Categories Consumer, Earnings Call Transcripts

Village Farms International, Inc. (VFF) Q2 2022 Earnings Call Transcript

VFF Earnings Call - Final Transcript

Village Farms International, Inc. (NASDAQ: VFF) Q2 2022 earnings call dated Aug. 09, 2022

Corporate Participants:

Michael A. DeGiglio — President And Chief Executive Officer

Stephen Ruffini — Executive Vice President, Chief Financial Officer

Mandesh Dosanjh — President And Chief Executive Officer

Analysts:

Aaron Grey — Alliance Global Partners — Analyst

Tamy Chen — BMO Capital Markets — Analyst

Rahul Sarugaser — Raymond James — Analyst

Scott Fortune — ROTH Capital Partners — Analyst

Pablo Zuanic — Cantor Fitzgerald — Analyst

Eric Des Lauriers — Craig-Hallum Capital Group — Analyst

Analyst — — Analyst

Doug Cooper — Beacon Securities — Analyst

Presentation:

Operator

Good morning, ladies and gentlemen. Welcome to Village Farms International Second Quarter 202 Financial Results Conference Call. This morning, Village Farms issued a news release reporting its financial results for the second quarter ended June 30, 2022. That news release, along with the company’s 10-Q filings are available on the company’s website at villagefarms.com under the Investors heading as well as EDGAR. Please note that today’s call is being broadcast live over the Internet and will be archived for a replay both by the telephone and via the Internet, beginning approximately one hour and following the completion. Details of how to access the replays are available in today’s news release.

Before we begin, let me remind you that forward-looking statements may be made today during or after the formal part of this conference call. Certain material assumptions were applied in providing statements, many of which are beyond our control. These statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from those expressed or implied in forward-looking statements. A summary of these underlying assumptions, risks and uncertainties is contained in the company’s various securities filings with the SEC and Canadian regulatory, including its Form 10-K, MD&A for the year ended December 31, 2021, and Form 10-Q MD&A for the quarter ended June 30, 2022. Those forward-looking statements are made as of today’s date and except as required by applicable security laws, we undertake no obligation to publicly update or revise any such statements.

I would now like to turn the call over to Michael DeGiglio, Chief Executive Officer of Village Farms International. Please go ahead, Mr. DeGiglio.

Michael A. DeGiglio — President And Chief Executive Officer

Thanks, Debbie. Good morning. With me for today’s second quarter call is Village Farms’ Chief Financial Officer, Steve Ruffini; Village Farms’ Head of Canadian Cannabis, Mandesh Dosanjh; and Village Farms’ Executive Vice President of Corporate Affairs, Ann Gillin Lefever. Steve and I will provide our customary remarks on operating highlights and financial results, and then we will be available for questions. So let me start by sharing my views on the quarter. First, year-over-year revenue growth of 18% was quite strong with contributions from each business line. As with Q1, we saw strong relative execution and performance from our cannabis businesses, which continue to be offset by the macro challenges facing Village Farms Fresh, our Produce business.

As I did last quarter, I will start with our Village Farms Fresh, our Produce business. On our Q1 call, we listed a number of significant pressure points for the Produce business, notably significant input cost inflation, lack of ability to pass pricing on to the customer and an oversupply of product. And all this was in addition to the ongoing challenges of the Brown Rugose tomato virus as impacting tomato growers, nearly all of them globally. We also noted that as long as these conditions continued, we would see their impact on our Produce results, and it was likely to get worse before it got better. So as expected, that was the case in Q2, as we along with our peers, most of whom are private companies, some of whom are also public continue to see cost balloon. To provide some perspective, freight alone increased $2.2 million higher in Q2, and we saw significant increases in fertilizer and other inputs as well as packaging and labor.

Fresh produce is a difficult business. It’s our heritage and a business we take great pride in. We also believe it is a tremendous foundation for our expansion into U.S. Cannabis, and we have already proven that same synergy and strategy in Canada. We believe with full comprehensive legislation of cannabis, when that happens, there will be a significant change in how cultivation is done, large-scale, low-cost will matter. With that in mind, during the quarter, we initiated an intensive operational review of the Fresh Produce business in light of these additional industry-wide headwinds, which have made a business within margins even more challenging. To review, which will include third-party experts will scrutinize our processes to ensure that we are optimizing profitability.

We have been here before a number of times, especially during the last 15 years as we have lowered our cost to manage through secular price compression caused by importation. It all comes down to resourcefulness and determination. We separate what is in our control and not in our control so that we can prioritize our attack and we take definitive action. Right now, it’s all hands on deck for this perfect storm in Fresh Produce. However, as I have spoken to often a critical part of Produce strategy’s optionality for our expansion into U.S. Cannabis. We are not losing sight of what these assets will be worth in a different macro environment or, more importantly, in a different regulatory environment for cannabis. We believe they would be multiples of their current value. We had been optimistic that following the last election some sort of meaningful progress in U.S. Cannabis regulation would have occurred by now.

This is obviously a source of significant frustration for us, and we know for our shareholders as well. So now turning to our Canadian Cannabis business. We have all read and heard about how difficult and challenged the Canadian cannabis industry is oversupply, price compression, retreating, but still lingering a missed supply. This is not shocking to us. You have heard me say many times that we have built our Canadian Cannabis business for just this environment. And last year, we saw the capital markets start to dry up for the sector. We prepared ourselves for just what we have seen, irrational behavior by many in the marketplace in an attempt to solve operational or market share issues. The back half of 2021 as a team, we hunkered down and refined our long-term strategy for success in 2022. So how did our Canadian Cannabis business performed in the first half of 2022.

Net sales grew a very healthy 25% year-over-year and 38% sequentially, a new record with healthy growth in both our branded and non-branded segments. The segment printed its 15th straight quarter of positive adjusted EBITDA, which remains a standout achievement among publicly traded licensed producers in Canada. Our name’s sake, Pure Sunfarms brand held its position as the number one cannabis flower brand in Q2. Now five quarters in a row, supported by the launch of 12 new SKUs, including one new strain. We did not sacrifice profitability to buy market share. Many new brands and new products continue to enter the market. To grow our share, we must be even more innovative and strong on our commercial efforts, and I’ll talk about what we are doing in both those areas in a moment. In Quebec, Rose expanded its market share with its portfolio moving into the number three licensed producer spot with an 8.5% share of the market.

