Organigram Global Inc. Q2 FY2022 Earnings Call

Good morning. My name is Rob, and I will be your conference operator today. I would like to welcome everyone to the Organigram Holdings Second Quarter Fiscal 2022 Results Conference Call. All lines have been muted to prevent background noise. After the speakers’ remarks, there will be a question-and-answer session. Craig MacPhail, you may begin your conference.

Listeners on today's call should be aware that it will contain estimates and other forward-looking information in which the company's actual results could differ. Please review the cautionary language in today's press release on various factors, assumptions and risks that could cause our actual results to differ. Further, reference will be made to certain IFRS measures during the call, including adjusted EBITDA and adjusted gross margin. These measures do not have any standardized meaning under IFRS, and our approach in calculating these measures may differ from that and other issuers. So these measures may not be directly comparable. Accordingly, these non-IFRS measures are intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. Please see today's earnings report for more information about these measures. Listeners should also be aware that we're making certain statements relating to market share data; the company relies on reputable third-party data providers. I would now like to introduce Beena Goldenberg, Chief Executive Officer of OrganiGram Holdings Inc. Please go ahead, Ms. Goldenberg.

Thank you, and good morning, everyone. With me is Derrick West, our Chief Financial Officer. For today's call, we'll discuss the financial results for the three months ended February 28, 2022, and I will provide a general business update. We will then open the call for questions. I'm happy to report that in the second quarter of fiscal 2022, we continued the progress of the past several quarters. We again achieved record net revenue in the quarter, the highest in the history of the company. We grew our market share and now hold the #3 position among Canadian LPs in the recreational market in Canada. Most importantly, we achieved a positive adjusted EBITDA of $1.6 million, two quarters earlier than we projected at the start of the year. In the quarter, as we announced in our last call, we acquired Laurentian, our seasonal craft grower and premium hash producer based out of Quebec. Net revenue in Q2 was $31.8 million, a 117% increase over Q2 of fiscal 2021. This is a record level of net revenue for Organigram and demonstrates our continuing success in understanding consumer needs, innovating to best address market demand, and introducing compelling brands and products that resonate, and we continue to grow our market share. In February, we secured the #3 position in market share among Canadian LPs for the second month in a row, with a share of 8.2% according to Hifyre. In March, the momentum continued with another 20-basis-point gain for a market share of 8.4%. We also continue to hold the #1 position in the flower category, which represents about half of the Canadian cannabis market. Our SHRED milled flower products are the top sellers in Canada, with SHRED Tropic Thunder being the best-selling flower product in the country. We also hold the #3 position in the gummies category, having doubled our market share quarter-over-quarter with two of our SKUs among the top 10 bestsellers in the country. This market position includes SHRED'ems gummies, which were introduced this past August; and Monjour, our large-format CBD-infused soft chews introduced this past November. Edison Jolts, our unique high potency THC lozenge, maintains its position as the best seller in the ingestible extracts category. Now moving on to innovation. We recognize the need to bring new products to the category, so we continue to launch new products. We have leveraged our SHRED brand, which has achieved high visibility among cannabis consumers. In March, we shipped SHRED-X, Kief-infused blend, an innovative product that combines the convenience and popularity of SHRED milled flower with the potency of kief in a 50-50 ratio. We also launched SHRED-X vape. These are 510 cartridge vapes with the flavor profiles of SHRED milled flower products, Tropic Thunder, Megamelon, and Funk Master. Building on the success of SHRED'ems gummies, we added unique line extensions, SHRED'ems POP! gummies in the classic pop flavors of cola, root beer, and cream soda, which were introduced in March. We've also added two new sour flavors, Sour Apple Slap and Sour Blue Raspberry. With eight SKUs now available to consumers, we expect to strengthen our market position in the gummy category. We've also added two new premium strains to our Edison line, with Edison Kush Cakes and Edison Frozen Lemons. These high potency and terpene-rich editions will create further engagement with cannabis enthusiasts. With Big Bag O’ Buds, our large format value brand, we added Pink Cookies, a high-potency indica strain. This expansion of our product line addresses the desire for specific strains by value-seeking consumers and reflects the evolution of the Canadian cannabis market. International sales also bolstered our Q2 results. We shipped approximately 1,700 kilograms of dry flower to Israel and Australia in the quarter marking the highest international B2B shipments in the history of the company. We expect to have further shipments to Canndoc in Israel and Cannatrek in Australia in fiscal 2022, and we'll look to expand our international partners to ship more wholesale dry flower. Moving to operations, beginning with Laurentian, after acquiring Laurentian in December, we began working on integration. One of our priorities was to increase the distribution of its unique Tremblant hash and Laurentian craft flower products. At acquisition, Laurentian products were available in four provinces. By the end of the fiscal year, we will be available in all ten. In Ontario, we've been successful in increasing distribution levels of Tremblant hash from 25% to almost 40% of Ontario's 1,500 stores and have grown sales by 21%. This Ontario example underscores our success in leveraging our marketing, distribution, and field sales capabilities to drive results. We expect to achieve the same success across Canada as we increase the footprints of the Laurentian brand. We are also making progress in expanding and automating production at Laurentian. Construction and licensing for the additional space is expected to be complete by the summer of 2022, with a 4x increase in cultivation capacity and increased automation, processing, and storage space to be achieved by the end of 2022. Cash production at Laurentian is now supported by high quality and high potency product coming from our Moncton facility. This was identified as an acquisition synergy. At our Moncton campus, we are completing the Phase 4C expansion and expect to reach upwards of 80,000 kilograms of dry flower capacity. Environmental enhancements are currently in place in approximately 40% of the facility and should be fully implemented by the end of the year. These upgrades have and will continue to further enhance yields and flower quality as they are completed. We currently have two automated pre-roll lines, and we'll be adding high-speed pouch filling lines for SHRED and Big Bag O’ Buds by the end of fiscal 2022. In Winnipeg, adding on to our highly automated gummy production line, we have automated labeling and excise stamping and our commissioning pouch packaging equipment. We have also upgraded and leveraged our warehouse to optimize our logistics network and drive freight savings. These changes help improve our efficiencies, margins, and customer service. The build-out and improvements in Moncton and Winnipeg reflect our strategy to make investments based on recognized business needs and strong payback. In the quarter, all large-scale construction projects were substantially completed at the Product Development Center of Excellence in Moncton. The bio lab is being fully equipped in Q3, and then we will begin to conduct advanced plant science research. In the quarter, our joint R&D efforts continued to progress well, and we look forward to applying the discoveries and deep scientific knowledge to both strengthen our existing market products as well as develop new consumer-centric innovations. It's important to note that BAT's support for the product development collaboration, and Organigram as a whole, was further showcased at the beginning of March when they invested $6.3 million into the company. This investment was made through the exercise of their top-up rights pursuant to an Investor Rights Agreement, increasing their equity position from 18.8% to 19.4%. Also, as mentioned in our call last quarter, in December, we increased our cumulative investment in Hyasynth Biologicals by $2.5 million to $10 million for a strong minority position. Hyasynth's advanced research into using biosynthesis to produce THC, CBD, and rare cannabinoids without using cannabis plants provides us with another avenue to innovate in the future. Through these collaborations and in addition to our in-house R&D capabilities, we will continue to produce unique, exciting products for Canadian consumers and, subject to the terms of the PDC, create proprietary IP that we can introduce globally. Now I will turn it over to Derrick to present the financial overview. Derrick?

