Good morning, ladies and gentlemen. Thank you for standing by. Welcome to GrowGeneration Corp, 2021, Third Quarter Conference Call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be opened for analyst questions. If you have a question [Operators Instructions]. If you would like to withdraw your question, [operators Instructions]. This conference is being recorded today, November 11, 2021, and the earnings press release accompanying this conference was issued this morning. I will now turn the call over to John Evans, Investor Relations.

Good morning. I would like to welcome everyone to Grow Generations third quarter 2021 earnings conference call. With us this morning is Darren Lampert, our Co-Founder, Chairman and CEO, Michael Salaman, Co-Founder and President, and Jeff Lasher, our CFO. After management remarks, there will be an analyst Q&A session. As always, we expect to make forward-looking statements this morning, but we want to caution you that our actual results could differ materially from what we say here. Such statements can be identified by terms such as believe, expect, intend, and may. You should not place undue reliance on forward-looking statements. Actual results may differ materially from those forward-looking statements. And we do not undertake any obligation to update any forward-looking statements we make today. For more information about factors that may cause actual results to differ materially from forward-looking statements, please refer to the press release we issued this morning, as well as risks and uncertainties included in the section under the caption, Risk Factors and management's discussion and analysis of financial position and results of operations in our annual report on Form 10-K, filed with the SEC and any subsequent Form 10-Q and Form 8-K filed with the SEC following prepared remarks today, we will open the call for questions. I'd also remind everyone that today's call is being recorded and an archived version of our call will be available on our website later today. I will now turn the call over to our CEO, Darren Lampert.

Thank you, John. Good morning. Before we begin with my prepared remarks, I would like to thank each and every one of our employees and customers for their continued hard work, dedication, and loyalty. Our best-in-class staff is now over 740 with over 500 of our teammates experienced grow pros. We have created the largest sales team of hydroponic product specialists in the country. We had a strong record third quarter, with revenue of $116 million in the quarter, 111% increase year-over-year, with a 15.7% increase in same-store sales. The Company earned $0.07 per share on GAAP Net Income of $4 million, which is burdened by amortization and income taxes, adjusted EBITDA grew 63% to $10.8 million for the third quarter, 2021 or $0.18 per share versus $6.6 million for the third quarter, 2020 or $0.13 per share. Inventory increased to 113 million and we ended the quarter with cash and marketable securities on hand of 93 million. Like all commodity products in emerging industries, you see from time-to-time an imbalance in supply and demand. We've experienced these imbalances before in California, Colorado and Oregon, and now, once again, these states, California and the West, are dealing with oversupply positions that have created downward pressure on the cost per pound of flower. This is a short-term issue as growers will either sell through their inventory, or have to dispose of it, as the flower has a freshness and effective expiration date. Supply chain headwinds had an impact on shipping container costs and securing some products. The Grow Gens purchasing team has gotten ahead of the inventory. So, we're in a very strong inventory position heading into Q1 2022. Despite supply-chain and construction delays, we opened two new superstores in LA at service logistic hubs for the important Southern California market.…

Thank you, Darren. Let me start by building on what Darren laid out for future initiatives then I will address Q3 results and what our business looks like in 2022. Our investment focus in 2022, we'll ship towards Greenfield locations. We were very pleased with the customer reactions to our new locations in California, and believe we can modify the size of these locations while keeping the selection and service. Our 15 to 20 new locations will range from 5 thousand to 15 thousand square feet of retail selling space, along with outdoor facilities to serve book sales. Like capital investment will be $1 million to $2 million per location, including inventory. These locations will be in emerging states, such as New Jersey, New York, New England, Pennsylvania, and Illinois. Over time, this will reduce our reliance on California, which presently represents 26% of sales, and mature markets, including Colorado, Washington, and Oregon, which represent 13% of sales. The investment of $15 million to $30 million in 2022 will be combined with an investment in technology to improve operational metrics in the stores. Our revenue has grown 153% over the same period in 2020, and our store operating expenses have grown 185%. To drive profitable growth in 2022, we recognize the need to invest in efficiency of store operations. The key initiative of technology in 22 has been an organizational effort that spans across functions. We will be moving to a new solution powered by Oracle and Manhattan Associates to replace our existing systems. We will have a retail technology stack in line with best-in-class retailers of similar size with Oracle NetSuite, ERP, coupled with point-of-sale order management and warehouse management systems integrated by Manhattan Associates. We have partnered with the best providers and retail to use technology as a…

