Q4 2020 Trulieve Cannabis Corp Earnings Call
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Good morning, ladies and gentlemen, and welcome to day 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, this conference call is being recorded I would now like to introduce you.
Your host for today's conference Ms Lynn 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 individual.
Holders the media and 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 forecast.
Including the risks and uncertainties described in the company's filings with the Securities and Exchange Commission, including item one a day.
Risk factors of the Companys 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 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.
The GAAP reconciliation of these non-GAAP measures to the most directly comparable GAAP measures is available and 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.
Times, and our prepared comments and 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 and fiscal 2020.
A copy of our earnings press release May be found and 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.
Glenn and good morning, everyone before we get started I just wanted to say thank you to our brand partners. 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 and Florida, Thanks, guys, Charley and experienced a strong fourth quarter and outstanding year, and both financially as well as op.
Recently on a full year basis, we achieved revenues of $521 $5 million and increase of $268 7 million over 2019, or 106%. Our 2020, adjusted EBITDA and $251 million represents year over year growth of $124 5 million or <unk> 99.
We delivered record revenues of $168 4 million and the fourth quarter up 24% sequentially and adjusted EBITDA of $78 2 million and 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 <unk>.
Revenue performance and 2019.
And Q4, as our 12th consecutive quarter of profitability.
2020 was a foundational year for relief, we continued executing on our five region hub strategy, which established a focused national distribution model and 2020 truly sold 3 billion with a b active milligrams of oil and 32 six tons of flower and truly are 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 a S. A P. S. Four to have the correct infrastructure to scale nationally.
Each of these activities provides the foundational basis needed as a strong NSO and affords us the ability to accelerate our growth as the landscape continues to change and the data driven organization, we began providing retail metrics on our 2019 year and call.
In addition to the quarterly metrics, we share several annual numbers. Although these numbers are primarily Florida, driven based on Florida robust O&M you're reporting. These results also include 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.
And <unk> of 72% that remains consistent year over year, showing loyalty strength and a growing platform of retail locations.
Another metric that <unk> 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 and purchasing patterns and trends with the introduction of and increased line of value products. The timing of these new product introductions and Q1 of 2020 could not have been better for our customers as our value products.
And broader access needed during Covid and Q4 active customers visited relief 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 to the program or a 53% increase over 2019, we continue to grow with that increase we use the traditional same store sales.
Eric to track these loyal customers and our 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 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 and 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 plans for 2021, which are protecting our leadership position and 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 and Florida and believe me, we are not sitting still and our home state not only represents.
Foundation of our business today, but we believe it will be continued to be an incredible opportunity and the future. We are and a unique position by virtue of footprint customer loyalty community support and ability to quickly pivot to address changing market dynamics can maintain our market leading performance and we fully intend to do so BDSI sales data released this month has legal you.
S Cannibal cannabis sales and 2020, they're passing $17 5 billion, 46% above 2019 was $12 1 billion with Florida ranking third and dollar gain in 2020 behind two adult use markets. According to <unk>, the Florida medical market as the third largest cannabis market and the U S just behind California.
And Colorado to adult use markets with major catalysts, such as wholesale and the prospect of adult use ahead and a state with 130 million annual tourists and 21 million residents. The Florida opportunity is just beginning.
Although we just crossed a major milestone of half a million patients and 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 to six week trend line at the end of February was closer to 50.
300 patients per week, a doubling in a relatively short period of time.
And 2020 truly and increased our market share and Florida, ending the year with 49% of the oil market and 53% of the flower market and the magnitude of that patient growth on a consumption basis is approaching our regular sales rate for relief of one ton of flower are 32000 ounces per week at the end of Q4 the week of December 25th.
And we surpassed that mark selling over a ton of flower with sales of 36000 ounces and a weak and amazing number. In addition, we just had a record oil weak and late February at 107 million milligrams dispensed and we continue to see that barbell effects that we've described and the path 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 a goal of 68 stores and the U S. By year end, we organically opened 70 stores in Florida and.
A 28 stores or 67% for 2020 with our U S. Count of 75 stores, which includes the three story from our Pennsylvania acquisition, our dispensary footprint and 2020 increased by 79%. We have since opened eight new stores and now stand at 83 stores and the U S. As of today. During 2020, we also added over two.