As importantly, during the quarter, we were laser-focused on executing on multiple growth initiatives that will drive what we have said and continue to believe will generate even more traction in the back half of 2022. These are the launch of Pure Sunfarms second brand, the Original Fraser Valley Weed Co., accelerating our innovation strategy to launch more new products more often with a particular focus on new strains, supporting our brands and products with the right commercial effort and building a solid footprint in international markets modeled on the success of Canadian Cannabis business. Let me start with Fraser Valley Weed Co. We entered the Canadian cannabis market with a single brand, Pure Sunfarms, whose everyday premium positioning targeted at the largest segment of the consumers, what we refer to as our core segment.

We watch as consumer preferences evolve and the market began to segment such as today in certain markets such as Alberta and British Columbia, the value segment accounts for well over 1/3 of the market. The Fraser Valley brand is targeted directly at the significant market opportunity. It is differentiated from the Pure Sunfarms brand in that it targets a frequent and price-conscious consumer with dependable and potent large-format flower, which selected popular strains starting with consumer favorites Donny Burger and Mat. While the team naturally expect some cannibalization of our Pure Sunfarms brand, we also anticipate profitable market share gains as Fraser Valley targets a real need articulated by both the provincial boards, retailers and consumers. The Fraser Valley brand will follow a gradual rollout.

We have prioritized British Columbia, where the value segment has been growing significantly, followed by Alberta, which is highly competitive in the value segment. Although it is still early days, we are very encouraged by the consumer response to date. Our first shipment to British Columbia sold out in just three days and immediately became the number two flower brand right behind Pure Sunfarms, which continues to hold the top spot in that province as it continues to do so in Ontario and Alberta. Early data from Alberta is also very strong. In terms of innovation, to date, we have launched more than 100 SKUs across the Canadian Cannabis business. This includes new strains, such as Bubble Mints, Berry Cream Puff and most recently, Sugar Cookies. Innovation followed by investment is critical, especially when the growth of this segment attracting so many brand launches.

Jet Fuel Gelato is a great example. Jet Fuel is now the fastest-growing strand at Ontario through the quarter ended June 2022. In July, Jet Fuel moved into the number two position in top strains in Ontario with our Pink Kush remaining to the number one overall spot where it has consistently been since the launch one year ago. This is quite impressive and kudos to the Pure Sunfarms team. Innovation has been an integral part of Rose’s market share. During Q2, they launched nine new SKUs into the Quebec market and their first SKU in other provinces. A meaningful contributor to the strong performance of the Rose portfolio was a Promenade brand, which benefits from the collaboration with Pure Sunfarms, including use of Pure Sunfarms biomass. Another successful innovation at Rose is the lease brand, which brings together the products of Quebec-based craft producers under Rose’s brand strength and distribution capabilities.

Based on success in Quebec, Rose is now expanding that model to other provinces under the Hommade brand. This is a great first example of the synergistic opportunities between Rose and Pure Sunfarms with our Canadian cannabis operators, and I look forward to discussing many more in the future. We are innovating in other ways as well. During the quarter, we were proud to partner with NOYA to launch Cookies sun-grown flower in Ontario. Cookies being one of the most well-known and successful cannabis brands global. It is a testament to our cultivation capabilities that we were chosen for Cookies to enter the Canadian market with high-quality, large format, sun-grown strains at a differentiated price. On a final note on innovation, we are also investing in our core capabilities to ensure that we are relevant in the moment of consumer purchase. In that regard, I’m pleased to report 100% of Pure Sunfarms product is now hang dried.

Following a significant investment, we now have the capacity to hang dry all of our Delta three and Delta two production. And as expected, we are already hearing very positive customer feedback as a result. Just as the case for the Canadian market, there was a lot of noise around international markets. What will they look like? What will the regulations be? Where are the real opportunities and who will be the winners and losers? And once again, we are ignoring the noise and focusing on our strategy, which can be very simply stated as follows. We will participate in those markets where we believe the regulatory construct and consumer demand gives us the right to win and be profitable. Our first foray was into Australia, where we have now completed our sixth shipment for the medical market there since beginning shipments 10 months ago. Growth in the Australian market is accelerating, and we are capturing that growth.

Following receipt of our EU GMP certification earlier this year, the team is also engaged with partners in both Israel and Germany, where we believe we have a winning strategy for these promising markets, the same strategy that has underpinned our success in Canada, high-quality products at an attractive price. I’m encouraged by our progress, especially after the two-year retraction of the certification process due to pandemic travel restrictions. Even with the significant time it takes to ensure compliance with every country’s unique regulations, including new requirements as the market opens, we are targeting to begin shipments in these markets in the coming months. And then finally, on the international front today, I’m very pleased to announce that Leli Holland has just granted the 10th and final license to cultivate and distribute cannabis in the Dutch supply chain experiment, which is expected to be the first major legal recreational market for cannabis in Europe.

Last year, we purchased an option on majority ownership of Leli and subsequent to Leli’s receipt of their license, we exercise that option such that we now own 85% of Leli. As Village Farms’ Europe cannabis, we can now look forward to executing on our plan under which if the program proceeds on schedule, we will see us generating revenues later next year. In our U.S. Cannabis business, Balanced Health Botanicals continues to perform well and remain profitable and this what is an increasingly challenging market. However, our Balanced Health Botanicals businesses experienced a slowdown in consumer purchasing, consistent with data that is emerging from other consumer-facing businesses, which is being exuberated by the lack of clarity on the CBD category’s ability to access traditional retail selling channels.

Average order sizes are decreasing, and we are detecting a lengthening of order time from our recent or rather repeat customers. The BHB team has continued to develop products with unique benefits to consumers like Synergy+. Last month, they released a study that reported a significant reduction of mild or temporary anxiety when using CBD distilleries daytime synergy, CBG and CBD tincture. I might suggest that we could all use some of that product these days. None of this — none of these interim challenges changes our mind around the strategic importance of our acquisition of BHB. It remains a well-established profitable business with top brand awareness and an established e-commerce platform and retail channels that provide an additional pathway to participate in the high THC cannabis market in the U.S. when we are able, which we believe will be very different from today.

With that, I’ll turn the call over for Steve. Steve?

Stephen Ruffini — Executive Vice President, Chief Financial Officer

Thanks, Mike. First, a reminder on the timing of our Balanced Health and Rose Life Science acquisitions last year and their impact on our second quarter 2022 results. As we acquired Balanced Health Botanicals in Q3 2021 and 70% Life Sciences in 2021 results of each are consolidated in our financial results for the second quarter and first half of 2021. However, neither contributed to the comparative periods of 2021. Turning to the results. Consolidated sales of all the Village Farms that includes our Canadian and U.S. Cannabis operations and our VF Fresh Produce operations, for the second quarter increased 18% year-over-year to $82.9 million from $70.4 million in the second quarter of 2021. The increase was driven by higher sales from both the Canadian Cannabis business and Fresh Produce as well as the incremental contributions from the acquisition of Balanced Health under our U.S. Cannabis operations.

