TILT Holdings Inc. (PNK:TLLTF) Q4 2023 Earnings Call Transcript

TILT Holdings Inc. (PNK:TLLTF) Q4 2023 Earnings Call Transcript March 14, 2024

TILT Holdings Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good afternoon, everyone, and welcome to TILT Holdings Fourth Quarter and Full Year 2023 Conference Call and Webcast. Today’s call will be recorded for replay purposes. A replay of the audio webcast will be available in the Investors section of the company’s website approximately 2 hours after the completion of the webcast and will be archived for 30 days. I would now like to turn the conference over to your host today, TILT’s Head of Investor Relations and Corporate Communications, Lynn Ricci. Please go ahead.

Lynn Ricci: Thank you, operator. Good afternoon, everyone, and thank you for joining us. Earlier today, we issued our fourth quarter and full year 2023 earnings press release. The press release is available on the U.S. Securities and Exchange Commission’s website at www.sec.gov, on SEDAR+ at www.sedarplus.ca and on our website at www.tiltholdings.com. Please note that during this afternoon’s webcast, remarks made regarding future expectations, plans and prospects for the company constitute forward-looking statements. Actual results may differ materially from those indicated by such forward-looking statements. We remind you that any forward-looking statements represent our views as of today and should not be relied upon as representing our view as of any subsequent date.

While we may update such forward-looking statements in the future, we specifically disclaim any obligation to do so, except as otherwise required by law. As of today’s call, we are presenting our financial results in accordance with the United States Generally Accepted Accounting Principles or GAAP. During the call, management will also discuss certain financial measures that are not calculated in accordance with GAAP. We generally refer to these as non-GAAP financial measures. These measures should not be considered in isolation or as a substitute for TILT’s financial results prepared in accordance with GAAP. A reconciliation of these non-GAAP measures to their nearest equivalent GAAP measure is available in our earnings press release that is an exhibit to our current report on Form 8-K that we filed with the SEC and SEDAR+ today and can be found in the Investor Relations section of our website.

Joining on today’s call are CEO, Tim Conder; and Interim CFO, Brad Hoch. Following the prepared remarks, we will open our call for questions. During today’s prepared remarks, we may offer metrics to provide greater insight into our business and our financial results. Please be advised that we may or may not continue to provide these additional metrics in the future. With that, I will now turn the call over to our CEO, Tim Conder.

Tim Conder: Thank you, Lynn, and good afternoon, everyone. 2023 was a rebuilding year for TILT, especially Q4. But despite the challenges that come from rebuilding, we made significant headway to right size our business, eliminating non-core activities and investments in building systems to prepare for future growth. It has been less than one year since my return to TILT and in that time, we have made meaningful progress. However, our work is far from done. In addition to refining our operations, we have begun to restructure our debt to strengthen our balance sheet. Certain areas of our business also have room for immediate growth. We must attack those opportunities with precision and execute at the highest level to achieve the goals we have set for ourselves.

Our updated strategy has till better positioned to succeed within the current realities of the cannabis industry. It is incumbent upon us to prove that we can execute against that strategy. With a more focused and optimized operation, we can now shift our attention from cost savings initiatives to revenue growth in 2024 and beyond. I’d like to provide more detail on these key accomplishments from 2023 and then have Brad review fourth quarter and full year financial results. First, on operational improvements. We made significant progress on our goal of improving operations and becoming more efficient in 2023. We are positioned differently than other MSOs, and we have worked to refocus our business around our core inhalation competencies, brands and products.

We rightsized our corporate and plant-touching business units, which has led to $8 million of annualized savings. Going forward, our fixed cost base will remain relatively stable. We meaningfully reduced inventory down $20 million year-over-year across our business units as we were running extremely bloated at the beginning of last year, carrying up to five months of inventory at certain points. We are now close to our target of approximately two months of inventory across our business units. Turning to our cannabis portfolio. In Q2, we initiated a plan to refine our brand partnership strategy, focusing on brands that better align with our broader inhalation platform. Since that time, we have optimized our portfolio of brand partners and now have a more concentrated and focused group that we expect to contribute material to TILT’s growth in 2024.

