Q4 2020 Trulieve Cannabis Corp Earnings Call
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Good morning, ladies and gentlemen, and welcome to the truly cannabis Corporation fourth quarter and year end 2020 financial results Conference call. My name is Jerome and I will be your conference operator today as a reminder of this conference call is being recorded I would.
Now like to introduce your host for today's conference the spleen of Ricci director of Investor Relations for Chili's Keybanc begin.
Thanks, Jerome good morning, ladies and gentlemen, and thank you for joining us today on the call with me today are Kim Rivers, Chief Executive Officer, and Alex D'amico, 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.
Shareholders the media and the other interested parties. Please remember statements we make during this call that are not statements of historical fact constitute forward looking statements and that these statements are subject to risks uncertainties and other factors that could cause our actual results to differ materially from our historical results or from our forecasts.
Cost of <unk>.
Including the risks and uncertainties described in the company's filings with the Securities and Exchange Commission, including item one a risk factors of the company's annual report on form 10-K for the year ended December 31, 2020, although the company may voluntarily do so from time to time it undertakes no commitment to update.
Or revise these forward looking statements, whether as a result of new information future events or otherwise except as required by law.
During the call management will also discuss certain financial measures that are not calculated in accordance with the United States generally accepted accounting principles or GAAP, we refer to these as non-GAAP financial measures. These measures should not be considered in isolation or as a substitute for true lease financial results prepared in accordance with GAAP.
The reconciliation of these non-GAAP measures to the most directly comparable GAAP measures is the built in our annual report on form 10-K filed today with the SEC and can be found on our press release on the Investor Relations section of our website.
Lastly.
Kind of in our prepared comments of responses to your questions. We may offer metrics to provide greater insight into the dynamics of our business or our quarterly results. Please be advised that we may or may not continue to provide these additional detail in the future. This morning, we reported results for our fourth quarter of 2020 in fiscal 2020 of <unk>.
A copy of our earnings press release May be found in the Investor Relations section of our website truly dotcom and addition of webcast of today's conference call will be available on our website. Later today now I will turn the call over to our CEO Kim rivers.
Thanks, Lynn and good morning, everyone before we get started I just wanted to say thank you to our brand partners of the Bellamy brothers for their great music and great partnership with true leave as we celebrate the one year anniversary of the launch of their old hippie Stash line in Florida. Thanks, guys. It's really good.
Experienced the strong fourth quarter and outstanding year end, both financially as well as operationally on a full year basis, we achieved revenues of $521 5 million, an increase of $268 7 million over 2019 or of 106% our 2020, adjusted EBITDA of $251 million.
Rents year over year growth of $124 5 million or <unk>, 99%, we delivered record revenues of $168 4 million in the fourth quarter up 24% sequentially and adjusted EBITDA of $78 2 million, an increase of 19% from the third quarter, our 2020 revenue and adjusted EBITDA doubled.
Full year 2019 results and our EBITDA was nearly the same as our full year revenue performance in 2019.
In Q4, as our 12th consecutive quarter of profitability.
2020 was a foundational year for Trulia, we continued executing on our five region hub strategy, which established the focused national distribution model in 2020 truly sold three of $1 billion with the B active milligrams of oil and 32 six tons of flower truly of also became a U S reporting company.
Which is a major milestone to celebrate and we implemented a world class ERP system with the launch of SAP <unk> for to have the correct infrastructure to scale nationally.
Each of these activities provides us foundational basis needed as the strong NSO and affords us the ability to accelerate our growth as the landscape continues to change as the data driven organization, we began providing retail metrics on our 2019 year end call.
In addition to the quarterly metrics, we share several annual numbers. All of these numbers are primarily Florida, driven based on Florida robust Ome reporting. These results also include the California, Connecticut, and Pennsylvania is available we share our customer retention rate quarterly and comparing the third quarter with the fourth quarter of 2020, we had customer.
<unk> of 72% debt remains consistent year over year, showing loyalty strength and a growing platform of retail locations.
Another metric the OBL customer loyalty and plays into the customer lifetime value is average customer spend as we look across our purchases year over year, we saw a shift in purchasing pattern trends with the introduction of an increase of line of value products. The timing of these new product introductions in Q1 of 2020 could not have been better for our customers as our value products for.
<unk> broader access needed during the Covid in Q4 active customers visited truly of stores on average two eight times per month consistent with the full year average with an average basket size of $112 on a full year basis basket sizes were approximately $115 per visit our average active spend in 2020.
<unk> was approximately $3900 very similar to our 2019 results. However, our customer base grew at a rapid pace during the year as an example, Florida had over 157000 patients and for the program or of 53% increase over 2019, we continue to grow with that increase we use the traditional same store sales met.
Trick to track these loyal customers at a store level for the 22 locations that were opened in 2019 and 2020 for the entire year. The same store sales increased by 21%. If we remove the stores opened in 2018 or before the same store sales grew for the growth for the year with 47% Lastly, we share the retail metric of revenue.
Per square foot to track overall performance in 2020, or 75 dispensaries across the U S generated approximately $3163 per square foot.
This metric is based on days open for our full year revenue and our total retail square footage as of the end of December 2020.
Overall, we had a remarkable year profitable growth setting us up for our strategic plan for 2021, which are protecting our leadership position in the southeast and building out our U S hub model strategy. The first piece of the strategy mentioned is our continued focus on the southeast hub in Florida believe me, we are not sitting still our home state of not only represents the.
Foundation of our business today, but we believe it will be continued to be an incredible opportunity in the future. We are in a unique position by virtue of footprint customer loyalty community support and ability to quickly pivot to address changing market dynamics to maintain our market leading performance and we fully intend to do so BDSI sales data released this month has legal you.
Cannibal cannabis sales in 2020, they're passing $17 5 billion, 46% above 2019 to $12 1 billion with Florida ranking third in dollar gain in 2020 behind two adult use markets. According to Leapley, the Florida medical market as the third largest cannabis market in the U S just behind California.
