Tilray Brands, Inc. (TLRY) Q3 2019 Earnings Report, Transcript and Summary

Good morning. My name is Denise and I'll be your conference operator today. At this time, I would like to welcome everyone to the Aphria Inc. Q3 quarterly investors call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer session. [Operator Instructions] Thank you. I'd now like to turn the call over to Katie Turner for opening remarks.

Thank you, Denise. Good morning everyone. We appreciate you joining us to discuss Aphria's financial results for the fiscal 2019 third quarter and nine months ended February 28, 2019. On today's call we have Irwin Simon, Aphria's Chairman and Interim CEO and Carl Merton, Chief Financial Officer. By now everyone should have access to the earnings release, financial statements and MD&A which are available on the investor's section of Aphria's website at www.aphria.ca. These statements have also been filed on SEDAR and EDGAR. Before we begin, please remember that during the course of this call, management may make forward-looking statements. These statements are based on management's current expectations and beliefs and involve various known and unknown risks and uncertainties which may prove to be incorrect and actual results could differ materially from those described in these forward-looking statements. Please refer to the [indiscernible] Aphria's earnings press release and financial filings issued today for a discussion of the risks and uncertainties associated with those forward-looking statements. I'd now like to turn the call over to Irwin Simon.

Thank you, Katie. I'm excited to be speaking with you on my first earning call as Aphria's Interim CEO. Since joining Aphria as Chairman in December, it has been a pleasure getting to know and work with everyone. To address our challenges we have made significant changes. This was necessary to propel the company forward. I am very proud of more than 1000 team members worldwide and their tremendous efforts to rally behind our mission to be the premier global cannabis company, through unrelenting commitment to our people, the planet, product quality and our innovation. Thank you to all our employees for coming together quickly to solve problems, embrace new ways of thinking which was important for us. Together you've helped create the culture we have today as we all strive towards our corporate objective of generating $1 billion in annualized revenue by the end of calendar year 2020. And with that, margins should substantially improve to fuel profitability and cash flows. It is exciting to have the opportunity to lead Aphria at this important stage of the company's rapid growth and at a time of strong growth and development in the estimated $150 billion global medical and adult use cannabis industry. I believe there are many similarities between the growth experience in the organic and natural product industry and the growth we believe that is achievable for Aphria in the cannabis world. Across our organization we have taken decisive steps to help fuel our strategic initiatives in Canada and internationally and generate long-term shareholder value. We are very pleased to announce an update regarding the unsolicited offer from Green Growth Brands. Aphria has entered into a series of transactions that will accelerate expiration dates of their unsolicited offer and provide Aphria with an additional $89 million of liquidity without dilution to any of our shareholders. From a corporate governance perspective, we are pleased to have announced the appointment of two new independent Directors; Walter Robb and David Hopkinson effective today. I've known Walter for many years and had the opportunity to get to know Davis since joining Aphria. We are fortunate to have such accomplished and tenured leaders join our Board. Walter brings tremendous public company experience having been co-CEO and a Director of Whole Foods for over 30 years. Walter has taken Whole Foods with his team from 12 stores to 475 stores. Walter has significant knowledge of the specialty retail and CPG industry and his expertise in pioneer disruptive growth industries will be invaluable to Aphria as we embark on our next stage of growth. David like me a fellow Canadian he is Real Madrid's global head of partnerships. David has over 25 years of marketing in international experience which we believe will help Aphria as we navigate our strategic growth priorities in new and existing markets. Going forward, we will continuously evaluate our team and Board of Directors to add best-in-class talent to our organization. At Aphria, we remain committed to strong corporate governance and promoting a culture of integrity and ethical