TerrAscend (TSNDF) 6 Nov 242024 Q3 Earnings call transcript

Good afternoon. My name is Ina, and I will be your conference operator today. At this time, I would like to welcome everyone to TerrAscend's Third Quarter 2024 Financial Results Conference Call.

Joining us for today's call is Jason Wild, Executive Chairman; Ziad Ghanem, President and Chief Executive Officer; and Keith Stauffer, Chief Financial Officer.

Our remarks today include forward-looking statements, including statements with respect to the company's outlook, including the company's expected financial results for the fourth quarter of 2024, and estimates and assumptions relating thereto and the company's expectations regarding its new market opportunities such as Ohio, the likelihood and benefits of the company's tax refund claims for past years, the expectations regarding regulatory reform and the potential benefits thereof. Each forward-looking statement discussed in today's call is subject to risks and uncertainties that could cause actual results to differ materially from those projected in such statements. Actual results and the timing of certain events may differ materially from the results or timing predicted or implied by such forward-looking statements, and reported results should not be considered as an indication of future performance.

Additional information regarding these factors are based under the heading in the company's Form 10-K filed with the Securities and Exchange Commission or the SEC and other filings that the company makes with the SEC from time to time, which are available at www.sec.gov, on SEDAR+ and on the company's website at www.terrascend.com. The forward-looking statements in this call speak only as of today's date, and the company undertakes no obligation to update or revise any of these statements. Also, during the call, the company will present both GAAP and non-GAAP financial measures. A reconciliation of non-GAAP to GAAP measures is included in today's earnings press release and our quarterly report on Form 10-Q for the quarterly ended September 30, 2024, which you can find on the company's Investor Relations or on the SEC and SEDAR+ website. I would now like to introduce Mr. Jason Wild. Please go ahead, Mr. Wild.

Good evening, everyone, and thank you for joining us.

Our core business remained solid during the third quarter despite a challenging macroeconomic environment. We maintain market share leadership positions in our key markets, including the #1 market share position in New Jersey.

For the quarter, we reported net revenue of $74.2 million, gross profit margin of 48.8% and adjusted EBITDA from continuing operations of $13.7 million.

Importantly, the third quarter of 2024 marked our ninth consecutive quarter of positive cash flow from continuing operations and our fifth consecutive quarter of positive free cash flow.

Our strategy includes both organic growth and aggressive pursuit of M&A.

For the past several quarters, we have discussed our active pursuit of greenfield expansion opportunities and possible transformational deals. We believe that TerrAscend's targeted approach puts us in a differentiated position to invest in the best geographies and assets at attractive valuations with minimal competitive tension.

We are pleased to have announced today the signing of a definitive agreement to enter the Ohio market through the acquisition of a high-performing dispensary.

We have spoken about the Midwest being a priority for us, and Ohio is a good example as the state is in the early days of implementing adult use. This acquisition is our first entry into our sixth state.

Our intention is to assemble a leading retail footprint in Ohio by acquiring high-quality stores just as we did in Maryland.

We continue to have many other ongoing M&A conversations. With that being said, I want to remind everybody that we remain disciplined in our approach to deploy capital. To be clear, we do not chase deals. In each of our geographies, our goal is to be a market leader. Ohio and any other new markets we choose to enter are no exception. Building on our Michigan presence, our expansion into Ohio will allow us to leverage our existing Midwest infrastructure and SG&A, driving higher profitability across the region compared to operating in these 2 states independently.

In addition to M&A, strengthening our balance sheet has been a priority.

During the third quarter, we closed on our $140 million non-dilutive debt financing. This loan matures in August 2028 and contains no warrants or prepayment penalties. This financing gives us the flexibility to pursue attractive M&A transactions that are consistent with our geographic expansion plans. We now have no other material debt maturing until late 2027. From a regulatory perspective, we remain encouraged by the upcoming DEA hearing concerning the proposed rescheduling of cannabis. Also, the U.S. Court of Appeals in the First Circuit has scheduled oral arguments for December 5 in the David Boies lawsuit against U.S. Attorney General Garland, which seeks equal treatment for legal state-regulated cannabis businesses. This is a very welcome development. The court does not always hold the oral arguments on an appeal nor hold them this quickly. In August, we announced our first-ever stock buyback program for up to $10 million, demonstrating our confidence in TerrAscend's future and our commitment to enhancing shareholder value.

