TILT Holdings Inc. (OTCQX:TLLTF) Q4 2022 Earnings Conference Call March 16, 2023 5:00 PM ET
Lynn Ricci – Head, Investor Relations and Corporate Communications
Gary Santo – Chief Executive Officer
Dana Arvidson – Chief Financial Officer
Conference Call Participants
Aaron Grey – Alliance Global Partners
Bobby Burleson – Canaccord
Good afternoon. And welcome to TILT Holdings’ Fourth Quarter and Full Year Conference Call and Webcast. Today’s call is being recorded for replay purposes. A replay of the audio webcast will be available in the Investors section of the company’s website approximately 2 hours after the completion of the webcast and will be archived for 30 days.
I would now like to turn the conference over to your host today, TILT’s Head of Investor Relations and Corporate Communications, Lynn Ricci. Please go ahead.
Thank you, Sherri. Good afternoon, everyone, and thank you for joining us. Earlier today we issued our fourth quarter and year end 2022 earnings press release. The press release along with our report on Form 10-K is available on the U.S. Securities and Exchange Commission’s website at www.sec.gov, on SEDAR at www.sedar.com and our website at www.tiltholdings.com.
Please note that during today’s webcast remarks made regarding future expectations, plans and prospects of the company constitute forward-looking statements. Actual results may differ materially from those indicated by such forward-looking statements as a result of various factors, which we disclose in more detail and amendment number two to the Form 10 Registration Statement filed by TILT with the SEC and on SEDAR.
We remind you that any forward-looking statements represent our views as of today and should not be relied upon as representing our views as of any subsequent date. While we may update such forward-looking statements in the future, we specifically disclaim any obligation to do so except as otherwise required by law.
As of today’s call, we are presenting our financial results in accordance with the United States Generally Accepted Accounting Principles or GAAP. During the call, management will also discuss certain financial measures that are not calculated in accordance with GAAP. We generally refer to these as non-GAAP financial measures. These measures should not be considered in isolation or as a substitute for TILT’S financial results prepared in accordance with GAAP.
A reconciliation of these non-GAAP measures to the nearest equivalent GAAP measure is available in our earnings press release that is an exhibit to our current report on Form 8-K that we filed with the SEC and on SEDAR today, and can be found in the Investor Relations section of our website.
On today’s call are Gary Santo and Dana Arvidson. Following our prepared remarks, we will open the call for Q&A. During today’s prepared remarks or during the Q&A session, we may offer metrics to provide greater insight into our business and/or our financial results. Please be advised that we may or may not continue to provide these additional metrics in the future.
With that, I will now turn the call over to our CEO, Gary Santo.
Thank you, Lynn, and good afternoon, everyone. 2022 marked TILT first full year of the strategic pivot we launched during the first quarter of 2021. As one of the first operators to embrace the CPG strategy that you now hear so many others speaking of, the second year of our strategy implementation proved equally as important. If 2021 was all about proof-of-concept, 2022 was about activating and scaling it on an enterprise-wide basis.
Once again, the broader cannabis marketplace did not make it easy on us with significant headwinds challenging us every step of the way. As a result, our overall performance was not as strong as we had hoped at the outset and we will discuss the reasons in more detail. But through it all, we remain laser focused on the implementation and refinement of our strategy.
Given TILT’s asset-light agile structure, we exited 2022 battle tested, and with our recently announced refinancing and debt reduction efforts squarely behind us, we are poised to carry our momentum into 2023, where with our stable capital structure, ongoing positive cash flow from operations and the team fully equipped for success, we can take on the crucial optimization phase of our strategic evolution.
A few operational highlights from 2022. First and foremost, we signed six new brand partners, including fourth quarter additions Coda Signature and Little Beach Harvest, our Shinnecock Nation Partners brand.
This brings our total number of brand partners to 10 as we continue to round out our portfolio of product offerings to provide a broad array of form factors, quality levels and price points for our B2B customers and the consumers they serve.