Thank you, Jeff. Our Third quarter record results were achieved only through the relentless efforts of the best team of professionals in our industry. The strength of our supply chain and our commitment to provide the best-of-breed and latest innovative products to our customers. GrowGen has a tremendous team of essential employees who've made a commitment to our Company and customers that could not be any prouder. I'm inspired by their efforts and dedication as they have worked tirelessly to service our customers and communities. Our future success revolves around execution efforts in new stores, technology, distribution centers, product offerings, and eCommerce user experience. We believe we have the best team in the industry to deliver that execution. I will now turn over the call for questions.

Thank you. Ladies and gentlemen, as a reminder [Operator Instructions] to ask a question. The first question today comes from Brian Nagel of Oppenheimer.

Hi, Good morning.

Good morning Brian.

My first question. Just with regard to guidance and maybe Darren, you spoke about this in your opening comments, but maybe just drill down a little bit more so we can understand better, what really changed from the expectations that were revised and laid out, I guess it was on October 13th, with the HGS announcement and then today's announcement, both from a revenue and from an EBITDA perspective? Thank you.

Yeah, Brian, I'll start and then I'm going to turn it over to Jeff. As you know, GrowGen had an exceptionally strong second quarter which was fueled by the demand for what we saw was outdoor growing. During the last year, our store concentration in California and Colorado markets have increased 26% in California,13% Colorado, Oregon, and Washington. We're now seeing the impact of that oversupply position on cannabis that we believe will be exaggerated in the fourth quarter. We see the oversupply correcting itself in the second half. But during oversupplied positions, cultivators slowed down their purchasing of hydroponic equipment. In addition, we have seen a slowness in new states for rollout rules and regs to enact adult use and to issue cultivation licenses in new markets. But on the flip side, we saw many positives in the third quarter revenue was up a 111% at a 116 million, same-store sales were up 15.7%, gross profit margins, 290 basis points, to 29.4%. And we successfully launched two flagship stores in LA in Long Beach. So, there were many positives in the quarter. But as you've seen from even the Scott's conference call with Hawthorne, business has slowed going into the fourth quarter. We've looked back and our second quarter, the strength was incredible and it was a lot of the outdoor growing that is now coming back to bite us a notch. But business remains strong. The industry remains strong. You're seeing a tremendous move towards legalization. But I'm going to turn it over to Jeff right now and he'll go over some of the numbers with you.

Hey, Brian. Thanks for the question. Yeah, I think when we look at the fourth quarter and the forecast for the full year, we have incorporated recent trends that we've seen in the marketplace to influence our guidance as we look out for fourth quarter and into 2022. And it also reflects on an EBITDA basis the decisions that we've made as an organization to invest in the long-term health of the business by bringing on the right management team, the right people, the right systems for 2022, and the right resources to drive Greenfield new store openings in the latter part of 2022. Now, we've also had some timing of new store expenses that have influenced our guidance on the EBITDA basis as well. Those new store expenses are for very -- are for fairly large stores in the SoCal market will not be repeated when we get into smaller format stores, like we talked about in the script today.

That's very helpful, and then as a follow-up, Darren, just with respect -- with regard to the oversupply issues you've seen in the states, you've mentioned. You've shared that you view them as short-term trends to rate type of nature, but are you seeing anything right now to suggest that the pressures are abating or are you looking more kind of a history, as a guide that they will abate?

