Welcome to the Constellation Brands’ Second Quarter 2019 Earnings Conference Call. At this time, all participants have been placed in a listen-only mode. Following the prepared remarks, the call will be opened for your questions. [Operator Instructions] I will now turn the call over to Patty Yahn-Urlaub, Senior Vice President of Investor Relations. Please go ahead.

Thanks, Shannon. Good morning and welcome to Constellation’s second quarter fiscal 2019 conference call. I am here this morning with Rob Sands, our President and Chief Executive Officer and David Klein, our Chief Financial Officer. As a reminder, reconciliations between the most directly comparable GAAP measure and any non-GAAP financial measures discussed on this call are included in our news release or otherwise available on the company’s website at www.cbrands.com. Please refer to the news release and Constellation’s SEC filings for risk factors, which may impact forward-looking statements we make on this call. Before turning the call over to Rob, similar to prior quarters, I would like to ask that we limit everyone to one question per person which will help us to end our call on schedule. Thanks in advance. And now here is Rob.

Thank you, Patty. Good morning and welcome to our discussion of Constellation’s second quarter sales and earnings results. I would like to kick off the call with a reminder that Constellation has an outstanding core business that consistently delivers top tier growth within the consumers’ product space as reinforced by our second quarter double-digit organic net sales and comparable EPS results. These results were driven by the Constellation beer business, which delivered exceptional performance with industry-leading depletion growth of 10% and record operating margin results. During the quarter, our beer business was the number one share gainer in the U.S. beer industry driven by accelerating Corona brand family dollar trends and Modelo Especial’s position as the top share gainer in the market. Corona brand family trends accelerated from 4% depletion growth in fiscal 2018 to 8% for this year’s first half driven by the successful launches of the Corona Premier and Corona Familiar product introductions, both of which have significantly exceeded our expectations. Corona Premier has achieved record speed-to-shelf and has become the 10th largest brand in the high-end and the number one high-end share gainer in very, very short order. The incrementality rate for Corona Premier is best-in-class for the launch of a new consumer product, with almost 75% of Corona Premier volume being sourced outside the Constellation beer portfolio, mostly from domestic light beers. The Corona Premier English and Spanish language TV campaigns that aired throughout the first half of the year will continue into the fall to drive broad brand awareness during major league baseball as well as the NFL and NHL seasons. Corona Familiar also achieved a healthy share of the U.S. beer category and its regional expansion at a rate of about 50% incrementality for the brand with velocities outpacing our plans. Corona Extra continues…

Thanks, Rob and good morning everyone. For Q2, we generated 16% comparable basis diluted EPS growth. This reflects particularly strong operational and marketplace performance by our beer business during the key summer selling season. These results along with favorability in our tax rate and interest expense have allowed us to narrow and increase our full year comparable basis diluted EPS projection to a range of $9.60 to $9.75 versus our previous guidance of $9.40 to $9.70. This excludes the impact of the additional $4 billion investment in Canopy growth, which is expected to close at the end of October. We plan to finance the Canopy investment, primarily with term loans and senior notes and estimate the interest expense associated with this transaction to approximate $60 million with an approximate $0.25 to $0.30 impact on fiscal ‘19 comparable basis EPS results. Our Q2 reported basis results reflect a $692 million unrealized gain for the increase in fair value of our current investments in Canopy growth during the quarter, which was excluded from our comparable basis results. The cumulative unrealized gain since our November 2017 investment is $1.3 billion. Now, let’s review Q2 performance and our full year outlook in more detail, where I will generally focus on comparable basis financial results. Starting with beer, net sales increased 11% on volume growth of 9%. Depletion growth showed continued strength at 10% as we won the key summer selling season with excellent execution across all channels. Beer operating margin increased 10 basis points to a record 41.3% as benefits from pricing and strong operational performance were offset by higher transportation costs and marketing investments. Marketing as a percent of revenue increased to almost 9% for Q2 and to nearly 10% for the first half of fiscal ‘19. This compares to 8.4% and 9%…

Thank you. [Operator Instructions] Our first question comes from Bonnie Herzog with Wells Fargo. Your line is open.

Alright. Thank you. Good morning. I was hoping to ask you guys a little bit more about your beer margins in the quarter which were strong and quite a bit above what you were guiding. So, could you drill down just a little bit more on some of the drivers there? And then just want to get a sense on your expectations for the full year, is it fair to assume that beer margins will in fact be higher now given some of the strength we are seeing? Thanks.

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Thank you. And our next question comes from Caroline Levy with Macquarie. Your line is open.