<unk> hundred thousand square feet of cultivation, ending the year with almost 2 million square feet, but it's not just about building stores and cultivation and production to support patient growth and demand, it's about getting the right products to our customers for their release they need our R&D team released a host of new products and we also launched edibles and late August and true truly fashion, we swiftly introduced.
Edible products, the first and the state to DSO, 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 a new sour gel line today called true gel.
<unk> that will be available and lemon Hibiscus Kiwi Green, Apple and our Florida favorite key lime. We expect this will be well received and have plans to add more fun flavors to the lineup soon our location and the northern part of Florida within an hour of Georgia, and Alabama, coupled with our scale one of the largest footprints and the country has us situated and a prime position we are confident that.
Really this is poised to be the undisputed market leader and 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 and the country with phenomenal patient growth rates hitting 3% penetration already has an incredible addition to our northeast hub and will be and our central contributor to our 2021 revenue plan.
We completed our acquisitions of pure pendants Levo and November the acquired companies are operational growing and we have established leaders with deep expertise and place given strong relationships with every dispensary and the state new indoor cultivation coming online will provide additional sell through capability, Pennsylvania and general has a power shortage. So our go to market play and is straightforward.
Grow more high quality flower and remember higher quality flower and the entire turbines and flavonoids, leading to better products overall on the dispensary side. We ended the year with nearly 30000 patients and our database with over 460000 registered patients and Pennsylvania advocates and politicians, both calling for Lee legalization and a 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.
And Massachusetts, we announced yesterday that we received approvals to begin planting from the state's cannabis control Commission, we have over 60000 square feet of canopy is defined by Massachusetts regulations, and 18000 square feet and production. Our dispensary timeline has our first location targeted to open and the second quarter with more locations coming and the second half pluses.
We'll be launching our wholesale business after our first harvest and the second half of 2021.
Moving to Connecticut, Connecticut, and medical only but perhaps not for long our Bristol Dispensary continues to outperform as one of 18 stores opened and the state with approximately 10 percentage of the medical patients.
<unk> is another state that recently has been vocal about adult use we are closely watching Connecticut and believe it will be another market that will expand.
And West Virginia Yesterday, we announced we signed a definitive agreement with Mountaineer holdings holders a permit for cultivation and two dispensaries, coupled with our previously awarded permits we will have fully vertical operations and the state with cultivation processing and six dispensaries and we look forward to adding west Virginia, 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 dispensary gives us a great view into 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 and to 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 <unk>.
As for platform, which was a heavy lift across all functions of the company I would like to thank our operations and corporate teams for their extensive contributions to this initiative.
And as Kim covered at the top of the call. We had record annual revenue of $521 5 million and increase of 106% over the $252 $8 million of revenue achieved in 2019 and surpassing the top end of our mid year and 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.
This strong performance in Q4 represented 24% sequential topline 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 <unk>.
<unk> balance sheet and results of operations from the data pools are contained within our consolidated financial statements to leave us manage on a consolidated basis and we do not report nor do we plan to report on a segment basis.
Moving to gross profit on a full year basis. The company achieved gross profit of $386 4 million for a gross margin of 74% compared to $191 8 million or <unk>, 76% for the full year 2019, we generated gross profit and the fourth quarter of 109.
$17 9 million.
Absent onetime event and the impact of acquisitions, our margins and <unk> and 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. This dynamic is downward margin impact until this inventories sold and new <unk>.
Inventory is capitalized debt cost.
In addition, we had an approximate 1% decrease for pauses and production as a result of SAP implementation efforts.
As such our fourth quarter gross margin was 71% as compared to 75% and the third quarter.
It is important I mentioned net gross margin is negatively impacted as we enter new markets without full vertical integration as we will have and Pennsylvania through the earn out period, and 2021 and as we ramp operations and new markets. Before revenue is earned like we have to date and Massachusetts in general as we have shared in the past and as Paul.
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 on a full year basis, SG&A expenses, excluding depreciation and amortization were $155 5 million or 30% of revenue compared to $73 4 million or 29% for the full year of 2019.
