Thank you, operator. Good morning and welcome to the PLUS Products fiscal 2019 third quarter financial results conference call.

A replay of this call will be archived on the Investor Relations section of the PLUS website, plusproductsinc.com. Before we begin, please let me remind you that during the course of this conference call PLUS' management may make forward-looking statements.

These forward-looking statements are based on current expectations that are subject to a number of risks and uncertainties that may cause actual results to differ materially from expectations. For more information on the company's risks and uncertainties related to these forward-looking statements, please consult the company's MD&A and other regulatory filings available at sedar.com.

Any forward-looking statements should be considered in light of these factors. Please also note any outlook we present is as of today and management does not undertake any obligation to revise any forward-looking statements in the future.

Any references to market share or market growth from third parties during the prepared remarks have been cited in our news release disseminated on Friday, November 29th. With me on the call today are Mr.

Jake Heimark, Co-Founder and Chief Executive Officer; Mr. Jon Paul, Chief Financial Officer; and Mr.

Nate Pearson, our VP of Finance. With that, I will now like to hand the call over to Jake.

Thank you, Blake. I am excited to be hosting our first ever earnings call to discuss our fiscal 2019 third quarter financial results and share some business updates with our shareholders.

We expect to be hosting quarterly calls regularly from now on to keep investors apprised of our progress and answer any questions you may have. Before moving on to this quarter's highlights, I'd actually like to share some background on PLUS.

PLUS launched into the California medical cannabis market in late 2015 with the cannabis-infused gum products. While the product was unique and innovative, consumers let us know they were not ready for a product that was at the time far outside mainstream market offerings.

They let us know that they're not buying it. We listened and pivoted launching the first version of our now signature PLUS gummies at the end of 2016.

Our team spent 2017 understanding how to manufacture food at scale in preparing for the impending shift to a fully regulated adult-use market in January of 2018. We moved into a 12,000 square foot manufacturing facility that January just month prior to the regulatory realignment.

The preparation for this huge shift in the world's largest legal cannabis market was well worth it as we grew from a virtually non-existent brand to the largest infused-gum use brand in California with the best selling cannabis products in a little over six months. Throughout the course of 2018, we raised a total of $31 million and book ended a successful year with an initial public offering under CSE in the fourth quarter.

Throughout the first half of 2019, we continued to build out the foundation of our company, adding a number of key members to our management team, including Harvard Law, Facebook and Uber involvement, Jennifer Tung as our Chief Risk Officer; Jon Paul as our Chief Financial Officer who brings decades of invaluable experience with the helm of public company financials; and Marc Seguin as our Chief Revenue Officer. Marc joined us after successfully growing Popchips to one of the largest independently owned snack brand in the U.S.

as their President and Chief Marketing Officer. We also solidified our financial position by raising $18 million through a convertible debt offering in February of this year and in the spring we launched our second product line, cannabis-infused Mints.

We charted a path to our second adult-use market by signing a definitive agreement with Nevada with a licensed manufacturer Taproot Holdings in that state. Now let's dive into this quarter's highlights.

Net revenues climbed to $3.5 million in Q3 2019 representing a 38% year-over-year growth compared to Q3 2018 net revenues of $2.6 million. Gross revenues increased to $3.9 million representing a 50% year-over-year growth compared to Q3 2018 of $2.6 million.

The discounts and promotional expenses in Q3 2019 of $0.4 million that drove the difference between gross and net revenues were driven primarily by the carryover of one-time costs from the launch of our Mints product in Q2 of 2019. To-date growth in California has been stifled at PLUS, in part by lack of action on behalf of the state to effectively encourage the opening of new legal dispensaries or enforce action against illegal dispensaries and brands, who are endangering consumers by avoiding necessary testing and supply chain requirements.

Despite these less than satisfactory macro developments in California, our team has done a great job executing on our strategy. We maintained a substantial 21% share of the gummies market driven by the successful launch of a statewide marketing campaign, as well as the release of a second line of our Uplift, Balance and Unwind gummies.

Looking forward, we expect growth of the California market to pick up as the state has shown some signs of real enforcement in recent weeks. While impact over this aspect of our growth is largely outside of our control, we will continue to focus on winning the shelves of legal dispensaries, which we believe will eventually make up a market 2 to 3 times its current size, according to The State of Legal Cannabis Markets 7th Edition published by Arcview and BDS Analytics together.