Given our solid core business, strengthened balance sheet, greenfield expansion opportunities and potential cannabis reform on the horizon, we believe our equity is undervalued. Since August, we have purchased stock in the open market, and we'll continue to do so opportunistically within the prescribed daily volume restrictions and outside of blackout periods.

As the largest shareholder, I believe our equity has compelling value. In our key states, New Jersey, Maryland and Pennsylvania, we have organic growth levers that we are very excited about. Ziad will provide more details as we discuss our progress in each of these geographies. These growth levers, coupled with ample greenfield opportunity and no material debt maturing for the next several years, position us very well for the future. With that, I'll now turn the call over to Ziad to provide an update across our key markets. Z?

Thank you, Jason, and hello, everyone.

Let me hear how we performed state by state for the quarter in our key markets. Starting with New Jersey, according to BDSA, TerrAscend maintained the #1 market share position in the state through September of this year.

Importantly, our brands hold the top 3 positions in flower, vaped, edibles and concentrates categories. Back in Q2, we returned to sequential retail revenue growth in New Jersey for the first time in 4 quarters despite new retail door openings in close proximity our stores. In Q3, we continued that positive trend with growth quarter-over-quarter. This is a testament to the loyalty of our customers who value our retail experience and our brand. Wholesale revenue was down sequentially and year-over-year due to increased competition.

While points of distribution hit an all-time high during the quarter, average order size declined as new wholesale brands entered the market. We intend to maintain our #1 market share position by executing the same playbook we have established in the state in recent years, focusing on quality, innovation and the strength of our brands.

Lastly, we continue to explore opportunities to expand our retail footprint under legislation that enables existing operators to take stakes in up to 7 additional diversity on dispensary. This would further increase our leadership in the state, give us additional scale and lead to improved margins and profitability.

We are making progress with several attractive opportunities, and we'll share further details when appropriate.

Going forward, we expect the New Jersey market to continue to evolve and grow.

We are expanding our facility in Boonton and plan to be operational in early 2025. This expansion will provide us with additional capabilities to innovate and offer a broader product portfolio to meet the evolving needs of a more sophisticated consumer and enable us to supply any potential additional stores. In Maryland, wholesale revenue increased 26% sequentially, enabled by our extended capacity that came online earlier this year, and is now on a $20 million annualized run rate and growing.

We are pleased with this result, especially considering that we started from virtually 0 in 2023. This added capacity has also enabled us to increase verticality in our 4 dispensaries, thereby enabling further gross margin improvement in Q3. Since the end of 2023, gross margin has nearly doubled from 25% to nearly 50%. Retail revenue remained stable in Maryland in Q3.

While BDSA does not provide retail market share in Maryland, we believe our 4 retail locations are among the highest-performing retail footprint in the state. In order to meet continued demand growth in Maryland, we are investing in 4 additional grow rooms at our Hagerstown cultivation facility, which we plan to have operational by Q1 of 2025, with first target expected in Q2. Maryland is a success story for TerrAscend. We entered the market in 2021 through the acquisition of an outdated cultivation facility. We then built a state-of-the-art scaled cultivation and manufacturing facility and quickly verticalized through the acquisition of 4 dispensaries in the first half of 2023. In a little over a year, we have been able to fully integrate each dispensary, increase wholesale revenue from virtually 0 to a $20 million run rate, increase margins to nearly 50% and have an outlook for accelerated growth as our additional cultivation capacity comes online next year.

We have now implemented our strategy in New Jersey and Maryland with the same expectations in Ohio.

Turning now to Pennsylvania. Q3 was another steady quarter.

While retail revenue declined 11% year-over-year, productivity per store remains healthy. Wholesale revenue grew 59% year-over-year, driven by the strong performance of our value-oriented Legend brand and our expansion into the edibles category with our Valhalla brand.

