Q3 2020 Trulieve Cannabis Corp Earnings Call
Ladies and gentlemen, and this is the operator your line is where I mean on musical hold until the conference begins the conference will begin momentarily. We thank you for your patience.
[music].
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Thank you.
Now I'd like to hand, the conference over to your host for today.
And Ricci director of Investor Relations for truly please go ahead.
Thanks, Jack Good morning, ladies and gentleman and thank you for joining us today on the call with me today are and Kim <unk>, Chief Executive Officer, and Alex Demicco, Chief Financial Officer. Following our prepared remarks, we will open the call to questions.
Before we get started I would like to note that today's call is being recorded for the benefit of investors individual shareholders. The media and other interested parties. Please remember that our discussions today may include forward looking statements that involve a number that's uncertainties and other factors that could cause actual results to differ materially from those forward looking statements.
Statements made on this call speak only as of today and we assume no obligation to update any of this forward looking information.
<unk> financial results are provided and I offer and also.
Also our prepared remarks. This morning reference non-GAAP RF financial measures in order to provide greater transparency regarding truly where applicable. We may also provide a comparison to GAAP and non-GAAP financial measures to assist investors any non I have far and financial measure percentage should not be considered and alternative.
Two financial measures required by <unk> for us and our and.
And likely to be comparable to non <unk> for a financial measures provided by other companies and non iron ore and financial measures referenced on this call are reconciled and most directly comparable I infer a measured and the Companys mdna for the quarter ended September Thirtyth 2020, as well as in the table at the end of the earnings press.
We believe our profitability and performance are further demonstrated using these now and I have for us metrics. Please.
Please note that all dollar references or T.U.S. dollar.
This morning, we reported results and third quarter 2020, a copy of our news release financial statements and and DNA may be found on the Investor Relations section of our website to leave Dotcom and were also filed on SEDAR. And addition, a webcast of today's conference call will be available on our website. Later today now I will turn the call over to our.
CEO Kimberly.
Thanks, Len good morning, everyone and welcome to today's call to relieve exceeded consensus for revenue and EBITDA again, this quarter and keeping approximately 136 million and revenue representing a sequential quarter over quarter increase of 13% truly third quarter <unk> quarter pro forma revenue and clean the Pennsylvania acquisitions that closed last week.
Week with $154.9 million or adjusted EBITDA was 67.5 million or 50% and the third quarter isn't 93% increase in revenues and an 83% increase and EBITDA on a year over year beef and we're proud of that industry, leading profitability performance.
As discussed last quarter, we are transitioning to GAAP by year end and area that has a significant difference between apparatus and GAAP net income or net income on a GAAP basis would have been 17.4 million, resulting in an impressive earnings per share of 15 cents.
Alex will provide additional detail around our TC result, and the transition from my approach to GAAP before we get to that I would like to highlight our hub model and leads and strategy and both update metrics. We traditionally report on but Bert I would like to touch on the election, which is of course still top of mind for everyone.
Cannabis split the decisive winner on election night, and medical and I don't use fell at the top and a clean sweep from the New Jersey adult day, solid and the northeast and Mississippi medical ballot and the south the overwhelming support and these measures and sends a signal to our political leaders and Washington that cannabis is not a partisan issue, but a human one we are incurred.
And for brighter days ahead, and the U.S. regarding the cannabis industry are actively preparing for what that might mean and the years to come.
One of the ways, we are preparing as our hot expansion strategy, which divide the country into five hubs or region northeast Southeast Midwest, North West and southwest we will leverage the experience we have gained across the supply chain and these had a process. We've started in the northeast, we've established or north from Utah via acquisitions, and Connecticut, Massachusetts.
Good day, and most recently, Pennsylvania and be as stated before and we evaluate and acquisition opportunity. We focus on the culture of the potential target and whether or not it's truly values and second focus and why did the acquisition will be accretive, Pennsylvania and bodies, both with the closing of this legal and Pierpont acquisitions last week were expanding our northeast hub.
Pure kind of the premier cultivation and production company and to leave it brings us three successful and medical marijuana dispensaries and the Pittsburgh area. These acquisitions are a game changer for our beach and planned and they create and immediate and significant presence and Pennsylvania, a large and growing market and.
Moving is the best most populated state and the U.S. with approximately 13 million people and an expanding medical marijuana patient base of approximately 380000 patients as of September Thirtyth pure.
And your pet and leave out our prudent and profitable operator with strong management teams. Each company also and deep ties and support within their communities the transaction and offer state of the art facilities, a premium product portfolio, a strong and growing patient base and a state wide wholesale customer base and 100% of the 93 to countries and Pennsylvania.
We are expanding our 35000 square feet of cultivation to 90000 square feet and the additional facilities are expected to come on line by the end of Q1 2021, the expansion will allow truly to meet demand and Pennsylvania, particularly with the potential for operational use more likely now that new Jersey has topped a recreational initiative and especially side to leave us.
Customer centric philosophy has been wonderful to see throughout the acquisition process. The LIBOR experienced healthy patient growth this quarter and how to customer retention rate of 83%, reflecting strong customer loyalty, Pennsylvania is a major milestone for Trulia and we will continue to explore additional strategic growth opportunities and look forward to sharing more in Pennsylvania.
And future corners.
I'll now turn to Connecticut, where we began our northeast type operations, Connecticut was another successful transaction for us I've met the criteria I just described for customer centric values and profitability, our Connecticut and spent three continues to hold and market share and an expanding market our Bristol store and now one of 18 opened a century city and state yet maintains and outside the <unk>.
<unk> percent market share, we're incredibly proud of our Connecticut team for their outperformance another exciting deep breath, and the northeast region and Massachusetts.
Sales flour pricing remains strong and Massachusetts and given there is currently a significant power shortage and the state. We believe that this continues to be a great opportunity for truly to bring high quality products and the market now.
Navigation and the regulatory environment has been a slow road, but we are currently and inspection and approval phase of our birth to spend three and those are harder and 40000 square foot cultivation and production facility.
And additional delays attributable to cope and shutdowns, we are confident and we can get both approved and commence operations and the first half of 2021, we look forward and giving them more specific timing update and our Q4 call.
Another recent addition to our north East pad and West Virginia, just last week, we announced that we had been awarded a profit there permit approvals and medical cannabis licensee provides truly was an opportunity to bring the truly brand to west Virginia patients through wholesale opportunities.