Although relatively flat in 2020 compared to 2019, we expect increases and operating expenses through 2021, as we continue to add dispensaries 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.
And 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 and as such fourth quarter SG&A expenses, excluding depreciation and amortization.
And were $52 million or 31% of revenue compared to $39 4 million or 29% of revenue and the third quarter of 2020.
Moving to income our operating income for the year ended 2020 was $218 4 million and.
And 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 and 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 and Q3.
As we discussed last quarter, our debt warrants originally denominated in Canadian dollars were converted to U S dollars in December 2020.
This is.
It resulted in a reclassification of the warrants from liabilities to equity eliminating the fair value and movement of the warrants that negatively impacts net income as our stock price increases in relation to the exercise price of the warrants.
Absence of reevaluation of our debt warrants adjusted net income would have been $105 $7 million for the full year and $32 9 million for the fourth quarter, resulting in EPS of <unk> 89, and 2008, respectively on a fully diluted basis I am happy to note that we will no longer have this dynamic and <unk>.
And in '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 are.
<unk> expenses share based compensation acquisition and transaction costs and fair value step up of inventory from acquisition and other income.
We reported adjusted EBITDA to help investors assess the operating performance of our business.
And our full year basis, adjusted EBITDA was $251 million or 48%, which is particularly strong given the COVID-19 response costs incurred throughout the year to keep our employees and patient safety and <unk>.
<unk> of investments, we made throughout our facilities and dispensaries and and impact of approximately 2% for the year.
Absent these costs full year adjusted EBITDA would have been approximately 50%.
We have mentioned the onetime SAP implementation costs incurred across production and operations and the quarter. This had an approximate 2% impact on adjusted EBITDA and Q4.
As such adjusted EBITDA for the fourth quarter of 2020 was $78 2 million.
Or 46% of revenue compared to $65 $8 million over 48% of revenue in Q3 2020.
Removing the impact of the FEP implementation, our adjusted EBITDA would have been in line with the previous quarter at approximately 48% the.
And the $12 $4 million improvement and adjusted EBITDA. This quarter is primarily due to the increase in revenue, partially offset by increases and 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 and the current year as compared to previous Ifr's reported metrics.
The company delivered $99 6 million and cash flows from operations for the year due to our continued quarter over quarter profitability. This compares to $19 $1 million and 2019.
We ended the quarter with a 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 organic growth and to go deeper and the states where we operate.
Now I would 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 reported at fair value. 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 and.
And the back half of 2020, we leveraged our strong operational cash flow position to invest and the necessary infrastructure to meet our raised guidance for the year and pivot toward our 2021 revenue targets.
We will continue to invest heavily and capex throughout 2021 and support of those targets and to capitalize on the positive patient trends and Florida, and the anticipated demand and 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 and 2021 and beyond I can only say how proud I am of what the team has accomplished in 2020 to build out 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 as a company and our focus on continuous improvement this continuous improvement initiatives and core approach to gaining efficiencies and our business as we gain scale has our trillium and our shareholders well and will continue to be important for us contemplating this transformation and where we can leverage our business model.
With the central as we built out our 2021 guidance, which while I will run through with you now.
For the full year 2021, we expect revenues and a range of $815 million to $850 million, we anticipate adjusted EBITDA and 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 leverages scale and financial discipline for 2021 guidance. We are assuming strong growth continued growth in Florida, and Pennsylvania, maintaining share in California, and Connecticut, and commencing sales and Massachusetts to support the anticipated patient growth we will.
Continuing to build supply chain and retail infrastructure to support the expected demand for store count and we anticipate opening 39 stores and the U S. By the end of 2021, reaching 114 stores nationwide.
We cannot be more enthusiastic about what is on the horizon for true leave and our industry and we believe this will be a truly transformational year on the political front. The tide is starting to turn regarding candidates policy at 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 that are not losing sight of our current operating framework and strategic plans.
And 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 and the work accomplished in 2020 between the impressive financial results the internal infrastructure initiatives and the execution of our strategic.
And envision is ideally positioned to release 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 a bright future ahead lastly.
