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HEXO Corp. (NYSE: HEXO) Q3 2020 Earnings Call Transcript

HEXO Earnings Call - Final Transcript

HEXO Corp. (HEXO) Q3 2020 earnings call dated June 11, 2020

Corporate Participants:

Jennifer Smith — Director of Investor Relations

Sebastien St-Louis — Co-founder and Chief Executive Officer

Steve Burwash — Chief Financial Officer

Analysts:

Aaron Grey — Alliance Global Partners — Analyst

Tamy Chen — BMO Capital Markets — Analyst

John Zamparo — CIBC Capital Markets — Analyst

Rupesh Parikh — Oppenheimer — Analyst

Graeme Kreindler — Eight Capital — Analyst

Scott Fortune — ROTH Capital Partners — Analyst

Andrew Carter — Stifel — Analyst

Matt Bottomley — Canaccord Genuity — Analyst

David Kideckel — AltaCorp Capital — Analyst

Douglas Miehm — RBC Capital Markets — Analyst

Pablo Zuanic — Cantor Fitzgerald — Analyst

John Chu — Desjardins Capital Markets — Analyst

Presentation:

Operator

Ladies and gentlemen, thank you for standing by and welcome to the HEXO Q3 2020 Quarterly Call. [Operator Instructions] I would now like to hand the conference over to your moderator for today, Jennifer Smith, Director of Investor Relations. Please go ahead.

Jennifer Smith — Director of Investor Relations

Good morning. Thank you all for joining us this morning for our 2020 Q3 earnings call. We will start with a presentation by our CEO, Sebastien St-Louis, followed by a recap of our third quarter results by our CFO, Stephen Burwash before opening the floor to questions from our financial analysts.

Before we begin, I would like to remind you that today’s presentation contains forward-looking statements that involve known and unknown risks and uncertainties and other factors that could cause actual events to differ materially from current expectations. The forward-looking statements are based upon and include the company’s current internal estimates, plans, expectations, opinions, forecasts, projections, targets, guidance or other statements that are not statements of fact. Any statements contained herein or discussed during today’s session that are not statements of historical fact may be deemed to be forward-looking statements. Such statements can often, but not always, be identified by use of forward-looking terminology and other similar words and expressions that are predictions or indicate future events and future trends including negative and grammatical variations thereof or statements that certain events or conditions may or will happen or by discussions of strategy.

These statements should not be read as assurances of future performance or results. Such statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements to be materially different from those implied by such statements. Those risks and uncertainties include, but are not limited to, those relating to the company’s ability to execute its business plan, renew required permits, licenses and related regulatory compliance matters, implement its growth strategies, obtain and maintain financing on acceptable terms, maintain and renew required licenses, maintain good business relationships with its customers, distributors and other strategic partners, keep pace with changing consumer preferences, protect intellectual property, manage and integrate acquisitions, retain key personnel and relating to the company’s competitive advantages, the development of new products and product formats for the company’s products, changes in laws and regulations and the absence of materially adverse changes in the industry or global economy.

A more complete discussion of the risks and uncertainties facing the company appear in the company’s annual information form and company’s Management Discussion and Analysis for the three and nine months period ended April 30, 2020 which are available under the company’s profile on SEDAR. Although the company has based forward-looking statements on the assumptions that it believes, at least, are reasonable, it cautions the readers that actual results and developments, including the company’s results of operations, financial conditions, liquidity and the development of the industry in which the company operates may differ materially from those made or suggested by the forward-looking information contained herein. A number of factors could cause actual events, performance or results to differ materially from what is projected in the forward-looking statements. You are cautioned not to place undue reliance on these forward-looking statements, which only speak of the date of this presentation. The company disclaims any intent or obligation, except to the extent required by laws, to update or revise any forward-looking statements as a result of new information or future events or for any reason. Any forward-looking statements contained herein or discussed during today’s session is expressly qualified in its entirety by the above cautionary statement.

I’ll now turn the floor over to Sebastian.

Sebastien St-Louis — Co-founder and Chief Executive Officer

Thank you, Jennifer. Good morning, everybody. I’d like to start by wishing everybody a safe time and good health and to thank and acknowledge the incredible efforts and dedication of our entire team at Hexo as we navigate through this pandemic caused by COVID-19. The global economy has seen a dramatic reduction in GDP, staggering unemployment numbers. What’s encouraging, at least in our industry, is that we’ve been stable and even more than stable, we’re growing. Our team has rallied to meet the challenges as presented and actually exceeded expectations. We’ve continued to introduce new products and we continue to increase our volumes as we gain market share on our competitors. The company has implemented rigorous safety protocols to mitigate the potential exposure and provide a safer work environment as possible to all our employees. Our team members have demonstrated incredible resolve to ensure we continue to execute at the highest levels and achieve operational excellence. We remain vigilant and we’ll continue to proceed with caution.

While we continue to operate during the pandemic, we continue to be cautious about future expectations. Our plans to achieve adjusted EBITDA positive in the first half of fiscal 2021 or the end of the calendar year will depend on the growth of retail stores in our two largest markets, Ontario and Quebec. It’s difficult to determine the timing of new licenses for new retail stores in Ontario and the build-out of additional stores in Quebec, but we’re very encouraged by the huge progress that both our provincial partners have made. With only a limited number of physical stores, the revenue numbers that were published this week by SQDC and OCS demonstrates the tremendous potential of both markets. SQDC reported sales of 47 tons of of product and profits of CAD26 million with less than 50 stores. I want to congratulate SQDC and Jean-Francois Bergeron on tremendous results and we’re very proud to remain their preferred partner and for our participation in Quebec success.

On the Ontario side, we are super encouraged by the amazing work that Donald [Phonetic] and his team have done on analytics and providing the market with detailed market share analysis by product, and we look forward to continuing to see more.

Our industry continues to grow during the pandemic, and that’s a testament to the consumer demand for safe and legal product offered by licensed producers. Statistics Canada reported that sales reached CAD181 million in the month of March and we’re seeing steady demand in the months that have followed. While the March figures only lead to annual run rate of approximately CAD2.2 billion, most studies have reported that the true market in Canada is closer to CAD7 billion to CAD10 billion annually. There is a great deal of work to be done by licensed producers and governments at each level to safely provide all our products to consumers, the products that consumers are clearly demanding to be able to get to the full potential of this legal market. We need the governments to either continue to build the retail infrastructure or allow the private sector to provide the service the consumer demands. The licensed producers need to lead the way forward by creating and delivering products that compete effectively with the illicit market.

At HEXO, we’re determined to be the leaders in adult-use market in Canada and other legal markets where we play. Our philosophy is to go a mile deep instead of a mile wide in each market that we participate in and with each product that we launch. It was this approach that led us to negotiate a significant preferred supplier agreement with the province of Quebec. We wanted to be the dominant player and achieve leading market share. We’ve done that. We’ve maintained a market share north of 30% and we continue to provide outstanding service to the suppliers market. And at this point, with the new success we’ve had operationally, we’re poised to expand nationally and to start to provide that same level of service in other markets.

