Good day, and welcome to the Lowell Farms Inc. Second Quarter 2022 Earnings Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on a touch-tone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Bill Mitoulas of Investor Relations. Please go ahead. Good afternoon, and welcome to the conference call to discuss Lowell Farms Inc.'s Financial Results for the Fiscal Second Quarter of 2022. Before we begin, please let me remind you that during the course of this conference call, Lowell Farms Inc.'s management may make forward-looking statements. These forward-looking statements are based on current expectations, but are subject to risks and uncertainties that may cause actual results to differ materially from expectations. These risks are outlined in the Risk Factors section of our Form 10 filed on EDGAR and our listing statement filed on SEDAR. Any forward-looking statements should be considered in light of these factors. Please also note that any outlook we present is as of today, and management does not undertake any obligation to revise any forward-looking statements in the future. This call includes George Allen, Chairman of the Board, Mark Ainsworth, Co-Founder and Chief Executive Officer, as well as Chief Financial Officer Brian Schure, who will go into detail about the company's financial results for the quarter later in the call. The Q&A portion of this call will be open to analyst questions to provide further insight into the company's performance, operations, and go-forward strategy. For those of you who may happen to leave our call before its conclusion, be advised that this conference call will be recorded and archived on our investor relations website page. Now I'll hand the call over to George. George, please go ahead. Thank you, Bill, and good afternoon, everyone. In terms of financial results, this quarter was obviously a disappointing quarter for Lowell. Lowell Farms fell short of several of our goals during the quarter as market conditions in California continued to be exceptionally challenging given oversupply and a consumer that is under budgetary pressure. This is compounded by a cost structure that is experiencing the same inflationary pressures everyone is experiencing. Ironically, we think the market conditions could not be more right for the launch of our much-anticipated Lowell thirty-fives product, which I'm excited to announce will hit the shelves this quarter. The product is priced to bring a new form factor into California with a value proposition that is more compelling than anything else in the market. Before I talk about the thirty-fives, I want to talk briefly about the second quarter and our liquidity. During the second quarter, we saw a surge of price action by our competitors, especially in the flower category. We deliberately made the choice not to lower our prices to chase volume at the sacrifice of margin. We were guided by the belief that flower prices have dipped below sustainable levels, and since we have found it nearly impossible in cannabis to raise prices, we elected to refrain from aggressive price reductions in order to protect our brand and our volumes suffered. This largely manifested itself in a CPG revenue figure for the second quarter that was immensely disappointing and well short of our guidance. While our farm produced a record volume of cannabis during the quarter, the bulk market for flower continued to be soft, albeit slightly higher than the first quarter. Now, the primary culprits for our challenges are an oversupply of cultivation output in California, coupled with a large portion of our business which is subject to commoditization, namely bulk flower sales and a large portion of our CPG sales. As to cultivation oversupply, we don't see it fundamentally changing, even though we do see some evidence of capitulation in the market. However, we suspect that many of these operators on the margin will simply shift into the illicit market in an effort to stay afloat and thereby extend the oversupply problem. While cultivation tax relief was helpful and will retain some of that margin in Q3, we expect most of the savings to get passed along to retailers and ultimately consumers, given the power balance of an oversupplied market. As to CPG concentration, too many of our CPG products are commoditized and have comparable alternatives from our peers. This book of business will only improve when we see meaningful attrition among our peers. We are seeing encouraging evidence of that attrition as Q2 represents the second quarter in a row where more brands left the market than entered it. We also hear from our retailing partners that they are cutting back on vendor count as they are growing weary of vendor reliability issues that complement this challenging market environment. Now, the best vector for us to pursue is products which are contiguous to our Lowell pre-roll brand, which has no peer in California. With the launch of the Lowell 35s, we're extending that leadership by bringing a product to market that we have been designing and engineering for over two years. With the completion of the All Good transaction we announced earlier this year, we have the final components to bring the thirty-fives to market, which we will be doing later this month. Now, the elephant in the room is our liquidity. We ended the quarter with $2.2 million in cash, $3.7 