Hello and welcome to GrowGeneration's Third Quarter 2023 Earnings Conference Call. My name is Teri, and I will be coordinating your call today. Following prepared remarks, we will open the call to questions from analysts with instructions to be given at that time. I will now hand the call over to Clay Crumbliss with ICR.

Good afternoon, and welcome to the GrowGeneration third quarter 2023 earnings results conference call. Today's call is being recorded. With us are Mr. Darren Lampert, Co-Founder and Chief Executive Officer; and Greg Sanders, Chief Financial Officer of GrowGeneration Corp. You should have access to the company's third quarter earnings press release issued after the market closed today. This information is available on the investor relations section of the GrowGeneration website at ir.growgeneration.com. Certain comments made on this call include forward-looking statements which are subject to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on management's current expectations and beliefs concerning future events and are subjected to several risks and uncertainties that could cause actual results to differ materially from those described in these forward-looking statements. Please refer to today's press release and other filings with the SEC for a detailed discussion of the risks that could cause actual results to differ materially from those expressed or implied in any forward-looking statements made today. During the call, we'll use some non-GAAP financial measures as we describe business performance. The SEC filing as well as the earnings press release which provide reconciliations of the non-GAAP financial measures to the most directly comparable GAAP measures are all available on our website. Following our prepared remarks, we will take questions from research analysts. We ask that you please limit yourself to one question and one follow-up. If you have additional questions, please reenter the queue and we will take them as time allows. Now I will turn the call over to our Co-founder and CEO, Darren Lampert. Darren?

Thanks, Clay. Good afternoon, everyone. Thank you for joining us today to discuss our third quarter 2023 financial results and our full year 2023 guidance. As always, I want to thank each one of our employees and, of course, our company for their continued support of GrowGen. I'm grateful to our entire team for their continued hard work, dedication, and for being steadfast in executing our company's strategy. I'm pleased with GrowGen's third quarter results and I'm happy to discuss the progress we've made to drive future growth and profitability, including the launch of our new ERP system and East region Distribution Center on July 1 and the success of our proprietary brands. Despite the ongoing challenges in our industry, which we have discussed extensively in the past, GrowGen remains in a strong financial position with sufficient liquidity to continue investing for growth, while putting profitability at the forefront of all we do. In the third quarter of 2023, we generated net revenue of 55.7 million, which represents a 13% decline over the second quarter of 2023, consistent with the expectations we communicated on our second quarter call. Gross margins improved 320 basis points to 29.1% versus the prior year's comparable quarter of 25.9% and improved 230 basis points from second quarter gross margins of 26.8%. We ended the third quarter with 66.6 million of cash, cash equivalents and marketable securities, no debt and 76 million of inventory on our balance sheet. Year-to-date, we've generated approximately 2.8 million of operating cash flow. While the federal legislative agenda has not moved definitively in our favor, it does seem to be getting more favorable. There's renewed optimism for federal reform with SAFE Act passing the Senate Committee on Banking and potentially heading to the Senate floor for a full vote. And if approved to the house, then the President. More importantly, there's excitement building around cannabis rescheduling. After the Department of Health and Human Services recommended rescheduling cannabis from Schedule 1 to 3, which would remove the 280E tax penalty on