This meant delivering on our previously announced goal of activating more than 100 new SKUs, which we exceeded, exited 2022 with over 145 brand partner SKUs in the market. For a company that only two years ago had focused its cannabis operations on bulk wholesale production, this almost overnight transformation towards becoming a packaged goods and distribution shop was nothing short of remarkable.
There are undoubtedly some grinding gears in the process and no shortage of efficiencies to be had, but a remarkable transformation nonetheless. And with each new brand partner activation, we became more efficient, quickly assimilating lessons learned from prior launches and adopting best practices along the way. That is the advantage of having an asset-light and nimble structure I mentioned earlier.
As a result, TILT can now regularly bring its partners to market anywhere from 90 days to 120 days, complete with a thorough go-to-market strategy designed to allow our brands to launch successfully, ramp quickly and scale the profitability.
Our launch of former NFL running back and longtime cannabis enthusiast Ricky Williams Highsman brand in time for last year’s football season is a great example of this progress. As that launch occurred within 90 days of contract signing and by the end of their first quarter of being in market, Highsman to become a top revenue contributor.
Continuing on our progress, we launched Coda Signature, our premier edible brand in Massachusetts on March 1st. Coda had found immediate success and took it even further at this year’s New England Cannabis Convention where their coffee and donuts and fused chocolate took first place in the best candy edible category. Not satisfied with that out or alone, Coda also took home the award for NECANN’s Massachusetts Best Overall Edible for 2023.
This is the unrivaled value proposition that we offer our brand partners. The ability to bring all our resources to bear, treating our brand partner’s products as if they were our own and sharing in our combined success. We may not be the biggest operator in the space, but for independent brands seeking to expand being powered by TILT is more than just a tagline, it’s a recipe for success.
Our ongoing evolution into a CPG manufacturer required that we re-imagine, retool and reinvest in our Pennsylvania and Massachusetts cultivation and manufacturing facilities in order to support this dramatic change.
While the early results have provided improved harvest yields of 7 times in Pennsylvania and 4 times in Massachusetts, we have quite a ways to go in terms of achieving efficiencies and maximizing productivity. This is to be expected of any reboot, let alone one is dramatic as this, but we could not be more pleased with the progress we have made to-date.
Also in 2022, we moved into the construction phase of our partnership with the Shinnecock Indian Nation in Southampton, New York. Breaking ground on their 5,000 square foot dispensary in Eastern Long Island, we expect to have doors open and shelf stock with product in time for the summer tourist season and look forward to continuing to build our relationship with the Nation and its members.
On the hardware side of our business, the vape segment grew as a percentage of the broader cannabis market. But with that growth has come an increased demand for new and differentiated products.
We heard the market loud and clear on this, and as one of the only hardware distributors with a full R&D lab on site, our subsidiary, Jupiter Research, brought innovation back into the vape category through several new products that we announced at last year’s MJBiz Conference in November. Market reception has been strong, with several customers ready to place orders once we formally launch these products into market, which we expect to do in the first half of 2023.
Speaking a bit more broadly about our strategy for a moment, when we set out on our B2B CPG brand partner path, it was with the belief that such a business model executed well, would position TILT for success in a volatile hypercompetitive wholesale marketplace. While it would have been far less stressful to build out this model in a more normalized environment, we did not have that luxury and had to choose instead to embrace the chaos that was the cannabis marketplace in 2022.
A market predicted to grow north of 30% at the start of the year, ended up growing closer to 5%, according to a number of sources, with all manner of price discovery, margin compression and market oversupply, not to mention a consumer that was under pressure for most of the year. But through it all, our strategy has proven sound.
Brand partner products accounted for more than 50% of our wholesale cannabis business in the fourth quarter of 2022, up from 40% in the prior quarter and 20% from a year ago, resulting in brand partner revenue up more than 8 times year-over-year.
This revenue proved resilient to many of the market dynamics I mentioned a few moments ago, none more evident than in Massachusetts, where prices continued to decline throughout the year, while our brand partner prices actually improved. Most importantly, the demand for these products allowed TILT to outpace growth in the markets in which we operate.
Looking across these states and based upon available state data, as well as our own company analysis, we outperformed in Massachusetts, where TILT revenue grew 9% for the year versus 8% overall market growth.
