consumer momentum and believe this is a glimpse into the future. For those of you 21 and over, in Illinois, give it a try. You can do it.

We have a lot of growth in the portfolio by leveraging our current assets and based on market conditions, M&A, it can be an attractive option. I am not talking about acquiring trophy assets, but rather opportunities for geographic reach, our brand portfolio or our infrastructure. At the end of the day, Green Thumb is an execution-driven, consumer-focused, resource-oriented team, and that high standard puts guardrails around all of our decisions.

As I said many times before, everything is on the table if it makes sense for our stakeholders. And while we are in a fortunate position to have a strong balance sheet, you also know that every dollar we invest must have the potential to deliver strong returns for you, our shareholders.

With that, I'll turn the call over to Anthony for his financial review, and always engaging commentary. Anthony?

Anthony Georgiadis

Thanks, Ben, and hello, everyone. Welcome to what is now our 12th earnings calls as a public company. As Ben just highlighted, our team delivered record first quarter financial results, generating $194 million of topline revenue and over $71 million in adjusted operating EBITDA. Total net revenue were 10% quarter-over-quarter with gross CPG and retail revenue both growing by 8%. As a reminder, the difference between gross and net is intercompany revenue.

The key drivers for our continued strong revenue performance. First, strong and growing demand for cannabis. We are seeing an upward trend in cannabis consumption across the country. There is no doubt that this is particularly true in the markets within which we operate. The strategic best we play several years ago appear to be paying dividends.

Second, our CPG product portfolio, we are cultivating flower and producing products that people are choosing to buy with $400. Our efforts on facility design that focuses on quality over quantity, as well as our product strategy that leads with the consumer is starting to establish true differentiation in the market.

Third, execution. This boils down to a few simple concepts we live by here at Green Thumb. Number one, do what you say you are going to do. This holds true at our daily lives. Whether that's consulting with patients, consumers or making an internal commitment with another teammate. Two, let's go the simple route, particularly to start. This business in industry has enough complexity already. Third, embrace the team. We said it before that our team is our greatest asset. We have passion, and thirst for knowledge and the competitive spirit that run through all of us. Set differently, we like to win.

Back to financial speech. In addition to strong topline performance, the company continues to post robust gross margin with Q1 coming in at 57%. I know folks are probably tired of hearing me say it, but our intrinsic goal was to keep this metric at or above 50% over the long-term.

On the SG&A side, excluding D&A and stock-based comp, normalized operating costs totaled $42 million, $4 million increase over the $38 million we posted last quarter. A key goal of ours for this year was to build the company's infrastructure. So I would anticipate our gross SG&A spend to continue to increase in the coming quarters.

Total other expense in Q1 approximated $9 million, largely driven by non-cash charges and interest in warrant expense associated with our senior debt. As a result, the company generated over $71 million in adjusted operating EBITDA, close to 37% of revenue. In addition, we generated over $10 million in net income, our third consecutive quarter of positive EPS.

On the capital front, we continued to manage our balance sheet in the way that maximize the operational flexibility [indiscernible] it’s our version of the triple threat. With a sizable cash balance and positive cash flow from operations, we have the ability to buy, build or sometimes our favorite mood do nothing. Net of the $156 million of equity we raised in February, we ended the quarter with over $275 million of cash.

As you work your way down our balance sheet, you see the following. Low relative accounts receivable, approved inventory balance and the payables number of sub $10 billion for the first time since 2019, the new technical accounting folks that puts our current ratio on that news. Subsequent to quarter end, the company completed a $217 million self-conducting debt rates, adding over a $100 million of net cash to our balance sheet at an industry-leading interest rate. The bank and [Grossman] cohort continues to create sustainable value for shareholders and their fees is 0% the amount raised is fantastic.

On a pro forma basis, the company has an excess of $300 million of cash. We couldn't be more excited to put these dollars to work as we aggressively invest in our market to advance significant regulatory change. While we are proud of our first quarter results, we can’t help and focus on the future. We tell [indiscernible] new hires, we are still in the very early innings of this industry. So buckle up, hang on tight and remove all assumptions. In the meantime, for all of our stakeholders, we will continue to run our mapping map and execute our growth planning to entitle labor demand with U.S. cannabis.

Back to you Ben.

Benjamin Kovler

Thank you, Anthony. We are off to a great start and excited about 2021. We spent the last few years building a strong foundation brick-by-brick and our position today is stronger than ever. As the Green wave continues to sweep the country, there is more optimism around state and federal legislation. It is still day one at Green Thumb, so we will keep taking a hard and fresh look at every opportunity to strengthen our business and to find innovative and new ways to delight our customers on their journey to wellbeing through cannabis.

We are very privileged to participate in this industry. It is one of the fastest growing industries in America today and has the ability to drive a meaningful social impact which we are firmly into. We continue to donate first-day profits to every community where we open a new store. We have expanded our Dogwalkers donation program to include the Bailey Legacy Fund to support animal rescue organizations.

In our home state of Illinois, we have been advocating to get Illinois social equity program started and look forward to the potential lottery for new dispensary licenses soon. The delay in the licensing process has created substantial financial burdens for social equity candidates. Many of whom have had to have been hardest hit by the pandemic. Hopefully, this process is beginning to move forward in Illinois. And in New York, we believe New York can lead in this respect by starting adult-use on January 1, 2023 not only with the incumbent operators, but also by issuing new licenses in a timely manner to new licensees who per the law shall be heavily weighted for the social equity entrepreneurs.