Good morning. Beer looked pretty spectacular, and I do note that you didn’t spend as much as you expected on marketing and yet you’ve got a really strong depletion growth. So, I am wondering if you can look out for us a little further and just talk about what sort of legs you think Premier has, and the incrementality seems to be even higher than we originally thought at 75, not 70. Has there been any supply shortage on Premier? Do you think you can sell significantly more over time, and how is Familiar playing out? And again, just a little more detail on the other new initiatives you have in beer would be great? Thank you.

Yes, Caroline. I think that we can say at this stage that all of our NPD in beer and in particular, Premier and Familiar, has been performing extremely well. And as you noted, the incrementality on Premier and Familiar has outpaced our expectations. So, we did frontload some of our spending on marketing this year as you probably recall in the first quarter, which we had highlighted even prior to the first quarter and that marketing spend I think has really paid off for all of our initiatives. As you can see, in that the Corona brand family and the Modelo, Casa Modelo family have been performing extremely well, both as reflected by our depletions and as reflected in IRI. I would say that we don’t really see any reason why that momentum should not continue throughout the remainder of the year enabling us to make the guidance which we put forth of roughly 9% to 11%. So generally, I would say that the beer business is hitting on all cylinders. Strong consumer takeaway, our marketing is working really well, incrementality on our new products is higher than expected, we have been able to achieve distribution on those products to a greater extent than we even believed that we would be able to achieve. So, there is really nothing in the horizon that would suggest that the beer business won’t do anything other than to achieve the guidance that we have put forth.

Thank you. Our next question comes from Kevin Grundy with Jefferies. Your line is open.

Thank you. Good morning, everyone.

Good morning.

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Thanks.

I wanted to come back to Canopy, Rob, if we could.

Yes.

Can you talk about what you’ve learned, I guess, in recent months since you announced the larger stake, anything that makes you bullish or bearish? There’s naturally a lot of questions out there among investors. Can you also talk about potential timing and other considerations around the decision to exercise the warrants at some point in the future? And last, understanding you may be limited given that Canopy is obviously publicly traded, is there anything you can provide with respect to near to intermediate term impact from equity earnings from the investment? Thanks for that.

Yes. So, I would say that if anything we continue to be extremely bullish, if not more bullish since we have announced the deal. I mean, we are right on the cusp in the next couple of weeks of recreational marijuana becoming legal in Canada on October 17. I would say that the overall market projections on that haven’t really changed. I think some – it’s a pretty wide spread, but I think that most people are predicting somewhere in the $5 billion market wise in Canada, $5 billion to $6 billion or $7 billion range for legal recreational cannabis. As I noted in my script, Canopy has secured approximately 35% of the supply contract, so we expect to take a significant share of that business as it develops over the next call it 12 to 18 to 24 months. So, I think we’re feeling pretty good about Canopy’s position and the results or how that position will be reflected in the results. No, we don’t – we really haven't given any guidance on the equity earnings as of yet, I think that we really need to take a little bit more of a latency approach to that element of our guidance in the future. So, once I think that we get recreational, it becomes legal and we get a little history under our belt, we’ll be able to address that better as time goes on. I think that another thing that shouldn’t be lost on anybody is that Canopy has significant positions outside of Canada and that those markets are developing very quickly and Canopy is extremely well-positioned to take leading positions in major markets where medical in particular is going to become legal. And the – that the history of a lot of markets which is a little…

Thank you very much. Good luck.

Our next question comes from Lauren Lieberman with Barclays. Your line is open.

Great. Thanks. Good morning. I was hoping to talk a little bit more about the wine business and suggest any color you can offer, I know you definitely specified kind of the below $11 price point above $11 price point performance of your focus brands, but I was curious on overall category performance and then also the difference between high end and low end. And the Nielsen data or IRI data seems to show no correlation to your business at all, so if you could just commented on why you think that is the same mix of what’s available in those channels. And my final question was just the price mix in that business year-to-date is less than 1% and I would have thought that mix alone should be driving that line to be pretty positive, so if you could talk about anything that might be a downdraft in terms of actual pricing in the business or promotional activity will be great? Thank you.