million below our March balance. We've been in active dialogue with existing investors about an incremental capital raise, but that raise is not yet complete, and it would be premature to comment on terms. We recently factored an IRS receivable for $2.4 million that helps with current liquidity and capital equipment investments associated with the thirty-five launch. While the market backdrop is exceptionally challenging for Lowell, we do think it is in an ideal environment for the launch of the thirty-fives. The value proposition behind the 35s is exceptional. It's a step function improvement in quality over current pre-roll offerings, while simultaneously bringing it down to a price point as competitive with flower. Now, this has been a dream of ours for a very long time. We believe that over time, we will not only take share from the pre-roll market, but also from the jarred flower market. We estimate that 90% of cannabis, inclusive of the illicit market, is sold to people who consume weed on a daily basis. We think this is one of the first CPG items that presents a differentiated alternative to that consumer. We are excited about our launch, and we'll look forward to giving you our initial feedback on our next earnings call. I'll turn it over to Mark. Thank you, George, and good afternoon, everyone. I will review each of our divisions to discuss performance. I will start with cultivation. In cultivation, we continue to show output gains and experience record yield levels. We saw three records broken. Wet weight harvest of 4,600 pounds, a single room dry harvest weight of 416 pounds, and breaking 12,000 pounds of total flower, a 43% increase from Q1 in a single quarter. While we anticipate peak yields in Q2, the record output is strong testimony to our cultivation team. We know of no other operation in the country that achieves the yield density that we do. Our LFS business continues to show promise as we added a small handful of new customers during the quarter. Included in our LFS sales figures is approximately $1.3 million in bulk flower sales sold on behalf of our LFS customers at little to no margin. Service revenues of $731,000 were up over 100% relative to the first quarter service revenues of $350,000. We highlighted last quarter, we are transitioning our customer base from seasonal outdoor customers to a steady year-round customer base of greenhouse growers. Our four-wall cost of drying and processing flower is roughly flat to Q1 at $154 a pound, and we are currently operating the facility at approximately 40% total capacity, inclusive of our own flower that we process on-site. While we expected a surge of demand during the year, driven by enforcement actions within the county cracking down on unsafe drying conditions, we saw a delay in the enforcement actions by the county as they continued to permit non-compliant drying space despite the hazards therein in an apparent effort to show flexibility to the cannabis community during these challenging times. We are very bullish on this business, and it remains unique within the state. When enforcement action does come, we anticipate that most local operators are going to elect using our service in lieu of the expensive option of building their own compliant facilities, given that most local operators are several quarters behind on their county cultivation taxes and lack capital for the necessary CapEx improvements. Bulk sales. Our Lowell Farms flower continues to sell at a premium over other local greenhouse growers, thanks to a stable of unique genetics and bag appeal that rivals indoor flower. We continue to get a premium of approximately $100 a pound over local operators. Every penny counts in this market. Having said that, our comments last quarter about elevated pricing in Q2 versus Q1 were a bit premature. In June, the market price for flower took a step down that we had not anticipated, and while the overall price for bulk flower rose slightly during the quarter, it was short of our expectations. The team made up for the shortcoming on pricing by moving more volume. During the quarter, we sold 6,346 pounds, a 76.8% increase than in Q1. CPG sales were disappointing during the quarter. Sales from our own brands declined 18% sequentially, driven largely by declining volumes within the packaged flower category. As we have mentioned before, the packaged flower category is witnessing sustained pricing pressure for wholesalers, a trend we intentionally did not follow at the expense of lower overall sales volume. According to Headset, our wholesale price per gram declined 2.6% quarter-over-quarter, while average pricing from other top flower brands declined as much as 30%. Fortunately, lower volumes in the packaged flower category were partially offset by sales growth in the pre-roll category. In mid-July, we restructured our sales operations in California by removing a middle layer of sales leadership and reducing our sales commissions. Collectively, out-of-state revenues fell from $723,000 to $274,000 from Q1 to Q2. The drop included a decline in royalties from $389 thousand to $263 thousand. The decline in royalties is something we are addressing with our partner, Ascend Wellness, as they have had challenges with inventory levels, as Ascend is still largely using manual processes for its manufacturing and has reportedly struggled to maintain