This quarter is a mixed quarter, which includes a large one-off goodwill write-down. Consolidated net loss for the quarter was $36.6 million or negative $0.41 per share compared with a net loss of $4.5 million or a negative $0.06 per share for the same period last year. This quarter’s net loss includes a gross impairment of $29.8 million or $22.8 million after tax relating to the acquisition of Balanced Health Botanicals in our U.S. Cannabis segment and a write-down of our investment in VF Hemp, which was our remaining 2019 hemp inventory. The net write-downs resulted in a negative impact on earnings per share of approximately $0.27 per share. The remainder was driven almost entirely by the impact of our cost inflation and ongoing virus pressure on our Fresh Produce business. Consolidated adjusted EBITDA for the second quarter of 2022 was negative $10.3 million compared to a positive adjusted EBITDA of $1.5 million for the same period last year.

The EBITDA loss in Q2 this year was driven entirely by our Fresh Produce division. Corporate costs were $2.1 million compared to $1.7 million with the increase due primarily to incremental costs related to various business expansion initiatives, including those associated with the Netherlands cannabis opportunity that Mike just described. Looking at our individual business segments, starting with Cannabis, net sales from our combined Canadian and U.S. Cannabis operations grew 44% year-over-year to $35.6 million from $24.8 million, with the increased roughly split between the growth in our Canadian Cannabis business and the contribution of Balanced Health under our U.S. Cannabis business segment. Q2 Cannabis sales comprised 43% of Village Farms consolidated sales, up from 21% for the same period last year.

Total Cannabis adjusted EBITDA was $2.1 million compared with $7.4 million for the second quarter of last year, with the decrease being substantially the incremental SG&A spend at Pure Sunfarms for the investment in various commercial support activities like the new Fraser Valley brand and some of which are still to come, such as international exports as well as the addition of Rose operations in 2022, which we didn’t have in 2021. Mike noted earlier, we are beginning to see the return on these investments in the form of higher sales and market share gains. Within Cannabis, our Canadian operations delivered another solid quarter. As usual, I review our Canadian Cannabis results in Canadian dollars, which provides a more accurate gauge of our period-to-period performance in the face of exchange rate fluctuations as well as providing the ability to more accurately compare to Canadian market growth rates.

Our Canadian Cannabis operations once again generated strong year-over-year growth, with net sales for Q2 of this year, increasing 25% year-over-year and 38% sequentially to CAD38 million, which was a new quarterly record. Canadian Cannabis net sales were composed of 48% retail branded sales, 29% nonbranded sales and 3% distribution fees and commissions. We have previously called out the back half-weighted seasonality of sales in our Canadian Cannabis business, and we are again in confirming this expectation this fiscal year. It may be even more pronounced this year as planned growth initiatives anticipated to drive additional sales, including the Fraser Valley brand launch and the start of shipments to additional international markets. Our gross margin for the Canadian Cannabis business for Q2 remained solidly within our stated target range of 30% to 40% at 33%, down to kick from 34% in Q1.

We’re continuing to benefit overall from continued gains in cultivation efficiency and production improvements as well as the expansion of our footprint with the addition of the first half of the Delta two facility last year. Pure Sunfarms operations continue to run at their full capacity during Q2 and continue to do so today at 1.6 million square feet of production space. We continue to be focused on actively managing inventory levels as the biggest challenges in continually balancing demand and supply fluctuations developments which can create lumpiness in our non-branded revenues. As of June 30, our day sales outstanding was at its lowest level in 2022. Selling, general and administrative expenses for the Canadian Cannabis operations in Q2 were $10.9 million or 29% of net sales compared with $5.4 million or 18% of net sales for the same period last year.

The increase in absolute dollars was a result of the addition of the Rose operations in 2022, which accounted for roughly 1/3 of the year-on-year increase as well as investments referred to earlier that Pure Sunfarms is making to drive market share and accelerate sales growth domestically as well as preparation for the start of exports later this year. In fact, compared to Q1 of this year, although up in terms of absolute dollars, SG&A was down several points as a percentage of revenue as sales increased at a faster pace than the expense line. We expect several of the incremental initiative spend in the earlier part of this year to result in higher sales and margins resulting in a reduced SG&A percentage to revenues into the lower 20% for the balance of 2022.

Our Canadian Cannabis operations delivered their 15th consecutive quarter of positive adjusted EBITDA at CAD3.1 million, which, although down from CAD9.1 million in Q2 of last year is driven by the incremental year-on-year SG&A spend. I will now turn to our U.S. Cannabis operations, and in doing so, will revert to U.S. dollars. U.S. Cannabis sales for Q2 were generated entirely by balance of mechanicals, which were $5.8 million generated a gross margin of 66%. Adjusted EBITDA was just shy of breakeven, which was impacted by the write-down of remaining VF Hemp inventory of roughly $300,000. As Mike noted, Balanced Health continues to perform well in this environment and has become increasingly challenged in recent months. Importantly, it remained profitable for the quarter.

However, with the continued impact of lack of regulatory clarity, slowing consumer spending on perceived discretionary items, we have tempered near term growth outlook in assessing both valuations and these consumption pressures, we feel it is prudent to write down the value of Balanced Health goodwill and intangibles by $29.8 million this quarter. There is no impairment of our Canadian Cannabis values, and we do not expect any write-down of this largely organically built and growing and profitable business segment. Turning now to Fresh Produce. Q2 saw an exasperation of the inflationary pressures we saw across our cost structure in Q1. Although we achieved another quarter of year-on-year sales increase on higher volumes due to continued supply-demand imbalances.

We still have been unable to pass on these costs to our customers. For example, year-on-year freight spend was $2.2 million higher in Q2 versus Q2 of 2021, almost solely due to the increased cost of diesel and trucking rates as a number of the trucks shipped to our retail customers was up 4% year-on-year. While painful for us, it is less than the year-on-year freight difference in Q1 2022 versus Q1 2021 of $2.8 million on a higher number of shipments in Q2. The incremental freight pressure has decreased a bit more in Q3, but is primarily a macroeconomic cost out of our control. Additionally, we continue to manage through the global tomato virus, Brown Rugose, which continues to cause incremental costs and significantly negatively impact our yields, resulting in higher cost of production than anticipated as well as compared to from a historical perspective.