Let's now switch to the southeast our home base in Florida, and the cornerstone of our South East hub and more southern states legalize and launch cannabis programs. We will look to expand truly was the undisputed leader and Florida a foundation and this success is our ability to quickly execute as demonstrated by having the first sales medical marijuana. The first sales flower and the.
First sales animals and the state.
Truly sold the first out a whole pro product and the state on September 2nd.
We've been planning profitable for a long long time and the main directive from our team was to have a go plan and place animals regulations were released at the end of August and within a week truly made its first day luxury gels and our Tallahassee store to a longtime patient and member of our tree that program. We only have one full month and day that still it's not enough to show a trend. However.
And with impressive and sell through rate I think we have a product that the market has clearly been waiting for we currently offer five flavors of three girls two varieties of two to three chocolate brownies and cookies from lots of and two varieties of previous chocolate bars from Ben and recently added true Nino gels and three flavors are 10000 square foot kitchen is cranking.
Working three share and we're already adding new equipment and lines to meet patient demand and addition to the launch of edible and other exciting products such as tricky I teach the product and CB and launched with BRE Blue River, which is a naturally occurring cannot benoit they can eat sleep without the psychoactive effect of a P.H.C.. We also launched our cold.
Of our collection a line of premium quality screens with unique flavors and her being profile. The cross collection will be rotational and available and select stores throughout Florida. We've had wonderful feedback from our truly per community on these new additions our strength of execution has allowed us to achieve and maintain our consistent share of over 50% of the Florida market.
Truly has built a powerful lead and the state and we have become the standard to patients from loyalty Trust selection and quality. This is reflected in our ability to improve on already impressive market share and October we maintained a 51% share of dispensation to the oil and increased to 54% for flour and recently had a record breaking weeks and both kinda.
<unk>.
Performance continues to remain strong and the fourth quarter operating 22% of the dispensary, yeah outperforming with approximately 52% of the market share third quarter piece and great growth and the state had approximately 62400, new patients just 300 patients shy of the entire patient count for the first half of the year. This is incredible growth.
We are seeing that patient growth come through and our store count and performance our expectations of seven to 8 million per dispensary on an annualized basis are now nearing $10 million per dispensary during the quarter. We continued our unmatched pete's of launching new stores opening nine new defend threes and Florida. This month, we achieved our previously stated.
Goal and 60 stores nationwide by year end and yes, there will be more to come as a matter of fact, we're looking forward to opening the Lake City location and Florida Tomorrow, let.
Let me take a moment now to update you on the key retail performance indicators, we provide each quarter to release customer retention rate was approximately 79% and the third quarter and sequential increase compared to 76% and the second quarter and 74% and the first quarter from me. This is quite meaningful as our focus on patient satisfaction translates to growing loyalty and.
Our two relievers.
We also track average basket size and number of it for the third quarter patients visited an average of 2.9 times per month trending up from 2.7 times per month, and Q2 average basket price was $108 for the quarter, we expected basket sizes and normalize somewhat in the third quarter and there were a macroeconomic drivers that play and Q2.
Such as Cabot related buying stimulus checks and tax refunds. In addition, we experienced a third party testing bottleneck and Florida during the third quarter product availability caused some patients have returned and that skewing the but it is higher and contributing to the lower basket. Another metric, we track and same store sales for the 29 stores opened for the entirety.
The third quarter 2020, so were also up and for the fourth quarter and Q3 2019, we had same store sales increase of 19% 15 of these stores were also up and in Q3 2018 from our analytics and based on the velocity of store openings and how rapidly their output brands. We see this is indicative of healthy overall growth.
Consistently achieving a profit result is a product of our ability to expand and optimize our production facility to support the continued patient growth I, just outlined and importantly key products and show you need not only alert cultivation footprint, but also deep expertise and supply chain management logistics and product development with a clear focus on efficiencies and optimal.
And these skills and scale will serve us well and regulatory barrier shift and we execute our hub model. That's really continues to expand its cultivation footprint. We're not just adding more plans, we're making investments and our people processes and production to meet ever growing and make demand. During Q3, we added 96000 square feet of cultivation.
And and another 24000 square feet in October, which brings us to almost 1.9 million square feet with annual capacity of over 86000 kilograms, and we're still building. We expect another 70000 square feet to be added by year end.
We're doing this while remaining agile enough to pivot responding to catalyst and the market such as the approval and new products or dealing with lots and third party testing third party testing flow down where you need to Florida. So let me take just a moment to add some context here.
I've mentioned earlier at the start of Q3, new testing regulations implemented that require all Florida licensees to test products that certified laboratories, as well and adding additional testing requirements to lease protocol. Since inception have included internal testing and our GMP certified lab, coupled with third party testing. So this is nothing new for us that was not.
True however for some of our competitors when third party testing was mandated loungewear immediately backlog with product to test and the bottleneck accreted impact and impact its release product distribution. Let me just say the process is painful and had an impact on third quarter revenue at one point to put it in perspective, we had close to 600000 units on up and.
Shifting we worked with our line and change from internal processes and assets into the fourth quarter, we see improvement and the testing turnaround times as evidenced by our record setting weeks discussed earlier I'm very proud of our performance this quarter not only in light of cobot, but despite that the double digit revenue growth performance and even more remarkable remarkable concern.
During and is building on the 26% increase to our revenue base generated in Q2, but.
The leadership to the company and Florida, and the distance between Us and our next nearest competitor and unlike any other market and the country and the transformational path. We are on for strategic expansion and the execute on our north East and South East hub is exciting.
I'll now pass the call onto our CFO, Alex Demicco to share our Q3 financial highlights and if he happens to cost and for the record. He does not have cobot, but he does have asthma, Alex. Thank you Kim and good morning, everyone as Kim cover at the top of the call. We had a very strong quarter for revenue and profitability true we've had record quarterly revenue of 100.
And $36.3 million, representing a sequential quarter over quarter increase of 13% and 93% increase over the same quarter last year unaudited pro forma revenue, which includes pure pen and silly, though and assumes the acquisitions had occurred on January Onest 2020 would it be and 154.9 million down.
Hours for the current quarter and $392 million for the nine months ended September thirtyth.
