Operator: Your next question comes from the line of Ty Colin from Eight Capital. Your line is now open.
Ty Collin: I wanted to maybe keep pulling on the Illinois thread here. So it sounds like Illinois is the priority from an M&A perspective at this point, maybe over California, even. In terms of your expectations, I mean, do you think you can actually get close to that 10-store cap by year-end? And how would you expect to finance those acquisitions? Is that really kind of predicated on working out the debt piece, as you just mentioned?
Andrew Thut: Yes. I’ll turn it back to Karl and Brandon.
Karl Chowscano: It’s the right question. I think it’s almost impossible to think that we’re going to have 10 stores by the end of the year, but very possible that we have 10 licenses secured by the end of the year. We are trying to track the acquisition of licenses. We have quite a number of them on deck ready to go. But as you mentioned, financing the build-out and the cash portion of the acquisition is key to be able to do it, obviously. There’s a number of steps that we had to take in order to be able to be in a position to find ROC finance, these things. One is we have to understand where we in the industry, and we spent months in the beginning of this year, at the end of last year, being very realistic and about where our business is and what it’s going to take to cash flow positive.
Because trying to raise even finite ROC financing when you can’t be crystal clear in terms of your path to cash flow financing is very challenging. We feel very confident with the work that we have done on our budget, with what’s happened so far in Q1 in line with that budget that we are now in a great position to be talking ROC financing for these Illinois locations. So when do we think they’ll all be on deck? Probably, hopefully, Q3 of ’24, we would have all of them up and open. We know that the team we have. We have contracted with a significant team that is on the ground in Chicago, in particular, very, very comfortable with opening up retail locations. They’ve opened up 60, not necessarily cannabis retail locations, but retail locations that have similar footprints.
And right now, we have five to six key real estate locations in queue, cleaning up the balance sheet, as I mentioned, making sure that our long-term debt is a long-term away in terms of termination is step one in order for us to have meaningful financing conversations with the people we’ve already had conversations with the end of last year. There seems to be a lot of interest to finance a project, but we need to make sure our house is in order. And I think we’re now at the point where we put the — we’ve looked at where we are. We focused on what we can do. We put together a plan that is realistic that we are meeting. And now we’re at the prove-it stage, and that prove-it stage together with a cleaned up balance sheet can really promote the opportunity for us to raise financing.
We’re not going to go after another store until we have a clear line to how we’re going to finance those stores. One we can do along with the build-out of Matteson. But if we’re going to do more, we want to secure that financing and we’re undergoing discussions now. I hope that answers the question.
Ty Collin: Yes. No, no, that’s great color. I appreciate that. And just for my follow-up, so you mentioned in the press release the focus on cost discipline and the goal of becoming free cash flow positive ultimately. Is free cash flow positive something that’s realistic for this year? And maybe as part of that answer, can you give us an idea of what CapEx will be company-wide for 2023? I know you’ve talked about some of the individual pieces, but company-wide would be helpful.
Andrew Thut: Keith, do you want to take that?
Karl Chowscano: You want to pass that to Keith?
Keith Adams: Yes. So I think the statement said operating cash flow positive, not free cash flow. But as far as the CapEx requirements going into the year, a lot of this will depend on what happened with the store build-outs, of course. But it’s a number. We have a plan that has CapEx spending for the year, just over $5 million, including Matteson. Most of Matteson’s build-out is included in the TIs. So this is just about equipment upgrades in our other locations like California. And again, how much — how many licenses from Illinois we pull into the air.
Karl Chowscano: I’d just add some color to that. This is Karl again, Ty. We have an LOI in hand and are actually reviewing definitive documents relating to equipment financing that can help finance that $5 million even though, as I said, we do believe that we can achieve that throughout the year using our own cash flow. We do have in hand. And again, cleaning up the balance sheet, as you can imagine, is going to be very important in order to bolt on things like equipment financing.
Ty Collin: And just to add clarity to that, that’s look back financing. Its dollars already spent so that financing will be additive to the balance sheet, and we can use it under our discussion.
Karl Chowscano: So Keith, for clarity for this call, for the $5 million in ’23, is $3 million Matteson, $2 million towards the build-out of the store and some of the cash purchase price that is postponed to the end of the deal. Is that kind of where your $5 million comes from? Or is it $2.5 million, $2.5 million…
Keith Adams: Yes. And it also it includes — sorry, some capital improvements that we’ve been waiting for in California and
Operator: Your next question comes from the line of Yewon Kang from Canaccord Genuity. Your line is now open.
Yewon Kang: So just one question for me here, and it’s regarding Illinois again. So yes, definitely, the market has been seeing a lot of pricing pressures as of late. And based on our conversations with some of your peers, it actually seems that some of the operators are trying to wind down their production in that market because the social equity licenses are actually taking longer to come on more than expected. But knowing that the Matteson facility is about to come online in April for you guys, I guess, one is, how are you guys thinking about your peers kind of stepping away from the market? Do you kind of see this as an opportunity for you guys? And I guess the second thing is, if you can provide any insight on what you believe will happen to the market going forward. Obviously, I know that California has kind of seen a rebound. So any color there would be helpful.
Andrew Thut: Brandon and Karl?
Karl Chowscano: Yes, I’m happy to jump in on part of that. Thanks for a great question. So one, yes, our Matteson facility will be construction complete in April, but we’re projecting Q3 in terms of having permanent power to the building, and we’ve been working actively with to get that power line extension complete. So, completion is pushed back a little bit from that April date. Two, great, if competitors are going to step out of the market right now, of course, that’s beneficial to those of us that are still in market as cultivators. Today, we only have a 9,000 square foot canopy out of our facility, which is basically powering the two retail stores we have live with a little bit of excess for wholesale. So we’re effectively right-sized for the size of our retail footprint and wholesale channel in Illinois today.
When Matteson comes online, as we mentioned, we’re hopeful that we will have other retail stores, either online or coming online very quickly, which will sort of de-risk the fact that we’re about to 4x the size of our canopy in the state. And then the last thing I would say is, you’re correct that the social equity licenses are a bit delayed in coming online, but they are coming online slowly, but surely. There’s about 120 active licenses in Illinois today. As you know, there are 180-ish licenses that were issued, but are not yet active. And so even if a portion of those licenses is up online by the time Matteson comes online with them, we should have a pretty robust wholesale channel to guarantee throughput for the product that we’re producing.
The long story short, we’re feeling pretty good about the timing right now.
