22nd Century Group, Inc. (NASDAQ:XXII) Q4 2022 Earnings Call Transcript

22nd Century Group, Inc. (NASDAQ:XXII) Q4 2022 Earnings Call Transcript March 9, 2023

Operator: Good day, ladies and gentlemen, and welcome to the 22nd Century Group’s Fourth Quarter and Year-End Results Conference Call. At this time all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. . This call is being recorded on Thursday March 9, 2023. I would now like to turn the conference over to Matt Kreps, Investor Relations for 22nd Century. Please go ahead.

Matt Kreps: Good morning, and welcome to 22nd Century’s fourth quarter results conference call. Joining me today are Jim Mish, our CEO; Hugh Kinsman, our CFO; and John Miller, President of our Tobacco Business. Earlier today, we issued a press release announcing our results for the fourth quarter and full year 2022. The release, earnings presentation and 10-K are available in the Investors section of our website at xxiicentury.com, under the Events subheading. We’ll start today’s call with prepared remarks from Jim, John and Hugh before moving into a Q&A session with our Research Analysts. Given the limited time for today’s call, we will focus on commercial advancements driving revenue in our VLN tobacco and GVB hemp/cannabis business units.

If you have questions that are not addressed on today’s call, you are welcome to email Investor Relations using my contact information provided in today’s release. Few reminders about today’s call. Some of the statements made today are forward-looking. Forward-looking statements are subject to risks, uncertainties and other factors that may cause actual results to differ materially from those contemplated by these statements. Additional information regarding these factors can be found in our annual, quarterly and other reports filed with the SEC. Also during today’s call, we may also discuss non-GAAP financial measures, including adjusted EBITDA, which we define as earnings before interest, taxes, depreciation and amortization as adjusted for certain noncash and nonoperating expenses.

For more details on these measures, please refer to our press release issued earlier today. And with that, I’ll turn the call over to Jim beginning on slide three.

Jim Mish: Thanks, Matt, and good morning, everyone. The fourth quarter, and really all of 2022 were transformative for 22nd Century, as we advanced doing our aggressive commercial rollout of VLN reduced nicotine content, cigarettes, and accelerated revenue and margin growth opportunities with our hemp/cannabis business unit. The benefits of those activities are only just beginning to show in the first quarter and will become more and more evident as 2023 progresses and as we transform from an R&D company into a truly commercial entity. Our exceptional Chicago pilot results laid the groundwork for an aggressive 2023 multi-state VLN launch program. The pilot clearly showed that adult smokers are willing to switch brands to VLN to help them smoke less.

And John’s going to tell you why we are so confident in this. Those results are bringing major retail chains to our door wanting to carry VLN. We have established distributor relationships with the top tobacco and C-store distributors serving national and regional level chains that will achieve our goal of up to 18 states by the end of 2023. GVB volumes have continued to scale as we confirmed our dominant share position in the hemp derived ingredients market. We recently launched an industry first CDMO+ distribution category management distribution model and submitted an application to FDA to provide plant derived APIs to the growing pharmaceutical trial industry centered around CBD based molecules. The November fire at our Grass Valley facility has actually strengthened our industry position by fully meeting our revenue target even after the fire, continue to build volumes and putting in place plans to come back even stronger with our new facilities.

And I’ll talk more about that later on in the discussion. Perhaps most importantly to those of you on this call. We are confirming a clear path to cash positive operations inclusive of corporate overhead and both our VLN and hemp/cannabis business units. This is the first for this company. You’ve been asking for it and Slide four summarizes how we get the cash positive. This update includes both corporate overhead allocation and adjustments for the fire in Grass Valley, among other updates. VLN now has relationships in place with Core-Mark/Eby-Brown and a growing funnel of top regional and national distributors that will enable us to launch hundreds or 1000s of stores across multiple states with the top retail chains. Our initial example of 18 states represents up to 600 million cartons sold per year and provides a clear path to cash positive in early 2024.

Again, John is going to detail this math for you. And hemp/cannabis, we still intend to hit cash positive 2024 driven by the continued acceleration of consumer demand for CBD derived products, improved operating results, such as our Prineville crude extraction facility, and an industry first fully verticalized solution with top customer and consumer CBD brands taking the centralized with GVB ingredients manufacturing and now distribution. Again, I’ll talk more about that as we get back into the hemp/cannabis business units after John. That’s a good point to let John dive into the incredible work his teams are doing in our tobacco business unit, John?