I’d like to now provide some highlights and updates on our brand partners, starting with Old Pal, which continues to be a bright spot. In Massachusetts, Old Pal has moved from the 25th best-selling flower brand, the number 7 since the start of 2023. There have been months where Old Pal has performed well enough to earn a top 5 position. Our in-house brand, Standard Farms was named one of the best-selling brands in Massachusetts and was recognized as the fastest-growing brand in 2023 by headset, a leading cannabis data and insights platform. We are proud of Standard Farms getting the recognition we believe it deserves in the market and we will continue to grow our brand partner products and in-house offerings with the same level of care and based on market data and consumer demand.

As we prepare for adult use in Ohio and anticipate movement in the future on adult Houston, Pennsylvania, we have begun to both shore up our selection and prepare with our existing partners for rapid market growth. In November, we announced a deal with Edie Parker Flower, a vape and flower brand that has crossover in fashion into cannabis and is experiencing tremendous growth across its existing markets and expanding into new markets. We anticipate launching their products in Pennsylvania in late spring. LEVEL, the leading pressed tablet brand on the West Coast has begun its expansion east, and I am personally excited about supporting their growth in Pennsylvania on TILT platform as they were one of the first brands that I worked with in California.

The founders are dedicated cannabis trailblazers focused on making the best possible products for their consumers and patients. We will launch LEVEL in Pennsylvania in April with one of their pressed tablet lines and expect to expand the product line upon approval from the Department of Public Health. LEVEL will be a direct replacement for 1906, who contributed a good amount of revenue for us in Pennsylvania but little to no profit. In Ohio, we are working closely with our brand partner, Timeless in anticipation of adult-use sales. We have seen them execute at the highest level in other state transitions and are preparing to support similar growth in that market. Timeless was one of Jupiter’s first customers and it is rewarding to continue supporting their journey across the TILT platform.

We have also been able to leverage our plant-touching assets to partner with CCELL to bring ground-breaking new concentrate closed-loop system, the Axel Romer [ph], to the market in Massachusetts. This project is in its infancy, but it is showing early signs of success. We are pleased to support innovation in several ways across our platform, especially with an important partner like CCELL. In addition to these brands and the other great brands that round out our portfolio, we are continuing to identify new brand partners that fill gaps in our catalog or capture an opportunity in the markets where we operate. We continue to be opportunistic related to supporting brand expansion with partners utilizing Jupiter hardware. Now turning to our plant-touching operations.

Massachusetts proved to be a challenging market in 2023. However, we began to see pricing stabilize at the tail end of the year. Also, presents a blossoming opportunity in the state going forward and with prices stabilizing and increasing retail store count in the state over the past six months, we expect to see wholesale sales growth in 2024. To capture this opportunity and to alleviate certain pain points caused by a lack of investment into our infrastructure over the past few years, we are making incremental spend in cultivation to ensure we have consistent product and yields. This maintenance CapEx is primarily for lighting updates and will be a key driver in leveraging the success our cultivation team has had in selecting optimal genetics and cultivating great flower on a consistent basis.

In Pennsylvania, revenue grew over 30% in 2023 compared to 2022 and has seen a similar pricing recovery to Massachusetts. But in contrast to Massachusetts, the market has been capped on new retail licenses for some time. There is a likelihood that the store count will increase in the near term with the passage of Senate Bill 773 and our cultivation manufacturing operation is well positioned to grow with the market and benefit from potential adult-use conversion in the years ahead. We are poised to capitalize on adult-use sales in Ohio as well. We have doubled our manufacturing footprint potential, which is not yet fully utilized but will be online and ready to meet Ohio adult-use market demand by the time sales launch. In general, the division of cannabis control recently stated that adult-use license applications for current medical license operators will be available by June and issuance of those licenses will begin no later than September 2024.

We will continue to focus on bringing quality brands to each of these markets and leveraging our plant-touching assets to benefit and support Jupiter wherever possible. Now turning to Jupiter and our vape hardware business. We experienced one of our largest periods of Jupiter order volume in late Q4, ahead of Chinese New Year. To ensure that we are meeting the expectations of our partners and in anticipation of growth, we signed an agreement with our manufacturing partner Smoore to temporarily expand and secure our trade payable line. The agreement with Smoore was an important and necessary step to meet our business and customer needs as we both grow and support larger seasonal order volumes. During our November conference call, we highlighted that some of these Chinese New Year shipments would be pushed into 2024 compared to years past where most of those shipments occurred in the fourth quarter.