There is other examples of how this approach of going narrow and deep has led to successful outcomes for HEXO. We led the way in creating the 28 gram package format and pricing it to compete directly with the illicit market. Our competitors have followed suit, but we’ve achieved strong market share with Original Stash. We’ve been selective in our launch of 2.0 products and our hash product has been an overwhelming success. We’ve established a dominant position with this product category.

Very pleased to share that our Belleville facility is now fully licensed, which include the Truss beverage facility. This state-of-the-art facility is highly automated. It’s ideally located to serve both largest markets in Canada, and has a national scale. It has the capacity to grow along with our business and our partners. The key effect of this facility is it is shifting HEXO to a true manufacturing company, while keeping our roots in agriculture in Gatineau [Indecipherable].

We were one of the first companies to partner with a Fortune 500 company. We created the Truss joint venture, our joint venture with Molson Coors and this company will launch a series of products from a newly constructed state-of-the-art bottling and canning operation at the Belleville site and it should lead to being one of the very few players in Canada with significant market share in the cannabis beverage market. We’ve also expanded our partnership with Molson Coors with the creation of Truss USA. As per our philosophy, we’re going to focus on a first market to dominate in Colorado and to test and learn.

During the latter half of 2019, it became clear that the capital market environment for cannabis companies have changed. Access to capital was going to be much more restricted. HEXO led the way by being one of the first companies to rationalize our operations. This was also significantly impacted with the slow rollout of Canadian retail infrastructure but we adapted very quickly.

We were leaders in the following meaningful ways. We provided exceptional service to the province of Quebec. We moved up the ladder in market share and as you know, I have often stated, our goal is to become a top-2 player in adult-use market share in Canada. HEXO has moved quarter-over-quarter from a top-5 spot to now the top-4 spot nationally. We’ve cultivated new high THC strains that are clearly in the demand from the consumer. We have some new HEXO Plus products in market now achieving 26% THC. We’ve stabilized and improved our gross margins being ahead of plan by delivering 40% this quarter. This has allowed us to launch and lead the path in the value segment without our margin deteriorating. We’ve reduced cash operating expenses to achieve our internal targets and we’ve done all of that in less than 12 months, a big thanks to the team. We’ve also created products that utilize all the components of our cultivation efforts so that inventory does not grow excessively and consume our cash flow. HEXO was making substantial progress towards the trim problem that we all faced in this industry. Our inventory impairment has been minimized and we’ll continue to monitor go forward.

We have a lot of work to do at HEXO, but the good news is that our revenues are growing, our yields and volume sold have improved, our gross margin has increased and our costs are coming down. Our adjusted EBITDA loss is under CAD5 million and we hope to be EBITDA positive this year. We’ve achieved all that while moving up the ladder in market share and taking the top-4 national adult-use share spot.

With the series of financings we’ve completed since the end of the last calendar year, our business is on solid financial footing. We look forward to building on those strengths. Steve, I’ll turn it over to you to speak about our financials.

Steve Burwash — Chief Financial Officer

Thanks very much, Sebastien. Good morning, everybody. As Sebastien mentioned, Q3 demonstrated significant improvement in a number of different ways as we move to closer to our goal of becoming adjusted EBITDA positive. On the revenue front, revenue from sales in the quarter increased by CAD7.1 million or 30% to CAD30.1 million from CAD23.8 million in Q2. Total revenue from sales in the quarter increased by CAD15 million or 94% when compared to the third quarter of the previous year. Net revenue increased to CAD22.1 million from CAD17 million in Q2 and from CAD13 million in Q3 2019.

Gross revenue from the adult-use channel was CAD29.8 million and that represents an increase of 30% from the previous quarter two sales of CAD23 million. Gross adult-use use sales also increased by 104% when compared to the same period in 2019.

Our value brand, Original Stash continues to drive our sales with a little less than half of the, sorry, with 48% increase from the previous quarter. Sales of these products were introduced in the province of Saskatchewan as our channels continue to grow. The increased sales of Original Stash also contributed to the reduced price per gram before escrow [Phonetic] effects, which fell by 9% to CAD3.19 from CAD3.49 during the period. Newly launched hash in the quarter comprise approximately 19% of overall sales quarter-over-quarter. Similarly oil extract drops contributed 7% to overall adult-use sales growth. Adult-use volumes sold in the period increased 42% to 9.3 tons compared to 6.6 tons in Q2. Sales volume in the third quarter of fiscal 2020 increased 238% of the 2.8 ton equivalent sold in the same quarter of fiscal 2019.

Cost of sales, cost of sales for the quarter were CAD13.4 million compared with CAD11.3 million in the previous quarter, representing an 18% increase. The increase is the result of the increased sales in the period, offset by realized benefits of reduced direct and indirect labor. Some of the factors that contributed to the labor cost decreasing were COVID-19, which allowed for reduced labor inputs to our cost per gram and also activity in our Belleville facility for packaging. The cost of goods sold for the third quarter of last year were CAD6.6 million. The 100% increase in COGS is trending with the 94% increase in sales.

Gross margin before fair value adjustments for Q3 2020 was CAD8.8 million or 40% compared with net revenues from the sale of goods compared to CAD5.7 million or 33% in the prior quarter. This increase is due to the reduction in the cost per gram as a result of the decreased packaging and a radiation costs as well as the improved yields per square foot. While we expected there to be fluctuations through our quarterly gross margin as we ramp our activities in Belleville and introduce new products over the next few quarters, we view this as a significant indication that we will be able to achieve the long term sustainable portfolio-wide margins of the 40% that we’ve targeted. Gross margin after fair value adjustments and impairments was CAD5.7 million, compared with negative CAD7.9 million in Q2.

Our operating expenses continue to decrease through the quarter to CAD26.8 million from CAD281.5 million in Q2. Now, remember, in Q2 included a large number of non-recurring expenses that came about as a result of changes in the conditions of the Canadian market. For that reason, we look at our operating expenses in two segments – core and non-recurring. With our core operating expenses, we saw a decrease of approximately 9% to CAD25.7 million in Q3 from CAD28.1 million in Q2. This is down from our peak amount of CAD46.9 million in Q4 2019. We’ve continued to focus on reducing expenses where possible and ensuring that each dollar we spend is put to its best possible use.

G&A decreased to CAD11.2 million from CAD14.5 million in Q2 2020 due to reduced consulting, and professional fees, IT and insurance costs. Marketing and promotion increased to CAD2.1 million from CAD400,000 in Q2. As mentioned last quarter, the Q2 expenses were reduced by the reversal of an over accrual. The current spending is more in line with future expectations. Research and development decreased to CAD1 million from CAD1.2 million as a result of reduction in headcount and consulting fees.

Now a quick look at the non-recurring expenses we saw. An additional CAD865,000 in restructuring cost is related to continue the continued right-sizing of the team. We continue to focus on ensuring that we have our teams properly staffed with the correct number of people sharing their work load and are appropriately rewarding those top performers who are helping us to achieve our goals. We also had a loss on disposal of assets to do with the equipments that have been sold out of our Niagara facility, that number was CAD3.2 million.