Lastly on top of all of the successes 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 and the stores. We have a motto just aes and our employees embrace 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 and mind those values resonate with our customers and keep us working to consistently improve and strive for greater success.
And you for joining us today, and as I always say onward.
<unk>.
And.
Thanks, Operator, I think we can open it up for questions now.
Ladies and gentlemen, as a reminder, if you would like to ask a question. Please press star and the number one on your telephone keypad. Your first question comes from day line is very easily.
With Canaccord human or 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 and there for about a month and a half of the quarter, but 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 and Pennsylvania.
Yes, I think Derek and Pennsylvania is an incredible market and our partners. There are also fantastic as I've mentioned several times pure pie and has a wholesale relationship with 100% of the dispensaries.
In Pennsylvania, and we continue to see very strong demand for their current product offering and similarly, <unk> has a very passionate and dedicated patient base and and they continue to impress and with their results as well as their retention and loyalty metrics across their customer base.
We're very much looking forward to having that additional capacity.
Online, which is and as we've as we've said in the past is coming online this quarter that additional and 90000 square feet on the <unk> side, and bringing again and expanded at a variety of products, particularly on the flowers on the flower and the power space and to the market and we know that our wholesale customers as well as the customers that visit to lever.
And are very much looking forward to that increase staff flower offerings that we're going to be bringing to market very soon.
Okay, that's great and really helpful.
You mentioned the plans for dispensary growth. This year 39, new stores. This year I believe you've already opened eight and Florida.
To start the year.
Yes. My question is just given the healthy cash position sort of what do you expect for Capex and I would imagine a little higher than that $13 million a month that you quoted in Q4 and where do you.
And tend to target a lot of these capital investments this year.
Yes, it we're not going to give specific capex guidance, because we do have as you mentioned a lot of a lot of growth opportunities ahead of us and in 2021, and we are going to and of course, I think as everyone would expect us to do continue to reinvest into the business and.
And to make sure that we've got appropriate 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 catalyst coming.
And so I would say of course stay tuned for additional announcements and as.
As we look to expand and and all of the markets that we're currently we're currently and particularly our core markets of course, which are the southeast and the northeast.
Okay, Great and then just one more if I can sneak one and.
Some of your competitors commented on their quarterly calls that they witnessed some disruption and Q4 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 and where 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.
Smoothed to smooth out the testing implications that we were experiencing in Q3 and.
We still from time to time experienced a 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 patient count.
Coming in online and Florida increased from about 2400, 2500, a week to nearly double that actually in some cases over double that and 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 results and additional testing samples that go to the labs, but and again, so far that hasnt been.
The magnitude of the issue that we experienced in Q3.
And with respect to Covid and I think Alex shared for the year that we had a 2% impact.
In terms of bottom line impact and as it relates to COVID-19 for the year and.
The quarter that was it was relatively in line and maybe a little bit of and 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 and.
And that we continue to operate and when.
And then 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, you May now ask your question.
Thank you and good morning.
And Jim Theres been other companies looking at other potential force counties and municipalities and Florida to studying bushing jobs and the number of stores I wanted to share and what are you hearing about the do you have any views on that potential risk for the current incumbents.
Yeah, and so I'm, not really sure where they're getting that from I would I would disagree and <unk>.
Lately with that with that statement and currently and our Florida law in statute, it's required that counties have one or two choices. They either can band dispensaries completely or are they are required to zone us the famous pharmacies. So any change to that would require a legislative change that's not something that accounting or municipality could dip.
Syed.
And from market to market.
So I don't see any any.
Any risks to the current the current structure apps and our <unk>.
Legislative change and there is no legislative change that I'm aware of that spending okay. Thank you and then just one last one so they've been single conference.
One of the questions you said.
You made a comment.
And the recreational and could be on day by load by November 'twenty, two or maybe and November 24, and you sounded quite and nonchalant about it and to me. It seems like you are pretty much assuming that this is going to be and would've and.
And the issue of the bottling and 2024 and any comments from Doug and if you're showing up please hang on.
And potential wholesaling regulation or changes in Florida that we feel bullish and thank you sure. So both of those questions are tied to Supreme Court action and.