Thanks, Beena. Turning to our earnings results for Q2 fiscal 2022. Gross revenue grew 128% from Q2 2021 to $43.9 million and net revenue grew 117% from the same period in fiscal 2021 to $31.8 million. These revenue increases were primarily due to higher recreational net revenue, which grew 108% from Q2 of fiscal 2021 and the completion of international shipments to Israel under our agreement with Canndoc and to Australia through Cannatrek. While gross sales grew 128%, the cost of sales decreased 20% year-over-year to $25 million. Lowering our total cost of sales during a growth period was a direct result of increased efficiencies at our production facilities, combined with improved inventory management. We harvested approximately 10,000 kilos of flower during Q2 of fiscal '22 compared to about 4,500 kilos in Q2 of fiscal 2021, an increase of 125%. Over the past year, the company has experienced growing demand for its products, which led to increased planting and cultivation levels. When combined with higher flower yield per plant compared to the prior year's comparison quarter, this resulted in the doubling of our hubs. Largely due to a higher net revenue, a reduction in inventory provisions, unabsorbed inventory costs, and a lower cost of sales per unit, the gross margin in Q2 improved to $6.9 million from a negative $16.5 million in Q2 of 2021. On an adjusted basis, gross margin was $8.3 million compared to a negative $700,000 in Q2 of fiscal '21. We expect that we can continue to achieve efficiencies and better economies of scale from the three facilities, lowering production costs. This, combined with contributions from higher-margin products, will further improve margins. SG&A, excluding non-cash share-based compensation, increased to $14 million in Q2 2022 from $10.3 million during the prior year's comparison quarter, largely due to higher employee costs resulting from increased headcount, including the acquisition of Laurentian, general wage increases, increased professional fees related to technology investments and higher trade investments and marketing spend initiatives. In the quarter, we achieved positive adjusted EBITDA of $1.6 million, a $9.4 million improvement over a negative $7.8 million in last year's comparison quarter. This is the result of continual improvements in our business, including higher sales volume and lower production costs, which generated higher gross margins and operating income. We achieved positive adjusted EBITDA two quarters earlier than projected at the start of the year. Based on the momentum we see in terms of increased sales and improved efficiencies, we expect to generate positive adjusted EBITDA into the future. The net loss for the quarter was $4 million compared to a net loss of $66 million in Q2 of fiscal 2021. This large reduction in the net loss was due to increased sales and higher gross margins I've already mentioned. In terms of our statement of cash flows, cash used in operating activities was less than $1 million during Q2 of fiscal 2022 compared to cash used of $10 million in Q2 of fiscal 2021. The year-over-year improvement is primarily due to the current period's operating income. Cash provided by financing activities was $6 million during Q2 fiscal 2022 compared to $51 million cash used in the prior year's quarter. During the current quarter, the company received $6.3 million from proceeds from shares issued to BAT. Cash used in investing activities was $23 million during Q2 fiscal 2022 compared to cash provided of $18 million in Q2 of fiscal '21. The cash used in Q2 of this year reflects the $7 million in cash consideration for the acquisition of Laurentian, $2.5 million for the additional investment in Hyasynth, $8.7 million for facility expansion and improvements, and $4.5 million invested into restricted costs to fund the Center of Excellence. In terms of our balance sheet, on February 28, 2022, we had $151 million in unrestricted cash and short-term investments compared to $184 million at the end of fiscal 2021. The decrease during fiscal 2022 is primarily due to the company's investment in its working capital assets and capital expenditures for facility improvements, the purchase of Laurentian, and the additional investment in Hyasynth. This concludes my comments. Thank you. I would like to turn the call back to Beena.