Loss from operations of CAD21.1 million in Q3 compared to CAD289.4 million loss in Q2 ’20. If we normalize the operating loss and excludes certain non-cash and non-recurring items, this decrease to CAD20.7 million compared with CAD23.2 million in the prior quarter. The decrease in loss is primarily related to an increase in gross margin and a decrease in operating expenses. We remain focused on becoming adjusted EBITDA positive. We are focused on driving revenue as a market leader in the markets we serve and reducing expenses through operational excellence.

Cash position, we ended the quarter with CAD95.3 million in cash, cash equivalents and short term investments. Subsequent to the end of the quarter, we closed an additional financing, which added over CAD50 million to our balance sheet. After a reassessment of our capital plans, we have reduced our requirements dramatically and expect to incur the majority of the expenditures in capital over the next three quarters. With the reductions, realignment and operational changes we’ve made, our recent financial raises and the strategic use of our ATM will allow us to fund our Canadian operations.

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I’ll now turn the call back over to Jennifer.

Jennifer Smith — Director of Investor Relations

Thank you, Steve. We will now take questions from our analysts. Due to the large number of analysts joining us today, I would ask you to limit your questions to two at a time. You are welcome to rejoin the queue after that. Thank you.

Questions and Answers:

 

Operator

[Operator Instructions] Aaron Gray with Alliance Global Partners. Your line is open.

Aaron Grey — Alliance Global Partners — Analyst

Hi, good morning and congrats on the quarter.

Sebastien St-Louis — Co-founder and Chief Executive Officer

Thanks, Aaron, good morning.

Aaron Grey — Alliance Global Partners — Analyst

So I guess my first question would go along with receivable of the license at the Belleville facility and I know that you guys had been waiting for that and there are also a lot of things that could come along with it. So I Just want to get some further color on what you expect in terms of kind of a top-line profile, the shift from more automated packaging and how they can kind of flow through to the top-line, the timing of that and then also on the top-line. I know you kind of gave some color in terms of it being dependent on whether or not you’re getting more brick and mortar stores in Ontario and Quebec, but how also do you feel like the Belleville facility licensing helps you to expand market share in some other provinces outside of the two main ones you have right now? Thank you.

Sebastien St-Louis — Co-founder and Chief Executive Officer

Thanks, Aaron. Yeah. Super excited about Belleville getting its full licensing now, so fully operational facility. So — but the first thing, short term, slight negative on gross margin. I remember that now, but that’s an operating assets that we’re going to take an amortization hit. So that will show up next quarter. So we expect a little bit of pressure on gross margin. Now, medium term, what’s super exciting is that the efficiencies that Belleville is bringing to the table just completely make up for that and more. We’ve got automated packaging going in, a substantial reduction of labor to productivity. The COGS are going to continue to go down and that’s just on direct cost savings.

The most significant thing is touching on the market share increase that you’re alluding to and what Belleville can — what Belleville is going to do there, by creating new products. And so with the capacity that we have for Belleville, the single most important impact to HEXO is that it’s allowing us to create more 2.0 products, convert more of our trim that’s on our balance sheet into sellable product at till sales, which results in more products on the shelf and more diversity for consumers. So we’ve already started to see that and looking forward to rolling out the full suite of products over the coming quarters.

Aaron Grey — Alliance Global Partners — Analyst

All right. Great and looking forward to see those kind of come out. And just want to — kind of my second question just continuing on with 2.0 products, and now you do have Belleville rolled out, you’ve come out with hash, which seems to be off to a great start. How best to think about those additional 2.0 products coming online and kind of impacting the sales line there? And kind of any color you could give in terms of what you’re seeing right now in the marketplace from 2.0 products that have come out from some of your peers and competitors and where you think the opportunity is for HEXO to come in, when it comes out with its own products? Thank you.

Sebastien St-Louis — Co-founder and Chief Executive Officer

So we’re really happy. I mean HEXO for years has been first to market with a lot of product categories. Right? We recently defined with the 28-gram, we’re now being first with a hash offering that’s national. So we know those things work, so we’re doubling down, getting leaner on existing product lines, so that we can keep upping the quality. Our Original Stash product now has better humidity and better THC than we’ve ever seen in it. And so really happy to be able to continue to offer pricing that beats the black market with a better quality. But now, as well as success of hash, we’re trying to look at other categories. So look to us continue to expand on our pre-roll line our vape line, make sure those work well and perhaps even more importantly, celebrating the launch of our beverages with Truss. So we’re super excited that we have received the Truss license.

So in the next short while, we’re going to be coming out to market with a full portfolio of cross-branded products, super exciting ready-to-drink beverages. We’re already in market with some ready-to-drink beverage drops. So our Veryvell drops are available today, they’re phenomenal. I mean you can add a couple of drops to any flavor drink and it turns any drink, whatever you prefer, into a cannabis drink and you can customize the formulation. So those have been a great success as well. So we’re going to double down on those and, of course, we’re keeping a couple of surprises for consumers downstream. So you’ll have to wait for those.

Aaron Grey — Alliance Global Partners — Analyst

All right. Great. Thanks. I’ll hop back in the queue.

Operator

Tamy Chen with BMO Capital Markets. Your line is open.

Tamy Chen — BMO Capital Markets — Analyst

Yeah, thanks. Good morning everyone. First question is, Sebastien, I was wondering if you could speak a bit more to what industry and maybe your sales trends are looking like now. There was a lot of noise with the COVID pantry loading in March. Has things now settled back to pre-COVID levels? And any color amongst the different provinces would be helpful as well.

Sebastien St-Louis — Co-founder and Chief Executive Officer

Yeah, I think what has been — and again, I mean I commended OCS on their report. I think more of that will be super useful. I think that gives a great clarity on what’s happening in our industry. We continue to grow. Yes, we had a little bit of noise around pantry loading for COVID. I think sales of cannabis just continue to go up. We are in a growth category, there is no doubt in my mind. Yes, we have to keep working through logistical challenges but no sign of slowing down here at HEXO. So quite happy with how we’re proceeding.

That being said, there is a lot of pricing pressure in the next year as we have a very fierce competition and getting to that top-2 spot is a very difficult journey while assuring profitability. So we have a hard task ahead of us, but I’m sure the team will deliver.

Tamy Chen — BMO Capital Markets — Analyst

Got it. Okay, that’s helpful. And so as you mentioned the pricing pressure, so what’s going to be my next question is, I mean, you talked about what to anticipate about the Belleville ramp in the near term on the gross margin hit, but I wanted to get your thought on, as you think about this competition in the industry, especially in value, do you anticipate, or do you think you might need to get more competitive on the pricing profile of your Original Stash going forward? And when you think about if potential gross margin volatility at minimum from the Belleville ramp, I mean are there still levers in your opex for you to reduce to achieve that positive EBITDA over the next quarter or two? Thanks.