behavior throughout the organization. I'd like to thank the Special Committee's diligence and independence in undertaking review of our LATAM assets. The work of the Special Committee has affirmed for me and the Board that the LATAM transaction was executed at an acceptable value and is consistent with the company's international growth strategy. The team at Aphria is energized and excited. We are embarking on a renewed path forward. With the help of a leading consulting firm we are intently working on a 90-day strategic plan to prioritize our long-term strategic objectives. We will define a set of strategic platforms and translate our objectives into an execution roadmap. We believe the opportunities for long-term value creations are very strong in both Canada and internationally. I will now review our progress in key geographic regions before turning the call over to Carl to review our financials. Today, Aphria has a presence in more than 10 countries across five continents with five high quality brands including our Solie brand dedicated to novice and first time users; RIFF, our brand dedicated to community and culture; Good Supply, our brand offering cannabis enthusiasts a great value; Broken Coast, our super premium British Columbia grown crop brand with quality that we believe remained unmatched in this industry including products from both medical and adult use and of course Aphria our medical consumer brand. These brands were developed to address distinct segments of the Canadian cannabis market. We put consumer needs at the forefront of our strategy. As regulations change, we will proactively evolve our portfolio of brands and our products. From a production standpoint, we are really excited to have recently reached a major corporate milestone with Aphria One receiving Health Canada expansion approvals for Part IV and Part V. This brings the current annualized production capacity for the total company to 115,000 kg. We look forward to addressing the industry-wide supply constraints with our expanded production capacity and sophisticated proprietary automation technology that can help ensure Aphria remains at the forefront of the cannabis cultivation and innovation worlds. I was just at Aphria Diamond last week and the facility is truly a state-of-the-art for the industry and we believe we will increasingly set us apart from the competition. The license application continues to progress at Health Canada where staff are working diligently to bring more cultivation online. We believe our Canadian business will be a significant contributor to our results over the next several years with the potential for us to create one of the largest production footprints in the cannabis industry. In Europe and Lesotho, we continue construction on the EU-GMP oil processing facilities. We recently launched CannRelief a CBD-based nutraceutical and cosmetic product line for the German market. These products are being produced in the EU and distributed by our subsidiary, CC Pharma which has access to more than 13,000 pharmacies throughout Germany. This provides a natural extension to Aphria's growing business opportunities in the German medical cannabis market. We look forward to providing a full range of CannRelief CBD products this year. Importantly, Aphria has just recently been awarded a provisional approval in Germany for a medical cannabis cultivation license. We believe this is a validation of our strategic approach to supporting the German medical cannabis market with high quality domestic state-of-the-art indoor production to secure vital supply for the patients. Since Germany Cannabis as a Medicine Act was enacted in March 2017 the country's growing medical cannabis needs currently estimated at 40,000 patients has been exclusively supplied by imports. We look forward to seeking to supply German patients with domestically grown, high quality medical cannabis. In Latin America we generated approximately $2.7 million in sales since our LATAM acquisition. We also continue the build-out of herb houses in Jamaica and are awaiting final approval of our conditional licenses. Aphria continues to execute on its medical and adult-use cannabis growth initiatives internationally. We believe we have great momentum in Latin America, Germany, and across international markets as we continue to strengthen our global footprint. At Aphria, we will continue to drive sustainable long-term shareholder value by leveraging our strong brand positioning, superior distribution model, product innovation, industrial scale cultivation and automation, medical use leadership, and last but not least our strategic global platform. I would now like to turn the call over to Carl.

