Q1 2021 Trulieve Cannabis Corp Earnings Call

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Good morning, ladies and gentlemen, and welcome to the truly <unk> Cannabis Corporation first quarter 2021 financial results Conference call. My name is Chris and I will be your conference operator today.

As a reminder, this conference call is being reported.

I would now like to introduce your host for today's conference Ms. Lynn Ricci director of Investor Relations for Trulia and you may begin.

Thanks, Chris Good morning, ladies and gentlemen, and thank you for joining us today on.

On the call with me today are Kim Rivers, Chief Executive Officer, and Alex to my co 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 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.

Periodic reports filed with the Securities and Exchange Commission and those related to the completion of our transaction with harvest. 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.

And by law during.

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 generally refer to these as non-GAAP financial measures. These measures should not be considered in isolation or substitute for <unk> financial results prepared in accordance with GAAP.

A reconciliation a reconciliation of these non-GAAP measures to the most directly comparable GAAP measures is available and 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 and 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 and 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>.

Better relations section of our website truly dot Com and addition webcast to this conference call will be available on our website. Later today now I will turn the call over to our CEO Kim rivers.

Thanks, Lynn and good morning, everyone 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, and 102% year over year, our 2020 one adjusted <unk>.

EBITDA of $90 8 million, representing and 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 that should we leave and harvest had entered into an agreement whereby <unk> will acquire harvest, which would create the most profitable cannabis company and the world harvest announced a fantastic quarter, beating consensus by a wide margin with revenue of $88 8 million and adjusted EBITDA of $26 9 million or 30% tripling their adjusted EBITDA.

From Q4 on a combined basis with our results of operation and we would have revenue of approximately $282 6 million and adjusted EBITDA of approximately $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.

Reported by harvest demonstrates how transformative the acquisition would be for both Trulia and the cannabis industry as a whole let me share a little more about the acquisition and what it means harvests will provide diversification across our combined platform with continued focus on core markets harvest and 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. If the deal were to close today truly plus heart. The Trulia plus harvests platform, which consists of 126 operational dispensaries and $3 1 million square feet of cultivation and production together we'd be diversified.

Across 11 states with operations and some of the most attractive markets and the nation. The transaction would bring harvests first mover advantage and Arizona, which would establish really southwest hub and a big way more on that and a moment and the northeast harvest would add to our Pennsylvania companies to complement our footprint. We would also enter a new northeast market and Maryland with three <unk>.

Threes, and 122000 square feet of cultivation and production and the southeast harvest would add retail locations in Florida, and approximately 330000 square feet of indoor grow and 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 a customer centric approach strong brand awareness and and 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 deep and markets to create brand and customer loyalty, while maximizing efficiency and supply chain, resulting and increased profitability.

The addition of harvest operations would establish a truth southwest hub, we would be entering Arizona, where harvest has executed on its first mover advantage harvests, Arizona operations include a state leading 15 operating stores as well as a significant cultivation footprint with 185000 square foot indoor and 144000 square foot outdoor grow as well.

And as 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 and Nevada, Colorado, Utah, and California operations. The addition of harvest presence and Pennsylvania, and Maryland, coupled with our recent acquisitions and Pennsylvania are.

Initial operations, our initiation of operations, and Massachusetts, and turning the West Virginia market and are outperforming dispensary, and Connecticut with Burnley 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 and the three dispensaries and the Pittsburgh area has been strong. In addition, we look forward to closing our previously announced acquisition of Keystone shops, with three dispensary operations and the Philadelphia area, Pennsylvania is a critical state for a northeast hub.

Jean.

Our operations and Massachusetts are finally underway, we have plans on the ground and our wholly a facility and anticipate opening our first dispensary. This quarter and is an exciting time for our team who have worked hard for this to become operational we're also expanding and the northeast hub by establishing operations in West Virginia through our successful application wins and the recent closing of Mountaineer holdings wheeled coach.

Asian processing and dispensary permits this combination allows us to enter the state as a first mover vertically integrated operator.

Turning to our South East hub, we've maintained our leadership and our home state of Florida opening our <unk> and 80 <unk> store on for 'twenty and opening our 82nd Florida store last week with over a half a million patients and the state or two and 5% penetration rate. We continue to grow patients 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 7000 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, and we had our largest revenue producing day to day, topping $3 million and Florida, our 2020 one to century plan calls for 114 stores and the country by the end of the year with many of those targeted for Florida.

And to keep up with the exciting patient demand and the <unk>.

<unk> per 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 and Madison County, where we plan to have 850000.