We expect Pennsylvania to be a significant growth lever for us in 2025 as we are optimistic that the state will turn adult use next year. With a population of $12 million, the state is expected to grow from a $1.2 billion medical-only state to a $2 billion-plus adult-use market by 2028 according to BDSA.

As we have stated previously, we are already fully built out at our large-scale cultivation and manufacturing facility with no additional need for investment.

We have plans in place to bring on currently unused capacity and will be ready as needed in response to adult-use implementation. And finally, in Michigan, our priorities have remained constant: to improve operational efficiency and drive healthy gross margin in order to establish a solid foundation from which to expand. Due to this focus, gross margin remains near the 40% mark year-to-date. At present, we have 20 retail locations in Michigan.

As we said previously, we expect to scale our operational footprint in the Midwest by entering new neighboring states to Michigan, like we have just announced in Ohio. This allows us the opportunity to more effectively leverage our operating expenses.

In addition, we remain focused on optimizing our state-level operating expenses in Michigan.

In summary, our business remained solid during the third quarter, and fundamentals remain strong. With multiple organic growth levers, a disciplined M&A strategy, no material debt maturity for the next several years and consistent positive operating and free cash flow quarter after quarter, we have a great outlook for the future of our business. I would now like to turn the call over to Keith to provide a financial update.

Thanks, Ziad. Good evening, everyone. The results that I'll be going over today have already been filed on both SEDAR+ and with the SEC, and all results that I will reference today are stated in U.S. dollars. Net revenue for the third quarter of 2024 totaled $74.2 million compared to $77.5 million for the second quarter. This decrease was mainly due to declines in wholesale revenue in New Jersey and retail revenue in Michigan, partially offset by wholesale revenue growth of 26% in Maryland. Gross profit margin for the third quarter of 2024 was 48.8% compared to 48.6% in Q2 and 48.0% in Q1. This positive trend throughout this year was driven by improvements in Maryland, while margins have remained relatively stable in Pennsylvania, New Jersey and Michigan. G&A expenses for the third quarter were $31.6 million compared to $24.1 million in the second quarter.

Excluding 2 onetime items, G&A expenses were flat quarter-over-quarter. These onetime items include a reversal of bad debt expense of $5 million in Q2 as well as a $2.3 million impact from a change in accounting for stock-based compensation in Q3. Net loss from continuing operations for the third quarter was $21.4 million compared to a net loss of $6.2 million in the second quarter of this year. The sequential increase in net loss was driven by a $1.9 million reduction in adjusted EBITDA and as well as several onetime noncash accounting items totaling $13 million, which include a reversal of bad debt expense in Q2, a gain on termination of a lease in Q2, the change in accounting for stock-based compensation expense that I just mentioned, a loss on extinguishment of debt related to our recent refinancing and a loss on fair value of derivative liabilities. Adjusted EBITDA from continuing operations for the third quarter of 2024 was $13.7 million or 18.5% of revenue as compared to $15.6 million or 20.2% of revenue in the second quarter. The sequential decline was driven by lower revenue.

Turning to the balance sheet and cash flow. Cash and cash equivalents, including restricted cash, were $27.2 million as of September 30, 2024, compared to $30.5 million as of June 30. Net cash provided by continuing operations was $1.8 million. This represented our ninth consecutive quarter of positive cash flow from continuing operations. CapEx spending was negligible in the quarter, leading to positive free cash flow of $1.5 million, representing our fifth consecutive quarter of positive free cash flow.

During the quarter, we distributed $2.9 million to our New Jersey minority partners and paid down $1 million of debt, excluding the debt which was retired through our recent refinancing. Also during the quarter, we closed on a non-dilutive senior secured term loan for gross proceeds of $140 million, bearing a coupon rate of 12.75% and with a 4-year duration maturing in August of 2028, with no prepayment penalties. The net proceeds of this loan were used to pay off existing higher interest debt maturing later this year.