And we've got on the on the wholesale initiative I'll just start there and <unk>.
Court case, that's making its way through and.
And we don't and unfortunately, we don't have a ruling on that yet however, I would expect sometime in 2021 for that ruling to come down and.
After assuming that the court does does determine and that that wholesaling would be and Avenue, then I would expect that to go to the legislature for implementation.
And.
But perhaps it could go through rulemaking, so thats, a little bit more of a gray area and.
And again, we are watching very closely.
And for that that court ruling to come down and.
Yes.
In addition, I would say that there certainly is conversation at the legislature around wholesaling and as well and so I think that that's a bit more it could go again based on the Supreme Court case, or we could see some movement and the legislature on that particular issue.
Which we see as an amazing opportunity for truly and quite frankly.
We are the largest by far and 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 would be branded finished good products that we would be very excited and to wholesale across the state and in addition of course, we would look at that as an opportunity to offer.
<unk> offset some of our capex by partnering and and certainly through our distribution network things that we would be a very attractive partner.
And for other product manufacturers or small craft cultivators, so I think and kind of all aspects, we would see that as a positive.
On the second question related to legalization and.
Of the adult use market in Florida and.
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 2024, 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 and so.
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 and a pull that was done and there is overwhelming support for adult use initiative here and the state of Florida and.
Actually medical which I'll just touch on because it was just so impressive actually came back with a 90% approval rating on a on a cross partisan very legitimate pull and so that's incredibly high.
And then and 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 a course and legal steps and does have to make it through the Supreme Court.
Thank you that's really helpful. If I can squeeze and just last one.
So maybe it goes and you said there were some penetration reached one 4% considering and 3% one for scaled back that number and also into winter and continued to grow but what are the key drivers we should be looking for new conditions and water.
Relax.
Driving system more stores, what has to happen for the penetration ratio that went through the web and folio and medical.
Yeah, I mean, I think that it's.
All of those of course could contribute to and an additional increase and acceleration and 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 a great form factor for folks who are new to cannabis and it's obviously very approachable for folks who are entering the market.
And.
As I mentioned and we've also though of course seeing a doubling of patient inbound and.
Coming into the program and 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, and 2020 growth, which I'm sure. Most of you track and also on the call pretty pretty closely Youll see the step up times and across the program and so we just experienced that step up and again with patient increases.
And well into the 4000 5000 patients coming into the program per week, which is a pretty much low standard weekly trend now and 2021.
That is also coming from the fact that it's good old fashioned.
Just organic market growth when you.
And you've got a certain massive folks who then are telling friends and theyre, telling friends right into this viral effect definitely happens as well and.
And then I would say of course and <unk>.
Certainly new form factors and 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 and this year.
That's been enrolled development and so that would of course allow us to launch a full product line, which we have ready to go of higher and.
Concentrate products and the state using hydrocarbon extraction method. So all of those would be would be considered a win and will continue to contribute to accelerated patient growth and penetration and Florida, great. Thank you.
Yes.
Your next question comes from the line of Matt Mcginley with Needham Human and ask a question.
Thank you.
My first question is 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. So the decline would come from gross margin, presumably from the new states.
Over the longer term should should the margin rate on those new states look materially different from Florida and is this more of just a function of.
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 and the rate of your Florida operations and that guidance for 'twenty one.
Yes, I'll take that Matt. Thank you.
Yes.
Exactly right as you said.
The margin considers the entering of new markets that are ramping and those markets right and keep in mind as we enter markets with different rules and regulations.
There is different margin impact right. So throughout the next year will be non vertical and our <unk> operations, we will be ramping and Massachusetts and 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 assess beyond 2021.
But yes, I expect it to creep up as we get as we fully ramping into the full swing of things and those new markets.
On the platform upgrades can you talk about the infrastructure upgrades and maybe with.
And that you completed last year and what capabilities that would give you and 2021 does it just set you up for growth or does it provide you some tangible margin benefit or working capital efficiency that we could see this year and how can you repeat what the with the drag from that was on the margin are related to the cost of implementing that and 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 the.
Benefit sure SAP on the margin itself was about 1% different production stoppages as we implemented it had.