The later-than-usual Chinese New Year holiday and shipping schedule from China, along with elevated seasonal shipping costs negatively impacted our revenue and gross margin for the fourth quarter. That said, demand for Jupiter products remains strong. In addition to our existing lineup of products, including industry-leading CCELL inhalation technology, we are accelerating our R&D efforts under the leadership of Mark Scatterday, the support of our 10-person in-house engineering team. These efforts have been partially focused on the European medical market, where we are in the final stages of technical review for liquid medical devices and are awaiting final certification under the Medical Devices Directive for Jupiter to supply the European Union with medical-grade inhalation hardware.

We expect approval and manufacturing to begin this year after more than three years navigating the process. Once approved, this will be the first and only approved medical device on the market. We are also making progress on bringing the Liquid Que vaporizer to the European markets, the first independent pod system to be commercialized by Jupiter. The technical file is in development now and we expect to submit this year. As a reminder, this initiative was announced in 2022 with Curaleaf as our exclusive partner for the Liquid Que product. Last month, the German Parliament voted to legalize recreational cannabis, which removes cannabis from Germany’s narcotics list and will expand Germany’s medical market in the near term. The German medical market has the potential to eventually grow from $300 million in 2023 to nearly $4.9 billion according to analyst reports.

In addition to the opportunity in Europe, we are seeing growth catalysts in other markets and with additional products. One of our partners in Canada is Motif and their brand, Baxa is the number 1 brand in Canada. Jupiter is Motif’s primary hardware supplier and recently supported their launch of their new Whistler’s brand pod system. Whistler’s on track to be the number 1 pod system in Canada, and we are eagerly watching and supporting its growth. Motif went from start-up to the number 1 brand in Canada with Baxa within three years. A testament to their superior team and execution to be sure but also a master class in seeking out white space in the vaporization product landscape. As I stated previously, our internal R&D efforts are accelerating.

One example of those efforts that has been in the pipeline for quite some time is Thredz. TILT and Jupiter began working with the inventor of this technology, Alex Pasternack, back in 2022. I am pleased to use our platform to support the commercialization of someone else’s concept, especially one as innovative as Thredz. We anticipate that brands will find unique ways to surprise and delight consumers with this offering. The ability to stack different oils and blends to create a personalized consumption experience is unique in cannabis. As the largest distributor of CCELL technology with a long-standing and sizable position in the vape hardware market, we have had a front row seat to the commoditization and price conversion has happened in this space.

To meet the needs of our customers and in response to this commoditization, we have worked closely with our manufacturing partner to identify opportunities to save our customers’ money. One such opportunity has been realized with the operationalization of our Chinese manufacturing partners, first Indonesian factory at the beginning of this year. We have begun placing orders in a measured rollout and anticipate shifting the entire production of certain product lines in the first half of 2024. Through innovation, product diversification, quality and reliability, we will return Jupiter to the juggernaut that it was a few years ago. Jupiter has the largest and most immediate opportunity for growth, and we will capitalize on that opportunity by focusing on first principles and being consumer obsessed.

We are an innovator and a solutions provider, exactly what is needed in the cannabis industry today. I’d now like to pass it over to Brad to review the financial highlights of the fourth quarter and full year before returning for closing remarks. Brad?

Brad Hoch: Thanks, Tim, and good afternoon, everyone. As a reminder, all results today are presented in U.S. dollars and are on a year-over-year basis, unless stated otherwise. Jumping into our results. Revenue in the fourth quarter of 2023 was $37.5 million compared to $44.3 million in the year ago period. The decrease was largely attributable to the timing of Jupiter shipments from Smoore, a portion of which will be recovered in Q1. Our Jupiter vape hardware business, we generated $27.3 million of revenue in Q4 compared to $31.9 million in the year ago period. For our cannabis operations, which includes Massachusetts, Pennsylvania and Ohio, revenue in the fourth quarter was $10.3 million compared to $12.4 million in the year ago period.

