WeedMD Inc. (WDDMF) CEO Keith Merker on Q3 2019 – Earnings Call Transcript No ratings yet.

WeedMD Inc. (OTCPK:WDDMF) Q3 2019 Earnings Conference Call November 29, 2019 1:00 PM ET

Corporate Participants

Marianella delaBarrera – VP, Communications & Corporate Affairs

Keith Merker – Chief Executive Officer

Nichola Thompson – Chief Financial Officer

Angelo Tsebelis – President, Starseed

Conference Call Participants

William Haynes – Eight Capital

Neil Gilmer – Haywood Securities

Josh Felker – CB1 Capital

Operator

Thank you for standing by. This is the conference operator. Welcome to the WeedMD Inc. Third Quarter 2019 Results Conference Call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there’ll be an opportunity to ask questions. [Operator Instructions]

I would now like to turn the conference over to Marianella delaBarrera, Vice President Communications and Corporate Affairs with WeedMD. Please go ahead.

Marianella delaBarrera

Thank you, operator, and good afternoon everyone. Apologies for the delay and welcome to WeedMD’s third quarter 2019 conference call.

Please note this call is being recorded. For copies of our press releases and supporting documents filed today or to retrieve a recording of this call, please visit our website at www.weedmd.com. The recording will be available later this afternoon.

We’re joined today by WeedMD, Chief Executive Officer, Keith Merker; and Chief Financial Officer, Nichola Thompson who will walk us through the financial. Following the financial review, we will also be joined by Angelo Tsebelis, President of Starseed and Stephen Ng, Chief Financial Officer of Starseed. Together with Keith, they will provide an overview of the recently announced WeedMD transaction with Starseed. The team will take Q&A following that.

During the call, we will discuss our business outlook and make forward-looking statements. These comments are made based on predictions and expectations as of today. Actually events or results could differ materially due to a number of risks and uncertainty including those mentioned in our most recent filings with SEDAR.

During the Q&A portion of today’s call, kindly limit yourself to one question and one follow-up. Before we get to that, Keith will start with opening remarks. Go ahead, Keith.

Keith Merker

Thank you, Marianella, and thank you everyone for joining us today.

First off, I want to thank everyone for your patience today. We had a few T’s cross and I’s dot as well as a few technical difficulties along the way on a deal that I think has just been announced. And so we were forced to delay things just a little bit.

I want to kick things off with a warm welcome to Angelo, Stephen and the Starseed team whom you’ll hear both more about and you’ll actually hear from very shortly. We have a lot to get through this afternoon, so let’s jump right in.

Firstly, Q3 was another quarter of growth and evolution for WeedMD with 20 additional cultivation and processing rooms coming on line in our greenhouse as well as 27 acres of outdoor grow, we continued on our path to scale in 2019.

In a climate where consistent quality production has been an issue for the industry, WeedMD has remained focused and disciplined in its commitment to producing the very best. We do believe that there are three elements that cannabis companies need in order to maintain sustainable businesses moving forward.

Number one, quality production platform. It’s important to control your supply chain from seed right through to sale in order to ensure the quality product and consistent product for your customers and patients. Number two is distribution and having unique channels in this increasingly competitive environment.

And finally a fortress balance sheet as I like to call it, to ensure the ability to continue to drive the business for the long-term. That’s why I’m thrilled to announce that we have entered into a strategic acquisition agreement with Starseed Holdings Inc., that allows the new pro forma entity to tick all of these boxes.

It’s important to recognize where the industry is at today as inventories build and competition get ever more fierce. We are cognizant that growing great cannabis is not enough to make for a successful company. Starseed has built their business around the development of unique distribution channels; channels that provide industry-leading patient value and retention, not being a cultivator and having purchased their product from multiple sources, Starseed knows that securing a consistent quality supply of cannabis is extremely difficult. So, having the experience, having purchased from and having dealt with many licensed producers, Starseed sees the industry from a unique vantage point and has developed their own view, one that differs from the current perception that there’s plentiful product available today.

You see, the problem with this narrative is that the product that it’s available is not necessarily available on a consistent basis or with consistent quality. These of course are critical elements to solve for when you are building a brand and a distribution channel. So, if they received their patient feedback on WeedMD’s products, as the companies grew to know each other through this supplier relationship, we soon realized that this was a natural partnership. This is a true strategic merger, two truly complimentary organizations coming together after realizing that we are stronger in so doing. Similar philosophies, complimentary strengths, very little overlap or redundancies, both companies rooted in medical cannabis and maintaining a belief that the medical channel has tremendous potential going forward.