Yes. So I would say that the – if you look at the wine business in the U.S. over the long run, it’s been consistently growing at sort of the low or to mid single-digit range. And although it’s off a bit from that or at least the near-term historical performance, we don’t really see anything that suggest that as the entire category over the long run is going to grow at any rate different from what it has historically which is significantly above almost all other consumer products categories. So I think it remains a very strong category to participate in. There continues to be significant premiumization in the business with the low end becoming softer as time goes on and it’s a very large segment. And the high end continues to perform well certainly above $11 with growth in the high single-digit range and sometimes in the lower double-digit range. And obviously we continue to position our portfolio to take advantage of that, at the same time our lower end portfolio also continues to I would say deteriorate consistent with the market and we certainly in terms of how we are running the business, focusing all of efforts on our focus brands and on the high end we have all of our NPD against the high end. And we are certainly taking our results in the low end and I will say reinvesting that in the high end to accelerate the mix change. So I would say the first half of the year for us on a depletion basis was kind of lackluster, but we have lot of plans and programs in place for the holiday season and the remainder of the year, so we are expecting to see significantly better depletion growth in the second half of…

Thank you. Our next question comes from Vivien Azer with Cowen and Company. Your line is open.

Thank you. Good morning.

Hey, Vivien.

So, Rob and David, I was wondering, is you’re working with Canopy Growth and presumably helping them with some of the forecasting exercises, which is admittedly a tough exercise trying to size an illicit market transition. But as part of that exercise, is there any discussion around alcohol cannibalization, is that part of the calculus at all? Thanks.

No. I would say straight-out, the answer is no. We see no evidence whatsoever especially in the United States and the legal states of alcohol cannibalization. So, I’d say as we sit here right now when we think about the cannabis business and our position in the cannabis business, it’s probably going to be close to a 100% incremental for us talking about incrementality. So, this conversation comes up a lot of two things, okay, number one is it a defensive move, the answer is no. We’re not playing offense, defense, we’re playing offense. This is an offensive move. We’ve got a fantastic core business and as you can see from these results and our projected results on our core business for the remainder of the year, we’re very positive, we have a lot of confidence in that business and we see nothing in the horizon that suggests that it’s going to be anything other than great as its continued to be. We’re playing offense on this and that we think that this is another very aligned category, that’s going to develop very fast and very large and it simply presents another opportunity for growth for Constellation in addition to our core business. Why would we do this, okay, we did it because first of all, we got to involve with Canopy in a joint venture to develop beverages, okay. As that progressed, it became evident to us that the whole market, all channels, all forms is going to be explosive and therefore, there was really no reason why we should only participate in a relatively small segment of that market, which is beverages when other channels i.e. medical for instance and other forms are going to develop very quickly around the world and we have a – and we had a platform, which we had a minority interest in that we can take advantage of. So, as we said, we’re completely optimistic, it’s completely offensive on our part. We didn’t do it because we have any concern whatsoever about the core business, I’ve heard that suggestion made. I can tell you that our core business is stronger than ever and that had no bearing on why we did this, totally offensive, totally incremental, another leg of the stool that Constellation can add to continue as probably the number one growth company in consumer products in the Fortune 500. So that’s really the bottom line.

Thank you. Our next question comes from Andrea Teixeira with JPMorgan. Your line is open.

Hi, hello everybody and congrats on the results.

Thanks.

I do appreciate the color on the beer margin and the cadence going forward. So, my question is on the beer pricing, I understand the negotiations are taking place now. So is your guidance embedded in the typical low single-digit pricing and what are you hearing from the training in terms of passing on aluminum and transportation cost pressures. So, if you can – and if you can also offer, there's a lot of news I mean, press release is about or press comments about hearing some noise in terms of beer distributors consolidation along with the wine distributors as well. So, I think Rob you mentioned that, that has been productive on the wine side. So, I wonder if you can offer us some comfort on the beer as well? Thank you.

So, I’ll take the pricing and I leave the second question to Rob. But – so from a pricing standpoint, yes, the letters are in the market. We’re not seeing any pushback, it seems – the market seems fairly conducive to price increases this year especially maybe compared to over the last several years. And our full year guidance includes the benefits that we expect to receive from the price increases that we are putting out at this point.

