Brad Nattrass: I think on the Q2 earnings call and looking at backlog at that point, from a services standpoint, a new contract that we’ve signed, that will be a really good indicator. And then also from an equipment standpoint, equipment in a strong cannabis market was a tremendous source of revenue for urban-gro. When you look at 2021, it was $56 million. It decreased in 2022 to $33 million as we reported last month. And 2023, it was down to $13 million. And so the backlog that we reported at the end of Q1 for equipment was $1 million. So watch the backlog at the end of Q2 as well. That should be strengthening. I think the early indicators will be on services and on equipment. But I can tell you as a result of today’s announcement, I already know it’s stronger. We know it’s stronger. Good, strong discussions with clients and some signatures today already.
Eric Des Lauriers: That’s very good to hear. And I just have one more question, given my poor connection here. Gross margin expansion you called out increased productivity from architects, engineers and an increase in construction margins. Because I guess just wondering if you could expand on [Technical Difficulty] I am wondering if their [Technical Difficulty] projects in Q1 and medical went themselves [ph] to higher productivity or higher construction margins. And ultimately what I’m wondering is we expect productivity levels to remain somewhat steady going forward because there’s something we feature fluctuate quarter to quarter and we got a little lucky this quarter and I’m just wondering how to think about that going forward.
Brad Nattrass: Dick I’ll let you take that one please.
Dick Akright: Thanks, Brad. Eric, yeah, with regard to we expect kind of that same type margin. It certainly was a very high margin for us in the first quarter of 2024. I don’t necessarily expect that it’s going to be exactly that high on a go forward basis. It was very low in the fourth quarter of 2023 as we I’ve talked about from a construction project that we had that incurred. Some additional costs went over budget and we weren’t able to pass all those on to our customer because of a couple of the construction projects that did get started in Q1. They are at very nice margins for us above kind of what we typically see for construction projects and so even though we might not expect that the Q1 margin we experienced just going to continue at that level going forward, we wouldn’t expect it to fall off very much.
And as always and we’ve talked about before from the standpoint of our total gross profit and margin it depends on that revenue mix that we have. So you still have to pay close attention to what happens as the equipment or services total revenue number changes over time and that impact on the gross margin.
Brad Nattrass: And I’ll add all that in on the back there a little bit. It has been almost two years Eric since we completed the acquisition of the construction company. And so there were some legacy projects that we came with the acquisition and that ended up not being what we would have hoped, right? So we call them legacy projects and they’re pretty much finished now the project that Dick alluded to in the fourth quarter and some surprise costs come in was tied to one of those projects. So that’s behind us. That’s great positive. Second in the middle of 2023, we had all of the acquired companies on the same ERP. We’ve talked about that before. And as a result our COO and his team were able to put some stronger internal controls in place and now we’re seeing the results of those move.
So definitely trending in the right direction and we don’t we weren’t lucky in the quarter. I guess to answer that last question for you. Yes that all makes sense to me and I’m certainly glad to hear that some of these initiatives like getting everyone on the same ERP system has led to some structural changes in margins but understand that that’s would be some degree of fluctuation going forward.
Eric Des Lauriers: Very helpful. Thank you for taking my questions.
Dick Akright: Thank you.
Brad Nattrass: Take care.
Operator: Thank you. The next question is coming from Anthony Vendetti from Maxim Group. Anthony, your line is live.
Anthony Vendetti: Thanks. You had just a couple of questions on the backlog of 99 million at the end of March. I know today obviously big data talk about cannabis and what this impact could mean in terms of future business. But in terms of the backlog how — what percent of that is cannabis related and what percent, obviously not non-cannabis?
Brad Nattrass: 72% was commercial or non cannabis segment sorry Dick — 76. Go ahead, Dick.
Dick Akright: Sorry. Yes 76% of it was CEA related and 24% was commercial. That’s pretty consistent with what we reported at the end of December in terms of the split by the factors that we have. So even though our recent revenue performance has been a shift of that where we have had substantially more commercial than CEA, the backlog still continues to be a more higher percentage on CEA than it is on commercial partly, due just to the size of some of the CEA projects that we have in backlog.
Anthony Vendetti: Okay. That’s helpful. And then what this could mean, obviously less stringent rules should open up investments — the tax benefit as well what I know it’s just happened a couple of hours ago, but have you heard from any potential customers eager to maybe speed up investment if indeed this gets passed and maybe elaborate a little bit on, what you think the timing is for a final like consent decree to come down say okay, boom this is going to move and from a Schedule I to Schedule III potentially
Brad Nattrass: It’s neither — the 280E — the removal of 280E is most definitely the largest benefit to a successful rescheduling. Some of the large multistate operators have publicly stated that the annual savings from the removal of 280E can range from the $130 million to $180 million plus. So it’s significant funds that we believe — as some of them have also stated publicly that they’re looking to reinvest those funds into the company, with refreshing existing facilities and building out new ones. And so that’s definitely the largest benefit there. Yes, the period that it will be open for anywhere from three to five months before the final approval would take place. But it has been stated publicly that FA supported the Department of Health it will — all indicators are it will absolutely be approved in the long run.
