Tilray Brands Inc (TLRY) 2018 Q2 法說會逐字稿

Welcome to the Tilray's Second Quarter 2018 Earnings Conference Call.

(Operator Instructions)

And as a reminder this call is being recorded.

I would now like to introduce your host for today's call, Ms. Katie Turner, with Investor Relations. Ma'am, you may begin.

Thank you.

Good afternoon and thank you for joining us on Tilray's Second Quarter 2018 Earnings Conference Call.

On today's call are Brendan Kennedy, President and Chief Executive Officer and Mark Castaneda, Chief Financial Officer.

Before we begin please remember that during the course of this call management may make forward-looking statements within the meaning of the Federal Securities laws. These statements are based on management's current expectations and beliefs and involves risks and uncertainties that could differ materially from actual events and those described in these forward-looking statements. Please refer to Tilray's final prospectuses for its initial public offering and other reports filed from time to time with the Securities and Exchange Commission and its press release issued today for a detailed discussion of the risks that could cause actual results to differ materially from those that are expressed and or implied in any forward-looking statements made today.

Finally, please note on today's call management will refer to adjusted EBITDA which is a non-GAAP financial measure. While the Company believes adjusted EBITDA will provide useful information for investors the presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. Please refer to today's release for a reconciliation of adjusted EBITDA to net loss, the most comparable measure prepared in accordance with GAAP.

Now I'd like to turn the call over to Brendan.

Thank you, Katie.

Good afternoon everyone and thanks for joining us on our first conference call as a public Company.

It was great to have the opportunity to meet many of you during the course of our IPO roadshow earlier this summer and we look forward to meeting more of you when we attend the investor events during the remainder of the year.

On today's call I will briefly review our Second Quarter financial highlights; provide an overview of Tilray's business model; discuss the key reasons we believe we are well-positioned for long-term global growth; and outline major milestones we foresee achieving in the next 6 to 12 months. Mark will then review our Financial results in more detail and to discuss our long-term Financial targets. After that we will open up the call for your questions.

Last month Tilray became the first Cannabis Company to successfully complete an Initial Public Offering on a major US stock exchange. This is a major milestone for Tilray and the sector as a whole further legitimizing the multibillion-dollar global cannabis opportunity, rapidly emerging around the world.

The capital we raise from the IPO positions Tilray well for increased long-term success as we build and scale our businesses in Canada and expand our operations internationally.

I would like to extend a special congratulations and thanks to our passionate and dedicated team who made the IPO and our success to date possible.

We are pleased to report strong second-quarter revenue growth up 95% from last year to $9.7 million. Our key operational metrics were also positive, total kilograms equivalent sold and the average net selling price per gram both increased for the quarter on a year-over-year basis and sequentially from Q1 this year.

For those of you who are new to our story I'd like to take a few moments to provide some background on Tilray and an overview of our business model and global growth strategy.

Our thesis is simple. We believe cannabis is a mainstream medicine consumed by mainstream patients around the world. Said another way, cannabis is a mainstream product consumed by mainstream people around the world.

We are witnessing a global paradigm shift in the transformation of a 150 billion-dollar illicit market into an increasingly professionalized, legalized, regulated, and taxed industry.

We believe trusted brands powered by a multinational supply chain will be the companies that win with consumers and patients, governments, and regulators, around the world.

As the market transitions from a state of prohibition to legalization we believe cannabis will disrupt a number of established industries.

The pharmaceutical industry is realizing that cannabis is becoming a replacement for prescription-based opioids and other medicines to treat chronic pain in markets where medical cannabis is legal.

Alcohol companies are terrified and have already begun making investments and forming partnerships recognizing that cannabis is a substitute for alcohol.

The functional food and beverage industry is looking to cannabis as ingredient in new product such as CBD Water and exercise recovery drinks.

The tobacco industry is looking at the cannabis industry a little bit differently. They see cannabis as a way to generate additional returns on investments they've already made in nicotine delivery technology that can be leverage for cannabinoids.