Yes. And I would parrot what David said in that regard. Our pricing continues to be as it has been in the past completely normal in that 1% to 2% range. The environment for that pricing is probably I would put it as better as opposed to worse if you were just saying how is the market absorbing price increases, I would say we are on the better end of that scale this year than we have even better on the past where it hasn’t been a significant issue. On the distributor consolidations and my comments on wine, in the Northwest we consolidated wine, beer and spirits and while I was focusing on wine that whole consolidation across wine, beer and spirits and for beer as well has worked very well as we are a major, major player with that distributor. As to some of our moves in really Southern California that had done it in the press, it’s really about very specific instances and examples in some of our most core markets where we have the highest market shares, where consolidation provides an opportunity to create significant efficiencies especially in distribution otherwise that will directly benefit our brands in those areas where we have consolidated by taking some of those efficiencies that have been created and being able to apply those against our brands in terms of manpower on the street, in terms of marketing dollars that can be available at local levels against those brands. So these were moves really intended to accelerate what is already good performance. And I would say one of the hallmarks about Constellation and what I am about to say even relates to the Canopy transaction is we are not a company that’s sitting around waiting for some element of our business to turn down or get bad before we jump in and we take action to improve our results. We are really quite the opposite of that. We have a fantastic business. It’s performing better than it’s ever performed in the past. And we are really applying all of our thought and effort against actually accelerating the great position that we are in as opposed to sitting around waiting for it to turn bad and then we are all going to jump in with some kind of fix it attitude, because that’s too late in business. When it turns bad, turning something around is a 900x harder than it is to play off that’s from an already very strong position. So that’s a lot of our mentality and a lot of the things that we are doing both in our core business something like our distributor consolidation moves in Southern Cal, it’s truly about playing offense and accelerating an already strong business platform.

That makes a lot of sense. Thank you both.

Our next question comes from Judy Hong with Goldman Sachs. Your line is open.

Thank you. Hi everyone.

Hi Judy.

So on beer sales guidance 9% to 11% not changing despite the fact that you have 11% year-to-date, I don’t think that second half comparisons are that different than the first half, so I guess I am just curious sort of the decision not to raise at least the low end of that, is it just conservatism, is there anything that we should be mindful of. And then a little bit of more of the longer term question, as you are lapping some of the innovation benefit this year particularly on Premier and Familiar just given the success of those products, how do you think about sort of the lapping that innovation into 2019 or fiscal ‘20? Is your expectation that we will see continued growth of those innovations really being still a big contributor or do you think that other innovations like the Refresca and others have to kind of carry the load going forward just from a contribution standpoint?

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Yes. And I guess I would add that your questions, Judy, almost presume the answers. We will be overlapping the distribution games on some of the new products. On the other hand, we are going to turn our attention then to building velocity on those new products. And as we build velocity on those new products that will provide some incremental performance that will help offset the overlap question that you asked. Refresca is looking like it’s going to be a huge opportunity for us. I think you all know that the alternative category is really one of the stellar performers in the beer category overall with numerous brands now performing extremely well. So we think that that’s a big opportunity in that. We think that Corona Refresca certainly based on our test markets and given the strength of the Corona franchise and the Corona name and the continued demographic tailwinds that we have in the business, I think that Refresca is a huge opportunity. And then let’s not forget about some of the secondary brands like Pacifico, which continues to be a huge opportunity like even Victoria. Take a look at IRI on Victoria, okay. Victoria is growing now high double-digits. So I think that in the beer business in general, not only do we have the opportunity to drive velocity on some of our NPD that’s already in the marketplace, we have new NPD that’s going to go national, i.e., Refresca, which is going to give us more growth opportunities. And then we have the smaller secondary brands that we can jump to as well to continue to provide strong growth against the whole portfolio. And then you have got Modelo Especial, which is a huge brand already and continues to grow high double-digits. So, we really see opportunity across that whole portfolio. On the wine and spirits side, we have brands like High West that are growing wildly and spirits brands like Casa Noble tequila and wine brands that are really unparalleled in terms of the potential for both like the Prisoner, like Kim Crawford, which is already a very large and profitable brand, just to name a couple. I could name many more, but I would say that therefore the opportunities across the whole portfolio remain very strong.

Got it. Thank you.

Our next question comes from Amit Sharma with BMO Capital Markets. Your line is open.

Hi, good morning everyone.

Good morning.

Dave, quick question for you and one for Rob. Dave, so as pricing goes through as you are saying, as pricing regs are in the marketplace already. Your gross margins are already tracking around a year ago level, maybe little bit higher, why shouldn’t we expect a little bit more contribution on gross margin as pricing comes through right? And then Rob, you talked CBD and how the Farm Bill could accelerate legalization of at least that aspect of the cannabis. Can you give us a little bit of understanding of if you are planning on bringing a product based on CBD, is that going to be in partnership with Canopy, so you only derive equity income or could that come directly under Constellation?