This resulted in a negative gross margin for Fresh Produce of $8.9 million, which drove negative adjusted EBITDA of $10.4 million compared to a negative adjusted EBITDA of $4 million in Q2 last year. Turning now to cash flows and the balance sheet at June 30, we had approximately $33 million in cash and equivalents compared to $41 million at March 31 of this year, and we had approximately $78 million in working capital, excluding cash, compared with $101 million at March 31. During the quarter, we had operating cash outflows of $13 million net of working capital adjustments. As a reminder, the vast majority of our year-to-date capex spend has been for the Delta two facility and the addition of more dry rooms in order to hang dry our entire Pure Sunfarms capacity, which Mike mentioned, which is a key operational and quality initiative that we expect to see substantive enhancements to our results.

Importantly, we will continue to plan to produce to expected demand and will only expand production when we see incremental demand increases for our brands, both within Canada and in the export market. Given the uncertainty of inflationary pressures and their potential continued impact on Fresh Produce as well as the multiple cannabis growth initiatives before us that will require additional investment. This morning, we will announce that we filed a prospectus supplement for an at-the-market offering of up to $50 million, given the current state of the broader capital markets and with respect to the cannabis sector, more specifically, we believe the ATM mechanism in this environment is an efficient and flexible means by which to access additional capital when needed should we choose to do so. We also believe that it is a transparent fundraising tool for our stakeholders and a characteristic which is important to us.

And now I will turn the call back to Mike.

Michael A. DeGiglio — President And Chief Executive Officer

Thanks, Steve. So in closing, our Canadian Cannabis business was designed and built to last. The Canadian Cannabis market continues to exhibit robust growth, 20% year-over-year in May, but clearly, it’s not without problems that need to be addressed thoughtfully by regulators and participants such as taxation, illicit enforcement and oversupply. At the same time, there are many positive developments in the industry that play right into our hands. Consumer preferences are starting to emerge. Innovation is increasingly a differentiating factor and brand strength matters. Our Canadian Cannabis portfolio and future plans align perfectly with these trends.

We are more confident than ever that our Canadian Cannabis business is positioned to be one of what we continue to believe will be just a handful of winners. And as we get it right and win in Canada, we have great confidence that we can get it right and win in other international markets. We firmly believe that all of our learnings and successes in Canada will translate to winning in what will be a very large global market developing quickly in the next years to come. And with that, we’ll now turn the call over to the operator for any questions.

Operator?

Questions and Answers:

 

Michael A. DeGiglio — President And Chief Executive Officer

[Operator Instructions] And your first question comes from Aaron Grey at Alliance Global Partners. Go ahead please.

Aaron Grey — Alliance Global Partners — Analyst

Good morning and I thank you for the questions. So first question for me. Nice growth in terms of retail sales within Canadian Cannabis. I just want to ask in terms of any color in terms of anything with timing, so up 38% quarter-over-quarter, while exceeding the market. Look at the high-fire data, you guys did pretty well in share, but this out did that by a pretty good margin. So anything in terms of timing of provincial sales, I know we had that a little bit in 4Q 2021, which came back in the first quarter, but then you still guided towards a stronger back half. So anything in terms of timing of shipments for provincial would be helpful.

Michael A. DeGiglio — President And Chief Executive Officer

Well, we feel — we’re encouraged on the back half of 2022. What we’ve seen in the last couple of years is seasonal trends emerging not only by consumers, but also provincial buying offices and managing their budgets. But based on some of the emerging historical data that we can now look at that we think the second half of the year is going to typically be stronger than the first half. So we’re encouraged by what the third and fourth quarter may bring us.

Aaron Grey — Alliance Global Partners — Analyst

All right. Great. And then with the launch of Fraser Valley, right? So you mentioned how you’re looking to limit some of the cannibalization with Pure Sunfarms prioritizing British Columbia as well as Alberta. So you talk about some of the efforts you’re looking to do there, maybe in terms of how you’re marketing it and position it so that you’re more stealing share from some of the existing value players and cannibalizing your Pure Sunfarms brand.

Michael A. DeGiglio — President And Chief Executive Officer

Sure. I’ll let Mandesh answer that, Aaron.

Mandesh Dosanjh — President And Chief Executive Officer

Mike. I appreciate the question, Aaron. I think Mike did a great job in the opening remarks talking about Fraser Valley is solely directed at that very price-sensitive consumer in the value space. Our customer insights and data analysis clearly show that a large part of the market, specifically in British Columbia as well as Alberta, is focused on that value segment and Fraser Valley is really targeted towards that consumer. It’s a really limited offering in terms of history specific, large-format, 28 gram, and we’ve really operated at that sub-$100 price point per ounce.

And we think that clear differentiated offering right at the kind of tagline of bulk high, bulk buy really hits home to that value-focused consumer. And like Mike mentioned, there’ll be a little bit of cannibalization, but the reality is we’re seeing such a large part of the market in both those two provinces be in the value space. And the marketing investment is very clear in terms of the price point to the value and the quality of the product. So we’re excited and continuing to push the BC bud narrative into the hands of consumers.

Aaron Grey — Alliance Global Partners — Analyst

All right, great, thanks so much for the color and I’ll jump back in queue.

Mandesh Dosanjh — President And Chief Executive Officer

Thanks, Aaron.

Operator

Next question from Tamy Chen, BMO Capital Markets. Please go ahead.

Tamy Chen — BMO Capital Markets — Analyst

Thank you. Good morning. Hi. First question I had, probably more for you, Steve. Do you mind just kind of going back to the comments you made about the Cannabis segment EBITDA because on an absolute dollar basis, the quarterly amount has been coming down in the past couple of quarters. And I think you gave a couple of reasons why, but I sort of missed some of them. Could you just elaborate again on why this trend is in place? And do you expect that the EBITDA dollars for the Cannabis segment will eventually improve again?

Stephen Ruffini — Executive Vice President, Chief Financial Officer

Yes. We certainly are expecting an improvement. And the reason for the downward trend has been the incremental spend really of SG&A as a percentage of our revenue. The last few quarters a lot of those initiatives that hit our SG&A line, product testing to the EU GMP certified. That’s all inexpensive and unfortunately, a long time line. So those are expenditures we’re incurring. Obviously, addition of Rose, which is more of a distribution model. Rose has a — it’s all Canadian Cannabis but Rose as a division has a higher SG&A percentage to revenue than Pure Sunfarms does. So those have all impacted our reported EBITDA.

Tamy Chen — BMO Capital Markets — Analyst

Got it. Okay. And my follow-up question is more on cash flow. So I think with respect to, I guess, inventory build in just, of course, the produce business has been challenging. I think that’s weighed on your cash burn. Could you just talk a bit about how you view that? Do you feel that the business as a whole, the company as a whole will be able to generate positive cash flow from operations at some point?

