Q1 2021 Trulieve Cannabis Corp Earnings Call
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Okay.
Yeah.
Good morning, ladies and gentlemen, and welcome to the truly of cannabis Corp, first quarter 2021 financial results Conference call.
Name is Chris 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 Ms. Lynn Ricci director of Investor Relations for true lease you may begin.
Thanks, Chris 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 shareholders. The media and other interested parties. Please remember statements. We make during this call that are not the statements of historical fact constitute forward looking statements and of these statements.
The 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 uncertainties described in the company's periodic reports filed with the Securities and Exchange Commission the notes related to the completion of our transaction with targets although.
Though 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 to the United States generally accepted accounting principles or GAAP. We generally refer to these as non-GAAP financial measures. These measures should not be considered in isolation or as substitute for true lease financial results prepared in accordance with GAAP.
A reconciliation of reconciliation of these non-GAAP measures to the most directly comparable GAAP measures is available in our quarterly report on form 10-Q filed today with the SEC and can be found in our earnings press release on the Investor Relations section of our website lastly at times in our prepared comments or responses.
To your questions, we may often 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 this additional detail in the future. This morning, We reported results for the first quarter of 2021, a copy of our earnings press release may be found on the <unk>.
Investor Relations section of our website truly dot Com. In addition webcast 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.
Thanks, Brian and good morning, everyone I'm sure. Our recently announced agreement to acquire harvest is at the top of everyone's mind, but I want to first highlight our solid start to the year for the quarter. We achieved revenues of $193 8 million, a sequential increase of 15% quarter over quarter on a 102% year over year, our 2021 adjusted EBIT.
<unk> of $90 8 million represents an EBITDA margin of 47% with 13 consecutive quarters of record revenues and adjusted EBITDA. We are entering our fourth straight year of profitability on Monday, we announced the truly been harvest had entered into an agreement whereby <unk> will acquire harvest, which would create the most profitable cannabis company in the world.
Harvest announced the fantastic quarter, beating consensus by a wide margin with revenue of $88 8 million and adjusted EBITDA of $26 9 million or 30% tripling. The adjusted EBITDA from Q4 on a combined basis with our results of operation. We would have revenue of approximately $282 6 million and <unk>.
The EBITDA of approximately of $117 7 million, which we anticipate would be the strongest performance both top and bottom line of any U S. Cannabis company our performance along with the strong results just reported by harvest demonstrates how transformative the acquisition would be for both trulia and the cannabis industry as the whole, let me share a little more about the <unk>.
The churn and what it means harvest should provide diversification across our combined platform with continued focus on core markets harvesting of the company that has built a strong brand presence and operates across nine states with 39 operational dispensaries supported by nearly 880000 square feet of active cultivation on a combined basis at the deal.
All were to close today true leaves plus heart, the Trulia plus harvests platform, which consists of 126 operational dispensaries and $3 1 million square feet of cultivation and production together will be diversified across 11 states with operations and some of the most attractive markets in the nation. The transaction would bring harvests first mover advantage of Arizona.
Which would establish really of southwest hub in a big way more on that in a moment and the northeast harvest would add to our Pennsylvania companies to complement our footprint. We would also enter a new northeast market, Maryland with three dispensaries in 122000 square feet of cultivation and production and the southeast harvest would add retail locations in Florida, and approximately 300 <unk>.
<unk> thousand square feet of indoor growing production.
Our financial discipline and measured approach to expansion positioned us to capitalize on this opportunity depending acquisition of harvest checks the boxes for a strong management team with local expertise similar core values with the customer centric approach strong brand awareness and an accretive deal to deliver shareholder value the focus by harvest over the last two years of identifying.
And investing in core markets. It's in line with the truly philosophy of going deepen market to create brand and customer loyalty, while maximizing efficiency and supply chain, resulting in increased profitability.
The addition of harvest operations would establish a true of southwest hub, we will be entering Arizona, where harvest has executed on its first mover advantage harvest of Arizona operations include of state, leading 15 operating stores as well as the significant cultivation footprint with 185000 square foot indoor and of 144000 square foot outdoor grow as well.
The production facilities, Arizona is an exciting market and harvest is well positioned to continue to capitalize on their established presence as the market leader our southwest hub would be further expanded with the additions of harvest, Nevada, Colorado, Utah, and California operations.
The addition of harvest presence in Pennsylvania, and Maryland, coupled with our recent acquisitions in Pennsylvania, Our initial operations, our initiation of operations in Massachusetts, and turning the West Virginia market and are outperforming dispensaries in Connecticut with firmly solidify our northeast hub. This is our first full quarter of operations in Pennsylvania and performance has been robust.
Our expanded cultivation and processing facility is state of the art and ready to start harvesting high quality flower for the supply constrained environment on the dispensary side, we continue to grow our customer base and the store performance of the three dispensaries in the Pittsburgh area has been strong. In addition, we look forward to closing our previously announced acquisition of Keystone shops with <unk>.
The three operations in the Philadelphia area, Pennsylvania is of critical state for our northeast hub strategy. Our operations in Massachusetts are finally underway, we have plans on the ground at our wholly of facility and anticipate opening our first dispensary. This quarter. It is an exciting time for our team who have worked hard for this to become operational we're also expanding of the northeast hub <unk>.
<unk> operations in West, Virginia to our successful application wins in the recent closing of Mountaineer holdings wield the cultivation processing and dispensary permits. This combination allows us to enter the state as of first mover vertically integrated operator, turning to our South East hub, we've maintained our leadership in our home state of Florida, opening our <unk> and 81st store on <unk>.
2000, and opening our 82nd Florida store last week with over a half of million patients in the state or of two 5% penetration rate. We continue to grow patient onboarding into the program. We're at approximately 4800 per week. During Q1 more recently over the last month that patient growth has increased to approximately 6000 per week with seven.
