Cansortium Inc. (OTCQX:CNTMF) Q3 2022 Earnings Conference Call November 29, 2022 4:30 PM ET
Robert Beasley - Chief Executive Officer
Liora Boudin - Interim Chief Financial Officer
Conference Call Participants
Jon DeCourcey - BTIG
Russell Stanley - Beacon Securities
Phill Larson - Millstreet Capital Management
Daniel Hung - Contrarian Capital
Adam Wilk - Greystone Capital Management
Good afternoon, ladies and gentlemen, and welcome to Cansortium's Third Quarter 2022 Conference Call. Joining us today are the company’s CEO, Robert Beasley; and the company’s Interim CFO, Liora Boudin.
At this time, all participants are in a listen-only mode. After the company’s prepared remarks, the management team will conduct a question-and-answer session, and conference call participants will be given instructions at that time. As a reminder, this conference call is being recorded and will be available for replay in the Investors section of the company’s website at www.getfluent.com.
Please note that certain subjects discussed on this call, including answers the company may provide to questions may include content that is forward-looking in nature and therefore subject to risks and uncertainties, and other factors, which could cause actual future results or performance to differ materially from any implied expectations.
Such risks surrounding forward-looking statements are all outlined in detail within the company’s regulatory filings, which can be found on SEDAR.com. The company does not undertake to update or revise any forward-looking statements, except to the extent required by applicable securities laws in Canada.
In addition, during this call, the company will refer to supplemental non-IFRS accounting measures, including adjusted EBITDA which do not have any standardized meaning prescribed by IFRS. As a final reminder on today’s call, unless otherwise indicated, all dollar amounts are expressed in U.S. dollars.
I would now like to turn the conference over to Mr. Robert Beasley, the company’s CEO. Sir, please go ahead.
Thank you, [Therese] (ph), and good afternoon, everyone. We continue to generate strong growth in profitability in Q3, highlighted by yet another consecutive quarter of year-over-year revenue and adjusted EBITDA growth. We continue to reap the benefits of our investment in Florida and Pennsylvania with now the added benefit of Michigan no longer weighing down our bottom line as we exited this state earlier this year.
In Florida, while we had 12 stores closed temporarily due to Hurricane Ian at the end of the quarter, we nevertheless continue to see an impressive ramp in sales with the total revenue in Florida up 39% year-over-year, driven by improved store productivity, as well as the addition of two new stores. As I've mentioned in the past, our increased store productivity is almost entirely a reflection of the improvements we made in our cultivation in Florida, compared to the year ago quarter.
Yields are up dramatically and we are consistently producing higher quality and higher THC products that resonate with our customers and patients. This is why we continue to pull market share from our competitors. That said, we did experience some setbacks with our Sweetwater cultivation facility as a result of the Hurricane. Our Tampa and our Polk City facilities were largely unaffected. In Sweetwater, we experienced damage to our HVC and fertigation system that resulted in a loss of material from the mother and pre-flowering rooms. We had the early harvest five rooms, which put the facility out of its continuous production cycle.
We have been remediating and repairing that facility since and have seen steady improvements, but do not expect to return that facility to its previous continuous production levels until early February 2023. All things considered, the fact that facility was even standing when I arrived there two days later was a pure miracle, we were very fortunate to have -- saw which most of the harvest and the greenhouse crop was entirely unimpacted by the hurricane. The facility has continued operations continuously, although we'll remain in a lower throughput from now until the end of the year.
Looking ahead in Florida, we now expect to open one additional store in Q4 and that will be in Pensacola, Florida and Nine Mile Road and an additional three locations to open in first half of 2023. Should have those remaining three open and that will be Crestview, Florida, another Pensacola store and the Jacksonville store by March of 2023. We previously expected to have all of these locations opened by December ’22 or January 2023, but construction delays, some permitting delays, and of course, the Hurricane pushed our timing back just a bit.
We also expect to locate and construct a large greenhouse facility to be completed by the end of 2023. We are currently under contract with two potential sites and have bids for construction ongoing at this time.
Going over to Pennsylvania, our most recent store opening in Annville has been ramping nicely with consistent growth from each month. In fact, in October, we had record month sales for that store and we expect to continue driving organic growth across all three Pennsylvania locations in 2023 as we further improve our sales and marketing efforts. We're excited and prepared for the possibility of Pennsylvania going to adult use.