In Colorado to adult use markets with major catalysts, such as wholesale and the prospect of adult use ahead and of state with 130 million annual tourists and 21 million residents. The Florida opportunity is just the beginning.
Although we just crossed a major milestone of half of million patients in Florida, we've only penetrated 2% of the market to date when compared to other more mature medical markets that 2% penetration rate can easily double at the end of Q4, we had approximately 2600 patients entering the Florida program. Each week. The six week trend line at the end of February was closer to 50.
300 patients per week of <unk>.
<unk> in a relatively short period of time.
In 2020 truly the increased our market share in Florida, ending the year with 49% of the oil market and 53% of the flower market the magnitude of that patient growth on of consumption basis is approaching our regular sales rate for relief of one ton of flower are 32000 ounces per week at the end of Q for the week of December 25th.
We surpassed that mark selling over a ton of flower with sales of 36000 ounces at a week an amazing number. In addition, we just had a record oil week in late February at 107 million milligrams dispensed and we continue to see that barbell effects that we've described in the past with the new value entrants and high end products, both performing well we will.
Continue to watch market trends as we move further into 2021, our plans for 2021 call for new stores and continued cultivation and production construction to support this customer growth. We began 2020 with 42 stores in Florida and 44 nationally with the goal of 68 stores in the U S. By year end, we organically opened 70 stores in Florida and.
<unk> of 28 stores or 67% for 2020 with our U S. Count of 75 stores, which includes the three stores from our Pennsylvania acquisition, our dispensary footprint in 2020 increased by 79%. We have since opened eight new stores and now stand at 83 stores in the U S. As of today. During 2020, we also added over two.
100000 square feet of cultivation, ending the year with almost 2 million square feet, but it's not just about building stores and cultivation of production to support patient growth in demand, it's about getting the right products to our customers for the relief they need our R&D team released a host of new products and we also launched edibles in late August and true truly fashion, we swiftly introduced.
Edible products the first in the state to do so we ramped production to meet the pent up demand with truly branded products and introduce recipes from nationally known brand partners. The reception of our edibles product line has been overwhelmingly positive as patients appreciate the depth and the variety of product offerings as a matter of fact, we are launching of new sour gel line today called <unk>.
<unk> that will be available in lemon Hibiscus Kiwi Green Apple and of Florida favorite <unk> line. We expect this will be well received and have plans to add more fun flavors for the lineup soon our location in the northern part of Florida within an hour of Georgia, and Alabama, coupled with our scale one of the largest footprint in the country has of situated in a prime position we're confident that.
Truly this poised to be the undisputed market leader in the southeast.
As discussed earlier, we also made great strides during Q4 with our hub model strategy outside of the southeast, Pennsylvania. The fifth most populated state of the country with the nominal patient growth rates hitting 3% penetration already has an incredible addition to our northeast hub and will be in a central contributor to our 2021 revenue plan.
We completed our acquisitions of pure pendants Levo in November the acquired companies are operational growing and we have established leaders with deep expertise in place given strong relationships with every dispensary in the state new indoor cultivation coming on line will provide additional sell through capability, Pennsylvania in general has the power shortage. So our go to market plan of straightforward.
Grow more high quality flower and remember higher quality flower in the entire turbines and flavonoids, leading to better products overall on the the century side. We ended the year with nearly 30000 patients in our database with over 460000 registered patients in Pennsylvania advocates and politicians, both calling for the legalization of bipartisan marijuana adult.
<unk> proposed a few weeks ago, Pennsylvania looks to be poised for accelerated growth. We see Pennsylvania is an important state for our northeast hub strategy and we'll continue to look for additional M&A opportunities to expand.
In Massachusetts, we announced yesterday that we received approvals to begin planting from the state's cannabis control Commission, we of over 60000 square feet of canopy is defined by Massachusetts regulations, and 18000 square feet of production. Our dispensary timeline has our first location targeted to open in the second quarter with more locations coming in the second half plus the.
We will be launching of our wholesale business. After our first harvest in the second half of 2021.
Moving to the Connecticut, Connecticut of medical only but perhaps not for long our Bristol Dispensary continues to outperform as one of 18 stores opened in the state with approximately 10% of the medical patients for <unk>.
<unk> is another state. The recently has been vocal about adult use we are closely watching Connecticut and believe it will be another market that will expand.
In West, Virginia Yesterday, we announced we signed the definitive agreement with Mountaineer holdings holders of permit for cultivation and true dispensaries, coupled with our previously awarded permits we will have fully vertical operations in the state with the cultivation processing and six dispensaries, we look forward to adding west Virginia to offer our operations now looking to the southwest.
Our Palm Springs, California location continues to serve a great purpose for us by giving insight into brands and products that will eventually head to the east coast, we monitor that product velocity and that the sensory gives us a great view into the future brands and trends, which we apply to our strategy across our U S platform.
We look forward to 2021 and executing on our strategic goals now let me turn the call over to Alex for more details on our fourth quarter results full year performance and financial focus for 2021.
Thank you Kim and good morning, everyone as Ken just outlined the fourth quarter was an outstanding into the year not only based on financial performance, but also for executing on large projects across the organization.
Most notably was the filing of our S. One registration statement. This was a significant undertaking and I am happy to report that this work is now behind US. In addition, we completed our migration to the SAP.
As for platform, which was the heavy lift across all functions of the company I would like to thank our operations and corporate teams for their extensive contributions for this initiative.
As Kim covered at the top of the call. We had record annual revenue of $521 5 million, an increase of 106% over the $252 $8 million of revenue achieved in 2019 and surpassing the top end of our mid year of revised guidance range of $485 million.
We also had record quarterly revenue of $168 4 million.
Representing a 111% increase over the $79 $7 million of revenue earned in the same quarter last year.