licensed cultivators bringing hundreds of millions of dollars back into the cannabis industry. We expect that this will provide a major tailwind for our industry. With that said, our three main initiatives remain our primary focus, as we discussed last quarter. What that means in practical terms is, number one, we're continuing to bring to market innovative new products and grow our proprietary brand portfolio, attracting a larger customer base. Number two, we're building upon our ERP launch, solidifying our technology and digital platforms. And number three, we're putting profitability at the forefront, focusing on margin expansion and profitable growth. Briefly on each of these, first, we remained committed to the expansion of our proprietary and distributed brands and we are very satisfied with the results. Proprietary products accounted for 7.4 million of retail and ecommerce sales in the third quarter of 2023, which is around 16.6% of our overall retail and ecommerce sales, up from 15% in the second quarter of 2023. Product launches include the introduction of the much-anticipated new drip pad and nutrient line in Q4, delivering an efficient nutrient solution while not compromising on quality. We're expanding Power Si with an advanced granular range of beneficial microbial solutions to bolster plant health and optimize growth to be released in Q4. In Q3, we rolled out Char Coir coco coins, and during the propagation market, the harvest company, our consumer gardening initiative is finalizing a diverse product portfolio that includes the already launched premium gloves and pruners as well as a garden in the box kit, an all-in-one solution for gardening enthusiasts including raised metal beds, soils, fertilizers, and a curated selection of organic seeds. Lastly, MMI Ags is introducing a single tier multiple bench and trade systems for indoor and greenhouse growers in Q4. Second, our ERP system has been rolled out across all key business verticals. Like many other ERP rollouts, ours has not been without its challenges, and it will take time before benefits fully materialize. We're confident in our internal team and their ability to manage through the transition. Encouragingly, most of the issues we've encountered have been relatively minor and we're pleased with the progress that has been made to date. To further develop our key technology initiatives, we have strengthened our leadership team with the addition of a Senior VP of Technology, who comes to us with impressive credentials, and whose mandate includes driving our technological advancements and solidifying our digital infrastructure. And third, we're prioritizing profitable growth, which we believe we will obtain through our continued efforts to grow revenue, execute margin expansion strategies, and consolidate stores. We're constantly analyzing the business for additional optimization and cost savings opportunities and expect the continued benefit to flow through to our margins through the remainder of 2023 and 2024. As part of these efforts, we continue to analyze the performance of our current stores with respect to redundancies in the footprint and non-performance. We closed and consolidated six retail locations in the third quarter and are in the process of consolidating and closing six additional locations in the fourth quarter that we expect to be finalized in November. That said, we expect a lower operating expense base and aim to retain the key customers from consolidated locations on a revenue basis. Further with our recently implemented centralized distribution system, consolidation of shipments and storage, we will reduce our in-store inventory levels and ensure quicker deliveries. The SKU rationalization we executed in Q3 will now allow us to focus on high demand products and phase out low performing SKUs. All these executables are positioning us to operate more effectively and efficiently. Turning to guidance for full year 2023, we are maintaining our guidance of net revenue in the range of 220 million to 225 million and adjusted EBITDA loss in the range of minus 4 million to minus 6 million. With that, I will turn the call over to our CFO, Greg Sanders.