Finally, we are committed to outstanding corporate governance and are especially pleased to welcome Swati Mylavarapu to our Board of Directors. Swati is a trustee of the Rhodes Trust, a World renowned educational charity that supports exceptional students to study at Oxford University. She is also a Board member for Vote.org, they increased voter turnout and strengthen American democracy. We are clearly aligned on our core principles. In closing, your company is stronger than ever and committed to becoming better every day.

With that, we welcome your questions.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of Vivien Azer. Your line is now open. Please go ahead.

Vivien Azer

Thank you. Good afternoon. My first question, Anthony, is for you. It's a little bit more of a housekeeping item. Thank you very much for the commentary around on your expectations for continued growth in SG&A as you invest behind the business. Can you please clarify whether you’re talking about SG&A in absolute dollars or as a percentage of sales?

Anthony Georgiadis

Great question Vivien, and hey there. Thanks. So I was referring to gross spending dollars not in percentage. Yes, we'll see how much we can grow the topline, but we anticipate over time kind of maintain nice operating leverage within the business, but I think the gross SG&A dollar spend, we continue to increase over the coming quarters.

Vivien Azer

Understood. That's very clear. Thank you for that. And then my follow-up question, Ben, it’s for you, and it's a little bit more of a strategic one. Clearly, on the flower side of your business, Brownie Scout has been a home run. We've been hearing about that for a number of quarters now. I recognized that the U.S. business and the way you guys run your business is very, very different than Canada, but one of the kind of unfortunate learnings out of the Canadian marketplace is that the consumer preferences in terms of flower strains can pivot, and pretty quickly or at least it seems like it caught some of the Canadian operators off-guard. So I'm just curious, how do you guys keep your finger on the pulse in terms of the strain preference? And then if you could offer any kind of sense of the percentage of your overall flower sales that Brownie Scout account for? That would be helpful. Thank you.

Benjamin Kovler

Sure. Yes. Great question and insightful and you're right. Tastes evolve and strains evolve and things like that. So we're very heavily invested in breeding, evolving the strain portfolio, and delivering for consumers essentially the best strains around. And so while we don't talk about a lot of the other strains out there, whether it's the Sativa portfolio, Jack Orange and Sour Diesel, which right now are doing great, or the White Durban that we recently released in the East Coast.

There is a lot of great things in the portfolio. We just like to talk about one since it does so well. In terms of a percentage of revenue, it’s not huge, I mean, not a significant piece that I even know off hand. Certainly want more, the consumers want more, certainly the effect for the medical patient and for the relax effect of the Indica that it delivers is one of a kind, that's why it stands out. But we're not betting the company on any single strain, which is nice to the Canadian supermarket to realize it, but the California could have told you that for the last couple of decades, the strains matter and the genetics matter and it’s a very important nuance in the space.

Camilo Lyon

Okay, great. It's great to know you’re not materially over-indexed to that one strain. Thank you very much.

Benjamin Kovler

Sure. Thank you.

Operator

Thank you. Your next question comes from the line of Matt McGinley. Your line is now open.

Matthew McGinley

Thank you. On the CPG business, it looks like the gross value of product you sold in wholesale increased nicely sequentially. But the amount you sold internally decreased modestly. And I would hope that you sell the product in your stores that the customer wants and not necessarily what you've produced. But is there a geographic factor or something with product mix that would have caused that sort of mix shift or slight decline in product that you're selling internally?

Anthony Georgiadis

Hey, Matt. Anthony here. Yes. It was relatively flat actually kind of a quarter-over-quarter. But given kind of the nuance, once you unpack that, there's a lot going on within each of the state markets that we operate in. It's really not a number that we kind of target or managed towards. It's one that just naturally evolves within the business. And so while we didn't kind of see our company kind of revenue grow at the same clip that we have historically, we don't read too much into it just based on what we're seeing within the state [indiscernible].

Matthew McGinley

Okay. On the capital raises in cash balances between the equity raises and the debt you brought in over $250 million year-to-date, and you've proven you've been able to generate cash and I would expect that that would only improve. But even as you spend more on CapEx, and if you did a lot more M&A, almost all the deals we've seen this year including this Virginia deal, yours is very heavily weighted to equity consideration.

So the question that is how much cash do you need to run this business? And are we reaching the point with the company or the industry where you just sit on bigger and bigger balances because you don't know where you may need to pivot next kind of like a tech company where they just sit on these big balances and you don't know when they may deploy them that they'll have these larger balances. So just holistically and thinking like what's the right amount of cash that you need to run this business and drive?

Benjamin Kovler

Sure. Thanks, Matt. This is Ben. It's not an exact science. You sleep really well with the fortress like balance sheet and cannabis being federally illegal with the lowest cost of capital even against others in federally illegal domiciled locations. And we think the opportunity is immense. So we're seeing annualized numbers crossing $20 billion. We see the number going way over $80 billion, and it would make a lot of sense to have the capital on the balance sheet, when investing aggressively into the business.