John Miller: Thanks, Jim, and good morning, everyone. We are moving rapidly to bring an incredibly disruptive product to market. Starting from Slide six and where we were in 2022. The Chicago pilot with Circle K confirmed exceptional interest from adult smokers in our VLN reduced nicotine cigarettes, most of whom have repeatedly tried and failed to quit using traditional methods. VLN offers a new tool to reduce their smoking that is easy to understand and has been proven effective in clinical studies. Moving from the pilot, we expanded sales in Illinois and added Colorado where the MRTP state excise tax structure provides a favorable financial incentives. We also announced launch plans in Arizona, New Mexico and Utah. We began with non-traditional distributors Eagle Rock and Creager Mercantile in Colorado, and both organizations have been excellent partners with 22nd Century, Circle K and Smoker Friendly.

As our launch plans took shape, other major retailers wanted access to VLN, but wanted to use their current delivery systems through traditional local and national scale distribution networks. It quickly became apparent that we would have to develop these local regional club and national distributor accounts ahead of schedule. Slide Seven demonstrates the power of our focus to action over the last 100 days. We have created a distribution network that includes the largest C-store distributor Core-Mark, and we are in the last stage of signing the number two national distributor. Additionally, we have developed a group of regional, local and club accounts to distribute VLN. We piloted with the number two C-store chain in the country and are in the final stages of signing the number one C-store chain in the nation.

We also have a growing list of top 10 regional retailers plus four military bases in the sales funnel. We were active in two states and announced three more. We just announced today plans going into the three largest cigarette states, California, Texas and Florida, launching as soon as the agreements that I just mentioned are finalized in the next few weeks. We are also announcing two more international tests in Switzerland and Japan. In summary, we’re as close as we could be short of naming these new partners and ready to go with a rollout that massively expands our retail footprint with national scale distribution partners and within the largest and most important cigarette markets. And this is just the starting point for VLN. Now turning to Slide eight, you can see what this enhanced programming enables.

We have announced eight states including the top four markets. We’ve dramatically expanded distribution with national and regional leaders in the C-store ecosystem and have begun to announce the first of many new retail partners in our pipeline, including the largest C-store chains and distributors. As 2022 came to an end, VLAN was available in almost 500 stores. Less than three months later, we have the ability to launch in hundreds of new stores at a time enabling us to achieve our goal of updating states by the end of the year. Our top retail partners alone operate 1000s of stores in our targeted states, plus regional chains, such as Texas based CEFCO, where we expect to launch approximately 100 stores in the near future. Our pipeline is full of many exciting national and regional opportunities, and we look forward to adding new partners to logos on this slide as we move through the year.

Perhaps most importantly, the states announced to this date represent 240 million cartons of annual cigarette sales. And Slide nine shows we need only a fraction of that volume to hit our goal of becoming cashflow positive. The exceptional pilot results in Chicago confirmed our pathway to achieving one share point in the category. Then we focus late in the year on large scale distribution channels based on demand from several national retailers. We can now launch entire chains across multiple states well earlier than we had originally expected. The highlighted 18 states represent more than 600 million cartons of potential volume, and we wouldn’t be on every corner or on every shelf in these states, which is okay. After the scale of investment process this year to be cashflow positive, we just need to achieve a sales run rate of approximately 1.2 million cartons per year and we are well on this trajectory.

On Slide 10, I know our international efforts are also important for many, particularly after New Zealand enacted its national policy allowing only reduced nicotine content cigarettes to be sold, starting in a little over two years. We have committed to grow enough seed to supply the entire New Zealand tobacco market with reduced nicotine tobacco, about 2 billion sticks. Whether it’s our product, our seeds, or our tobacco, we are working closely with local leaders to support their efforts. We are also planning to expand our programs in South Korea and launch pilots in Japan and Switzerland with more detailed follow-ups. Finally, from the Slide 11, we have talked extensively about the federal regulations, including a proposed ban on menthol products and a reduced nicotine content mandate, both of which are moving closer to reality having been made a clear priority by both the FDA and the Biden administration.

We believe that our VLN Menthol King cigarettes could be the only combustible menthol cigarette on the market exempt from the Federal menthol ban. State and local bands only add fuel to fire for federal action, which we believe is the best path forward for true tobacco harm reduction. But even more, the science shows that a national reduced nicotine mandates such as the approach taken by New Zealand, whether through federal regulations or any of more than 100 bills introduced this year at the state and local level will help all smokers more easily quit or migrate to less toxic products. And we currently have the only product that meets this standard with the clinical data that back it. On that, I pass you back to Jim for an update on our hemp/cannabis franchise.