Thank you, Darren, and good afternoon, everyone. First, I will address our third quarter 2023 financial results. And then I will discuss our updated full year 2023 guidance. For the third quarter, GrowGeneration generated revenue of 55.7 million versus 70.9 million in the third quarter of 2022 representing a decline of approximately 21.4%. Our same-store sales for the third quarter 2023 were 40.7 million compared to prior year sales of 47.5 million representing a 14.4% decline against the comparable year-ago quarter. Comparable same-store sales in the third quarter represent a modest sequential improvement over the prior quarter on a percentage basis. Our e-commerce division generated 2.7 million of revenue versus 3.1 million in the year-ago period, representing a decline of 10.2% year-over-year. Our distribution and other revenue was 11.5 million for the quarter compared to 19.8 million in the year-ago period, representing a decline of 42%, largely due to a few large one-time transactions in the year-ago period. Gross profit margin was 29.1% for the third quarter of 2023, which is an improvement of 320 basis points to the year-ago period. The increase in gross margin in the third quarter of 2023 was largely attributed to the improvement of proprietary brands sales as a percent of revenue, which increased to 16.6% of sales in the third quarter versus 13% of sales in the year-ago period. Additionally, the company is executing on more bulk buys with the development of our distribution network that has led to favorable gross margin performance in the quarter. Store operating costs and other operational expenses declined from 13.6 million in the third quarter of 2022 to 11.9 million in the third quarter of 2023 representing a 12.2% reduction. The savings year-over-year were primarily attributed to rationalization efforts of our store comp and personnel expense. We believe that the expense reductions to date are sustainable, and we expect to execute upon further reductions through the balance of the year and into the first quarter of 2024. Selling, general and administrative or SG&A costs were 7.6 million in the third quarter. This compares to 8.8 million in the year-ago period, representing a 13.8% improvement year-over-year. SG&A expense reductions are being achieved through various cost controls, most notably through personnel. Depreciation and amortization of intangibles was 4.7 million in the third quarter of 2023, compared to 3.9 million in the year-ago period. The increase in depreciation expense is primarily due to the Go Live of our new business systems in the third quarter, for which we placed the assets into service on July 1. In the third quarter of 2023, the company did not recognize an income tax benefit or expense. GrowGeneration is using a 0% tax rate as its deferred tax assets are not expected to be realizable. As such, the company has established a full valuation allowance against its deferred tax assets. Net loss for the third quarter was 7.3 million or negative $0.12 per share, compared to a net loss of 7.2 million or negative $0.12 per share in the year-ago period. Adjusted EBITDA, which excludes interest, taxes, depreciation, amortization, restructuring charges and share-based compensation, was a loss of $908,000 for the third quarter of 2023, compared to a loss of 2.7 million in the third quarter of 2022, representing a $1.8 million improvement. Related to the balance sheet, as of September 30, 2023, the company had total cash, cash equivalents and marketable securities of 66.6 million, which was a decrease of 4 million to the second quarter of 2023. The company increased its prepaid by $4.5 million in the third quarter, primarily to increase our inventory positions in our proprietary branded products, where we are seeing demand increase. Cash used from operations for the third quarter was approximately $4.6 million primarily related to the aforementioned prepaid investments. Year-to-date, the company generated positive cash from operations of 2.8 million. That said, the company has sufficient reserves, with over 60 million held in money market accounts and short-term low-risk investments at September 30, 2023. In the third quarter, the company decreased inventory by approximately $700,000 compared to the second quarter. As we look at the fourth quarter, we are aiming to further reduce the inventory position and to improve upon turns. The company has instituted promotional sale events for overstock and slow-moving inventory in the fourth quarter to help drive additional sell-through of inventory. During the quarter, we continued to see improvement in our operating expense structure. We're encouraged by the gross margin improvements in the quarter. Operationally, we transitioned our entire retail and corporate business into new ERP, point of sale and warehouse management systems. As such, change management and user adoption were a large focus in the quarter. Now moving on to our full year 2023 outlook, we are reaffirming our previously communicated guidance, with full year 2023 revenue to be between 220 million and 225 million and full year adjusted EBITDA loss to be in the range of minus 4 million to minus 6 million. We believe the fourth quarter should benefit from lower inventories and continued rationalization of operating expenses through our strategic initiatives. In summary, we remain confident in our ability to navigate the industry. We'll continue to stay focused on managing the balance sheet and controlling costs and our efforts to return the business to profitability in driving long-term shareholder value. Positioning the business for long-term profitability continues to be a top priority today and into 2024. Our approach to capital allocation remains focused on a disciplined approach to return on invested capital, and we see opportunities in long-term planning. We are continuing to invest in digital transformation to propel our company through future business cycles. Further, we continue to invest capital into the development of proprietary products and initiatives that expand our value proposition to a broader base of customers. I'll reiterate that our daily mandate is executing our business strategy with a sharp focus on long term profitability and shareholder value. With that, I will turn the call back over to Darren for closing remarks.