Starseed brings a critical part of this business equation that has been difficult for the market to find consistent, sticky distribution channels with direct access to fully covered and insured patients.

Secondly, this deal is unique that it comes with a long-term financial support in the form of a multibillion dollar pension fund. The Laborers International Union of North America, known as LIUNA already, the most significant investor in Starseed with this merger, LIUNA will be investing a further $25 million in the combined entity. This not only helps to strengthen our balance sheet in a market where financing is becoming a challenge, but we now have the ability to accelerate some of our plans to be opportunistic in a market where opportunities abound and to ensure that we maintain a financial buffer on our balance sheet in an industry that let’s face it is extremely young and not without its surprises.

So from a macro standpoint, in Q3, WeedMD realize the number of accomplishments, but there were certainly some industry headwinds. The business to business market has been challenging. There was a substantial decline in B2B pricing for a number of reasons. Firstly, there is simply more cannabis in the market, much of it below the expectations of consumers. Secondly, bottleneck still exists industry-wide in processing, packaging and extraction capacity. Next, there was also product made available to the market and what we view as irrational pricing, and this is due to financial challenges of these suppliers.

Finally, the demand has not been as strong as anticipated largely due to the lack of bricks and mortar retail. All in all, these factors have led to significant compression in B2B cannabis margins. As I said earlier, the focus for WeedMD in 2020 is to get your cannabis to market and into the hands of consumers and patients who are going to come back next week and next month to buy time and time again.

So looking at the quarter, we secured licenses and operationalized 10 new hybrid greenhouse flowering rooms, which are now starting to harvest for the first time here in Q4. So again, it’s important to know that Q3 contained a lot of the costs associated with ramping up these rooms without the benefit of any product or revenue coming from them. We continue to make adjustments in our growing methodologies to focus on mass craft, the perfect balance of potency, quality, and yield. We’re confident that our product remains best in class and in our ability not only to increase our available [indiscernible] product next year, but importantly that it will sell through our recreational brand Color Cannabis was recently reported as the seventh most sold brand in Ontario and is quickly increasing its market share in the flower market. When it comes to Cannabis 2.0 for WeedMD, it’s about getting quality products into formats that showcase quality inputs. This MO lands itself to a focus on certain products.

As such, in early 2020 you will see our products in vape carts, concentrates, soft shells and pre-rolls under the Color banner as well as some other new brands.

And that brings us finally to the great outdoors. As many of you know, WeedMD planted over 20,000 plants across 37 trains on 27 acres at our Strathroy location this season. We of course remain focused on producing only and delivering only quality cannabis. Therefore, it has taken us some time to work through all of this product that was harvested this fall.

In fact, this is a process that continues to this day and based on what we have so far, we are expecting the total biomass to be north of eight tons this year. And I want to be clear, this is eight tons of finished product. We are not including any subpar biomass in this number.

We are generally quite pleased with these results, although we do realize that the overall quantity on a weight basis is not what we had earlier anticipated. We are very excited about 2019 for several reasons. Firstly, this product is coming in with some great cannibanoid contents north of 20% THC in many cases and including our flagship Ghost Train, Haze Train, which performed extremely well this year. As this industry evolves, it’s important to realize that a gram is not a gram, is not a gram. It is actually less about the weight and more about the quality and the cannabinoid content is a critical aspect of that quality.

To shed some further light on this, as an example, today in the wholesale market, purchases are paying for extract grade cannabis on a per milligram of cannabinoid basis typically with a minimum required cannabinoid content. Therefore, one gram with 20% cannabinoid content is worth at least twice as much as a gram with 10% that later gram potentially not even being a saleable product in today’s market.

Secondly, from a cost perspective, we were able to beat our internal estimates on the cost of production. We produce eight tons of saleable product at $0.16 per gram. We are now amongst the lowest cost producers in the industry. And finally, this was a year of discovery for us. Growing compliant, Cannabis at scale has never been done before outdoors and WeedMD was one of only a few pioneers that took advantage of this opportunity in 2019. We planted 37 different trains many of them did well, others well they did a little less well. We’d have learned how to be compliant farmers. Our product has come back testing clean.