This quarter, we also made significant investments in expanding the PLUS brand beyond California, launching our 100% Hemp CBD gummies to a direct-to-consumer platform at plusproducts.com. We are happy to report the PLUS CBD is currently available to consumers in 43 states across the country.

Throughout the quarter, our team was also hard at work expanding our adult-use footprint through the commercialization of our manufacturing agreement with Taproot. We completed this effort days after the quarter ended, when our products hit shelves in Las Vegas just four months following the completion of the definitive agreement.

Our Nevada market entry underscores our commitment to moving not just quickly, but effectively. Despite being in the market for less than a month, we already have a top 10 selling edible product in that state and we are on shelves at 30 of the 60 dispensaries in Nevada, including all three MedMen locations and Planet 13.

While each of these initiatives resulted in significant one-time investments during the third quarter, we're confident these moves will pave the way for short and long-term growth for the company. We continue to believe that the branded products winner in cannabis will emerge from the California edibles market.

Today, California represents 38% of the global adult-use market, and more importantly, is expected to maintain a 27% share of that market through 2024. Ingestibles continue to show the most defensible price premiums on shelves as we see this segment growing as a portion of the overall market with consumers recognizing that inhalable products are not the safest way to consume cannabis on a regular basis.

PLUS has the best selling product in California, edible or otherwise, and maintains its position as a leader within the edibles market, putting us in one of the strongest positions in the industry to become a global branded products leader. Moving forward, we are optimistic about our prospects for growth over the next year with a multi-state expansion model that is already proving itself in Nevada, our direct-to-consumer and wholesale hemp CBD businesses gaining traction, and the expected growth of our home market here in California as regulators start to act.

Before I hand the things over to Jon, I'd like to also highlight the most recent additions we've made to our management team. Last month, we appointed e-commerce senior executive Jill Braff to the company's Board of Directors.

Ms. Braff brings decades of digital e-commerce and traditional marketing experience, which will be invaluable as we ramp online sales of our hemp CBD product.

On the research and development side, we hired Dr. Ari Mackler as the company's Chief Scientific Officer.

Ari brings medical and research experience from multiple industries to the table and is an invaluable addition to PLUS. At this point, I would like to introduce Jon Paul, our Chief Financial Officer.

Jon joined PLUS back in April and brings over 30 years of experience working with public and private companies. With that, I'll now pass the call over to Jon to go over our financial results in greater detail.

Jon, please go ahead.

Thank you, Jake. And thank all of you for joining us today.

Revenue increased to $3.5 million in the third quarter compared to $2.6 million in the same period in fiscal 2018. This increase in revenue was driven by our strategy to establish the company as a leading brand in the California market, in part by growing distribution to over 360 dispensaries and delivery services along with additional advertising and promotional efforts, largely focused on the company's updated branding.

With our healthy 8% growth in gross sales quarter-over-quarter, net sale fell 1% due to one-time promotion costs associated with the launch and sales of Mints in Q2 that were applied in Q3. Gross profit was $0.4 million in Q3 2019 compared with $0.4 million in Q3 2018.

Gross profit margin of 13% in Q3 2019 was down quarter-over-quarter from 20% in Q2 2019, due to the start-up costs for the hemp CBD launch in our Nevada adult-use market launch as well as the carryover promotion costs discussed above. Spend on operating expenses for the third quarter was approximately $9.9 million compared to $2.1 million in the same period in 2018.

This increase was primarily attributable to an increase in spending on advertising and promotion, general and administrative costs, R&D as well as an increase in salaries, benefits and share-based compensation from the growing number of personnel through several segments of the business, which I'll break down now. Advertising and promotion for Q3 increased to $3.9 million in the third quarter compared to $48,000 in the same period in fiscal 2018.

This increase is due to the company investing heavily in the launch of the CBD line as well as the re-branding of the PLUS cannabis line. General and administrative costs for Q3 increased to $0.5 million in the third quarter compared to $0.3 million in the same period for fiscal 2018.

This increase is due to higher facility, insurance, banking and other administrative costs due to the growth of the company. R&D for Q3 increased to $0.5 million in the third quarter compared to nil in the same period in fiscal 2018.