Stephen Ruffini — Executive Vice President, Chief Financial Officer

Well, historically, we’ve certainly generated positive cash flow from produce. It’s been around 30 years, otherwise we wouldn’t be here. But as Mike said, it’s been a very challenging time, both due to the virus and the incremental ongoing pressure. So we’re actively looking at solutions to that, and we’ll make the proper strategic decisions. The cannabis operations will generate positive cash flow. It generated negative cash flow over the last couple of quarters due to the capex expenditures.

We’ve put a lot of millions into expanding our hang drying rooms, and I know some of the analysts have seen those. So that was a substantive cost, cash outflow on capex, which will — is now mercifully completed, and we’re starting to see the results of that. So we are expecting to see increased sales, which obviously will increase cash flow. So we are projecting the Canadian Cannabis business and U.S. Cannabis business to generate positive cash flow going forward.

Michael A. DeGiglio — President And Chief Executive Officer

Yes. And I’d like to add some color to both of those points, too, Tamy. One on the SG&A, we had communicated a couple of quarters ago that we saw our SG&A spend increasing in Canadian Cannabis driving innovation, greater commercial efforts that we’ve talked about, strain development, brand launches, all those factors that in the end, I think, are going to be an advantage for us to win at the end of the game. But those — as a percentage of sales, it will come back down to a percentage that we have communicated in the past. So we don’t think of that is long term. But those investments are starting to pay off, and I think they’ll demonstrate that in the next few quarters.

As Steve said, I mean we’ve been in the produce business a long time. And back two years ago, we had a very strong year in produce. So it does — it’s volatile, and this is a tough time, but we’ve corrected before and we intend to correct it. But at some point, we don’t want to lose sight of the optionality for our U.S. Cannabis potential, and it’s something that we just have to manage accordingly, and there will be years where we’re positive breakeven in some years where we take a hit. But there’s a reason that we’re doing it. And so thank you.

Operator

Thank you. Your next question comes from Rahul Sarugaser from Raymond James. Please go ahead.

Rahul Sarugaser — Raymond James — Analyst

Good morning, Mike. Steve Mandesh and thanks so much for taking our questions.So just coming back to Fraser Valley, recognizing, Mike, you talked a fair bit about sort of the irrational behavior for many of our competitors. But we are finally seeing some of those birds come on to roost and some of them started to really struggle or die on the line now. So could you maybe speak a little bit at a higher level in terms of the strategy for the rationale behind Fraser Valley? You talked about some of the details in terms of potentially not cannibalizing Pure Sunfarms and it’s sort of everyday premium brand, and this is sort of the more in the value segment, but really kind of at a macro strategy level, how do you see this as a way to start to grab more market share in a profitable way?

Michael A. DeGiglio — President And Chief Executive Officer

Yes. Well, I’m going to turn it over to Mandesh, but let me make this comment first. I mean, one of it is to try to — we’ve been patient in trying to look at how the market is developing, okay? It’s four to five years old. It’s very still a massive industry. And before we went off sort of half cock just creating strains and brands and just having this plethora of launches out there. I think that the Pure Sunfarms team focus on the Pure Sunfarms brand, as I mentioned, as core. And with the insights that we’re developing before we just went off and did something without having rationale behind it. We wanted to look at the data, and that’s what so brand launch was now is Fraser Valley.

So as far as oversupply, I think we’re starting to see things changing. I mean one of the negatives of some of this oversupply and shutdowns of some of these facilities, they’re actually converting to tomatoes in that from cannabis. But that being said, I think we’re starting to see changes in the marketplace. And I think the timing of us being much more innovative with SKUs and brand launches, coupled with consolidation and/or companies just throwing in the towel happening. So Mandesh, do you want to add color to that specifically on Fraser Valley?

Mandesh Dosanjh — President And Chief Executive Officer

Yes, thanks, Mike. Good question, Rahul. I think one of the key pieces you have to look at Rahul is in that value segment, the pure value segment, which is index lower than Pure Sunfarms everyday premium price point, we weren’t playing and we tested over the subsequent quarters doing promotional activity on pricing, limited time available on strains to just understand that price sensitivity to the Pure Sunfarms consumer to understand how temporary or decreases on products would influence overall revenue growth and share gains in the Pure Sunfarms brand. And then obviously, with end-of-life strange as we phase them out, again, just to see kind of the uplift. And we saw some good results, but nothing to uplifting. And so we really felt that, that value consumer who was existing prior, but is really kind of segmented in the market today and it grew over the last year in British Columbia and Alberta.

We just weren’t playing in that space revel, and this is a consumer who is really walking into that store — and maybe on payday, they’re looking for something a bit more on the everyday premium on the premium price. But throughout the week, they’re really kind of looking at that price to potency equation and really shopping around brands. And so while there might be a small set of cannibalization that comes out of the Pure Sunfarms customer, the capture of the share is larger for us as an organization by going after that consumer. So Fraser Valley was really targeted at that consumer is walking in, looking at the best price potency relationship. And frankly, might not be as brand loyal.

And we think with this offering, we’re targeting that consumer again, to that price potency relationship and giving great everyday quality in that bag because it’s processed and cared for the exact same way in terms of hang dry. So that’s really what we’ve been active and it was what we were seeing on that consumer. So it’s a greater share of the overall pie for us. And we feel confident it’s the right strategy and approach as well as being able to then offer larger format offerings of other products that we choose to, i.e., pre-rolls as we start to see assortment needs change and not being able to shut everything into one brand on the shelf and being able to own more of that consumer space in the store.

Rahul Sarugaser — Raymond James — Analyst

Great. That’s really helpful, Mandesh. So my next question is for all of the success that the cannabis business is having. Of course, you talked about the headwinds on the Produce business, Mike. And one of the things that you alluded to in terms of addressing that is, I guess, consultants come in and address anything that you might be able to improve on. And given that you’ve been doing this for a very long time and set ebbs and flows over time, what are some of the other more sort of detailed things that we can kind of hang on to get some directionality for how that will play out over the next couple of quarters given that these macro pressures are unlikely to sort of release for a little while. So where can we get a little bit of comfort in terms of the directionality for that — the management of those costs over the next few quarters?

Michael A. DeGiglio — President And Chief Executive Officer

Yes. Well, one of the reasons — I mean, we’ve been doing this a long time and from time to time, we’ve taken in outside consultants because sometimes you can’t see the forest of trees. But that being said, we always look at operational efficiency, so that’s nothing unusual. But it’s more critical right now because of these — the macro inflation issues. And one of the way we selected the consultants is to understand the macro dynamics, how long will they last? Is this something that’s going to come back down? We spent about $6 million more in freight this year, not just because of diesel fuel, but there are so many less drivers on the road. And it’s kind of interesting, there was an article out today that I got from Steve just talking about how many drivers are not able to drive due to cannabis regulations that have been taken off the road.