Patients out of the week of 420.
These phenomenal growth rates and our consistent outperformance we are striving to keep ahead of demand and provide access to this growing patient base on for 'twenty, We had our largest revenue producing day to date topping $3 million in Florida are 2021 to century plan calls for 114 stores in the country by the end of the year with many of those targeted per floor.
To keep up with the exciting patient demand the fast paced store growth requires rapid development of cultivation and production facilities to keep our stores stocked we have approximately $2 1 million square feet of cultivation in Florida and continue to build out new cultivation and production facilities. We plan to add 24000 square foot growth monthly and are launching our newest cultivation location in Madison.
County, where we plan to have 850000 square feet of cultivation, we commenced our Tampa distribution on warehousing operations to handle our ever growing footprint to help feed the overwhelming demand for edibles. We're building of 35000 square foot kitchen, which is about three five times, our current kitchen on our Medway facility that will produce a lot of truly than brand partner edibles.
We're executing on on our national expansion strategy growing our southeast hub and firmly establishing our northeast and southwest hubs before I turn the call over to Alex Let me briefly update our key retail metrics for the first quarter.
Share of our customer retention rate quarterly and comparing the fourth quarter with the first quarter of 2021, we had of customer retention rate of 84% exemplifying loyalty strength across the growing platform of retail locations and other metrics that reveals customer loyalty is the number of visits in their basket size in Q1 active customers visit of truly the stores on average too.
Eight times per month, consistent with the full year average with an average basket size of $113. This is an increase of our Q4 average of $2 eight visits per month when the basket size of 112, we use the traditional same store sales metric to track. These loyal customers that of store level for the 59 locations that were opened in Q1 2020 in Q1.
<unk> 21 for the entire quarter. The same store sales increased by 39% now let me turn the call over to Alex for more details on our first quarter results. Thank you Kim and good morning, everyone. As Kim has noted the harvest acquisition will be transformational for true leave and for the industry I would like to outline a few details of the transaction before I.
Jump into our Q1 results harvest, which strengthen our financial profile on a combined basis 2020 revenue would've been approximately $753 million with $266 3 million of adjusted EBITDA based on 2021 consensus we would combine for revenue of approximately one point.
Two 4 billion and then the adjusted EBITDA of approximately $461 million.
Harvest reported their adjusted EBITDA margin for Q1 at 30% on Monday and updated their 2021 revenue guidance to $400 million, which is yet to be fully included in the consensus numbers. We look forward to their continued performance in 2021 as their focus on right sizing the business and executing on fundamentals becomes apparent in their numbers.
This combination would easily create the most profitable U S. MSL based on adjusted EBITDA for additional details, including specific transaction points. Please see our press release issued may 10th 2021.
Stepping back to truly 2020 was a pivotal year for the Oregon inflation as we converted two of U S reporting company and establish the infrastructure necessary to support our regional hub strategic vision 2021 will be the execution of that strategic plan as we enter a new fees in the Companys evolution the.
M&A transactions announced since the back half of last year as well as organic expansion are a testament to the execution of capabilities across all of our functions throughout the year, we will be rolling our new markets and partners into our broader organization and we will continue to look at additional strategic opportunities as well as work toward all regulatory approvals.
Necessary to complete the harvest transaction.
Q1 was a fantastic start to the year and we are proud of what we have achieved.
As Kim covered at the top of the call. We had record revenue of $193 8 million, an increase of 15% sequentially over the $168 $4 million of revenue achieved in the fourth quarter. This is reflective of our first full quarter with our peers and so levo, Pennsylvania acquisitions that closed midway through Q4.
Four of 2020, our quarterly revenue was $97 $8 million higher than Q1, 2020, an impressive 102% growth year over year.
As I have noted in the past truly of is managed on a consolidated basis and we do not report nor do we plan to report any of our financial metrics on a segment basis.
The company achieved gross profit of $135 $3 million or gross margin of 70% in the first quarter compared to $119 $9 million or 71% in the fourth quarter of 2020 similar to what we reported in Q4, our margins in our core operations remain in line with historical trends in Q1, we continued to.
Have the fair value of the acquired Pennsylvania inventory flow through cost of goods sold as mentioned last quarter, 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 has downward margin impact until this inventory is.
Sold and new inventory is capitalized debt cost all of the initial inventory from our Pennsylvania acquisitions has been exhausted and we will have inventory capitalized and flowing through cost of goods sold at cost in subsequent periods.
As a reminder, there is downward pressure on gross margin as we enter new markets without full vertical integration as we have in Pennsylvania through the earn out period in 2021, and as we ramp operations in new markets. Before revenue is earned like we have to be in Massachusetts in general as we have shared in the past our gross margin in all markets can fluctuate.
A few basis points in either direction from quarter to quarter, depending on the inventory flow through and product mix.
I'll now turn to expenses SG&A expenses in the first quarter, excluding depreciation and amortization were $57 3 million or 30% of revenue compared to $52 million of 31% in the fourth quarter of 2020, we expect increases in operating expenses throughout 2021, as we continue to add dispensaries.
Enter new markets and ramp our infrastructure to support our growth initiatives and go forward compliance still we do not anticipate a material change as a percentage of revenue.
Our operating income for the quarter was $72 $6 million.
Of 14% increase over the $63 $9 million earned in Q4 2020, net income was $30 $1 million for the quarter compared to $3 million for the fourth quarter of 2020, we generated earnings per share of <unk> 24 on a fully diluted basis.
Turning now to 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 COVID-19 related expenses share based compensation acquisition and transaction costs.
Fair value step up of inventory from acquisitions and other income.
We reported adjusted EBITDA to help investors assess the operating performance of our business for the first quarter of 2021, adjusted EBITDA was $90 8 million or <unk>, 47% compared to $81 4 million or 48% for the fourth quarter of 2020.