Yeah, we're looking more at the history back in 2018. As of now, we have not seen the slowdowns abate and the 26% in California. One of the positives is that we just opened 2 superstores in the LA markets that are performing well. So, we are optimistic. And it's happened before out west. And it will continue to happen Brian, but as we spread this business out into 50 states, you'll see less seasonality out West, but right now we are concentrated. And what you're seeing right now is in the fourth quarter of last year, we purchased 9 outdoor – 9 Garden Centers out in California and Oregon. And we're starting to see some of the -- some of the pushback in the third and fourth quarters. The California markets, Northern California markets are extremely seasonal. We see that from the stores that we own. And now looking back into that second quarter, when we start seeing the strength in the second quarter, caught us by surprise and it's coming to bite us right now. So, the one thing you are seeing from GrowGen, we're way above estimates for the year, both on a same-store sales rate and also our revenue guidance rate, but you're seeing a little lumpiness. And the lumpiness, as we get bigger, it continue to grow, and we go into states will smooth out.

That's helpful. I will turn the call over to next person. Thank you.

Thank you, Brian.

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

Thanks for taking my questions. Jeff, you called out percent mix of California and other states which I really appreciate, very helpful. Just wanted to check on what period those sales mix percentages of [Indiscernible], was that Q3 or more of a year-to-date figure? Just looking for some clarity there. Thanks.

Those are year-to-date numbers as we look at them, and we try to get some guidance around the states without going into details by state. When we look at the state of California it is, as Darren just mentioned, an increased percentage. But as we build our new stores in 2022 in the Mid-Atlantic states of New Jersey, Pennsylvania, New York, New England, as well as some Midwest -- Midwest states such as Illinois, we will reduce our reliance on California and be more diversified in the portfolio.

Yeah. Certainly, makes sense to me. I think prudent strategy there. Next question for me, just on the ERP system. How long of a process do you guys expect that to take? And what kind of an increase in SG&A might we see as you guys implement that process? Thanks.

So, the process will take the -- this quarter and next quarter with some learning curve issues in second quarter. As far as the expenses that go into that, we will absorb those into SG&A. We have already absorbed some expenses associated with standing up that system, both from an SG&A and from a capital spending perspective into intangibles as well as some prepaid for licenses. The moving parts there are in the low digit millions. They will be absorbed by the Company. We don't issue adjusted EBITDA by excluding things like that, we just absorbed those into our expense structure. But we're looking forward to going live in the second quarter of 2022 with both NetSuite and Manhattan Associates offerings. The projects are going very well and we anticipate that it will help us with our internal controls around financial reporting, as well as improve our operational excellence initiatives in the stores.

Great. We'll look forward to some of those improvements. Thanks.

Thank you, Eric.

Our next question comes from Andrew Carter of Stifel.

Thanks. Good morning. So, you're laying out a pro forma of 475 and saying at least high teens growth for next year. What I want to understand, the M&A says it looks like it's about 8 points additional you'll get next year from what's not this year. So just wanted to get an understanding of your sensitivity in meeting the underlying sales growth targets there in terms of opening stores? I know you've said 15 to 20, but could you give us an effective number of stores that are in your base plan at this point? Thanks.

So, let me break down the 2022 communication that we gave in the script again for everybody. We said that in 2021 we'll do about for 35 to 440 total revenue on a GAAP basis. The 4.75 is a pro formal or a run rate number of what our revenue would've been had we owned all of those profit centers for the full-year of 2022. Included in that $475 million is $35 million of e-commerce and $20 million of proprietary brands, leaving $420 million for all of the store operations, the commercial business, as well as the rest of the organization. We anticipate e-com growing 20% to 30%, proprietary brands growing in the high teens. And overall, we anticipate growth in that 10% to 20% without acquisitions. As a blended number, when you incorporate in 15 to 20 stores that will open in the back half of the year, primarily Q3 and Q4, those 15 to 20 stores, we have not signed leases, but we have identified markets that we are interested in going to. And as we said, those are the big Mid-Atlantic states of Pennsylvania, New York, New Jersey, as well as increasing our position in Massachusetts and entering into the Midwest states such as Illinois. So, we're excited about where 22 can take us overall as an Organization, and we're excited about the opportunity to grow revenue in the back half of the year with Greenfield locations. We'll generate a lot of cash next year; we'll use that cash to invest in new stores. We're not at this time talking about acquisitions for 2022. Those would obviously be accretive to these numbers that we're providing in 2022. If we find acquisitions that hurdle our investments criteria and add to our portfolio in an accretive way and make sense to us financially and operationally.