The decrease was primarily due to price compression along with the impact of brand optimization initiatives in mid-2023. On a full year basis, 2023 revenue was $166 million compared to $174.2 million. The decrease was primarily driven by the aforementioned shipment timing and lower average price in certain Jupiter product lines. Gross margin in Q4 was 9.5% compared to 18.8% in the year-ago period, with the decline driven primarily by non-cash inventory adjustments, product mix in Jupiter and lower pricing in Massachusetts and Pennsylvania. Gross margin for the full year 2023 was 14.7% compared to 21.9%. Adjusted gross margin, which excludes non-cash inventory adjustments in the fourth quarter was 14.1% compared to 18.8% in the year-ago period.

On a full year basis, adjusted gross margin was 19.2% compared to 21.9% in 2022. Operating expenses less non-cash adjustments for stock compensation, depreciation and amortization and impairment charges in the fourth quarter decreased 26.2% to $8.9 million compared to $12 million in the year ago period. The decrease was primarily due to lower legal and professional service expenses, lower headcount as well as lower administrative costs driven by operating efficiencies. On a full year basis, operating expenses less non-cash adjustments for stock compensation, depreciation and amortization and impairment charges in 2023 decreased 11.6% to $40 million compared to $45.2 million. Net loss in the fourth quarter was $22 million compared to $73.1 million in the year ago period.

These results include a non-cash impairment charge of $7.5 million in the fourth quarter of 2023 as well as a $54.6 million impairment charge in the fourth quarter of 2022. Excluding these impairments, net loss would have been $14.5 million compared to a loss of $18.5 million in the year ago period. On a full year basis, net loss was $62.4 million compared to $107.5 million in 2022. Adjusted EBITDA in Q4 was negative $1.6 million compared to negative $0.4 million in the year ago period. The decrease was primarily driven by lower sales related to the timing of Jupiter shipments. On a full year basis, adjusted EBITDA was $2.1 million compared to $2.8 million. Cash flow from operations in the fourth quarter was $4 million compared to $0.3 million in the year ago period.

Cash flow from operations in 2023 was $5.4 million compared to $8.6 million in 2022. At December 31, 2023, we had $3.3 million of cash, cash equivalents and restricted cash compared to $3.5 million at December 31, 2022. Notes payable net of discount at December 31, 2023, was $52.2 million compared to $59.7 million at December 31, 2022. As we highlighted in our announcement of the new collateral agreement with Smoore, given Smoore’s new first lien status, we are currently working with our noteholders on a forbearance agreement. Our noteholders have been very supportive throughout this process, and we expect to provide more details on that agreement soon. With that, I’ll turn it back to Tim.

Tim Conder: Thank you, Brad. 2023 was the start of our rebuild at TILT. Looking ahead to 2024, with the business rightsized and an efficient operating structure in place, we are shifting our attention from cost savings to revenue growth. We believe that we are well positioned to capitalize on the growing demand for inhalation products in the cannabis and hemp markets as well as take advantage of the catalysts ahead for our plant-touching assets via adult use and long-awaited federal reform. I would like to thank the entire organization for their resilience and unwavering commitment to our vision and look forward to TILT’s return to revenue growth, along with improved profitability and cash flow generation in 2024. We will now take questions. Operator?

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Q&A Session

Operator: Thank you. [Operator Instructions] Our first question comes from the line of Aaron Grey with Alliance Global. Please proceed.

Aaron Grey: Hi, good evening. Thank you for the questions here. First one for me. Just because count numbers or help to quantify the impact from Jupiter and the timing of shipments. How much of an impact do you think it had in 4Q? How much of that were you able to recover in the first quarter or any line of sight in terms of how you’re seeing sales shape up for the quarter, now that will come to just two weeks left? Thank you.

Tim Conder: Hi, Aaron, thanks for joining. I’ll take that one. I appreciate the question. We saw a roughly $5 million impact of the timing of shipments from a revenue standpoint in Q4 and anticipate or have already recognized, some of that is a pickup in Q1. Hopefully that answers and addresses your question. Like we said earlier, is really the timing of Chinese New Year and shipments out of China, not a decrease in order volume.