In Texas, as I mentioned in our last quarterly update, we now have a go forward plan approved by DPS to build out our footprint and country's most -- second most populous state. In 2023, we opened to open our first delivery center. All packaging, all product formulations and other necessary components have been approved by DPS at this time. We have began staffing for the delivery center and we hope to have that location under construction soon.
Before I hand the call over to our new Interim CFO, Liora, I want to acknowledge the entire Cansortium team for their hard work and dedication, particularly as we persevered through the disruptions from the Hurricane. We have many heroes step up within our ranks. I'm grateful that all of our employees remain safe. I would like to thank each and every one of them for working so tirelessly to get -- hope that our business closer to normal and operations returned as quickly as possible.
Finally, I wish the best to our former CFO, Patricia Fonseca, as she moves on to the next stage of her career, and Liora, many thanks for stepping into fill her role as we search for a permanent replacement. We look forward to continuing our expansion in the final weeks of ‘22 and into ’23 and are excited to share further updates in the spring when we report Q4 and full-year results.
With that, I'll pass the call over to Liora to walk through the details of our financials and then we'll open the call up for Q&A. Liora?
Thank you, Robert, and good afternoon, everyone. Please note that all figures are in U.S. dollars and all various commentary was on a year-over-year basis unless otherwise specified.
I'll jump right into results. Third quarter revenues increased by 42% to $22.1 million, compared to $15.6 million. The increase was largely driven by growth of Florida and Pennsylvania as we have more stores opening each market, compared to prior year. Florida revenues increased 39% to $18.2 million, compared to $13.1 million over a year ago -- period ago.
Our adjusted gross profit in Q3 increased 71% to $16.7 million or 75.5% of revenues, compared to $9.8 million or $62.7 of revenue in a year ago period. The increase was primary driven -- I'm sorry, primary driven by improved productivity and cultivation yields for the quarter, compared to prior year.
Third quarter operation expenses remained flat at $8.5 million, compared to same period in 2021. However, as a percentage of revenues operating expenses decreased significantly with -- to 38.2, compared to 54.6 in 2021 as we continue to focus on operational efficiencies. Third quarter net loss totaled $5.6 million or loss of zero $0.02 per share, compared to net income of $7.4 million or $0.03 per share in the same quarter of 2021.
Adjusted EBITDA increased by 140% in the third quarter of 2022 to a record of $11.7 million or $53.1 million of revenue, compared to $4.9 million or 31.3% of revenues in Q3 2021 with an increase due to improved productivity across our cultivation, more stores and better operational efficiencies.
Turning to the balance sheet, at September 30, 2022, we had $9.1 million of cash and total debt of $69.4 million. Regarding our outlook for 2022, we are revisiting our previously issued revenue guidance given some of the impact of our Florida business from Hurricane Ian. Our now expected revenues for the year to range between $85 million to $90 million, which compares to our previously issued guidelines of $90 million to $95 million. This reflects an approximately 37% increase from 2021 at the midpoint of our guidance.
In addition, we now expect adjusted EBITDA to exceed our previous issued guidelines between $25 million and $28 million, reflecting an approximate increase of 35% from 2021.
Operator, we'll now open the call for Q&A.
We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Jon DeCourcey with BTIG. Please go ahead.
Hey guys, congratulations on the quarter, some continued solid execution here, which is a good thing. So -- to just jump into a couple of questions on Florida, wanted to just touch base on the drag in Q3 from the Hurricane. I know there -- I think it was in the release it said that you would have had growth in the quarter on the top line? If you could care to elaborate on that at all, that would be great?
And then additionally, what did that kind of look like from a cost standpoint, any sort of increased costs related to reopening things and to kind of shoring up things?
Sure thing. Thanks Jon for the question. It's good to hear from you. So you had two things you had drag in cost, so I'll talk about drag first. The facility at Sweetwater is our high quality flower production facility, as you know, it’s got eleven rooms. And the fertigation room is kind of an outparcel room adjacent attached to the facility, which included our charcoal filtering system, our smart fog system and basically the filtering system that filters the well water going into fertigation. That room was completely removed from the premises and is yet to be found with all the equipment.