Jim?

Tonhom1009/Shutterstock.com

Jim Mish: Thanks, John. It’s been an amazing year for tobacco progress and now seen as a transformative opportunity at the business unit to cashflow positive and well beyond. Let’s turn to Slide 13 as we discuss how we intend to do the same for hemp/cannabis on an even faster timeline. GVB is the market leader in North America for the manufacturing of hemp derived active ingredients and finished products servicing the consumer packaged goods, nutraceutical and pharmaceutical industries, with a broad global footprint of selling 100,000 kilos of cannabinoid rich hemp extracts in 2022 and growing. And volumes have accelerated in fourth quarter and into 2023. We had a setback in our original cash positive plans due to the November Grass Valley fire, which primarily impacted margin even though we maintain all customer deliveries and exceeded our revenue targets for the fourth quarter.

We responded aggressively and planned to achieve cash positive operations regardless in 2024 with a combination of scale and operating enhancement, I’ll go into more detail. What truly sets GVB apart that was our complete vertically integrated control from plant receptor science to ingredients to finish goods and now even retail category management. This is what we have built. This is what we have been building it for. And here’s why we have been building it. Slide 14 covers the assets underpinning our fully integrated ingredient manufacturing chain. This starts with a world-class extraction facility in Prineville, Oregon with an expected output capacity of 15,000 kilos per month by the end of 2023. As this facility scales, it will displace a majority of our third-party crude purchases in the market.

They’re replacing our distillate and isolate production capacity from the November, Grass Valley fire which has temporarily injected a lot of one-time cost into our year-end results. We are fortunate to have a strong balance sheet and insurance coverage to recover fully even build back a far superior campus long-term for both economic efficiency and scalability. It will be an absolute center of excellence in the cannabis/hemp world. From there, our 40,000 square foot Las Vegas manufacturing site can produce an extensive variety of white label products for our consumer product customers. This capability will leverage our VLN market sales and distribution teams for the new CDMO+D agreement, which I’ll cover shortly. Again, I’ll repeat this is an accelerant with the VLN team not a distraction of a tremendous amount of synergies.

We’ve also opened new facilities in Europe and acquired RXP in the U.K. to create a strong footprint for landed ingredients sales in the higher margin, European market and access to an emerging food and nutraceuticals market in the U.K. And finally, we have filed a DMF to allow our CBD isolate to be used by companies conducting clinical trials with the FDA supplying the multibillion-dollar pharmaceutical industry. These clinical trials allow immediate revenue, these are not long-term revenues that would take five to seven years at the top but they start very quickly due to the clinical trial volumes that have to go out even as we speak. Slide 15 provides more complete update on Grass Valley. First and foremost, I will remind you that thankfully, all of our employees were safely extracted from the situation and are doing well.

Next, we’re still able to source ingredients, certify them to our standards and supply our customers and we delivered products in the fourth quarter. In fact, volumes actually increased sequentially by almost 75% to 47,000 kilos, and we hit our revenue goal. That volume growth is continuing into 2023 with 20,000 kilos already shipped in January. We are seeing a shortage of raw hemp in the marketplace as the market grows. And this provides a premium to our ability to source and supply consistently. We are standing up an interim facility in Prineville for distillate and isolate production, which will enable margin recovery as 2023 progresses, gets us to cashflow positive, and then builds a comprehensive campus that will support greater economic efficiency and scalability than our original Grass Valley could have enabled.

We’re also working directly with the governor’s office in Oregon as well as their state economic development agency for key incentives. Slide 16 details the new CDMO+ retail channel management model, we are pioneering with several top consumer brands in the cannabis space. We should announce our cornerstone partnership very soon. This model leverages an exclusive license from the brand to GVB, the source ingredients manufacture and ultimately distributed to the retail shelf. There is no other way to say this, but this is a transformative opportunity for revenue, scale and profit expansion in the cannabis/hemp business units by verticalizing our capabilities and offers a key solution to established brands looking for turnkey solutions and world-class CPG distribution expertise.