inventory levels. Additionally, the quality issues that we highlighted last quarter still appear to persist, but we are working closely with a receptive partner to address them. We anticipate launching Colorado and New Mexico late in the third quarter with Schwazze, and we are very excited about the prospects in those markets. With that, I will turn it over to Brian. Thank you, Mark. Good afternoon, everyone. Before I begin, please note that we are reporting our Q2 2022 results in U.S. GAAP, and a portion of my commentary will be on a non-GAAP basis. Please refer to today's earnings release for a full reconciliation of GAAP to non-GAAP results. We report all figures in U.S. dollars unless otherwise indicated. I would also note that these results are unaudited. Our quarterly report on Form 10-Q will be filed with the SEC and CSE in short order. We reported Q2 revenue of $13.2 million, up 6% sequentially and down 13% year-over-year. CPG revenue declined 18% sequentially to $7.4 million and declined 23% year-over-year, while bulk flower revenue increased 94% sequentially to $3.4 million and declined 37% year-over-year. As expected, Lowell Farm Services revenue increased 141% sequentially to $2 million, while licensing revenue declined 62% sequentially to $0.3 million. The sequential increase in Lowell Farm Services reflects revenue from third-party seasonal harvests and third-party bulk sales, and the decline in licensing revenue reflects lower packaging shipments to licensees in the quarter. The decline in CPG revenue reflects our refrain from pricing reductions and an effort to reorganize our edible and concentrates product offerings. Lowell brand revenues remain strong and represent 66% of CPG revenues in the current quarter, compared to 60% in the second quarter last year. While bulk flower revenue increased significantly sequentially, the 37% decline year-over-year is primarily due to significant pricing declines between years, as Lowell cultivated flower pricing was 51% lower in the current quarter compared to the second quarter last year. Bulk flower pricing seems to have bottomed in December, and we anticipate stable to modest pricing increases in the next several quarters. Year-to-date revenues were $25.6 million, a 2% decline from the previous year, due principally to lower flower pricing. CPG revenues increased 4%, while bulk flower revenues declined 49% from prior year levels. As we look forward to the second half, we are anticipating growth in CPG and LFS service fees. CPG growth is expected primarily from volume increases in pre-rolls, including our new thirty-fives product and packaged flower. The expected increase in LFS service fees reflects the impact from seasonal fall harvests, predominantly in Q4, compared to the small spring outdoor harvest activity. We don't anticipate returning to the same level of third-party bulk flower sales until this time next year. Gross margin, as reported, was 11% in the second quarter, compared to 13% sequentially and 38% year over year. The margin decline from the first quarter was due primarily to lower CPG volumes as we held pricing and reorganized our edible and concentrates offerings. The margin decline year over year was primarily due to significantly higher bulk prices realized in the prior year. Operating expenses were $4.5 million or 34% of sales for the quarter, compared to $4 million or 33% of sales in Q1 this year, and $6.2 million or 41% of sales in the second quarter last year, reflecting cost reductions realized year-over-year. The operating loss in the second quarter was $4.5 million, compared to an operating loss of $4 million sequentially, and operating income of $0.8 million year-over-year, reflecting lower margins in the current quarter and the favorable bulk pricing impact in the prior year. Net loss for the first quarter was $4.6 million, compared sequentially to a net loss of $4.1 million, which compares to net income of $0.7 million in the second quarter last year. Adjusted EBITDA in the second quarter was negative $1.1 million, compared sequentially to adjusted EBITDA of negative $0.9 million and positive adjusted EBITDA of $0.7 million year-over-year. For the first half, adjusted EBITDA was negative $2 million compared to negative $4 million last year. Turning to the balance sheet, working capital was $14.5 million at the end of the second quarter, compared to $18 million at the end of the first quarter, and the company had $2.2 million in cash, compared to $5.9 million at the beginning of the quarter. Capital expenditures of $0.5 million were incurred in the second quarter. In July, we completed a financing for $2.4 million, backed by Employee Retention Credits earned in 2021. With that, I'll turn the call back to Mark. Mark? Thanks, Brian. Let's turn it over to the operator for questions. We will now begin the question and answer session. To ask a question, you may press star then one on your touch tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. Our first question will come from Bobby Burleson with Canaccord. Please go ahead. Great. Thanks for taking my question. Sorry for any background noise. I guess the first one would be just trying to understand some of the research you've done on the 35s ahead of that 35s launch. It sounds like you see some nice prospects there, and it's fitting into, you know, you know, what