The strong performance in Q4 represented 24% sequential top line increase over the $136 $3 million earned in Q3 of 2020.
These results are inclusive of the Pennsylvania acquisitions, which closed on November 12, the Ole.
<unk> balance sheet and results of operations from the data pools are contained within our consolidated financial statements to leave is managed on a consolidated basis and we do not report nor do we plan to report on the segment basis.
Moving to gross profit on a full year basis. The company achieved gross profit of $386 $4 million for gross margin of 74% compared to $191 8 million or <unk>, 76% for the full year 2019, we generated gross profit in the fourth quarter of 100 <unk>.
$17 9 million.
Absent onetime event and the impact of acquisitions our margin in our core operations were in line with the previous quarter at approximately 75% as.
As mentioned, our Pennsylvania acquisitions closed in the middle of the quarter. It is important to note that all assets and liabilities of acquisitions are fair valued at deal close. This includes inventory, which flows through cost of goods sold at fair value as opposed to cost the <unk>.
Dynamic of downward margin impact until this inventory is sold and new inventory is capitalized debt costs.
In addition, we had an approximate 1% decrease per pauses in production as a result of SAP implementation efforts.
As such our fourth quarter gross margin was 71% as compared to 75% in the third quarter.
It is important to mention that gross margin is negatively impacted as we enter new markets without full vertical integration as we will have in Pennsylvania through the earn out period in 2021, and as we ramp of operations in new markets. Before revenue is earned like we have to date in Massachusetts in general as we have shared in the past and as pop.
Well for our gross margin to fluctuate a few basis points in either direction from quarter to quarter, depending on inventory flow through and product mix.
I will now turn to expenses kind of full year basis, SG&A expenses, excluding depreciation and amortization were $155 $5 million for 30% of revenue compared to $73 4 million or 29% for the full year of 2019.
Although relatively flat in 2020 compared the 2019, we expect the increases in operating expenses through 2021, as we continue to add dispensaries enter new markets and ramp of our infrastructure to support our growth initiatives and go forward compliance, but we do not anticipate a material change as a percentage of revenue.
In the quarter itself, we had an approximate 3% impact related to one time costs for our SAP implementation acquisition and integration costs and cost to enter new markets. This was partially offset by other operating efficiencies as such fourth quarter SG&A expenses, excluding depreciation and amortization.
<unk> for $52 million for 31% of revenue compared to $39 4 million or 29% of revenue in the third quarter of 2020.
Moving to the income our operating income for the year ended 2020 was $218 4 million.
93% increase over the $113 $3 million earned in 2019 operating income for the year was $63 9 million as compared to $59 5 million in the third quarter.
Net income was $63 million for the year, resulting in EPS of <unk> 53 on a fully diluted basis.
Net income was $3 million for the fourth quarter compared to net income of $17 4 million in Q3.
As we discussed last quarter, our debt warrants originally denominated in Canadian dollars were converted to U S dollars in December 2020.
Fisheries.
<unk> and a reclassification of the warrants from the liabilities to equity eliminating the fair value movement of the warrants that negatively impacts net income as our stock price increases in relation to the exercised price of the warrants.
Absent the reevaluation of our debt warrants adjusted net income would have been $105 $7 million for the full year at $32 9 million for the fourth quarter, resulting in EPS of <unk> 89 in 2008, respectively on a fully diluted basis I am happy to note that we will no longer have this dynamic in 2000.
'twenty, one and beyond leading to a more transparent view of our bottom line.
Focusing now on adjusted EBITDA, We believe adjusted EBITDA, a non-GAAP measure provides valuable insight into our performance adjusted EBITDA excludes from net income as reported interest tax depreciation non cash expenses <unk> expenses share based compensation acquisition and <unk>.
<unk> costs fair value step up of the inventory from acquisition and other income.
We reported adjusted EBITDA to help investors assess the operating performance of our business.
On a full year basis, adjusted EBITDA was $251 million for 48%, which is particularly strong given the COVID-19 response costs incurred throughout the year to keep our employees and patients safe inclusive of the investments we made throughout our facilities and dispensaries at an impact of approximately 2% for the year.
Absent these costs full year adjusted EBITDA would have been approximately 50%.
We have mentioned the onetime implementation.
Implementation costs incurred across production and operations in the quarter. This had an approximate 2% impact on adjusted EBITDA in Q4 as such adjusted EBITDA for the fourth quarter of 2020 was $78 2 million or <unk>, 46% of revenue compared to $65 $8 million of 48% of revenue in Q.
Three of 2020.
Removing the impact of the SAP implementation, our adjusted EBITDA would have been in line with the previous quarter at approximately 48% the <unk>.
$12 $4 million improvement in adjusted EBITDA. This quarter is primarily due to the increase in revenue, partially offset by increases in operating expenses and cost of goods sold.
The impact of GAAP accounting for leases is included in both the current and comparative quarter, which impacted adjusted EBITDA by an approximate 1% to 2% for our business in the current year as compared to previous <unk> reported metrics.
The company delivered $99 $6 million of in cash flows from operations for the year due to our continued quarter over quarter profitability. This compares to $19 $1 million in 2019.
We ended the quarter with the cash balance of $146 $7 million, our strong cash position allows us to quickly leverage the foundation, we have built to capitalize on expansion opportunities for organic growth and to go deeper in the states where we operate.
Now I'd like to update you on inventory at the end of Q4, we had a total of $98 $3 million of inventory. This includes $11 $8 million of inventory from the Pennsylvania acquisitions that were recorded at fair value of this compares to $77 $7 million of inventory at the end of Q3.
Companywide capex spend for the quarter average just over $30 million per month inclusive of all markets as well as our accelerated SAP implementation.
In the back half of 2020, we leveraged our strong operational cash flow position to invest in the necessary infrastructure to meet our raised guidance for the year and pivot toward our 2021 revenue targets.