This is in line with expectations and is reflective of the margin impact from the ramp in Pennsylvania, and Massachusetts operations the.
The company delivered $64 million in cash flows from operations for the quarter due to our continued quarter over quarter profitability and record revenue.
We ended the quarter with the cash balance of $162 $4 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 in the states where we operate.
Subsequent to the end of the first quarter, we paid approximately $33 million in federal taxes. In April. In addition, we successfully completed an underwritten equity offering adding approximately $219 million ending April with the cash balance of approximately $355 million, providing us the ability to accelerate our growth.
And quickly capitalize on strategic opportunities as they arise.
At the end of Q1, we had a total of $103 $9 million of inventory. This compares to $98 $3 million of inventory at the end of Q4 2020 as discussed earlier the inventory that was captured at fair value for our Q4 2020, Pennsylvania acquisitions has been exhausted as of the end of the quarter.
The.
Company wide capex spend for the quarter average just over $16 million per month inclusive of all markets and was in line with the plan. We continue to build out stores in cultivation facilities as well as our new distribution and processing center in the southeast. In addition, we will build out our west Virginia operations throughout the year, we will continue to invest heavily.
On Capex throughout 2021 to support our expansion efforts and add depth in the southeast hub as we capitalize on the positive patient trends we are experiencing.
Lastly, before we close I want to reiterate the guidance issued on our Q4 earnings call for the full year 2021, we expect revenues in the range of $815 million to $850 million with adjusted EBITDA in the range of $355 million to $375 million or 2021 views on and adjust.
The EBITDA reflect expansion into new markets and new revenue streams such as wholesale.
We will not update our guidance until we close on the harvest deal or have the catalyst that changes our outlook 2021 is off to a great start and we have an exciting year ahead, we look forward to the opportunities that await us with that I will turn the call back over to Kim Thanks, Alex I would like to take a moment here to say a heartfelt. Thank you to each of our truly the employees.
I am so proud and thankful to be partners with you in this business and appreciate your commitment to our customers and to each other which is made truly of the company. We are today with the pending acquisition of harvest, we would be bringing together two leading cannabis companies by joining forces would create one of the world's largest cannabis companies by operational retail and cultivation footprint.
And the most profitable public cannabis company in the World and closing this transaction is not just about today, but more importantly about our feature of the combined company our platform for growth would exponentially increase coupled with our strong balance sheet and profitability. We would have the resources to take full advantage of catalysts within our combined markets.
As well as those that occur as a result of federal change and our combined teams would have the depth of operational expertise to execute on these catalysts and short I could not be more excited about our positioning for the future. Thank you for joining us today and as I always say onward.
Operator, we can now open up the questions.
Thank you.
Time, I would like to remind everyone in order to ask a question for Scott on the number one on your telephone keypad.
The first question comes from Derek slew of Canaccord Genuity. Your line is open.
Yes, hi, good morning, and congrats on the on the strong results.
I wanted to just talk about Pennsylvania for a second can you just and I get it's early days, but can you just talk on the on Al Pennsylvania has performed.
Relative to your initial expectations and then I guess, just more specifically than the recent increase in cultivation. How do you extend the leverage that throughout the state.
Yes, good morning, Derrick and thanks for joining us and so Pennsylvania has been.
An incredible addition to our portfolio and certainly has been performing as expected for us in Q1.
And we just got the additional square footage online and on the on the on on the cultivation side with an additional 45000, our sales square feet.
That's the plan said and we're excited to get quality flower into the market. As we've stated previously that facility was designed specifically to be able to produce premium indoor indoor flower and of course and with growing premium indoor flower you'll also have great.
The <unk> rich biomass to make additional products with as well so.
Excited to have that come on line in and contribute to the operations throughout the year.
And when we think about the I guess, the wholesale market within Pennsylvania.
From what we hear from others that there is a big supply constrained are you continuing to see that and do you see sort of any rule.
Given that you've added some capacity of cultivation capacity do you see any incremental relief coming there or is it going to remain supply constrained because of the receivable future.
It's certainly it's the supply constrained currently and I think it's interesting because youre definitely seeing and like you do on a lot of markets right and evolution of product mix.
So, Pennsylvania started as an oil based on only program very similar to Florida, and so we're very.
Well aware of how those trends at least has played out over time in the Florida market and we think that Pennsylvania will be very similar so what.
The on boarding of flower as a as the product again similar to Florida, we've seen a ramp in flower demand the exponential and has been very rapid and the market now is trying to catch up with that supply I mean, if Florida is any any comparison on that front, we still have increasing which you see on the numbers right week over week.
We've had the surges in flower demand and that doesn't look to be slowing down. So we do think it's going to be very very important to have flower and again quality flower on the across multiple different value propositions available for our customers in Pennsylvania of whether or not that are at our retail locations.
The <unk> platform and seem to be Keystone.
Or whether it's through the wholesale distribution channel.
Okay, and then just one more if I could just in terms of what you saw in terms of sales cadence throughout the quarter.
Again for mother's day for January was a bit of of softer months with the more COVID-19 restrictions and then we saw a decent acceleration.
Early in March I think part of the orders related to share payments did you guys witnessed something similar within the within I guess predominant of in Florida.
Yeah. So.
We didn't have the as big of an impact as maybe some of our of our peer set who have operations heavier.
More heavily concentrated in the north.
In Florida, we don't quite have the snow.
Oh Wow.
No impact than others may have experienced so we saw fairly fairly steady growth certainly with stimulus checks coming in in and in March there was a bit of a bit of a spike on the positive side in March, but and I would say relatively steady pace in line growth in January and February.
Okay, Great I appreciate the color. Thank you very much.
Yeah.
Your next question comes from Matt Mcginley of Needham <unk> Company. Your line is open.