As a reminder, this will be our last quarter reporting on and I have first pieces and moving together there will be a subtle shift and how we report certain items, we will be discussing the GAAP equivalent to key financial line items for the current quarter as I walk through our financial results.
[noise] a measure any tie out for EPS is production expenses and cost of goods from third party suppliers I would like to remind all of you about something that was communicated on our prior calls. This line is not cost of goods sold as you would find under GAAP and as a cost of goods plus other production costs and accounting election, and there I FRS allows from.
For production cost of our pre harvest costs to be expenses incurred therefore, the additional cost added here and would differs from the cost of goods sold line under GAAP for those of you attempting to reconcile our those production costs related to the unsold inventory or said another way, what we call CRO costs for unsold inventory.
I'm very happy to say that this is a very the final quarter, we will have this dynamic.
[laughter] on a consolidated basis production expenses, and Florida and cost of goods from third party suppliers in Connecticut, and California total $34.1 million for the third quarter revenue less these production expenses and costs was $102.2 million for the quarter or 75% of revenue. This compares to net.
And $1.1 million or 75% and the second quarter and.
We stated last quarter, we are continuing to realize the benefits of our efficient production and cultivation processes in conjunction with the fact that we did not do a spring greenhouse planting.
And as possible for our gross margin to fluctuate a few basis points and either direction from quarter to quarter, depending on inventory flow through and product mix under GAAP. We also had gross margin of 75%.
Now I'd like to update you on inventory at the end of Q3, we had a total of $205.3 million of inventory, which includes a significant amount of fair value. We also had $34.8 million and biological assets. This compares to $219 million of inventory and $333.3 million of pilot.
Total assets at the end of Q2 on.
Quantity basis, we ended the quarter with approximately six months of inventory up and down from approximately seven months at the end of Q2, resulting in a $13.7 million reduction in inventory in the quarter.
Inventory and biological assets are two of the areas that showed the greatest difference between IRS and GAAP for our business under GAAP. We don't have the concept of biological assets and all fair value is removed from inventory.
Such to $240 million of inventory and biological assets that we reflect under IRS would equate to $77.7 million and inventory under GAAP.
Our oil inventory levels remain a differentiator, enabling us to quickly respond to challenges such as cold and and catalysts such as edibles I'll now turn to expenses third quarter, SG and expenses, excluding depreciation and amortization were $37.9 million or 20% of revenue compared to.
$33.1 million or 27% of revenue in the second quarter of 2020, the slight increase this quarter is primarily due to the opening of nine stores and the quarter versus five stores and the prior quarter.
We expect increases in operating expenses through 2021, as we continue to add the centuries enter new markets and ramp our infrastructure to support our growth initiatives and go forward compliance, but we do not anticipate a material change as a percentage of revenue overall.
Overall, keeping a high degree of financial discipline around expenses is one of our Keith profitability.
[laughter] operating income for the company was $43.4 million this quarter compared to $37.5 million last quarter, and net income was $4.7 million for it and third quarter compared to $6.6 million in Q2, resulting in EPS of four cents under.
And the right for us for net income and EPS. It's important to note that if the fair value impact of biological assets and the revaluation of our debt warrants were excluded net income would have increased $33.3 million for the third quarter compared to $20.4 million and Q2, resulting in EPS of 30 day.
Yes.
Under GAAP, the fair value impact of biological assets accounts and goes away, but the revaluation of our debt warrants will really as Kim mentioned net income under GAAP would be $17.4 million, resulting in EPS of 15 cents on a fully diluted basis.
Focusing now on EBITDA, we believe adjusted EBITDA, a non I have first measure provides valuable insight into our profitability performance adjusted EBITDA excludes from net income as reported interest tax depreciation non cash expenses RTL expenses share based compensation other income growing cost.
Related to biological assets, and unsold inventory and a non cash effects of accounting for biological assets, we reported adjusted EBITDA to help investors assess the operating performance of our business.
Adjusted EBITDA for the third quarter of 2020, with $67.5 million or 50% of revenue compared to $60.5 million or 50% of revenue in Q2, 2000 $27 million improvement and adjusted EBITDA. This quarter is primarily due to the increase in revenue partially offset by increases in operating.
Fences and production expenses and cost of goods from third party suppliers. This is even more impressive when you consider the cold and response costs incurred in the quarter to keep our employees and patient sales and the investments we've made throughout our facilities and dispensers in this quarter. The GAAP equivalents adjusted EBITDA was a proxy.
And at least $65.8 million or 40% of revenue. The primary reason for this difference relates to the accounting treatment of leases under GAAP, which was factored in and when we provided our increased guidance last quarter turning.
Turning to taxes as a percentage of gross profit, including the net change in fair value and biological assets, our tax rate was 25% for this quarter.
We continue to maintain a strong balance sheet and cash position through.
Through the end of the third quarter, we have delivered $73.7 million and cash flows from operations for the year. This is the result of our continued quarter over quarter profitability in the quarter itself. We have the unique onetime impact of the Cobi tax extension, whereby we paid $45.4 million and tax payments in July.
That were delayed from the prior quarter. This was coupled with our standard quarterly tax payment in Q3, two lead to $70.9 million of tax payments in the quarter. The double tax payment resulted in negative 4.2 million of cash flows from operations and a quarter, where we would have been positive in both Q2 and Q3 had a timing of tax payments remains.
Standard as such it is more appropriate and this case to look at the last two quarters combined where we have delivered $49.1 million and cash flows from operations. We fully anticipate positive cash flows from operations on a quarterly basis for the foreseeable future.
We ended the quarter with a cash balance of $193.4 million, our strong cash the cash position allows us to quickly leverage the foundation, we have built to capitalize on expansion opportunities organic growth and go deeper in the states, where we operate in that regard we plan to continue ramping our indoor buildings as we move.
Onto the market and response and the demand for flour, we will invest back into the business with capex expenditures through the remainder of the year and throughout 2021 to support our raised revenue guidance for this year and our planned 2021 revenue targets, which we will detail for you next quarter.
Total capex spend for the quarter average just over $11 million per month. This includes the build outs of our Florida production and cultivation facilities as we continue to ramp our infrastructure to respond to the market demands for flour and the construction of our new dispensers. This amount also includes what we refer to as operational Capex.
Fit outs of the centuries equipment utilized for automation and processing efficiencies security and systems inclusive of upgrades. Finally, we have our buildouts in markets outside of Florida.