And unfortunately, when it departed the roof impacted the roof of the main structure, it flipped over the main structure and impaled in three different locations. Other than that, the main structure held on pretty well. We got those roof leaks fixed and almost immediately had a little struggle with generator power. Our main impact from the Hurricane on that facility was the failure of our rented ring power generator set to function properly causing what would have been two days of power outages to go into four. Those rooms sitting dark for four days was a problem. We did some temporary lighting. Ultimately, the flower that was in the more mature stage, which was two rooms we harvested, went ahead and harvested it early, sent all that to extraction and then try to survive the remaining three rooms once we got power back on. Those three rooms could not be saved and those were early harvested.
The result of that is the way we set up our facilities is what we call continuous harvest. And so once they're running in all cylinders, if you would, they're harvesting every week essentially. Sweetwater is a little different, because it’s a little bit more harvest to order, kind of, scenario, but there's still a window of harvest. Well now that facility is off cycle, if you would. We did lose a good bit of the mom stocks, we had to restock that out of existing crops. The benefit of having two or three different facilities we were able to move product and mom stock from facility. So the main drag is essentially being off production cycle.
As I said, we will remain off cycle in kind of a wobble, if you would until mid-February and then we'll be back on cycle. So planning those five rooms with some auto flowers, we're kind of growing some outdoor extraction quality material, but indoor, but it gives us a cycle, because steady feed is the important part of it. Outback in the greenhouse, it was a sheer miracle. The roof was rated for 56 minute mile an hour, it’s a polyroof. The high wall set on that facility for almost an 1.5 hour at a 114 miles an hour in the roof held not actually sure how that occurred. The crop inside was completely unimpaired and we went ahead with a normal harvest cycle there.
So lucky is the best word I can tell you for how it impacted that facility. The cost -- the main cost was the fertigation skid, the smart fog system that was inside of that fertigation room that cost us about $250,000 luckily, there was a used one on the ground in North Carolina and we had it coming the day after the Hurricane. We're about $0.5 million into repairs right now. There's a little bit of repairs in the electrical system. We had some shortages, we had a good bit of power fluctuation in the lines through the storm, which is pretty typical of a hurricane. So it shorted out some electrical components, some ATS, which is we're still trying to track those down, they've become a little bit of ghost in goblins at some point.
So we're looking at it between 500 and 650 of total repair cost. Most of those repairs are done. Still working on the HV system, AC system, one of the chillers was flooded and working off of two out of three chillers right now, but the third chiller was kind of a backup. So we're up and running, I think we're seeing the end of the repairs, as far as cost.
I'd go over to Tampa and Polk City. Polk City is a small greenhouse, it was completely unscathed and Tampa had a little bit of water in the parking lot, but those facilities, although they went on to generator power for about 12-hours, those facilities were completely unimpaired and unimpacted by the Hurricane. So our biggest loss was the five rooms that put us out of production cycle. And of course, the mom stock was a pretty good loss for us. But luckily, we had a Belton's spender system. We have duplicate moms at the various facilities just for this type of event.
Okay. That's great. And that's really helpful color. And it seems like by looking at the OMMU data that there hasn't been any sort of fall off in Q4 in terms of Florida demand. But kind of power things either for you guys or kind of on a -- I know for you guys, the guidance wasn't changed much. But there's kind of from a general demand in the state, are you thinking that things are tracking to kind of where you expected as it seemed when the Hurricane hit that there might have been a longer term drag for Q4, as well, but it doesn't seem to be the case?
Right. So and again, go back to our Q3 expectations. And I was asked this at the end of Q2, which is -- our Q2 was so great, why am I not adjusting guidance? It's because we anticipated Q3 to be flat. We were hoping for it to be flat or slightly up. I think we would have been slightly up, but for a Hurricane no one could predict that. But you got to remember we're in Florida and our patients all leave town in the summer, because it's hot. And so we traditionally see decreased sales in August in July. So we knew that was coming and we were hoping to hold on to flat. We would have, but for the Hurricane.
Now coming into Q4, sales have taken off we have had pre-thanksgiving, we had two or three days in a row, which was our second and third best of fluent days ever, so we've had a top five day, three days of the week coming into Q4. It did start a little slow, but now it's ramping, kind, of as we expected and we anticipate it to go strong. The holiday period from here into the end of the year is very strong period for sales for us.
Okay, great. And then how's the pricing environment in Florida? I hear a lot about discounting and not quite as bad as maybe last, I think it was Q3 when some folks flooded the market with some excess inventory, but still I'm hearing that there's a lot of discounting? How are you seeing the competitive landscape in the state?