It also enables us to further leverage our VLN sales team and channel and placed products with retailers seeking innovative high velocity, high margin small footprint consumer CBD products. Just one or two of these deals will be transformative to the revenue scale and we are excited to move forward on several opportunities. Moving to Slide 17, our position in the higher margin European market has also greatly improved. Our Netherlands warehouse facility supports faster delivery to European customers, and our landed cost inclusive of import tariffs and other duties more than $3 billion and growing market. Our RXP acquisition brings more than 1200 novel food applications, securities and GVB’s technical data and ingredients. These applications form the core of food beverage and nutraceutical products that are intended for the U.K. market and provide an exciting pathway for GVB to play a massive consumer food and beverage marketplace as a provider of high-quality ingredients with large global footprint accounts.

We believe the U.S. market will go the same direction when the FDA establishes its new rules specific to the emerging food nutraceutical market, which is distinct from our current growing consumer hemp business lines, it’s incremental to that. Bringing it all together on Slide 18, the cash positive hemp/cannabis operations. First, we continue to execute on operating performance enhancement resuming house production and bring our bulk crude extraction online for additional margin gain as we scale revenue. Second, our new vertical distribution agreements kick off a new growth channel placing top consumer brands CBD products at retail sites seeking new high velocity products to meet rapidly expanding consumer demand for CBD products. Just a return to normal operating parameters coupled with our organic growth and new CDMO+D contract opportunities can get us to cash positive by first half 2024, as it stands day, if not earlier.

We also have longer term opportunities with our FDA drug master file that opens up large adjacent market with notable pricing premiums plus a new set of FDA guidelines specific to the food nutraceutical markets in the U.S. opens another adjacent channel for sales of our ingredients in CDMO capabilities with customers who will demand precisely calibrated, repeatable and reliable ingredients solutions. And finally, quick note on hops. Our third plant franchise leveraging our extensive alkaloid capabilities, we are developing new biotechnology tools and molecular techniques to accelerate the breeding of unique traits and new top genetics. In early 2022, we expanded our research agreement with KeyGene to identify specific traits, which were properly engineered to benefit consumers of hot products in both the beer and nutraceutical industries.

I want to give an update that’s clear that we are making significant progress to lock down what I had termed in the past as the final technological milestone. And we will then be able to go into detail as soon as the IP is filed on this work. And with that, let me turn it over to Hugh to discuss the financials. Hugh?

Hugh Kinsman: Thank you, Jim, and good morning to everyone. Starting off on Slide 20 with fourth quarter financial results, net sales increased 141% quarter-over-quarter to 19.2 million, reflecting the addition of GVB revenue and increased unit sales for CMO manufacturing. We continue to experience strong customer demand for both our tobacco and hemp/cannabis products, including higher CMO sales volume and increased units most of our hemp/cannabis bulk ingredients. Gross Profit decreased slightly quarter-over-quarter to negative 646,000 reflecting lower margin sales mix for CMO manufacturing, combined with the impact of the Grass Valley fire. I will explain gross profit further on Slides 21 and 22. Net sales for fiscal year 2022 increased 101% to 62.1 million again reflecting the addition of GVB and higher CMO unit sales.

Gross profit decreased slightly year-over-year to 1.2 million as a result of the lower margin CMO sales mix, as well as Grass Valley fire. Moving to Slide 21, tobacco revenue for the fourth quarter increased 10 million from 7.9 million an increase of 27%. Gross profit margin on tobacco sales decreased slightly to negative 44,000 reflecting increased unit sales of our low margin flavored cigars. We expect gross profit margins to improve going forward with the accelerated launch of VLN. Moving to Slide 22. Hemp/cannabis revenue for the fourth quarter grew 9.3 million from 6.8 billion due to continued strong customer demand ingredient products. Also, despite the Grass Valley fire, fourth quarter hemp/cannabis revenue was 18% higher than prior quarter due to the company’s thorough contingency planning and strong customer relationships.

Gross margin decreased to negative 602,000, again reflecting the impact of the Grass Valley fire. Gross margin will continue to improve as we build back our extraction capabilities this year. The hemp/cannabis business is expected to have full restoration of its extraction facilities by Q1 2024. Slide 23 describes our recently completed $21 million senior debt facility. The new credit facility will fund increased working capital needs reflect a significant growth in both VLN hemp/cannabis at this point. Working capital needs are increasing rapidly due to the multiple national scale distribution partnerships, requesting VLN stock as well as the increased consumer demand for GVB bulk ingredients and CDMO growth. Summary of our credit facility firms are three years, with no amortization in year one, and 2% monthly amortization thereafter.