Yeah, I get it. But my question was, how many effective new stores are in there next year? You're saying 15 to 20 today in the stores this year, yet forward, they got pushed out, maybe it's different next year or whatever. But that's what I'm asking about. What's built in the plan, effective number of stores? Thanks.

15 to 20, opening in the back half of the year. We anticipate those stores would generate $1 million to $2 million per store in calendar year 2022 on a GAAP basis.

Okay. Thanks. Second one to me is the inventory position. You're at a 103 days, I appreciate the call outs that were in the script and I will look at that again, but just wondering, as you assess the overall inventory, what -- do you see any risks? This is a long shelf-life product, but can you give us a sense of, are there any products that are deflationary right now? Or you do have some risks, and also how this longer inventory position could potentially support new stores next year, thanks.

To our inventory as we discussed in the script, we've added inventory for acquisitions of around about $13 million since the beginning of this calendar year. We've added $13 million associated with inventory for our private labels products and we've added some prepaid assets to drive our label production which has a long lead time and long supply chain. That's the usage of cash for this calendar year. The products that we do have in our inventory, we actually look at it as a positive because it positions us to service our customers with a selection of products that are available to them even -- even notwithstanding the supply chain challenges that the U.S. is facing. We have the product available for our customers and we -- and a lot of that products was purchased before price increases from our vendors. We're able to capture both the investment returns as well as produce a better scenario for our customers.

I'll pass it on.

And the next question comes from Mark Smith of Lake Street Capital Markets.

Hey guys. I just want to dig into the e-com business just a little bit. If you can discuss kind of the Agra on business and how that's trending and we see e-com kind of come down a little bit sequentially. Is that just a reflection of what's going on in the industry or just give us a feeling for how you feel about that e-com business.

Yes. Mark, this is Michael. Right now. It's actually trending up. I mean, we did 10.5 versus 3.9 for the quarter trending to 35 million for the year. And really the initiative is to the great ag run into our GrowGeneration.com portal so that the two websites are really now integrated. So that's a big initiative that Becky Gephardt who just recently joined us from [Indiscernible] is really leading. So, we see tremendous efficiencies in pricing consistencies as well as improving delivery and logistics. And we see growth continuing in that 20% to 30% range we've previously discussed. So, we actually see a tremendous upside in our e-commerce business creating these efficiencies.

And then just big picture, if you guys can just walk us through quickly, strong goals for private label and exclusive products. Just walk us through briefly if you can, the margin impact of hitting those private label goals in 2023.

So, just like other retailers are private label opportunity exist in the gross margin benefit that we get from selling products that we sourced, and we bring into the stores directly. Clearly, other retailers see on a margin improvement of 10% to 20% on a -- on a percentage of revenue basis, we're looking at similar numbers for our private label enterprise that we're building and we're focused on for the future. We are investing in SG&A because it does take people, processes, and systems in order to drive the right allocation and the right inventory levels for private label. But net -- net that EBITDA margin flow-through was very strong from bringing in private label and proprietary brands. And we think that the growth from today's level of 8.7%, for the third quarter, to 25% will bring a meaningful impact to the margin basis of the business as well as provide our customers with a good selection of products.

Excellent. Thank you.

So, we can go to Aaron Grey of Allianz Global Partners.