The point is next year with all of the learnings of 2019 in hand, we are positioned to maintain an increase our position as leaders in this new disruptive grow methodology. As I mentioned earlier with pressure in the B2B market and price compression across the industry, WeedMD is focusing on moving more of its own products into retail and medical channels as finished goods and avoiding the volatility of B2B pricing as the industry matures.

So with respect to the go forward plan, we’ve taken a position to be very opportunistic about our timing for adding further capacity. We currently have a further seven acres of greenhouse that can be brought online in less than three months and for minimal CapEx as well as another 70 plus acres of potential outdoor grow that can be developed quickly even for next season if we so decide. The point is, that we have a flexible platform with a lot of built-in optionality. We can flex into further cultivation on a short lead time when we feel that the market demand is there. Packaging and processing initiatives to move more finished goods into the medical and recreational channels are key priorities with flower or Cannabis 2.0 products.

In the event the cannabis industry in Canada continues to add more capacity without sufficient increases in demand, WeedMD is comfortable deferring these capacity additions until the time when new markets open domestically and/or internationally.

So in summary, we’re excited. We’re excited about the future, the future with our new partners at Starseed. We’re excited about getting a lot more product into the hands of Canadians, both in the adult use and importantly in the medicinal channel. We are here for the long run.

I’m now going to turn it over to our CFO, Nichola, who will walk us through the Q3 results before Angelo discuss the Starseed in more depth for everyone on this call and for the benefit of our stakeholders. Thank you. Nichola?

Nichola Thompson

Thank you, Keith and good afternoon everyone.

Q3 was another exciting quarter for us as we accomplished a number of key milestones that will bring our operations to scale. During the quarter, we began the harvest of our outdoor cultivation and ramped up 10 new cultivation rooms in the greenhouse. In order to ensure a stable and consistent harvest going forward, the new rooms were brought online over a two-month period. By the end of Q3 all 10 rooms were operational. Due to this and the timing of Health Canada approvals, the harvest from these rooms will be realized in the fourth quarter.

As a result of the production schedule, WeedMD harvested 3079 kilograms down 538 kilograms from Q2. However, grams sold increased 761 kilograms to 2,740 kilograms in the third quarter, as a result of price compression and sales mix in the quarter, despite the increase in grams sold, revenues declined by 1.3 million to 6.7 million, a 17% decline quarter-over-quarter.

97% of revenues were derived from the sale of dry cannabis, of which 4% was direct to patients, 26 to the adult use market and 70% to other licensed producers. Sales to licensed producers were comprised of extraction grade cannabis. The third quarter channel distribution was consistent with the second quarter. While Q3 was a period of scaling to get these rooms online, we can now focus on driving costs even lower by fine tuning our operations to reach even greater efficiencies and economies of scale.

In Q3, WeedMD’s weighted average cost of sales per grams was $1.42 down from a $1.84 last quarter. In the quarter, our production cost to harvest per gram reached as low as $0.72 in the greenhouse at a 25% improvement quarter-over-quarter. As a result of the price compression and sales mix, the third quarter being a period of scaling our cultivation footprint similar to the first quarter of 2019, the gross margins dipped quarter-over-quarter to 29% from 46% in the second quarter. Year-to-date, the gross margin was 34%.

General and administrative expenses decreased by half a million compared to Q2. The reduction as a result of increased absorption as WeedMD continues to scale and utilize more of its footprint for production.

The net loss for the third quarter was 13.4 million compared to net income of 12.6 million in the second quarter. However, excluding the fair value adjustments and other income, the net loss was 3.6 million compared to 2.6 million, an increase of 1 million. The increase in net loss is a result of the decrease in gross profit of 1.8 million offset by the decreases in both general and administrative expenses and stock-based compensation totaling 800,000.

At the end of the third quarter, cash and networking capital totaled 27.5 million. a 10.8 million decrease compared to 38.3 million in the second quarter could decrease as a result of a 6.5 million supply deposit and a 2.1 million increase in current portion of long-term leases and loans and borrowing.

The company holds 22.9 million of inventory and biological assets as of September 30, 2019, a decrease of 6.6 million or 22% from the prior quarter. The decrease is mainly attributable to the decrease in the outdoor yield assumptions used in the biological asset valuation model. Q3 inventory was valued at 13.3 million, which included 2,588 kilograms of dried cannabis valued at 6.9 million and various forms of extracts valued at 6.1 billion.