So two to almost 3% in fact across the Oregon and EBITDA.
And about 1% and margin and and 1% to 2% through our SG&A.
Yes, and then in terms of the benefits that it will it will give us so certainly and allows us to have a single platform that we're able to launch across all of our all of our markets. So that as we think about and national.
Conglomerate along with of course, our scale, we're able to manage the business from a single from a single platform system. And addition of course that will allow us to consolidate our financials and our financial reporting which is a 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 into our customers and with which of course assist us with our predictive data analytics.
And as we think about.
And 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 and management.
Management, and making sure that we have the right products and the right stores at the right time for folks and then finally I'll just mention and as the U S reported company stocks.
Talks of courses and being Sox compliant is very important as well and certainly provides a system that we can rely on and.
And that for us for our Sox compliance requirements on a go forward basis.
Thank you very much.
Yes.
Your next question comes from day line as can be from yellow line with BPI.
Ask your question.
Thanks, Good morning, everyone.
And just following up on the line.
Your line of questioning and with respect to gross margin Alex maybe if you could just share.
And with greater detail.
Pricing dynamics on flower pricing, and Florida, and how you expect those to fluctuate, Oregon and the same for this year.
Yeah, and I am actually I know im not Alex, but I don't know.
Sure Jim.
No it's early but I do realize and non Alex so on the on the pricing dynamics with respect to with respect to flower and we're continuing to see strong growth and I think we went over that last call rate and strong growth via what we call. The barbell effect, so certainly extremely strong growth and our value and our value products, which would include on the flowers.
Side, both our many products, our ground products and our pre roll products as well as our lower tier.
<unk> and.
And that demand of course has.
<unk> continues to be strong but in addition, we're also seeing.
About the same as last quarter.
Customer demand for our premium flower as well and we've launched both our cultivar collection, which.
It's very specific genetics requires very specific levels of both THC Turpin count and then we've also added flavonoids and.
And as well as the type of genetics that we offer through that through that lineup and 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 and price.
<unk> spectrum, and so the Bellamy brothers and have a line of flower, which I just mentioned as well as and burn scar partners and Sunshine cannabis and then block tuna 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.
And either of those and either of 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 that market share that you.
Our defending.
So I would say that.
And from from our perspective.
Yep.
I have been answering this question for three years and have always said look judge us on our results right and.
Last week, we sold our second highest and weaker.
<unk> flower and.
And the state and with over 30, 30000 ounces and being sold last last last week.
We're selling three three times the flower that we did in January of 2020, and and I think that when you look at it from a competitive basis.
And we're selling a significant amount more.
More I think it's six two times the amount of flower than our closest competitor.
And we feel really good about our posture certainly more folks are going to be bringing cultivation online they need to be bringing and we're cultivation online, we're bringing more cultivation online because the demand, particularly and thats by the way not only in Florida, I mean, that's the same and look and Pennsylvania, and also and our Massachusetts markets.
Demand is on the rise across the country and it is important that and we along with other folks are rising to meet that to meet that demand and so.
And that does have access.
Great and then just a follow up.
I know you just started your operations and.
Pennsylvania, and Theres, a tremendous opportunity there, especially.
When that market.
Sales recreational.
Youre circling.
The biggest opportunity, though in New York, and obviously theres more positivity with respect to.
Expectations from favorable legislation unfolding.
How do you view the plans or the strategic entry into this market.
And is this more of a day.
Medium to longer term opportunity and contemplating noises and could we see something unfolds.
And in advance of.
And as I answered some legislation coming down or recreation sales actually beginning potentially see this next year.
Yes, I mean, I think that rate and while we certainly appreciate future.
Potential changes and a market. We also look to make sure that we're and that we're executing to our growth potential and the market undercurrent under current regulations and current loss and we've always operated the business that way and.
And in Pennsylvania, and it was very important for us to identify the right foundational partners for us to enter that market and because just like any market and there are certain specific and nuances and specific and Reg.
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 operations and the future of the business around around that operation and around that team.
In Pennsylvania, as a reminder, and there is no limitation on the amount of cultivation and 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 that.