Thank you can you discuss the product mix shifts that you're seeing in Florida, specifically, how is the overall mix changed in Florida, rather than flower between value and premium products and extract the product how the dollar share of lift compared to the volume share given the rollout of edibles.
If you look at the <unk> and the new data it looks like you lost a little volume share in the in the quarter, but I'm not convinced that that's necessarily the case of of the dollar basis, if you could speak to that of a bit as well.
Yeah, absolutely Matt.
Certainly we're seeing across across the categories as I mentioned last last quarter Q3 to Q4, we saw the continuation of that barbell effect with premium actually outpacing value.
From Q3 to Q4 on about a two to one.
And in Q4 to Q1, we're seeing we saw a greater impact actually in value still an increase in premium and but.
A bit of a move from mid tier I'll say too to value.
On a lot of that honestly has to do with our product mix internally and what we have available to us.
Two folks and so we're constantly evaluating and and and.
Because the <unk>, if you will our product mix on based on consumer demand I think it makes sense. When you think about you know again, the stimulus kind of coming in and where folks are spending dollars on the oil side Edibles, we're seeing continued demand increases.
Edibles instead of that is and has been taking a larger a larger percent of our oil on demand and as a reminder, edibles are limited by statute in Florida to the amount of milligrams per package and so does it going to be of lower one milligram. So when you see on that oil report.
As you may see some it may appear on but in terms of the per unit basis, and then of course on a margin flow through basis.
We love to sell more edibles in the strong category for us hence the reason that we're building out that larger facility in Tampa that will be coming on line later this year.
Great and then on the cash.
Opex I never thought it would be excited about higher capex spend that I love, what that's doing pretty of top line you talked about the.
You talked about the big projects, you have underway, but I'm not sure of how to reconcile that with the the cash Capex is this the right level of spend to assume over the course of this year.
The pending any additional projects you may have but should I think should we think about this kind of $45 million spent at the right. The right trend rate to model out for the remainder of the year.
Yes, Matt. Thank you so as we said at the end of last year and kind of on the call today, we're going to invest heavily in capex throughout the year.
Exactly run rate that range. So we're going to go into ramp of kind of over overtime and throughout the year and the timing of those will shift with market demands and the build outs of new markets that could shift over time so.
Good.
Spill into the new year hit in Q4, so I wouldn't run rate that I would say it would be at least what you saw on Q1 for the remainder of the year.
Okay. Thank you very much.
Thanks, Bob.
Your next question comes from Russell Stanley of recent Securities. Your line is open.
Yeah.
Thanks for the question, Jim I guess my first one just a bit of a fall of perhaps on on an earlier question, but what can you say at this point of a new patients coming into the.
Florida market at this point relative to new patients that you were on boarding a year ago, and I'm thinking with respect to demographic characteristics or <unk>.
Product preferences. So obviously edibles are playing a role but any additional color there.
Yeah, as we mentioned on the call Ross patient growth has been exploding quite frankly, and I don't think thats, an owner of an overstatement in Florida I mean, when you look at where we exited 2020. It was approximately 2500 patients a week.
As we said you know I mean, the we go for 'twenty and we had 7000 patients enter the market I mean on a on a regular basis, we're seeing it's not unusual for us to see numbers in the 6000, Mark on a week over week basis. So certainly the.
Those rates have continued to be very very strong our demographics of actually remained relatively stable.
And I think that the.
Partially I think as the result of the fact that we haven't necessarily seen any change of new changes from a form factor perspective of our other our other instances so on.
We had shifted down a little bit on in age.
On the Florida market, specifically with the Onboarding of flower.
Of that happen, but again, it's just hovering around the average age of $49 50 years old on the split about evenly.
Female and so again as we mentioned edibles as a really strong category for us right now.
<unk> steadily increasing with our product mix to come in line with national averages.
Lower of course, there is also a very very strong product category for us and as I mentioned before we're seeing.
<unk> kind of barbell action with respect to on price preferences. So.
No no real surprises, but just additional accelerated growth across on across all categories.
Great. Thanks for the color there and maybe if I could just the.
The change gears to.
West Virginia, Congrats on closing the acquisition of the.
Additional licenses there I'm wondering if you can elaborate on what your growth plans are in this market in terms of the timeline score.
Opening doors and on the <unk>.
Retail development plan there.
Sure, we're going to approach West Virginia like we do.
Everything else current truly we're going to go really fast and we're going to we're going to get as many as many locations open as we can so that we can provide true access for.
For patients in that market and we're a big believer in doing what we said that we're going to do and we've made a commitment to the people on west Virginia that we're going to be there on a meaningful way and we plan to do that so look for more news on on West Virginia from us as the as the year goes on rates, but you can certainly expect us to to get operational there of finished.
Ken.
That's great. Thanks for the color and congrats again.
Thanks.
Yeah.
Your next question comes from Vivien <unk> of Cowen Your line is open.
Hi, good morning.
Good morning, the first question.
My first question is the housekeeping one please it looks like in your $1 21 press release, you guys restated adjusted EBITDA for the December 31 period up to eight 181, 4% from $78 two per year for Q 'twenty press release can you just the offer some color on that please.
Yeah.
Yes, we are.
We decided we added back COVID-19 related expenses to adjusted EBITDA, We do that in Q1 of this year and then we.
It reflected that in the comparative period as well.
Okay understood. Thank you.
The follow up on the commentary. Please came on edibles can you offer any more granular color on what youre seeing in the category from a form factor perspective, Gummies vs. Chocolates and as you think about of more than three ex increase in your own edible capacity are you orienting with the market and as well.
How are you thinking about dosing are you seeing any bias from consumers on hydro's versus low dose edibles.
Yeah. Thanks, Thanks, Vivien so on the high dose low dose.
<unk>, where we're constrained by by statute here in Florida, and so no no edibles package can be over 100 milligrams on each pieces up to up to 10.