Thank you, Greg. Before we open the line for your questions, I want to reiterate that GrowGen is on solid financial footing with a strong balance sheet, healthy liquidity and a solid cash position. We continue to manage our business prudently through the current industry landscape with an emphasis on sustainable growth, margin expansion and profitability. We were encouraged by our continued progress and remain laser-focused on continuing what we can control to continue to build a stronger, nimbler and more profitable company. Thank you for your time today. And thank you for your interest in GrowGeneration. We will now take your questions.

Thank you. Your first question comes from Aaron Grey from Alliance Global Partners. Please go ahead.

Hi, good evening. And thank you for the questions. So first question for me. I just want to talk about some of the reform. Most notably the potential rescheduling of Schedule 3. For you guys, maybe more of an indirect impacts and obviously not being impacted by the 280E tax right now, but a lot of your clients are so. How do you think about potential indirect impacts a schedule and Schedule 3 could have removal of 280E, potentially with some of your players where you're pulling back on CapEx initiatives and how that could change in the indirect benefits you guys could have come back. Thank you.

I find it quite exciting, and I believe the industry really needs this change. Currently, there is a significant amount of money being spent on 280E tax penalties, totaling hundreds of millions of dollars. If the tax were to be rescheduled, this money could return to the industry, benefiting MSOs and large single state operators and enhancing their balance sheets. As a result, we anticipate a start in the expansion of facilities and, more importantly, the refreshment of existing ones. We’ve seen numerous constructions between 2019 and 2021, and given the lifespan of products like LED lighting and durable goods, we expect a considerable cycle of upgrades in the coming years. Many durable products will need replacement soon, which excites us because GrowGen primarily serves large commercial operators. We believe that a significant portion of our business could arise from the elimination of 280E if rescheduling occurs. We are optimistic about this prospect and hope to receive updates in the next few months.

Okay, great. Thanks for that color. And then second one for me. Just kind of bring down, the store fleet, 50 now sounds like it'd be at about 44, another six in the upcoming quarter. Number one, how do you feel about the store fleet at that level, like, kind of hold their, maybe some smaller growth opportunities, open up some new stores? And then, number two, on the 40% same-store sales decline, could you maybe provide what that might be on a pro forma basis on what the new 44 would be, including the six plan to consolidate in 4Q? Thank you.

Yes. I'll start and then send it over to Greg. With the six stores closing, that brings us down to 50. So you're double counting the six. So we weren't at 56. With the six stores we're talking about closing this month, we will bring us down to 50. We've already shut those stores and are in the midst of consolidating them. We still do have a small amount of work to do on the portfolio. And the way we're looking at it right now, with the build out of our distribution center in Ohio, the success of our private label brands, and the launch of our ERP system, POS and also warehouse, we're becoming much more efficient. Our customers are much more reliable, they're planning much better. And with that, we just don't need redundancies within the footprint. When you take a look at what we've closed in the last four months, it was 12 stores, I think 15 during the last seven or eight months, but most of them are within 30 miles of another store. They were smaller stores that were predominantly bought through acquisitions, and those weren't the main stores within the acquisitions. We feel pretty comfortable right now. We believe that there'll be tremendous savings, not only through the store closures, but also through consolidation of back office staff and accounting. So it's two-fold opposed to one. The 12 stores that we've closed accounted for about 22 million of business in 2022. Greg, do you have anything to add to that?

Yes. No, I think that's spot-on Darren. For the comp question in isolation, what we'll see on a quarterly basis is a reduction of approximately 3 million to 4 million, depending on the quarter at this point. We did see some down performances in some of those locations that we've consolidated throughout the course of the year, and into the fourth quarter as well. The number around 50, Aaron, just to mention is inclusive of the Q4 activity, where we've ceased operations within November and expect to conclude the operational procedures on closing by the end of the month. So that's an all-in number for us at this point.

Aaron, just a little more color. With seven stores in California, three stores in Colorado, one store in Michigan, and one store in Washington.

Thank you. Your next question comes from Andrew Carter from Stifel. Please go ahead.

Hey, thanks. Just wanted to build on that just a little bit with the same stores. Obviously, you're closing the more redundant locations and therefore there should be some kind of lift within the cannibalization. So I think looking back in it seems like the absolute decline is moderating quite a bit in 4Q, given the absence of stores. But when do you think cannibalization category could see an actual return to same-store sales growth of the current base?