In Pennsylvania, the results were even more dramatic, as while the broader market declined by 6%, TILT’s revenue in the state grew by 17% for the year. And in Ohio, while that market grew approximately 24% during the year, TILT’s revenue grew by more than 1,000%.
Digging into Pennsylvania a bit more. Fourth quarter revenue was up 40% sequentially, driven by brand partner launches in the state. While price and margin compression in this market is well documented, our gross margin during the quarter was stable compared to the third quarter and up approximately 600 basis points compared to the fourth quarter of 2021.
As strong as that performance is, I do want to temper the enthusiasm a bit. As across all our markets, we were not as efficient in achieving revenue growth as we could have been. For example, Massachusetts experienced additional pressure on its margins as a result of product mix due to the need to sell off older bulk product.
To put that in context, in Pennsylvania, we have all but discontinued the sale of bulk product, putting less pressure on their margins and contributing significantly to their success during the year. While there will always be a need for some bulk sales, our goal is to have that be a de minimis component of our brand offerings.
We also need to improve on the production side of things. As while product mix is a piece of the story, our COGS were not where they should be. While that is to be expected when rolling out packaged goods production and facilities previously tooled for bulk production, this will be a key focal point for us in 2023, as we seek to employ many of the same concepts seen in agriculture and specialty manufacturing operations outside of the cannabis industry.
Speeding that process up a bit is the fact that given the oversupply of biomass in the states in which we operate, we can now be tactical in deploying our resources. In some cases, we can source raw materials at attractive enough prices that we can redeploy internal resources on production, fulfillment and specialty growth.
This is the middle space that I spoke about two years ago when describing where TILT was heading as a company. Cultivation will more than likely become commoditized and one could argue that it is already underway even without legalization in interstate commerce. I believe retail is likely to follow, requiring a more tactical approach than simply the number of stores any operator holds.
But by owning that middle space, specialty cultivation, specialty manufacturing and distribution, we believe we provide a service that the market will continue to demand. And by remaining asset-light, we could be opportunistic as to flower sources and agnostic as to where sales are done, whether at bricks-and-mortar dispensaries, online or through a delivery model.
Lastly, by partnering with brands as consumer demand shifts over time, we can realign as needed without the concerns of having invested millions of dollars in maintaining legacy brands that may no longer be in favor.
Before turning the call over to Dana to walk us through our performance in more detail, a few additional thoughts about our hardware business. As I mentioned earlier, the vape category experienced growth as a percentage of the overall retail cannabis market, growing approximately 12% in 2022 in terms of finished vaping goods sold into the marketplace.
We estimate that the hardware portion of these goods sold is approximately 11%, and when you work through the numbers, that amounts to roughly 17% growth in hardware sales during the year. Clearly, Jupiter did not experience that type of revenue growth in 2022, driven in part by its outsized performance in 2021.
While we continue to be the largest distributor of CECL products in North America with over 50% market share amongst distributors, the industry has shifted a bit based on a number of factors, where price was previously a major focus for buyers, innovation and production efficiencies have become in demand as brands look for differentiation in a maturing market.
I believe that is why we received such a positive perception during MJBiz when we demonstrated Jupiter’s dedication to innovation and providing customer-driven solutions to the marketplace.
As threads, Concept LVT and Aiden’s Blend Pen come to market in 2023, we look forward to continuing to drive that initiative with a target of having more innovative products ready to debut at this year’s MJBiz conference.
This is where the connection of our plant-touching and hardware businesses is such a tremendous asset. We are able to see consumer trends in our markets, as well as opportunities to develop hardware, better suited to those trends and bench test them in market before putting them into production. This allows for a more predictable cadence for innovation and enhances our ability to bring new and differentiated products to market each year.
Obviously, some may be modest improvements on existing technologies, while others may be truly disrupted. But like our cannabis operations, for TILT to remain successful in this segment, we must build out our portfolio of offerings. So we have something in each form factor, price point and quality level. Our goal is to become a trusted one-stop shop for our customers.