Aaron Grey: No, that’s super helpful. Okay. Bigger picture on Jupiter. Can you provide some commentary in terms of the current competitive landscape? How are you seeing it right now in terms of pricing, in terms of competitiveness? I know some had kind of closed the gap. It sounds like innovation is really back at the forefront of what you guys and Mark are looking to do. You talked about some of the initiatives that you have in terms of medical and otherwise. Maybe in terms of the competitive landscape and then the timing of when some of these new innovation launches should start benefiting the P&L? I think that would be helpful. I’m super excited. Thanks.

Tim Conder: Yes, absolutely. I mean, it’s no secret, CCELL and Jupiter together have lost market share over the past few years, mostly due to the commoditization of vaporization hardware and significant growth in the competitive set. We’ve been somewhat slow to meet the market from a pricing standpoint but have addressed those pricing issues as recently as the beginning of this year with a revision to pricing kind of across our platforms, whether that be cartridges, all-in-ones or pod systems with the support of our manufacturing partner. We feel like from a pricing standpoint and from a selection standpoint, we are well positioned to now compete with the competitive set that really attack the market from a patent selection standpoint, like I said.

What was the second part of your question from an innovation standpoint? Yes, I mean return to innovation with Mark Scatterday the leading that charge. Mark, in a lot of ways, is the reason that CCELL has been successful with their core technology since inception in 2017 and we’re excited to have him once again leading that charge. We anticipate that, that will start to bear fruit in 2024 with the expansion, not just of our own in-house — the in-house products that we’ve been working on for the past couple of years, like we mentioned, the European Union medically certified devices but also our selection of all-in-ones under the Infinity line.

Aaron Grey: Okay. Great. Thanks. Helpful color there. Last one for me. Just on the gross margin side. It looks like even on an adjusted basis, around 14% still down sequentially. Can you talk about what you’re seeing there on gross margin? Is it more pressure on cannabis side, accessory and Jupiter as well? You talked about the competitive environment? Then just how to think about the gross margin as we go forward in terms of the timing of improvement and where you think we can get to there? Thank you.

Tim Conder: Yes, for sure. I’ll kind of talk about it on the business segment and market and from a market standpoint. Starting in the cannabis part of our business, Pennsylvania and Massachusetts specifically have been incredibly price competitive and we’ve seen roughly 25% pricing compression just over 2023. We’re selling more products at a lower price to remain essentially flat sequentially from 2022. Now that prices have started to stabilize in those markets. Like we mentioned, in Massachusetts, specifically, the retail footprint or retail count has expanded fairly dramatically. We see an opportunity to increase sales volume even if at these lower prices to start to make up ground on the compression of our gross margin in Massachusetts.

There’s some good indicators on the horizon in Pennsylvania as well, with like I mentioned, Senate Bill 773 and the opportunity that non-vertical operators now have to verticalize through the issuance of new dispensary licenses, opportunity to increase sell-through there, which for us on our sort of fixed cost base since making many adjustments in 2023 should expand margin. As far as Jupiter is concerned, the industry shift to all-in-one devices or the expansion of all in one category has had an impact to margin over the past year plus that category just has a lower gross margin. It is more price-sensitive. And so that’s kind of been a shift that we’re adjusting to industry-wide. Then specifically in Q4, the impact of inflated shipping and freight charges related to the CNY holiday in addition to us utilizing more airfreight than ocean had a negative impact but one which is seasonal.

Aaron Grey: Great. Thanks for detail. I’m now going to jump back into the queue.

Tim Conder: Thank you, Aaron.

Operator: Our next question comes from the line of Pablo Zuanic with Zuanic & Associates. Please proceed.

Pablo Zuanic: Thank you. Good afternoon, everyone up. Tim, can you give more color on the issue with the timing and shipments with more in the fourth quarter? I mean, obviously, we all knew it was a late Chinese New Year, February 10. I’m just trying to understand, was this an issue about where forecasting on your side of demand? Or was it that more was not willing to give you terms for the larger orders you had to put that you probably knew ahead of time you would put and they were not willing to extend terms, hence, agreement that you ended up implementing in February. If you can just give more color on that because I don’t see how this will be an issue if you knew the timing of Chinese year well, well in advance and so it’s more, of course?