Good morning and thanks for the questions. I wanted to turn back to California for a second. Dan, I think you mentioned potentially some of the pricing pressure alleviating over there. But we've had 2 MSOs talk about some pricing pressure, maybe you continue into next 12 to 18 months in the state. So just curious, and I know it might lead to some near-term pressure on your guide side, thinking more long term and the opportunity you felt you could put you guys in an advantaged position because your competitor s, You're not being able to compete, there being some consolidation. kind of a dynamic we saw a couple of years ago within Colorado just to [Indiscernible] your commentary, there is some prolonged pressure in supply, demand dynamics and California continuing how you guys would be positioned versus the competition? Thank you.

Hey, Aaron. That's always a positive. Like anything else, we're in a better position than any one of our competitors to continuing to build out California and the rest of the country. But as we see it, our concentration in California will be dropping as years go by as we continue to build up the country. So, California will be -- will probably go from 26%, hopefully down to under 20% next year. The oversupply position, we look back to 2018. That's the only other time in the history of cannabis that you can look at. And the oversupply position that lasted a little over 6 months in

California, 6 months to a year. So, there is certainly nothing to define how long the oversupply position will take. But what you do see during oversupply positions is people pulled back on growing, some people aren't building right now. But on the other side of it you're seeing a tremendous push towards legalization as you saw from Nancy Mace the other day, even though we don't believe it's imminent, we're certainly hoping for the interim elections in 2022 that you -- that we will see some sort of, push both from the Democrats and the Republic gives and hopefully some middle ground towards it. California is the largest market in the country, and things usually do normalize out in California.

We will continue to build the business out in LA and the California markets, but we were concentrating right now coming back east, which we believe will be a tremendously strong market next year. We're seeing a push towards home-grow rules in certain states and also home-grew rules adopted in Connecticut, Virginia, and New Mexico, and also social equity rules. We believe next year will be a really bullish year for GrowGen as we rollout our ERP system and we continue to expand throughout the country.

Okay, thanks for that color. That's helpful, and then just on you guys Private Label initiative is end about 20% by 2023. I was just curious in terms of the mix, in terms of opportunity for brick-and-mortar and then eCommerce, do you feel there's more opportunity for you to increase that mix of private label at eCommerce side or versus brick-and-mortar and just curious in terms of give some detail of your current mix today. private label between the 2 channels. Thank you.

Yeah, I'll start and then I'll kick it over to Michael talked about the vision for the product line. I think some interesting facts started to, to come together in the third quarter where we are seeing a propensity of customers to come over to the eCommerce site as a percentage of our traffic, as well as an increased penetration of our credit cards in our stores, which does have a short-term impact on SG&A but long-term improves our control systems by using credit cards in the store. We're seeing this trend towards utilizing payment solutions, as well as migrating to the web. As we go through and mature as a business and as industry overall. So, looking forward to that, and I'll take it over to Michael to talk about the mix of products by channel in the future,

[Indiscernible], we're certainly moving our private label initiative from the brick and mortar online to see more margin expansion and also more awareness. Our online business generates over 2.5 million unique visitors, and that number is increasing. So, we're seeing tremendous adoption of our private-label brands and we also see growth of our private label and proprietary brands both internally within the GrowGen stores, as well as outside as a growth initiative. As we mentioned, Power Si for example, is in over 500 locations across the U.S. as well as in 3 international markets as well. So, our initiative is working, our growth pros have demonstrated an ability to present to our customers and it's working.

The last thing I would add to Michael 's comments is that we are also building out the distribution center on the backside of this. When we look at the business going forward, utilizing the investments that we're making right now into systems investments in 2022 into distribution center capabilities, we'll be able to service our customers through a network of regional distribution centers to service those customers with lower shipping costs for us as an entity. So, looking forward to that, coming online throughout 2022.

Great, thanks for the call and I will jump back into the queue.

Thank you, Aaron,

Our next question comes from Mike Grondahl of Northland Securities.

Thanks guys. You guys have done a bunch of acquisitions. Switching to the more Greenfield new build strategy, I understand. How do we think about the potential for acquisitions going forward? Is it really low? Is it still just a small part of the strategy, and where is that pipeline? I guess just a little bit more color there would be helpful.