So yes, you're right. Q3 of last year was a tough time for us, because we had that liquidation event. We have not seen anything like that going into this year. Pricing was very competitive coming into Q3 and stay competitive, but actually eased a little. We keep seeing these -- what I call media splash events where Cookies or Jungle Boys, they'll roll out a big sale, they roll out a big roll out, but then they go out of material and they go away again. So they're -- while they're good for media events, they're just not presenting enough stable, steady competition to our shelf to really impact pricing.
So pricing has relatively stayed stable throughout the end of Q3, a little bit of competition coming in. And right now pricing is kind of back to Q1 levels. And so we're not seeing any major price competition at this time. I expect we will see some by the end of Q2 next year and that has to do with some of the competitor stores construction schedule. Luckily, we're all constructing at the same time with the same challenges and so they're just as behind as we are sometimes. But I do not see any price compression being an event between now and the end of the year.
Okay. And then one last question for me and then I'll jump back in the queue. But if you guys look at Pennsylvania, you've talked in the past [melt wanting] (ph) vertical-integration there and seeing that as a potential investment? Given the really discounted pricing environment there and cheap wholesale product? Is that still a focus or especially in the near-term? And then kind of how are you thinking about next steps to grow in that state?
So I'm sticking to the plan I told you before, which is to kind of try to get some grow relationships in place. There's still quite a few of the mom and pops out there that need a relationship, they don't have access to a shelf. And the competition hurt the wholesale market last year more than it hurt the retail market. In fact, I'm getting on a plane to Pittsburgh tomorrow morning to go look at and talk to a grower. I really like Pennsylvania as a market, it’s a good solid consumer market, a good solid blue collar market for us. We're not in the best regions. We have the three -- the region in the three stores in the South Central region.
What we're really trying to do is get a better margin on the shelf, because there's a little bit of compression there, because we're now buying from our competitors, who have competing stores and that's always a precarious position. So trying to get our own products on the shelf to kind of pick up our margins and then just hold tight to see what this regulatory environment is going to do as they move into adult use. I think the democratic term there has really supported going to adult use. We believe that has to necessitate the opening up of more store opportunities.
But even a grow relationship for us is a little bit constrictive if we do not get more shelf space. We can only push so much out through three stores. So we're going to hang in there. Pennsylvania, we're retooling a lot of our sales strategies, we're understanding the market much better. And if we could get our own product on the shelf, that would be great. Otherwise, the plan is to keep hanging in there and see how we can grow with the state market.
Okay, great. Well, thanks for all the questions answered.
Okay. Thanks, Jon. Talk to you soon.
The next question comes from Russell Stanley with Beacon Securities. Please go ahead.
Good afternoon and thanks for taking my question. Congrats on the quarter and the EBITDA margins in particular, your adder near the tops in the space. I'm just wondering how sustainable you think these margins are outside of the repair costs associated with the end? What kind of headwinds do you foresee over the next few quarters? And I guess related to that, how meaningfully drag like startup costs in Texas would be?
Okay. Hey, good to talk to you Russell. Thanks for the question. So EBITDA margins, yes, it was a bit of a surprise to me and watching our EBITDA margins, EBITDA develop as it is. As you know, we elected to adjust guidance, because we're going to be a little under owned revenue, but we're going to be over or right on EBITDA. And so that just means that the efficiencies we put in place are continuing to be seen in the EBITDA line.
We are reaching, I think, our maximum efficiencies in some areas, there were several target areas. And as you know, this company has come up a very steep slope of improvement since 2022. And the low hanging fruit is gone now, and so we're working on the fine tuning. We really focused this last quarter on overtime, overtime and temp help and overtime. We're still suffering from labor shortages in some of our areas. And so that was a big add-on savings this year. I'm sorry, this quarter.
As far as Texas goes, it's not going to be much. We're going to put -- we've already got the facility. We're already stacking distillate. We went right to THC, right when the legislative changed, effort changed. We've been stacking distillate now. We've got good manufacturing and lab equipment out there even though it's a small cultivation footprint. The real challenge with Texas is figuring out how to navigate the legislation hurdles that were put on is we have DPS as a partner out there. They really want to do something. And so we've worked with them to remove or navigate around some of the many obstacles.