Jupiter has an excellent customer foundation and despite it was a challenging year, we successfully established new partnerships, one back customers who had either left Jupiter or the CECL platform entirely and fortified longstanding relationships in the second half of 2022. Our focus will be on product diversification, supported by the innovation I spoke of earlier, as well as partnerships that we will commercialize and hope to bring to market in 2023.
Together, we will also look at the increasing number of opportunities overseas, as well as exploring ways to build upon emerging markets to capitalize on legalization efforts abroad. Based on changes implemented in the second half of 2022 and new technology coming to market, we expect this renewed energy will return growth to Jupiter in 2023.
With that, I’d now like to turn the call over to Dana to review our financial performance in more detail.
Thanks, Gary, and good afternoon, everyone. As a reminder, all results today are presented in U.S. dollars. In addition, this is our first full year as a U.S. reporting company, which was a big undertaking for our accounting team.
As Gary laid out, 2022 was a very challenging year for the industry. While TILT experienced some great success stories with our brand strategy and focus on hardware innovation, our financial results were not immune to the price and margin compression prevalent across the markets.
Revenue in the fourth quarter of 2022 was $44.3 million, compared to $54.1 million in the prior year quarter. The 18% decrease year-over-year was largely attributable to our inhalation business where we had certain key customers place large orders in late 2021 that weren’t replicated in 2022. For the quarter, our inhalation business grew or generated $31.9 million in revenue, compared to $44.5 million in the year ago period.
In our cannabis operations, which includes Massachusetts, Pennsylvania and Ohio, revenue in the fourth quarter was $12.4 million, compared to $9.5 million in the year ago period. On a full year basis, 2022 revenue was $174.2 million, compared to $202.7 million for the full year 2021. The year-over-year change was primarily driven by a 21% decrease in our Jupiter hardware business due to the aforementioned ordering patterns of certain large customers. Lower revenue in our hardware business was partially offset by a 15% year-over-year growth in our plant ware business, primarily driven by the expansion of our partner brands and the ramp of adult use at our retail stores in Massachusetts.
Gross margin in Q4 was 19%, compared to 21% in the year ago period, with the decline driven by our plant-touching business and the price compression seen in the market, particularly in Massachusetts. Gross margin for full year 2022 was 22%, compared to 25% in 2021, again, driven by pricing pressures in cannabis markets. As an example, according to the Massachusetts Cannabis Control Commission, the average sales price for a gram of flower dropped from an average of $12.32 in Q1 of 2022 to an average of $7.81 in Q4 of 2022, a 36% decline. While wholesale pricing of our brand partner products remained resilient during this time period, our bulk sales and house branded products were significantly impacted by this price degradation.
Operating expenses less non-cash adjustments for stock compensation, depreciation and amortization and impairment charges in the fourth quarter totaled $12 million, compared to $9.4 million in the year ago period. This increase was driven primarily by salary and wages in Massachusetts with the expansion of our retail footprint.
On a full year basis, OpEx less non-cash adjustments for stock compensation, depreciation and amortization and impairment charges in 2022 totaled $45.2 million, compared to $37.9 million in the prior year. Once again, the biggest driver of the increase in cash operating expenses was the increase in wages and benefits within our Massachusetts division due to the growth of retail.
During the fourth quarter of 2022, the company recorded a non-cash impairment charge of $54.6 million, consisting of $43.1 million of goodwill impairment and $11.4 million of intangible asset impairment. The impairments were largely the result of declines in our share price, changes in cannabis market conditions, as well as increased borrowing rates.
Adjusted EBITDA in Q4 was negative $0.4 million, compared to $4.5 million in the year ago quarter, with the decrease driven by lower gross profit and higher operating expenses as discussed. On a full year basis, adjusted EBITDA was $2.8 million, compared to $22.3 million in 2021.
2022 cash provided by operations was $8.6 million, compared to cash used in operations of $8.6 million in 2021, reflecting a $17.2 million increase. This improvement was primarily attributable to the improved management of accounts receivable and conversion of inventory.