looks like a hole in the market. Just maybe a little bit more detail on what your assessment is of its prospects. Well, Bobby, I would tell you, we could go on this topic for a long time. We've done a lot of work on this. Really, I would generally say where we think the need comes from is really an understanding of who drives the cannabis market. When you look at the data of who buys cannabis today, 90% of the cannabis that's consumed, inclusive of the illicit market, we estimate, is bought by the consumer who smokes every single day. We really wanted to understand what the use case for that consumer is, right? We spent a lot of time trying to find that consumer because I think we talk a lot in cannabis, and it's really fun to explore the novelties of cannabis discovery for people who haven't smoked a lot of weed or aren't smoking a lot of weed. When you really look at the market and the big dollars out there, the sort of fat pitch coming down the middle is this daily cannabis consumer. A lot of these consumers who are you know, relatively heavy users, you know, in a lot of cases, they buy from the illicit market, in a lot of cases they buy weed at volume, because they're price sensitive, right? If you use something like cannabis every single day and, you know, some consumers smoke up to an eighth a day, you know, some of those consumers, they're super sensitive about price point. You know, a lot of what was happening in the market was sort of failing from how to talk to that consumer, how to go find that consumer. Frankly, you know, we've got some leadership on our board from the tobacco industry, and we spent a lot of time looking at the tobacco industry and the history of tobacco industry and how the tobacco industry went from loose tobacco into cigarettes. Really a lot of it came down to sort of the price point of when you can achieve price parity with flower. You know, if you take our flower today, an eighth of flower that we sell could be on the market for anywhere from $28-$35. Our pre-rolls, you know, the sort of legacy pre-roll pack that Lowell's so well known for, that pre-roll is on the market for anywhere from $40-$50 in California and higher in other markets. That product and that brand, even though it represents sort of a high watermark in terms of brand legacy, it sort of is priced out of that cannabis consumer. In addition to that, we also really started with the fact that like during COVID, what happened during COVID was the consumers started smoking more cannabis. This is pretty well documented, but you're smoking a lot more often you were smoking, sort of alone. Even when you were smoking with other people, you weren't sharing cannabis. One of the journeys that we had to go on was how to get the pre-roll smaller. When you try to get the form factor down in terms of dosage size, what happens is, your costs start to skyrocket. The only way to really unlock the single-use serving size or session ability of a pre-roll for this sort of daily smoker in cannabis is to try to get your cost down, and the really only path to doing that was an automation. Then we started exploring sort of automation, and it sounds easy, but it has been an incredibly long journey for us to sort of crack the code on automation. We think we have, and I think that the product that we're coming out with at the beginning of next month or potentially the end of this month is truly game changing. We're super excited about it. We think it does present that sort of daily cannabis consumer an alternative to have fresh, really high quality, good cannabis experience in their pocket at all times in the form of flower. We're very excited about it. Okay, great. Just on the CPG revenue, you know, how tightly correlated is your kind of year-over-year decline there and some of the weakness you're seeing to that business to just overall same store sales comps, you know, in the retail channel in California? Yeah, I mean, I don't have the exact data. I do know that during the quarter, you know, we lost share. Yeah, we decidedly lost share during the quarter largely in flower. Flower historically is almost an impossible brand product to really hold on to brand. But it's very hard for you to get consumers because consumers have so much more data when they buy flower, right? They have potency levels that are printed on the jar. They have how the flower looks and the jar appeal, the bag appeal. So the brand sort of ends up being sort of far less important for the consumer. The consumer goes into a dispensary, price tends to be, you know, a factor, and look and feel and smell tend to come into play as well. Way down the list is sort of like brand. What that means is that as other flower producers drop price pretty aggressively during the quarter, we sort of refrained from doing it, and that means we lost share. The reality is we couldn't afford, honestly, to chase. Sure, sure. It doesn't make sense for brand. What you don't wanna do is chase, because pricing is a one-way street in cannabis. We've learned this too many times. If we drop our flower price, it denigrates our brand, especially on the eve of a new product launch, which we wanna have an elevated brand. In addition to that, we know that we can never really raise prices again. Sure. We just made a conscious decision, and I don't know how to play out the alternative set of