To capitalize on this shift and disruption our global growth strategy is centered on: increasing our production capacity and inventory to serve the rapidly growing global medical market and to be ready for the adult-use market in Canada; maintaining a rigorous focus on quality as we expand, partnering with established distributors and retailers to scale distribution of our products further and faster; developing a differentiated portfolio, brands and products, that appeal to a diverse set of patients and consumers; expanding the addressable market by fostering mainstream acceptance; and continuing to pioneer the future of our industry by investing in innovation, R&D, and clinical research.

I am tremendously proud of the Tilray team, on the ground, in seven countries around the world for pioneering the future of global cannabis.

Our track record illustrates that we are focused on legitimizing, leading, and defining, the future of our industry.

Tilray was the first cannabis Company to really export medical cannabis from North America to Africa, Australia, the European Union, and South America.

We were also the first licensed producer to receive a cannabis cultivation license outside of Canada when we announced our facility in Portugal last year, and the first Company in North America to have our production facility, good manufacturing practices certified in accordance with European Union standards.

Tilray's products have been made available in 11 countries, spanning five continents, most recently in the United Kingdom.

To scale distribution of our medical products to more patients we have signed agreements with two of Canada's largest pharmacy chains, Shoppers Drug Mart and Pharmasave. And formed a partnership to co-brand, co-develop, and co-distribute medical cannabis products with Sandoz, Canada a division of the global pharmaceutical Company, Novartis.

We believe the rapidly emerging global medical market will become an increasingly important part of our business over time particularly in the European Union given that population and economy are orders of magnitude larger than Canada's.

The velocity of change in Europe feels even faster than the changes we are witnessing in North America. Germany went from not talking about medical cannabis to legalizing it and mandating insurance Company coverage in less than a year.

Germany is important for several reasons. Germany's economy and population are two times larger than Canada's. Germany is the largest market for pharmaceuticals in Europe and we love the regulatory framework, any doctor can write a prescription to any patient, for any illness with insurance Company coverage.

A key differentiator for Tilray from other companies operating in this industry is our commitment to clinical research and the halo that gives the brand in international medical cannabis markets.

Tilray was one of the first licensed producers to receive regulatory approval for a clinical trial from Health Canada and the Australian Therapeutic Goods Administration.

Currently Tilray is supplying study drugs for three clinical trials: chemotherapy induced nausea and vomiting at the University of Sydney; posttraumatic stress disorder at the University of British Columbia; and pediatric epilepsy at the Hospital for Sick Children in Toronto.

In the coming year we intend to announce our support of additional clinical trials in Canada, Europe, and the United States.

To seize the global opportunity in front of us, we are investing methodically and aggressively. We have established multiple subsidiaries, Tilray Canada and Tilray Portugal are similar in that both entities focus on cultivating, producing, and distributing medical cannabis.

Tilray Canada serves as our production hub for patients in North America and globally.

Once construction is complete Tilray Portugal will focus on supplying the medical market globally, primarily in the EU.

Tilray Germany and Tilray Australia and New Zealand are similar in that they focus on importing products and on sales and marketing efforts.

High Park our adult-use subsidiary has secured the exclusive rights to establish Canada's brands and product and has signed agreements to supply consumers in seven Canadian provinces and territories including British Columbia, Manitoba, Nova Scotia, the Northwest Territories, Ontario, Quebec and the Yukon Territory.

To meet growing demand in Canada and globally we are significantly increasing our production capacity. Our GMP-certified facility in Nanaimo, British Columbia is operating at full capacity.

In anticipation of the adult-use market in Canada, High Park is ramping up two production facilities: High Park Farms in Enniskillen, Ontario and the High Park processing facility in London, Ontario.

High Park Farms a 13-acre greenhouse on a, 100 acres of property received its cultivation license in April. The facility has harvested its first crop and begun packaging products for the adult-use market. We expect to receive a sales license for High Park Farms in the near future.