Turning to our balance sheet. Cash and equivalents, as well as restricted cash was $3.5 million at December 31, 2022, compared to $7 million at December 31, 2021. On an unrestricted basis, cash as of December 31 was $2 million, compared to $4.2 million at the end of 2021. The reduction in cash was mainly driven by the repayment of $15.5 million principal balance of senior secured notes during Q4 of 2022.
As many of you saw in our press release issued last month, we completed the refinancing of our legacy debt, resulting in the repayment in full of our 2019 senior debt facility. At the same time, we amended our junior secured notes to extend the maturity date to February 2026 and issued $8.2 million of secured promissory notes to satisfy certain outstanding accounts payable.
Alongside the refinancing, we officially completed our sale-leaseback transaction for our Pennsylvania cultivation and manufacturing facility for $15 million. The net proceeds were used to repay debt and bolster our working capital. The combination of these transactions resulted in a balance sheet with $46 million of non-revolving debt down from $86.7 million in December 2021 and the alleviation of our near-term debt maturities.
All said, these accomplishments were no easy feel. With the backdrop of rising interest rates and tightening credit conditions, our ability to execute on this refinancing speaks to the confidence that our investors have in our business and strategic vision. We now have three years of runway before the next maturity date comes due and we are much better positioned to drive growth and profitability.
The silver lining of these difficult funding conditions is that we’ve begun to see unique M&A opportunities in the market as smaller operators have had difficulty accessing the capital markets, inflationary pressure is increasing input costs and impacting the consumer and the lack of legislative direction out of Washington continues to create uneconomical outcomes for many operators through owners taxes.
We expect to see an acceleration of M&A opportunities, especially with smaller operators that can no longer sustain their business on their own. And given our financial profile with cash flow generating assets, we are well positioned to capitalize on these opportunities and enter new markets for the benefit of our brand partners and shareholders.
In terms of providing guidance for 2023, the broader macroeconomic headwinds, continued uncertainties surrounding inflation and pressure on consumer wallets gives us a lack of clear visibility into pricing conditions and market growth. With that in mind, we believe it is prudent to avoid setting growth and profitability targets for the year.
Having said that, TILT remains focused on the things that we can control, positioning each of our business units to meet the demands of customers and brand partners, improving efficiencies and generating cash flow irrespective of the ups and downs of the markets.
With that, I’ll turn it back to Gary.
Thank you, Dana. Before opening up the call for Q&A, I’d like to recognize the team’s hard work and dedication. While we may not have hit every goal that we set for ourselves in 2022, our team’s ability to persevere through the changes in our industry, think creatively and demonstrate their enthusiasm and commitment every day has been humbling.
The maturation of any emerging industry is inevitable, and we are certainly in the thick of that dynamic now. However, we’ve assembled a team that believes in our strategy, thrives on tackling new challenges and is hyper focused on forging ahead in the market.
It bears repeating that our model is different. I spoke earlier about our dedication to owning that middle space, specialty cultivation, specialty manufacturing, distribution, focusing on providing a service that is designed to survive and thrive as the cannabis market continues to mature.
But it is also about being a CPG focused company, working in true partnership with brands to handle the manufacturing, distribution and brand services that allow us to stand out in the market and be an extension of that brand.
And it’s about combining plant touching and non-plant-touching businesses in a way that has not been done before to provide our customers with a true end-to-end experience. With commoditization already underway, we will be leaning further into this middle space and the unique place that TILT occupies within it.
As the year unfolds, look for us to become even more specialized in our hardware and plant ware businesses, improving our efficiencies as we scale to support the future growth of our partners and ourselves. This effort takes time, but we’re well underway.
With that, I will turn the call back over to Lynn.
That concludes our prepared remarks. Operator, we can now open it up for questions.
Thank you. [Operator Instructions] Our first question is from Aaron Grey with Alliance Global Partners. Please proceed.
Hi. Good evening and thank you for the question. So first question for me, just on the gross margin. You talked about some of the degradation being due to selling off some — it might have been aging inventory or some more bulk inventory versus the brand. Can you just provide some further color on that and then how much of an impact that, if it was aging inventory, how much of an impact it had on the margin, just to give a better sense of what a normalized margin would have been for that? Thanks very much.