With the closing of this deal, we have the financial resources and flexibility to execute our growth plans.

We have no material debt obligations maturing until late 2027. On August 20, we announced commencement of a $10 million stock repurchase program.

During the third quarter, we repurchased 107,000 shares for an aggregate repurchase price of $133,000, with $9.87 million remaining available under the program.

Finally, I would like to take a moment to acknowledge and thank the entire TerrAscend team as we recently completed a multiyear implementation of an ERP system across our company.

As most know, ERP implementations always come with challenges and obstacles to overcome. The TerrAscend team demonstrated the resilience and endurance that we always demonstrate with any challenge by successfully completing this implementation. We now have a very solid IT and financial foundation that will enable continued growth, both organically and through M&A, as well as improved productivity, lower cost and more effective decision-making for many years to come.

Looking ahead to Q4, we expect to be flat to down mid-single digits in revenue sequentially, with stable gross margins, lower G&A expenses and relatively flat adjusted EBITDA quarter-over-quarter. In summary, we believe our third quarter represents another period of solid results. We delivered our ninth consecutive quarter of positive cash flow from continuing operations and our fifth consecutive quarter of positive free cash flow. We took further actions to strengthen our balance sheet by refinancing a significant portion of our debt without dilution or prepayment penalties, which provides us further financial flexibility, the ability to refinance at lower rates and optionality to execute our growth plans. We look forward to sharing our progress on the business during our next quarterly call. This concludes our prepared remarks. I'd now like to turn it back over to the operator for questions.

[Operator Instructions] Your first question comes from the line of Frederico Gomes from ATB Capital Markets.

First question on the share buyback. We saw obviously entire sector down today, trading at close to all-time bottom in terms of multiples.

So how do you view your valuation right now? How should we think about capital allocation, considering not only your buyback, I guess, but also some of the other M&A options that you have in mind, Ohio, Michigan, New Jersey, et cetera?

Sure. Thanks, Frederico. This is Jason. We established that program a few months ago to give ourselves the optionality and to sort of give ourselves another tool in our tool belt. We and I definitely think that our stock is a compelling value, but we're also weighing that against the other opportunities to use our cash. It is -- even after today's significant downdraft in prices, those sort of prices are -- or the environment is definitely flowing through to private operators as well.

So we'll continue to be opportunistic and look for the best uses for our cash, but we are definitely seeing good opportunities to use it to do deals similar to the deal that we announced today to enter Ohio.

Perfect. And then on the guidance for Q4, I appreciate all the color in the markets, but in terms of the assumption behind that, flat to mid-single-digit revenue decline sequentially. Can you talk about your expectations, I guess, for your market in terms of which ones you think are going to be up, which ones do you think are going to be down? Obviously doing really well in wholesale in Maryland, but some other markets down.

So could you talk about that in terms of your guidance for Q4?

Fred, this is Ziad. I can start. I just want to get your attention that the numbers that -- or the guidance we have for Q4 does not include what we announced in Ohio today because we're just not sure how long it would take to approve.

So hopefully, it's faster.

Now quarter 4 usually brings a lot of seasonality between few holidays that exist. When we look at our state by state and we break down the performance, we expect the same performance in each state. Maryland, we have growth levers in it, and that's why we -- both on the gross margin and on revenue.

New Jersey is seeing the pressure that we described in our prepared remarks, but retail is steady and also gross margin is steady. Pennsylvania is seeing some pricing pressure, so we wanted to be cautious on our estimate. And taking all this in consideration, we felt that flattish to slightly down is the right guess, but we will give it hell and we'll bust our butts to make sure we exceed it.

And the next question comes from the line of Eric Des Lauriers from Craig-Hallum.

Two for me on the expansions in Boonton and in Hagerstown.

First on Boon, I think you mentioned that you're expecting to be able to, I guess, have new capabilities, perhaps some new innovation with that expansion that you currently don't have. I was wondering if you could expand on what those capabilities might be.

Sure. Eric, this is Keith. I can start with that and Ziad can add anything in.