Thank you, Irwin and good morning. Please note, all financial references are in Canadian dollars unless I mention otherwise. Before I get into the financial results I would like to remind everyone it is still early in terms of legalization in Canada and as with every industry in its early stages we are continuously learning and improving including refining our methods for cultivation, production, packaging, and distribution. Aphria has a history with multigenerational expertise in commercial agriculture and we believe the challenges we faced in the quarter particularly supply shortages were based on proactive decisions we made and they are temporary in nature. With our expectation that our fourth quarter cannabis sales will be similar to the third quarter as we continue to position our business for the long-term growth and success. With the changes to our growing method now stabilized we are positioned to implement our new cannabis leading industrial scale automation, a necessity to remain at the leading edge across the supply. We believe the steps we have taken will help fuel the growth of our strategic initiatives in Canada and internationally and generate long-term shareholder value. As Irwin mentioned, our annualized production capacity today between the Aphria One including Part IV and V and Broken Coast is 115,000 kg applying our current average selling price in adult-use this level of production results in $1.5 billion in sales annually once we are in full crop rotation. Once fully licensed, Aphria Diamond is expected to increase this annualized capacity to 255,000 kg. Using the same logic this level of production could result in more than $1 billion in Canadian cannabis sales once are in full crop rotation. But that is not enough. In addition, we are continuing to expand our processing capabilities with our new extraction center of excellence which is still under construction. As we gain production scale and invest in automation, we expect to realize greater efficiencies and further support our growth opportunities in Canada and initially. At Aphria we have the greenhouse space, the cultivation expertise, the automation technology, and the raw materials to position us for success. Moving to our financial results, net revenue in Q3 increased 617% over the prior year period to $73.6 million. Compared to Q2 net revenue increased 240% driven by $57.6 million of distribution revenue from CC Pharma and ABP in Argentina. The company sold 2637 kg equivalents of cannabis in Q3 down 23% compared to 3,409 kg equivalents sold in Q2. Adult-use cannabis accounted for 1329 kg equivalents and medical cannabis accounted for 1274 kg equivalents. The decrease in cannabis revenue and kilograms sold compared to Q2 was primarily related to lower inventory levels entering the quarter, supply shortages as we transitioned growing methods, and allocated more space to mother plants in order to prepare for the Aphria One and Aphria Diamond expansion, as well as temporary packaging and distribution challenges. We made the strategic decision to transition our growing method in order to remain competitive. We are focused on maintaining industry-leading constant supply. In order to achieve this, the cost savings associated with scale and industrial automation will be an important component. The average selling price of adult-use cannabis before excise tax decreased to $5.14 per gram in Q3 compared to $6.32 per gram in Q2 due to a shift to smaller package sizes to maximize our SKU assortment and maximize shelf space for our brands. The average selling price of medical cannabis before excise tax increased to $8.03 per gram in Q3 compared to $7.51 in Q2 primarily related to higher oil sales. During the quarter, our cast cost per gram increased from $1.34 last quarter to $1.48. Included in this figure is $0.20 a gram related to the strategic decision to allocate flowering space to mothers the facility the ramp up of our Part IV, Part V and Aphria Diamond expansion. Our all in costs per gram increased from $2.60 a gram to $3.76 a gram. This temporary increase was driven primarily by an increase in packaging costs from $0.97 a gram to $1.98 a gram in the quarter. Our increased packaging cost per gram was a result of the demand from the adult-use market and in order to comply with the packaging requirements under the cannabis act. Since the launch of adult-use cannabis, we have reevaluated all of the total packaging used in our products, the materials used themselves, and the source of the materials leading to multiple levels of cost improvements. We are also working on packaging automation over the next two quarters and expect labor costs to decrease as that comes online. Near term, we expect consistent packaging costs as we work through our existing inventory of materials, but expect to gain efficiencies from this automation and other cost savings initiative in the midterm. Adjusted gross profit increased to $13.4 million in Q3 from $10.1 million in Q2. Adjusted gross margin was 18.2% in Q3 compared to 46.9% in Q2 reflecting an increase in revenues from our distribution business which operates with lower gross margins in our cannabis business typically in the 10% to 15% range. The margin decline was also due to the previously mentioned increased packaging costs as we build scale and automation and wait for Part IV and Part V to begin producing plant. SG&A costs in Q3 increased to $106 million up from $27.5 million in the prior quarter. The increase was primarily due to a $50 million impairment for the LATAM acquisition, an increase in non-cash share based compensation and the inclusion of a full quarter of LATAM and two months of CC Pharma. As disclosed in our earnings release today, the basis for this impairment arises from a reassessment of the discount rate and the financial forecasts for those entities as a result of new financial information received from the financial advisors to the Special Committee reviewed the LATAM transaction. Please note, despite the recording of the impairment of $50 million our investment in the LATAM assets remains $30 million more than the originally agreed purchase price of approximately $195 million purchase price that was both supported and confirmed as consistent with other transactions in the cannabis industry during our Special Committee review of LATAM. Net loss in the third quarter was $108.2 million or $0.43 per share compared to net income of $54.8 million or $0.22 per share in Q2. Excluding the non-cash impairment charges, adjusted net loss was $50.2 million or $0.20 per share in the third quarter. The adjusted EBITDA loss for the period was $14.4 million based on an adjusted EBITDA loss from Canadian cannabis operations of $13.8 million and adjusted EBITDA loss from Aphria International of $0.6 million. In the previous quarter the company reported adjusted EBITDA loss of $9.5 million based on an adjusted EBITDA loss from Canadian cannabis operations of $6.1 million and an adjusted EBITDA loss from Aphria International of $3.4 million. The increase in the adjusted EBITDA loss was primarily attributable to an increase in general administrative costs to support our planned capacity expansions, higher overhead costs related to supply shortages, as well as a temporary increase in packaging and distribution costs for the adult use market. The decrease in adjusted EBITDA loss for Aphria International is primarily attributable to the inclusion of CC Pharma's operating results in the quarter of $3 million of positive adjusted EBITDA. We expect our fourth quarter results to be similar to those experienced in the third quarter. Moving to liquidity, as of February 28, 2019 the company had near cash of $134.7 million available for use. This amount, combined with the proceeds from the liquidation of the GA Opportunities Corp. notes and option agreement announced today is sufficient to fund previously announced CapEx and strategic initiatives. During the quarter the company invested $3.4 million on maintenance CapEx and $25.6 million on grow CapEx related to Aphria One's Part IV, Part V and Aphria Diamond expansions as well as the extraction center of excellence. In summary, we made significant progress on our strategic initiatives in the third quarter and are confident in our ability to create long-term shareholder value. Though we do not provide guidance to the market, on a pro forma basis when applying our average selling price to our production capacity, our corporate objectives are for one, annualized revenue of $500 million by the end of the calendar year and two, annualized revenue of $1 billion by the end of calendar year 2020 which could help strengthen our position as the leading global cannabis company. That concludes our formal remarks. Irwin and I are now available for your questions. Denise, back to you.