The High Park processing facility is currently in the process of being licensed and we expect to have the facility operational by the end of 2018.

Last year we successfully imported genetics from Canada to Portugal and currently have thousands of plants growing outdoors. We expect to complete our first harvest in Portugal in the next few weeks. And to finish construction on a Dutch-style glass house by the end of first quarter of 2019.

Locating our EU campus in Portugal has several benefits including an ideal climate, skilled labor, reduced regulatory costs, and carrier free access to all EU markets.

When fully operational our four production facilities located on two continents will allow us to significantly increase our global production output while reducing costs and hedging against regulatory risks.

By the end of 2018, we expect to go from 60,000 square feet of production space to 912,000 square feet, a more than 15-fold increase.

On our existing properties we have the ability to expand our global production space to 3.8 million square feet.

We are proud of our operational and strategic achievements thus far and we expect our pace to accelerate in the near term.

In the next 6 to 12 months we anticipate the following: shipping multiple orders of High Park adult-use products to seven provinces and territories where we currently have supply agreements; signing adult-use supply agreements with additional provinces in Canada; shipping Tilray medical products to pharmacy chains in Canada; exporting Tilray medical products to net-new countries; expanding Tilray's medical cannabis product offerings in the international markets we currently serve; extending our existing pharmaceutical partnerships to additional countries and regions; completing our first harvest in Portugal; completing the build-out of our facility in Portugal; obtaining a manufacturing license and GMP certification in Portugal; obtaining a sales license for High Park Farms in Enniskillen, Ontario; obtaining production and sales licenses for High Park's processing facility in London, Ontario; supplying additional clinical trials in Canada, Europe, and the United States; recruiting additional executives from outside the industry to further strengthen our management team; and finally, refinancing debt.

In summary we believe Tilray is incredibly well positioned for growth in the global medical and adult-use cannabis industries.

We look forward to many years of future growth in creating value for our shareholders.

With that I would like to turn the call over to Mark.

Thanks Brendan.

Good afternoon to those of you joining us on today's call and webcast. It is a pleasure to be speaking with you today.

We are pleased with our Second Quarter Financial Results and the significant opportunities for growth ahead.

Over the past three years we have made significant investments to develop the right products and brands, to scale our operations and to recruit the right team. We have built a premium, vertically integrated business to pioneer the development of multiple markets around the globe.

While this approach requires (Inaudible) investment in the short-term, it creates a foundation that can be leveraged and scaled in the medium to long-term.

Focusing on our Q2 results in more detail, please note all of the financial information we discussed today is prepared in accordance with US GAAP, is in US dollars unless otherwise indicated.

Q2 revenue was $9.7 million representing an increase of 95.2% as compared to the second quarter last year.

Revenue growth was driven by increased patient demand, bulk sales to other licensed producers and export sales.

In January of 2018 we launched High Potency CBD oil drops which helped drive extracts sales in Canada. Extracts [accounted for] approximately 45% of revenue for the second quarter of 2018 compared to 18% of revenue for the same period last year.

We remain pleased with our medical cannabis revenue and we expect an inflection in our growth trajectory going forward as adults-use comes on board in mid-October.

We do expect that change in Ontario to private retail model will result in increased revenue opportunities over the longer-term and provide a slower transition of the illicit market in the near term as online sales will be the only option on -- in Ontario until the second quarter of 2019.

Moving on to operational metrics.

Total kilograms of equivalent sales increase 745 kilograms or 97% as compared to the same quarter of 2017.

The average net selling price per gram increased from $6.20 in the prior year to $6.38 for the second quarter of 2018. The increase is primarily due to growth in High-Potency Flower and extracts sales, partially offset by an increase in wholesale revenues.

On the production side, we expect significant increases as we expand our capacity from 8 metric tons to 90 metric tons.