So there are a lot of different product formats that are now approved in the state, so especially with regards to like other edibles product formats and concentrate.

So we already have a pretty broad array of products that we're able to sell into the market, which gives us that #1 market share position. But we're just readying ourselves for what's become available more recently.

So some of that investment is going into -- we can think of as like an expanded edibles kitchen with different machines to manufacture different product formats. And then there's a second piece to the Boonton expansion, which is some enhancements to a part of our Canopy square footage that we have already on site to give us the ability to yield more sellable flower and also just produce more biomass to send into extraction for distillate for the manufactured products.

So that's kind of what's happening in New Jersey.

Awesome. That's very helpful. And then I guess just kind of more broadly speaking, last quarter, it sort of looked like we were at a steady run rate.

As you look at these facility expansions in Boonton and Hagerstown, how significant are these from a growth perspective? And if you're able to sort of help us quantify that at all, that would be helpful.

Sure. And maybe I missed your last question, if you asked about Hagerstown. Did you ask about the Hagerstown expansion as well?

No. Previous one was just on the capabilities and innovation in Boon, and now this question just on overall expansion and the impact in Boonton and Hagerstown.

Got it. Yes.

So I think a good frame for that is the example of our performance in Maryland in Q3.

So you can kind of expect similar, and we gave some transparency there around 26% growth sequentially. And then we framed it as we're now run rating at $20 million a year on our wholesale business in Maryland.

So we expect that to continue, possibly at that clip where we could add another 10%, 20-plus percent quarterly. With that expansion in Hagerstown, we're adding 4 additional rooms that will give us a lot more capacity just to grow our wholesale business, to go more vertical in our 4 dispensaries.

We have a decent level of verticality already, but we can go a bit more and enhance the gross margins there. And then with New Jersey, organically, we have a pretty sizable wholesale business in New Jersey, and we think we can continue to grow that and continue to preserve and grow our #1 market share position there. And that would be, again, kind of to frame it in the hundreds of thousands to potentially $1 million growth a quarter there for New Jersey.

This is Ziad.

Just to quantify some of the things that Keith has described, whether it's New Jersey or in Maryland, the verticality that he talked about in Maryland, if you remember, when we started in Maryland, we started with 0 verticality. And currently, we sit close to 45%. We'd like to be somewhere around 55% to 60%, and that is one of the driver of our gross margin. Back to your Boonton question, this is the second phase of expansion. When it comes to equipment and automation, we start running out of space. But what we have increased from extraction equipment from automation, from product launch and new form factors that we have launched in New Jersey. Those were the real drivers of allowing us not only to maintain our #1 market share in New Jersey but be at the same 14% that we were in, in the previous quarter. When you look at some market share, when you look at some of our top 3 competitors, you will see that new brands that came in New Jersey, we're able to still run 6% market share from MSOs where our market share stays the same.

So I'm so proud of the team, of the innovation. And it was really a pilot for us, if you will, in the quarter, that made us more confident to expand the spend, to continue to protect that market share in an exciting market.

And your next question comes from the line of Yewon Kang from Canaccord Genuity.

This is Yewon Kang on behalf of Matt Bottomley. And just my first one here is on the EBITDA performance this quarter. It didn't quite hit the guidance provided in the last quarter, which calls for a year-over-year growth. Can you just comment on the drivers that caused the miss in the second half of the quarter?

Sure.

So this is Keith. Maybe just to clarify. The verbal guidance that we gave on our last call was sequential guidance, and we said flat to slightly down across the P&L.

So we were down in EBITDA quarter-over-quarter. It was really driven by the 4% sequential revenue decline. Gross margins improved sequentially, expanded by 20 basis points, and our underlying OpEx was flat quarter-over-quarter.

So that's essentially the story behind the EBITDA performance.

Got it. And just my second one here. It's regarding the top line performance over the past few quarters. It's been declining.

So I guess could you provide any color on any plans that you have to resume growth, especially in your core markets of New Jersey and Maryland and Pennsylvania? I was just wondering if return to growth would only be contingent on M&A opportunities and new growth markets such as Ohio or Pennsylvania recreational implementation.