[Operator Instructions] Your first question comes from Neal Gilmer from Haywood Securities. Your line is open.

Yes. Thanks very much and good morning. Couple of questions, maybe I'll start off with maybe on the cannabis sort of 2.0 outlook and so forth. Could you provide an update on the construction for your extraction Center of Excellence and sort of what sort of other things you're sort of putting in place to be prepared for the product formulations that are expected to come to market later this year?

So in our MD&A this morning we announced that the construction will be finalized about two weeks later than we had originally anticipated. That's going to push final completion into the month of June. In terms of additional product formats the facility has blower rooms built in it specifically designed so that we can introduce butane and ethanol extractions into the process. We believe very strongly that the cannabis market is going through a secular change. People over the next few years will not only think of buying cannabis as the product itself, but it's going to evolve to a situation where people are buying another product with cannabis as one of the ingredients in it. The extraction Center of Excellence sets us up perfectly for the time period when that occurs.

Okay, thanks for that. Then maybe on the Part IV expansion, so when are you expecting first sales of harvest sort of that facility is that sort of going to be in a fiscal Q1 timeframe? I know in your prepared remarks you stated expecting sort of Q4 to be similar to Q3, is that sort of then when you expect an increase in inventory and obviously then sales?

Yes. So there's - we received our license on March 1. There's was an eight-week period while the first plants go through the flowering stage and then a four to six-week period while the clear QA, QC go through drying, curing, all of those operations. We expect to see the first bud that's harvested from the new facility to really be available for sale that second or third week of June. So all of that capacity increase will come in Q1.

Okay and then maybe my last question will be, your comments again with respect to the packaging and distribution sort of bottlenecks, do you feel that most of that has been addressed on your side at this point, maybe any color you're having with any of the provinces and then going into - basically my point here being as you bring that product online in the third week of June do you feel that you're well set up to basically satisfy the provincial demand?