I mean, look across the state opportunities, Illinois, Ohio, Pennsylvania, Maryland, New Jersey, New York, Connecticut, it keeps going. All of them have significant growth based on the size of the market even if you take your conservative assumption and cut it by 20% or 30%. So we're not really managing the business for an amount of capital. The cash equity split, people want to own them, our stocks were flattered by that. We're happy with that. We don't want to give it away. Obviously it's the treasure here, but we're comfortable with the share count we’ve got. We're managing that carefully and we believe we can create very significant accretive value on whichever part of the income statement you want to measure and put a multiple on through the M&A.

Otherwise, we wouldn't do it. We would double or triple down in the business, which we're doing as well. So we liked the cash balance. We don't know where the capital markets are going. Sure, one day listing and safe and other things are going to happen and it will change, but the business is pretty fantastic currently. And we want to continue to invest in that. And I haven't thought for a moment that we have too much cash given the current situation.

Matthew McGinley

Okay. Thank you very much.

Benjamin Kovler

No problem. Thank you.

Operator

Thank you. Moving on, your next question comes from the line of Eric Des Lauriers from Craig-Hallum. Your line is now open.

Eric Des Lauriers

Congrats on another impressive quarter here. So bit of a follow-up to Matt's question here. You guys done a great job lowering cost of capital through these non-brokered institutional capital raises. And yes at the same time, your cannabis stocks in general continue to be negatively impacted by the significant capital and trading restrictions. So I was just wondering if you could provide some color on the type of institutional demand that you're seeing beyond the public markets here and whether you're seeing any broad changes in compliance risk appetite whether institutions are shying away or warming up to the idea of taking on U.S. cannabis exposure?

Benjamin Kovler

Yes. This is Ben. I'll take that. And that's a great insightful question because that's really a part of the core issue here. And I would say for folks that are putting their name in press releases, there's more attention that things are not simple. However, what you see Green Thumb do literally at every single raise is bring new capital into the space and that you know us and others do too. We are literally bringing in the capital on each one of these raises is not out of other cannabis companies. But new high-quality, long-term, aligned with management, institutional capital and that's where the supply is going. And we're bringing it in, but it's a slower movement. There needs to be more clarity.

Things are very gray, whether it's custody, prime broker, different relationships, you still can't buy the stock on Robinhood. CNBC still doesn't cover it properly or talk about it. It's a very tricky situation. I think it continues to be the PMs and the investment analysts are unbelievably excited and cannot – those who see it are sort of surprised by the, whether we call it structural irregularity or market inefficiency that seems to be sort of in slow motion.

At a time when the business on the ground bottom up is in accelerated fast motion and in fact, accelerating. I mean, you had New York, you had New Jersey and New Mexico, and there's more and more happening in that and now you got Georgia, hopefully the nature of these licenses in Virginia, just legalized, maybe Mississippi, and there's talk in other places. So we see an absolute dichotomy between the capital market inefficiency slow down and on the ground acceleration. So that's why we want a business with tons of cash with very, very aligned shareholders and we're bringing in new capital. I can't speak to the other companies or the other countries, or whatever else is happening because people are doing it differently. Not everybody, it's not a one size fits all situation.

We're building a business for the long-term for shareholders, investing capital into the market opportunity in the U.S. that we think is somewhat unprecedented. We're fired up about it and we're aligned with the shareholders. So we're not having a hard time bringing the right kind of capital. We feel very sort of privileged in the spot we're in, but I think broadly the capital markets are in their nascent stage.

Eric Des Lauriers

Okay, great. That's helpful. Great color there. And then as a bit of a follow-up, with that cash balance being the largest span, and you guys continuing to increase your cash flow generation. Could you just provide some insight or some color on sort of how you guys decide whether to sort of increase the scale of your projects or sort of spread that cash around and then start to take on new projects, new geographies, maybe some smaller scale projects, and you sort of help us understand how you guys think about that trade-off there? Thanks.

Benjamin Kovler

Yes. We think about it like, I mean, this is the ultimate game, right? The capital allocation and how we put capital and where we put it in and what kinds of returns for what the business is going to be when and what the Board will look like. And it really is kind of a multidimensional situation with lots of different states and markets and things. So we look at our cards, fortunately, we can see everybody else's cards. And when we make the bets based on the most basic principles possible.

I can’t remember this call or another one where we talked about [indiscernible] formula or the Kelly principle about how you make [indiscernible]. And the way we think of our wagers on behalf of shareholders, that this is our money. These are chips that we're playing at a table where we're trying to take one plus one to make four, or putting a 100 to create 500. And the simple math of – make it up, say a $100 million investment to create $50 million or $75 million of EBITDA at whatever multiple you think the market is going to trade EBITDA at 20, make it up.

There were $1.5 billion of market value creation. Where can we put that under to work? Well, guess what, there's many, many places we can put it to work because there's tens of millions, in fact over 100 million Americans who are really, really interested and want that demand for the product. So it's about a symbol of the set up as possible. So we just want to play where we have the highest probability of success based on the chips that are out there. Lee?

Operator

Yes. All right. Thank you. Moving on, your next question comes from Camilo Lyon from BTIG. Your line is now open.