Yes.

So when we think of growth levers, here's how we break down our core business versus our M&A strategy.

So internally, we have growth levers, which include wholesale in New Jersey. And the reason why I described it where I think we're confident that we'll see that growth, because around our stores and our retail stores, we've seen 100-plus stores that were open around our retail stores.

We have absorbed the impact on retail. We went back to flat to growing. We start supplying those stores, and now most of the stores that are opening are opening in different MSOs outside of our trade area where our stores exist.

So we will benefit from wholesale as a growth lever, and then retail is not impacted by those opening. In Maryland, Keith described the improvement that we've seen in our wholesale will continue because we're dividing the expansion of the previous new 4 rooms and the 4 new rooms that will come in between verticality improvement to continue to strengthen our gross margin and with spreading our brand in other dispensaries and growing that wholesale business. PA, we expect it to be flattish as it continues to be a medical program, but we're optimistic that in 2025, the state turned recreational, this will be a major growth lever for us. That's internally.

So you'll see the same trend.

You'll see the same fundamentals and you'll see the protection on the gross margin and on those growth levers.

Our excitement comes in on the M&A strategy, and we announced today Ohio. We're not happy with the pace of our acquisition, but if you allow me just to explain the justification or why it's taken us longer, when we decided to go into Ohio, we had the intention to go in and acquire a Level 1 license that is already vertical and has growth and retail. Because the assumption was if a new state's going recreational, you cannot go without verticality. We quickly learned by comparing stores, comparing data to our state, comparing border stores, supply versus demand, we quickly gain confidence that we can enter Ohio just by retail. And at any point, especially with the relationship that we've built with other Level 1, we can continue this conversation, and we have the optionality to add one store at a time quickly, but then at any time, increase the verticality.

So again, the M&A is a major lever of growth for us. But at the same time, we've mentioned multiple times about transformative deals. Those conversations have never stopped. Those conversations are still ongoing. We can't share more about them, but the environment continues to change a little bit at a time, with the political environment, with the reform environment, with other things that are happening, and that is also impacting the pace. We would love to share a lot more already in Q2 and Q3, but we will continue to work diligently because we believe, on top of our fundamentals, we can bring those accretive deals and really will take us not only from being one of the great cannabis company, but will be one of the bigger companies. What I missed is in New Jersey, going deeper in New Jersey, we talked about that multiple times.

We have the opportunity -- and I've talked about it in my prepared remarks, we have the opportunity to be part of 7 additional diversely owned stores.

We are in advanced conversations in some cases, and we have a lot of interest from great operators and great potential businesses that we can bring under our New Jersey business. And this is one of the reasons why we are confident in expansion and our expansion in New Jersey, not only for our wholesale business, for our retail stores that are stable and for the potential additional stores that we will bring in.

[Operator Instructions] Your next question comes from the line of Noel Atkinson from Clarus Securities.

Congrats on expanding into Ohio. It's great to see.

Just a follow-up from what Ziad was talking about.

So are you guys still active on other sort of mom-and-pop acquisition opportunities in Ohio? Like is there something that you're hoping to get done in the near term?

Absolutely. No, we are definitely active looking at mom-and-pops. We feel like that is the -- we've come to the realization that we can pay much more attractive multiples to buy single mom-and-pop dispensaries as opposed to some of those Level 1 operators that we were looking at, especially since we've come to the realization that there's not a major risk of not having cultivation, which is what came along with those -- with the Level 1s.

So definitely looking to do more of those. We look at it as sort of a string of pearls acquisition strategy, which is looking to get to that 8 dispensary cap but sort of building it a bit a la carte as opposed to buying a Level 1 that came along with several dispensaries, maybe some of which were not high performers. And when it comes down to it, no, it's very similar to what we did in Maryland, getting to that 4 dispensary cap before rec turns on. Thank you for the congratulations on the Ohio dispensary. One thing I'd like to point out is that the location is pretty amazing. There are no other dispensaries within 20 miles of that dispensary. I believe we have a slide on the deck. If people logged in online to this conference call, there's a slide that shows the state and where the store is located, and you really couldn't ask for much more in terms of being surrounded by many towns that have opted out, and we don't see any stores coming into that 20-mile radius anytime soon.