So number one yes, we feel that we're in a good position to really get in front of it and the demand is strong. I would say if we had product today we could easily sell it. So we're able to supply what we can right now as Carl said by the end of June we should, at Aphria IV and V we should have plants in there and we should absolutely getting into September have ample product to supply the provinces. And in regards to cost reductions in automation there is a significant plan in place of how to improve all those.

We've already pulled significant costs out as we've changed the packaging, both the amount of packaging in the product, but also the packaged containers themselves. It was a fun and challenging process. Being ready for legalization on October 17 and we made decisions that allowed us to expedite product to market and now we're taking the steps that are necessary to rationalize the costs associated with it.

And you can just imagine of us scaling from where we were in sales and how we're scaling up now and with the difference in regard to the people that we have running Aphria III, IV, V today, Aphria Diamond and the process that we're going through to take a lot of costs out of that business and we feel really good about that.

Okay, thanks very much. I'll jump back in the queue.

Thanks Neal.

Your next question comes from Brett Hundley with Seaport Global. Your line is open.

Hey, good morning guys. Just staying on that last theme for a minute, so if you consider your ongoing productive assets right, excluding expansion, it sounds like the biggest bottleneck then is around kind of the testing, packaging side as compared to distribution. Am I hearing that right that? Basically once you get through some of the bottlenecks related to packaging, you feel like you can more easily distribute that product into provinces?

Absolutely right. I think the big thing is, if you look at it here there's the grow which today we have a license to grow in IV and V. And then as you look at the front end in regards to packaging and production and automation there, and of course supply, and with that we feel very, very good about that's why we feel good about our 2020 plans. If we got supply we've got automation, we've got our packaging, we have our costing in place, the orders are there and it's just pulling all together now.

Okay. And I just want to make sure that I'm clear on the packaging theme. So are you guys actually going to be taking some of future packaging requirements in-house, are you negotiating better rates? Can you just talk a little bit about how that bottleneck eases for you going forward I'm a little unclear on that still?

So let's just give you a couple of examples. So when in the early days of legalization if you looked at our packaging there would be an interior package, there would be an exterior package associated. We're moving to simplify that process. Then you look at the individual packages themselves, again the process for approval from Health Canada came a lot closer to legalization date than I think a lot of people realized particularly as it related to label approvals and things like that. And so, the amount of time that was available to go out and to buy and source packaging effectively was limited. We made a decision to make sure we had as much product on the shelf that we could on legalization date. And so we didn't necessarily buy the best sourced packaging. We're doing that now. We shifted to that probably in November or December. We still have some of that original inventory that we have to work through and that will see that cost come down over time. But more importantly is the introduction of automation to the process. In those early days of legalizations we had employee parties with a number of people that were help you know trying to get those packages out the door, we started moving to automation and industrial scale level, just strips that labor out.

And this being a new industry today looking for the adequate packaging that Health Canada would allow that would basically support what the product stood for. And from a cost standpoint originally it was just trying to get into business. Now it's executed upon our strategy and there is so much automation that we're looking to bring into our facilities where the equipment was not there before. So we had to go out and create and work with engineers of how to manufacture this equipment. Just think there's nobody out there that has 2.4, we'll have 2.4 million square feet of greenhouse that will grow cannabis in the way we're going to grow it. So first, taking that and then putting the automation behind it. And just in regards to our rolling facility that was done by hand where they were doing four a minute, that's going to an automation now where it will be thousands within minutes or two. So it just, it's amazing what we've taken from a manual to an automation in packaging, in products and supply and growth and it's pretty exciting that's you know ultimately the end result will be.

That's really helpful. So essentially going forward your packaging assets are going to be much more closely aligned with the expansion that you're bringing on relative to previous?

And we're going to have to be to be able to - if you come back and think about it what we plan on growing and our growth strategy here from a packaging and to keep up with that supply and that's where the automation has come into place and that's where we've brought in outside help and third parties to help us with that, from the sourcing of packaging and the sourcing of equipment to keep up with our growth strategy.