So those two items have increased our freight because we deliver to our customers by $6 million. That’s just one input, so to speak. So we want to have — we want to be able to have those conversations to understand on the items sort of in our control, we have a handle on the items out of our control, what better way can we attack those and figure out what we need to do, what is the longevity of these macro issues, how long will they be there and find other solutions. And sometimes when we can look at it with consultants who look at other companies that can come back in. So I mean, we’re not sitting here knocking our head against the wall. We think we have a way to get back to where we need to be, but we’re not sort of ready to give up on the option out of the U.S. I could just tell you this, that I had a meeting with a — what I consider a tightening the industry, U.S. MSO.

And in that meeting, it was told to me that, that person very successful said, what’s happening now on the cultivation front in the U.S. is an experiment as to what will happen if there’s comprehensive total legalization in the U.S. market. That’s where we shine. We’ve proven that model out. So what we’re trying to do is get our Produce business to a size that is manageable while we maintain our optionality. And we’re trying to continue to do that. Now that may be hard for some investors on the sand. I’m clear about that, but that’s something we’re going to do and getting some help to figure out where inflation is going to go, how long it’s going to last is a big part of why we’re going to bring some folks into take a look at that.

Rahul Sarugaser — Raymond James — Analyst

Great, that’s very helpful. Thanks. Thanks again for taking our questions. And we’ll get back in queue.

Operator

And your next question comes from Scott Fortune from ROTH Capital Partners. Please go ahead.

Scott Fortune — ROTH Capital Partners — Analyst

Good morning and thanks for the questions, I want to dig a little deeper. You spent a fair amount, a very impressive facility. I saw recently in the dry hanging stuff, but you see the amount for going deeper into your flowering offering, new strains here, the Core Pink Kush continues to do well. But can you provide color on the growth or performance of these new strains like Jet Fuel and the percentage coming from these strains? And as a follow-on, the importance in some of these new strains in all segments that you can focus on to drive growth from the flower category side of things?

Michael A. DeGiglio — President And Chief Executive Officer

Sure, I’ll let Mandesh answer that.

Mandesh Dosanjh — President And Chief Executive Officer

Yes. Good to chat, Scott. Thanks for the question. And you’re absolutely right. Seeing the Pink Kush return and growth has been a big focus and effort for us. Canada is number one strength since legalization continues to be, and we’re really pleased with those results and the efforts of our commercial sales team. You hit the second point bang on, which is Jet Fuel Gelato, and Mike mentioned in the opening remarks, it launched in late Q4 of last year as one of our newest innovations last year. And the commercial sales team really put a focus on driving distribution and making sure bud tenders and stores were ordering at the right levels. And we’re happy to see the results through year-to-date and just in July. We try not to get forward-looking, but July is passed now. It became the oneSKU in Ontario. And so having that as the number one SKU and I believe Pink Kush was number three SKU number one strain overall.

Those are tremendous results. So it just goes to show you that innovation is important, and we believe in it holistically, but equally important is the emphasis on the sales side and the distribution. And we’ve spent a significant amount of time, and Steve alluded to in the SG&A piece around building out our sales team to provide best-in-class service. But a key underpinning of that is our category management tools that we put in place where we’ve been able to aggregate data across High Fire, the board, provincial sales data as well as retailer data that we’ve purchased and built into our tools to make sure we’re understanding how to drive those points of distribution at the SKU level that matter to the store in the region. And so building that platform and seeing the results in Pink Kush and Jet Fuel Gelato are so important as we launch the new strains that Mike mentioned.

So launching Bubble Mints was really important. And then some of the newer strains, Sugar Cookies and Berry Cream Puff, the latter, which is Sativa, which was really absent in our portfolio having a high-performing plus 20% Sativa. Early days in those just initially launched. We don’t really segment and break it out, but it takes a quarter or so to really drive home that distribution and what we feel confident about is all the tools we’ve put in place and making sure as we’re product and brand-led or data-driven and that we can prioritize at the store level where distribution needs to be. So hopefully, that gives you the color, Scott, about how we drove Pink Kush, how we brought up Jeff Fuel Gelato and how we’re positioned on these new strains, not just for flower for all of our products of how we can really tailor it into the region and the market and make sure our sales team can execute with efficiency.

Scott Fortune — ROTH Capital Partners — Analyst

I appreciate that color. And then can you expand a little bit on the different product format categories and kind of your term opportunities gaining market share, especially on the pre-roll side, seems to be big focus for you. You ascertained you still have a nice 6%, 7% overall Canadian market share, 9% flower side of thing. And then the other opportunities on the derivative over the 2.0 products for Pure Sunfarms going forward and what the provincial boards are looking at from that standpoint to add more product formats to these sales force for Pure Sunfarms here?

Mandesh Dosanjh — President And Chief Executive Officer

Mike, do you want me to take that?

Michael A. DeGiglio — President And Chief Executive Officer

Yes, go ahead.

Mandesh Dosanjh — President And Chief Executive Officer

Yes. So Scott, absolutely on the pre-roll side, it was one of our best performing segments quarter-over-quarter. Again, we don’t break it out, but close to 20% growth in that segment quarter-over-quarter. And we see that, right? Customers going for convenience, sometimes shifting away, especially in the summer months are a bit more in the occasion driven, shifting their whole flower either to a mill or to a pre-roll and both segments saw great performance. So we’re continuing taking kind of the success we’ve had with our strains into the pre-rolled business. We’ve accelerated our pre-roll automation internally and doubled the amount of equipment that we have and seeing good growth in our in-house production to meet those needs. So we’re always going to be for flower lead with those strains, come in with some of the pre-roll offerings to continue that expansion.

And we’re not losing sight at all of vapes, definitely a third important category for us. Still in the distillate-based flavored offerings. We launched one new SKU recently, and we’re coming back on the back half with some more innovation on the vaping side of the business. What the boards are really asking for is continuing to see the innovation at a scale that’s going to allow them to meet large-scale needs across their provinces, while still innovating, whether it’s in pre-roll format. We’re not going to give away too much, Scott, but we have some really good innovations coming on the back half of the year around some emerging categories in the pre-roll space as well as on the flower space. So lots more to come from us and definitely heavily weighted on the back half of the year, and we’re excited given the setup we’ve had right now with our sales and brand team.

Scott Fortune — ROTH Capital Partners — Analyst

I appreciate the color. I will jump back in the queue. Thanks.