Maybe just to add into that, this is Keith, is that taking it back to our Maryland strategy and how we were very deliberate and patient on landing those Maryland deals last year. And that gave us the opportunity to acquire some of the best dispensaries in the state that are very well situated, and we feel like we're starting to do the same here in Ohio, first with this one, but the other ones we're looking into, finding these sort of diamonds in the rough that have moats around them and opt outs within 20 or 30-mile radiuses and things like that.

Yes, absolutely. And the good news is this is -- we can get to at least 8 dispensaries as opposed to Maryland with 4.

Right.

Okay. And then second question.

So TerrAscend's stock got caught in the downdraft as you said, along with pretty much everything else in the sector today. But TerrAscend's not active in Florida, so you went along for the ride. What is there in terms of interest from you guys in the Florida market now, considering that I imagine there's going to be some weaker or more cash constrained competitors maybe looking to exit the market?

Yes.

So obviously, yesterday's voting results in Florida were definitely disappointing. The sector definitely could have used that win. There was a large amount of revenue for the sector as a whole, but as you pointed out, we don't have any exposure to Florida. We've been looking for a while, but we always sort of felt like we wanted to wait to see the results of the vote because otherwise, we were going to have -- either done a very good deal or a very bad deal.

So we're sort of grateful that we didn't pull the trigger. We've been around -- we've been meeting with multiple different operators in the state over the last year or so, and we will now dig in and look to hopefully enter the state, but the prices are going to be much different because there's -- because rec is not currently on the horizon.

And your next question comes from the line of Andrew Semple from Ventum Financial.

So CapEx was at a fair bit light this quarter.

You did note some management projects coming up next year. Could you maybe quantify the capital expenditures associated with those and maybe the timing of when that cash might be deployed?

Sure. Andrew, it's Keith. Good question.

So yes, I mean, Q3 was -- we really didn't have anything happening in Q3. We had completed a previous project in Hagerstown that we mentioned earlier.

So that was behind us.

Now these 2 projects that we're focusing on that we've talked about, New Jersey and the next phase of Hagerstown in Maryland, the payment streams for those will come over the next 8 months or so.

So just call it the next 3 quarters, and there'll be $2 million to $3 million a quarter in total.

So we're looking at like $7 million to $9 million in total for the projects over the course of about 8 months.

Great. That's helpful. And then any outlook for Q4? There's comments about expense reduction quarter-over-quarter. Could you maybe quantify the magnitude that you're expecting to see as it relates to that? And probably also be helpful to understand where you're able to find some room for some cost savings within the business.

Yes, Andrew. It's Keith again.

So we are -- so -- with our operating expenses, we're constantly being vigilant about that and ensuring that we stay within ranges that we've prescribed.

Our goal is really to be at 30% OpEx as a percent of revenue in the kind of immediate term.

So not committing to that right now, but that's really our overall goal. But in the short term, in Q4, we think we can save somewhere in the plus or minus million range, just to kind of give that a guidepost, and we're being really aggressive about it in terms of how we're building our 2025 plan.

So we have organization-wide efforts, kind of a zero-based budgeting type approach to it and doing all the things that you would expect, looking line item by line item, involving the whole organization, even going as far as staffing it with kind of an internal allocated PMO to manage through the program and just really being responsible. Because, again, it's not an easy business that we're managing, and we need to make sure that in our core business, we have a healthy operating expense structure.

Andrew, I just wanted to add. From an OpEx perspective, including Q3, we have decided to spend or to increase our OpEx around our wholesale business to continue to grow that business, continue to protect it and continue to grow with the state.

Just to give you an example, in Q3, we have built around 116 displays and around 60 different wholesale accounts that shows a mini corner for our brand, whether it's Kind Tree, whether it's Legend and others.