Square feet of cultivation, we commenced our Tampa distribution and warehousing operations to handle our ever growing footprint to help feed the overwhelming demand for edibles. We're building a 35000 square foot kitchen, which was about three five times, our current kitchen, and our Medway facility that will produce a lot of Trulia and brand partner Edibles and we're executing on on our national expansion.

<unk> 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, we share our customer retention rate quarterly and comparing the fourth quarter with the first quarter of 2021, we had a customer retention rate of 84% exemplify and loyalty.

And strength across a growing platform of retail locations and other metric that reveals customer loyalty is the number of visits and their basket size and Q1 active customers visited Trillium stores on average two eight times per month consistent with the full year average with an average basket size of $113. This is an increase over our Q4 average of $2 eight visits per month.

And when the basket size of 112.

We use a traditional same store sales metric to track these loyal customers at a store level for the 59 locations that were opened in Q1, and 2020 and Q1 2021 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 <unk> and for the industry I would like to outline a few details of the transaction before I jump into our Q1 results harvests, which strengthen our financial profile on a combined basis 2020 revenue would've been approximately 750.

$3 million with $266 3 million of adjusted EBITDA based on 2021 consensus we would combine for revenue of approximately one point to $4 billion and and adjusted EBITDA of approximately $461 million harvest reported their adjusted EBITDA margin for Q1 at 30.

The percent 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 2020 one as their focus on right sizing the business and executing on fundamentals becomes apparent and their numbers. This combination would easily create the most profitable use.

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 and station as we converted to a U S reporting company and establish the infrastructure necessary to support our regional hub strategic vision 2021 will be the execution of our strategic plan as we enter a new fees and 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 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 towards 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.

And as Kim cover at the top of the call. We had record revenue of $193 $8 million and 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 pure play and and so levo, Pennsylvania acquisitions that closed midway through Q4.

For 2020 on.

Our quarterly revenue was $97 $8 million higher than Q1, and 2020 and impressive 102% growth year over year.

As I have noted in the past truly 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% and the first quarter compared to $119 $9 million or 71% and the fourth quarter of 2020 similar to what we reported and Q4, our margins and our core operations remain in line with historical trends and 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, our fair value 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 and subsequent periods.

As a reminder, there is downward pressure on gross margin as we enter new markets without full vertical integration as we 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 our gross margin in all markets can 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 SG&A expenses and the first quarter, excluding depreciation and amortization were $57 3 million or 30% of revenue compared to $52 million or 31% and the fourth quarter of 2000 and.

'twenty, we expect increases and 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 and material change as a percentage of revenue on.

Our operating income for the quarter was $72 6 million.

A 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 and should 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 and Pennsylvania, and Massachusetts operations the.

The company delivered $60 4 million and cash flows from operations for the quarter due to our continued quarter over quarter profitability and record revenue.

We ended the quarter with a 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 and the states, where we operate and.

Subsequent to the end of the first quarter, we paid approximately $33 million and federal taxes. In April. In addition, we successfully completed an underwritten equity offering adding approximately $219 million ending April with a 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.

Companywide capex spend for the quarter average just over $16 million per month inclusive of all markets and was in line with plan, we continue to build out stores and cultivation facilities as well as a new distribution and processing center in the southeast and in addition, we will build out our west Virginia operations throughout the year, we will.

And to invest heavily and capex throughout 2021 to support our expansion efforts and add depth and 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 and the range of $355 million to $375 million or 2021 views on adjusted 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 a catalyst that changes our outlook 2021 is off to a great start and we have and 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 <unk> employees.

I am so proud and thankful to be partners with you and this business and appreciate your commitment to our customers and to each other which is made to leave the company. We are today with the pending acquisition of harvest.

Bringing together two leading cannabis companies here 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 and the world and closing this transaction is not just about today, but more importantly about our future as a combined company our platform for growth.

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 position for the future.

Thank you for joining us today, and as I always say onward.

Operator, we can now open and up to questions.

Thank you.

And I would like to remind everyone in order to ask a question Press Star then 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 again, it's early days, but can you just talk on on Al Pennsylvania has performed.

Relative to your initial expectations and then I guess, just more and more specifically the recent increase and cultivation and how do you spend the leverage that throughout the state.

Yes, good morning, Derrick and thanks for joining us and so Pennsylvania has been and.

And incredible addition to our portfolio and certainly has been performing and as expected for us and Q1 and.

And we just got the additional square footage online and on the on the and on the cultivation side with an additional 45000 or so square feet.

And planted 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 and.

Chirping rich biomass to make additional products with as well so.

I'm excited to have that come online and continue and contribute to our.