Sebastien St-Louis — Co-founder and Chief Executive Officer

Thanks, Tamy. Yeah so Original Stash’s really interesting case study, I think. We launched Original Stash as a black market killer. It was not launched as a value brand. It was really launched as a way for us to offer consumers something legally-controlled better quality at the same prices what they already pay. What happened is, from a legal market perspective, the positioning and pricing were just so aggressive. I mean we were 40% better priced than almost all our competitors. So it really forced a shift of the entire legal market down. What I think is going to happen is, you’re going to see an ecosystem create around Original Stash with some value products that will come out below Original Stash. And the reason I’m separating the two, the quality of Original Stash is just phenomenal. The humidity control is bang on, the THC percentages are amongst the highest in the country. And so it’s a very, very high quality product. I think there is definitely room for true value plays below that. HEXO is not in a rush for the race to the bottom in terms of, by category, also given that our greenhouse asset is producing such high-quality product.

I think we have a lot of opportunity for actually higher-quality product. So you’ve just launched — we’ve just launched HEXO Plus in Quebec. So that’s been a quite a success, with 26% THC product. So more care and attention there. So I think the whole market is going to shift down. Original Stash is going to take its place as a mid-market, black market killer with a kind of value bargain basement, call it 10% to 15% THC products below that at a better pricing and I think HEXO still has a ton of opportunity in both growing Original Stash market share and introducing new premium products.

On the opex versus COGS question, opex is starting to get very lean for what we want to build. Remember that I’m set out over the next 10 years to build a global top player with HEXO. So that means, I need significant executive bench strength and we have that today. We have a phenomenal team. We’ve added the full CPG experience, GMs at every site and so those people are critical to the success of the organization. So a little bit of rounding around the edges on opex. But the COGS opportunity and what Belleville is going to deliver is still tremendous. So I’m really not worried about pricing pressure.

Tamy Chen — BMO Capital Markets — Analyst

Got it. Thank you.

Operator

John Zamparo with CIBC. Your line is open.

John Zamparo — CIBC Capital Markets — Analyst

Thanks, good morning. My question is also around the value segment and competition, more broadly. So with net pricing down around CAD2.25 a gram this quarter. I’m just wondering, do you think this is a floor for HEXO pricing? I know the prior comment, maybe was more around the industry being into a deep value category. But, but do you see kind of like-for-like pricing on HEXO products seeing a floor here or do you think there’s more room for that to decline given it does seem that you were early to the category for value, but some competitors seem to be chasing that as well?

Sebastien St-Louis — Co-founder and Chief Executive Officer

Yeah, John, let them chase. I invite them to chase. I mean at the end of the day, the consumer will drive pricing and I don’t think the consumer has a floor in mind. So as we continue to achieve efficiencies and the whole industry including HEXO is still in its infancy. Now we’ve done very well. We’re one of the lowest cost producers all-in, in the whole country. And you can see that in our gross margin and reflected in our pricing, but if you look at what we shipped in the quarter. I mean over 9 tons of product. If you look at our market share by volume, HEXO is a top player, like, forget top-4 and I won’t specify exactly which competitor I’m against but we’re right up there as one of the top players.

So let the price shocks settle and you will see HEXO emerge, I think, in that top-2 scenario. If we need to continue to use our cost advantage, a lower pricing to ensure we stay in that top-2 spot, we will do so. But I don’t think of this thing in terms of our pricing floor because HEXO doesn’t need a pricing floor. We still have so much upside on COGS control with our Belleville facility that we will continue to deliver better quality to consumers at better prices for at least in the next few years.

John Zamparo — CIBC Capital Markets — Analyst

Okay, that’s helpful, thanks. Then, my second question is on the capital contributions required for Truss and for the U.S. JV. I know these are build as being generally capital-light. I think it’s around CAD30 million in contributions this year. Just trying to get a sense of how much more is necessary to fund that project, at least, given your current game plan and how we can expand in future years. But given what you’re trying to do now, how much more do you think you’ll have to contribute to the JV?

Sebastien St-Louis — Co-founder and Chief Executive Officer

Yeah. We learned so much from Molson Coors and the U.S. execs are absolutely phenomenal in approaching a capital-light model. So what’s really exciting about what we did in Colorado is we took all the lessons learned from Truss Canada, which had a significant investment, right? You’re talking about CAD90 million, up 42% which was HEXO in the balance, which was Molson in Canada to build kind of this world-class asset. But on the HEXO side, we’ve been innovating, we’ve been building a patent portfolio on emulsions, etc. We can take all that IP, removing it down to Colorado. The regulatory environment in Colorado allows us to use pre-existing Molson Coors assets for distribution.

And so what’s really exciting is we’re using installed capacity to be able to distribute in that market. So capital call is in great shape. For now, the strategic plan of Truss and Truss USA is fully funded. I do expect that as we prove out the Colorado market, we will want to expand further, regulations permitting, of course, and making sure we stand onsite with FDA, as we’ve done so far. And I expect at that time, we will be presented with more capital deployment opportunities.

John Zamparo — CIBC Capital Markets — Analyst

Okay, understood. Thank you very much.

Operator

Rupesh Parikh with Oppenheimer. Your line is open.

Rupesh Parikh — Oppenheimer — Analyst

Good morning, thanks for taking my questions. So just going back to your commentary about hoping to achieve positive adjusted EBITDA in the first half of fiscal 2021. As you look at Ontario and Quebec, how many stores are there today and what level do you think you need to see to get to positive EBITDA?

Sebastien St-Louis — Co-founder and Chief Executive Officer

Rupesh, I think that, given our market right now, I mean we have decoupled ourselves a little bit from store openings in terms of being able to push forward. Our positive EBITDA is going to come through incremental market share gains out of the existing stores. So, I mean, I don’t think it’s fair for me to say we’re counting on our provincial partners to open stores in terms of us to achieve that. I think we’re going to achieve adjusted EBITDA, no matter the store count. The story obviously gets better if our partners open more stores, which they’re doing. So we’ll just keep an eye on that.

Rupesh Parikh — Oppenheimer — Analyst

Okay. And then, I guess just a second follow-up question. So you look at your portfolio, a lot of progress on the value side. So at this point, are you happy with your portfolio positioning and then where you are from an inventory perspective?

Sebastien St-Louis — Co-founder and Chief Executive Officer

No. I’ll be happy when the inventory coming off the line goes right to the till and get sold in two weeks and everything is fresh with nothing older than three days. So, no, absolutely not happy. With that said, the progress we’ve made has been absolutely fantastic. And as I mentioned, I mean, most of our product on the shelves now is less than a few weeks fresh. So we’re talking a massive improvement from early days of legalization, way better quality for the consumer. So that I’m thrilled with.

Rupesh Parikh — Oppenheimer — Analyst

Okay, great. Thank you.

Operator

Graeme Kreindler with Eight Capital, your line is open.

Graeme Kreindler — Eight Capital — Analyst

Hi, good morning and thank you for taking my questions here. Sebastien, I wanted to go back and just explore a little deeper your comments about the positioning of Original Stash. I understand your distinction you made between it being a black market buster versus a value segment. But do you think there is a risk of the overall consumer just grouping all of the offerings and that offering has also increased in competition as value and you could potentially see another iteration of what we’ve seen on some of the mid-grade products where consumers end up just differentiating on price as opposed to brand or price in terms of dollar per percent THC?