Gross margin for Q2 decreased to 43% from 54% in the same period last year as a result of procurement of third-party supply and larger portion of our revenue being attributed to wholesale channels.

We are balancing our product lines as we were long specific strains and short CBD product. We expect some continued balancing through the end of year while we ramp up our greenhouse production.

From a longer-term perspective we expect 50-plus percent gross margins as we lower our costs through greenhouse and outdoor cultivation.

We also expect reduce revenue [premiums] as we begin selling wholesale in the adult-use markets whereas today we are selling direct the patients.

Total operating expenses increased $10.1 million year-over-year to $15.2 million for the second quarter of 2018. This was mainly due to non-cash and stock compensation charges of 5.6 million during the quarter.

Additionally, G&A expenses increased 3.2 million associated with higher professional fees and increased resources to support our growth and expansion for the startup of High Park Farms, High Park Company, and Tilray Portugal.

The Q2 foreign exchange loss increased to $1.4 million primarily due to foreign currency transaction losses on our Privateer Holdings debt facilities. These facilities will retire with the IPO proceeds after the June 30 quarter.

Net loss for the quarter was $12.8 million compared to $2.4 million in the second quarter of 2017 which is primarily driven by the non-cash stock compensation charge of $5.6 million and increased expenses as previously described.

Adjusted EBITDA was a loss of $4.7 million compared to a loss of $1.9 million in the second quarter of last year.

The increase in net loss and adjusted EBITDA was primarily due to the increase in operating expenses related to continued growth, expansion of international teams, and costs related to becoming a public Company.

Turning to the cash flow, the cash flow from operations was about flat for the six months compared to the prior year at a burn rate of approximately $2.9 million. Also, we invested around $28 million for our cultivation expansions during the first half of 2018.

From a capital structure perspective, in July we completed an IPO of Tilray's Class 2 common stock and the resulting $163.6 million in net proceeds will be used to fund the [build-out of] cultivation and a processing capacity, repay debt, and for future acquisitions, and working capital.

As we look ahead at the cannabis industry, we believe at this moment in time presents a unique opportunity for us to achieve strong growth today and for years to come.

Over the long-term we continue to believe total available market will grow to a $150 billion based on United Nations statistics.

We see an opportunity to capture a sizable portion of this market with an estimated gross margin of 50%-plus and adjusted EBITDA margins of 25 to 30%.

This concludes our prepared remarks.

Brendan and I are now available to take your questions.

Thank you.

(Operator Instructions)

And our first question comes from the line of Vivien Azer with Cowen. Your line is now open.

Hi guys. Congrats on a good quarter.

Thanks, so much Vivien.

So, just on -- starting with the top line please, what percentage of your revenues in the quarter came from international exports?

Sure Vivien, this is Mark.

So about 5% came from international.

Okay, great. Thank you.

Then on the pricing improvement, nice improvement (Inaudible) can you just talk about the drivers of that?

Thanks.

So, the drivers of the pricing improvement are really based on mix so we sold some higher potency Flower which was a higher percentage of the mix which again we also sold some wholesale Flower which actually brought pricing down, so and also extracts was a higher percentage of the mix as well.

So say the positive side, extracts and higher potency products. On the negative side, some wholesale Flower.

Okay, understood.

And then you touched on some of the drivers of the gross margin compression but can you kind of just expand on that and may be dimensionalize it in terms of kind of order of magnitude contribution in terms of the gross margin compression?

Sure. So the gross margin compression number one was we sold about 40% of our mix was wholesale sales and wholesale sales are in the lower margin, as you could imagine as opposed to selling direct patients and so that was probably the largest driver.

Second largest driver was we did mix or the high-potency product that we produced as well as CBD property -- or product has higher cost but it also has higher sales price so it has less impact on margin but a higher impact on the cost.

Okay, understood.

So then how should we think about your gross margin for the -- for the rest of the year?