Camilo Lyon

Thank you. Very nice quarter guys. Congrats. Particularly in light of how difficult February was, so I'm curious to know after putting up, call it a 10% sequential growth in Q1. What was the exit rates coming out of a quarter relative to that 10%? And any color you could share as to the momentum that you've seen thus far into Q2 would be very helpful.

Benjamin Kovler

Yes. It's a great question. It's insightful. I would say, we sat here literally the same seat, and I think it was March 17, Wednesday, Saint Patrick's Day, the day the stimulus checks came out, the business you've heard it from others who've seen it in the data, things changed in the back half of March as the market woke up. So I wouldn't say that is elevated above and sort of caught up to February being low, take the Illinois market data, 88, 80, and then back popping up above. And you can see it state by state and we really track the state data to show it.

So I think your run rate exit is more of a first quarter flat situation versus some kind of dramatic acceleration for 20 night's holiday and everything. But under the coverage usually March is a little stronger than April, not Green Thumb specific, but look at the markets, just every state gives you the data and you can see that. I don’t know if you think is which stores are opening, what's happening. We saw material change really in price and for Green Thumb’s purposes, we have more still coming on the back half of the year. We talked about that towards the end of the year, particularly Illinois, something is coming at the beginning of 2022.

Camilo Lyon

Thank you, Ben for that. And that actually leads to my second question about your back half expansion plans. If you could just remind us what projects are coming online in the second half in the States? That'd be very helpful. And how we should think about the really robust margin that you delivered in this quarter, understanding what you said Anthony about maintaining the kind of like that 50 plus sort of baseline, but it really seems to – it seems to be that as more cultivation and harvesting comes online, particularly in the back half, you have an ability to at least maintain the starting point of this 57% margin rate through the balance of the year. If I'm thinking about that incorrectly, please correct me where I'm wrong.

Benjamin Kovler

Yes. I think that's right. On the ground, what I would say is, like Anthony has mentioned, we were kind of targeting our 57%, and how do we get to 59%? Where do we have to trend? And we feel like we were comfortable with the gross margin instead we're more like 50%. And we're okay investing into the business to scale this thing. We think there's a lot more production coming simply because there's a lot more demand. And if there's a lot more demand, people want to buy lot more of our products. We have to be thinking about it in that way. So we're very comfortable making investments into the business that if it means the margin goes down, fine. It's not a core focus. As they're trying to build the infrastructure that really hits the SG&A line more with the revenues accelerating and the gross margin scale is an amazing thing. And also we start to work on yields.

So we start to see real details. And sometimes we don't talk about the exact details inside the business, and that's not a coincidence because we're really working on that. We believe we have a national model, we believe we can bring premium indoor flower to consumers across the country who want it, it's as basic as possible. And there's more upside to go to the next quarter, I don't know. But in 2023 and 2024, where this business is – on the scale we have based on the capital we're putting in based on the demand that we see, and just make it up New York and Virginia and New Jersey, that's as big as Canada alone. I think there's maybe only 30 or 25 licenses there currently. And it's only a first mover and then we think there's got to be a lot more people in the industry. There's got to be access to capital and hopefully DC gets around to doing a few things, but it sets us up pretty well.

Camilo Lyon

Thanks very much. Good luck.

Benjamin Kovler

Sure. Good questions.

Operator

Thank you. Your next question comes from the line of Michael Lavery from Piper Sandler. Your line is now open.

Michael Lavery

Thank you. Good afternoon.

Benjamin Kovler

Hey, Michael.

Michael Lavery

Just wanted to follow-up a little bit. The industry certainly is at an accelerating point with so much legalization momentum and your balance sheet obviously sets you up really well. Can you just give us a sense of how you're thinking about CapEx and any ability to quantify what to think about for this year and maybe a range for something for 2022?

Anthony Georgiadis

Hey, Michael. Anthony here, I'll take it. So in 2020 kind of the gross spend [indiscernible] kind of before the sale leaseback reimbursement, we spend about $113 million last year. Q1 our gross spend was about $32 million. So I would anticipate our gross CapEx spend this year to certainly be greater than it was last year. As you know, we're not going to agree with likes to talking specifics, but with the balance sheet that we have in the markets that we have and the regulatory changes coming, we're going to lean in pretty aggressively. As I said in my prepared remarks, I would anticipate that Q2 through Q4, the CapEx should accelerate from that 32 number.

Michael Lavery

Okay. That’s helpful. And somewhat related follow-up, can you touch on, obviously you've got the debt at 7%, which is the debt by far the best cost of capital among any in the industry. But can you guys just give a sense of – is there still improvement from there? Is this kind of where you expect to stay? What would it take for that to move the needle again? How do we just think about what settles into sort of maybe baseline type run rate?

Benjamin Kovler

Yes. I mean, for our purposes, that's not a thing you could just play around based on the day where the pricing is. For us, it's more alignment with the debt providers, where we think that costs of capital. Look, on year-end, I talked about 6% to 7%. If we could get 5%, we're not really looking to re-buy quickly. The way the structure is for us on our balance sheet is three years, we have an option for a fourth year. We think the next time we re-buy when we're exposed to the sort of more normalized capital markets. We've been told the business performance and the P&L looks investment grade. And if you look at U.S. investment grade, there is sub 4%, 3%. If you look at the debt characteristics of the business, the trailing 12 months is like 1x EBITDA plus or minus.