Got it. Okay, that's really helpful. Just last one from me and I'll get out. Irwin, your comment in your script about a 90-day strategic plan, is that a plan where you guys are, when we hear strategic plans on our side of the phone we think you know evaluating all potential options to include strategic partners. Is it something like that or is this just a strategic plan where Aphria is looking on a standalone basis how it wants to craft its forward go-to-market strategy, just some clarity that would be helpful? Thank you.

Great. So again, the 90-day plan is on grow, our products, how we produce it, how we sell it, how we market our or buy brands and our international strategy. And listen, if there is other opportunities out there with strategic partners we will continuously look at that. But how we get to a billion dollar mark by the end of 2020 in the cannabis world in Canada, how we grow international and first and foremost what's the first 90-day plan here. So there is a 90-day plan that we will make sure we have in place and that will be built around our people, our brands, our strategy or execution and last but not least our balance sheet. And then how we build upon that. And I got to tell you the most excited I am, is I've been with Aphria now three to three and a half months is the personnel that we've had there, so this is not me. This is what the existing people that at Aphria were doing before and now what's pulling it all together to put it into a 90-day plan and then a plan going forward.

Thank you.

Your next question comes from the line of Noel Atkinson with Clarus Securities. Your line is open.

Good morning everyone. This is George dialing in for Noel. Two questions here, on Part IV expansion, we understand the labor market is pretty tight in Leamington right now. How is it going with hiring staff for Part IV?

We're in great shape. We were a little more proactive this expansion than we were last expansion, but more importantly there's so much more automation coming into the facility that as we ramp up the number of new bodies that is necessary is substantially reduced.

Okay, got it. Thank you. And can you give us a sense of the CapEx required to complete projects in Canada and Germany at the moment?

So, in Germany the build for that facility is €25 million.

Okay.

And we've spent €8 million of it so far.

8 million.

And in Canada it's in the MD&A, I think it's - there's another €14 million total.

€14 million, got it, thank you. And finally last question is, what is the status of the EU-GMP certification you guys right now?

So we continue to move forward with securing the EU certification where we're pursuing portions of that at both [indiscernible] and at Aphria One, so that we're ideally positioned to move product from both Canada to Europe, but Canada across the world. We continue to move forward in Lesotho with that as well and in Malta.

Okay, okay, got it, thank you much. That's it from me.

Thank you.

Your next question comes from Graeme Kreindler with VIII Capital. Your line is open.

Yes. Hi good morning and thanks for taking my questions. I had a question regarding the sales price in that adult-use market, talking about the - your assortment and shelf space decisions, just wanted to get a bit more context in terms of what the company is targeting and what changes were made specifically that affected the pricing there?

So going into the quarter, we recognized that the change in our growing method had reduced our supply levels. And so in order to maintain shelf space and in order to maintain a number of products on the shelf space that we had, we decided to package in smaller sizes. And so our packaging began to concentrate on more of the 1 gram and the 3.5 gram sizes, single pre-rolls as opposed to the bulk packs. Once the improved harvests start to roll through the facility and we're able to offer those to the control boards will move back into those larger sized formats.

Okay understood. Thanks. Then the other question I had is, with respect to the news this morning and for the GGB bid and the company getting, I think it's $89 million in capital there. Can you just walk through the mechanics of how that came to pass? How did you guys end up getting the cash there?

It was a long process. We negotiated extensively with Green Growth to try to find a way to exit a bid that appeared on its face to not be supportable at any level given where the changing share prices went. We had - they had some investments in us. We had optionality through GA Opportunities Corp to access some of their shares and we both recognized that in order to find a resolution on the bid we both needed to exit those positions. And so that was, that became a major focus of the negotiations.

Okay, thanks. And then the last question here, just looking at the notice the variation filing that crossed this morning, looks like you guys have good faith negotiations right now to come up with some sort of commercial arrangement. So just on the back of that, I was just curious as to what the company's thoughts are on the USCBT market? A number of your peers have announced some initiatives there. Just what the thoughts are on the market and could the commercial arrangement with GGB be part of that in the near future?