facts and what it would've looked like had we not held price or been so convicted on holding price. I suspect that top line would have been healthier in CPG, but we probably would have suffered on margin. Fair enough. Okay. Thanks, George. Our next question will come from Jason Zandberg with PI Financial. Please go ahead. Hey, thanks for taking my question. I just wanted to get your thoughts on the elimination of the cultivation tax in California. Specifically, you know, what would it look like if it was in effect at the beginning of Q2? Sort of what would the cost savings and just generally your high-level view on what you think this will do in terms of, you know, obviously it's gonna be lower cost, so you know, competition with the illicit market will be easier. What sort of impact do you expect this to have? Yeah, I mean, if we held on to all of it, right, if we held on to all the cultivation tax for CPG products, you know, for anything that's flower-based, it would be sort of, you know, greater than 10-point margin shift, you know, 10%-15% margin shift. The reality is that I think that is an ephemeral way to look at it because I don't see that margin. I don't see how that's possible to hold on to. In fact, some of our products we've given the savings, not all of it. We've given a great portion of the savings back to retailers. Just because the fundamental issue is that you've got more supply than there is demand in the market. When it comes to like a big step function change where everybody gets, you know, $1.40 off on an eighth, you kind of have no choice but to pass that along because it's a prisoner's dilemma. The first person that does it is gonna get the share. When it came to like that change in the market, we looked at all our products and we said, how many of them are commoditized? Which ones are the most commoditized? If they're most commoditized, then we expect the, you know, the prisoner's dilemma. We We expect somebody else to be the first person over there, then we're gonna get in front of it. In some of our other products, like our Lowell pre-rolls, which you know tend to be very sort of stable and price agnostic for consumers within a relative pricing band. We didn't see the need or feel the need so much to compromise in terms of price. There we should see margin expansion, but it's gonna you know to a lesser extent because they're a higher price. Our legacy pre-rolls are higher priced, so it's not quite 10 points. I will say that we have you know probably been more firm on holding price there. You know, a lot of this stuff, it will remain to be seen like how fast the market adjusts. In general, I think the case for a cultivation tax, and I think this even went to the policy decision that they made in Sacramento. The case for the cultivation tax reduction is really about trying to compete with the illicit market. If the price, the tax cut gets to the consumer in the dispensary and the effective price drops in the dispensary, then I think, and this is, you know, this is a positive, then I think that there's a chance that some incremental wave of consumers that were making the decision to go to illicit market could potentially be lured into to the legal dispensary market, so growing the pie. I think that's where probably the affirmative case is for the cultivation tax relief, probably more so on a longer-term basis than just a margin boost for all the cultivators. I think any cultivator that thinks that they're just gonna pocket, you know, the cultivation tax relief, and not see pricing degradation on the backs of it, I think that's kind of foolish, truth be told. Especially when it comes to anybody who's predominantly selling flower. Yeah, well, that's good color. Can you just give some color on just your out-of-state revenues? It fell during the quarter. Obviously you're gonna get some help with addition of Colorado, New Mexico. Just wondering if you could address both the decline and then sort of the, you know, what your expectations are for adding those two new states. Yeah. The royalty decline is obviously the more challenging or the more concerning, right? In our revenues, we have a combination of royalties, which are high margin, you know, almost all margin. Then we have packaging sales, which are, I think we make five points of margin on the packaging sales. Into a great extent, Brian can share the exact numbers, but to a great extent, the decline was accounted for by a decline in packaging sales, which is timing of packaging sales and timing of inventory. There was also a pretty material decline in royalties, and the royalty decline is something that we're really focused on. That's what I would say. The health of that business, I think we've suffered a little bit from some quality issues that we've seen in the market and probably a little bit of shortfalls on our side in terms of brand support, and so reaffirming those brands as our competitors are sort of getting a little bit more savvy. We've added some resources locally to start to improve the brand support that we're getting. We are seeing some traction on that so far this quarter. I think that we have, you know, a good plan of action there. The quality issues that we're struggling with a little bit are just partnership issues. I think Ascend has been a great partner to us. At the same time, you know, I think, you