Yeah, Mike, I always think it will be an important part of our growth strategy. We will continue looking for opportunistic acquisitions both next year and in the future. Right now,

we have nothing to tell Wall Street but I do believe next year you will see some acquisitions from GrowGen, including Greenfielding -- including Greenfielding stores in new states. In next year, we will be help Greenfielding stores in Missouri, New Jersey, New York, Virginia, Connecticut, and Illinois, and hopefully Mississippi also. So, we have a pretty aggressive building strategy but you will see tuck-in opportunistic acquisitions along the way next year, which will be -- which will be accretive to our revenue and the EBITDA guidance. And the only thing I would also add to Darren is on the capital allocation decision-making process here in the Company where we're spreading our capital allocation decisions across systems investments, as well as Greenfield. That doesn't mean that we're not going to do opportunistic acquisitions. We have plenty of capital and dry powder to do acquisitions as they present themselves to us in 2022 and incorporate those into our business.

Got it. And then just a quick one on the private label, 25% in 2023 goal, you talked a little bit about the margin benefit and the channels. But if there's just, I'll say two things that get you from 8.7% to 25. What are those two actions you're taking to drive that?

I think the Number 1 is to broaden a portfolio of brands, get a higher penetration of offerings across the portfolio of products that we offer. The second really is to increase the training in the stores, and getting our GrowPro s throughout our network to understand the benefits of our private label and communicate those benefits to our customers. And the third is to have available products for customers throughout our network and through our distribution centers where we can really service the customers with private label very efficiently and very quickly for their needs.

Michael, so when you take a look at this year's growth in private label that we came off about $2.5 million of sales in 2020. We were forecasting close to 10% this year, but the original forecasted 10% was off of about $320 million run rate. So, when you take a number -- when you take a hard look at the numbers we're coming in right now, we're above that 10% on that $320 million of revenue we originally forecasted. So, they usually say, the first growth is usually the hardest growth, so we've taken a $2.5 million sales division and private label and brought it up to almost $35 million this year. So, we're going in the right direction. And this is during extremely hard times with supply chain getting containers in from China and India. So, we've had some very long lead times on products that are still coming in that we're starting to get a better cadence on the ordering, and really the timeframes of getting these products in from China. So, as you're seeing throughout the year, our private label brands have been increasing quarter-over-quarter, and we see that continuing through next year in 2023 and into the future.

Great, thanks for the color.

We can now go to Scott Fortune of Roth Capital Partners.

Good morning, and thank you for the questions. See if to follow up on that one last thing on the private label side, you mentioned mix. Are there categories that you are putting priorities on like the nutrient side or the recruiting side, equipment, can you provide a little more color on the category can focus to ramp up your private label flight, and then follow-on question after that.

Yeah. Scott, I mean, it's really across the board. Nutrients, additives, lighting, the high velocity products that our customers are demanding, and we're investing in research development and bringing the best [Indiscernible] products at the best price. And then our ability to educate, this is a knowledge base sales process with our growth rose, that gives us an advantage. We have the ability to not only develop product, and we see the trends in the market because of our number of stores and we're servicing hundreds of thousands of customers. We're hearing what those customers want, what the growers want, so we're able to take that data and convert it into a product development strategy, which is really working. So, it's really a broad-based approach from the private label side in terms of product.

Got it. I appreciate that. And then really quickly, Darren, you mentioned the home growth and more of the do-it-yourself hobby as these new states come on board, we think this could be a very nice -- almost like the craft beer industry, where hobbyists are really coming onboard into this space, but you haven't mentioned obviously the commercial side's been growing. It seems like online and private label would really drive more meaningful revenues to that space, or do yourself kind of hobby aside. Talk to us what percent comes from that, demographics and your online initiatives to target more [Indiscernible] demographics of higher-margin products, potentially.