Biological assets included over 82,000 plants in production compared to just under 60,000 plants in the second quarter. The greenhouse plants were valued at 4 million and the outdoor plants were valued at 5.6 million. Property plants and equipment additions totaled 9.2 million. The additions for the quarter included additional 50,000 square foot processing facility for 2.2 million, CX industries expansion, which included this facility retrofits and equipment purchases for 1.7 million, 3.5 million on the greenhouse expansion and upgrades and packaging equipment for 1.3 million.

In the third quarter, WeedMD was successful in closing convertible book venture with proceeds of 13,115,000. The debenture was comprised of three financial components; the debt warrant and conversion feature. The debt was recorded at 8.3 million net of transaction costs using the discounted cash flows and the modern conversion features were recorded in equity using the relative fair value.

Overall, while third quarter had some declines in revenues and margins, the quarter was in line with our expectations while ramping up our cultivation platform.

Looking forward, we’re very excited with the announcement of the transaction to acquire Starseed. This transaction will enable WeedMD to improve distribution and increase our distribution channels. This along with CX industries will allow us to reduce the need to participate in the wholesale market. In combination with Starseed, we now have the balance sheet strength to continue our growth opportunities.

At this time, I would like to invite Angelo from Starseed to provide an overview of the transaction.

Angelo Tsebelis

Thank you, Nichola. Good afternoon everyone.

I’m very pleased to be here today to tell you about Starseed and why these transaction is a great step forward for both Starseed and WeedMD. Starseed is the leading provider of medical cannabis as a covered benefit on drug plans and our mission is to use our unique full service platform to help patients and our customers improve their access to medical cannabis. Since inception, we’ve been focused on executing against our strategy. We have established a captive network of over 300,000 Canadians with exclusive access to Starseed medical cannabis as a paid benefit.

Our model has made us an industry leader in both customer utilization and average spend per customer at nearly double the industry average. We have a proven model that is scalable and reputable. Since signing our flagship partner LIUNA, one of North America’s largest construction unions, we have successfully added several other employers and unions to the fold and we’ll be adding more in 2020.

We feel this deal is a natural evolution of our business. We’ve always recognized that cultivating quality product at scale is not easy and we realize WeedMD as among the best cultivators in the country. Our patients demand the highest quality and consistency of product and we are listening.

For the past 18 months based on our customer feedback, WeedMD’s products have consistently come back with the best reviews. This is why this partnership makes sense. We see significant potential to expand our client base by aligning WeedMD’s, consistent high quality supply pipeline with our established model, network and customer base. We believe Starseed strength align quite well with WeedMD and together we will form one of the strongest cannabis companies in the country.

I’m extremely proud of what we have built at Starseed and I look forward to working closely with the WeedMD team. Our two teams have the same approach, how we run our businesses, how we treat our employees, and ultimately how we treat our customers.

I’d like to take a moment to recognize LIUNA. They’ve been at the forefront of addressing the opioid crisis, by providing its members with a safer alternative to opioids. Not only have they been an amazing partner, they’ve solidified their commitment to Starseed and our future by becoming a cornerstone investor in the combined entity.

In closing, thank you to all our employees, their hard work and dedication, who continue to be the foundation of our business. I look forward to what lies ahead in this journey. And with that I’ll turn it back over to Keith for his concluding remarks. Keith?

Keith Merker

Great. Thank you, Angelo and welcome. And thank you, Nichola as well for your summary.

To finish up on Angelo’s thoughts and before we head into Q&A, I’d just like to summarize my thoughts on this deal and on where this new combined entity is going in 2020. With this merger, we will have one of the strongest liquidity positions amongst our peers. We will have the backing of a major institution who is aligned with our long-term success and we will have a medical business and patient base unlike any other in Canada, which will help us drive some of the best margins in the industry when paired with our greenhouse and outdoor cultivation.

WeedMD will continue to focus on the things that matter in traditional business models of profit, cash flow and targeted growth where real barriers to entry exist. While the industry has looked for near term opportunities, we’ve been waiting for the right partners to come along, develop and grow with and our friends at Starseed make for a strong partnership.