Yes. So I think as you look at our gross margin going forward because we're doing this rebalancing, purchasing some bulk products and selling off some wholesale products as we kind of get up our own facilities up and running margins will be kind of just sub- 50% in probably the neck couple quarters and then over 50% in future quarters.

So, you are looking for a pretty meaningful sequential improvement between 2Q and 3Q?

As far as gross margins? So there will be--

Yes.

-- some but we are -- we believe there will still be some wholesale sales that will bring--

Yes.

-- that margin below 50.

Okay, perfect. That's helpful.

Let me stop there and hop back in the queue. Thanks.

Thank you.

And our next question comes from the line of Graeme Kreindler with Eight Capital. Your line is now open.

Yes. Hi, good afternoon gentlemen.

My first question is with respect to the Ontario [retails]. I know you talked about it briefly. Can you give us some more details in terms of -- you know, I know -- I know there's not a lot of details given out by the province but what you'd be looking for in terms of potentially partnerships down at the retail level?

Hi Graeme, this is Brendan. So thanks for joining the call.

So, we're seeing -- obviously it changes very quickly here in Ontario. We all thought that we were headed towards a Crown corporation-owned government retail stores but instead it looks like we'll have private retailers.

We don't yet know what that licensing process looks like. Where those locations can be located. But we have been in conversations with different groups that are looking to establish a retail presence here in Ontario and I expect that those conversations will continue throughout the rest of this year as the regulations and the licensing process get more clarity.

And then once that happens I would expect us to sign supply agreements with those retailers in Q1 and Q2 of next quarter.

In the meantime, we do expect to supply the [LCS] with products for online sales which will begin in Ontario on October 17th.

Okay, thanks. And then just another quick question.

Can you give me a break down of what percentage of the topline was Oil sale?

Sure Graeme, this is Mark.

So Oil in Q2 was around 46% versus Flower which is around 54%.

Thank you.

And our next question comes from the line of Mike Grondahl with Northland Securities. Your line is now open.

Yes. Thanks guys. And congratulations.

You have a pretty good hit rate from the provinces, why do you think you kind of continue to win up there with supply agreements, kind of what's the consistent feedback you're hearing from them?

Brendan Kennedy, Tilray Inc. - President and Chief Executive Officer

The feedback we're hearing is that they love our brands. You know, we are known for building a global medical brand in Tilray but what people don't realize is that we have a leg up and with license existing successful brands from the US to bring to Canada as well as well as we've created some brands specific to Canada, and when we present those brands and products to various provinces and territories, those provinces and territories they want our brands and their consumers -- their customers ultimately will want our brands.

We signed seven agreements and expect to sign additional agreements to supply our products and brands across Canada after October 17th.

Got it.

And then in Europe, that obviously has a big potential for the medical market you know, just with all the population there you know, if you could get a couple percent of the population on medical cannabis, what do you see as sort of the next catalyst to really kind of get that going or what milestones are you looking for?

I think you'll see two things. You know, these countries such as let's say Germany that have legalized medical cannabis the past few years is -- it's a slow ramp just like Canada was you know, four years ago, five years ago, it's a slow ramp.

There's a lot of education that has to be done with physicians and with -- and in Germany with pharmacists as well as insurance companies and so it takes -- it takes a while to educate those physicians and pharmacists and insurers but we are seeing steady growth in Germany.

So the first part of my answer is we'll continue to see steady growth in the countries where our products are available, in Europe.

The second thing that we will see is additional countries that legalizing Europe in the coming months and years.

You know, we expect almost every country in the EU to legalize medical cannabis over the next few years and it's happening -- it's happening even faster than we expect. You know, if you look at the United Kingdom, the UK, I would have bet incorrectly two months ago that the UK would be the last country in Europe to legalize medical cannabis and instead over the course of an eight-week period because of a child, a boy named Billy Caldwell, and his mother Charlotte, we saw the UK over an eight-week period legalize medical cannabis.

And the Tilray has exported products to the UK and has exported products to the UK for this particular child.