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's a big supply constrained and are you continuing to see that and do you see sort of any given.

And given that you've added some capacity year cultivation capacity do you see any incremental relief coming there or is it going to remain supply constrained because of the stable future.

It certainly is it's supply constrained currently and I think it's interesting because youre definitely seeing and like you do and a lot of markets right and evolution of product mix.

Pennsylvania started as an oil based on only program very similar to Florida and say we're very.

Well aware of how those trends and at least has played out over time and the Florida market and we think that Pennsylvania will be very similar so with the on boarding of flower as a and as a product again similar to Florida, we've seen a ramp and flower demand thats exponential and has been very rapid and the market now is trying to catch up with that supply and.

Florida is any any comparison on that front and we still have increasing and what you see and the numbers right week over week and.

We've had surges and 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 and across multiple different value propositions available for our customers and Pennsylvania, 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 from others were for January was a bit of a softer month with some more COVID-19 restrictions and then we saw a day.

And acceleration from.

Early in March I think you know part of that was related to certain payments did you guys witnessed something similar within within I guess predominantly from Florida.

Yeah, So and we didn't have the as big of an impact as maybe some of our of our peer set who have operations heavier and.

More heavily concentrated in the north sea.

And Florida, we don't quite have the snow.

While this has no impact than others and may have experienced that we saw a fairly fairly steady growth certainly with stimulus checks coming in and in March there was a bit of a bit of a spike on the positive side and March, but and I would say relatively steady pace and in line growth in January and.

Larry.

Okay, Great I appreciate the color. Thank you very much.

Your next question comes from Matt Mcginley from Needham <unk> Company. Your line is open.

Thank you can you discuss the product mix shift that youre seeing and Florida, specifically, how is the overall mix changed and Florida, rather and flower between value and premium product and and extracted product how was the dollar share low compared to the volume share given the rollout of edibles.

You look at the <unk> and then you Jay and 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 on a dollar basis, if you could speak to that a little bit as well.

Yeah, absolutely, Matt and so.

Certainly we are seeing across and across categories. You know as I mentioned last last quarter Q3 to Q4, we saw and the continuation of that barbell effect with premium and actually outpacing value.

From Q3 to Q4 on about a two to one and.

And in Q4 to Q1, we're seeing we saw a greater impact actually and value still and increase in premium and debt.

A bit of a move from mid tier and I'll say too to value.

On a lot of that honestly have to do with our product mix internally and what we have available and to <unk>.

And two folks and so we're constantly evaluating and and and.

And.

And just resizing, if you will our product mix based on consumer demand and I think it makes sense. When you think about again, the stimulus kind of coming in and where folks are are spending dollars on the oil side Edibles, we're seeing continued and demand increases and.

Edibles and so that is and has been taking a larger and larger percent of our oil demand and as a reminder, edibles are limited by statute and Florida to the amount of milligrams per package and so those are going to be a lower one milligram. So when you see on that oil report.

And you may see some it may appear but in terms of per unit basis, and then of course on a margin flow through basis.

And we love to sell more edibles and a strong category for us hence the reason that we're building out that larger facility in Tampa and that'll be coming online later this year.

Great and on on the Capex I never thought it would be excited about higher capex spend that I love what that's doing for your top line you talked about the.

Youre talking about the big projects, you have underway, but I'm not sure how to reconcile that with the cash Capex is this the right level of spend to assume over the course of this year.

And the pending any additional projects you may have but should I think should we think about this kind of 45 million you spend at the rate the rate 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 and capex throughout the year.

Exactly run rate that rate. So we're going on it's going to ramp up kind of over and over time and throughout the year and the timing of those will shift with market demands and and to build outs and new markets that could shift over time so.

Good.

And 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 muscle strength of recent Securities. Your line is open.

And my Thanks for the question Jim I guess my first one just a bit of a follow up perhaps on on an earlier question, but what can you say at this point about new patients coming into the.

Florida market at this point relative to new patient. So you were on boarding a year ago and I'm thinking with respect to demographic characteristics are.

References so obviously edibles are playing a role but any additional color there.

Yeah, as we mentioned on the call Russ patient growth and has been exploding quite frankly, and I don't think Thats, an Uber and overstatement in Florida, and when you look at and where we exited 2020. It was approximately 2500 patients a week and as we said you know I mean that we go for.

2000, and we had 7000 patients enter the market on a on a regular basis, we're seeing it's not unusual for assessing numbers and the 6000 Mark on a week over week basis. So certainly and those rates have continued to be very very strong our demographics have actually remained relatively stable.