The cash is 5% original issue discount. Last for me Slide 24, you’ll see a few key highlights from our balance sheet. Of note, the total assets of more than $150 million, includes $50 million of goodwill and intangibles from the GVB acquisition. And the strength of our balance sheet excludes of $21 million which does not include the additional proceeds from a new credit facility or the insurance proceeds of $5 million received to date from the fire. We expect additional insurance proceeds to be received in 2023 as well. 22nd Century’s cash requirements are anticipated decrease, reflecting higher sales volume for VLN products through fiscal year 2023 and continued organic growth of hemp/cannabis operations. In fact, 22nd Century is on pace to becoming a cash flow positive company in fiscal year 2024 due to the investments we are now making to meet growing consumer demand for both VLN and hemp/cannabis products.

I will now pass it back to Jim.

Jim Mish: Thank you. What we’re really saying here is that we have been working several years to position ourselves to move from an R&D company into a commercial company. And this is the year of the transformation, and we continue to build significant momentum. We are leveraging our VLN demand as aggressive multi-state launch with major distribution that supports regional and national C-store customers, we can launch hundreds of stores at a time. Our GVB volumes are growing rapidly in the U.S. and Europe and our new fully integrated CDMO+D arrangement provides a new industry model for centralizing top-branded products with 22nd Century from ingredient to shelf. Steady execution on these targets move our VLN and hemp/cannabis units into cash positives. And again, that is inclusive of corporate overhead allocations as we mature and become that commercial entity. And with that, Michelle, please open the call for questions.

See also 15 Biggest Private Jet Companies in the World and 12 Fastest Growing Countries in Latin America.

Q&A Session

Operator: Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. . Your first question comes from Aaron Grey, Alliance Global Partners.

Aaron Grey: So first question for me. Just want to get a little bit more color in terms of the VLN launch and have actually trending in some of the legacy markets. So maybe if we can just touch on Chicago .

John Miller: Hey, good morning, Aaron. This is John. We continue to see results that we are very positive for us. All of the results that we get are now driving our plans moving forward. The results we’ve gotten through the initial pilot, the consumer feedback we’ve received, the consumer testing we’ve done, all is talking about the product performing the way we want which is again, driving our path forward. So in terms of what we see in the legacy markets, that is the key driver of how we develop that the plans moving forward. That’s the key driver on how we’ve established our relationships with the big national distributors and then obviously expansion into retail. These things just take a little bit of time. As I said in my talk previously, we had launched with Smoker Friendly and Circle K with Eagle Rock and Creager Mercantile the distribution network.

But it became quite apparent that we had to go into more traditional distributors as well. All three of those paths are continuing forward. And as I said in the discussion about our pipeline, the second quarter is going to be as we really start seeing the retail distribution happen.

Aaron Grey: Okay, great. I appreciate that color there. Second question for me, towards the hemp/CBD. So obviously, news earlier this month or this year from the FDA taking it back to Congress in terms of the regulation. So just would love to get some color in terms of how you believe the impact would have for you guys, seems like the industry will kind of stand at current state in the interim might not have some of the bigger CPG operators coming to the space, but how do you think that positions you guys sound pretty bullish in terms of where you see yourselves in the space. So any color you think that might have in terms of the FDA taking it back to Congress and how that might have an impact for you guys in terms of the industry? Thank you.

Jim Mish: Yes, sure. I’ll take that one up Aaron. I think the way you need to think about 22nd Century is our core business thus far is focused on what we call the gray market. This is the market exists today, it’s growing 20% to 25%. We’re dominant in that and both from an ingredients basis and on a CDMO basis and that really is disconnected from the FDA activity. We’ve been saying we fully expect FDA to establish a safety threshold limit for CBD. We had counted on the fact that they’re going to have to go to Congress at some point and the sooner the better to get that established. And what that really does is simply draw box around, in particular the nutraceutical market in order to bring in the multinational accounts. But again, our current growth and a lot of our projected growth is in this gray market.

The additional market that would be enabled by that final FDA authorization or safety limit in the nutraceutical space is massive already and kind of icing on that cake. So it’s a very good sign for us that the FDA has progressed to Congress. We do anticipate that the Congress will act as part of the Farm Bill renewal in the fall. And then, we’ll set the stage for FDA to finalize that safety threshold limit and that will then open up really the Pan-Atlantic nutraceuticals market. So a very healthy growth in order to drive towards cash positive just with this gray market. The FDA will finalize these things. They’re moving in that direction. These are steps that needed to be taken. And what that really opens up is this multinational nutraceutical business which will then mean explosive growth for CBD as an ingredient and as it finds its way under the shelves of the major brands.