And certainly I mean, some flexibility there in terms of if youre going to go 10, five two and a half on on that front and I would say that.
To date folks are certainly leaning towards that 100 milligram 10 milligram per per per piece formula with.
With respect to specific form factors of than the edible categories, certainly not surprising I think to anyone.
Gels is we have to call them here in Florida, our gummies is that as the clear leader in.
And that category, we've offered those in a variety of.
Of course flavor profiles, but also ratios. We just we just actually launched the CBS CBD gummies.
The has gotten pretty positive results and then we also have our gummies and our nano formulation for folks who are looking for something with a little bit more of a predictable or faster onset. So on that certainly the leader I would say followed and again not surprising for anyone I don't think of as chocolates on <unk> after gummies and but again.
The really strong growth across the across the portfolio on edibles.
That's very helpful. Thank you.
Yep.
Yes.
Your next question comes from Andrew <unk> of Stifel GMP.
One is open.
Hi, good morning, Thanks for taking my questions and congrats on the good quarter.
I wanted to maybe just talk about seasonality.
You, obviously have a strong.
The <unk> platform in Florida.
Last year introduced the.
On.
Little bit of of less seasonality.
Because of the planting.
Just wondering this year, how do you see your inventories do you expect to flow.
The plant Youre hoop houses.
Especially given the context of expanding edible production.
Do you see any seasonality this year.
Obviously, excluding harvest.
Any color you could provide in terms of.
What to expect on seasonality it could be useful.
Yeah, So so certainly out of our greenhouse footprint.
We will be planting.
On this this year.
And we would expect that.
That's the contribute on however, I think at this point with our continued investment on our expanding indoor footprint I think that that takes a bit of the quote unquote seasonality in terms of what customers might experience.
It is.
We believe will neutralize that two two of large extent and so clearly with the again as I mentioned before with our second production facility coming online in Tampa and it should be noted that is not just the kitchen. That's also going to include additional on additional production activity and not in the Tampa location certainly having.
Additional additional biomass.
Material for that facility will be on will be needed and again, given our internal on <unk>.
Forecast of increasing our store count along with the robust patient demand and patient onboarding into the Florida program.
We've got a good plan to be able to meet that demand across across the remainder of this year.
Great Thanks for that.
I realize you might not be providing frequent basis, but just wondering if you could give a little bit of extra color on on organic versus inorganic growth this quarter.
Any color on that could be useful.
Yes, Andrew is that as I think Alex was pretty clear, we're not going to we're not going to break out by segment.
Clearly you know which markets that we have that our organic with of course, Florida being 100% organic growth so on.
Clearly, Florida continues to be a on the high performer for us.
But as I mentioned and <unk>.
Pennsylvania also contributed for a full quarter.
This quarter and we have I would say, it's going to be a bit of of hybrid there right. Because we have of course of the M&A of the original platform, but then invested in the cultivation expansion there on them on a more organic basis. So.
It's going to be a blend anyway going forward as we continue to expand out our footprint there on the cultivation and production side and to try and meet what we believe the significant unmet demand in that market.
Okay. Thanks for that.
I'll get back in the queue.
Thanks.
Your next question comes from some of your volume of BT.
Your line is open.
Thank you good morning, everyone.
On a couple of questions.
First on Kim on the Florida cultivation in response to a prior question. It sounds like you ran out of premium flower inventory.
And that skewed the pricing mix, a little bit lower given the.
Consumers only bought what they had available.
As we think about the the future harvest in the coming online are you of shifting more towards premium production.
A couple of those multi day.
And should we expect the pricing tick up as a result of that or is pricing going to say that the way you kind of experienced in Q1.
Yes, so we constantly are evaluating demand and I mean.
The thing to remember, which I have to remember remind folks often is that these are plants and so you can't add in order to in order to make an adjustment. It does take time for that to come through the system.
But certainly we're always we're always monitoring customer demand and making adjustments as a result, I think that one thing that became very clear we launched our culture of our collection, which is our ultra premium cannot kind of sore screens and our flower category and it was.
The skus.
<unk> have been met with incredible incredible demand and so we certainly are looking to increase the.
The strain profiles available in that category on.
That being said, we do have extremely high quality standard for that particular line.
It has to meet a number of inspection of the of five of five step criteria in order to qualify.
For inclusion in that category and so we also have to be very mindful of making sure that we deliver on the on the value proposition that we're on that we've set out for that particular kind of worry but to answer your question broadly I would say certainly we're constantly monitoring consumer preferences, and then making adjustments, but in the flower category, particularly it does take a little bit of time for.
For those adjustments to catch up so.
But the answer the short answer I guess is yes.
Okay got it thanks.
And then Alex can you tell us what the margin impact was.
From the Pennsylvania step up of inventory.
And the composition of the forthcoming harvest kind of.
So my question is the Florida. The question would you say the that's more of a premium product.
That would elevate the margin profile or kind of keep it at the kind of of the mortgage kind of mid tier type product, where pricing is probably more consistent with where it was even with the inventory impact in Q1.
Yes, so on the margin again, we're not kind of we're not breaking out by some of your reporting on that by state.
But.
I will say that the fair value step up of that.
Inventory is fully exhausted and you won't see that again in Q2.
Yeah, and then in terms of of in terms of our kind of philosophy as it relates to the planting and in Pennsylvania.
We do think it's important to have a value mix.
Of products. However, we are going to be and we went on we want to make sure that when we're presenting flour for the first time to the Pennsylvania market that we've got.
On a strong a strong on.
Strong products that we're presenting to the market to make kind of of our introduction if you will.
Into into the into the flower category on a meaningful way and so.
And I would say that we're leaning on the side of of premium on.
Although again being cognizant that we do need to have and very various price points to be able to make sure that consumers across.
Across the spectrum can can take advantage of and enjoy our products.