So are you worried at all, if you put it in another way, that increased competition on the lower bound of that segment could actually erode Original Stash’s position or is the pie of this market going to grow substantially enough where it ends up being a smaller slice, but of a much bigger pie? Thank you.

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Sebastien St-Louis — Co-founder and Chief Executive Officer

Yeah. So it’s two-fold and there is a bit of a third part to it. So with Original Stash, the whole market is going to shift down. There is pricing pressure across the board. Right? As companies lift efficiencies, our provincial partners are certainly remaining very competitive, sourcing the best possible product for their consumers at the best price. So there — nobody is going to get away with just continuously reducing their costs, but not flowing that through to the consumer. So that’s one piece.

The other piece is most of the competitors in the country don’t have manufacturing assets of the sophistication as what HEXO has at our Belleville facility. So I don’t think that the existing 300 licensed producer system is going to continue going the way it does. It’s simply impossible for a small-scale producer with no manufacturing capacity to compete with a company like HEXO. So I think that, that will continue to mean meaningful improvement for the consumer.

And the third part of that is, as we continue to see yield improvements at our cultivation center, because it’s not just from a manufacturing perspective we’re making progress, as we continue to put out more product, HEXO also has some opportunities in introducing new brands that are positioned at a better value than Original Stash. So we’re really starting to look at that sector as a total growth opportunity, while seeing Original Stash as growth. But, yes, you’re entirely right to say that it’s what we launched basically define the market. I mean, we had 11 of our competitors follow in the four months to six months after we launched. But you know HEXO is not new to that. The same thing happened when we did Elixir a couple of years ago and I expect that to be the theme for the coming years. But if I’m always six months ahead of everybody, I think that’s going to be good for HEXO.

Graeme Kreindler — Eight Capital — Analyst

Okay, thank you for that. I appreciate the color there. That’s helpful. Just as a follow-up to that, could you share with us what the total percentage of Original Stash sales were of the 9.3 tons sold in the quarter and what the specific gross margin on Original Stash sales was?

Sebastien St-Louis — Co-founder and Chief Executive Officer

Original Stash was about half. We’ll just give you round numbers in terms of volume and in terms of margin, we don’t share by product and — but I can tell you, obviously, we are targeting that 40% portfolio and the great thing this quarter is I don’t need even to talk about targeting because we achieved it. So 40% gross margin across the board.

Graeme Kreindler — Eight Capital — Analyst

Okay, thank you very much for that.

Operator

Scott Fortune with ROTH Capital Partners. Your line is open.

Scott Fortune — ROTH Capital Partners — Analyst

Good morning, thanks for the call. Can you provide a little more color outside Quebec? I know you maintain 30%-plus market share there. What about the other provinces and gaining market share with your products in the other provinces moving forward here?

Sebastien St-Louis — Co-founder and Chief Executive Officer

Yeah, absolutely. So we are going market-by-market, right? So we’re being selective. So the idea is not to be the number one player in every single market in Canada. The idea is to assure that we’re top-2 in the markets in which we operate. So we’re rolling that out obviously staying close to our friends in Ontario. That’s a very large market. But also active in the Maritimes and out West. So we’re looking at the major markets. We’ve started to roll out 2.0, full portfolio of products is being made more and more available. We just appointed a new SVP of Sales, super excited to have them start building up our presence outside of Quebec and look forward to building share there.

Scott Fortune — ROTH Capital Partners — Analyst

Okay. And then a follow-on, we know as Canada kind of legalized the flower, the inventory kind of ramped up from that standpoint, the provinces are taking a little more cautious approach on the 2.0 products from that standpoint. How are they viewing kind of orders, reorders for 2.0 from the standpoint and then what are kind of the discussions around the potential beverages as you roll that out down the road here?

Sebastien St-Louis — Co-founder and Chief Executive Officer

Yeah, our beverage portfolio has just had an absolute resounding success because we’re taking that portfolio approach basically going to the distributors and saying we have your one-stop beverage solution. Right? You can deal with one or two suppliers, but one of them is going to be HEXO and you can have a complete beverage offering. So that’s really resonating as we’re touching north of 80% of consumer occasions with our beverages. And so we’re not short on orders. So we’re very happy to see that full license in Belleville so that we could get going on ready-to-drink. We have a number of fridges and a lot of retailers as well. So we’ll be able to offer cold drinks to consumers. So that’s all part of the HEXO promise of quality. On the — sorry, first part of your question again?

Scott Fortune — ROTH Capital Partners — Analyst

Okay. How you’re seeing the reordering of 2.0 products? I know there is a conservatism to build on inventory too much there. How do we look at kind of acceleration there?

Sebastien St-Louis — Co-founder and Chief Executive Officer

Yeah. So the reorder — so really the provinces, what they’re doing is uncomplicated, right? They’re reordering what sells at the till. So we’ve put boots on the ground to really understand what the till sales are. We’re looking at the velocity rates and we’re being very careful to keep the channel lean. Our goal is to get to just-in-time system where something comes off a line, gets produced, goes into store, maximize freshness, maximize quality and reduce cost.

Scott Fortune — ROTH Capital Partners — Analyst

Okay, thanks for the color. Appreciate it.

Operator

Andrew Carter with Stifel. Your line is open.

Andrew Carter — Stifel — Analyst

Hey, thanks. Good morning. I guess I wanted to ask, given the progress to date, pretty strong sales growth, plus 30%, 40% gross margin, you’re right, very narrow in EBITDA on your EBITDA loss and close to breakeven. What are the main kind of impediments to getting there? I mean, in the next two quarters, Belleville is coming online, but you’re getting efficiencies there, you can continue at the rate of sales growth, you got some higher margin products coming online. I’m a little surprised and I know you walked a little bit away from it, but it’s still kind of predicated on store growth, but it seems like this would be a pretty achievable target just growing with the market in the next upcoming quarters.

Sebastien St-Louis — Co-founder and Chief Executive Officer

Andrew, the certainty behind HEXO has never been higher. So your read I think is accurate. We’ve been focused on reducing variability and go forward and to get to mature as an organization. Right? We’re coming off of a seven-year explosive growth start up. And as we put a ton of effort importing top CPG executives in play, HEXO was really matured with it’s planning process. And yes, I agree with you, I think that our plan is more realistic than ever and obviously there is still some large caveats like COVID, which is still out there. So we’ve got to be careful with those types of things and plan very carefully. But we’re putting health and safety first, which should mitigate some of that risk, I’m very confident about the future.

Andrew Carter — Stifel — Analyst

Great. And then second question, I think, I believe, the previous guidance at the high end had capex at CAD110 million for the year. Is that still the case and I wanted to ask, given, the liquidity situation, it’s much improved, are you going to accelerate any of your capital plans or is it still a very meaningful step down coming next year?

Sebastien St-Louis — Co-founder and Chief Executive Officer

Everything we’re doing is driving to revenue, Andrew, so meaningful step down for sure. We’re really taking a philosophy on capex of making sure we get a good return on capital. So any new incremental project, I’m having the team present a full case and I told them, “don’t even bother presenting me something that doesn’t have a three-year payback.” So we’re targeting two years or better and that’s really setting the foundation for more responsible spend and tying into that narrow and deep philosophy that we have at HEXO.