Operator

Your next question comes from Pablo Zuanic from Cantor Fitzgerald. Please go ahead.

Pablo Zuanic — Cantor Fitzgerald — Analyst

Good morning.Just one question. As you’re launching all these new products, this question marks begin to come out about your distribution capabilities, right? And you’ve answered the questions, but help us understand better your wholesale business. It was $8.6 million this quarter, right, $21.1 million branded. What does that say about your distribution capabilities? I mean, are the people buying your product, are they buying more trim? Are they buying full flower? Are they doubling the price and selling it on other brand? I’m just trying to understand better what they do with what they buy from you and what that may say about your distribution capabilities?

Stephen Ruffini — Executive Vice President, Chief Financial Officer

I’ll — Mandesh, I’ll take an initial side at that. So our non-branded business is — has a lot of trim in it. Obviously, we’re not in the business of growing trim. It’s a secondary product of our flower product. Due to our potency and our quality and consistency, our trim is in high demand. We don’t put any cost against that because we’re not in the business of growing trim. With respect to all flower that we grow is not 100% Grade-A large bud, medium-sized bud that we can put into a Pure Sunfarms or even our other brands.

So that becomes available to others as to what they do with it. Mandesh, I’ll toss that one to you. We’re not in control, Pablo, of what they do with it. But most of our non-branded business, which I alluded to, is a fallout from the — what we can and cannot do with the supply — our own supply with our own branded sales. So if it doesn’t meet our own quality specs, we’re not going to put it in. It’s nothing to do with our distribution capabilities. It has to do with the quality and potency of the supply. So Mandesh, do you want to add any color to that?

Mandesh Dosanjh — President And Chief Executive Officer

Yes. I think Steve, you handled it beautifully. And the key point is I don’t think it speaks to our distribution capabilities. This is a build for our Canadian Cannabis business on the branded side, acquisition and integration with Rose as well as the brands we continue to launch Pure Sunfarms, Fraser Valley Weed and Co. And we’ll continue to look at that. Steve mentioned it, it’s about selling trim, extract-grade pieces that we can’t use. And we are going to be in situations where we may have an overproduction and want to outlet some of that excess inventory. We’ve been building out the facility, Pablo, as you’ve seen, Delta three and half of Delta 2, I mean we’re producing, and we want to continue to generate profitable growth for us. And we’re not going to sit on that inventory if we can’t move it.

But the goal, and we’ve always said it, is to continue to build our branded business. It’s going to take time. And so if we can make profitable sales in the meantime, we’ll continue to do that and have that grow there for us as we look to make the pivots. And Steve mentioned that I don’t always know what our customers do with it, but I will tell you that it’s not a concern in terms of competing with us out on the branded side. We have a plan forward. We have our data analysis and category management tools in place. We’ve expanded into new provinces over the last several months. We’re laying down foundations for international exportation. We feel really solid. The non-branded sales piece will always kind of be in that 20%, 25%, potentially 30% in a quarter of revenue. But we feel really confident in our distribution supply chain capabilities and the branded sales team we’ve put in place and our ability to execute.

Pablo Zuanic — Cantor Fitzgerald — Analyst

That’s very helpful. Just one quick follow-up. I know we’re almost out of time here. But Mike, in terms of the strategic alternatives for the produce business, would it make any sense to just stop the tomato business at all and stop at 100%, but keep the facilities for the optionality you talk about? Or that doesn’t make any sense because there would be just so much stranded cost?

Michael A. DeGiglio — President And Chief Executive Officer

Well, you could say it probably made sense this quarter — the last two quarters. But when we looked at that all the time, I mean, to mothball a facility of that magnitude, these are multimillion square foot facilities. And you mothball and you add up the property taxes, the insurance, you need to keep on them, the maintenance to keep them up to speed because they’ll deteriorate if they’re not in operation. It’s like parking an airplane, if your park, it’s the worst thing you can do. So when you add up security in a normalized year for us, it’s better to produce even if we had a negative $2 million to $3 million, $4 million EBITDA. And that’s always been our goal.

Like I said, in 2020, we had positive $5 million EBITDA. This has just been a rough year. Inflation came up so rapidly, Pablo, and hit us so hard that these are some of the toughest numbers we’ve ever had, and that’s why we’re going to try to arrest it. But yes, obviously, we’ve looked at that. And there are other things we’re considering, I mean, down the road, but it has not penciled overall to just keep that optionality going. So by just mothballing. And if we mothball one or two of them are just — if we wind up losing a key customer, it’s going to be very hard to get that customer back, whether it’d be a Walmart or someone like that. But those are things we evaluate every day. So I think it’s a good question for sure.

Operator

Your next question comes from Eric Des Lauriers from Craig-Hallum Capital Group. Please go ahead.

Eric Des Lauriers — Craig-Hallum Capital Group — Analyst

Thank you for taking my question. How do you expect Canadian Cannabis SG&A levels to progress in the second half and beyond? And when do you expect to see positive operating leverage return to that business?

Stephen Ruffini — Executive Vice President, Chief Financial Officer

As I said in my remarks, we are projecting with the revenue growth that our SG&A spend will drop back into the lower 20% range for the balance of this year. That’s — we’ve mentioned in prior quarters that there was going to be incremental spend in the first half of this year, and we’re expecting to see the fruits of our labor here in the short term over the next six months. So we’ll be reporting low 20% certainly going forward.

Eric Des Lauriers — Craig-Hallum Capital Group — Analyst

Okay. That’s very helpful. And then I understood that provinces generally increase their purchasing in the second half. You’ve also increased production by over 50% here with Delta two. Can you help us understand how you expect those volumes to sort of flow through sales versus inventory build over the coming quarters? Just your overall expectations of what the sort of total package, understanding provinces do increase purchasing, but you also have a lot more volumes, just kind of how to expect that to flow through here.

Michael A. DeGiglio — President And Chief Executive Officer

Well, we’re very confident in starting to see some of the provinces are better than others with respect to giving us an indication of upcoming orders. So we’re very confident that we will see the continued seasonality, which we’ve talked about in prior years. Yes, September, October, November tend to be very strong months and the provincial buyers build up their inventory for the December, January period. So with the new initiatives, new strains, new brands, obviously, with the — we’ll have, obviously, naturally because of the — we’re now in Quebec. It’s a Canadian cannabis business. Obviously, that will be incremental to our Q3 and Q4 because we weren’t in Quebec last year at this time. So we do have a home for our expanded production, and we are expecting to move those kilos, incremental kilos year-on-year kilos into our out of inventory into sales.

Eric Des Lauriers — Craig-Hallum Capital Group — Analyst

Okay, great, thank you for the color.