We look forward to keeping you updated as WeedMD and Starseed story into one. For now, I’m going to pass it back to Marianella to prompts for questions. Thank you.

Marianella delaBarrera

Thank you, Keith, Nichola and Angelo. This concludes our opening remarks and we are now ready for the question period. Ariel, please proceed with instruction to call in.

Question-and-Answer Session

Operator

Certainly. [Operator Instructions] Our first question comes from Graeme Kreindler of Eight Capital.

William Haynes

Hey guys, it’s Will on here for Graeme. Thanks for taking my questions. I was just wondering, if you guys could provide a little bit of additional detail on Starseed. More particularly, just kind of wondering or just trying to get a sense of what kind of revenue we can expect to see from the Starseed side of the business and kind of what types of gross margins they’ve realized over the recent couple of quarters and, is this something that you think will enhance your adjusted EBITDA down the line?

Keith Merker

Absolutely and thanks Will for joining and thanks for your question. So Starseed is on currently about a $10 million revenue run rate. Certainly I think to my earlier comments, they’ve struggled with gross margins only because the market for premium grade a flower has been a difficult one to penetrate from the standpoint of pricing. And that’s more of a historic thing. And so they’ve struggled again to produce the kind of gross margins that they will be able to produce in combination with WeedMD going forward, which is one of the key critical synergies of this deal.

So, I think one other point that I’ll bring to the table here is that I mentioned the $10 million run rate. I think that they’ve had 100% quarter-over-quarter revenue growth over the past couple of quarters as well. So we’re seeing them hit that inflection point where the model that they’ve developed and I can let Angelo speak to this in more depth. But, it’s taken a while for them to put together this model that kind of emulates, and it’s very similar to a more traditional pharmaceutical model so that, there’s payer direct benefits and direct payments and to gather all of the players to the table in order to make that model work, its taken time. So they have a bit of a longer sales cycle than the traditional model of gathering patients through clinics for instance. But as I said earlier, they’ve hit that inflection point now where they’re starting to see both the patient and revenue growth going forward.

William Haynes

Perfect. Awesome. Thanks for the color there. Just kind of moving on from that, we have seen and you guys mentioned earlier that you might — you’re playing the whole back from Strathroy unless you really see the need to move forward with it. Just on the Starseed facility, like could you guys see yourself maybe right sizing some operations there like we’ve seen a number of LPs in the space now, right size operations at facilities that are already built. So is that something you could see yourself as doing in the short to medium term?

Keith Merker

Yes. Well, another great question. Certainly that’s what we’re seeing out there. However, I will say, WeedMD has now with the addition of Starseed and the Bowmanville site, three different facilities. We’ve got the Strathroy site, which is obviously renowned for its cultivation, both outdoors and in the hybrid greenhouse. We have the Aylmer location, which is now operational as what we’re calling CX industries and this is a toll processing white labeling and extraction up for the industry.

And one thing we have learned is that although there’s a lot of cultivation out there, there’s actually a shortage of proper license production processing and storage space in the industry. So having the addition of the Bowmanville site with its proximity to the GTA, and again, this site is only devoted for processing, production and storage. The addition of this site close to the GTA is a huge win for this combined entity going forward. There are no plans for the immediate future, certainly for any rationalization of these three very complimentary facilities.

William Haynes

Perfect. Thanks a lot guys. I will be back in the queue.

Keith Merker

Awesome.

Operator

Our next question comes from Neil Gilmer of Haywood Securities.

Neil Gilmer

Yes. Hey, good afternoon Keith and team. Thanks for the call and I apologize if you did cover this in some of your prepared remarks. I think have a little bit of background noise where I’m at right now. But, Keith is there just a little bit of way you can walk us through some of the synergies that you feel that you can gain between, the WeedMD and the Starseed acquisition. I still probably go through some of the materials that were sent out. But I think you had a certain dollar number of synergies you’re sort of thinking that you can sort of achieve, just a little bit of color on that.

Keith Merker

Yes. So, I can give you the broad strokes answer or get into the nitty-gritty. You’re asking for dollars. I mean, we do anticipate that we’ll be able to achieve up to $10 million in operational savings through synergies in this combination. But I think more importantly, there are tremendous growth synergies going forward. There’s a huge margin synergy that I just spoke about with respect to being able to deliver a Starseed product that we haven’t produced internally at a very low cost and realizing the margins that they’re experiencing through their sell through in their very unique distribution channel.