Andrew Carter — Stifel — Analyst

Thanks, I’ll pass it on.

Operator

Matt Bottomley with Canaccord. Your line is open.

Matt Bottomley — Canaccord Genuity — Analyst

Yeah, good morning. Thanks for taking the questions. Just wanted to clarify something on sort of the value segment of the market and where HEXO looks to put its efforts in various categories. So, Sebastien, just wondering if you can comment on how this translate your 2.0 offerings. Obviously a lot of new edibles coming to market, vape pens have been around now since January. So as you start ramping up some of these products, how do you view pricing your value segments there?

It’s hard to tell just from looking at some of the provincial websites, but it does seem that a couple of these have put in full value price edible, some of them that are priced at the significant haircut so the overall average seem to be gaining the most volumes, which makes sense as well. So, are you going to have a similar philosophy in those products to start or just any sort of the indication on what types of pricing point you’re going to be focused on in the initial roll?

Sebastien St-Louis — Co-founder and Chief Executive Officer

Yeah, I’d invite everybody to think a little bit broader than just value and high-end. I think the most critical piece to understand our Original Stash strategy is black market displacement. So when we think of a CAD4 gram for example in the context of the legal market, that sounds like value. In the context of the illicit market, that’s just what people pay. And so for a high-quality gram, that’s really the mission of Original Stash. That line extension, you’ve seen us take that into hash, for example. Now we happen to be the only product in hash today on a national scale, which is quite exciting. But we’ve priced hash despite the fact we have no legal competitors to speak of, we are delivering value to consumers. We’ve priced hash at the black market price and that’s our philosophy surrounding everything we’re going to do under the Original Stash flagship. Now, we’ll have some opportunities to do some truly disruptive premium things. So when we come up with 26% THC flower, for example, that was slotting into our HEXO Plus brand because that’s simply THC percentages that the black market can’t deliver today, at least, from the test we’re running.

So there is a lot of opportunity still for premium in these products. Again, when you think our ready-to-drink beverages, a lot of opportunities there. But I also want to make sure that in the long term, we’re offering consumers beverages that are familiar to them and that are in a segment that’s approachable. So you know a few years out, I would love for somebody to be able to pick up a case of Truss powered by HEXO cannabis beverages for CAD1 or CAD2 or CAD10. I think that would be critical. For that to open up, though, we need the distribution to evolve where we can sell case quantity to really deliver that value in the 2.0.

Matt Bottomley — Canaccord Genuity — Analyst

One follow-up just on the beverages. First, for a number of reasons out there, the government has allocated like some crazy 5-gram equivalent per 10 milligrams that go into a bottle, which is making it hard for consumers to buy, it’s too important when they are looking at the product. Is that something that is weighing on the potential penetration of these products or is it just sort of noise in the interim?

Sebastien St-Louis — Co-founder and Chief Executive Officer

No, no, you’re right. I mean that’s certainly an impediment right now and the regulatory work, I mean, remember that Health Canada has been presented with brand new legislation, first to legalize, first to introduce 2.0, introducing and they’re at right at the intersection of food and cannabis. It’s very complicated to operate. So I think in that context, we have to give them some leash to understand how to evolve the regulations in the right way. The regulations today are not where they should be. There are still some inconsistencies in terms of concentration. To your point, if you walk into a store, you might be able to buy five ready-to-drink beverages, that doesn’t make a lot of sense if we’re looking at a risk-based policy. The total amount of THC in those five drinks would be less than what you could buy in an equivalent extract, for example. So there is some harmonizing to do while putting public safety first and I think those avenues are available. I think the industry association, I think HEXO have been pushing for those evolutions and I know Health Canada is working hard on doing it. So, that will come and it will help the market.

Matt Bottomley — Canaccord Genuity — Analyst

Thanks. And if I could just ask quickly, I know you touched on it, just with respect to capital allocation. So the CAD150 million odd goalies [Phonetic] that you currently have right now, you’ve talked about certain elements that it might be applied to, but can you give sort of maybe a larger view or if there’s a thousand foot view of how much of that is earmarked for interim opex burn potentially funding Truss or other initiatives you’re doing versus what it might be considered block to better come rainy day money?

Sebastien St-Louis — Co-founder and Chief Executive Officer

Yeah, well, we’re certainly being efficient with our capital. So I don’t think the idea is to do any rainy day money, but in terms of specific breakdown, Matt, we’re not providing the capex, opex breakdown at this time.

Matt Bottomley — Canaccord Genuity — Analyst

Okay, thank you.

Operator

David Kideckel with AltaCorp Capital, your line is open.

David Kideckel — AltaCorp Capital — Analyst

Hi, good morning. Congratulations on your quarter. Just a couple of questions here. The first is on Truss. I’m just wondering, Sebastien, if you can just give a little bit of some color with respect to the timing of the rollout. And then also, is your intent here just from a strategic perspective to deploy beverages across Canada all at once, or you’re looking more to phased approach maybe starting with your home province of Quebec?

Sebastien St-Louis — Co-founder and Chief Executive Officer

Yeah, so well, the interesting thing, I mean, Truss, although obviously, we’re half of the partner there, Truss is its own company with its own management team and so Quebec has been an incredibly important market for Truss but they’re really looking at this as a national play. With that being said, Truss is being very selective and where it goes for distribution and making sure that it has the right type of distribution deals in place, obviously logistics a lot more complicated with ready-to-drink beverages and we’re leveraging Molson’s experience there. We do expect to be in most of the nation when we launch and the launch is coming soon. For specific data, I’ll let Scott Cooper the CEO of Truss take that thunder in the next short while.

David Kideckel — AltaCorp Capital — Analyst

Okay, thank you. And also you made an interesting comment as well during your prepared remarks regarding HEXO really being a manufacturing type of organization, but not forgetting your roots as being in agriculture. I’m just wondering what your thoughts are for the medium to long term. Should we still think of cultivation as being, obviously, key to really all cannabis companies? And if so, do you think altogether, moving forward, is cultivation something that HEXO would likely rid itself of altogether?

Sebastien St-Louis — Co-founder and Chief Executive Officer

Well, so the interesting question and would we get rid of cultivation, I mean, theoretically, if you weren’t good at it, yeah, you’d want to jettison that business but HEXO is one of the best in the country, if not the best. So in terms of cultivating, we’re phenomenal at it. Like the quality is great, the cost is best-in-class and we keep improving, right? Like, so our THC yield, I’ve talked about it, but now we’re now outputting 26% THC out of the greenhouse, so quite a big kudos to my cultivation team. So in that context, no, I do — absolutely, I’m not getting rid of cultivation. We’re going to keep it because it’s a big driver of profitability.

I do think you’re on the right track, though, in thinking of cannabis companies not as a one-size-fits-all. I think you have cultivation companies, I think you have manufacturing companies, I think you have IP companies and that’s why it’s so important for HEXO to be top market share leader and that’s why we saw it significant to move from number 5 to number 4 and on our way to top-2 is because we are a full service offering licensed producer. We have one of the most robust IP portfolios in the space, as we’re invested in innovation. We’re one of the lowest cost producers on the cultivation side, and now with the Belleville asset, we’re possibly one of three or four companies that have the scale and manufacturing expertise to deliver true manufacturing. So we’re playing in all those — in those three segments. Manufacturing will start to take more and more importance as we go forward.