And I think that that's partially I think as a result of the fact that we haven't necessarily seen any change any changes from a form factor perspective, or our other our other instances so and.

We had shifted down a little bit and in age and and the Florida market, specifically with the on boarding of flower will not happen, but and again, it's just hovering around average age of $49 50 years old and and split about evenly male female and so and again.

And as we mentioned edibles as a really strong category for US right now and it's been steadily increasing and with our product mix to come in line with national averages.

Flower of course, there is also a very very strong product category for us and as I mentioned before we're seeing a continued kind of barbell action with respect to price preferences. So.

No real surprises, but just additional accelerated growth across on.

Cross sell all categories.

Great. Thanks for the color there and maybe if I could just.

Changing gears to.

West Virginia, Congrats on closing the acquisition of the <unk>.

Additional licenses there and I'm wondering if you can elaborate on what your growth plans are and this market in terms of timelines for <unk>.

Opening doors, and and the retail and development plan there.

Sure, we're going to approach West Virginia like redo.

Everything else here at truly we're going to go really fast and and we're going to we're going to get as many as many locations open as we can so that we can provide through access for <unk>.

For patients and not market and we're a big believer and doing what we said that we're going to do and we've made a commitment to the people and west Virginia that we're going to be there and a meaningful way and we plan to do that so and look for more news on on West Virginia from Us as as the year goes on rough, but you can certainly expect us to to get operational there are finished.

Ken.

That's great. Thanks for the color and congrats again.

Thanks.

Your next question comes from Disney and Taser with Cowen Your line is open.

Hi, good morning.

Good morning.

Good morning. My first question is a housekeeping one please it looks like in your and <unk> 21 press release, you guys restated adjusted EBITDA for the December 31 period up to eat what 81 four from $78 two for your for Q 'twenty Press release can you just offer some color on that please.

Yes.

Yes, we are.

We decided we added back COVID-19 related expenses to adjusted EBITDA, and we do that and Q1 of this year and then we.

Reflected that and the comparative period as well.

Okay understood. Thank you and just a follow up on the commentary please came on edibles.

And 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 a more than three X increase in your own edible capacity or you're orienting with the market and as well how are you thinking about dosing are you seeing any bias from consumer.

<unk> on hydro's versus low dose edibles.

Yes, I think stinks and so on the high dose low dose and again, where we're constrained by and by statute hearings and Florida and so no no edibles package can be over 100 milligrams and each pieces up to up to 10, So and certainly I mean, some flexibility there in terms of if youre going to 10, and five two and a half.

And on that front and I would say that.

To date folks are certainly leaning towards that 100 milligram 10 milligram per per per piece and formula.

With respect to specific form factors within the edible categories, certainly not surprising I think to anyone.

And <unk> gels, and so you have to call them here in Florida. Our gummies is that is the clear leader and that.

And that category, we've offered those and a variety of and.

Of course flavor profiles, but also ratios. We just we just actually launched a CB and CVD gummy.

And that's gotten a pretty positive result, and then we also have argument 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 and I don't think its chocolates on usher after gummies and but again.

And really strong growth across the across the portfolio on edibles.

That's very helpful. Thank you.

Yes.

Your next question comes from Andrew <unk> of Stifel GMP.

And as Ofer.

Hi, good morning, Thanks for taking my questions and congrats on a good quarter.

I wanted to maybe just talk about seasonality.

You, obviously have a strong hoop house platform and Florida.

Last year introduced.

No.

Little bit of less seasonality.

Does the planting.

Just wondering this year, how do you see your inventories do you expect to fully plant Youre hoop houses.

Especially given the context of expanding edible production.

Do you see any seasonality this year.

And obviously excluding harvest.

And any color you could provide in terms of.

And what to expect on seasonality it could be useful.

Yeah, So so certainly out of our greenhouse footprint.

We will be planting.

This this year and.

And we would expect that.

That is a contribute and however, I think at this point with our continued investment on our expanding indoor footprint I think that takes a bit of the quote unquote seasonality in terms of what customers might experience and.

And we believe will neutralize that to a large extent and so.

Clearly with the and again as I mentioned before with our second production facility coming online and Tampa and it should be noted that is not just a kitchen and that's also going to include additional on additional production activity and that and that Tampa location.

And certainly having additional and additional biomass and.

Material for that facility will be and will be needed and and again, given our internal and.

Forecast of increasing our store counts along with the robust patient demand and patient onboarding into the Florida program and.

We've got a good plan to be able to meet that demand across across the remainder of this year.

Great Thanks for that and.