And even if you say the taxes are wonky and it's 2x, pretty under levered for the growth we see, so we sleep really well with it. And we like where we are. There's certainly more interest. We can flex it up to 250. You don't need to pay the interest on more cash sitting on the balance sheet, just doesn't make a lot of sense. If you have a year to fill out the rest of it, we have the opportunities. I think I'm hopeful as everybody else in the industry to be able to continue to drive down that cost of capital also. And that should happen, but the capital markets are thin as we've all seen. So we like our position. It’s only for us to – can we get the equity to debt and now we're going to work because the same thing in 2019 people were a little surprised that happened in 2020. And we plan to be back on 2023, talking about where the world is with cannabis.

Michael Lavery

That's really helpful color. Thanks so much.

Benjamin Kovler

Sure.

Operator

Thank you. Your next question comes from the line of Aaron Grey from Alliance Global Partners. Your line is now open.

Aaron Grey

Hi. Good evening. Congrats on the quarter. Thanks for the questions.

Benjamin Kovler

Hey, Aaron.

Aaron Grey

Hey, how's it going? So first question for me is a little bit around M&A. Great to see the acquisition in Virginia with adult-use coming online there in the next couple of years and flowers starting, but we'd love to get your perspective in terms of how you think about potential additional M&A particularly through the lens of the chance of there being some changes to the federal level or your thoughts on that? There's been some peers or others out there who have started to make some moves in anticipation of – there might be a change at the federal level. And how you guys think about that in the near-term in your acquisitions? Thanks.

Benjamin Kovler

Sure. This is Ben, I’ll take that. So having a – look, the high level thesis is everything's on the table if that makes sense, we've said that for awhile. We're pretty aggressive in knowing what's going on in the space. We're very U.S. focused. I think the action is here in the United States. We think this is an American story. And we think that as the U.S. executes as an industry and a country, the world will walk what we have. Capital markets and Spiderman are pretty efficient here. So we're comfortable with that. If you just look at our history, we raised debt and invested in the business, and we're looking at what's happening on the cycle of capital markets. The fun part of our cannabis is at hyper-speed. So we've had feast and famine and ups and downs, and we're comfortable with that.

I would say that you should look for us to do M&A that’s accretive to shareholders based on the exact thesis we've talked about. So whether it's going to be an enter like a Virginia or a scale, like whatever, the last year we bought a store in Connecticut, it just scales the business and others strategic plays like that. We've been active for five, six years, sometimes, like Anthony said, we do our favorite, which is do nothing, and sometimes we do a lot. We think we're following what's going on in U.S. cannabis pretty carefully. And we think we understand what's going on the ground. And therefore gives us a little bit of an edge with information by which to make decisions, whether that's data-driven or personality-driven or legislatively-driven, whatever that's the recipe by which we use.

Last on your point, that's all part of the Board that we see about how to bet, where it's going. The business is very good under the current situation. So I'm not likely to put a lot of capital into something that might happen later. We like where it is right now. We think there's opportunity with the change, not threat. And we're excited about that. We want to play a lot of offense, but at the moment, we feel tens of millions of Americans want cannabis and don't have it. So we need to make it really fast, really good. And that's what we're up to.

Aaron Grey

Great. Thanks. That's a super helpful color. And then second question for me. So just given the strength in balance sheet, we've talked about Florida a couple of times, more recently obviously there's been some action there in terms of in acquisitions this year. Hasn't been a ton allocated down there for you guys where you had some other high priority states. But just given your strength and balance sheet, you've often talked about you like the market longer-term. So does that kind of give you some capital is going to be put towards that market and look to grow there, especially with the potential of the use being on the ballot there in 2022? Thanks.

Benjamin Kovler

Yes. I think that's insightful. Yes. As we had more cash exactly, right. We looked at it through that lens and that would lead you to think of that conclusion. And yes, we're not going to just sit with a lot of cash for a long period of time. We see 20 million Americans who have a high interest in a very nice market, people has done a very good job down there. So it's an interesting market and we were studying it.

Aaron Grey

All right. Great. Thanks. I'll jump in the queue.

Benjamin Kovler

Sure.

Operator

Thank you. Your next question comes from the line of Pablo Zuanic from Cantor Fitzgerald. Your line is now open.

Pablo Zuanic

Ben, can I ask about – I understand this is a growing industry and you have a lot of levers, but the 2% same-store sales growth sequentially, can you give some context around that number? I mean, I could interpret the Pennsylvania, maybe too many stores. I know market is growing, can go rank eventually or other states, Illinois new stores have opened only recently. I'm surprised about the 2% same-store sales number. Can you give some context around it, please? Thanks.

Benjamin Kovler

Sure. Pablo, it’s Ben. I can start. Yes. We don't see any issues in the business. There hasn't been any major new turn-ons or things like that with whether it's adult-use or new store openings or conversions, but sometimes give tailwind there. The thing I would do is look at state0over-state, what's happened in fourth quarter to first quarter or first quarter over fourth quarter by states, we don't see ourselves giving up a lot of market share. These are the ebbs and flows of the market.