know, the focus that they've given the brand at times has been, you know, it ebbs and flows. We're just trying to make sure that we get, you know, our fair share of attention from them. You know, the brand is the brand is still the number three pre-roll brand in Illinois and sort of somewhere close to that in Massachusetts. We have a lot of potential. Really that licensing is about getting consumers familiar with the brand and using that opportunity to sow the seeds for future product development as well as, you know, complementing our margin profile. I think we've learned some lessons from it. I think we've also we're trying to be a better partner to Ascend and maybe being a little closer on a daily basis as to how things are being managed over there and you know grade us on our report card from here. Okay, great. Just to look ahead to Colorado and New Mexico. Yeah. Colorado and New Mexico, I think they're probably gonna launch. I think that they're trying to get it in this quarter. It's gonna be at the end of the quarter, you know, if it lands this quarter. I'm super excited about it. I think Colorado is just an awesome market to be in. I see a lot of blue sky despite, you know, Colorado is really sort of crafty market. It's very crafty, like brands are very crafty and localized. I think there's a blue sky opportunity there to be sort of, you know, to sort of be like a little bit bigger of a brand. I think, you know, so that's. Colorado is just a market we have to be in if you want to have street cred in cannabis. You know, New Mexico, I think is a good market. Schwazze has a great footprint there. I would say, you know, it probably wouldn't have been a market that we would rush into, but for you know the partnership in Colorado, and grateful for it, and we can't wait to be there as well. As I said, I think the impact is likely to be much more, you know, Q4, and we'll give you guidance as to how things are headed there, but I think it's very likely to hit towards the end of the quarter. Okay, great. Thanks very much. Again, if you have a question, please press star then one. Our next question will come from Doug Cooper with Beacon Securities. Please go ahead. Hi, good evening, George. Just on the 35s launching towards the end of this month or early in September. Can you talk a little bit about your distribution strategy and, you know, given that this is a new product for the consumer, and the dispensary, the budtenders, have you run focus groups or like what is your strategy for rollout there and, you know, how quickly do you think you can gain share of shelf space? Yeah. It's really the million dollar question, that how fast the ramp goes. I mean, what I'll generally tell you is our conviction level from top to bottom in the company about the quality of the product, the price point and the differentiator of the product, the uniqueness of the product. I don't think that there's any disagreement whatsoever about all those testimonies. I think we have almost unanimous consent about where we go eventually. The path to getting there is a little bit, you know, more challenging in California in terms of predicting it. You've got a lot of retail endpoints that we're trying to get distribution through. We're trying to focus our efforts to a very limited number of endpoints, I mean, retailers at initially at launch because we wanna make sure the consumers have a really good experience with the product. We also wanna point consumers to a store that's gonna have adequate inventory and volume to support a rollout. I'll generally say is like we are pushing everything we have on a limited budget, but we're pushing everything we have behind this product launch. We think we've got all the key ingredients behind it. The big factor, the big swing factor here is gonna be what the adoption ramp look like. From a from just a consumer and what the consumer is looking for, I think we're gonna. I think we've got a product that is really well-tailored for this advanced California market. I think there's also a strong, you know, belief that this product will get dragged or pulled into other markets, which we're looking forward to. Can you give us an idea, are you gonna launch in the Los Angeles area, or is there a specific, you know, region you're gonna? No. Yeah. Okay. Yeah, I mean, when you really think about California, there's islands of cannabis. We're picking somewhere between five and seven stores to initially launch, and we're giving all those stores virtually bottomless inventory, basically refilling them every night as much as we can. We're doing a big social media push to drive consumers to those stores. That way we can make sure that the experience in those stores, the education level, the budtenders in those stores, the engagement level, the social media push, the homepage takeovers, all of that stuff we can manage when it comes to a smaller footprint release. We can cover almost the entire state. Those stores are relatively geographically diverse within the state. We haven't picked all our partners just yet, but we're in the process right now. We, you know, what we're targeting for is a store that is, you know, an 80% probability that's within a 10-minute drive of, you know, 80%, as I said, 80% of their consumers. Trying to get as much as we can, you know, San Diego, LA, Bay Area, New City, San Francisco, and