And so you're seeing countries just the pace of change, if you don't spend a lot of time in Europe, the pace of change there is surprisingly fast you know, I can think of you know, there's certainly no state or other country in the world that has legalized in an eight-week period.

Got it. That's helpful.

And then just lastly, when you were mentioning some of the things on -- that you're going to accomplish in the next 6 to 12 months, what were you seeing specifically about pharmaceutical players or you didn't touch that completely, more [agreements]?

We were -- we were expecting to sign additional -- we signed a pharmaceutical agreement with a division of Novartis call Sandoz--

Sure.

-- that agreement is for Canada.

We expect to sign additional agreements with pharmaceutical distributors in other countries around the world. Currently we use -- for example we use five different distributors, pharmaceutical distributors in Germany. We expect to sign additional agreements with additional pharmaceutical distributors around the world in additional countries and additional regions in the coming months.

Great. We look forward to those. Thanks a lot.

Thanks Mike.

Thank you.

And our next question comes from the line of Charlie Finnie with ROTH Capital Partners. Your line is now open.

Hi guys. Great quarter. A couple of quick questions.

One is you mentioned that you are in discussions with several private retailers in Ontario. Is there a scenario where you would ever consider getting into the retail store business yourselves?

It's a project that frankly we looked at in the past for various places around the world where medical cannabis is legal.

I would say that we haven't seriously considered it in other provinces across Canada but if ever there was a province in Canada where we would consider it, it would be Ontario.

Okay.

And second question, there's obviously lots of buzz around Big Alcohol with the Constellation Canopy news. Can you give us your perspective on that, please, currently?

We believe that cannabis is currently disrupting a number of industries from the pharmaceutical industry to alcohol to consumer-packaged goods, to tobacco, slightly less tobacco and these consumer staples companies are in desperate search of growth and cannabis has enormous potential.

It's a -- it's a massive global inevitable opportunity and you know, I'm sure you can appreciate that that I'm not able to comment on speculation about specific companies however I definitely expect more strategic investors to enter this industry in the coming months.

Thanks very much.

Thank you.

Thank you.

And we do have a follow-up question from the line of Vivien Azer with Cowen. Your line is now open.

Thanks for taking the follow-up.

So just a circle back on and earlier question on the call and the piece on international, so you know, roughly 5%, you're talking about you know, call it 500 million, yes, like 500, like -- I'm just looking at my model and I don't want to get ahead of my skis, was -- is my interpretation correct that perhaps some of the additional international licensing is onboarding a little bit more slowly than perhaps you'd anticipated a couple months ago?

Hi Vivien.

We do expect a pretty quick ramp in the second half of the year on the medical side which was planned so you know, may be a slight tweak from here, from quarter to quarter but we do expect some stronger sales numbers in the second half of the year.

Okay. Perfect. That's -- that's helpful.

Again, don't -- don't want to -- set you guys up for failure for sure and I prefer my numbers to be right. You know, is -- you guys think about the mix shift to oil, there was a nice sequential increase from 40% in the first quarter to 46% in the second.

You know, obviously as you on board adult use that changes things but given how much success you're having with the Oil, how does that inform how you think about your mix as you onboard adult use, is it showing more kind of -- a consumer demand than you'd originally anticipated and does not (Inaudible) in the adult-use markets?

I think that -- I think that as we look at adult use in Canada you're ultimately going to see something that looks like Washington State or Colorado where Flower as a percentage of overall revenue, industry-wide within those states is decreasing today.

You know, currently I think Colorado Flower accounts for about 40% of revenue and other form factors are 60%.

I don't -- I don't think you'll see that ramp quite as quickly in Canada until there are other form factors allowed so I would -- I would anticipate a step function in the next at some point let's call it, 13 or 14 months whenever Health Canada allows other form factors to be sold so whether it's -- whether it's an edible or a beverage or a vape or a cartridge, that's when you'll see those other form factors really begin to ramp in terms of revenue growth compared to Flower.