There we were entering from a cultivation and production standpoint had the ability to gain scale and had the ability for expansion and what youre seeing of course and begin to come to fruition.
During during Q1 and with our with our first expansion there and.
As I've mentioned, I think and we've been pretty transparent about we certainly are interested and we'll be looking for additional opportunities and Pennsylvania, and Thats and thats ongoing and currently underway.
All the best.
Thank you.
Thanks.
Your next question comes from the line of Ralph will suddenly all with Beacon Securities You May now ask your question.
Good morning, and the anti.
<unk> on the on the quarter, just going back to Florida, and the addition of Edibles wondering if you can.
Share any color I guess towards share of revenue, they now contribute and whether youre seeing.
And you sort of cannibalization of other products or product lines at this point.
Hey, Thanks Ross.
We're not we're not and in a position to break out specific products segment from a on a percentage basis and.
And for a number of for a number of reasons, but what I can tell you is that and.
It's continuing to be up and <unk>.
Increased and.
Percentage of our product mix we.
We certainly of course wouldn't be and.
Ramping the product line and introducing additional products and smart line if the demand wasn't there for those products. So it is it is certainly and.
It is certainly.
And a category that has been well received by the market and as I said before I think we'll continue to ramp to national averages and as it relates to share share of market and I don't think that Florida is going to be any different than what we see and.
And other markets that have edibles as a contributor to product line.
Great. Thanks, Thanks for that and just one more maybe on West Virginia and congrats on yesterday's announcement I was just wondering if you could share development timelines there when you what your thoughts are on construction and when you might.
B and a position to begin generating revenue there. Thank you.
Yeah, well as of course, we just we just announced 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 and 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.
Guidance that is it Matt of course will be moving very quickly.
And the cultivation and production.
Aspects of the business to get that up and going and would hope that construction certainly will happen. This year in terms of when first harvest 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 and.
And move down the road on that process.
Thanks, again from the color and congrats again.
Thanks Ross.
Your next question comes from the line of Eric the low years with Craig Hallum Capital You May ask your question.
Great. Thanks for taking my questions and congrats on strong results.
So first.
In Massachusetts and.
It looks like you have a couple of potential transactions underway for additional retail locations and 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 and.
We are very cautious and Massachusetts because of just how the regulators have moved on a number of fronts and just delays et cetera.
Not jumped the gun in terms of.
And 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 and Massachusetts are very very hopeful that we'll have some and some good additional news to share with you later this year, but are not and are positioned to come.
And on that quite yet.
Okay.
That's fair and certainly understand the.
The reasoning and the thought process there.
So switching gears to Pennsylvania, but sticking on the.
And the M&A theme here can you just kind of talk about what the M&A environment is for retail licenses in Pennsylvania.
And if youre seeing any pressures on GAAP.
<unk> or anything and then just and maybe overall help us understand where your M&A priorities currently lie whether it's.
And 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 and as I've said, we're certainly.
Active and Pennsylvania currently and.
And.
Look M&A is M&A and it's all very very specific and very and.
Dependent on the particular of the particular target and the particular operations team and what they're looking for and we think that truly has an incredible story of and.
And track record of execution and.
When we think about how our currency stocks up against our peer set and we also really like our position there and.
Again, given our return and.
Value to shareholders as well as our and.
Our solid performance over time, so we continue to find those facts very attractive to partners and aren't I wouldn't say experiencing anything unusual and the market to date and.
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 and.
Each of those regions have their own dynamics and their own.
Complexities, but and certainly in the northeast is a region that we have been again very transparent about and with us focusing on and 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 continues to strategic.
Really apply and states and markets that we see and again synergies with and executing and advancing our hub strategy, which of course West Virginia was an example of success from that team. So.
It's certainly not only and M&A strategy and will continue to be and organic growth strategy for us as well.
And I appreciate from well congrats on growth and both so far and thanks again.
Thanks.
Once again, if you would like to ask a question. Please press Star then the number one on your telephone keypad. Your next question comes from the line of Air and Clay with Alliance Global even though ask a question.
Hi, good morning, Thanks for the questions and congrats on another nice quarter and finish to the year.