Sacramento, all of those sort of big islands are gonna be covered. Okay. Can you just walk through how many pre-roll machines do you have? What's the capacity? What's the throughput on those, you think? When you talk bottomless inventory, like this is inventory coming from LFS or coming from. From where is the actual product coming from? Right now I wanna be a little careful. Doug, I have to think a little bit about machine count and giving exact. I don't think that we're gonna be supply constrained. Let's put it this way, I don't think that we're gonna be supply constrained at this launch. I think it's about generating as much demand as we can. I wanna be a little bit careful about talking about, you know, the sort of general unit economics of the engineering product because I just don't want. We have a moat, and I need that moat as deep and wide as I can make it, so I'm recognizing that, you know, a lot of our competitors listen to the calls. What I will say is that we think we have a lot of capacity that where demand is gonna be the primary driver. I would say we are extremely excited about the launch, but the one thing that we're I think trying to be tepid about is the pace of adoption. By the way, we're also willing and excited to hear customer feedback and iterate alongside customer feedback. We've done a tremendous amount of work on our side getting the product right, but that doesn't mean we're blind or immune to or deaf to feedback from consumers. Okay. Just, I guess for my edification, when we say single, this is a single dose, is this like 0.3 of a gram or 0.25 or 0.2 or something like that we're talking about? Yeah. The product, the reason why the product's called the thirty-five is it's 350 milligrams. It's basically 10 sticks to a pack making up an eighth. We are engineering and preserving the ability to go up and down in size. The way we think about it is a consumer who likes cannabis sort of dials in on exactly what they think the right sort of, kind of amount of cannabis is that they wanna have in each stick, right? The price point is commensurate to that. In the future, we'll be going smaller, and we'll be going larger to give consumers a serving size choice. Because one thing that we decided in the beginning of COVID, we were all relighting way too many joints, right? Like, the prospect of relighting weed is like one of the most disgusting, you know, phenomena. When you're sitting there with a 1-gram joint and there's nobody around to share it with during COVID, you know, it sits there in an ashtray, and you either throw it out and waste a lot of weed or you relight it and you know, just tastes disgusting. What we're trying to do is make sure that we're trying to create weed in sort of session ability. That, you know, look, it's it. Changing the way consumers behave can take some time, but when we really look at the way our hardcore smokers perform and what they look for, this product really does seem to hit the mark. We'll see. I mean, look, we're looking forward to seeing how it hits. Just on the pricing, you know, when you said, you know, pricing is a one-way street, so you wanna make sure, I guess the launch price, you wanna get it low enough to attract people, but then you maybe, you know, you can't raise. So when you said an eighth, a jar of eighth is going for $28-$35, I think that's yours. But the Street sort of lowered or the competition lowered the average by 30%, or is that what you said, in the quarter? What is the pricing strategy? Yeah. Yeah. aggregation? Yeah. We're trying to get it out the door at pre-excise tax of $20. You know, I think a lot of that, a lot of the reasons why we're launching with a limited set of retailers right away is we're trying to encourage the retailers to launch with sort of a more consumer-friendly Keystone. Part of the narrative for us is to approach the retailers who are willing, and working with retailers who are willing to be a little bit more aggressive on Keystone with the consumer. We're gonna cut price and we're gonna be, you know, pretty aggressive in terms of how we price it to those retailers, 'cause we, I mean, we have a lot of savings here, right? We've engineered the system here to create a lot of savings, and so we wanna make sure that our consumers get the benefit of that. Remember, what you're trying to talk to, you're trying to talk to the consumer who usually buys weed, you know, by the ounce or by the half ounce, right? That consumer is super price sensitive, and you're not gonna get their attention with a $30 pre-roll. It just won't happen. Yeah. We're trying to get their attention, and we have the margin to do it. You know, obviously margin is something that we're working very closely on right now to refine. Yeah. We do have the margin with, you know, with our systems and infrastructure. I wanna back up to the envelope. If the retailer is selling it to me, the consumer, at $20 plus excise tax, what are you selling to the retailer at? Then what is your cost? Can you just give me an idea of ballpark of what the, you know, margin profile might look like? Yeah. Compared to your CBD product today, for example? Yeah. I'll give you some guidance on this. What I'll say is it is a work in progress. We do have some flexibility built into the system on pricing. We're somewhere in the $10-$11.50 range in terms of price out