So married to the quality of our brand, to the relationship that consumers have with our brand, we have now the visuals that the customer can see every time they come to that store in that wholesale account.

So that also has included some of the OpEx.

So while we were able to save some, we invested some of it back, and we continue to balance this. But just some qualitative color versus the $1 million that Keith talked about.

And your next question comes from the line of Michael Regan from Excelsior.

So for the Ohio acquisitions, can you help us understand -- I guess, I know you don't really know the exact timing, but sort of the timing you're hoping for and sort of what hoops you have to jump through to get that approved? And also does -- this would have to be approved before you announce more? Can you have multiple applications in process?

Mike, this is Ziad.

Here's what we have learned, or we have learned and heard about the regulators in Ohio, from very trusted source, from our external counsel, from counsels that work with the regulators. The Ohio has really built a department, a leader, a regulators that is pro-business, that is pro-cannabis, and their pro-fair treatment to businesses small and big, that will result in good practice for patients and customers.

So that reputation makes us feel good about the length of the approval. It's hard to get exactly how long it will take, but here's what we learned in the past. Once the regulators dig into us as a new MSO in the state, and they see that, hey, our Founder and Executive Chairman is a pharmacist and has the reputation where he's never ever been sued or been in trouble in the past, except one time where he got paid more than what he was sued for.

So that's -- and then myself as a leader of the team, also being a pharmacist, and Keith, track record in compliance.

So when they check into our credibility, we learned in Maryland and other, the first time could be the longest by a week or 2 or 3, but then the second, third and fourth will come back to be much quicker because they already dug and they know who they are.

So I will bust my butt to go meet the regulators, tell them who we are, but to tell you how long it take, we think it's around 6 to 8 weeks, hopefully.

And won't be queued where it holds up. And the only other thing I'd add is there's nothing that would hold up other approvals. The license limit is a [Audio Gap]

Jason, you still there?

Yes, I'm sorry.

I think I had finished speaking. I was just saying that we don't think we'll be held up by -- it's not where they need to approve them in any sequential way where one dispensary acquisition would get held up by another approval as long as we're under the 8 dispensary cap.

Got it. It sounds like it's also just getting to know you.

So hopefully, if you're good for one, you're good for 2, 3, 4. It may even accelerate. That's great to hear. And then on the verticality, I guess you're saying you don't need to have cultivation day 1 or you don't need to ever, ever have cultivation in Ohio? I kind of guess you'd want some at some point for verticality, but you know the market better than I do.

Yes, Mike. Ziad.

So initially, we thought that we cannot go into Ohio without having cultivation and production because we assumed that the demand is going to be higher than the supply. We learned pretty quickly after spending time in the state and looking at the data from BDSA and modeling and using all the knowledge that we had in Maryland and New Jersey, we learned pretty quickly that we can actually go without cultivation.

So that's how we're entering.

So instead of buying a group of stores that some of them are big bomber stores, some of them are weaker store, we are picking stores that are high volume, similar to what we did in Maryland, to build a retail network that is a market leader in Ohio. By having those stores that are high volume, with the supply existing in the state, we believe that we can negotiate good deals and we can protect the gross margin. And then being a multistate operator, also, we have strategic accounts with some of the cultivators that exist in the state that they use us in other states, we can use them in other states.

So we will improve that gross margin, being [indiscernible] that is coming in.

As far as whether we will eventually bring cultivation, we'll continue the conversation with those Level 1 operators, most of them have only 3 or 4 stores. But even if we add 1, 2, 3 or 4 stores, as we are building this, we can eventually bring in Level 1 that has 3 or 4 stores room to grow, we can look at independent growth.

So we're pretty open on how we will build this business. The only strategy that we are determined to have is to become a market leader in Ohio. And seeing what we saw so far, we think we can get there with what we're doing and how we're doing it.

[Operator Instructions] There are no further questions at this time. I will now hand the call back to Mr. Wild for any closing remarks.

Thank you all for joining us today on the call. We look to seeing you at our fourth quarter year-end results call in the coming months. Thank you.

This concludes today's call. Thank you for participating.

You may all disconnect.