This increase in cost is due to work on new flavors, product lines and product reserves. Salaries and benefits in Q3 increased to $1.9 million compared to $0.5 million in the same period in fiscal 2018.

This increase is due to the company employing additional sales, factory management and corporate personnel to generate higher sales, pursue additional business opportunities and support being a publicly-traded organization. We also reported share-based comp of $1.4 million compared to $0.3 million in the third quarter of 2018.

Loss and comprehensive loss for the period was $11.4 million compared with $1.8 million in the third quarter of 2018. Q3 was a period of strategic investing for PLUS.

While capital expenditure was higher during the quarter, we expect these investments to generate improved margin and more substantial revenue growth in the medium-term. As of September 30, 2019, the company had $22.3 million in cash and cash equivalents compared with $22.4 million as of December 31, 2018.

Net working capital was $29.1 million compared to $22.4 million as of December 31, 2018. The company raised $23.9 million from the sale of convertible debentures and warrant exercises in the first nine months of 2019.

Despite these significant investments made during this period, we maintained a healthy capital position. We expect this represents enough cash to execute on our strategic plan for at least a year without external funding, putting us in a strong position as other companies are running low on capital and investors are hesitant to open their cash books.

With that, we conclude our financials.

Jake, just curious, with California, obviously enforcement is going to be critical to driving more demand to the regulated channel. And you mentioned some increasing signs that that’s picking up.

We were hoping for that for a while. What are those signs that you're seeing?

How much -- how quickly could we see things really, really escalate there?

Yes. I think we've all been waiting in California for -- thanks for the question, by the way.

We've all been waiting in California for the regulators to start stepping in. I think they were hesitant to do so.

And I think there's an understanding in the markets that about three quarters of the market is believed to be black here today. In a state of almost 40 million people, we have only 500 dispensaries, and that's not a sustainable long-term market.

And so in the last few weeks, regulators have actually for the first time started to seize and shut down companies, who are operating in the -- both black and legal markets. I'd say there are two types of companies that companies like PLUS compete with.

The first is companies that are in the black market and those companies don't operate in the legal market. And they're actually not that large of a competitor with us.

But there’s a whole set of companies that are operating in both the black market and the legal market. And those companies really are causing pricing -- to price suppression and they're not following regulations and pesticides and testing.

And so they really were thorn in the growth of the legal market. There's a company called KushyPunch which is one of our largest competitors, who is found by regulators to be operating both in the black and legal markets, their products 24 million of which was seized by the state about five weeks ago, and a couple weeks ago, they pulled their license.

If the regulators continue to do that and they continue to encourage other retail stores and other people to start entering the legal market, we think the growth in California will be primarily driven not just by the growth of the entire market, but by the conversion of people in the black market to the legal market.

And sometimes it seems like maybe regulators can be a little tone-deaf. And recently California announced some increases to taxes for regulated cannabis, and I'm wondering what your thoughts are on that?

How should we interpret that in terms of regulators understanding what the regulated market requires to be healthy? Are there any nuances to maybe why that raise happens and how those funds will be used or just any thoughts there?

So there's some legal parts of the bill that was passed here in California that have forced regulators hands in increasing taxes and the way that we do it, and it's something that is playing into that increase in taxes here in California. I think that at the time the bill was written, the expectation was that regulators would have taken more action by this time and we would have a much more healthy legal market.

I think regulators are starting to really get some pressure not just by companies in the industry, but actually by national news outlets as well, mostly due to the vaping prices. And I think that that's going to lead to more stores being opened.

I think that the increase in the tax rate is disappointing. Whether it persists and how long it persists is an open question.

But I think the most important lever is going to be then shutting -- regulators shutting down illegal businesses, not necessarily the tax rate because I think that one of the problems that has really helped the black market grow here in California is not just the discrepancy between tax cannabis non-tax cannabis, but that many consumers can't even tell the difference because so many shops that are in the black market have been allowed to continue operating quick, free and clear of anybody shutting them down.

Okay. And then just in terms of the hemp CBD products line, it sounds like you've launched in a lot of states.

That's great. The FDA, there's still some regulatory ambiguity there in terms of how the FDA is going to treat ingestibles.

And they’ve recently sent out a bunch of letters I guess to another 12 or so folks they felt were making health claims. And I'm wondering how you guys are positioned in that market versus maybe other gummy suppliers.