Yes. So on the gross margin question, I think you are hearing this from everybody else in the industry with the headwinds on freight and little bit of headwinds in some of the commodity areas. And so we think that our operations team is doing an outstanding job to be able to deliver a quarter, where we have best ever gross margins in that kind of headwind environment and we expect that environment will continue for the rest of the year, but as we said we also believe that our gross margins in our beer business will expand albeit slightly, but will expand over the full year. And then we have incremental marketing spend to continue to drive our brands, which brings us back to the place where our operating margins are roughly in line with the prior year. We think by the way that’s the best way to grow the business, because we are focused on driving that top line growth in a business that has almost 40% operating margins we want to keep as much growth coming as we possibly can.

Yes. And to your next question, the answer is both. It could be reflected in the Canopy equity earnings as well as directly in Constellation. So, number one just to be clear, Canopy is one of the largest CBD producers in the world. So, it’s very possible that depending on exactly how the law works and whether imports are permittable, the CBD could well come from Canopy and then assuming that we produce CBD beverages and they can be sold through the normal retail channels, obviously, maybe not to everyone, but to us, the product would be distributed through wine, beer and spirits network to retailers. So obviously that element of it would be reflected in Constellation’s business. So, the answer is really both that it has the potential to be reflected in the equity earnings, with Canopy already being one of the biggest CBD producers in the world and in Constellation’s earnings as we potentially introduce CBD beverage, which doesn’t necessarily mean it’s alcoholic, probably not through our wine, beer and spirits networks.

Rob, can you just give us a little bit color on the potential size of that market of the CBD?

I can’t really speculate on that at this point. I don’t think that there is a lot of prognostication on exactly what the size of that market is in the United States. I would say given the chatter about companies like Coca-Cola looking at it as well, I would say that it could be immaterial or tiny if other major beverage companies are looking at it as well. So, I think it’s got a lot of potential. CBD is one of the non-psychoactive components in cannabis. Although that said I would say that there is a lot of science as well as general belief that CBD as an organic compound has many positive and curative in fact health benefits I think you maybe aware that FDA just recently approved the first CBD drug in the United States to treat childhood epilepsy or seizure disorder. And then CBD has other qualities potentially that people are seeking organic, inorganic products, so the market could be very big. As we have said it’s not a psychoactive component, but it has properties that I think the consumer would be interested in.

Thank you. Our next question comes from Bryan Spillane with Bank of America. Your line is open.

Hey, good morning everybody, I just had one question, I think in the prepared remarks Rob you talked a little bit about part of the motivation to ship ahead in this quarter and wine and spirits was to get ahead of maybe some potential freight shortages, so could you just add a little bit of color to that, is that sort of freight coming out of California. And also just as we are looking forward is that a potential sort of variable or factor that we have to think about over the next couple of quarters?

Sure. So little is a good word and that we always have shipped more during the first half then we deplete as we always want to build inventory prior to the OND holiday season October, November and December. I would say little is a good word because we probably should a little more than normal versus depletions and that there is some tightness in terms of shipping. But that said I think to directly answer your question I don’t think that we see that as you know any kind of material problematic matter for really wine, beer or spirits. It’s just something that we have to keep in mind and we have to take into account so that our products are well positioned in the marketplace. I know David has talked a little bit about higher shipping costs as it relates to beer, but these are things that we have otherwise offset to the creation of other operational efficiencies and its not huge dollars for us. So the fundamental answer especially on wine and spirit side is no, we don’t see it, there is really nothing like totally something to be concerned about, it’s really sort of just more a minor business matter we are shipping lanes, it is tough to get shipping lanes. But that said we expect to – we have got everything well under – well in hand and we don’t expect it to be particularly impactful on the wine business and on the beer business as David has said we would largely offset any cost increases there that we have seen. So we are in pretty good shape on shipping and shipping costs and availability throughout the whole business in the remainder of the year.

Alright. Thank you very much.

Thank you. Our next question comes from Robert Ottenstein with Evercore ISI. Your line is open.

Great. Thank you very much and congratulations on a terrific quarter. You have over the various quarters done a nice job keeping expectations down on beer margins on the one hand, on the other hand you highlight record margins this quarter and we understand I think that the timing on the marketing side, but even in regardless of that you had a very nice progression on the gross margin, also in your opening comments, there was talk about further runway for margin expansion in the beer business. So, I'm just wondering if you could give us your latest assessment of the medium-term outlook on margins for the beer business, please?

Yes. I’ll let David address that, but I’ll just say that our expectations are in that 39% to 40% range sort of as simple as that. You already cited some of the factors that have contributed to the slightly outside margins in the second quarter, but we’re expecting margins to be relatively flat for the whole year. There are some headwinds which we talked about, we’ve offset those headwinds. So, I think that we’re going to maintain approximately the same margins. David?