We expect a similar run rate through the remainder of the year. We also anticipate continuing to ramp our production and dispensary facilities in 2021, as we support our growth initiatives as we look forward to 2021 and beyond we will evaluate market demand and growth and our current markets to determine our expected capex.
Last quarter, we raised guidance for revenues and the range of $465 million to $485 million and adjusted EBITDA of approximately $205 million to $225 million, while we're not adjusted guidance at this time, we do not expect declines in Q4.
Please note that our guidance does not contemplate our recent acquisitions and Pennsylvania, where we will have the benefit of approximately a month and a half of revenue in our consolidated here and results.
I will and by saying that I'm proud of what we've accomplished to date, we have optimized our accounting and finance departments enabled us to fully capitalize on all opportunities as we continually assess our M&A and applications pipeline, we have upgraded our sep platform, which will lead to increased compliance and analytics capabilities for years to come and we.
We're well on our way and our transition to a U.S. reporting company as is evidenced by the GAAP metrics provided today from.
Finally, we have begun the formal buildout of our Sarbanes Oxley program, which will continue throughout 2021. This will enable us to quickly take advantage of uplift opportunities when they arise we are looking forward to and exciting ended the year and and even better 2021, I'll now hand, this call back over to Kim for closing remarks Kim.
Thanks, Alex 2020 has been a mark to your for change not only with Cove, it but in a more encouraging manner around the social justice conversations we are having as a country, giving back to communities, we operate and and supporting diversity equity and inclusion efforts are part of our core values. In addition to social issues. Our team is actively some.
Operating many great causes that are important for our patients and their communities, making a positive impact doesn't stop there we understand environmental issues are important which is why we just issued a sustainability review, where we are and where we will be focused and the year to come there's more to growing a business and just the day to day operations and bottom line, we're growing officially and and.
Directionally responsible company that is ready for the future.
And that future is exciting as I shared last quarter and throughout our remarks today truly was on a strong trajectory and we are operating with a clear set of priorities to maintain our leadership in Florida and expand our brand nationally our team and highly focused on executing strategic strategic initiatives to support our hub model and we are excited about not only ending up.
Eight year, but also the road ahead as we enter 2021, bringing the Trulia brand into new markets. Thank you for joining us today and as I always say onward.
Operator, we can now open it up for questions.
Certainly at this time, if you'd like to ask a question. Please press star one Derek delay with Canaccord Genuity. Your line is open.
Hi, Thanks, and congrats on another really really strong quarter.
I just wanted to talk a little bit about sort of capital allocation priorities and plans are you guys are obviously and in a very fortuitous.
Balance sheet position, and we did see a and increasing capex. This quarter should we expect something similar you over the next sort of few quarters as you guys execute on what seems to be quite a big number of growth opportunities.
I think Derek you know our Capex is really something that we focus on and we and we strategically evaluate on a continuous basis and that will continue and it is important for us to make sure that in our core markets, we're continuing to invest appropriately and that we can generate that return on every dollar spent and that is something that.
We hold ourselves to a very high standard clearly, Florida has been a market where that investment has a significant return for us and generates cash that were then able to continue to and to invest not only in Florida, but and all our other growth markets I said, what I would say is that and you know we're not prepared on this call.
Paul to provide specific guidance and on a forward basis related to capex, but we do of course have ambitious growth plans and not only for the remainder of this year as reflected in our increased guidance, but also as we look into 2021 and and as we're putting and that plan together, which we're going to share with you all on the next call and it will require.
Of course, I'm investments and Capex and as we as we build out that platform. So more to come on that but certainly as you heard from Alex you know you can expect the current run rate in Q4, and really that Q4 as we all as we all know this Q4 capital investments are really 2021 capital investments at this point because.
Particularly when we're talking about cultivation and production investments those require and investment upfront, but it takes a minimum of a quarter breast to begin to realize revenue and and output from those investments.
Okay. Thank you Thats helpful and just in terms of when we think about some of the additional states that you brought on or are certainly that are going to play a bigger part and 2021, and we I'm thinking, Pennsylvania, and Massachusetts, which do have wholesale markets, obviously different and Florida can you just talk about I'd be curious to hear your approach to wholesale and how you are.
Thinking about attacking that portion of the market.
Yeah. We are we are extremely excited and to get to get into you know activate our wholesale a line of business and we have been on the ground and in Massachusetts now for quite some time really feel like we have a fantastic understanding and graph on that market, and clearly and Massachusetts with and.
And friction on number of retail we do believe that wholesale will be an important line of business for us to be successful on and and again, it's a tool and the tool box that we'll need to deploy depending on the regulatory regime of of the market and we do understand and I think everyone understands that having a vertical platform and certainly the most profitable and something.
And that we have excelled on sales we will continue to add to continue to have a vertical channel wherever we're that's allowable. However, we also understand that in some markets. There is a limitation to what that channel can provide and diversifying into wholesale channel where you then have access to an ever increasing.
And slice of the pie if you will with respect to other industries that are that are coming on board is it's very very important too and so, Massachusetts and that plan has been developed and and we're looking forward to launching in Pennsylvania, and specifically, we're very excited that we have and a 100.
<unk> percent penetration currently in three through the wholesale channel and and we'll be looking to maintain that while also of course producing enough that we have good depth of product and across all product type a and.
And in stores that are also under the company umbrella.
Great. Thank you very much.
Thanks, Eric.
Missile Stanley with Beacon Securities. Your line is open.
Oh, good morning, and and congratulations as well and.
Just wondering pardon me with respect to Florida and.
The dispensary Buildout there congrats on on reach and your target well in advance. So can you just elaborate just how many openings we might see before year end and and if you have any preliminary thoughts on the pace of expansion in 2021.
Thanks stress and we're not going to give a specific number and for year end and like I mentioned, we are we do have a grand opening tomorrow and Lake City, which is a fantastic and location and it is actually off of two two primary interest Interstate I 75, and IP and and is it and I think a great area.
For for both medical and then one day potentially and recreational market here in Florida. We continue to monitor of course, all of our metrics that lead to lead us to make the decision and four store expansion, including of course customer demand current sell through rates and I'm and wait times on existing dispensary and then.
Of course with an eye toward what's.
What's to come on but not potential and recreational and you can.
Moving to fruition, and Florida, which and.