Yeah. Thanks. Thanks, Aaron. I think I’ll start off and then, Dana, you can certainly jump in. There definitely is aging inventory that we had. There was bulk. So, yes, there was trim, there was bulk flower. It wasn’t all A buds. Some of that was the C bud out there as well. So these are not typical high yielding products to begin with and in a price compressed market became that much more difficult to sell.
I think it was also a byproduct of the reboot of our gardens. You might remember at the beginning of the year, we talked about replanting everything, and obviously, those first few harvest that roll off are always going to be a little bit lower on the THC spectrum. So I think you saw some of that product moving as well.
Generally speaking, in the future, a lot of that will become packaged goods that we might offer under our own brand name on sort of a discounted basis in our retail stores. Really, the bulk trade has gone in Massachusetts as far as we can see. So I would not look for us to dispose of things like that in the future in the same way. But, Dana, maybe you could talk a little bit more about the expectation.
Yeah. I think that’s exactly right. I mean I think, certainly, as I mentioned during the prepared remarks, a pretty significant reduction in the price of flower Massachusetts, it’s obviously, it’s been well documented and the derivative of that is an even greater reduction in pricing on the wholesale side as — from what we can see.
And so, I think, I alluded to during the call, the resiliency of our brand partner products and the pricing levels there. We saw that throughout the year and even in some cases saw pricing actually improve. And so that, again, is an area where we’re going to continue to lean in pretty heavily and think long and hard before we make the decision to do a bulk trade of that type.
Okay. Great. Thank you. I appreciate the color there. Second question from me, more on the accessories side of the business. So just give some color in terms of maybe the cadence of purchases that you’re seeing because I know, maybe post-COVID they have been a lot more slower but more frequent purchases. So as you talked about the outlook for 2023, do we expecting growth within the Jupiter accessories business, just is that largely coming from your existing players are expecting to add new players, adding on new SKUs to the existing players. Can you just talk about your expectations for the — what’s expected to drive that growth? Thank you.
Sure. It’s actually a combination of a few things. I think one of the byproducts of introducing innovation at MJBiz, we had a lot of customers, even some of our former customers who are with either outside the CECL family or other distributors approach us about wanting to come back to Jupiter and I think that’s been part of a driver in these early days.
In terms of their ordering behaviors, I would say there, you’re not seeing these massive orders like we used to see. I think a lot of these shops got stuck with excess inventory. Certainly, that happened with us. We were carrying a lot of inventory — custom inventory for a number of our partners. As they work down through that inventory, they’ve started ordering again smaller orders more frequently.
I think the other thing we’re noticing from a dynamic point of view is, they are putting out multiple products at different price points, right? So instead of just being on vape that’s high end super premium, they’re coming up with multiple price points and we’ve certainly seen that over the last year, year and a half and then having different hardware for each.
So I think for us, as we’ve rolled out some of these new ideas, the Blend Pen threads, which is the stackable. We’ve started to see these folks coming to us looking for those differentiated products.
As far as how much impact we think the new products would have, it’s kind of a second half piece. I think more of what we’re expecting to drive Jupiter is, I would say, a return to more normalized buying just in the sense of now that they run through their inventories, they need to start to replenish. And I also think it’s about bringing some customers either back into the fold or new customers into the fold. So I think that’s what we think the key drivers of that business are.
Just to add to that, Aaron, I think, I alluded to it in the call, the fairly significant orders that came in towards the end of 2021 that did not get replicated the following year. We are starting to see better, more consistent ordering patterns out of customers. So our hope is that, that reduces some of that choppiness within — from a revenue standpoint.
And we also obviously work very closely with these folks on demand planning on what are the anticipated needs within each market and really trying to make sure that we’re reducing to the extent we can, reducing the amount of inventory we have sitting in a warehouse where we can get ahead of that, and obviously, the results show our inventory reduced over the course of the year, which was great.
