Alex Fuhrman: I would love to hear about how some of the Southwest markets have been scaling up with the VLN launch relative to the original pilot stores in Chicago. And as you get ready to launch in much bigger markets like California and Texas, what do you think you’re going to be doing differently as you approach those bigger markets?
Jim Mish: Right. Good morning, Alex. Yes. So if you look at the difference in the markets. So in Chicago we had a 150-store test. We tested a lot of different predominantly retail communication pieces. As we’ve moved into Colorado, some of the variables there, we had MRTP pricing. And how do we utilize that? We had two great partners with Circle K and Smoker Friendly who have, again tested some of the retail components, some of the pricing components. We’ve definitely aligned on where we are pricing. And now that we’re going to start getting the scale throughout our markets, now we’re going to start really introducing much more of the, what I would call enhanced marketing programs. And again, it gets back to that awareness education trial piece.
How do we get large groups of people with a much larger set of stores to understand where you can buy the product, aware of the product, educated about the benefits of the product, get the communication out. And that’s really what this is going to allow us to do now is really start upping the cadence and the frequency of our marketing actions. Again, I get back to the product, the product has been successful in terms of what it delivers. Now it’s getting to the consumer at a much larger scale. So that will be the differences of what you’re going to see Alex.
Alex Fuhrman: Okay. That’s really helpful. Thanks. And then, can you walk us through a little bit more of the math of how you get to be cash flow positive in 2024? I mean I imagine on both sides of the business, you’re going to be continuing to grow working capital in 2024, given the growth trajectory that you’re on and the need for inventory as well as marketing expenses, presumably on the tobacco side. So is it primarily going to be just significant revenue coming in or is there going to be less of a need to spend on marketing or have working capital? Just any kind of metrics you can help us to size up that, the path to get there will helpful.
Hugh Kinsman: Yes, I have it. So really the key I think is, maybe if I just break it into sort of two business units. If you look at tobacco, it’s really about when we hit cash flow positive post corporate overhead. What are the unit sales required to reach that point? It’s around, call it 250,000 to 300,000 units quarterly. So call it, we’re from $1.1 million to $1.2 million annualized as Jim referred to. And at that point you’ve really had enough density in the markets and it’s really not that significant of a mid-market percentage and we can discuss that further offline. But what it does is basically give you enough critical volume to cover all discretionary sales, marketing and distribution costs. And at that point after overhead allocation, you’re basically cash flow breakeven for that division.
And to John’s point, we have significant momentum on the distribution channel right now to have a clear line of sight when we can achieve that and it looks like it would be clearly in 2024. And then for the hemp/cannabis business unit, it really is a function of executing again on our organic growth strategy, both domestic and overseas in Europe which we have a lot of significant pent-up demand for our bulk ingredient product base there. So we felt very confident about that. And then if you were to combine that with some of the new incremental revenue streams we’re starting to create, particularly on the distribution side as Jim had mentioned, you have a clear path when you start to get to anywhere from, I would say $55 million to $60 million in revenue to be, again free cash flow breakeven, free cash flow positive as a business unit post corporate overhead as well.
Operator: The next question comes from Brian Wright, ROTH MKM.
Brian Wright: I just wanted to follow up on, starting with the question as far as the rule out in the big states, Texas, California and Florida and just how to think about how that gets prioritized. Is it your call? Is it your customers call? And then, just we had a sense of how the marketing kind of worked, the programs worked in the stores, in the pilot. But I haven’t gotten that kind of level of kind of visibility or I know it’s still early stages, but just kind of how you’re thinking about that would be helpful.
Jim Mish: Sure. Yes. Brian in terms of the cadence, a lot of the rollout strategies as we had laid out, those 18 states were our primary targets. We knew that there were customers that were going to go, like we said, go where we go, there’s a reason why we want to be in these states. Customers understood the message we were talking about the reasons why. And they also have some of their own goals that they’re looking at. So between the two organizations is how some of these distribution agreements came about. As you’ll recall, California wasn’t on the list during our last call. But because of what’s happening there right now, we know there’s a huge opportunity for VLN, some of our customers saw that. The best way to put it is, it’s both of the organizations working together to determine what are the best markets to move into, what are some of the environmental factors within those markets that would drive volume?
What are they seeing in their business? What do we know through our research? So that’s been some of what you’re seeing through the cadence through the states, which you’re going to be able to see now more as we have more scale and scope of stores is an enhanced marketing program around most of those levers that we can pull. Now, obviously, we have some constraints where cigarette companies still looked at FTC and FDA. But what we know is that we know what to do with retail and now we’re starting to do the enhanced marketing programs as well. So I’d rather not give you specific examples because it’s not what I want to put out for some of our competitors know as well. But the enhanced marketing programs and those levers that we can pull or what you’re going to see now in these bigger markets with more stores.
Brian Wright: Okay. Thank you. And then just wanted to follow up. I just wanted to make sure I’m paraphrasing the answer on the cash flow. So basically, you’re saying corporate allocation also includes working capital needs as far as you’re getting the cash flow positive by each of the segments. And there’s no additional kind of adjustments that are also being considered that we need to be aware of?
Jim Mish: No, Brian, that’s absolutely correct. That includes changes in working capital. So I mean if we were have to even substantial accelerated growth, we’d be at that point we generate enough — internally generated cash and probably from a credit facility to have enough availability to meet incremental working capital needs. So, yes, we would be for all safe and purposes, free cash flow breakeven at those milestones.
Operator: Our last question comes from Jim McIlree of Dawson James.