So those are the high notes there, but I think from a more — if I pull back again, I think the real synergies here are that we’ve put together those three fundamental building blocks for a long-term success, that being great production, great distribution and again, a fortress of a balance sheet.

Neil Gilmer

Okay. Thanks for that. And then maybe just to follow-up on some of your comments on the harvest from the outdoor grow. Like you said, it was over eight tons that you think will be product we are going to be using and good cannibanoid content. Any color on when you sort of expect that product to actually be into the marketplace. And apologize again if I miss this and how much you expect to sell is dried flower versus use through CX industries.

Keith Merker

Yes. Good question Neil. And to be quite frank, we’re still working our way through that. As I mentioned, it’s taken us a while. We took down 27 acres. We did it right. These things take time in order to get all that stuff in to our newly licensed facility on site in Strathroy to get it processed, debudded, trim, dried obviously and ready for sale. And then beyond that you’ve got testing requirements and so on and so forth. So this is very much happening in real-time. And I wish I had a more firm answer for you, but right now we are considering, a good portion of this to actually flow through our CX industries business. And that will be in order to bring products to market in the first half of 2020. We don’t anticipate selling a huge portion of this at this point into the whole sale market. I think I stressed that enough in my earlier comments.

And then, pre-rolls is another big win for us with a lot of this product. We’re still unsure as to how much of it will actually be sold as dried flower at this point in time. But rest assured, we anticipate achieving pretty high margins, not only because of the price I should say the cost of this product, but also because of the formats within which we intend to deliver it to market.

Neil Gilmer

Okay. That’s helpful. Thanks, Keith, congrats on the acquisition and the financing.

Keith Merker

Thanks Neil. Appreciate it.

Operator

Our next question comes from [indiscernible].

Unidentified Analyst

Hey, guys. How is it going?

Keith Merker

Great. Thanks.

Unidentified Analyst

Good. I just wanted to quickly ask on, is there any opportunities for you guys look to up this in the future to get off the venture and maybe introduce some more liquidity and some more I’s to the company?

Keith Merker

Yes. Giorgio was a great question and one that we have considered we’ve looked into it. I can’t make any firm commitments on that on this call, but rest assured, stay tuned. And we do anticipate, obviously finding ways to bring more liquidity and stature to this company going forward.

Unidentified Analyst

Perfect. Perfect. Okay. That was it for me. Just a short and simple question. Thank you very much and look forward to your progress in 2020 all the best.

Keith Merker

Thank you very much.

Operator

Our next question comes from [indiscernible] of Raymond James.

Unidentified Analyst

Hi, Keith. Angelo, Nichola, thanks so much for taking my question. So congratulations on the combinations, obviously an important milestone for the company. Just I want to go into some of the revenue numbers. So, as Nichola mentioned there was, it’s been a decline particularly into the provincial sales channel. And so how do you see that evolving over the next few quarters and along with the cannabis 2.0?

Keith Merker

Yes. It’s a good question and good to hear from you. Hope you’re well. So, we anticipated, I think, again, I emphasized this in my commentary, our goal as a company is to obviously increase our sell through not only our production and distribution into the wholesale adult use market but ultimately to continue on the great sell through that we’re seeing at the retail level. And so, despite the fact that we’re seeing some industry declines in that environment we’re very comfortable and confident with what we’ve created in the Color brand and the product that we’re delivering. The demand that we’re seeing and hearing from both, again on the wholesale level with the provincial distributors as well as ultimately with the retailers has been incredible.

So I think for WeedMD, we’re very confident that we’ll see nothing but increases as we get our house in order with respect to being able to deliver more and more in finished package good form. So I think that we anticipate, again, seeing nothing but increases as a company going forward into that into those markets.

And then with respect to 2.0, we are not going to be the first on the shelves. I don’t believe that there’s any great advantage to doing so. We are going to be bringing products within Q1 in new formats to market and good things come to those who wait. So I promise you and all the WeedMD stakeholders and ultimately our patients and customers that you’re going to see some great things with respect to product development and delivering from the first half of 2020.

Unidentified Analyst

Great. Thanks so much and best of luck with the combination and the upcoming quarters.

Keith Merker

Great. Thank you.