Thanks, Derrick. The first half of fiscal 2022 has shown the success of our strategy to create exciting products and brands that are embraced by the market while maintaining efficient operations and deploying capital wisely. This will continue to be our focus, which positions us for success for the rest of the year. I'll reiterate that our investors can continue to expect strong revenue and volume growth, driven by expanded distribution, more new and exciting product and branded introductions, continued international sales, further improvements in our adjusted gross margin, and continued positive adjusted EBITDA. Thank you for joining us today. I look forward to updating you on our progress. And now, operator, you may open the call for questions.

Our first question comes from Aaron Grey from Alliance Global Partners.

Hi. Good morning, and congratulations on the quarter and reaching the EBITDA target two quarters ahead of what you originally expected. So, my first question for me is just on EBITDA. Thinking about the EBITDA margin opportunity longer term, right, so now you've reflected the profitability, expect that to continue going forward. Just how best do you think about the EBITDA margin opportunity maybe in the next 18 to 24 months as you expect continued improvement on the gross margin side and sales ramping up?

Derrick, over to you on that one.

Okay. We're confident that we'll continue positive adjusted EBITDA based on momentum over the past few quarters into the future with the increase to our capacity at all our facilities. This will result in economies of scale, which will lower our production cost and improve margins. There is also the additional contribution from Laurentian, which has a higher average price per unit just based on it being a premium product. This contributes to a positive margin. But bear in mind that as we need to continue to invest in our business to support the continued growth, while we expect to have a growing EBITDA, we're not providing specific guidance at this time in terms of a percent of revenue. But we do expect with all the momentum we have with increasing sales demand and increased capacity to have higher sales throughput with lower cost per unit that ultimately, we are well positioned to have increased EBITDA over time.

Second question for me on international, right? I saw a nice sequential increase once again in the quarter. Looks like you're expecting continued momentum on that front. I just wanted to clarify specifically in terms of the shipments during the quarter, was there anything on the timing side? Do you feel like those are going to be reoccurring? Is this a good run rate on the go forward? And just any color you could provide maybe on the margin? I know it's a higher margin, and we've kind of been over this before, but the margin differential in terms of the international versus the domestic revenue.

