David Klein: And I would just say, look, protecting revenue in nascent industry and nascent businesses is difficult at best, that’s which is why we don’t provide guidance. I would point out that BioSteel has seen volatility, but BioSteel on a year-to-date basis is up 100% year-over-year. And so we think that that kind of performance over time will continue with that brand. But as we said, we’re going to see volatility from quarter-over-quarter, and you could make the same case with other components of our business as well. And so, I think that what we’ve laid out here today represents a strong path to getting profitable to achieving cash flow favorability at a point in the future, and some very strong businesses that have a lot of economic value potential for our shareholders.
Operator: Your next question comes from Pablo Zuanic of Cantor Fitzgerald. Please go ahead.
Matthew Baker: This is Matthew Baker on for Pablo. Thank you for taking our questions. Firstly, I just wanted to congratulate the company on ringing the opening bell at NASDAQ on December 12. Can you update us on how those conversations with NASDAQ are going? Yes, you are committed to the dual listing but NASDAQ has made it clear that they’ll delist you have to consolidate US assets. So what has changed? And then secondly, when do you expect that regulatory approval for the consolidation of acreage? Thank you.
David Klein: Yeah. So the first of all, let me start with the regulatory approval that that starts as soon as Canopy USA triggers the ownership interest in acreage, which hasn’t happened yet. And then, that takes as long as 9 months to 12 months afterward, in order to complete that regulatory approval. As it relates to NASDAQ, you’ve outlined the issues appropriately. We’ve already been really clear that we do not control Canopy USA and that’s important here. We had an accounting pronouncement that suggested that we would have to consolidate which was in which created an issue for NASDAQ, and we’re now working on alternatives which would solve the concerns meaning we wouldn’t have to consolidate Canopy USA into our results. And we need to — we need to continue to do that work.
But there’s a lot of activity going on around that. And, we expect that, that we’ll be able to get through all of the open matters and ultimately proceed to a vote, as we said, our targeted date for that shareholder vote, which means we will have cleared all of these hurdles is in April of 2023.
Operator: Your next question will come from Doug Miehm of RBC Capital Markets. Please go ahead.
Doug Miehm: Good morning. Two part question. Number one, David, you did really call out today, what you see as the sector challenges in Canada, and it appears the inability to make any significant changes with respect to those unless the government makes some changes. So my first — the first part of my question is, are there ongoing discussions that you think will be fruitful? And I’m even saying in the near term, but let’s say in the midterm, that’s the first part. And then the second one was, can you comment on the medical growth, which was positive this quarter? And if this is a function of taking share from other groups, or this is a function of the medical business overall, growing perhaps a little bit faster than everyone believes?
David Klein: Yeah. So starting with the Canadian regulatory situation looked at the legal industry was built on the back of a call for harm reduction. That’s kind of different from maybe building the industry around economic development and generating tax from this industry, which has an underlying rate of consumer participation, right. And so I do are there are there any things that would or there anything’s going, anything going on that would affect that the industry in the near term? I don’t think so. Which is why we made the changes we made today so that we would have a business that’s right size for the industry as it sits today. I do believe however, over time, the Canadian government will continue to try to understand how they need to adapt the regulatory regime.
So that cannabis can be the economic development engine that we all started to experience, immediately post legalization in Canada. So I think it’ll take a long time, as I said, in my script, which is why we made the changes to adapt our business for the realities of the market that we sit in today versus where the market could go in the future.
Operator: Your next question will come from Aaron Grey of Alliance Global Partners. Please go ahead.
Aaron Grey: Hi, good morning, and thank you for the question. So for me, it’s wanted to talk a little bit about BioSteel. So you talked about expected growth to come back next quarter, but look for grow quarter-over-quarter wanted some more color their 34% ACV. I believe that matches last quarter. So if you could provide some line of sight into the magnitude of timing, timing of additional distribution and maybe some ACB targets over the next 12 months to 18 months? That’d be helpful. Thank you.
David Klein: Yeah, I think the thing that’s exciting about BioSteel is you see it, particularly anybody that lives in Ontario, you can really see the gains that are taking place at retail, and just the general availability of the brand in the marketplace. And so when we work with retailers, but in particular, when we work with distributors between us and retailers, there can be lumpiness in terms of reported revenue. But what I think is interesting is are the stats that I called out on my prepared remarks where we’re just under 14% market share and convenience and gas channel in Ontario, where scan sales in the US up by 157%. I think it’s that kind of consumer takeaway activity that ultimately drives revenue growth. And in overtime that cuts through the lumpiness that you get in forecasting reported revenue based upon shipments to distributor.
So I think — I think you have to, so instead of putting targets out there, I think you have to just keep looking at the consumer takeaway data because that’s going to determine, obviously, where the brand ends up in the medium term.
Operator: Your next question will come from Matt Bottomley of Canaccord. Please go ahead.
Matt Bottomley: Yeah. Good morning, just a follow-up for me, with respect to the BioSteel commentary you just made, with the margin profile of the overall company on an unadjusted basis dipping back into negative territory, there’s a few things called out in the press release. And one of them was some write downs with respect to age, inventory and BioSteel. So I don’t expect that’s a material element of it. But if you could just maybe give us some idea of the magnitude? And then just the dynamic given that, you know, outside of the timing of shipments, when you look at this business on a six months smooth basis, or just sort of year-over-year, growth is certainly continuing to — to be a theme for that brand. So just the sort of rationale behind why there’s aged inventory requiring right down at this point.
David Klein: Yeah, I’ll have Judy handle that. But I first want to actually build a little bit of a bridge where Judy called out in her script that we expect that this brand achieves industry, kind of standard margins for the brand, which would, which would really put that into the high 30s, low 40s kind of percent over time. And that was the driver behind our purchase of the Verona facility, which allows us to control more of the supply chain for BioSteel, I think there are some cost savings to be had as we get scale from distribution costs, which on a per unit basis are quite high in a nascent brand, but shrink very quickly as you start to get scale. We think that we can do some more work. This is a good price point — high price point really in the category.
So there’s a lot of margin available to us, we have to make sure we continue to do a good job of managing that kind of gross to net margin erosion that happens when we go into retail. And in there’s the team at BioSteel, especially post-closing on the Verona facility are laser focused on showing consistent improvements in that margin on its way to those industry standard margins. And yeah, there’s some noise in the near term that Judy can comment too, but we think we have a very well defined path to industry margins that go along with the top line growth we’ve seen in the brand.