We will continue to invest heavily in capex throughout 2021 in support of those targets and to capitalize on the positive patient trends in Florida, and the anticipated demand in 2022.
2020 was a remarkable year. So we believe we are only getting started as we contemplate the strategic vision that we have planned for the company in 2021 and beyond I can only say how proud I am of what the team has accomplished in 2020 to build out of our infrastructure and set the foundation in place for this incredible road ahead with that.
I will turn the call back over to Ken.
Thanks, Alex the results just covered reflect the outstanding work, we've accomplished of the company and our focus on continuous improvement this continuous improvement initiatives and core approach to gaining efficiencies in our business as we gain scale has sort of truly and our shareholders well and we will continue to be important for us contemplating this transformation of where we can leverage our business model.
With the essential as we built out our 2021 guidance, which while I will run through with you now.
For the full year 2021, we expect revenues in the range of $815 million to $850 million, we anticipate adjusted EBITDA in a range of $355 million to $375 million or approximately 44% of revenue. Our 2021 EBITDA margin reflects expansion into new states with new revenue streams and expected margin.
Impacts combined with conversion to GAAP. We believe this margin reflects our continued substantial leverage of scale and financial discipline for 2020. One guidance. We are assuming strong continued growth in Florida, and Pennsylvania, maintaining share in California, Connecticut, and commencing sales in Massachusetts to support the anticipated patient growth we will.
Continue to build supply chain and retail infrastructure to support the expected demand for store count we anticipate opening 39 stores in the U S. By the end of 2021, reaching 114 stores nationwide.
We cannot be more enthusiastic about what is on the horizon for Trulia and our industry and we believe this will be a truly transformational year on the political front the tightest starting to churn regarding cannabis policy of the federal level, Although we can't predict how and when meaningful change will happen. We are encouraged by the opportunities ahead with the safe banking Act being <unk>.
We introduced in the house last week and now being introduced in the Senate. This week. We believe we will see movement. This year and are keeping a close eye on developments, but are not losing sight of our current operating framework and strategic plans.
For our shareholders, we want to continue to stress our belief that we are just getting started building out our hubs expanding our footprint and introducing our brand to new customers and new markets is essential for our future strategic vision. The work accomplished in 2020 between the impressive financial results the internal infrastructure initiatives and the execution of our strategic.
The envision is ideally positioned to relieve for 2021. It is this foundational strength that we will build upon as a national cannabis brand and we believe we are far from finished growing with the bright future ahead lots.
Lastly on top of all of the success of this cover today, we want to take a moment to thank the trillium team across the organization are passionate and dedicated employees worked tirelessly throughout a challenging and crazy year to achieve the success when it comes to customer experience in the stores. We have of motto just at our employees embraced that during 2020.
<unk> and brought it to every job function across our company I am heartened to know that they did so not only for the company, but with our true leavers in mind, the values resonate with our customers and keep us working to consistently improve and strive for greater success. Thank.
Thank you for joining us today, and as I always say onward.
Thanks, Operator, I think we can open it up for questions now.
Ladies and gentlemen, as a reminder, if you would like to ask the question. Please press Star then the number one on your telephone keypad. Your first question comes from the line of very easily.
And of course, you May now ask your question.
Hi, good morning, and congrats on the on the exceptional results yet again.
I was wondering if we could just start with touching on Pennsylvania I know its early days you guys were in there for about a month and half of the quarter, but I guess subsequent to the quarter can you comment on how the market is rolling out relative to your expectations and just given some of the different dynamics within Pennsylvania, namely wholesale.
What you've learned from the market structure in Pennsylvania.
Okay.
Yeah, Thanks, Derrick and Pennsylvania is an incredible market and our partners. There are also fantastic as I've mentioned several times the peer Pan has the wholesale relationship with 100% of the dispensaries.
In Pennsylvania, and we continue to see very strong demand for their current product offering and similarly for levo has a very passionate and dedicated patient base and they continue to impress with their results as well as their retention and loyalty metrics across their customer base. We are very much looking forward to having them additional capacity.
The online, which is and as we've as we've said in the past is coming online this quarter that additional of 90000 square feet on the <unk> side, and bringing again and expanded variety of products, particularly on the flowers on the flower in the power space to the market and we know that our wholesale customers as well as the customers.
Visit the levo are very much looking forward to that increased safflower offerings that we're going to be bringing to market very soon.
Okay, that's great and really helpful.
You mentioned the plans for the dispensary growth for this year 39, new stores. This year of I believe you've already opened eight in Florida.
To start the year.
Yes. My question is just given the healthy cash position sort of what do you expect for for Capex I would imagine a little higher than that $13 million of months that you quoted in Q4 and where do you.
Tend to target a lot of these capital investments this year.
Yes, so we're not going to give specific capex guidance, because we do have as we mentioned a lot of a lot of growth opportunities ahead of us in 2021, and we are going to of course I think of everyone would expect us to do continue to reinvest into the business.
To make sure that we've got appropriate our supply chain as well as of course retail locations to serve the demand that we're seeing which is incredibly strong across all of the markets that we're in currently with catalysts coming.
So I would say of course stay tuned for additional announcements and as.
As we look to expand in and all of the markets that we're currently we're currently in but particularly our core markets of course for sure the southeast and the northeast.
Okay, Great and then just one more if I can sneak one in.
Some of your competitors commented on their quarterly call that they witnessed some disruption in Q.
For related to I guess second wave of Covid.
Can you comment.
Did you experience any of that and also just on the testing issues you guys mentioned last quarter as it related to edibles for those rectify during Q4.
Yeah no. Thanks for thanks for that so on the testing we were able to clear those bottlenecks, we had and we worked very closely.
With our lab partners and we're able to.
Moving to smooth out the testing implications that we were experiencing in Q3.