And now what we've come out with is the opportunity to have a delivery center, which is not a store, because the store is not allowed. Product cannot maintain on those shelves for longer than for 24-hours. And so the truck has to take them back every day. We've identified a market in Katy, Texas, which is about an hour from Schulenburg, which is for our facility is. We’ve got a couple of good sites there.
From the consumer's point of view, it's going to look like a store. We've got some really neat edibles coming in. We've got all our formulations approved, that all our packaging approved. And we're picking all this up, supporting it from Florida. So a lot of the work is being done in Florida to support Texas. And because of that, it's just kind of an add-on to the existing labor and product pool that we already have going, so not a lot of cost there. The big cost will be, I'm about to add a staff member, I need a sales director for that market and that'll be a pretty expensive add.
And then, of course getting this -- the TI for the physical facility to get open, a couple of hundred dollars there, so I think $0.05 million will be the Texas entry at this point from here. And of course, we've already put in a decent amount up to this point. Not a big amount, I've asked the board whether we would consider a capital call or not on that. We do -- we are cash flow positive. We do have cash now at this point. So it's a concerning amount from an entry point, but considering we're opening up a new state, it's just not that large of an amount to worry about.
Great. Thanks for the color. If I could probably add one more with respect to Florida, you've got your next several sites already mapped out and under development, but just more generally given I think almost 500 dispensaries in Florida at this point. How are you finding or approaching site selection at this point? Is it becoming any more difficult to identify white space for new locations given competitive efforts to expand their retail footprint as well?
Yes, so the three that are going to be completed by March have been in queue now for some time. In fact, they are behind schedule. Quite frankly, I wanted them open in November and December and now we’re looking at one coming out by the end of the year, one in January and then two by March. Those have been in queue for a while.
I'm now locating three more. And of course, the trick that I always preach is balanced. And so -- and our existing cultivation square footage, if I follow the throughput full forward, I still have three more stores that I could feed without worrying about inventory at all. Maybe it could go to five more, but that's why you heard me say I'm now starting on the expansion of the cultivation side, because once one silo of this business is starting to max out, you have to go to the other silos to feed it when you're vertical.
So we've got three slots open, I've just started relocating those, we've developed the store locator model over the last year or so. And it's an average model. It's not perfect, but it does help us. And so to specifically answer your question, my next three, I'm going to go for two open spots, I have a hidden where the [indiscernible] policy. So we've got two more open spots to locate and there are space there, there are B market spaces, but as we've learned with our Hanover store in Pennsylvania and some of our Florida stores being the only game in town is not a bad place to be even a B market.
So Florida is a big state, there's still a couple of real opportunities in B markets. They are no longer clean or easy. Some of them are empty parcels. We're going to have to do a build. And so we've got those two narrowed down to five possibilities. And then I'm going to come back into one of the two A markets. We've got two A markets in Florida that I've identified in our own store sales, one is Orlando and one is Jacksonville. Those markets have good competition in them. But really to be honest with you, Orlando could use more stores, at least on our side and more coverage.
So we're going to go 2B markets and 1A market for our next three stores. And then I'm going to sit tight and get cultivation increased again and then add then I can be set to add another 10 stores.
That's great color. Thanks. I'll get back in the queue. Congrats again.
Thank you, Russ.
The next question comes from Phill Larson with Millstreet Capital Management. Please go ahead.
Hey, Robert. Congrats on a great quarter here, especially getting some of the quite literal headwinds that you guys faced. Most of my questions have addressed, I was just wondering on the Hurricane, if you can kind of quantify like the lost sales or EBITDA impact from having the 12 dispensaries closed?
So we had -- I can try, we had 12 dispensaries kind of linked closure. And if you remember that storm, it almost traverse the entire state, but for the last minute when it jettied out into the Atlantic, it turned, went in and then went up the center of the state, we thought it was going to roll all the way to Georgia, but luckily it exited. So almost everything in its path was closed or in advance of its path was closed for some period of time.
As far as revenue impact, we were talking in the 200s, 200,000 to 300,000 was a revenue impact from that what I call the blink of those closings, because most of those closings were early closures in anticipation of the storm. And as you know, the most important thing in these storms is your people. And what happens is that well in advance the schools close. And when schools close, then the concern for their children outweighs the concerns to work in our stores and it outweighs it for us too. So we're pretty aggressive about our closure times. So we closed those.