I think one last piece if I could just hop back in. Another thing that we have begun to offer now is onshore customization and this is really an attempt to avoid getting stranded with customized inventory that we cannot repurpose. So we have arrangements made that we are able to — I mean depending on the level of customization, just bring stock product in from China and then be able to customize it here as it’s being pulled for shipment. So I think that’s also going to help us from a working capital standpoint, be able to fulfill smaller orders faster and also have fungible inventory.
Okay. Great. Thanks for that color. Third question for me. I know you guys aren’t providing guidance this year and certainly makes sense just given the backdrop. But in terms of the commentary on the EBITDA and the cash flow, EBITDA being positive last year looking, I think, you said, to uphold those change in 2003 in the press release. So I just want to get some further color on that. Is that embedding like at a minimum some gross margin improvement or also some growth, obviously, you had a good about three-year run or 12 quarters on positive EBITDA kind of inflected down just a bit this quarter.
But do you expect you need some return on the sales or some gross margin improvement to get that quasi target of getting back to EBITDA positive for 2023 versus fourth quarter?
Yeah. No. I think, Aaron, it’s all of the above quite honestly. I think it’s a combination of continuing to drive revenue, continuing to maintain stability in the gross margins. I also think that we’ve got a fair amount of opportunity within our operating assets in terms of how productive they are, how efficient they are.
I think that’s an area where we’re going to put a lot of effort in over the coming months to find pockets of inefficiency that don’t necessarily really contribute to the overall profitability of the business. So I think it’s a combination of areas that you’ll see us focus on this year.
Yeah. I think that production piece can’t be understated. I think as we rolled out some of these packaged goods and the production lines to produce them, we recognize that we probably might have either thrown bodies or kind of manual processes where perhaps a more automated solution would have been appropriate.
I think as we move forward, we see tremendous opportunity to start to get more efficient, to have a real true modified production shop that flows from left to right and pick up a lot of efficiencies there. So I would say the margins on some of the products we rolled out just weren’t what they could be or should be.
Certainly, Pennsylvania, I think, did a better job than Massachusetts in a number of ways. Part of that’s because they didn’t sell bulk, so they didn’t finally pull their margin down. But, yeah, I would say, look for us to become more efficient, too. So as we grow that revenue, it’s not revenue at any cost. It’s revenue at a responsible margin.
Okay. Great. Thanks for the color and I’ll jump back in the queue.
Our next question is from Bobby Burleson with Canaccord. Please proceed.
Hi. Thanks for taking my question. So curious just on the brand partner strength that you guys saw and it was nice seeing your model offset or outgrow the markets that you’re selling into. Curious what you’re seeing in terms of shelf velocity or re-sales for some of those brands that you’re enabling?
Yeah. I mean it kind of depends a little bit on the brand and what their offering space is. I mean some of the products that are out there are not meant to be by every two weeks or even buy every month, right, depending on the quantity you buy in.
I think we’ve been pleasantly surprised by the fast uptake, especially as we move forward with some of our later production lines where we make sure there’s tremendous amounts of inventory, we are watching that inventory sell-through.
I mean, Highsman, I think, sold out within about a week or two after launching and we had a double time it to get back on shelves again. So that became a nice problem to have. We’ve seen similar situations with 1906 in Pennsylvania, where we sell right through that product and have to produce it again.
So I don’t think these brands have really hit that stride yet that we can say the market is saturated and plateauing. They’re still doing a very good job of selling through. There’s a few exceptions, I would say, certain SKUs will always be a little bit harder when you think about pre-rolls, for example, there’s so many pre-rolls in Massachusetts. It’s hard to always sell through those every single ton.
But then, again, depending on the strain, if it’s an infused pre-roll versus a non-infused pre-roll, that changes the dynamic. When we do our thrombo infused pre-rolls, can’t keep them on the shelf, right? So it really is a bit of a SKU-by-SKU item there.
But what we do is each quarter, we sit down with our brands. We look at things like shelf velocity. We look at things like uptaking whether or not their price point is holding and I think it’s been a great give and take back and forth, because we also see what they’ve done in other markets. So I think it’s a little bit early in their launch cycles to really get too crazy about the metrics. But I think we’re pleasantly surprised with how they’ve trended out of the gates.