Right. So, thank you for the question. So first of all, we do expect to see ongoing shipments to both Israel and Australia. We obviously turn the paperwork, import quotas, import documents, export documents, and need to get those turned before every shipment. So that continues to be the regular cadence of our business, and we expect to see more shipments for the balance of this year. In terms of your question on margin, the real answer is that there's no excise tax on international B2B sales. That's the significant improvement in margin over general recreational sales. It obviously comes with different kinds of testing requirements. So there's a bit of an offset to that, but it's good margin business and nicely complements our recreational business.

Your next question comes from the line of Tamy Chen from BMO Capital Markets.

Great. The first question I had is specifically on your rec sales. You described how you're continuing to see momentum and your share and market share has continued to expand. So, I'm just curious why did your net rec revenues decline a little bit quarter-over-quarter?

Overall, Tamy, our momentum is solid, and we saw our market share grow again in March. We had a bit of a challenge during the month of January with Omicron, as it ran through our facility, and we had some high absenteeism that impacted our fulfillment. We had the highest shipping month in February to get the product out, but we had a little bit of a timing issue that rolled into some solid momentum into the month of March. That's what you're seeing on the rec side of the business. Our market share continues to grow, so the offtake isn't the problem, but we did have a little bit of timing issues through the quarter as a result of that disruption.

Okay, I understand. As a follow-up question, if I look at the broader Hifyre and even the StatCan retail sales data for the industry, it seems to be slowing down or stalling a little bit the last several months really since the fall. And I noticed that you also produced fewer flowers, I suppose that's attributed to the Omicron aspect. But I guess, a two-part question here with respect to what's been happening in the market. First is, you called out for your fiscal Q3 that you're expecting market growth in your outlook. So, are you seeing now that the industry is growing again to new highs? And second part of the question is, based on where the market is today and what you expect over the near term, do you still believe that once you are at, I think almost 80,000 kilograms capacity, the market can still absorb that from you?

A couple of key questions there, Tamy. First of all, we do see the market picking up. It has been a little bit stalled over the last few months as StatCan has reported. However, given the opening of the communities, we expect to see concerts this summer and fairs, and we anticipate the reopening of social activity. We expect to see the market rebound over the course of the next few months, especially anticipating a significant lift coming up on 4/20. On the second part of your question, we do see some continued growth. As I mentioned in our last call, our current situation is that demand is outstripping our supply. We have limited our distribution to other provinces, which we will expand once we have more capacity. For now, we are a net buyer of product. We partner with external suppliers that we will transition into in-house production once we have it up and running.

Our next question comes from the line of Matt Bottomley from Canaccord Genuity.

Congrats on the print this morning, and thank you for taking these questions. I just wanted to start maybe just at a higher level when it comes to what's happening in the Canadian market, just sort of piggybacking off of what Tamy was talking about as well. Just the fact that if you look at some of the incumbents in the space that started with close to 20% market share on recreational implementation in Canada, it's consistently been coming down to, I think the leader in the space now has maybe a little over 10% market share. So where do you see this bottoming out even though that Organigram has been doing very well and re-accelerating as of late? If you look at commoditized markets in the U.S. like Colorado, Oregon, market leaders there rarely achieve more than 5%. So I'm just curious where you think this is going in Canada, barring any sort of major change in excise tax or federal regulations regarding the ability to secure outsized market share?

Right. Thank you, Matt. To start, when you look at some of the bigger players who had 20% market share that dropped down to 10%, it is clear that one cannot sit on their laurels. You must continuously innovate. A lot of the focus of my comments this morning was around innovation. We know this category needs to be refreshed, and we must keep bringing new products to excite consumers. This is something we've focused much of our time on, introducing 90 new products over the course of the last 12 months. The market is highly fragmented, with a lot of small players that have less than 1% market share. We know that provincial boards are starting to tighten up—they don’t want to carry thousands of duplicate products. One example I could share is that as we took our Tremblant hash out to some provinces to get it listed, the feedback we got was they were excited it was part of our portfolio because we’re already a supplier to them. This market will mature, and we find that those vendors that are full suppliers of a cross-portfolio will be prioritized.