Then we had the two stores that were actually impacted and those two stores were closed for about a week or so. And here's the phenomenal thing, they obviously registered zeros during those stores, during those closure times. But right before the storm, we had tremendous spike in those sales in those stores. In every impact zone, we had a tremendous spike. And then soon as we got them open, we had a tremendous spike, it just goes to prove that clean water or drinking water, toilet paper in cannabis are the three things that you need in front of a storm, because the sales were tremendous.
And so what happens is if you level those out over a week or two period, it really wasn't that big of a sales impact, because we had such tremendous build up before. And then the St. Pete's store was open on generator power with a line around the block. People just really wanted to get in there even though they didn't have power. So because we had the pre and post storm spikes, our total loss was under $0.05 million of revenue at that time. And so we just didn't have that much of a store sales impact, our real impact was in production and we saw that production impact kind of decrease our inventory available to be competitive in the weeks following the storm.
And of course, as you know, we had a storm right behind it. And so we determined that our first storm event was not an anomaly, because sales right behind it on that West on the East Coast they spiked right around the Melbourne area again before the impact of that storm.
Interesting, it’s been achieved with the kind of consumer staple impact. Really appreciate all the color and again congrats on a great quarter.
Thanks a lot, Phill.
The next question comes from Daniel Hung with Contrarian Capital. Please go ahead.
Hi, Robert. Congrats on a great quarter and thanks for taking the question. Maybe to follow-up on the Hurricane impact. In terms of being off cycle in the production now, what might that impact be going forward? Would we see that on revenue, margin maybe both line items? And do you have access now, I guess, to the wholesale market due to lost crop?
Thank you, Daniel. Yes, so the DOH was very generous. They immediately contacted us and said from the storm track you appear to be the most impacted company. They did not know nor did I know I was not able to physically get to the Sweetwater facility until day two after the storm, because the roads and bridges were out. And so it took a long time to get in there. And of course, we expected it be completely flattened and it wasn't. And so the DOH said to us, do a rough calculation of what your losses could be and you can go ahead and buy.
And then we had this extraordinary scenario where we had multiple competitors reach out and say, hey, if you need to buy from us, we will sell to you. And that's unusual in Florida, we're not a wholesale market, so we're not wholesale oriented. And so the idea of selling to your competitors is just not something that is available here. And so for them to reach out, it was just a tremendous -- generous move on their part.
However, because we early took down those rooms and because two of the rooms were already in an advanced stage and because the greenhouse survived, we actually did not see an immediate impact. So while we were cleared by DOH to do some buys, we kind of held back and didn't do those wholesale buys. Florida allows a crop loss purchase, which means if you have an approved loss of your crop by the DOH, you can replace that crop through wholesale purchase. It's the only exception in the rule.
And so we went ahead and manufactured and produced and got that crop into production just to see before we panicked if you would and started buying. And what we've seen is that we're continuing to be strong in inventory and we have not made a crop loss. We now have gone through the process of getting our crop loss certified, it’s not yet certified. Again, DOH said we could as an interim go ahead and purchase, but we didn't need to do it. I anticipate we will see the results of this in January. So if I look at the charts that are coming out of production, we're going to still continue to be on an upward inventory build through December and then we're going to start to peak and we'll need to start doing some supplementals probably in January and I'm anticipating one or two supplemental buys.
Although quite frankly, I thought it was going to be December and then now I've pushed it January and sometimes that's what happens in production is plants come in a little stronger than you thought. You have a little bit less demand. And so we will feel it internally, but here's the beautiful thing. We're no longer living hand to mouth here, because of our increased production capacity and our increased inventory. We still suffer all the same casualties, not hurricanes, but all the same casualties that every company does. But were inventory rich at this point to the point where we can afford a one or two day impact something in manufacturing or even a Hurricane with some limited impact without the customer seeing on the shelf, because we now have a robust inventory and that was one of my goals. My goal was to get to the point where everything that happened on the inside was not directly felt by the customer on the shelf.
And so this Hurricane tested that. And as a result, we took an impact from a Hurricane and we might not even see the effects until January when we need one or two small supplemental buys. So that's how it's laying out right now, it’s a very fluid scenario. If you would have asked me this question day after the Hurricane, 10 days, 30 days after the hurricane, I might have given you a different answer. But right now, I'm looking at making it through the end of the quarter of the year without any need for supplementation.