Tim Conder: Yes. I mean it’s — thank you for the question, Pablo. It’s really neither, right? It’s really a timing issue. The two are somewhat uncorrelated. The agreement with Smoore and then the lower revenue in the fourth quarter. A lot of that revenue, like we talked about pushed into the first quarter and it really is just timing of shipments because we time shipments to leave us close to the beginning of the Chinese New Year holiday as possible to reduce downtime for ourselves from a stock replenishment and custom order standpoint. Really more about timing than anything, Pablo, and you’ll see a pickup — a bit of a pickup in Q1 that addresses well.

Pablo Zuanic: Okay. If I can, I don’t know how much you can disclose in terms of the negotiations on the forbearance agreement but I know it’s a bit chicken and egg. The Smoore deal with their, let’s call it, quasi credit line first lien and then given your note holders right, $52 million debt to agree to returns. I going to assume that you would get the forbearance agreement before you had a Smoore signing on the agreement?

Tim Conder: I mean the relationship that we have with our noteholders and the relationship that we have with Smoore made us comfortable that whichever one were to close first, we would be okay with. The forbearance agreement has taken a little longer from a negotiating standpoint but the sequencing is fine for both us and those debt holders. It could have gone the other way, but it wasn’t necessary for it, too.

Pablo Zuanic: Thank you. Then just in terms of additional support, you may be getting from Smoore, obviously, a credit line or the larger payable account is big support. For example, a price cut that you announced that you mentioned early 2024 is more picking up part of that cut. This launch of Thredz is exclusive to Jupiter or is it for all the CCELL distributors in the U.S.? If you can just give more color in terms of additional support given to all of you.

Tim Conder: Yes. The security agreement just puts more structure in place as it relates to our credit line, which I think is important as we work to institutionalize that relationship. As far as support that CCELL gives us, yes, I mean the reduction in pricing is something that we’ve been advocating for, for some time and is supported by — directly by Smoore across those product lines. As it relates to the Thredz technology, that’s Jupiter’s IP. It is exclusive to us. It’s not a CCELL’s specific product, but it is manufactured by them.

Pablo Zuanic: Thank you. One last one. When I look at the growth of Inspire, maybe a good chunk of the growth is coming from hemp derivatives vaping type of products. Is that a segment you’re going to go after or because of the clear guidelines from the FDA, you will not enter that segment? If you can give more color in that if it’s a real opportunity for you or not?

Tim Conder: It’s a real opportunity. It’s historically one that we have not touched, frankly. We’ve been very focused on the cannabis segment specifically but it’s absolutely an opportunity and it’s one that we are actively exploring but does not show up currently anywhere in revenue because like I said, it’s not somewhere where we focused or attacked.

Pablo Zuanic: Right. To be clear, that’s something you’re going to attack now, right?

Tim Conder: Yes.

Pablo Zuanic: Okay. If I may add one last one. You haven’t talked about Europe before, you mentioned this three-year process. Finally, you got approval for that. In the event that — and I thought there were vaping products in the medical markets. I know I think Panaxia, a company from Israel used to sell in Europe but you’re saying that you’re going to be the only medical vaping product in Europe, which if it’s a case is great. Does this mean that that’s more is giving you exclusivity for the European medical cannabis market in terms of vaping hardware?

Tim Conder: Again, this is not their innovation. This is ours. We would work with them from a manufacturing standpoint but we don’t require exclusivity from them. But rather, we have identified both brands and distributors that we will work closely with in the European market and exclusivity will be in our hands, should we choose to get it.

Pablo Zuanic: Okay. Tim, I’m sorry, I’m going to ask a last one here and maybe there’s more people on to you here. But what — there’s this, I guess, this healthy tension in terms of CCELL distributors and Smoore. It’s great to hear all the examples you’ve given about Smoore, doing more in terms of supporting the distributors as well as and particularly Jupiter. On the other hand, here, you are innovating on a number of products where it’s your technology and it’s not Smoore. Should we expect more of that in the future that it gets to a point that more than half of your Jupiter business is proprietary and not coming from Smoore?