We have counted on this on our very long-term growth, not the short or mid-term growth. And we continue to see that as trending in the right direction. How we’ve positioned ourselves to be dominant in that market as it opens up is the secure the DMF, is to make sure that our quality and our compliance and our certifications are pharmaceutical grade which will absolutely be required. And then it will be in the dominant position, the lead position as an ingredient supplier and then ultimately as a CDMO to help with those types of formulations as well. So we like the way it’s going. It would have been a shock if FDA simply had acted on it without going to Congress. It could have happened. We weren’t exactly counting on it, but they’ve made this move and it’s really a box around that nutraceutical space.

Operator: The next question comes from Vivien Azer of TD Cowen.

Vivien Azer: So thank you very much for all the incremental detail around the VLN aspirations over the next year or two. You noted that the state level expansion could be up to 18. Can you talk about some of the key KPIs that we should be monitoring over the course of 2023 to understand whether you could hit the upper end of that aspiration? Thank you.

John Miller: The 18 states which we actually laid out previous to this call even, the KPI drivers are going to be primarily through the chain account business. We know for this brand that the chains are where we’ll be starting which, again totally makes sense because when you look at the national volume, over 65% of the volume goes through the chains. So that makes sense. So that’s a key driver for us right there. We’ve got to hit the changes, which again then ties into the distribution strategy of having the national distribution network set up as well. So for us it’s going to be the change in terms of the retailers, the distributors and those partnerships, we’re just building them on a daily basis. And what we’re really finding out which is critical and it kind of ties back into Aaron’s last question about the product.

The product is meeting all of the consumer preferences and needs. It really gets back to our previous conversation we’ve had about awareness education trial, advocacy and repeat purchase. Those are going to be the drivers. There’s no doubt in my mind, this product performs. There’s no doubt in my mind that when people understand what this product does, what it’s meant for, they’re educated about it. That it is definitely a solution for that 60% to 70% of the 35 million smokers who are looking throw away to either lower their nicotine intake, smokeless or whatever their personal situation is. Those things are met. Now it becomes scale into the stores, awareness through the marketing campaigns and all of that is set to go. So those are our key and I hope that answers your question, Vivien.

But that’s really what we’re looking at. The product itself, we know works. We’ve got it priced now correctly. We think in the category in terms of its position. We understand how to promote it. Now it’s getting the word out and making sure people understand about it.

Vivien Azer: Yes, absolutely. That is helpful. And I appreciate the disclosure in the 10-K around your fourth quarter carton volume of 1,354. Obviously, it’s a far cry from the 1.2 million cartons. But from a modeling standpoint, how should we think about average ASPs, right? So if we’re going to start driving our model based on the carton disclosure that you guys are talking about, can you just remind us about the price mix differential for the VLN cigarettes that are being sold to consumers and have been like commercialized for consumer use versus the legacy cartons that were being sold for research purposes? Thank you.

Jim Mish: Couple questions there Vivien. Just to clarify, are you looking at the average sales price at retail?

Vivien Azer: Well, no. Like so you guys disclosed your cartons sold in your 10-K, so we can calculate an average ASP based on your segment level revenues. But there is a mix component that I think everyone should be cognizant of, right? There should be a difference in terms of the manufacturer revenue that you guys are realizing for cartons that you’re commercializing now for consumer use versus the legacy VLN business where those sticks are going more towards research.

Jim Mish: Understood. Yes. So, I mean, moving forward our projection obviously is significantly higher this year with what we have with these 18 states. And I think Hugh is probably going to be taking you through the actual number of cartons and the projection which again is significantly increased, especially with these 18 states. The way we’re looking at this in our projections moving forward, we talked a little bit about the cash flow positive number to get to $1.2 million, how does outlook. When you look at these addressable markets within the 18 states that we’re going to be selling and marketing the products in, it’s a small fraction. Even just in the channel-specific approach to the business, and then you can kind of back into the numbers.

If you’re looking at those 18 states represent 56% of the total volume, the chains represent 65% of the volume within those states just as a simple math. There’s a clear pathway there to get to 1.2 million cartons. I hope that answer your questions.

Vivien Azer: Okay. Understood. Yes, a little bit, a little bit.

Jim Mish: Okay. I can clarify it offline then.

Operator: The next question comes from Alex Fuhrman of Craig-Hallum Capital Group.