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And what’s really exciting about manufacturing is that it uncouples the value of the company from the value of — or the scale of the cultivation. So we’re before all these companies were valued on, okay, you can grow 50 tons, for example, so your value is X. With Belleville and our manufacturing, we can manufacture more products that we can grow. So what ends up happening is as prices continue to grow and as we see other competitors specialize in agriculture and cultivation, if they don’t have manufacturing, we’ll be able to provide that service for them. And then we’ve just created upside revenue potential that’s beyond our cultivation ceiling.

David Kideckel — AltaCorp Capital — Analyst

Thank you. That’s helpful. And if I can just ask one more question, going back to Original Stash. I’m just curious when you mentioned, Sebastien, you do have a high THC products that will enter the market, or might be in the market now. I’m going to assume, just for this question, that we can call it a premium high THC product, and if so, when you’re looking at customer preference — your consumer preference when it comes to Original Stash being meant to really get rid of illicit market product altogether, when you introduce now a high THC product and also calling it HEXO Plus, I think you mentioned, are there any potential issues with the consumer how they’re thinking about Original Stash being a HEXO product versus a HEXO Plus high THC product? And any sort of challenges just for the consumer to kind of integrate with, on the one hand, Original Stash being kind of lower quality type product compared to a higher THC product?

Sebastien St-Louis — Co-founder and Chief Executive Officer

Yeah. So, a lot to unpack there. Thanks. The HEXO Plus product has a brand promise of a minimum 20% THC. So we noticed in market that consumers were asking and saying, we don’t want these broad THC ranges and sometimes we don’t really know what we’re getting until we have the package in our hand. So that’s why we introduced HEXO Plus. There is not a gram in HEXO Plus that’s under 20% and in fact most of them are going to be north of 25%, 26% as I’ve said. So — but there is a brand promise there. Now that comes with a premium pricing scheme.

On Original Stash, what you have to compare to is the true quality of illicit market, right? When we look at broad testing of illicit market, objective data, illicit product is coming in at 13% or 14% THC. Our Original Stash currently is sitting north of 16%. So when — it is incorrect to name it lower quality. It is much higher quality than what’s available in the black market and of course terrain control, any humidity and of course the lack of pesticide, so you get all that added value. The challenge is telling that to consumers, because the illicit market has been telling people for years that they’re growing 35% THC product, that is not true. But the consumer does believe it today. So over time as we educate, I think there’s a lot of work for us and our provincial partners to get that message across to consumers and as we do that, we’ll be more and more successful with our branding.

David Kideckel — AltaCorp Capital — Analyst

Thank you. That’s very helpful. That’s it from me.

Operator

Douglas Miehm with RBC Capital Markets. Your line is open.

Douglas Miehm — RBC Capital Markets — Analyst

Yeah, thanks, good morning. Two questions. As we look to 2.0 products and the growing importance in the market, can you maybe talk about vape pens and the only other thing is specifically I’d like you to add in here is you’re really the first — you have the first mover advantage when you talk about the value market. Are you thinking of along the same lines for vape pens or something like that?

Sebastien St-Louis — Co-founder and Chief Executive Officer

Thanks, Doug. So well, first, super excited. We’ve got — our disposables are in market in Alberta. So we are currently at pilot scale on our vape manufacturing. So we will at some point, I’m sure, take in our Belleville facility to do the — to flip the cost on its head and go to the next level, but more so — more importantly, from a quality perspective, our vapes have been extensively tested, no adverse reaction through our clinical trials. So we have actual data. So we’re very confident in putting those in front of consumers. They’re made from all-natural ingredients. So there is no extraneous chemicals or anything that might cause those adverse reactions. We’re very, very happy. And our innovation team has done a phenomenal job on the flavor profiles. So we’re getting rave reviews at the moment and we’ve actually managed to really deliver specific experiences with the mix of flavor oils and terpenes.

So in our disposables, I mean, for example, our Trainwreck product, that’s a disposable vape that’s currently in Alberta, is coming back with reviews. People are calling it some of the strongest vapes they’ve ever tried and so we’re very, very happy with our quality. Now the question will be how do we scale that up from a manufacturing perspective. And so I think it’s a completely different strategy with vape and and Original Stash from approach to the market because vape is a much more complex manufactured product. You also have a ton more upside once you automate. So it’s going to be exciting to see that one rollout.

Douglas Miehm — RBC Capital Markets — Analyst

Okay. That makes perfect sense. Second question just has to do with the scaling up to commercial levels on the beverage lines. Can you comment on whether or not you’re seeing any consistency variability in that and if you are experiencing similar issues to what perhaps some of your competitors had when they rolled out when they were launching at scale?

Sebastien St-Louis — Co-founder and Chief Executive Officer

No. Thanks for that. No, in fact, and this is why I’m so happy we partnered with Molson Coors because if I had tried to do these beverages on my own, I would have had the same issues as my competitors. The Molson guys are, I mean, they’ve been doing beverages for 300 years. They came in and they installed a 5 part per billion oxygen control system in our system. So we have now — we now know and we’ve known for a while that oxidation of cannabinol has been a problem for quality. There is simply — there is next to no oxygen in our system, which is phenomenal for quality and consistency. Our shelf stability is very strong. The flavorings that we’re using are very stable. We’re very, very pleased with the quality. I think we’re leaders. We’ll need to see in market, how the consumer responds. But certainly from a production standpoint, the Belleville Truss beverage facility is the most advanced cannabis beverage facility I’ve seen on the planet.

Douglas Miehm — RBC Capital Markets — Analyst

Okay, great, thanks very much, Sebastien.

Operator

Pablo Zuanic with Cantor Fitzgerald. Your line is open.

Pablo Zuanic — Cantor Fitzgerald — Analyst

Yes. Good morning. I got at a couple of questions. How should we think about this huge increase expected by the fall in outdoor cannabis cultivation? Is that going to affect the flower category and value or even pre rolls or is it just something that go to oil and extracts mostly? I’m just trying to think how that affects the category of different formats and particularly a value segment for flowers or maybe not at all.

Sebastien St-Louis — Co-founder and Chief Executive Officer

Yeah. It’s been really interesting to take a look at some of the outdoor grown stuff. First, I don’t think anyone’s figured out how to do it profitably. Like, if you look at the margin profiles of some of the outdoor growers, their gross margin is half of that of HEXO. So the — you know until — so there’s some work to do just on the supply chain. That’s number one. So it’s not ready to go.

Once it is ready to go, will it have impact on the flower market? I don’t think so. Consumers don’t want outdoor product at really at any price. You’re also going to have a lot of quality issues with that product. So, no, I don’t think it’s going to significantly impact the flower market. To your point, how does it come into play with extraction? I think that’s something we need to keep a close eye on. Does it displace hemp? And that’s why it’s so significant for us to be installing massive extraction capacity ourselves at our Belleville facility, truly moving to being a manufacturing company. HEXO is not going to invest in outdoor. We’re not taking that risk.