Great. Much appreciated. And just one follow-up for me on the consolidation part. We've seen, over the last several years, half a dozen or more acquisitions of these types of craft growers. Many of them have turned out quite favorably in terms of their penetration or market share being a little more sustainable when it comes to pricing. Is there any other product categories or SKUs or classifications you think are kind of next in line for the industry to consolidate? Any commentary on where you think M&A is going in the domestic element of Canada?

First of all, we've seen different types of M&A over the last few years. There's been the big players who have acquired other big players and had a lot of duplication in offerings. Our focus for M&A has been to look at our portfolio and identify gaps. For instance, when we acquired Edibles & Infusions Corporation last April, we entered the gummy space. By August, we launched new gummies into the market and became the #3 gummy player within six months. Our acquisition of Laurentian was to bolster our product mix with a craft flower provider. We're focused on finding acquisitions that fill gaps in our portfolio and looking for accretive, incremental alignments with existing products, rather than just chasing market share which may produce duplication. In terms of product categories, flower is significant, but we look to differentiate ourselves. The fragmentation in the flower space is largely due to consumer demand for new products, but with our ability to innovate, larger players won’t need smaller craft producers for unique offerings. We're committed to driving quality while expanding our market share and product portfolio.

Your next question comes from the line of Douglas Miehm from RBC Capital Markets.

My first question really has to do with your strategic thinking as it relates to pricing in the marketplace. It seems you've done an excellent job from that perspective. But do you think some of the pricing declines in the marketplace that we've seen over the last 12 months are over? Are we at a base? Or could we see some further erosion in overall pricing in the Canadian marketplace?

A lot of the price compression that we saw in flower has already happened. The price of flower on the value segment is at or even slightly below what the illicit market is at. Therefore, I think that pressure on flower is mostly behind us. We've also seen less supply in the market; some cultivation sites have been shuttered. This provides more balance between supply and demand, which previously pushed some of that price compression. However, we do expect to see some price compression in other categories like vapes and concentrates; it's crucial to recognize that we value the value segment, as it is high-volume. With our ability to drive positive EBITDA from both value products and premium offerings, we expect to manage the impacts of market conditions well.

Yes. No, very helpful. As a follow-up, what we're finding is that budtenders play a key role in focusing on what type of product people should buy. Do they tend to support the craft growers more significantly than the larger LPs? What's your thinking on this? I know you describe your strains and your innovation, but is there anything else that you can add?

Budtenders indeed play a vital role. Consumers come into retail stores, often seeking guidance on their purchases. We pride ourselves at Organigram by having our dedicated sales force engaging with budtenders. We also conduct education programs and in-store activations to strengthen our relationships. We promote the breadth of our portfolio, so budtenders can recommend based on consumer preferences, whether it be craft, innovative products, or high-quality offerings. Our messaging emphasizes quality across the spectrum and we encourage budtenders to recommend products that suit their customer’s needs.

Your next question comes from the line of Ty Collin from Eight Capital.

Thanks for taking my question, and congrats on the solid improvement in gross margin this quarter. Could you help us unpack the key moving pieces that drove that gross margin improvement? How much of that was due to Laurentian, how much from the larger international shipments, and how much from product mix?

Okay. Perfect. Thanks, Ty. Derrick, I'll pass that over to you.

I would say you outlined a couple of the points that were key in terms of improving the margin. The improvement has come from a mix of elements: certainly, international shipments, avoiding excise taxes, contribute higher margins than recreational sales. Furthermore, Laurentian contributes higher margins due to its premium products. However, a significant element comes from sales growth over the past quarters and higher production levels, which achieved economies of scale that reduce production costs across all categories. As we continue to increase output, we expect cost per unit to drop, enhancing overall margin. So although I won't provide specific metrics, the combination of these factors is encouraging as we head into the future.

Great. And as a market-level question: Given some pressures on consumers' pocketbooks between inflation and rising borrowing costs, are you seeing customers starting to trade down into value categories at all? Is that a risk to your plan to emphasize more premium SKUs in your sales mix?

We have a variety of value products. We refuse to shy away from these segments as they stay competitive and meet the needs of price-sensitive consumers while also addressing the cannabis enthusiasts seeking quality. While costs have risen, we believe consumers will view cannabis products as essential, promoting relaxation and stress relief, which justifies maintaining sales even amidst economic pressures. We see potential shifts to more value products, but we are positioned to benefit from serving both segments.