First quarter was pretty slow until March 17. Like no doubt about it. February was pretty rough in the country. There was a four days of snow. And I think like Ohio, Pennsylvania, New Jersey, had multiple feet of snow and nobody wanted to go out and the store wasn’t open every day and it's a 28-day month. So I don't see any real read-through there. March came strong, but it is 2% on 48 stores.

The other big thing is it's a big base. So the numbers, you now have a comp base over a year of 40 and a sequential of 48. So you're not moving the needle in 48 stores, 30% across heading states. That's tough. Business is much bigger than it was before in terms of the amount of retail business we're doing on a daily, monthly, quarterly basis I mean. They're a big barge and big market share, yet the market's going to quadruple in front of all of us.

Pablo Zuanic

Right. Thank you. And then just to follow-up on New York. How are you thinking about the potential there to open to have eight medical stores, do you have a view on that timing and your views in terms of when the taken steps start selling flower if you have some insights on that? Thank you. On the medical side?

Benjamin Kovler

Sure. I can take that also. It’s Ben. Look, we think New York is an awesome market with infrastructure, the market sets up well, now it's about execution. We've seen a good intent execution in Illinois, yet still has a chance to emerge successful. We believe – to just put a dart out there that 1/1/23, January 1, 2023 would be a date that New York could open adult-use. And they can do such where it's not in the current incumbents of which GTI is one of them only, no grandfathering.

And then instead based on the timeline and based on the log you read it in the commission and all the things that New York is doing. And then they're pretty focused on doing a nice job. They could get new licenses and applications and those licenses would have a focus on social equity. And day one, you could have new people enter the industry, new entrepreneurs with a chance to generate new wealth. We think that's a big part of it. There's no real product rules yet.

In terms of the market, the law obviously said, yes, the flower, we've heard others who are really carrying a load. And we're pretty sure that pushing this forward because obviously the medical patients should have access to flower for wellbeing. Its common sense, yet rules are tough. Regulators are new to the space. There's a lot of education, hard work that has to go on to bring that about. But in any way [indiscernible] New York can be a great market with plenty of demand. We'll go for our eight stores, three of which could be dual, really executed into it.

Pablo Zuanic

Thank you.

Benjamin Kovler

Sure.

Operator

Thank you. Your next question comes from the line of Graeme Kreindler from Eight Capital. Your line is so open.

Graeme Kreindler

Hi, good afternoon, and thank you very much for taking my question. I wanted to follow-up on some of the earlier comments you made Ben with respect to the potential setup in the event of the market has interstate commerce element to it. The early days of the GTI story really talked about a branded distribution at scale. And I'm wondering if you could elaborate a little bit more. There's been significant ads and diversification across the brand portfolio and GTI over the last little while.

But when you talk about the distribution at scale, how does your potential Worcester your existing asset base factor into a situation where you're looking at distribution coast to coast. The existing cultivation coming online, that's very much served to expand on the existing state markets and the demand coming on there. But do you see opportunities to leverage any of that infrastructure from a regional basis or would this really require some large greenfield type of investment or potentially using more third parties in the supply chain? Thank you very much.

Benjamin Kovler

Sure. Hey Graeme. Yes. I mean, it's the same story. The truth is there's huge demand within the markets. And like we talked about in the last call, and we said on this call, the business is very good under the current situation. We think there's an opportunity more than a threat with interstate, certainly I need more, but you got to think about the supply chain becoming more fragment and there's more opportunities there. We think our brands win with the consumers exactly what the supply chain looks like today is not something that we lose a lot of sleep over.

We know what the products are. We want to be able to make them at scale. We're making them at scale in markets that have 12, 13 million people, 20 million people, 40 million people out in California. So those are huge markets and obviously there's regionality and there's other things. But that there's other models of consumer products that have built these sorts of things. So we don't think we're behind in any way shape or form. We feel like we're in a pretty good spot and like where we are. I think what's also really crucial is the consistency of the product. You can't just make it everywhere and ship it, and then you like it to go, especially as you get closer to the flowers, you move further away into the refined products [indiscernible], its easier, but consistency of the product is very important.

Graeme Kreindler

Understood. Appreciate that insight. Thank you very much. And then just as a quick follow-up here. With respect to the acquisition of Dharma in Virginia, and there's been some chatter about the potential timing of the start of adult-use being brought forward. As that relates to your capital allocation decisions and the CapEx expectations that were outlined earlier in the call, how much of that might get directly to Virginia or how quickly could you start deploying capital based on what Dharma has built or potential plan that they've drawn up for significant expansion? Thank you very much.

Benjamin Kovler

Sure. This is Ben. Anthony, don't be shy. What's happening with the legislation like I said many times, I think the legislation in state or federal, federal being more so which is a trailing indicator. So we see 8.5 million people that have a huge amount of demand, so we're putting into pieces in place to serve that demand. We understand it’s medical, we understand it's going to wreck. There's a lot of nuances for how that works. But it really doesn't impact the capital decision.

We saw like a do not enter sign and a no chance for adult-use, we might change the plan. But the plan is 8.5 million people, $1 billion plus market. What's the multi-phase approach? We've done this in many states. We know that consumers – lots of branded product and now we know how to make them at scale and it's scaled enough at 8.5 million people. We're also thinking what states are around, how does this look and what happens regionality to your question. Virginia is a great market and it's a pleasure to see cannabis coming to an area of the country that really does not had it. We think that's a big deal.