Again with the recent activity with the elections across the country and sort of the tone and.
Typically we think certainly has a shot here in Florida and 2022.
Great that's helpful and and maybe if I could just around the impact of the testing delays I think you still be.
Consensus and and and so we are estimates, but can and can you quantify the revenue impact of those tests and delays.
Yeah.
Right, we actually we don't have a specific revenue impact and obviously, that's a multi dimensional question and but what we can say is that we have certainly seen the pull through into Q4, which I know that you all are all seeing as well and as you look at the numbers on a weekly basis and you know.
And with respect to our performance and really the market as a whole I here in Florida. So I know, we saw those that sort of rate flow down a bit last quarter and we really do think that that was due primarily to just again product availability, we certainly weren't meeting our targets with respect to depth and.
In certain product categories that we know are drivers for.
For patients and yet what was it has been very encouraging is that we've seen that demand.
Almost immediately back once we were able to get those products clear from that bottleneck and back on shelves. So we.
We are and we are seeing kind of the I guess, the the pull through again in Q4, and and I don't have an exact number for you, but and we certainly do believe that we could have been higher and Q in Q3 had that not occurred.
Understood Thats, great color, Thanks, again and congrats.
Thanks.
Matt Mcginley with Needham Your line is open.
Thank you on the acquired assets and Pennsylvania. It looks like you had pretty strong sequential growth at least from this.
First half really into the into the third quarter, how much of that growth and the third quarter was driven by increases in retail productivity versus cultivation I'm not sure. If I should have seen a similar sequential increase and in the fourth quarter is worth that third quarter is kind of like a baseline adult day.
To to model off of.
[noise], Matt Yeah, we're not we're not prepared to give any additional depth of color and as you know that's and as we certainly state and unaudited numbers at this point and we'll have additional color for you all and as we again moving to the move into Q4 and year end and get through our get through our audit and from that we can speak with a bit more.
Competence and specificity around those numbers, but yeah, we're not at this point and prepare to give give any sort of breakdown on that.
Okay, and just the pace of unit growth and Florida and does that you've been growing at like 60 units per quarter does that feel sustainable and a 2021 or do you feel like either internally or externally or sort of stress with with something that's that's sort of growth rate.
I certainly don't think that it's a it's a strain from a from a <unk> ability to execute standpoint and.
Clearly, we look at those numbers and a very analytical way and in terms of pace.
Pacing to meet demand and and making sure that were and within our kind of operating metrics. If you will I don't think that it's certainly not a stretch from a from an execution or are a team or what our pipeline looks like from a retail location standpoint, and just would be a question.
And in terms of whether or not it makes sense given sort of the overall and.
Yeah, the overall mix and mix and how it fits into our metrics.
Okay. Thank you very much.
I was wondering with Cantor Fitzgerald your line is open.
Thank you good morning, and just can you give us an update in terms of those Supreme Court cases, and the state one regarding wholesale what are you hearing how do we handicap that.
And the second one I think is related to potential Barlow for Reg, but just any more color and context around those two cases, please and timing.
Thanks.
Sure I wish that I had and I.
I wish that I had a substantive update for you I don't we're waiting on the Supreme Court and both instances and so.
Nothing new yet and as a result of the oral argument the second round of oral arguments on the on the we'll call. It the wholesale case on that and that the Supreme Court had oral arguments again on in October and then also nothing on the ballot initiative, yet and so I really.
I don't have anything anything that and that you all don't know on either of those and but we'll certainly I'm sure be talking one once we hear once we hear from news from the court.
Okay, and just a quick follow up you know a little bit.
Competitors from talking about adding capacity and Florida.
Obviously switch from one from them, but do you have a sense of what's really going on when I look at the more data.
And the interesting that you know the number 2345 positions tend to shift week to week or the month to month and.
Companies are necessarily you know they don't have the same position and say oil flowers. So that's a contributor Roger I don't know if that makes sense, but any color you can share there.
Yeah, I mean, obviously I can't I can't speak to and competitors and and what they may or may not be doing strategically although I can say that if you don't have enough capacity than you do have to make decisions related to.
Flower versus sell and how you're allocating how you're allocating that supply and.
And certainly and we've refined our and our product mix as well as our I'm as our growth techniques and the way that we're the way that we're allocating different material for different product lines and it's it's it's.
It's a very simple concept to say it gets much more complex and practice and and as you know we've diversified our grow with again the greenhouse the greenhouse inventory, which gives us a <unk>.
Robust supply chain of.
And less expensive and put material from biomass for all products and then of course, we have our high quality indoor grow which is delaying delineate and between flower and then also higher and concentrates and sales and I do think that our scale provide certainly a competitive advantage and our ability to continue to keep our product line fresh and interesting and diverse and.
While others may be and finding themselves into more decision maker, having to make more specific decisions around pemex and due to supply constraints.
And I, one last one and maybe more for Alex but strength.
And the guidance, you've given from Pennsylvania, so that the value and we the other loans was 141 million right and you said, it's below five times EBITDA. So it means you know full year run rate of EBITDA about 30 million you from.
Yes.
And with 25% margin that means 120 million sales next year, and Europe and given the operation.
For these sort of core to the idea of on nights and maybe on grade and 76 on your life.
It would seem that number is quite doable and that.
Actually beat that number based on the growth momentum and.
Any comments you might have there or Alex.
Yeah, I mean, you know as you know Pablo we're not we're not providing guidance and I think specifically found that this year's guidance does not include the Pennsylvania acquisition and certainly as we get into a.
Another round of guidance as we could not potentially coming and you know as early as as the next call and I think and again as we get through the Pennsylvania audit and and really make sure that we've got and you know clear clear handle on on exactly what that May look like and then I think we will be in a better position to add to it.
Comment and on that specifically and but with respect to what we released about the deal and of course. It stood just remind everyone. We do have a specific presentation on the acquisition available on line I truly dot com and our investors tab that the folks there are more them off and to refer to.
Thanks.
Andrew Profiting with Stifel. Your line is open.
Hi, Thanks for taking my questions.
I wanted to maybe discuss on a promotional environment currently and.
And Q3, and and Q4 did you give a little bit of color on on how you see that evolving and.
As well the the.
The product mix that you had in Q3 and.
And how that may or may not have affected average pricing.
Sure.