the door. I'm gonna do everything I can to get as close to $10. Yeah, at $10, we're operating at a 60%+ margin. I'm sorry, I missed that, George. What? Operating at what? A 60%+ material margin. Okay. Okay, great. I guess, moving to the balance sheet, $2.2 million cash at the end of June. What's the CapEx that you expect in Q3, including buying the machines, I think, or was that for stock? I don't have the notes. I don't have the press release right in front of me. No, if you remember it originally. Yeah, go ahead. maybe just walk through the $2.2 million you got in. Was that a IRS rebate or something? Sorry, I didn't quite get that. Yeah. I'll take it. The original All Good transaction was a stock transaction and cash transaction. The cash piece was $1.5 million. That commitment we've funded with the cash that we had, and we also were able to bring in to factor this IRS receivable related to the CARES Act, and the CARES Act basically had a provision for recovery of payroll taxes associated with COVID burdens. We had an IRS receivable that our company filed in, I believe, in April or May of this year. We chose to factor that receivable to an interested party in order to get some additional cash in the door to fund some of this CapEx. The $1.5 million is for the machines, but there's also CapEx, you know, associated with our facility improvements and preparedness. You know, we'll give more clarity around that. The $1.5 million is by far the biggest chunk of it. Okay. Sorry, just my last one, I guess, would be, we're halfway through the third quarter, essentially. If you take a conservative launch on the 35s, given what you see in the market now on the CBG market and the bulk and so forth, do you expect to be cash flow neutral in the quarter? Maybe give us some sort of guidance. I mean, I think we're definitely gonna consume cash during the third quarter, inclusive of CapEx. Just from operations, I'm talking about. From, from- Yeah, I'm just talking about operations, excluding CapEx. You know, what I would generally say is, I would say third quarter, the bar will be high for us to be cash flow neutral from an operations perspective, given some of the operating investments we're making around the 35 launch and launching the product out there and accelerating. Some of that will be reflected in working capital going into inventory. You know, the market conditions for us, like what I'll generally say is about our business. Mm-hmm. Where bulk prices are for flower right now. The only answer for us is to gain CPG revenue dollars. I mean, that's where the margin future is for our company. We need to gain traction in terms of more CPG and margin dollars and doing that outside of the low margin category of flower. That's our primary focus right now. That's really what the 35 launch is all about. I think we'll have a lot more to say about our trajectory and success in doing that, you know, this time next quarter. You know, I think we'll also be updating as time moves on in terms of the traction we're launching them and how things are going. Sorry, and just my last one. I think you have access to eight machines. Is that right? You brought in three. Is that where we stand right now? Yeah, I want to be a little bit careful about that. The answer right now, the machines that we have under contract. Well, right now we have two machines. We've got another machine coming, yeah, either towards the end of this year or next year, and then we've secured an order for more next year. I want to be a little bit careful about how many exactly. If [Sander Schweis] says, you know, you're shooting the lights out with your machine, your brand now is basically switched from, you know, the new style pre-roll, would you give them access to a machine, or are we getting ahead of ourselves here? You know, it's a really tough question for us. It is a really tough question. I think the world is changing so quickly right now in terms of cannabis. Mm-hmm. You know, we're, you know, regardless of where we are from, like, a policy standpoint, cannabis is moving more freely around this country. We don't know yet whether or not we want this product to be something other people control. I think we need to learn a little bit more about our capabilities and margin profile. This is a really complicated product to make, and it represents a tremendous amount of IP, a lot of which we acquired in the All Good transaction. I'm really reluctant right now to envision a future where we just say, "Here are the keys, you guys can make this, and by the way, sure, go ahead and make whatever else you want." That feels a little dangerous. Then you're left with other options. Do you basically tell the consumer the only way you're getting this product is you come to California and get it? Or do you tell the consumer, you know, we're gonna make the capital investments in your home state to try to replicate the experience? I don't know. I think it's too early to say. Yeah. Okay. Great, George. Thanks very much. Thank you. This concludes our question and answer session. I would like to turn the conference back over to Mark Ainsworth for any closing remarks. Thank you again for joining the call and for taking the time to get an update on our business. We look forward to talking with you on our next earnings call. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.