Operator

Our next question comes from Sebastian Jag, a Private Investor.

Unidentified Analyst

Hi, there. And congratulations, of course. I just wanted to ask, but you mentioned weak demand. Is there anything you guys can do further to drive that, whether it’s marketing maybe some of the 37 seasonal trains or something promotional or pricing or something. Do you guys have any plans for driving demand any further than waiting for retail stores open?

Keith Merker

Yes. Absolutely. And sort of clarify. I mean, the demand piece is again, it’s both an industry wide phenomenon and then it’s also on the B2B side. So to address your question, the way in which WeedMD intends to address these issues is number one, we are removing ourselves from the B2B market as much as possible as we transitioned to a finished consumer packaged goods company. And number two, as I said earlier, we do believe that we are producing a product that does have high demand. So we think that what we do produce and deliver as the Color brand as well as going forward under the Starseed banners, we will be able to provide, sell through at the retail level. And that’s, the demand that we’ve created for our brands I think is significant maybe relative to some of the others that exist today.

Unidentified Analyst

Thank you.

Keith Merker

You’re very welcome.

Operator

[Operator Instructions] Our next question comes from Cody Knight, a Private Investor.

Unidentified Analyst

Hi, guys.

Keith Merker

Hi there.

Unidentified Analyst

I just want to say, I think it’s really smart if you guys be focusing from the business to business and having to, trying to get it directly to the consumer. I think that’s fantastic. And also just want to say congratulations on your deal. My question is today is regarding [halt] [ph]. I just want to understand what, how do you guys determine which news will activate a halt and which news will not activate a halt? And as well if there was something regarding this halt to do with Globe and Mail.

Keith Merker

So WeedMD was obviously embarking on a very strategic and a significant material transaction. And so in light of that, we felt it was prudent to hold stock yesterday afternoon and we had hoped to be up and running a little bit earlier this morning. However, we were still, as I said dotting a few I’s and crossing a few T’s up until the last moment. So unfortunately we had to maintain the halt and I think get the news out as quickly as we could today and release the halt. So we did the best we could to keep the whole period to as short a timeframe as possible and we’re up and running now and all this well going forward. So I hope that’s helpful.

Unidentified Analyst

Okay, great. That answers my question. Thanks so much you guys for all your hard work. I really appreciate it.

Keith Merker

You’re welcome.

Operator

Our next question comes from Josh Felker of CB1 Capital.

Josh Felker

Hey everyone. Thanks for taking the call. Just wondering regarding your product and your brand strategy, I noticed that some of your highly popular trains at the start of recreational onset are, haven’t been on the market in the last few months. Have you gotten that initial data that you were looking for and how are you using that to introduce new products to the market or reintroduce old products?

Keith Merker

Yes. It’s actually a very good question. It’s funny, our Pedro’s wine gums train or Sweet Sativa as we sell it through the provincial channels and into the adult use market has had incredible demand. So, number one, it’s on the demand side is that this stuff that just we can’t keep it on the shelves, which is obviously a good problem to have.

On the flip side of that from a supply side, it takes a while. The reality of cannabis production is that you’re looking at roughly a six month, five to six month cycle. And so from the time you get clones in to the time you’re actually delivering products to market that had been fully matured, harvested, dry, trim, tested, and are ready to go packaged, it does take that long.

So I guess in short answer, what I can tell you is that you can look forward to a lot more of trains like again, Sweet Sativa coming to market and more and more plentiful amounts, especially now that we’ve got the new 10 rooms online as of last quarter and we anticipate being able to deliver a much more consistent supply of highly sought after trains.

Josh Felker

Perfect. That’s what I thought. Really looking forward to that blueberry being back in the market guys.

Keith Merker

Thank you.

Operator

There are currently no questions in the queue. This concludes the question-and-answer session. I would like to turn the conference back over to management for any closing remarks.

Marianella delaBarrera

Thank you, Ariel. I think we’re done now. Thank you everyone for calling in. And if there are any additional questions, please contact our Investor Relations team or myself and Keith does want to have some closing comments here.

Keith Merker

Well, I just wanted to say thanks once again, everyone. Thanks for joining us. Thanks for your time. Appreciate your patience today and have a great day. We look forward to updating you further in the New Year. Thanks.

Marianella delaBarrera

Thank you.

Operator

This concludes today’s conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.

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