So we have very specific criteria that we hold ourselves to with respect to you and with respect to promotions and our and acceptable range. If you will on a on a on a monthly basis and with respect to promotional activity we've been within that range.
Every month, and and well within that range and so we feel very comfortable and haven't seen any significant shifts and that that weve that at least affecting affecting truly with respect to the market at all as a whole certainly and I think as the as the last and as Pablo and a lot speakers.
Directly identified we certainly see swings among other competitors and in terms of there.
Changes and position.
We believe based on our analytics that.
Some of that does have to do with what promotions, they're running or what they're focused on with respect to particular product classes or segments and so you certainly may see a higher level of promotional activity and it it may not be overall higher level of activity just maybe a higher level of focus on a particular product segment and again that may have to do with their product mix.
Et cetera, so and but overall I would say globally as it as it relates to truly we're certainly well within our range and have been consistently within that range for on a and from a promotional perspective quarter to quarter and and month to month.
Great. That's very helpful. Thank you.
And.
Just on another topic of and.
Day.
You, obviously have the ability to deepen.
Deep and your footprint within Pennsylvania and.
And more store licenses there.
Would you say that that could be a focus for you or.
How does that.
Focus.
Play with.
Relative to entering even more new markets.
Yes, as I've said and historically and we certainly are focused on line and profitability and increasing profitability wherever possible and markets that we that we operate in and obviously that's dependent on opportunities that are that are you know that exists.
And and we are opportunistic with respect to with respect to M&A and on the call. We tried to clearly identify our priorities with respect to the build out of our southeast and northeast hub.
Which will continue to focus on and as we enter and as we as we close out 20 2020 and enter 2021.
Okay. Thank you and congrats on the good quarter.
Thanks.
Basins and Berg with Pi financial your line is open.
[noise] well thanks for taking my question.
Just wanted to maybe.
Shifting gears.
Onto a west Virginia, just first of all congrats for.
We recently being awarded and license and that stage.
Processing side, just just wondering to get your your thoughts on pursuing further licenses and that stage.
How how important do you see west, Virginia, and your roadmap moving.
George just any color you could share would be fantastic. Thanks.
Sure as an adjoining state assets, Pennsylvania, and certainly again as we're thinking about operational efficiencies and that northeast hub and West Virginia with an average fall application target for us at the state of course this is not a through awarding a wedding licenses there and so.
So we'll have again and more and more complete evaluation of what that market may or may not look like and once we're completely through.
The licensing award process, and and again and clearly are going to be evaluating and impacts and we'll have additional color and as we as we look to add to contribution from that state and 2021.
[noise] Kenric Tyghe with VTB capital markets. Your line is open.
Thank you and good morning and.
From a quota.
Kim just with respect to edibles, Edibles, and Florida could you speak to.
How you see edibles, the form factor evolving as a percentage of mix or rather what you see edibles, representing let's call. It.
A year or two down the line and then the follow on to that would be what is the raise through and Sam's your gross margin profiles of edible X Y and how should we think about the potential impact of edibles and quite on your margin profile between.
You know Adam also has been a fantastic and addition to our product mix and so far and.
Clearly, we're in the ramp up phase and certainly.
In Q3, and as we were bringing animals on line and then coupled with our testing bottlenecks you have to remember that labs and we're also testing animals for the first time, which is a whole different and that's a whole different animal with respect to how those tests are performed and Ben and and that and quite frankly, the number of cash.
That has to be performed on edible has required by the state of Florida. So that's why we were hesitant and and large part together you know any specificity around those numbers for Q3, because quite frankly, we had a lot of a lot of products hung up and testing that then got got kind of shaken loose if you will towards the end of the quarter.
And now we are seeing and Barry.
Very impressive you know edibles is at the top of our sell through rate from a velocity perspective. So we are seeing very impressive sell through rates on our edibles and what that's telling us is that we need to make more of them and faster and so that's a surrounds our call you know the comments on the call around ramping production.
And making sure that we're fully stopped all three shifts and looking at expanding equipment operating lines and so forth and so on because we know that the demand for that product category is here.
So we see it as a strong contributor and moving into Q.
Q4, as well as into early 2020 line.
We have it again given specific specific guidelines on margin contribution or profile and I think we all know that the edibles and general are and do you tend to have a stronger margin profile again that was tempered somewhat because labs and so forth, we're trying to get their feet underneath them and actually required and.
And on guidance. It was just issued by the department of health around and adding some more practical and quite frankly, and we are appreciative of it guidelines in terms of in terms of how many tests and and that will greatly affect both the cost and the timing flow through of getting out of aftermarket and Florida. So that's a bit in flux right now.
And but but they are certainly and.
Above average with respect to a merger and performance.
No that sounds from grading Soc, Kevin just on the on the velocity discussion.
Today.
Very impressive catch and that you have the 10000 square feet and all the regulatory or other constraints. It look for food expanding that I mean I appreciate that there's only so many new line and layer and so that 10000 square foot kitchen.
How do we think about that and is it a regulatory constraints essentially expansion.
Yeah, and Florida, there's there's not and there aren't any regulatory constraints across the supply chain, which is one of the reasons quite frankly, it's such an.
Important market for us and and why we've been able to reach the scale that we've been able to reach which we think of course will be important because as again the regulatory landscape shifts across the country. You know the ability to have the operating and really understand what it takes to operate at truly truly scale and we think is critical.
In terms of our ability to actually produce volume and.
It's one thing when you have a.
2000 square foot kitchen, and you're running one shift a day right. It's quite different when you're doing literally were at a commercial manufacturing level I'm of course, all GMP certified and so forth, so theres not a regulatory constraint and.
We would think about adding an additional square footage and for for a kitchen and certainly at our and discussions around that as we think about Capex and we think about expansion going into 2021 and of course, there's the the timing right on not and and that of course is a separate conversation, but no regulatory constraint and certainly we see it.
As a strong contributor again as we move into 2021.
Thank you Kevin just a very quick follow up on the slip on and on Pennsylvania. Please.
The expansion to 90000 square feet is it largely or entirely to service the wholesale opportunity or is there an opportunity with and the leave I stole his whole and increased penetration or not or less buying and those of product cost. We think about that as a direct and wholesale exclusively or is there also some.
Additional opportunity within the three so do you have.