We still from time to time experience of lag because we are continuing to ramp very very quickly to meet this amazing surge of patient demand, particularly in the state of Florida that were seeing.
Since the beginning of the year I think as I mentioned on the call we've seen the.
The patient count.
Coming in online in Florida increased from about 2000 402500 of week to nearly double that actually in some cases over double that in Florida at the beginning of 2021 so.
We're of course.
Similarly pacing our production to make sure that we're meeting that demand which of course the results in additional testing sample the.
The go to the labs, but again, so far that hasnt been the the magnitude of the issue that we experienced in Q3.
With respect to Covid I think Alex shared for the year that we had a 2% impact.
In terms of the bottom line impact as it relates to the Covid for the year in the quarter that was it was relatively in line, maybe a little bit of an increase in the quarter, but.
We've continued to of course make sure that our first and foremost that our employees and our patients are safe and are happy to invest those dollars to ensure that.
That we continue to operate.
Within and above CDC guidelines.
Okay, great. Thank you very much.
Thanks Derek.
Your next question comes from the line of Pablo <unk> with Cantor Fitzgerald.
Ask your question.
Thank you and good morning.
Okay, Jim there's been other companies.
All of the potential for the counties of municipalities from 40 out of the study and bullshit jobs on the number of stores I want to share what are you sharing about the do you have any views on the potential risk for the current incumbents.
Yeah, So I'm not really sure where they're getting that from I would I would disagree.
<unk> with that with that statement and currently under Florida law in statute, it's required that counties have one of two choices. They either can band dispensaries completely or are they are required to zone of the famous pharmacies. So any change to that would require a legislative change that's not something that accounting of our municipality could.
The side.
From market to market.
So I don't see any any.
Any risks to the current the current structure absent of <unk>.
Legislative change and there is no legislative change that I'm aware of the spending okay. Thank you and then just one of those one so other than singer conference.
One of the questions.
The.
You made the comment the.
The recreational could be on the bio load by November 'twenty, two or maybe in November of 'twenty four just from the nonchalant about it to me. It seems like you are pretty much all assuming the discipline can be more the initial of the volume in 2020 for any comments from debt and if you're showing up.
The potential wholesaling of regulation or changes in Florida that we feel fortunate. Thank you sure. So both of those questions are tied to Supreme Court action.
And we've got on the on the wholesale initiative I'll just start there.
Court case, that's making its way through.
And we don't Unfortunately, we don't have a ruling on that yet however, I would expect.
In 2021 for that ruling to come down.
After assuming that the court does.
Does determine and that.
That debt wholesaling would be an Avenue, then I would expect that to go to the legislature for implementation.
But perhaps it could go through rulemaking, so that's a little bit more of a gray area.
And again, we're watching very closely.
For the for that that court ruling to come down.
In addition, I would say that there certainly is conversation at the legislature around wholesaling as well and so I think that that's a bit more of it could go again based on the Supreme Court case, or we could see the movement in the legislature on that particular issue.
Which meet the as an amazing opportunity for truly of quite frankly, we are the largest by far in the state with over 2 million square feet of cultivation capacity the ability to have additional outdoor plantings, which we can dial our inventory of oil up or down which of course of the branded finished good products that we would be very excited to wholesale.
All across the state. In addition of course, we would look at that as an opportunity to also offset some of our capex by partnering and certainly through our distribution network things that we would be of very attractive partner for.
For other product manufacturers or small craft cultivators. So I think in kind of all aspects, we would see that as the positive on the second question related to the legalization in.
Of the adult use market in Florida.
And that there are two pending valid initiatives that are making their way through the court really it's all a question of timing and so that 2022 versus 2020 for it becomes pretty formulaic in terms of when the Supreme Court rules. How much time is left to continue to get signatures for ballot placement.
So again waiting on the court to rule the validity of the language. That's currently pending I can tell you that we just participated in a poll that was done and there is overwhelming support for <unk>.
Adult use initiative here in the state of Florida.
Actually medical which I'll just touch on because it was just so impressive actually came back with the 90% approval rating on a on a cross partisan very legitimate pull in so that's incredibly high.
And then adult use is pulling well over 70%. So it's pulling very very well and I think that the threshold issue is just getting it on the ballot, which does require of course, the legal steps and does have to make it through the Supreme Court.
Thank you that's really helpful. If I can squeeze on the one just.
That's one.
So maybe it goes you said there were some penetration do you already shown of what percent of Pennsylvania, the 3% work for scale back the number I know youre trying to income continued to grow but what are the key drivers we should be looking for new conditions. It won't relax the street.
Driving system more stores.
It has to happen for that the penetration of ratio that will give the web majority of medical.
Yeah.
Yeah, I mean, I think that it's.
All of those of course could contribute to an additional increase in acceleration I do think though that what we're seeing right. Now is a couple of things right. I mean, certainly last fall, we introduced edibles, which is of great form factor for folks who are new to cannabis and it's obviously very approachable for folks who are entering the market.
Right.
As I mentioned, we've also though of course seeing a doubling of patient inbound.
Coming into the program in the state of Florida and so.
We have seen over time right. It's there I think if you look back and you look at the 2018 to 2019 2019 of 2020 growth, which I'm sure. Most of you track the analysts on the call pretty pretty closely Youll see the step up times across the program and so we just experienced that step up again with patient increases.
Well into the for 5000 patients coming into the program per week, which is a pretty much of a standard weekly trend now in 2021.
All of that is also coming from the fact that it's good old fashion.
Organic market growth when you.
<unk> got a certain mass of folks, who then are telling friends and theyre, telling friends right into the viral effect definitely happens as well.
And then I would say of course.
Certainly new form factors in the market and just mentioned that we're going to be bringing some new products to market. Today. We also have hydrocarbons that we believe will be approved to be a rulemaking at some point this year.
That's been enrolled development and so that would of course, the allow us to launch of full product line, which we have ready to go of higher end.