Operator

Your next question comes from Andrew [Indecipherable] from GPM Securities. Please go ahead.

Analyst — — Analyst

Hi, good morning. Thank you for taking my questions and to start off with produce, part of this quarter’s headwinds you alluded to oversupply with Q2 being the typical seasonally highest quarter. I think last quarter, you mentioned supply conditions could be better in Q4 this year with margins perhaps returning to positive in produce, understanding that you initiated an operational review here, but are you still comfortable with your previous assessment that Q4 could show improvement on the produce side? Or do you think there’s not enough visibility at this time to keep that expectation?

Stephen Ruffini — Executive Vice President, Chief Financial Officer

We’re still forecasting to have improved Q4 results. Seasonally, historically, Q4 has been better than Q2. A lot of that depends on the — both the global and the immediate impact of the Brown Rugose on our own crops. Any number of our competitors in North America are all experiencing the challenges. So a lot of that really depends on — produce is very much a demand and supply business, and we can — we’re very dependent and our profitability is very dependent on price. So depending on where our competitors’ supply is and based on what we hear on Brown Rugose, it could be a strong quarter. But again, it’s — pricing is very dependent on real-time pricing. So we are forecasting improved fresh produce results for the balance of this year.

Analyst — — Analyst

And my second question is on the Canadian Cannabis business. It seems that OCS has been hit with some kind of distribution disruption. Just wondering if you have any color on that and when shipments could return to normal, are we — should we be thinking about modeling some kind of impact in Q3?

Michael A. DeGiglio — President And Chief Executive Officer

I haven’t heard that. But Mandesh, you go ahead.

Mandesh Dosanjh — President And Chief Executive Officer

Yes. So Andrew is referring to that there was some sort of a data breach on the OCS side that impacted their supply chain. It was impacting some of the orders getting out. Look, Andrew, it’s early days, we’re not anticipating any long-term ongoing issues. I believe this might be the second time that OCS had a data breach, not sure the specifics on how it’s impacted. It’s not our business, it’s the OCS. So I’ll get some updates from the team. I’m not expecting any kind of material impacts to our business at all given that they’ve had this before. The encouraging pieces, the OCS has come out to say that they will wave emergency order fees for retailers and are looking to get back on track. So I think it’s a short-term blip, Andrew. And until we hear more, I don’t anticipate any issues right now.

Analyst — — Analyst

Appreciate that color. I’ll get back in queue.

Operator

Your next question comes from Doug Cooper from Beacon Securities. Please go ahead.

Doug Cooper — Beacon Securities — Analyst

Good morning, everybody. Just most of my stuff has been asked, but just a quick one. Maybe Mandesh or Mike, on the Fraser Valley targeting, let’s call it, the hard core user. I guess data that I’ve seen from other markets, which is California is that guy that you’re talking about represents an over preponderance of the actual supply product. So yes, if that user you’re talking about is 60% to 70% of the total cannabis volume in the country, what’s the implication? How much of your sales do you think Fraser Valley will end up being and the impact on margins?

Michael A. DeGiglio — President And Chief Executive Officer

Go ahead, Mandesh.

Mandesh Dosanjh — President And Chief Executive Officer

Yes, sure. So thanks for the question, Doug. So I’m going to go back to some of the dating just to target on the percentages because we’ve looked at this through five, six months of this year. So we took a look at flower sales through six months of this year compared to last year. And we segmented the businesses — sorry, the regions, British Columbia, Alberta, Ontario into three buckets. We use Pure Sunfarms at everyday premium is what I’ll call core pricing. And then we looked at premium, which is indexed above and value, which is indexed below. Just try and take a look exactly like you said, I think you referenced, I don’t know, it was 60% in California. And so I’ll just throw some key stats for you.

So in British Columbia, as an example, we see about 45% of the flower business be in that value space and that core where Pure Sunfarms plays about 30%. In Alberta, it’s about 37%. And in Ontario, it’s about 22%, where that core everyday premium is definitely the leader in kind of the space. So British Columbia leads on the value side. And I think that’s a bit of a function of the cannabis consumer understanding quality, understanding pricing, obviously, also having 0 additional provincial excise taxes, some of that plays into it. So that’s great for us. I mean in the sense that value segment, which, in theory, to a lot of other cannabis companies is not profitable for us. It still carries profitability. It’s our home province. It’s got no additional excise taxes on it.

So when I throw out those numbers to, Doug, the 45% in the value space or 37% in Alberta, we don’t believe it will make up that huge percentage of our sales. But on the profitability side, it’s definitely on the lower end of our margin calculations, but it’s still a very good business for us. And it’s early days to understand the full segmentation and to see their reach of how much of that Pure Sunfarms will index versus Fraser Valley. And I think over the next couple of quarters, we’ll be able to assess. But we like the business profitable in that segment compared to most of our competitors, if not all of our competitors, and we like the early day trajectories of what we’re seeing and the market share gains we’re seeing as a result of it.

Stephen Ruffini — Executive Vice President, Chief Financial Officer

I’ll also throw in, which hasn’t been mentioned, the different brands have different strains. So we’re very cognizant of the cost side of each of the strain. So what goes into Fraser Valley, it’s — we don’t break it out cost by strain. But we are aware of the fact of trying to maintain our 30% to 40% margin on all brands in our branded category. So that also impacts the gross margin percentage.

Doug Cooper — Beacon Securities — Analyst

Okay. And just one clarification. The cannabis revenue, was there any medical or international sales in the quarter?

Stephen Ruffini — Executive Vice President, Chief Financial Officer

Yes. On the international front, we continue to sell to Altum, which obviously is an investment in ours, we are providing funding enough medical cannabis in Australia since obviously recreational. We are putting our flower into their branded medical. And over the last three quarters, have sold roughly CAD1.1 million to Australia and are in the process of increasing our sales to Australia. And hopefully, we’ll be announcing shortly some incremental export markets that we’re not shipping to as soon as we pass the gauntlet of product clearances on the — at the export company side. So we’re ready to go. We’re just unfortunately waiting for regulatory approval on the import side.

Doug Cooper — Beacon Securities — Analyst

Okay, that’s it from me. Thanks very much.

Operator

[Operator Instructions] Ladies and gentlemen, as red are no further questions at this time. Please proceed with your closing remarks.

Michael A. DeGiglio — President And Chief Executive Officer

Thanks, everyone, for listening in today for the second quarter, and we’ll talk soon. Have a great day.

Stephen Ruffini — Executive Vice President, Chief Financial Officer

Thank you. Bye.

Operator

[Operator Closing Remarks]

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