But in the case where it’s successful, we can become a net buyer of outdoor product, run it through our world-class extraction processes and then feed our 2.0 offerings and for us it will be agnostic. Whether we get those cannabinoids from an outdoor cannabis grower, an outdoor hemp grower or a synthetic — bio-synthetic producer down the line, what’s important to HEXO is being able to manufacture great products, formulating IP protected experiences and having consumer market share.

Pablo Zuanic — Cantor Fitzgerald — Analyst

All right. And one more, just remind us what percentage of your sales came from the Quebec province, if you can disclose that, for the quarter? And also characterize how Quebec performed in market in — post the March pantry loading in April, May, even June, compared to other provinces. Right? Apparently, against the restrictions, the market performed better, but just some more color there in terms of the last three months for Quebec versus rest.

Sebastien St-Louis — Co-founder and Chief Executive Officer

Yeah, I mean Quebec is still our primary market, over 80% of our sales are — were in Quebec this quarter, and because we’ve kept that as our top-top priority market. But that was also capacity constrained historically. That capacity constrain is largely lifted now, as you will see us starting to roll out, as I mentioned, in other markets, but we’re being selective to make sure that if we do go into a market, we want to play in that top-2 position.

Pablo Zuanic — Cantor Fitzgerald — Analyst

Yeah. But can you comment in terms of how the market performed in the last two, three months versus the other market? It sounds like it’s been a much stronger market with less restrictions in Ontario and BC and other provinces or that’s not necessarily true, not so different?

Sebastien St-Louis — Co-founder and Chief Executive Officer

No, really, the margin improvement has come through cost control, so it’s really…

Pablo Zuanic — Cantor Fitzgerald — Analyst

Sebastien, I’m sorry, not the margin, but I’m talking about the market. What I’ve heard from other provinces is that because of the stores shut down some restrictions, Quebec has been a market that’s been better performing as there has been no major shut downs compared to other provinces. I’m just trying to understand, it seems like…

Sebastien St-Louis — Co-founder and Chief Executive Officer

Yeah, yeah, so, okay, sorry. Thank you. Yeah, so well, Quebec published their numbers, right? So 47 tons shipped and then you compare and I think that’s the top market in Canada right now and I mean, Ontario has done a phenomenal job as well. They shipped 35 tons. But obviously if you adjust for population, I think Quebec is clearly doing — has made the right choices in terms of getting to the most amount of people.

Pablo Zuanic — Cantor Fitzgerald — Analyst

Right. And one last one, if I may. And I ask this, of course, respectfully. With the two equity offerings in the last two months, plus the both conversion, the bond conversion, your shareholders, those that [Indecipherable] the stock back in February, March were diluted by about 64%. Right? That’s massive, but maybe that’s a course to raise capital and to survive in this industry, especially with all the opportunities that you have. But after that, and today in the call, you are talking about making use of the ATM in the future. I mean, just, I think that you need to give a bit more color in terms of how people should think about the further risk of dilution in the months ahead. Can you comment on that a bit more? I mean, you didn’t really exactly give a capex number or if it was 110 or 150, but I’m just trying to feel more comfortable that there is no major dilution coming in the next few months. Thanks, that’s it.

Sebastien St-Louis — Co-founder and Chief Executive Officer

Thanks for that. I think what’s important, and I’ve said this for the last seven years, HEXO is set out long term to build a globally dominant cannabis player. Most companies will require, over the long term, billions of dollars of capital. Now, I think we can safely revise that type of thinking, because we’ve learned so much and we’re learning how to get a lot more capital-light. So years ago, I threw out a number, if you wanted to build a — one of the top-3 global cannabis companies, it’d cost you CAD6 billion, that’s the number I threw out. I think the number is lower than that today because I think we’ve gotten a lot smarter and how we approach and a lot more capital-light. We’ve had some international sales now at HEXO that you’ll see rollout in the following months. You’ll see that show up in our revenue line. We’re doing those right from Canada with no assets installed, no employees installed internationally. So we’re getting a lot smarter.

With that in mind, when you look at the global cannabis opportunity, and let me scale it back to even Canada, the top-3 players in Canada will be splitting a CAD10 billion market here in the country. Now our share, the license producer share of that market is going to be CAD5 billion, right, takeout excise tax, takeout margin. So you’ve got three players splitting a CAD5 billion market, give CAD1 billion of that market to other small players, right, the non-majors. I’m playing to be a major player. If HEXO is successful, we will have a significant share of a CAD4 billion revenue stream. The dilution needs to be controlled but the bet and making it to that top-3 will make that dilution irrelevant because the success will be resounding for long term holders.

Of course, we’re in a hyper volatile market and I certainly wish we would not have had this global pandemic, which put us in a position to where, yeah, we raised at terms that were unfavorable. But you’ve seen us recover from that, no longer doing unit deals. So you can be rest assured that that’s off the table. We now have our ATM launching with unbelievable volumes, so giving us access to capital as needed and more importantly, we’re moving towards that adjusted EBITDA positive. So there is not an opex drain.

I’ve also talked about our capital prioritization. If we’re deploying capital at a 30% to 50% return in the future, the dilutive effect becomes additive not dilutive. And so, I’m very confident in that strategy. Does that answer your question?

Operator

Our final question comes from the line of John Chu with Desjardins. Your line is open.

John Chu — Desjardins Capital Markets — Analyst

Hi, just one quick question. So, previously you had mentioned the Belleville facility with that to act as a facilitator to bring on new 500 or top new partners in the market from a CPG perspective…

Sebastien St-Louis — Co-founder and Chief Executive Officer

Sorry, John. Yeah. Did you finish your thought? I lost you at CPG perspective.

John Chu — Desjardins Capital Markets — Analyst

Oh. Yeah, I’m just curious about how discussions are with new CPG partners out at the Belleville facility that’s up and ready and licensed.

Sebastien St-Louis — Co-founder and Chief Executive Officer

Yeah. Well, we haven’t toured it yet, but they’re all asking, which is super exciting. So we’re still — our conversation is ongoing. Again those are long haul conversations, that’s very complex deals. I’m still at the table with major world-class companies and we’re still very excited about the potential. We’ve got now about 400,000 feet of manufacturing space that’s in a licensed facility, world-class cannabis Center of Excellence right next to another Fortune 500, right next to Truss, all in the same building, next to HEXO operations that’s available to those Fortune 500 partners. So we’ll be beginning tours probably sometime in the next couple of months for not only those potential Fortune 500 partners, but also other partners, investors, etc. So looking forward to showcase that facility and, yeah, for sure, I think that’s going to have a positive impact in lendings and partners.

Operator

There are no further questions at this time. I would now like to turn the call back over to our presenters for final remarks.

Sebastien St-Louis — Co-founder and Chief Executive Officer

Thanks everybody. That’s all we have for today. I’m very excited about the quarter. Thanks, again, a big thanks to the team and look forward to talking to everybody in Q4.

Operator

[Operator Closing Remarks]

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