So first question from me. So you guys 39 store openings do you expect for the year.
So far within Florida.
So just as.
I kind of look on a model and 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 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 and less populated communities or maybe saturated markets where it might.
Be assumed that's going be a lower level of sales per store and maybe the assumptions and 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 2020 one 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 that.
The store platform. There is certainly is not and.
The anticipated decline and store performance. So that's certainly not not the case and.
We're averaging on a on a per store basis between 10 and $11 million per store, which would hold 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 and there'll be opened four and the year.
Alright, great. Thanks.
And the second question you mentioned how for the past couple of your true lives often asked you about the competition kind of heating up within Florida. It does seem there's been a number of acquisitions within Florida from some other operators who are looking to add.
In terms of and all.
Competition and 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 know you have your loyalty program are you still comfortable with that.
Her extensive day are you looking to make any adjustments there I know, it's something that me and you have talked about and the past I would love to hear about where you kind of stand there as you continue to defend your moat. There. Thanks, yeah. Thanks for the thanks for the question. So we're continuously looking for ways to for ways to improve and make sure that we have the best not only of course product selection and product quality, which is really important.
But also.
And the best customer experience, and which keeps 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 and continuing to evolve.
What's wonderful about and the technology that we just.
And that we just implemented and does 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 we will be a revamp of that program with additional and additional features that we think folks are going to be really excited about and.
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.
And.
Again.
<unk> opened new stores and markets and in our most competitive markets and 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 across the state of Florida day.
Happen to be located and the most competitively robust markets and the state and so I feel very very confident about our ability to hold our own and to continue to hold our own.
Next our competitors and and have.
Of course and <unk>.
Again, and 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 and.
And we're.
We're continuing to be very bullish on Florida, and our position and Florida and feel very good about our performance to date and we'll 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.
Yes.
And your next question comes from the line of Scott Fortune 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 licenses start there, what's kind of and the timing on that and does that free chooses to include much and your guidance for 2021 or does kind of wait and see.
The regulatory or the licenses come on board.
Yeah. So we have we have plants and the ground and Massachusetts. So it's very exciting to get those first.
Images of and Green in the building and which we which we've got over over the weekend. So that was a very very exciting of course now those plans have to actually.
Outgrow up and flower and be processed and make their way through the supply chain and as mentioned on the call. Our first store will be coming online and.
And the second quarter towards the back the back side of the second quarter and.
Again cultivation as well as our wholesale platform launch and hopefully some additional stores and the back half of 2021. So.
We're definitely looking forward to Massachusetts being contributed to our 2021 guidance, but as mentioned, we're not going to be segment reporting or giving any additional color on that and but.
And certainly I would say this weekend and yesterday, where a huge step.
And so that becoming reality.
Okay. I appreciate that and then just real quick shifting back to animals, and Florida and kind of what youre seeing on the sell through rates with the consumers and have you seen increase back and basket size for those consumers kind of step us through long and how.
And your patient base is accepting of the edibles from from a standpoint, adding onto the basket size.
Yeah, and as mentioned before we're certainly seeing strong demand and for our edibles products and.
Q4 was for US was all about ramping that production to meet that demand and which we did successfully and in 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 and those products to customers and on our shelves.
Was it was.
Was there and it was appropriate so that we can match demand on a go forward basis, which we believe were and the process of doing now, but it's a strong seller and we expect it to continue to be a strong seller.
With art with our medical patients of course, and any market that has adult use recreational edibles is certainly a very very important and important product segment. So.
For us it was it was key to not only launch and to of course be first to market with edibles, but also to continue to develop and innovate and have a very robust and.
Our product line across a number of different form factors and the edible and the edible segment and.
And again be able to compete and meet customer demand.
Thank you I appreciate the color.
Alright, and once again, if you would like to ask a question. Please press Star then the number one on your telephone keypad.
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 can be now disconnect.
And.
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And is there is balance and grade.
But it's still a change and the labs.
And the lag.
And the away.
Zoe grow and the mental garden, and the backyard and by the plans and he is consuming on and one is grow and nowadays and the sales of things he gets out there and the Twilight zone sometime when it just does.