Just on your gross margin, you guys are showing some good growth there, good expansion. Can you talk about the differences in margins between your rec sales in Canada and your international sales and how much of that margin expansion is coming from a mix with higher international?

Our international revenues were $4.4 million in Q2, one of the highest we've had as a total and percent of our total revenue. As a company, we don't disclose margin by distribution channel, making this difficult to answer directly. However, the international shipments are important because they lack excise tax and thus attract higher margins than recreational business. We're growing our overall revenues and expect to provide sufficient flower inventory to supply both international and domestic markets going forward while achieving lower costs through economies of scale.

When you look at your market share and growth outlook through the remainder of this year, which product categories do you expect you'll gain the most market share in? We know that you're a leader in flower, but do you expect to gain significant share in vapes or continue to gain share in flower? So any color on specific product categories?

We are excited about our SHRED-X vape launch and we have had significant shipment success in New Brunswick. It's well positioned to increase our market share among vapes. Regarding gummies, we've added new offerings and our SHRED'ems are performing excellently, being recognized as a top supplier in the segment. While we maintain leadership in flower, we also anticipate growing our market share in the gummy and concentrates segments significantly as we expand distribution, leveraging new product offerings and increased brand recognition.

First question: I just wanted to come back to the sales mix. Obviously, really impressive market share traction, but it does appear to be driven by value with SHRED, and many of the new launches are also SHRED-related. I was wondering if you could give a bit more color on your current sales mix between value and premium. Also, what you're doing to address the upper end of the market? You've got Laurentian, you've got Edison, but I'm interested in how you see that sales mix evolving going forward.

In looking back to the fourth quarter of 2021, our flower business comprised 68% of total revenue, with blends at 18%. In the latest quarter, flower dropped to 58%, with blends holding steady at 19%. We're innovating to hold our position in flower while emphasizing growth in gummies and concentrates. We've seen increase in edibles revenue from 3% to 9% since our expansion into that category. The mix is changing because we’re introducing new 2.0 products while continuing innovation in flower and blends.

Your next question comes from the line of Andrew Partheniou from Stifel GMP.

This is Adam Giangregorio speaking on behalf of Andrew. Diving into Quebec a little bit more, could you provide any additional color on how the sales of your products are doing specifically in the Quebec market and what's working well there?

Our product in Quebec appears to be flatlining a bit based on what we acquired as it needed a refresh. We've been working on innovative upgrades to keep our offerings fresh. We see strong results from our Tremblant hash in markets where it’s new, but we are focusing on bringing exciting innovations to the Quebec market specifically. Additionally, while expanding the portfolio in Quebec, we have seen significant increases in our base organic brand business due to our strengthened relationships with SQDC.

Thanks for taking our questions and congratulations on this booming quarter. I'd like to ask questions about the BAT, PDC Research Alliance. I wonder if you could provide any color on the focuses of this research alliance? You described the R&D facilities being substantially completed now, but if you could describe the activity of those teams and how Hyasynth cultured cannabinoid innovations might be folded into those activities?

Regarding the product development collaboration, the focus is predominantly on CBD, seeking to improve efficacy and delivery mechanisms. This ongoing collaboration between our internal R&D teams and PDC is critical for launching new products. The bio lab is nearing completion, ushering advanced scientific research on plants and genetics. While currently not connected, we are open to exploring opportunities for Hyasynth's biosynthesis capabilities for potential novel cannabinoid applications suitable for various markets.

You mentioned planting will begin in 4C expansion by the end of Q3, with harvesting in Q4. Could you describe the timeline between cultivation ramp from around 50,000 kilograms run rate capacity to full capacity with 4C included of around 80,000 kilograms a year? How will that ramp be executed?

As of now, we are running at our current capacity. Demand is surpassing our supply. Upon completion of our expansion, we are eager to supply more of the market needs. We expect to begin planting in the 4C expansion by the end of Q3, with harvesting starting in Q4. Derrick can provide more insights on the actual ramp-up.

I would indicate that the ramp in production is most robust around July and August once we start seeing that construction fully completed. Aligning production efforts across the new rooms will synchronize with our demand, massing output efficiencies as we head towards that 80,000 kilograms run rate.

Thank you. I know we've run a little bit over our time. So I want to thank everyone for joining us today. We're very excited about the momentum in our business, and we look forward to updating you on our progress. I wish everyone a happy 4:20 for next week. And with that, I'd like to end the call.

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