I’m wondering whether or not any of the folks receiving letters were making hemp CBD gummies, direct competitors, let's say kind of effective FDA indications of enforcement there?

Sure, so some of the companies who received letters from the FDA are competitors of ours. And I think the FDA has been quite clear with anyone selling ingestible products as CBD, that if you make health claims, and many of these companies were making health claims around either stopping seizures, or in some cases, [wild] things like curing cancer.

Those are going to not be tolerated by the FDA and you should expect enforcement. I think that what's important to understand for people as they look at the CBD market, which can be quite confusing, is that in the long run the FDA has always priced healthy ways of people consuming products.

And they've allowed products that are well-tested and within certain parameters to exist, even if they didn't allow them at first. And that's true for nutraceuticals and that's true for some other products from the FDA.

And we believe that because consuming CBD in an ingestible form has been shown to be less damaging than some of the other forms as well as there's clear indications from the research of efficacy to help treat things like anxiety and some other potentially early research has shown some other benefits as well. We think it's going to be important for companies to make sure they're not making claims, but actually providing products that are within the specs of around 10% of what they're claiming on the label.

We think if you do that, we continue to be in an advantageous position over companies who are not.

Okay. And then just last one from me on Nevada.

Can you just maybe go into the background again a little bit in terms of how you're approaching that state, Taproot and where you are in terms of the number of dispensaries as you mentioned a number in the call. But what that might look like in terms of penetrating the rest of them.

What are the different approaches required to Nevada than California? Just any more detail there would be interesting.

Sure. So we're in about 30 of the 60 dispensaries in Nevada.

We partnered with Taproot, which is different than I think many other companies and our partnership is rather than sending them a recipe and even maybe some equipment and how to make that recipe, we actually trained personnel that are operating in their facility on our processes to do it exactly our way. We found that when we did that, the product in Nevada look, taste, works exactly the same way as it did in California and had an immediate response when we brought it to dispensaries to put it on shelves, not just with the buyers of the dispensaries, but actually the budtenders and ultimately the end customers in Nevada.

And we think it's really important to why we’re seeing quite quick growth in Nevada and pretends well for our growth in other states as well. The philosophy, we've always had at PLUS was that if you can win here in California, then you have a product that is proven and you can take that to other states and that will work even if those other states have had a mature products in their pipeline already.

If you just provide a better product, you will be able to win. And Nevada is starting to show some early signs of that for us.

I’m just wondering, though, since you could give us some color on the competitive landscape in the edibles market in California, especially in period of Q3, in terms of maybe your competitors’ price discounting, was their more entrance to the market? Any sort of color would be great.

Sure. Thanks, Jason.

We saw quite a bit of aggressive marketing and discounting tactics in Q3. The cannabis market is a very interesting one, where we see a lot of new entrants entering buying shelf space, trying to increase their market share, and sometimes that market share sticks, and sometimes it doesn't.

Many of those programs, of course, are unsustainable. I think the most important metrics that we really follow as a company are CPG metrics, which are for us, we look at our sell-through and our repeat purchase rate and individual SKUs to monitor, which products we think are being repurchased by consumers, because it's very easy to encourage people to buy a product once for the marketing discount.

But if they don't like it, they won't come back and buy it again. Often, it takes a couple of quarters to learn whether customers have switched to a new product or if they are coming back to ours or tying somebody else's.

And we've found at least so far that our products have the highest repeat purchase rate in the industry.

Okay. That's good color.

You mentioned you are in 30 of 60 dispensaries in Nevada. Can you talk to the number of dispensaries in California that you're currently in?

I am understanding that -- I believe you got into a pretty -- into MedMen’s stores during that Q3 period as well.

Sure. We are in close to 370 dispensaries in California.

There are over 500 licensed. Our estimate is there are around 415 operational, although it’s hard to tell how many exactly are operating dispensaries.

So did that answer your question, Jason?

Yes. That’s -- that pretty did.

So, just my last question and you’d mentioned your competitor KushyPunch that had their license pulled. Can you talk to some of the opportunities that this provides?

Obviously, there's a big piece of market share that's up for grabs, how do you intend to capitalize on that?

We think, there is a large group of customers that KushyPunch was serving with the product targeted directly for them that are using cannabis to sort of enjoy life, and we think that that's a huge opportunity for companies like us to place new brands, speak directly to those consumers. But actually think the enforcement action against KushyPunch is even more important than just the market share gap that’s just opened up for companies like us.