Graeme Kreindler

Got it. Understood. Thank you very much.

Benjamin Kovler

Sure.

Operator

Thank you. Your next question comes from the line of Andrew Partheniou from Stifel GMP. Your line is now open.

Andrew Partheniou

Hi. Thanks for taking my question and congrats on the good quarter guys. Maybe if I can come back to the discussion of dynamics in March and into Q2. Could you talk a little bit about the pricing or promotional environment? People receiving stimulus checks was highly anticipated. And wondering if there was a higher than normal promotion to capture that strong traffic after a tough January and February. What does April look like? And now what does May look like after the 4/20 and the stimulus check period?

Anthony Georgiadis

Hey, Andrew. Anthony here, I’ll take that. So I think what I'm trying to read into your question a little bit, you're essentially asking if we ran promotions in March to kind of combat the softness that we saw in the early part of the quarter. So that's really not the case. We continue to just kind of run the business. I'll remind you that one of the benefits for our business is that we still operate in a number of supply constraint environments, and so even other operators don't have a huge appetite to kind of do a lot of promotional activity. Some of the markets are getting more competitive, but that's just natural evolution, and obviously we're kind of setting that, watching that, but there was nothing kind of abnormal or anything that we did where we had a discussion on the table saying, hey, we need to do something about this. So we ran the business, ran the playbook and similar checks came in and people did exactly what kind of been. As Ben mentioned during our last call, they purchased more product. And I think, we probably weren't the only beneficiary of that.

Andrew Partheniou

Thanks for that. And maybe just talking about New York a little bit more. The regulations haven't been out yet. Within the law, it gives the regulator a lot of power to place any kind of caps or restrictions. And you've already secured your platform for production there. Just curious if you could give us a little bit more color on your thoughts on how you think the regulations will play out? Whether you think there will be any production caps and how your strategy with your production footprint that you've already acquired place into that?

Benjamin Kovler

Sure. This is Ben. I can take it. We’ve talked about it. I'm not sure how much new news there is. We think there's going to be an immense amount of demand. We want to build the high quality products we know we can make. We have an aggressive capital spend plan. States has not issued the rules yet. The committee – they were pretty early on in the website. We think that’s a strong side. There's a lot of intent to make this work and make it work well. And we're here as a partner to help. Like I mentioned, some of the current ROs work pretty hard on getting flower out and we're all kind of in it together along with the new entrance. And so similar to what we did in Illinois with a LEAP program, which is application assistance program, it's hard to apply for a license.

And so as we can educate folks on coming into the space, we're going to make a product. I have our stores, we hope others can have stores. Like I mentioned, we are throwing the dart on 1123, that's not based on any exact science or zero lobbying. It's just based on what we think would set up well for the industry for everybody who's invested in this going really, really well. If it’s three, six months earlier or three, six months later, you can make it work. But when I start someone with a pretty lofty goal, like bring others in day one, and we're going to aggressively build what we know how to make. We think that it had version one, two, three, and four and made a lot of mistakes and hopefully we can not make the same mistakes in New York.

Andrew Partheniou

Thanks for that. Congrats again. I'll get back in the queue.

Benjamin Kovler

Sure.

Operator

Thank you. Your next question comes from Scott Fortune. Your line is now open.

Scott Fortune

And I'll be brief, real quick thoughts on California. Ben, you opened up the testing store. I know it took a while, but you're there. Any color on kind of trends there, momentum and thoughts around building out California at all?

Benjamin Kovler

Thanks, Scott. Yes. We see a lot of COVID restrictions still going on in California. I think that's opening up. Store is off to a nice start with good momentum up until the right. As we say, we will continue to refine menu selection, build loyalty in the state. We're aggressively looking at what's going on in California. I think it would be foolish not to, but we're not aggressively spending. Things will make sense or they won't, we'll go there. But the places that we mentioned for aggressive spend are like in the now, so California, we're watching, we're studying, we like our position, which is not a lot of capital risk.

Scott Fortune

Got it. And then two other states you’ve mentioned mostly is Nevada and Massachusetts, as things open up here, are you seeing favorable trends from that standpoint? These two states like the Cann investment, makes sense to move forward into other states out side of Illinois, I think you want some other states going forward?

Benjamin Kovler

Yes. We see a little difference between Nevada and Massachusetts. Massachusetts remain strong and give really transparency into that market. We plan to scale production. We need more of our products there, and we plan to expand retail, not administrative. We're sitting with one. So look for action to come in Massachusetts. In Nevada, we see – our business has not been heavily leveraged to tourism. So it didn't soften the way it did. And now you see the surge, with 60 on 80 on a monthly basis, a lot of tourism, obviously that's a heavy play that what we're doing with Cookies and Berner which we think is great. So we'll plan to play that, but both those states give a pretty good transparency on a monthly basis see then come back, pricing is firm in both States. There's a lot of momentum for our products and others as there's just good growth in both those markets. And we have a couple more stores we can open in Nevada. We should have this year one in Reno, and one more in the Vegas area, which are in the pipeline.