I believe that we could see it next year. We've been bouncing along the bottom this year, our same-store sales for the last six months have been in that 14% down range. We are seeing a lot more commercial bidding coming into GrowGen right now. With the uptake of our private label products, and distribution, and being able to get products to our customers quicker than any other store in the country, we do believe that business is going to restart and GrowGen will be a better company for it. Can I tell you it’s going to happen in the first quarter, fourth quarter of this year? I can’t tell you that. But with what's going on in legislation right now, especially with 280E, I think if we reschedule, you'll see money coming back into this industry. So we're very optimistic. We’ve brought cost levels of this company down almost $25 million over the last couple of years. We brought inventory down over 30 million in that same timeframe. So we're working hard to get this company back profitable and to get same-store sales increasing again. We've closed many of the stores that we felt were redundant, but a portion of them were also non-performing too. With our private label penetration up about 17% right now, we believe that goes into the 20s next year, and we think that will fuel same-store sales growth at our stores.

Second question I want to ask and just kind of stepping back. Like, you're closing the stores, I guess, during the super cycle, it could have kind of given you some false read in the category of kind of the necessity of that last mile. Do you believe that this step back in the footprint, you'll be just as well positioned with the category accelerates? Or are there some trade-offs? Or is this a category where last-mile is necessary? What I mean is that the grower doesn't have to have it in 24 hours, they can live with 48. Therefore, ship from Ohio, just kind of those puts and takes as you're thinking about being prepared for the eventual return to growth in this category.

Yes. When I look at GrowGen, right now in our store accounts, where we are. With boots on the ground with our commercial team, I think we're better positioned than we've ever been with the launch of our new ERP system, distribution, and private label. The one thing that we're starting to see is forecasting coming from our customers. Like we've always said, we don't represent a significant part of the illegal markets. Our bread and butter is the legal markets. With more money going back onto the balance sheets, if you see a reschedule, we do believe that business is going to come to GrowGen, and will make us a better company for it. That’s what keeps us optimistic. And again, we will continue to cut where needed and continue to get this company to where it needs to be. You’ve seen it through the year. But the most exciting part of GrowGen right now is the uptake of our private label products and the brands that we're bringing to market. We're launching Drip powders this quarter and following up on our Drip nutrient lines which have had a tremendous first year for us. We're adding products onto our Char Coir brands, and we are launching benching from our MMI company, a single tier of benching. There’s a lot of excitement in our company right now. Getting costs in line with the new norm in the business, if you ask me, is critical. People are waking up in the morning and deciding to start growing again, that kind of run its course. You're seeing many more legal growers out there, especially in states that are allowing home grows. You probably will see a store from GrowGen in Ohio this year, we'll probably get into that state in the first quarter next year, and we will still be expanding. But you're probably talking one or two stores in states, not as we used to. The industry right now is more predictable and forecasting is better. So less is more right now for us.

And your next question is from Eric Des Lauriers from Craig-Hallum Capital Group. Please go ahead.

I guess first one, just kind of following up on the store outlook here. It sounds like you're mostly consolidating stores in these more legacy on limited license markets here. You mentioned Ohio as a place that you might look to add a store within the next couple of months here. Beyond this newly legalized Ohio state here, are there other states that you are looking to sort of continue expanding in? I guess, just how should we think of the overall expansion plans going forward here? Is it based on states as they legalized or do you have a more extensive roadmap for the next year or so?

States that are legalizing will depend upon rules, but again, in the Ohio rules were favorable. We have a 100,000 square foot warehouse in Ohio. So we'll probably only need to store in Ohio and ship out of our warehouses within 24 hours. We're still looking at New York. We're looking at Pennsylvania, Maryland, and a couple of other states. We've looked at another store in Missouri and New Jersey. Right now, we're taking a wait and see attitude, the states that we're already in, we're relieved that we're pretty well served in those areas. We won't look to add to the footprints unless something comes up that's beneficial for our shareholders. What we're really focused on right now is stores that are closing; we're bringing them into the GrowGen umbrella, buying inventory from them, taking customer lists, and sometimes some employees. We did that in St. Louis this year and it worked tremendously for us. So it's just a wait and see approach to see where the market goes. But the one thing that we will continue to do is keep our balance sheet extremely strong until we see a real turn in the industry.