The concentrate products in the state using hydrocarbon extraction methods. So all of those would be would be considered of win and will continue to contribute to accelerated patient growth and penetration in Florida, great. Thank you.
Yes.
Your next question comes from the line of Matt Mcginley with Needham you May now ask the question.
Thank you.
My first question was on the margin rate implied in the EBITDA guidance I think you said in the prepared remarks that the G&A doesn't change much in terms of rates of the decline will come from gross margin, presumably from the new states.
The over the longer term should should the margin rate on those new states look materially different from Florida is this more of just the function of the.
The ramping of that and you'll get you'll get the margin rates up higher.
By year end.
And also do you assume any material change in the rate of your Florida operations in that guidance for 'twenty one.
Okay.
Yes, I'll take care of Matt. Thank you.
Yes.
Exactly right as you said the.
The the margin considers the entering of new markets the ramping in those markets.
Keep in mind, as we enter markets with different rules and regulations.
There is different margin impact range. So throughout the next year will be non vertical in our operations, we will be ramping the Massachusetts until we have revenue coming online. So that's all to your point part of the ramp and it has a margin impact on a go forward basis, we'll continue to the SaaS beyond 2021.
But yes, I expect it to creep up as we get as we fully ramping into the full swing of things in those new markets.
Yes.
Of the platform upgrades can you talk about the.
The infrastructure upgrades you made your debt.
That you completed.
Last year and what capabilities that would give you in 2021 does it just set you up for growth of business provide you some tangible margin benefit of our working capital efficiency that we could see this year and how can you repeat what the what the drag from that was on the margin related to the.
The cost of implementing items in 2020.
Sure I'm going to have.
Well, Alex why don't you talk about the margin implications and then I can maybe get back on of the.
Benefit sure SAP on the margin itself was about 1% different production stoppages as we implemented it had.
Two of two almost 3% in fact across the Oregon EBITDA.
About 1% in margin and 1% to 2% through our SG&A.
Yeah, and then in terms of the benefits that it will it will give us. So certainly it allows us to have a single platform that we're able to launch across all of our all of our markets.
As we think about our national.
Conglomerate along with of course, our scale, we're able to manage the business from a single from a single platform system. In addition of course that will allow us to consolidate our financials and our financial reporting which is the benefit as well and then that coupled with some of our other technology upgrades, including magenta and some other platforms.
We're also able to have much deeper data insights.
And to our customers.
Which of course assist us with our predictive data analytics as we think about.
The differences from market to market as well as regions and individuals at the individual store level as well as we're thinking about again our inventory.
<unk> and making sure that we have the right products from the right stores at the right time for folks and then finally I'll just mention as the U S reported company <unk>.
<unk> of courses and being Sox compliant is very important as well and the certainly provides a system that we can rely on that.
Of that for us for our Sox.
Clients requirements on a go forward basis.
Thank you very much.
Yes.
Your next question comes from the line of <unk> from Yellow line with BPI.
Ask your question.
Thanks, Good morning, everyone.
And just following up on the line.
The line of questioning with respect the gross margin Alex maybe if you could just share the.
And with greater detail on the pricing dynamics on flower pricing in Florida, and how you expect those to fluctuate or again the same for this year.
Okay.
Yeah, I'm actually I know im not Alex, but I don't know.
Yes.
I know, it's early but I'm sure you realize of non Alex so on the on the pricing dynamics with respect to with respect of flower and we're continuing to see strong growth I.
I think we went over the last call strong growth via what we call. The barbell effect. So certainly extremely strong growth of our value and our value products, which would include on the flower side, both our many products our ground products and our pre rolled products as well as our lower tier.
<unk>.
That demand of course has is continues to be strong but in addition, we're also seeing.
About the same as last quarter custom.
Customer demand for our premium flower as well and we've launched both our cultivar of collection, which.
It's very specific genetics requires very specific levels of both THB <unk> count and then we've also added flavonoids as.
As well as the type of genetics that we offer through that through that line up. In addition, we have brand partners that also we have launched and that we continue to have a high sell through rate again on that higher end price.
<unk> spectrum and so the Bellamy brothers on top of line of flower, which I, just mentioned as well as and.
Ben Scar partners and Sunshine cannabis in the blocks to know as well and so all of those products do do really well for us and so I wouldn't expect vast differences at least from what we're seeing now with the patient demand trends in either of those in either of the those categories and so I would think that Florida.
Florida pricing of flower will likely remain fairly stable.
Yes.
So thats the day that youre, not seeing any competitive pressures from participants trying to garner some of the market share that you.
Our defending.
So I would say that.
From from our perspective at the.
I have been answering this question for three years.
And I've always said look judge us on our results right.
Last week, we sold our second highest.
Week of flower in the in the state with over 30, 30000 ounces being sold by lost the last week.
We are selling.
Three three times the flower that we did in January of 2020, and I think that when you look at it from a competitive basis.
We're selling a significant amount more I think it's six two times the amount of flower than our closest competitor. So we feel really good about our posture certainly more folks they're going to be bringing cultivation online they need to be bringing more cultivation online, we're bringing more cultivation online because of the demand, particularly.
And thats by the way not only in Florida, I mean thats the same.
Look in Pennsylvania, and also in our Massachusetts markets demand is on the rise across the country and it is important that we along with other folks are rising to meet that to meet that demand so that folks have access.
Great and then just a follow up.
I know you just started your operations in Pennsylvania.
Pennsylvania, and Theres, a tremendous amount of opportunity there, especially.
When that market.
The recreational.
Your circle of lean.
The biggest opportunity, though in New York, and obviously theres more positivity with respect to.
Expectations for unfavorable legislation unfolding.
How do you view the deploy.
Land.
Strategic entry into this market.
And is this more of the.
The medium to longer term opportunity that you're contemplating the reserves.
We see something unfolds.
And the advance of.