So, number one, it could be. I think we need to let the bid expire and move away from GGB. But I think, the U.S. market is a big opportunity for us and knowing the U.S. market from my prior experience, there's lots of opportunities and I think looking for the right opportunity, whether it's with strategic partners, whereas there are other opportunities, it is something that's a focus of Aphria today. Again Canada is a big focus for us. As you know it's a big, big market. It is legal there and we have great facilities. International, we have some great international markets that we can really grow our business. There's some - from size standpoint and medical cannabis in those markets and then there is the U.S. and the U.S. market is changing dramatically and I want to make sure we get it right if it's CBD, if it's the right partnership and as part of our strategic plan we're reviewing what our options are in the U.S. market.

Okay understood. Thank you very much for that guys.

Thank you.

[Operator Instructions] Your next question comes from John Zamparo of CIBC. Your line is open.

Hey thanks. Good morning guys. I just wanted to follow up on the previous question as it relates to go-to-market strategy. When you say you're maximizing your SKU assortment, does this mean you're looking to build breadth over depth or was that just part of the temporary change for the quarter as it relates to your growing restrictions?

It was temporary for the quarter.

Okay understood. And overall what can you tell us about the lessons you're learning as it relates to consumer preferences so far and what would you say is your top priority for derivative products later this year?

So I think, listen I think what we're learning is as we've introduced our brands today consumers are looking for brands that they can trust, brands that they can rely on, brands that have quality behind it and whether it is Solie or Broken Coast. They already have created a lot of brand equity. Our consumers are looking for a variety of different products. They want to try new innovative products. And as they, the [notables] come into the market we see big opportunities and as we've done our focus groups and research consumers will be excited about those products. So brands are important, quality products are important and last but not least, price is going to be important too and that's something we're seeing. Listen, the biggest thing out there today is everybody wants supply, supply, supply and that's what they want to make sure that they're in stock, they got supply and we can build upon our brands.

Okay that's helpful thanks. If we could move to SG&A, is this quarter a good metric to interpret for a reasonable run rate backing out stock comp and the impairment obviously?

So this quarter and next quarter will look fairly similar, but you're going to see substantial changes going forward.

And with our sales increasing and automation that's going to absolutely change what our SG&A numbers look like. And as Carl said this quarter next quarter there's similarities, but as we move forth into our second quarter of next year we expect that to change dramatically.

Okay and just a couple of quick ones. You mentioned in the press release that the OSC had requested review of the LATAM acquisition and I know that was part of the mandate of the Special Committee. I just want to confirm, are there any other assets that are currently under review either as a request from the OSC or the Special Committee?

No, no. We do our annual impairment tests in Q4 though, but there is none right now, no. There is none under review.

Okay understood. And lastly, do you have an idea at the moment of when you might have a permanent CEO in place?

Not yet, and I think with myself and the team, we're moving in the right direction and at the time that we will start a search. That will be the time we'll come back and announce them.

Okay, that's it from me. Thank you very much.

There are no further questions queued up at this time. I'll turn the call back over to management for closing remarks.

So thank you everybody for listening to today's call. I've got to tell you being my first call a lot of exciting news and most important is the excitement about the future that will come in regards to our people, our brands, our supply and our strategy and there's the 90-day strategy which we'll execute upon, but there is our strategy as we move forward. There are not too many industries that are evolving and changing as quick as this one. If you come back and look at the size, $150 billion in size, so there's a lot of low hanging fruit in sales and opportunities for Aphria. We've built out the infrastructure to grow products, to package products. We've built out the infrastructure from a sales group to sell products. We've built out the infrastructure from a marketing and innovation to be able to develop products and market our products. And with that our international opportunities are tremendous with the infrastructure that we've built out. We'll pull all that together and we will create one of the greatest cannabis companies that are in the world today. So thank you very much for your time and look forward to speaking to you on our next earnings calls or any follow up questions. Have a good day.

This concludes today's conference call. Thank you for your participation. You may now disconnect.