Yes. So, Robert, first of all, I think I’ve said this to you before, but the – we being our team comes in everyday trying to make our margins as high as we possibly can. So, when we talk about holding the line on margins, it's we are trying to expand them as much as we can. But I would say this is playing out kind of the way we had anticipated over the last few years as there was a lot of I'd say exuberance around where our margins could get to and we had a view that we had existed in a benign commodity pricing environment for a long period of time in a pretty favorable peso environment for us for a long period of time and that we know we have a lot of potential things that we can do from an operation standpoint to continue to enhance our margins and maybe even possibly from a pricing standpoint to enhance our margins over time. But we just want to be prudent about where that can get us to because we know we have these headwinds and it seems unrealistic to just talk about the positives without being really clear about what the potential drags could be in. I would say that this year is kind of playing out that way. We’re seeing some really good things happening from an operations perspective that are helping to be a bit of a driver for improved margins, but we’re also seeing drags on margin like the freight topic that we and everyone else is talking about at this point.

Will your distributor consolidation presumably that can help on the margin side?

We are not expecting that we get margin enhancement from that sort of activity. Again, we – everything we do is built around driving growth in our business. Again, we’d be really happy to have a business that for the next several years grew at this rate at 40% margins.

I would say however that to the extent that our distributor consolidations create efficiencies and therefore improve distributor margin on our business that creates an environment where the distributors are more willing to invest behind our brands than the opposite. So that is part of the thinking behind this and then the distributors’ actual investment behind our brands should drive continued strong results if not better results for our business, which will translate back to us on even better sales and growth than otherwise would be the case everything remaining equal.

Thank you. And our last question comes from Brett Cooper with Consumer Edge Research. Your line is open.

Hi, Brett.

Hi.

Hi. Two questions if I can slip them in. First off just wondering if you could offer your views on what you're seeing in terms of fall shelf resets and what you'd expect from Spring I guess specifically looking at beer? And then on the cannabis front, when you're talking to regulatory authorities, do you guys have a particular view in which you are trying to get to in terms of what the retail format and distribution format looks like in the future? Thanks.

On the first question as I said historically a lot, we retailers should be giving Constellation and our beer business more space in general because we’re their largest growth provider and probably their most profitable supplier. And I think that, that is resonating and therefore we do continue to make distribution gains and therefore acquire more space for our portfolio, which as I said is the number one growth portfolio and profit provider to many retailers. So, I think that that’s all going well and that’s part of what we call our shoppers’ first programs, probably historically referred to as category management, but now shoppers first is what we call it. And then on your second question, the answer to that – I think you sort of phrased it in terms of talking to regulatory bodies and this and that. In the United States, it’s really more about talking to politicians. We have got to get over the hump of decriminalization first. And then in the states that are legal, we are really not talking to anybody, because we are not participating in that because of the federal illegality. In Canada, we are definitely talking to regulatory bodies and the government about how the product is going to be sold and through what channels. I mean, Ontario is probably a good example of that, where initially it was planned to go through the LCBA, the Ontario Liquor Control Boards. And then very recently, the Ontario government changed direction and decided to allow it to be sold through private retailers. As you may know or may not know, Canopy bought a company of private retailers called Haiku and their brand for their stores is called Tokyo Smoke. And that’s one of the formats that we are developing our stores in, but one of the things that Canopy has done and I think with a lot of forethought is already gone out and secured prime retail locations even in Ontario to put our Tokyo Smoke branded stores and Tweed branded stores in anticipation of being able to have private stores and outlets in Ontario and of course in the other provinces. Originally, Haiku and Tokyo Smoke had stores in British Columbia and is developing stores in British Columbia. So, we are well-positioned from a branding point of view to control, so to speak, the whole ecosystem around the brands that we are developing in particular in Canada and the vertical integration, which will be very profitable as well in Canada.

Thank you. And I would now like to turn the call back over to Rob Sands for closing remarks.

Well, thank you everyone. And let me say, as we close out the discussion of our quarterly results, I would like to reiterate the confidence that we have in our ability to drive the future growth of our business while generating very strong cash flows that allow us the flexibility to make strategic investments in long-term growth opportunities with significant upside. Our next quarterly call is scheduled for early January, so please be sure to have a safe and happy holiday season and remember to enjoy some of our great products during your celebrations with friends and family. So, thank you again for joining our call and have a great day.

Ladies and gentlemen, this concludes today’s conference. Thanks for your participation and have a wonderful day.