In the hands of some legislation coming down or recreation sales actually begin potentially see this next year.
Yes, I mean, I think that while we certainly appreciate the future.
The potential changes in our market. We also look to make sure that were.
That we're executing to our pool of potential in the market under current under current regulations and current loss and we've always operated the business that way so.
And in Pennsylvania, It was very important for us to identify the right foundational partners for us to enter that market and because just like any market. There are certain specific nuances and specific <unk>.
The relations et cetera that we need to that we need to follow but not only that we also wanted to make sure that the partner that we were entering the market with that we have the ability to scale and build the the operations in the future of the business around around that operation around that team.
In Pennsylvania as a reminder, there is no limitation on the amount of cultivation of our processing you can have dealt requirement under the law. There is that you have to build on what's considered one site or one parcel. So we did take our time to make sure of that.
There we were we were entering from a cultivation of production standpoint had the ability to gain scale and had the ability for expansion. What you are seeing of course begin to come to fruition.
During the during Q1 and with our with our first expansion there.
As I've mentioned I think we've been pretty transparent about we certainly are interested and we'll be looking for additional opportunities in Pennsylvania, and Thats and thats ongoing and currently underway.
Exactly all the best.
Thank you.
Thank you.
Your next question comes from the line of Ralph will suddenly with Beacon Securities you May ask the question.
Good morning, and the energy.
<unk> on the on the quarter, just going back to Florida, and the addition of Edibles wondering if you can the.
Share any color I guess towards share of revenue day, now contribute and whether youre seeing.
Any sort of cannibalization of other products for product lines at this point.
Hey, Thanks for us.
We're not we're not in a position to break out specific products segment from a on a percentage basis.
For a number of for a number of reasons, but what I can tell you is that.
It's continuing to be of.
The increased.
Percentage of our product mix we.
We certainly of course wouldn't be.
Ramping the product line and introducing additional products that's not line if the demand wasn't there for those products. So it is it is certainly.
It is certainly.
On a category that has been well received by the market and as I said before I think we will continue to ramp to national averages and as it relates to our share of share of market I don't think that Florida is going to be any different than what we see in.
In other markets that have edibles as a contributor to the product line.
Great. Thanks, Thanks for that and just one more maybe on West Virginia and congrats on the yesterday's announcement just wondering if you can share of development timelines. There. When you know what your thoughts are on construction and when you might.
Being a position of begin generating revenue there. Thank you.
Yeah, well as of course, we just we just announced the the deal yesterday and we do have to go through of course, the regulatory approval process of license transfer I think we're going to be the first one.
Go through that process with us with the regulators there, although we expect them to be very cooperative. So I would say more to come on that Ross. After we get the license transfer completed just without unknown, we'd hate to paint to give you.
The guidance that is it Matt of course will be moving very quickly.
On the cultivation of production.
Aspects of the business to get that up and going I would hope that construction certainly will happen. This year in terms of when first harvests will come in that of course is very very dependent on regulators and inspections and.
And all of that and so we'll give you additional additional color on that as we as we work through it.
Move down the road on that process.
Great. Thanks, again for the color and congrats again.
Thanks Ross.
Your next question comes from the line of Aerie real low years with Craig Hallum Capital You May ask your question.
Great. Thanks for taking my questions and congrats on the strong results.
So first.
In Massachusetts.
It looks like you have a couple of potential transactions underway for additional retail locations in Massachusetts.
Could you just run through the current status of those potential transactions.
Are those locations.
Medical or adult use and sort of how did you go about selecting those.
Yeah no. Thanks for thanks for the question and we will be providing additional information on those as those move through the regulatory approval process.
We are.
Very cautious in Massachusetts, because of just how the regulators have moved on a number of fronts and just delays et cetera to non.
<unk> jumped the gun in terms of.
The getting folks excited about about certain about certain things when they're not when they haven't happened yet so similar to my comment on West Virginia, We're very very excited about the future of Massachusetts are very very hopeful that we'll have some of.
Some good additional news to share with you later this year.
<unk> are not in a position to comment on that quite yet.
Okay.
Certainly I understand the.
The the reasoning of the thought process there.
So switching gears to Pennsylvania, but sticking on the.
On the M&A theme here can you just kind of talk about what the <unk>.
M&A environment for retail licenses in Pennsylvania.
If youre seeing any pressures on valuations or anything and then just maybe overall help us understand where your M&A priorities currently lie whether it's really focusing on going deeper within Massachusetts, Pennsylvania.
Or if there's any other.
Expanding into new markets that could potentially be on the table for you guys.
Sure So, Pennsylvania as I've said, we're certainly.
Active in Pennsylvania currently.
And the.
Look M&A is M&A and it's all very very specific and very.
Dependent on the particular of the.
The particular target of the particular operations team and what they're looking for and we think that truly of has an incredible.
Sorry of and track record of execution.
When we think about how our currency stacked up against our peer set we also really like our position there and again given our return value.
<unk> to shareholders as well as our.
Our solid performance over time, so we continue to find those stocks very attractive.
The partners and aren't I wouldn't say experiencing anything unusual in the market to date.
Aside from Pennsylvania, I think we've been pretty clear that we're executing on our hub strategy that involves five regions of the U S.
Each of those regions have their own dynamics and their own.
Complexities, but certainly in the northeast of the reason that we've been again very transparent about and with us focusing on that being said, we're also focused on organic growth and half and I don't think we should lose sight of the fact that we've got application and applications team that is very active and that continues to strategic.
Really apply in states and markets that we see and again synergies west and executing and advancing our hub strategy, which of course West Virginia with an example of success from that team. So.
It's certainly not only an M&A strategy will continue to be an organic growth strategy for us as well.
Yes for sure well congrats on the growth of both so far and thanks again.
Thanks.
Once again, if you would like to ask the question. Please revpar for the number one on your telephone keypad. Your next question comes from the line of Erin <unk> with Alliance global even though asking the question.