That's great to hear and hats off to the team for making that happen. And then as a quick follow-up, you talked about some plans, a larger greenhouse in Florida and I guess you addressed Texas. But is there a sense of CapEx for those build outs in the next year?
Yes. So we've been blessed with investor groups that support us through various types of scenarios. We have avoided the sale leaseback scenarios that some of our competitors have gotten into. It's just -- it's not the right answer for us, so we look for other alternatives. We are cash flow positive that helps us now build our stores without the need for any type of capital raise or any kind of loan funds.
And so this next project we're looking, we've got three investment groups that are interested in being involved. We've actually talked to our lenders about being involved. And so I feel like a greenhouse project which is -- it's a $10 million to $15 million project all in. So that's a very digestible CapEx amount for investment partner or even a loan. And so I think we can get that done pretty easily. We're not talking about one of these $30 million, $40 million, $60 million, $90 million, you guys pick it $1 million indoor projects that you hear about. The type of feed I need, because if you remember, we have the BHO came online and so we have now switched over to BHO, we're soon to ramp in full production on that and we have live raws and that's come online.
Those two product lines they really need high quality, but not indoor high quality flower, they need B, B+ flower to get a high yielding, high quality flower, so that we can make those derivative concentrate products. And that's really our focal point right now, because it's these are product lines that we don't yet offer and the ones we offer, we sell out pretty quickly. So I need my in feed, my biomass feed to match my output expectations, which isn't high quality flower. We have enough high quality flower. We have two facilities dedicated to that. So because of that, I don't need to build a big indoor facility at $30 million, $60 million, $90 million, a good environmentally controlled greenhouse at $10 million will get me there, plus I could put a lot more square footage. I'm looking at probably 70,000, 75,000 square foot of cultivation space, which will then of course push us to that next level.
Thanks always for the detailed response.
The next question comes from Adam Wilk with Greystone Capital Management. Please go ahead.
Hey, guys. Thanks for taking my questions. I appreciate it and congrats on the incredibly impressive results really phenomenal, especially when taking into consideration. What's taking place across the industry and given the Hurricane et cetera?
I'm sorry if I'm not following this correctly, but I was hoping maybe you could reiterate or help me understand your commentary surrounding Q4 EBITDA as it relates to the guide. And I appreciate the revised guidance, especially on that line -- EBITDA line, but can you maybe give some additional color or let me know what I'm missing in terms of where you'd expect to end up?
Revenue seems to be coming in flat or slightly above sequentially. And I was maybe thinking we would see similar profitability to Q3, but that comment around 30% to 35% EBITDA growth from fiscal year ’21 would maybe imply that Q4 is down. So am I off there? How should we be thinking about that?
Well, I don't expect Q4 to be down. I expect it to be right on guidance. If you look at where we've been on adjusted EBITDA, we have of course the biological inventory which continues to grow and that factors into the adjustment as you bring on the new facility. Our efficiencies realized throughout Q3 helped us have a much higher EBITDA than we anticipated. So we anticipate that trend to continue, but slow a little. And so we're going to -- we're already sitting at, I think they suggested we're 28, so we're already sitting in the mid-range now. I don't expect it to change much from that. I think we'll probably increase at that point a little higher, but we don't expect a major downshift at this time.
Okay. That's helpful. Thanks. And then in line with some of the efficiency improvements and increased cultivation, you did talk about some of the puts and takes on gross margins, which are appreciated. Is that mostly related to the cultivation improvements? Is that is exiting Michigan a factor there? Is there a way we can kind of peg maybe a normalized number at this stage or moving forward?
I think exiting Michigan was an anomaly. Michigan was a drag for us. We had a series of events in Michigan prior to my arrival. We gave it one more good try. The Michigan market is too volatile to be competitive in the situation we were sitting in. So an exit was the right answer. Having everyone's side relief in the markets when we finally pulled the plug on that, and so if you take that out a little bit, I think what you're going to see is Q4 will be normalized. And again, a lot of the low hanging fruit on efficiencies now, we've realized that.
And so I think we're starting to settle in now. There are a few more things we can do, but we're kind of getting to the top of the improvement pyramid as to those efficiencies. So I think what you're going to see out of Q4 is really going to be the normalized scenario for us.