Perfect.

And then last one for me you know, it is -- as we on call think about you know, how we're going to monitor and evaluate the adult-use market as it onboards. You have any thoughts on what we should expect in terms of you know, public disclosure at the [provincial] level? And whether the provinces are even thinking about that or are they just like scrambling to get up and running?

That's a good question.

I know that some of the provinces have talked about disclosing data you know, sometime in November, December, January, on may be a monthly or a quarterly basis in terms of what types of products they're selling. I don't know if it will get down to the level of what brands they're selling.

You know, it's going to be a -- this next quarter will be a bit interesting because I don't think any of the provinces are allowed to possess cannabis in their distribution centers until almost the end of September and so you'll see -- I would expect some adult-use revenue recognition in September, really in the last two weeks of September.

But depending on the province and depending on if they're ready or not to store this product in their distribution center you know, they might not allow us to ship the product until October and so it will -- you'll see a mix of adult-use revenue, sort of stretch right across the end of Q3 and the start of Q4.

Okay, I know I said that was my last question but now I have two follow-ups, sorry.

So the first question is, have you gotten any orders? Number one, and then number two, as a percentage of like your annual contracted supply, what percent of that do you think goes out in the first shipment?

It's really mixed. The first question, the answer is, "yes." We perceive multiple orders from multiple provinces and even multiple orders from within the same province.

The percentage of the total order -- I'm not sure I don't think I have that on hand but most of them are you know, gradually placing orders because they're not even ready to stock all of these products in their distribution centers.

Certainly, they don't -- they don't want to store cannabis for a year so you could simply take -- for your model, you could simply take the size of the overall order and divided you know, divided in the four quarters and that would likely give you a fairly accurate representation of how these different provinces are ordering product.

Thank you.

And our next question comes from the line of Tamy Chen, BMO Capital Markets. Your line is open

Hi, thanks Brendan and Mark. I just have a couple of questions.

Firstly, could you just provide a bit more on the on the Enniskillen greenhouse around things like you know, how much of the facility in terms of square footage is currently growing and you know, when do you expect to hit you know, full capacity in that facility?

So the facility is currently -- from a cultivation perspective, the facility is currently -- cultivation space is currently 75% licensed. All the processing spaces within the facility is licensed. A 100% of the processing spaces licensed.

So we are waiting for 25% of the cultivation space to be licensed and expect that to be licensed in the next month or so.

And then the one thing we're waiting on there is the sales license so we can sell the product that we're building up inventory of in Enniskillen today.

Okay. That's helpful.

And my next question is, does your -- does your partnership with Sandoz -- would it preclude you from engaging with other pharma or other strategic players in Big Tobacco, Big Alcohol?

So no, in terms of other strategic players in tobacco, alcohol, consumer-package goods.

We do have an exclusive agreement with Sandoz in Canada.

Okay. I see. Okay.

And that exclusivity is for pharmaceutical grade, medical cannabis products in non-combustible form in Canada, which is a mouthful.

And then my last question is just, curious to hear your thoughts on you know, what's your view on the US when it could potentially you know, the federal legal status could potentially change and you know, if that were to happen have you thought about what Tilray's strategy would be?

Of course. So we're building a global portfolio of brands and products what the goal of making those brands industry leaders in every market where cannabis is legal in, in Canada, in Germany, Australia, and the United Kingdom.

I think that we're a lot closer to federal legalization in the US than most people realize and whenever it happens, Tilray will be ready.

Okay. And those were all my questions. Thanks.

Thanks, Tamy.

Thank you.

And that does conclude today's Q&A session.

I'd like to return the call to Mr. Brendan Kennedy for any closing remarks.

Thank you everyone for joining us on our first Earnings announcement since we begin the public Company.

Ladies and gentlemen thank you for participating in today's conference. This does conclude the program. And you may all disconnect.