It's helpful. I appreciate that color. Next one for me. I think I caught in some of the Q&A here that you think private label as a percentage of overall sales? Or maybe as a percent of retail sales, I'm not sure. But that could go up into the 20s next year, that I think that's an increase from previous commentary. Could you just kind of expand on that a bit of, do you need to get additional new products in line here? I know you have a handful that you've just recently introduced here. Is this kind of portfolio of proprietary brands now sufficient to get you to that 20% plus level? And if you're willing to share any kind of longer-term goals of where you think private label could be as a percentage of sales, that'd be helpful. Thanks.

I believe that what we have in-house right now with the launch of Drip Hydro powders will bring us into that 20% mark next year. We're also doing a lot of work with the harvest company. We will be launching products into IGC next year, pruners and garden in a box that we've just started to roll out, certain mushroom kits that we're rolling out. Char Coir has had a wonderful 2023 and we continue to launch new Char Coir products from Char Coir. We just entered the propagation space with coco coins. So there's a lot going on right now in our private label division. It's really what's fueling GrowGen right now, starting to see new customers coming to our stores and also on the distribution side. We’re excited and we do believe you will see that number in the 20s next year. Further out into 2025, we believe it will continue to grow. We believe there is a lot of wonderful products from other vendors out there right now, and we believe somewhere between that 30% to 35% number when we fully grow up, and that'll probably be 2026-27. We do believe that we would reach that number.

Your next question comes from Brian Nagel from Oppenheimer. Please go ahead.

So I apologize if this is repetitive. I unfortunately jumped in the call late, but just with regard to the store closings? Are you repositioning within markets? Are you exiting some markets with these closings? And then a second question, and I apologize if you may have already laid this out? How should we think about the near-term financial implications of closing the stores, from a sales loss perspective, as well as an expense reduction perspective?

The 12 stores that we've closed, Brian in the last four months, we weren't losing markets. They were redundancies. I think probably 10 or 11 of the stores were within 30 miles of another store that we had. They were smaller stores that were mostly bought through acquisitions, and those weren't the main stores within the acquisitions. We've done a decent job getting out of most of the leases right now and cutting costs. When you look from a financial side of it, those 12 stores accounted for about 22 million in business in 2022 and that was tailing off into 2023. From a revenue standpoint, what we believe we're going to keep somewhere in that 50% mark. We usually keep a majority of the commercial customers and depending upon which store it is, and how close it is to another store. That's where the home-grown markets will fall. We believe that again GrowGen still has the best stock in our stores, the best solutions, and people still want to shop with us. We are incentivizing our staff to keep these customers, to keep reaching out to them. We are doing work before closing stores with contacting customers and giving them benefits to come to the next nearest store of GrowGen. Also, we'll have a little more color for that probably in six months when we really get an understanding of what percentage we kept, but we do track it. Right now for guidance, we aren't changing guidance for 2023. So we’ll probably drop 3 million or 4 million off the fourth quarter, but we still look very comfortable with guidance right now for the year.

Yes. So I think when you look at the third quarter gross margin, the primary driver was private label more than any other independent factor. On a quarter-over-quarter basis, we drove in private label from 15 to 17%. Year-over-year was 13% to 17%, with 75% of our Q3 sales from the retail business, which in itself improved a point and a half on margin. This was primarily due to some of the private label benefits, also some improvements in mix as well as price increases within some of our products, as we're focused on profitability. Separate from that, I think you're starting to see early signs of some of the margin improvements from the distribution development and investments that we've made, negotiating larger bulk buys, negotiating points off those SKUs that we're bringing into our portfolio. There are a lot of factors that go into it, but we were very pleased with how the quarter reported and we remain optimistic that we'll continue to build on this into future periods.

Yes. Good afternoon, and thanks for the questions. Just kind of follow up on that, can you break down a little bit, and provide a little more color on the sustainable kind of modeling, looking to deal with the consumables? What percent came from consumables versus equipment mix? I know we see rescheduling, which we think is likely that could increase the equipment side of it. But just kind of give us a sense of how that mix looks and how you see it kind of going forward in '24 moving forward with the margin improvement there.