Okay, perfect. And then, yes, so I think, I have sort of at a high level have heard a lot of things on this call that I didn't expect to hear in a good way. And that's great, as it relates to you mentioning that the low hanging fruit is sort of -- has been addressed and is sort of behind you and then talking about the potential greenhouse build, which is really interesting. We spoke about this previously, but I'm wondering if you can just kind of talk about maybe at a high level your desire to keep growing the dispensary count and whether you feel like you're kind of stuck at this stage cycling between working on the cultivation growth and improvements and then trying to build the footprint?
And I'm aware of the strategic plan in terms of cultivation improvements and then flipping footprint growth and vice versa. But given where the industry is right now and your guys competitive position in the State of Florida, and the fact that most operators seem to be actually pulling back on things like expansion CapEx, M&A, et cetera. It seems like a really attractive time to sort of pivot toward more store growth, so you can really sort of press the gas on market share gains. I mean you guys are finally generating significant cash. So I'd just love to hear maybe what sort of gives you the confidence to maybe make these increased investments right now or any thoughts there would be really helpful.
So we've come a long way, and in coming from where we were to get to where we are, we learned a lot of about efficiencies and we learned a lot about balance. This company and many companies back in the day were way out of balance. Because we are in Florida and Florida is our primary revenue producer, we are a strictly vertical. And as I said before, in the most strict sense you cannot -- if you don't grow it, you can't sell it. So because of that, you have to stay in a balanced scenario where you have adequate inventory compression in your stores to drive your sales.
And if you get too many stores, you can't feed them. That's where Fluent was the day I arrived. We had more stores than we can feed. We were 12 to 14 hours from truck to the customer bag. That sounds like a great thing, but it was a terrible thing, because the company was in constant volatility as far as inventory and demand. So staying in balance is very important to me.
Right now, we have -- we will continue to increase cultivation output based on the realization of an annual realization of what's already in place. Let me tell you that specifically. When we finish Q4, we will only have two crops coming out of Polk City. Polk City is 24,000 square foot greenhouse. And so because we brought Polk City online mid-year, it will only have two harvests in all of ‘22. So ’23 Polk City is going to realize it's full harvest ratio, 5.5 harvest. Same thing with what we call new tablets, about 8,000 square foot of high quality flower. It only -- its first harvest was only in October, and so only in this last part of the year, did you see any benefit or contribution from that.
So those two facilities coming into full production rate and full and giving a good annualized contribution are going to cause growth in ’23 anyway. So now I need to make sure I have the stores online to fully realize that potential. And that's why I've picked in addition to the four, the next three are already ready for citing. If I fight those three now, we get those cited in the next few days, we're looking at August, September of opening those stores, if everything goes right.
Once those stores are open, maybe up to five, then we're in perfect balance. We will realize the benefit, the annualized benefit of those two new facilities at the same time we're putting the new stores on. At the same time, the other four stores are coming up to speak, because remember, I've got those four to feet as well. At that moment, we are in perfect balance. The company is solid, it's cash flow positive, it's in perfect balance, which is really my goal from day one, is to get to this moment.
Well, now we've got to grow and start low and go slow is kind of the industry model and I believe that's the right answer for us as well. We already did the over expansion in the over horizontal expansion game. And that was no fun in pulling back from that was a tremendous effort. So let's just grow in sequence and grow in balance. To grow in balance at that point, you don't need more stores. You've got to feed more stores. So you've got to go back to the other end of the stream. Our prior investments on the middle segment, which is manufacturing, extraction and packaging and labeling all of that, is still capable of handling more cultivation and think of it as three distinct silos. And so we have the manufacturing segment, which is still has plenty of capacity.
I can add about another 70,000 square foot of cultivation into that facility and the manufacturing facility will handle it. My stores are now balanced, I'll go back to cultivation, get the cultivation up and running, move that cultivation through the stream, and then I can open up more stores. That cultivation ad that I mentioned to you allows me to go to 42 stores. Just by math, if you guys want to know it, that 42 stores with the additional cultivation that puts us as we're number six in the state right now, that puts us at number three in the state. So that's the plan, it’s not even a secret plan anymore, because I just told it to you.
All right. Well, yes, you hit on the key things I was looking for and I really appreciate all the tremendous color. Thank you for taking my questions and keep up the great work.
Okay. Take care, Adam.
As there are no further questions on the phone lines. This concludes the question-and-answer session and today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.