Scott Fortune

Great. Appreciate the color. Thanks.

Benjamin Kovler

Sure.

Operator

Thank you. Your next question comes from the line of Andrew Semple from Echelon Capital Markets. Your line is now open.

Andrew Semple

Hi. Good afternoon, everyone, and congrats on another solid quarter. Ben, I think a couple of months ago you gave us your kind of priority list in terms of capital allocation and certain markets where you're looking to prioritize capital spend. Just given the developments in New York and Virginia since that update, could you kind of slot those in and kind of give us a sense of where those fits in terms of priorities? And do you think, New York is kind of at the top of that list and maybe a little bit more clarity on Virginia?

Benjamin Kovler

Yes. I mean, both of them come in strong Tier 1 capital allocation opportunities. I mean, it's a pretty basic math problem, 20 million people or 8.5 billion people, and what's the current market size [indiscernible]. You've seen the movie before, it's called Illinois or Pennsylvania. It's just literally – and it's not about anything that fancy, it's about how much products that consumers want. There is no major red flags in legislation meaning some structural irregularity or like vertical or sort of no product or potencies or something wonky. Most of these markets have a pretty set structure for how they're going to enroll, New Jersey right there as well, right, 9 million people waiting on the rules and wait for this thing to get going – huge amount of demand.

Andrew Semple

That's great. And just to follow-up, I wanted to ask on the gross margin profile. There's been a very nice trend. The gross margins have been ticking up every quarter since Q1 of 2020. I'm just wondering on your thoughts on where we start to find the kind of normalized gross margin profile going forward? Do you think we're kind of approaching that level yet kind of in the Q1 period? Or do you continue to see latent room for that to move higher as you scale your production and cultivation activities?

Benjamin Kovler

Yes. Look, it's a great question. It's a really hard question to answer. So part of the reason is because given the growth in the business, we are – what we have going on is we're obviously investing heavily on the CPG side of the business. So over time that should become a greater percentage of the overall business. And when you unpack kind of the gross margin, the gross margin of retail is relatively static, right. CPG is where you can get kind of real kind of gross margin leverage within the business. However, these sites take a while to kind of turn on and then get to scale. And so what you have is if you unpack the portfolio, when you lay them out, you have a number of facilities right now that are achieving scale or call it operating at scale and continuing to refine and get more efficient. And then at the same, in the same breath, you also have a number of facilities that are just not turning on, that are not terribly efficient, right. So they're a bit of a drag, I guess, on that gross margin line.

So I think it's difficult for me to sit here and tell you where I think it's going or where I think kind of the true kind of potential is in that line item and what are the benefits of the businesses that with solid cash flow from operations and the healthy cash balance. We don't have to sit here and manage the gross margin to a specific number. We can make bets that we know will pay off in two to three years from now. And we've got the luxury of doing that, where we have these other States that are operating at scale. And so it puts us in a really nice position. It puts the shareholders in an even better position. And so I think you'll continue to see us lean in on the CPG side of the business where we know that over time we can get more kind of gross margin leverage.

Andrew Semple

That's great color. Anthony, appreciate that. And congrats again.

Anthony Georgiadis

Thanks.

Operator

Your next question comes from the line of Mike Hickey from The Benchmark Company. Your line is now open.

Michael Hickey

Nice. Hey, Ben, Anthony, Jennifer, Andy. Congrats on the quarter guys. Two quick ones for me. Just curious how you think about investment or development of cannabis, lifestyle or cannabis media assets or sort of an ancillary growth opportunity for you? And then secondly, with your Cann beverage product line launching in Illinois, obviously it sounds exciting. But just curious, double-click maybe on the learnings there in terms of manufacturing, maybe initial demand in the category potential outside of California? Thanks guys.

Benjamin Kovler

Sure. Just taking the second one first, Cann, we're excited about the launch. You continue to see like everybody that beverages are not a big part of the category. We talked about off-prem versus on-prem where all cannabis is off-prem and we think that's changing slowly. I want to be a part of that. We've made some place for that. We didn't – launch went well, we don't have any major news to share except for the product is fantastic.

And for those of you haven't tried it, you should, because it's socially dosed, this is a light two milligram. You're not going to accidentally drink 10 Canns, which would be the equivalent to two gummies. You might accidentally eat two gummies and that might be over-serving. Whereas, one Cann is not going to be over, you could have a half. So bringing in people that don't smoke pot, and aren't really familiar with that and don't want to get too messed up or whatever ends up a very, very attractive entry and it’s an incident situation where people love the flavor. Those guys have done an excellent job, formulating the product, the brand, it works. As you know, that's what attracted us to it.

Turning to your first question on media assets, I don't know. I would say everything is on the table. That makes sense. We're open, there's a lot more conversations happening broadly. Seems like everybody's interested in cannabis here we are with a series of unique assets and a perspective, on what's going on. So we're open to lots of conversations.

Michael Hickey

Thank you.

Benjamin Kovler

Sure. Thanks for the question.

Operator

Thank you. And there are no further questions at this time. Presenters, you may continue.

Benjamin Kovler

Great. Thank you everybody for dialing in. We'll be back in a few months. We'll see you in Vegas and enjoy the ride over the next 90 days. Thank you.

Operator

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