Greg, do you have any specifics on that, or do you want me to take it?

Maybe I'll just start down and pass it over to you. I mean what we've seen on a consumables versus durables basis over the last several quarters is certainly more stabilization in the consumables end of our business, primarily, and the Char Coir and Drip lines, which are our private label brands. I think Char Coir at this point in time is maybe our best-selling brand in our entire portfolio. So you're seeing about a 75% to 25% mix, which has been generally consistent over the last three or four quarters, as we've looked at the business, and certainly down from some of the higher end years or quarters in 2020 and 2021, when we saw a lot of build activity. So we do have a fair amount of comfort at this point with where consumables are and how they're supporting kind of the baseline of the business. And Darren, I'll pass it over to you.

Hey, Scott. On the other side of that, with rescheduling there is no doubt that build outs will happen, and money will come into the industry. We still believe that there is a tremendous refresh cycle coming. Consumables will stay the same, if not start ticking up a notch as people hopefully start opening up certain rooms that they've closed. But we do believe you'll see a tremendous lift on the durable side of it, especially on the lighting side. We are seeing much more bidding, and there are a lot of commercial products around the country in anticipation of rescheduling. Our commercial team has been extremely busy, the busiest that they've been in the last couple of years, albeit it takes time to get these projects done. But the amount of quoting we're doing right now is certainly much different than we've seen and it's much better than we've seen in the last couple of years.

Great. I appreciate that color. And then, just one other, where are you with the inventory levels? Obviously, with the discounting of inventory from competitors, that kind of plays out here? Are we still seeing some pressures there? And then, was consolidating your store base, what's kind of the normalized inventory level that you're looking at? I know you have 76 million or something like that this quarter? And where are the turns that are being focused towards getting on the inventory level side of things?

Yes. So inventory, we're highly focused on this quarter. As we moved into our new ERP and warehouse management systems, we loaded on inventory a little bit heading into that, kind of massive change management piece in our business, which we think went pretty well. Now we're looking at eliminating redundancies in our inventory and driving progress in the fourth quarter. We think there are opportunities to reduce inventory by about 5 million in the fourth quarter, and then we'll probably have more color on the next call in terms of what that might look like for '24.

Your next question comes from Mark Smith from Lake Street Capital Markets. Please go ahead.

Hi, guys. Just a follow-up from that last one. Darren, within your private label, what does your mix look like? They are kind of consumables versus durables?

I would say consumables make up about 80% of it right now, on the 17%. We have our lighting brand, ion lights that have been quite successful. It is our leading lighting brand right now at GrowGen. The leading part of our portfolio right now in our private label side is certainly Char Coir and Drip has had a tremendous launch this year and is growing very quickly. We believe that will stay somewhere around that 80:20 or even 90:10, with much more on the consumable side and the durable side. The only thing on the durable side, you'll see from GrowGen is a lighting brand ion. Again, some people include fans in durables or consumables, and we do have a decent fan business, the DuraBreeze brand has been selling for many years. That's really the extent of what you're seeing. The only difference next year is we are bringing the market to single tier bench from MMI that we believe will make some inroads into the industry. Right now, we haven't been 100% concentrating on it, Mark. We've been getting our own house in order, especially with the launch of our ERP system. So we've had a quiet six months on the M&A side. What we do believe next year, you will see us back, certainly nothing like you've seen in the past. We will do it slowly and deliberately. It depends on what markets we're going into and what is there. We still do believe with our distribution centers working and our commercial team out there, there are a lot of large commercial growers that don't come to the stores anymore. We can ship out of our warehouses to them. So we're just balancing it right now. If you ask me, we'll probably add five stores to the portfolio next year, but you will see some kind of consolidations from GrowGen next year, depending upon leases but certainly nowhere in the realm of what you've seen this year.

And there are no further questions at this time. Ladies and gentlemen, this concludes your conference call for today. We thank you for joining and you may now disconnect your lines. Thank you.