So right now at pure Pan and selling into so leave out at a fairly low rate. So we definitely believe that there is increased availability to sell through into this leave though locations and then of course in addition to expand our wholesale and penetration as well not their punit.
And convert 100% of the stores, but to increase the mix and to increase the variety and and quantity of product that they're also selling two and two and to whole set to be added to the wholesale market as well. So we think theres upside on both on both both avenues.
Thank you and not wait until later.
And Eric.
Character, Lori with Craig Hallum Capital Your line is open.
Alright, great. Thanks for taking my questions and.
Congrats on the strong quarter as well first one for me as a follow up on Cameron's question.
So.
Weve right now pure pen or Moxy production is 100% concentrates I guess correct me if I'm wrong there.
You also stated that you'll be expanding cultivation from 30.
35000 square feet, and 90000 square feet and of course further room for expansion.
Should we expect to see some flowers production coming from that expansion.
And if you can offer any color, whether whether it will be moxi or or truly branded.
And then.
Colder and margin profile difference between concentrates and flower if you're willing.
Willing to offer and would of course be helpful.
Yeah. So you know just a quick reminder, on and Pennsylvania, as we move into 2021, and and I know you onto that but we are and earn out. So there is and we are and and we look at we look at that very and as a part as a true partner and and two we are in a bit more of a consultative and.
Relationship through 2021 and that being said you know certainly there is an expansion we are and deep conversations with our partners around product mix and and finding different models and considering and the different strategic alternatives and for the expansion.
That that 35 to 90 to 90000 square feet and certainly as pure paid and the past has provided flower I say they are equipped to and know how to grow very high quality premium flower that had incredible sell through as we know the Pennsylvania market of course does have and.
Current flower short and like a lot of markets across the country I see that as part of the discussion and so I am not in a position to comment today on that however, and again kind of conversations are ongoing we have and you know a great outlook on for for Pennsylvania and for that relationship moving forward and and look forward to being able.
And to bring a variety of products and the market.
Okay. That's helpful.
And then.
And can be regarding the testing backlog and Florida.
First can you comment on how you were able to get edibles out so quickly and mid that backlog and.
And.
Commentary on whether you expect the testing backlog to improve I.
I know from my personal experience and testing backlog is difficult to work through and especially with edibles with the various matrices and bald there.
So any comments on whether you're seeing more labs opening or current.
Current lab increasing capacity.
Just any any kind of comments on.
Your thoughts on that testing backlog and how we should think about it.
Going forward.
Sure and you know with respect to our ability to get out of those out the door and as we've mentioned now I think you all have literally heard me talk about edibles now for the last three calls or style. So I think we can all appreciate that its been top of mind and it was no surprise that we were sitting on go related to edibles and what that meant is that.
We had oil and reserve allocated and ready to be batch, we had all of our formulation and our kitchen was approved in advance and our amendment for drafted we kept it very very simple and and what we thought could be approved easily and by the department and given the statutory rate.
Wire amounts that were clearly outlined and three years ago, and the and the edible section of the Florida statutes. So preparedness and then our teams laser focused on being on execution I mean, the the rules came out I believe midafternoon, our team worked literally around the clock and hill until we made.
Not for sale. So it wasn't something where we were looking at it like there were there were 12 12 hours of a time to work and a day I mean, it literally was an all hands on deck 24, seven plush so and you know in terms of in terms of the line also when you're talking about smaller batches from a launch perspective.
That becomes much easier to handle then again as we ramp up to production level batches and varieties of products and we're talking about not only the tree Giles or gummies, but we're also talking brownies and cookies and chocolate and that becomes of course and more complex depending on the form factor and with respect to you, how we see that clearing and issues.
And there was not to get too granular here, but initially there was some confusion and it could have been interpreted that literally over 40 tests were required per batch of edible that now has been clarified and by the department of health.
And some of that I would like to think as not only ourselves, but many of the other companies and the state asking for that clarification, along with the lab. So we now have a clarification and actually much fewer than that so that helps and in of itself and in addition, we worked with our lives and have just have we have a high level of transparency and there's literally report that goes off to them every single day with.
When they promised at where they are and what our expectations are and so I think it's just that and working and making sure. We've got good processes in place and also clear expectations that lots of also increased their their equipment and additional lots to your point are getting certified and the state. So it's a multitude of factors and in terms of what's going on.
And with that dynamic, but I think as far as truly that is concerned we have successfully cleared that backlog and are now back on track within our I'll call. It pre testing backlog parameters in terms of sell through and flow through on our on our tough.
And our that's great to hear I appreciate the color.
Okay, and Gray with Alliance Global Partners. Your line is open.
Hi, my congrats on the quarter and thanks for the question.
First of all let me just want to.
To come back at a Bulls you appreciate still very much early days, but just on what.
Regarding the sell through rates that you talked about just wondering if you could give any kind of initial kind of consumer takes that you have how you've seen it increase basket for those people who have been taking on edibles.
Have they been adding on to maybe the other form factors they've been been buying and then also because you guys had been ahead of the curve in terms of getting annabelle onto shelves have you seen any uptick in terms of new patients that might be coming to truly Ben and been going to a competitive price and competitive price because you do have some edibles and pebble, even though it might be a country and for you guys.
Thanks.
Yeah, and certainly you know, we have and approximately 90% as a product of patients that are and Florida, Florida patients had and have visited a truly location and so their and our database and they're there and they're part of our our group that we are.
Continually message and and and get out and.
And get and get product to you and so I would say that certainly and we continue to see a strong and a strong capture rate and of patients in Florida, I can't speak again, specifically because the impact on the quarter quite frankly, I was not significant enough due to what the comments that.
I made earlier around and when Edibles were approved and then what we saw when we when we were ramping and in terms of production level batches and.
And trying to get those on shelves. So I don't have that data specifically for the quarter and but certainly again and believe that we'll be able to add some additional some additional data points for you all and next.
Next quarter as we as we see that come through.
And in a more meaningful way and Q4.
Okay. Thanks appreciate that and then just second one from me just in terms of the store expansion as you guys look to 2021, specifically for Florida, just talk about how you think about you know the locations and store set ups, particularly with potential for adult use maybe coming on line and 20.2, and how you might think about store locations.
And the set up differently than and maybe you had historically when it was predominantly middle market a few years back. Thanks.