Got it thanks, so much and good luck on the rest of the year.
Thanks, so much.
Yes.
Your next question comes from Ken Rich time of the ATB capital markets. Your line is open.
Thank you Ron and good morning.
Jim could you just speak to how we should think about the evolution of your average basket of edibles track the penetration rate some of that sort of out of other markets.
Perhaps just the sort of.
Bold on that how effective as of the use of loyalty data to date and driving profitability on share and edibles and possibly look to see that of all of them over the over the course of the year.
Sure. So again I mean in terms of our average basket. We saw it was relatively in line rate for MA from Q4.
Q1 on an average basis, what we're really seeing again is that the volume of patient on boarding into the program.
So I would say the that that's more of what we're seeing from a trend perspective in terms of product mix as I mentioned, we did see growth in the edibles category quarter over corner and are approaching.
In line with in line with National averages.
On the Edibles category, we're still a little bit behind but and are rapidly catching up on.
On that on that front and then as far as the loyalty program goes we have broad participation in our loyalty program and that's been of its been a very strong.
Strongly adopted on a program for years now quite frankly.
We are going to be making some changes and you can look for some changes to that loyalty program coming soon on some enhancements.
With the on boarding as we've mentioned of our SAP ERP platform, coupled with our <unk> platform. We've got some additional visibility and will have the ability to.
We'll have the ability to.
The offer some additional features for our customers, which I think they are going to be very excited about but I think that when you look at our customer loyalty and our retention rate, which really I think of the kind of maybe subset. If you will from our loyal our loyalty program is one thing that contributes to that rate you look at going from Q4 in the low seventies too.
Q1 in the eighties I think it's indicative of we're doing a good job of keeping folks happy having the right product mix on the shelf and listening to our customers on our patients right and making sure that we're making adjustments where we see them in network.
We're at we're answering answering their requests in the market.
The question and then just a quick two part.
On the regulatory on the outlook could you provide any insight or color on.
The recent rulings on the recreational use pellets initiative and then secondly could you just.
Touch on the mechanics, and hurdles of rolling acquired stores on pure license in Florida.
Think about that potential considerations around that.
Sure. So on the ballot initiative and as we know and Supreme Court on did strike down the ability for one of the proposed.
Ballot initiatives to get onto the balance for 2022. There is another initiative that is still pending a ruling so we're waiting to hear on that.
In addition, there is.
Conversation around taking the the lessons that were given from the Supreme Court in their ruling on they made very clear things that would need to be included in the language for them to consider it appropriate for inclusion on the ballot.
And you know in crafting of new initiatives. So I would say, it's still it's still on the works.
Think of that were hopeful that the Supreme Court will make a ruling one way or the other on the on the second pending initiatives and then depending on how that goes right. We'll have to we'll have to take it from there.
And then in terms of stores in Florida, Florida is a very specific and well.
Well documented.
Asset transfer on.
Program, if you will and several several companies have successfully transferred assets from one company to another so we'll be working with the regulator on and on.
Utilizing not that protocol to transfer to transfer assets from from one company. So the other on of course.
As we know there is absolutely no need in Florida would have more than one license and non is prohibited so there would necessarily be.
The divestiture of the actual license.
And again, we're in touch with the with the regulator here and plan to work hand in hand with them to on.
Effectively.
The effectuate both of the asset transfer and then the licensing the actual license divestiture.
Hey, Thanks, and congrats I'll get back in the queue.
I think.
Your next question comes from Eric Deloria of.
Craig Hallum Capital Your line is open.
Great. Thanks for taking my questions and congrats on a strong quarter.
I was on if you could shed some more light on what we can expect from your wholesale versus retail strategy in markets, where you can do both.
Should we expect.
100% first party product mix on your retail stores or do you plan on including significant third party brands in your retail stores and then.
How should we think of.
The difference in your <unk>.
Retail versus wholesale product mix here. Thanks.
Sure and it's a very timely question of course as we as we are poised to launch, Massachusetts.
And have been having.
Having a lot of conversation in strategy sessions around that internally. So I would tell you that it's going to be dependent on the market to some extent and it's going to be dependent on our footprint and our capacity on the supply chain side of the business right. So certainly we know that.
The more vertical the.
On the platform.
Not only from a margin perspective, but also I think something that's maybe not talked about as much but it is very very important on its quality control and brand awareness and stickiness.
When you are able to completely on.
Have have a say on how that product is presented the way in which it is.
It's shown on store shelves in the way that it's the.
A way that it's explained to the patients or customers.
It certainly we believe and net can lead to a stronger customer retention and customer loyalty rates. So we're motivated for share too to ensure that we have a good quality branded products on our shelves and.
In all markets that we operate in that being said, we do believe that in some instances there will not be the ability whether it's due to canopy constraints or other constraints of us to be able to provide a full on Florida. We have over 600, skus that we produce again with the 2 million square feet.
The cultivation platform right, we're not going to necessarily have the ability just due to regulatory constraints to replicate that exact platform in other markets and so in those instances, we'll be we're going to make sure. We've got on what we consider truly of staple products that we'll be making sure that we have available to our to our customers on our shelves along with.
Some very.
The items that folks will only be able to find in our stores. But then of course of very also robust platform of very specifically identified on wholesale products that we'll be providing to the market. So there will be a mix of of course of us externally wholesaling and then also on our shelves inbound wholesaling to make sure that at.
The end of the day of the customer needs of good good depth of the products. They need of good experience and we have a couple of things here at true leave is that you always want to just say, yes, and you want to stop the now so we want to have good variety of good depth. So we don't we don't run into of know it gives them a reason not to visit US and then once they're in our store on we want to have.
A great environment for them by creating.
Our customer the customer is always right.
Mentality of just saying, yes to make sure that we deliver that exceptional customer experience.
Okay, Great. That's that's helpful. I appreciate that.