Hi, good morning, Thanks for the questions and congrats on another nice quarter and finish to the year.
So first question for me. So you guys 39 store openings do you expect for the year.
So far within Florida.
So just as the.
The kind of look on a model of making some kind of wholesale assumptions. It does seem to imply that there might be some lower level of sales per dispensary compared to the current rates. So I wanted to know if you could offer some color there on weather.
There are some store openings and maybe some new markets or additional stores in Florida that might be in less populated communities or maybe saturated markets where it might.
The assumed that can be a lower level of sales per store, maybe the assumptions of what that might be or if it's just some conservatism built in but some color behind the retail per store expectations going forward into 2021 would be helpful. Thank you.
So unfortunately, we're not going to be able to open all of those stores tomorrow. So certainly the model has timing differentials built into it with respect to.
With respect to the.
The store platform. There is certainly is not.
The anticipated decline in store performance. So that's certainly not not the case.
We're averaging on a on a per store basis between 10 and $11 million per store, which would hope would hold true.
So again, we're not I think that most likely it's the timing of when those stores are coming online and how long they will be opened for the year.
Alright, great. Thanks.
And the second question you mentioned how for the past couple of years ago was the often asked you about the competition kind of heating up within Florida does seem theres been a number of acquisitions within Florida from some other operators who are looking to add.
In terms of the room.
The competition of capacity within the state one thing that I believe truly pad has been able to offer is kind of product availability and also the diversification. So as your competitors look to increase their own capacity and product availability. How do you look to protect your Mo going forward you have the loyalty program.
Are you still comfortable with that where it stands today or are you looking to make any adjustments. The I know, it's something that many of you have talked about in the past I would love to hear about where you kind of standard as you continue to defend your moat there. Thanks.
No. Thanks for the thanks for the question. So we're continuously looking for ways to for ways to improve.
Improve and make sure that we have the best not only of course product selection and product quality, which is really important.
But also.
The best customer experience, which keeps the folks coming back and then of course lends itself to that incredible loyalty metric that we report on.
Regularly so what I can what I can say on that is that we're certainly as I mentioned, not sitting still and continuing to evolve.
What's wonderful about and the technology that we just.
We just implemented it is it does give us additional capabilities on our loyalty program to continue to drill down and expand on that program. So yes, certainly I would say stay tuned because coming very soon will be a revamp of that program with additional additional features that we think folks are going to be really excited about.
In addition, I would say that I think that it is important to look at the reputation and again the repeat customers that we have and that we've cultivated over the years and which are of course, a key driver for our business.
And.
Again the.
<unk> opened new stores in markets and in our most competitive markets across the state those are actually the markets that we performed the best So when you look at our top three to five stores across the states the.
Across the state of Florida day.
It happened to be located in the most competitively robust markets in the state. So I feel very very confident about our ability to hold our own and to continue to hold our own.
'gainst our competitors.
Of course.
Again, it's important to note that we're continuing to add products as well and continuing to innovate and are oftentimes and continue to be first to market with new form factors and product offerings across across different different segments of the market as well so.
Sure.
We're continuing.
To be very bullish on the floor and our position in Florida and feel very good about our performance to date and we will be looking to continue that trajectory.
Alright, great. Thanks, and look forward to seeing some of those changes to the loyalty program best of luck. Thanks.
And your next question comes from the line of Scott for King with Roth Capital Partners You May ask your question.
Thanks for taking the questions real quick a little more color on Massachusetts, if possible I know you just received the growing the licenses start there what's kind of of the timing on that and does that for chooses to include much in your guidance for 2021 of our it does kind of wait and see.
The good story of or the like for foods come on board.
Yeah. So we have we have plants in the ground and Massachusetts. So it's very exciting to get those first.
Images of Green in the building, which we which we've got over over the weekend. So that was very very exciting of course now of those plans have to actually.
Outgrow up in flower in the process and make their way through the supply chain and as mentioned on the call. Our first store will be coming online.
In the second quarter of towards the back of the backside of the second quarter.
Again, the cultivation as well as our wholesale platform launch and hopefully some additional stores in the back half of <unk> of 2021. So.
We're definitely looking forward for Massachusetts, being Contributive to our 2021 guidance, but as mentioned, we're not going to be segment reporting or giving any additional color on that and but.
Certainly I would say this weekend and yesterday, where a huge step to that becoming a reality.
Okay.
Okay. I appreciate that and then just real quick shifting back to edibles in Florida, and the kind of what youre seeing on the sell through rates with the consumers and have you seen the increased basket size for those consumers kind of step us through on the how.
Your patient base is accepting of the edibles from from that standpoint, adding on to the basket size.
Yes as mentioned before we're certainly seeing strong demand for our edibles products.
Q4 was for US was all about ramping that production to meet that demand and which we did successfully in <unk>.
Q4 of course coming out of that testing bottleneck issue that we had in Q3. So it was really about ensuring that our processes and our flow and how we were getting those products to customers in honor of shelves.
<unk>.
Was there and it was appropriate so that we can match demand on a go forward basis, which we believe we're in the process of doing now but at the strong seller and we expect it to continue to be of strong seller.
With art with our medical patients of course in any market that has adult use of recreational edibles is certainly a very very important.
<unk> net product segment so.
For us it was key to not only launch into of course, the first to market with edibles, but also to continue to develop and innovate and have a very robust.
Net line across a number of different form factors in the edible and the edible segment and Q2.
Again be able to compete and meet customer demand.
Thank you I appreciate the color.
Okay.
Alright, once again, if you would like to ask the question. Please press Star then the number one on your telephone keypad.
The presenters there are no further question at this time you may continue.
Well. Thank you for joining us today, we look forward to updating you again next quarter have a great day everyone.
Thank you and that concludes today's conference. Thank you all for joining you may now disconnect.
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