Yes. It's got the home-grow rules [Indiscernible] GrowGen as due to social equity rules that you're starting to see rolled out. The more growers, really, the better the business for GrowGen. So, what excites us in addition to the whole rules, is also vertical gardening. GrowGen is starting to make a push into the vertical and urban gardening markets also. When you come to our stores, we can -- teach you to grow a plant, whether it's a cannabis plant, whether it's fruits, vegetables, or lettuce. Even though 90% of our business right now is into the cannabis industry, we see a tremendous opportunity on the vertical gardening side of it, the home-grown side of it. Right now, you're looking at revenues of about $35 million

online. So, you're talking about probably about 8% of revenue coming from our online business. But we do believe through home-grow rules and more people growing better online sites will continue tremendous growth into the future as you'll see growth coming out our stores. We also -- when we look at margin comparisons between our larger customers, our MSOs and our smaller home growers, we're making more money on the home growers. They're spending more time in our stores and they require more learning from our GrowPro s. So, the one thing where we always believe where the stores will play such an important part while they are the crown jewel of GrowGen and they will continue to be as we spread out in 2023, over a 100 stores is the learning aspect that an individual grower, a new grow will become into a store, an learn how to grow both the cannabis plant and it's [Indiscernible] plant. And we do believe with home grow rules, people will be growing both in their backyards. About a year ago, we went through customer segmentation, and we've learned from customer segmentation and the polling of customers around the country that growers [Indiscernible]. And whether they're growing a Cannabis plant, or fruits, vegetables, or lettuce, they love to grow. We do believe that the other side of our business will continue to pick up as home grow rules continue to -- continue to ramp across the states.

Okay. That's it for me. Thanks for the color, Darren. Appreciate it.

Thanks, Scott.

Thanks Scott.

We can go to Glenn Mattson of Ladenburg Thalmann

Hi. Thanks for the question. So, curious about, as you go into the newer markets in the East Coast and Mid-Atlantic, and I guess a little bit of mid-west, is there anything different in the competitive landscape that you see like in New Jersey is some of these markets in new York, these are obviously new markets, so there's probably little in terms of existing competition, but at places like Illinois, Pennsylvania, they're a little bit more established so, curious if there's anything different than what you've seen historically. But then also, does your relationships with MSOs -- does that -- a lot of those people are opening stores in these, they're opening cultivation in states and things. So, does that give you an early advantage as they move into the Northeast in particular versus whatever competition's out there? Thanks.

Yeah. Glenn, we currently transact business in most states where the MSOs are located in the large single-state operators, so it certainly does give us an advantage. When you look at the competitive landscape in these states, Pennsylvania, whether it's New York, New Jersey, is very little competition in those states. And what GrowGen will be doing, as we stated earlier, we'll be opening smaller stores with distribution centers, which will bring down the cost of opening these stores and really bring up the profitability. There is very little competition back on the East coast and certainly is the Mid-Atlantic states that we will be going into. And we look at quicker ramps in these states, especially the states with home grow rules.

Great, thanks and one last one if I could squeeze in just, I'd maybe mentioned I missed but can you talk about any issues in the next say 6 months, with supply chain if there's any new issues or if you see that kind of subsiding overtime. And with that maybe a little bit on commodity cost pressure in your ability to pass that on Thanks.

As far as the supply chain and commodity cost increases, there's nothing really new to report there. We're still dealing with the same issues as the rest of the country on both sides of that, we do think that our Investments in inventory will help mitigate some of their reliance on just-in-time delivery of products, as well as mitigate some of the impact of price increases for the short-term for us as a Company.

Ladies and gentlemen, that concludes the question-and-answer session. I would now like to turn the call back to Darren Lampert for any additional or closing remarks.

I'd like to start by thanking each and every one of our veterans and our military for everything they do every day to keep our country safe. But also, thank -- I would like to thank each and every one of our employees and shareholders. I wish everyone a happy and healthy holiday season. We look forward to sharing our successes with you within the next few months and we thank everyone for your continued support. Thank you.

Ladies and gentlemen, that concludes today's conference call. We thank you for your participation. You may now disconnect.