I also think that there’s an impact to the level of commitment by the brand. I mean, obviously, we’re in each of these markets. We’ve got sales team dedicated to getting out in front of dispensaries.
But there’s also — what we’ve seen the best success is where the brand is able to commit resources in market to get out — get the name out, get the product out, speak with budtenders, speak with folks throughout the market to make sure that there’s a persistence in that brand’s sort of visibility within the market. Those are the brands, I think that, those are the SKUs that are going to do the best.
I mean we generally try to maintain at least one month’s worth of inventory to month and a half worth of inventory for products that we carry in general, just to make sure you’re always producing one month ahead. I would say that it has definitely been a challenge to keep up and get to that level with our brand partner products right now. We’re not there yet, but that’s something we’re working on.
Okay. Great. And then how does the onboarding of brand partners, the activity of that onboarding, say, over the last quarter or so and for the remainder of this year compare to what you’ve done previously? It looks like the cadence of onboarding is staying consistent or increasing, because it seems like that dynamic certainly allows you guys to outgrow the market.
Yeah. That’s a great question, Bobby. I mean our corp dev team, which is responsible for all the brand partnerships that we signed and really rolling them out, they’ve built themselves what I would consider to be one of the more lead teams in the marketplace in terms of having baked in operational expertise, regulatory expertise, marketing expertise. It’s almost like a shadow TILT organization with TILT that make sure when we meet with these brands, we find out very quickly what can they bring to market. We know the five or six things we expect them to have and if they need us to fill any of those gaps, we need to identify that quickly.
We generally feel that 90 days to 120 days is the right cadence. Can we go faster? Sure. We did at 30 days. It was one of our brand partners. But then as it turned out, their supply chain wasn’t where it needed to be. So we ran out of packaging and had to pull it out of market for about three months, right?
So you want to make sure they have what they need, but we think 90 days to 120 days is the right cadence, gets a really good go-to-market strategy, a lot of pre-sell going, gives us a chance to build up that inventory so that we avoid that stock out within the first month or second month.
So I think the latest launch we did was Coda. I think that one was roughly about 90 days, special formulation, special packaging and a lot of pre-selling activations that we did. So I think that was one of those where it’s really starting to move efficiently now, because we’ve learned, honestly, we’ve learned what works and what doesn’t and now we’re guiding the brands. I think at the beginning, the brands were guiding us a little bit and it turns out we actually do know our markets probably better than they do.
Great. And then just last one for me for the Jupiter business. Are you — it sounds like you’re in a position to take some market share there, is that fair? I know you already have very high share, but it sounds like there’s some former customers that are coming back?
I think there’s great opportunity. Obviously, the issue last year was about margin and price compression, and I think, we worked really hard with the factory to try to resolve that. But then all of a sudden, this innovation and efficiency things started to pop up.
I think what people are starting to see and what some of these older customers are starting to see is, because we can offer them some abilities on our plant-touching side, because we have access to this new technology, there’s a lot of requests to get like an exclusive year and exclusive there. It’s starting to peak everyone’s interest.
I mean, Jupiter’s claim to fame besides being a CECL distributor was always the white glove service, right, the technology, the innovation, the support. I think we got away from that a little bit for a few years there and then CECL really wasn’t innovating on their own.
I think now that we’re back in the lab, we’ve become intriguing and I think our job as a company, if you just look at our ethos, it’s to own the customer. right? We’re filling in that middle space, whether it’s hardware or plant ware.
So I think this is a proven intriguing. I think we’ve aligned all of our sales force. You might remember, we promoted our Head of Revenue to a Chief Revenue Officer and he’s really brought the sales teams together between hardware and plant ware. So the cross-selling is starting to really pick up and I think that’s going to help on the Jupiter side a lot.
We have reached the end of our question-and-answer session. I would like to turn it back over to Lynn for closing comments.
Thank you for joining us today. We look forward to speaking with you all next quarter.
Thank you. This will conclude today’s conference. You may disconnect your lines at this time and thank you for your participation.
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