Then on Massachusetts here.
Could you just help us understand the pace of the ramp here in Massachusetts.
It has been in the works for a long time.
Should we still think of that as sort of of slow normal ramp or do you anticipate sort of hitting the ground running with wholesale sales here. Thanks.
Yeah. It has been a long time coming.
I joke, and say that I think any operator in Massachusetts, we should all have we survived T shirt.
<unk>.
Yeah.
So I would tell you that youre going to see a flurry of activity from us in Massachusetts. This year.
So we're a little gun shy of giving any specific timelines or.
Ram projections, because really we want to get there we want to get operational on we want to start making sales.
We've had a lot of time to lay a solid foundation, which we certainly have and we're working on and have been working to secure additional <unk>.
And products and whatnot, so that we can begin processing.
Truly branded products across various skus again, both for our retail and then office to support our wholesale on operations there. So.
More to come on that but certainly I would say that you should expect contribution from Massachusetts in.
In 2021.
Okay.
The Massachusetts resident of I'll look forward to that thank you.
[laughter].
Your next.
She comes from Graeme Kreindler of take.
Capital Your line is open.
Good morning, and thank you for taking my question I wanted to follow up on some of the comments.
That one made prior on the call regarding some of the demographic of patient trends even in Florida on my understanding is that the patient penetration rate is close to about two five per cent of the population of men.
And mature more mature medical markets I've seen that penetration rate go closer to 4% and in some states like Oklahoma, that's sort of closer to 8% I was wondering just to expand on those previous comments.
Is there any sort of.
Internal internal targeting or the way you think about where that the patient penetration rate might go and maybe independent of any sort of potential for adult use to come into Florida. The Dcs.
Falling in line with some of those more mature markets, where do you think Florida has the strong case of potentially be.
Why are the upside there would appreciate the thoughts thank you very much.
Yeah I mean.
What I can tell you is that as we've said there is.
There is absolutely it's been an incredible growth rate.
So far this year with no signs of slowing down I think given the population again, Florida is the third the third most populous state with over 20 million residents as well as you know that's growing by the way in leaps and bounds you know, Florida is a very popular I'll call. It post COVID-19.
On destination and from a residency perspective, so I would expect our population to continue to grow and then if you look at the demographics of the of that population again trending true.
Turning slightly older and from the from again from a financial capabilities perspective, as well. So I do think that there's a strong case per.
The Florida to certainly surpassed I would call a market average as it relates to medical penetration.
And certainly the numbers are indicating that it would the.
We're headed in that direction right.
The other things to consider of course is we are still waiting for hydrocarbon roles here in Florida, which we're expecting really anytime now which would allow for.
A whole new on slot of high end concentrate products, which it'll be interesting to see if we'll win.
On that it's already in statutes. So we're just waiting on rules kind of similar to where we were always out of both previously it will be interesting to see with that product category hour. If the demographic shift one would expect that when you are able to see the really higher end.
Cana kind of.
Or concentrate category open up that we may see.
The shift down in age from a demographic perspective, and so and then of course I'm also curious to see how that affects the male female.
Ratios as well so.
I don't see there hasn't been any indication that we're slowing down.
Florida as it relates to patient growth and I do think that given our particulars as the state and we very may well see.
On outlier on the on the higher end.
Understood I appreciate the thoughts thank you very much.
Yep.
Your next question comes from Scott Fortune of Roth Capital Partners.
Your line is open.
Good morning, and thanks for the questions kind of follow up on that kind of high level as you look at the branding side of things here from a local level.
Each of the different regions.
Obviously, the new southwest region, you've done very well kind of a local branding, but how should we look at from the strategy wholesale building out a national brand.
You build out the these different regions.
Sure. So certainly brand and connectivity to consumers is something that has always been top of mind for true leave across across the years certainly were constrained.
In markets, we have to make sure that we're first and foremost always compliant not.
Being said, we have recently under actually completed brand architecture work on as we think about kind of what that national brand portfolio will look like and how it will be positioned across markets and across regions and so on it.
We're so excited and again about with respect to our Massachusetts launch and then our continued development in Pennsylvania to have the ability to really showcase brands in a way that we may be somewhat limited on doing in Florida. As an example, because of packaging requirements and constraints on naming et cetera that <unk>.
And we always have to keep that in mind market to market and other.
Other thing that I think we've been very consistent on and we plan to continue is finding and embracing local brand partners to really highlight the region ality of of the market that were that were entering and so certainly in Florida, we've been very very successful with our local brand partners with.
Block tuna Sunshine cannabis et cetera, and also of course are more national brand partners that continue to build out our portfolio such as Blue River, which we're excited to enter Massachusetts with them as the partner as well and so always cognizant of.
The portfolio mix and cognizant of how our brands are positioned in the marketplace.
You will see.
On some truly of internal brands coming to shelves in the very near term again as we as we launch that portfolio in Massachusetts, and then as we integrate those brands across the northeast so.
Stay tuned we've got some exciting things to come on that front.
Great I appreciate the color and just real quick.
A follow up on the federal legislation side. It seems like safe banking can be lumped in with more of a comprehensive side any updates on thoughts on the federal.
Side of things seems to be getting pushed out here.
Okay.
Sure So I'm not sure if.
Senator Schumer has treated today or not but rate I think it's there it's quote soon so.
So it's.
It's the same we're monitoring it were in contact.
On through.
In D C thru the resources, there and I think it's consistent with what everyone is seeing in that.
Certainly.
We're in a different place than we were a year ago, I think into the positive where whereby.
Folks are one thing right and are very motivated to have cannabis policy insignificant cannabis policy.
On happen at the federal level now, it's just a matter of.
To what degree and what's included whereas a year ago right or two years ago. We were all just hoping for something so it's sort of the opposite side of the coin if you will.
But similar similar to what to what you are hearing schumer.