Absolutely and the team is very excited about continuing to look at and Florida, not only as a medical but also potentially as a recreational market and and certainly are have that as a consideration and first stores and through our build outs and 2020 line and I think what you.
So what you'll begin to see from US is then some different store footprints and so you know we kind of have a standard store and then we will begin to look at and units and flagship or and different locations as we think through and again try not to be too premature on that and making sure that it is time to appropriately.
Okay, and with the Marquette and but for example, you see our Daytona Beach store is a larger format store and we utilize part about store currently as more of a day.
And as more of a delivery and delivery platform kind of back of house, but have plans that again that location will be we believe is very very strong location from recreational perspective, so could could flip that store into a more and we'll call it and.
Sure and Joel a location, if and when a recreational and looks to be and more certain and so and certainly we've got some other and locations that we have our eye on that would be that would be similarly positioned.
Okay, great. Thanks.
Andrew simple.
Echelon capital markets. Your line is open.
Hi, good morning, everyone and congrats on the on the results.
I think if I just I just wanted to touch on.
And and the and remarks.
And your average reaching 10 million of sales per location just want to clarify is that something that youve already achieved to date.
And I also want to get your thinking forward as you continue to open new stores and.
I think there's still.
A number of underserved markets, where you can continue over opening.
Stores that would achieve this level and the productivity.
If you had any thoughts on that.
Sure. So the answer is yes, we have achieved that and in terms of additional store growth and certainly you look.
Look we're not a company that is going to open stores, we've never been a company that does things just for that just for the press release rate and so we were not going to open source. If we don't think that those stores would be able to to be strong contributors to our profitability and or are needed and to make sure that we're keeping our and.
Our customer service.
Expectations and line in line for our from for our truly refer patients. So that certainly is a strong consideration and but again, we're not going to we're not going to do something just for the sake of.
For the sake of the press release.
Understood. Thanks, Thank you for that.
Just touching on Seleven and pure and when I look at your pro forma results for the three and nine months.
It appears Q3 was was quite a strong quarter those assets just wondering if you would.
Be able to provide any additional color on.
Well it may be and.
What the growth drivers there were.
Yes, and as I mentioned before and we were not able to provide any additional comments at this time and certainly you know and this run out and pro form our pro forma numbers of course, we also are happy with.
With those numbers and it was one of those their performance is one of the reasons why and we found those assets to be and his partners to be and so attractive and breast to breast too and pursue those that transaction. So we're excited about the performance and we're excited about the growth trajectory ahead.
We of course know that pure pay and has additional square footage coming on line in Q1 and that should lead to additional increase profitability and certainly we believe that and Leabo highs and has run rate ahead of it as well so and again can't give you any real specifics there and.
And our very.
Could not be happier to have to have the two companies and and then really important note is their teams and and the alignment between our companies and has just been incredible and they're actually there's a group of folks that are going to be here for.
For a big meeting and later on this week and integration continues to go really well and we're very excited and I think the entire team is excited about what Pennsylvania has to offer and in terms of growth.
And my questions and congrats again.
Thanks.
Paul Piotrowski and partners your line is open and.
Good morning, Kim Congrats on a great quarter.
One follow up on on West Virginia. So are you guys looking at all to acquire a a.
Cultivation license, there and as being a vertically integrated importance you guys and that's day.
Yes again.
We're excited about west, Virginia, and think that and the from a strategic location perspective, and with the proximity and certainly the attachment to the northeast and not have that were that were working.
Working too and to grow there and certainly it's certainly a good and a solid state and solid contributor.
And grow at two and to contract for supply if if if we need to and have the ability to have again and control over kind of final product form factors and product mix and which again is is we think big key strategic requirement and.
For us and that market and then again I think it remains to be seen in terms of.
What the what the rest of the supply chain may look like.
Okay, great. Thank you.
And no we are moving onto our final question follow up question with Andrew presenting you with Stifel. Your line is open.
Hi, Thanks for taking some additional questions.
Just wanted to follow up on on M&A.
With the election, having you know obviously contributed to significant newsy has and could you give a little bit of color and what you're seeing in terms of.
Valuations and and.
And what not and and the private markets.
Yeah, I think I mean, I think it continues to be and.
You know I can't say that I've seen.
Net became significant changes with respect to with respect to valuations I mean at the end of the day and certainly their excitement about it and the way that we look at at least from our perspective, the way that we look at businesses and the way that we we and we have those conversations and both internally and with potential partners really center.
And again around pretty pretty basic fundamentals and the reality is that the fundamental necessarily changed right. I mean, if you have square feet of of production. That's that's what that.
What they are.
Only X amount of Theres X amount of product that can be produced there and.
And and similarly in terms of and the fundamentals of this business and so and.
I think I think for us.
It's business.
And just as you all had down staying true to our valuation metric and making sure that we are disciplined in terms of how we're looking at and how were looking at partners, I think and increasing enthusiasm and maybe a bit more of an understanding that day.
Ill will be important and so perhaps you know some some of the operators to have considered or maybe have not considered partnering up into the maybe.
Your head up and saying, Okay are there and we're going to need to get some additional capital and expand it right or we need to think you need to think in.
And a very real way about potentially partnering and.
So that we can be positioned for change if it does and when it does occur and their particular market, but in terms of.
How were viewing M&A.
I'd say that we're continuing on the path that weve that we set out for ourselves.
Thanks for that and.
Just a follow up.
You talked a bit about how maybe.
Players are understanding the scale is important.
Would you say that that was an important consideration and the acquisition of of your P.A. assets, considering the attractive multiples that you guys executed on.
You know again, I am not going to speak for our partners, there, but I will say that and that relationship. We have developed over the course of the year. So.
And that was not something that that's not a transaction that we that we began conversations on and the last you know 60 90 days.
And we thought that it was very very important on both sides for us to appreciate and understand what each party, who is bringing to the table and certainly I think that there is a there is a desire and a competitive spirit and and both of those and business management teams and and the employees to want to to want to.
Continue to grow and and win and.
In our home state of Pennsylvania, and we're very excited to be partners with them and to and to be right there with them as we achieve that.
Thanks, very much for the questions and congrats again.
Thanks, so much.
I will now turn the call back over to CEO and rooms for closing remarks.
Thank you for joining us today, and we'll see you all next quarter.
This concludes today's call. We thank you for your participation you may now disconnect.
Yeah.