Tim Conder: I mean I don’t think we’re talking percentages yet but I think that you should absolutely anticipate that we’ll continue to innovate irrespective of Smoore. I think two heads is better than one from our perspective. Mark and Smoore have worked very well together in the past. We anticipate that they will, going forward, but it’s incredibly important for us to innovate for our customers, and we think that that’s a skill set that we have and we’ll continue to lean into. Again, from like a product mix standpoint, TBD on where that ultimately shakes out Pablo but we anticipate that we will have a large degree of IP in our portfolio that supports our customers across our customer base. As a reminder, the L9 [ph] device, that’s utilized by, exclusively by Aero brands is our IPs, medically certified devices, whether it’s the cartridge or the pod system are our own IP and we have a number of other developments in the pipeline.

Thredz is our IP. We choose to work with Smoore because they are one of, if not the best scaled manufacturers in the world for vaporization and atomization technology, but our — we’re not exclusive this Smoore from a manufacturing standpoint. We’ll continue to be opportunistic from a pricing standpoint so that we can best support our customers and it’s a really price competitive and challenging market today.

Tim Conder: Understood. That’s very helpful. Thank you.

Brad Hoch: Thanks, Pablo.

Tim Conder: Yes. Thank you, Pablo.

Brad Hoch: Before we hand it back to the operator, we wanted to take this opportunity to address a few questions that have come in from our shareholders via e-mail over the past couple of weeks and really even over the past hours since issuing our earnings results. Tim, one of the ones that came in here, Q4 was an atypical quarter but it did look like we went back to EBITDA negative. Do you expect to return to EBITDA profitability in Q1? Should shareholders expect the company to return to growth in both the top and bottom line in 2024?

Tim Conder: Yes, absolutely. As we — as I just mentioned, a lot of that was due to shipping shipment timing ahead of the CNY holiday. Had that normalized our revenue and adjusted EBITDA figures would have increased somewhat substantially. We do, we absolutely anticipate that the work that we have done over the past roughly year has reduced our cost structure to a place where we feel comfortable that it’s as refined as we’re going to get. Now our focus is going to be on growing revenue. We have an opportunity to do that across our business units with the most immediate being in Jupiter through a number of the catalysts that I just mentioned as well as continuing to activate position hardware market in North America, which we still control a sizable percentage of. Yes, absolutely anticipate back to EBITDA profitability, revenue growth and increasing cash flow generation.

Brad Hoch: Got it. And then turning to the cannabis business. How can you replicate the success that you’ve had with Old Pal, with Standard Farms and really leverage that expertise to drive brand development in other states?

Tim Conder: Yes. I mean, for us, it’s all about identifying the right brand and then supporting their growth in the best possible ways. As I mentioned before, our brand rationalization was because we recognize that as a platform, we have a specific skill set that only certain brands fit into. We recognize the success that Old Pal has had in their expansion markets and have really leaned into that success to help grow and support their brand and their catalog products in Massachusetts and Pennsylvania. We believe that we can do that for other brands. What I would say is like, unique attributes of the brands that have had the most success on our platform. One, like we’ve talked about a lot, they are inhalation focused. That’s our area of expertise.

We know how to sell those products. We know how to support those products, whether it’s from hardware to go-to-market, etc. The other thing that I think is pervasive across the brands that are both on our platform today and the brands that we hope to are actively adding to our platform tomorrow is a level of authenticity and commitment to delivering the best possible for cannabis products to their consumers. I like to use like Edie Parker as an example of a brand that we have just recently signed, I think, is a perfect exemplification of this. Edie Parker, as a brand, knows their customer innately. They know what their customer wants, they know what excites their customer and they’ve known that not just because they know that outside of the cannabis industry starting in fashion and have been able to cross over into cannabis, not by luck or through some other means but because they know their consumers so, so well.

They take that knowledge and it does it transcends to cannabis. Those are the brands we’re going to continue to identify and continue to work with. We love cannabis, we love cannabis consumers. We want brands that feel exactly the same way and execute to support that.