Humor continues to work on his comprehensive bill.
There certainly have been talks with other agencies and he is consulting other agencies to get their input on ahead of time, which will be interesting. He is holding up very very close to the best in terms of what all will be included however, we do believe.
And have worried that safe banking of course as well as on.
Some level of.
Social equity and criminal Justice reform will necessarily be included but in terms of other other items. So it's a little bit of a wait and see of course, we saw the Republicans I believe it was yesterday introduced of measure.
And the house, which was interesting rain and included.
The reduction in scheduling and some other items, including say spanking, So I think all kind of.
All signs are pointing to something coming out I think all of our hope is that it just doesn't get too heavy right and that we're able to actually move something out.
That's really going to be what we're what we're gonna be watching after its introduced which we would hope would be within the next short while.
Thanks, I appreciate the update.
Yep.
Your next question comes from Aaron Grey of Alliance Global Partners. Your line is open.
Yes.
Hi, just one from me. Thanks for the question on congrats on the quarter. So just wanted to ask about average basket was up a little bit sequentially. It looks like still.
The down year over year.
I'm wondering if you saw the.
Boost from the stimulus at the end of the quarter and then what impact you've seen from the edibles that have now been rolled out for a little bit on the overall basket. How you look for that to kind of trend over the next couple of quarters. Thank you.
Sure Yeah, I mean again I think as it relates to Tabasco items. We said previously we are we're seeing fairly consistent pretty consistent from on the Baskin side and but we are seeing of course in a rapid increase in patients. So when you think about 2500 ended the year to 6000.
The significant increase in a very short period of time and so on.
With that we are seeing.
We're seeing we're seeing folks.
Come in that are new patients.
But again that basket price is fairly it's fairly flat as it relates to as it really relates to stimulus.
Certainly we saw some increases around stimulus.
And it was pretty identifiable those days when stimulus checks hit and so it wasn't a protracted I'm on.
I will say it wasn't a protracted period, where stimulus was affecting or therefore skewing baskets I think maybe part of the question is okay, where should we assume then the baskets are going to decrease in Q2, because you know maybe stimulus was increasing our creating a bump in Q in Q1.
It is not the case.
So I think that again as of as we can tell right now things are fairly are fairly consistent.
Again edibles as increased Q Q4 to Q1 and as I said is coming in line are beginning to come in line with those national National averages that you see in product mix.
Okay, great. Thanks for the color.
Yeah.
Your next question comes from Andrew Semple of special on capital markets Your line.
Line is open.
Hi, good morning, and congrats on the quarter.
Based on your plans and the pace of additional production capacity expansion is currently being built in Florida I just wanted to clarify whether you feel supply constrained today or whether that's in anticipation of future.
Medical cannabis demand.
And perhaps you could comment whether any of those build outs.
Mike might just be.
The central buffer for potential adult use.
Okay.
Yeah.
We certainly and we certainly try to pace right are our cultivation and production with growth in markets and we will do that nationally across our entire platform.
I will say I'll be candid and say that the increase from 2500 patients to 6000.
Not necessarily anticipated.
So we are we are playing a bit of a bit of catch up in Florida, specifically around our cultivation and so on which is look that's a great a great problem to have but we know.
From a patient perspective, we take it very very seriously and having again depth and category in depth and product is one of our hallmark. So it is very important for us to make sure that we've got the right mix for.
For folks and we were running a little thin.
In Q1, because that the just that.
<unk> and patient demand.
A little bit by surprise.
So I would say, it's a little bit of of next rate and we expect we've accelerated plans that we had.
In place for 2021, and we brought some of this forward to make sure that we are we are keeping up and then we'll continue that again until the market signals that we need to do we need to either throttle back or accelerate even further.
It should be noted that we are.
We are.
Building of course of the last latter half of the year, specifically as we approach the end of the year right. Then that goes towards really our 2022 plan. So again cultivation, specifically has to be built and it has to be planted and then it has to be harvested et cetera. So it's not an immediate.
When you have it online and when you plan to it doesn't immediately come through from a revenue perspective. So.
We always try and stay one step ahead of Q1 demand in Florida got a little ahead of us so.
We're catching back up.
I think on Alex's comments, he mentioned right the rate of which we're going to be bringing cultivation on line.
On a go forward basis, so exciting times and lots and lots of growth of that.
Understood and agreed to a very nice problem to us.
Just moving on to the next question here.
Understand there is a fair amount of cash on the balance sheet today.
But I would like to get your updated thoughts on whether you continue to monitor those.
Total debt.
Capital.
For the potential of opportunities to maybe lower the businesses overall cost of capital.
Yes.
Yeah. So I mean, certainly we're going to be continue as we just talked about right. We're going to continue to reinvest into the business.
And certainly want to make sure that we're prepared to take advantage of opportunities as they present themselves. One thing we haven't really talked about on the call today is new markets from an organic perspective coming online through applications and certainly there are plenty of those opportunities that are that are going to be coming to fruition that we hope to participate in.
Over the year and in addition, as I mentioned and being able to go deeper in markets that were already established and so obviously, we clearly do that in Florida. We're in the process of doing that on Pennsylvania, Youll see us do the same in Massachusetts.
The West Virginia of course coming on line and then like I said plenty of other markets, particularly in the southeast because that we hope to have.
Again, the problem of spending of spending cash to add to build capex. So that we can build out those are those new new platforms. So lots of lots of uses of cash and.
Again, and just couldnt be more excited in terms of the prospects of growth that we have ahead of us for 'twenty, one and 'twenty two.
I appreciate the color thanks for taking my questions.
Thanks, so much.
There are no further questions at this time I will now return the call to Ms Richards for closing remarks.
Thank you for joining us today, we look forward to updating you all again next quarter have a great day.
This concludes today's conference call.
Thank you for your participation you may now disconnect.
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