I think it’s a sign that we are starting to see the early indications that investments in compliance and architecting your company around things like metric, which is a sale tracking system here in California are going to start to pay-off. We gained the most market share in our company around regulatory changes when we were doing the right things and other companies hadn't quite figured out how to do that yet.

And if you are a company operating in California now, whose either supply chain or your distribution channels are not compliant fully, you have just been given a warning that the state is going to start enforcing the regulations and we think that's actually even a bigger sign than the market share that’s up for grabs that’s of course we are actively going after.

You talked a little bit about how this is a transitional quarter in terms of revenue because you had a lot of products to launch either right after the quarter in Nevada or is at the very end of the quarter. You had about 10 days of the hemp CBD product, including the big launch.

Can you talk a little bit about how that product is tracking, what it contributed in those 10 days and what it is doing so far in the quarter? And obviously you mentioned that you're already on the top 10 list in Nevada for edibles and you are in so many dispensaries.

Reading between the lines, we should expect at least on the revenue line a pretty healthy fourth quarter. Does that sound about right?

Thanks, Greg. So we're going to follow up with a CBD number for the quarter with you.

In general, we haven't split out a revenue number that way, even make sure that I get that number correct. The launch with both Casper and John Legend we believe is quite successful in telling the narrative.

But of course from 10 days to extrapolate out, I think that's not the best way to predict the future of the business. I think it always takes a few quarters to tell how successful these things are going to be.

To Nevada, we have a top 10 product already in the market after having been in market for less than a quarter. And we think that is a good indication that if we can sustain that spot for another quarter, that we have a product that is proven and as we enter other states, it works and it works with customers.

We think that companies who can demonstrate that they have products and formulas and specific IP that allows them to compete in multiple jurisdictions, even when their entrants are already in place, are going to be at a real advantage to companies to have products that are going to be losing to the companies who enter in. That's an important indication and I encourage everyone to track our progress over the next quarter.

There are two analytics companies, BDS Analytics and Headset who show information around our shelves in those states.

Hey, Jake and Jon, thanks for hosting the call. And I wanted to follow up.

There’s been some discussion on KushyPunch and I appreciate your perspective. I just wanted to verify, did you say that you think there are other large operators in the state that are playing both sides of the street?

Absolutely. There are other operators in the state, who are playing both sides.

I will not speak specifically to who I believe those operators may be, but there's no question that there are people who are in cannabis in California playing both in the legal and illegal markets right now.

My next question is just on your growth philosophy in terms of geographical expansion or products. Can you give us any update on potential direction you are taking there or should expect that this year you will be focused just on your current product set in California and Nevada?

So we believe that any products need to prove themselves first in California before going to other states. And the next year, we'll be focusing on some introduction of new products here in California, as well as after demonstrating that we have been able to introduce a product in Nevada that has quite quickly gained top market share that we're able to -- we will then be able to expand that product into other states in the country as well as internationally as well.

We think it's one thing to say if you have a product that’s top in the most competitive cannabis market, it's another to have demonstrated that when you go into another state you actually can be a top player there.

Just as a follow up to that one. Are you in discussions with some of the MSOs in the out East for those part of the interstates or not yet?

We are in active discussions. We've been in active discussions for quite some time.

One of the requirements we have as we look to our partners, as to who we would go into multiple states and multiple jurisdictions with, is solvency and that has actually been an issue, and have been discussing with some of these companies. And so we want to make sure that anybody we go with is going to be around.

Because ultimately the customers are there, the markets are there. But if you can't make your products because the door is locked, because they haven't paid rent, it doesn't matter.

We want to make sure our partners are able to do that.

I want to thank everybody for making our first financial results conference call. We had an exciting last year.

And we're already well into the fourth quarter here in California and seeing some exciting changes on the regulatory side as well. I want to conclude by saying that at PLUS we've always believed that if you invest in great products and you focus on bringing those products to as many shelves as possible, you are building a brand with customers that will resonate well.

Because people buy things over and over that they love. And we love what we make and we want people to fall in love with our products.

So I think everybody who has been involved in our company, whether it's an analyst or investor, and look forward to hosting our next earnings call in another quarter. Thanks, everybody.