And I realize you might not be providing segment basis, but just wondering if you could give a little bit of extra color on.

And on organic versus inorganic growth this quarter.

And any color on that could be useful.

Yeah, Andrew is that as I think Alex was pretty clear, we're not going to we're not going to break out by segment and clearly you know which markets that we have that our organic with of course, Florida being 100% organic growth. So.

And clearly and Florida continues to be a and the high performer for us and.

But as I mentioned and.

Pennsylvania also contributed for a full quarter.

This quarter and we have I would say, it's going to be a bit of a hybrid there right. Because we have of course, the M&A of the original platform, but then invested and the cultivation expansion there on them.

On a more organic basis, so and.

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 and what we believe has significant unmet demand on that market.

Okay. Thanks for that.

I'll get back in queue.

Thanks.

Your next question comes from somebody who is volume.

Your line is open.

Thank you good morning, everyone.

And a couple of questions.

First on Kim on the Florida cultivation and in response to a prior question. It sounds like you ran out of premium flower inventory.

And that skewed the price and mix a little bit lower given the.

Consumers only bought what they had available.

As we think about the the future harvests and coming online are you shifting more towards premium production.

A couple of those multi day.

And should we expect a pricing tick up as a result of that or is pricing going to hold that and where you kind of experience and 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 and in order to in order to make an adjustment and 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 mean, I think that one thing that became very clear we launched our cultivar collection, which is our ultra premium <unk> screens and our flower category and it was not back those practices.

<unk> have been met with incredible incredible demand and so we certainly are and are looking to increase the strain profiles available in that category.

That being said, we do have extremely high quality standard for that particular line.

And has to meet a number and especially a five a five step criteria in order to qualify for.

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 for that particular category, but to answer your question broadly I would say certainly we're constantly monitoring consumer preferences, and then making adjustments, but and the flower category, particularly it does take a little bit of time for that.

For those adjustments to catch up so.

But but the answer the short answer I guess is yes.

Okay got it thanks.

And then Alex could you tell us what the margin impact was.

And from the Pennsylvania step up on inventory.

And the composition and forthcoming harvest.

Kind of a similar question on the Florida question would you say that that's more of a premium product.

It would elevate the margin profile or kind of keep it and it can even.

Mortgage kind of mid tier type product.

Pricing is probably more consistent with where it was even with the inventory impact in Q1.

Yeah. So on on the margin again, we're not going on we're not breaking out by state or reporting on that by state.

But.

I will say that the fair value step up of inventory is fully exhausted and and you won't see that again in Q2.

Yeah, and then in terms of and in terms of our and kind of philosophy as it relates to the planting and in Pennsylvania and.

And we do think it's important to have a value mix and.

<unk> products and however, we are going to be and we want and we want to make sure that when we're presenting flowers for the first time to the Pennsylvania market that we've got and.

And a strong a strong and.

Strong products that we're presenting to the market to make kind of our introduction if you will.

And to the into the flower category and a meaningful way and so and I would say that we're leaning on the side of premium.

Though 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.

And then thanks, so much and good luck and the rest of the year.

Thanks, so much.

Your next question comes from <unk> Tong of ATB capital markets. Your line is open.

Thank you Ron and good morning.

Tim could you just speak to how we should think about the evolution of your average basket as edibles track penetration rates and that's in and out of other markets and perhaps just to sort of.

Bold on that.

Ill effects and hit their use of loyalty data being per day, and driving profitability and share and edibles and possibly look to see that evolve over the course of the year.

Sure. So again I mean in terms of our average basket and we thought it was relatively in line rate from from Q4.

Q1 on an average basis, what we're really seeing again is that the volume of patients on boarding into the program and.

So I would say that that's that's more of what we're seeing from it from a trend perspective in terms of product mix as I mentioned, we did see growth and 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 and.

And our loyalty program and that's been a it's been a very strong and.

Strongly adopted on a program for years now quite frankly, and we are going to be making some changes and you can look for some changes to that loyalty program coming soon and 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.

And to offer some additional features.

Our customers, which I think they're going to be very excited about and but I think that when you look at our customer loyalty and our retention rate, which really I think of the cash.

And then 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, and the low seventy's too.

Q1.

And the <unk> 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 and listening to our customers and our patients right and making sure that we're making adjustments, where we see them and that work well.

We're answering answering their requests and the market.

Question on and then just a quick two part on the regulatory and outlook could you provide any insight or color on the.

The recent rulings on the recreational use pallets initiative and then secondly could you also just touch on the mechanics and hurdles of rolling acquired stores on pure license and Florida, and how to think about that potential considerations around that.

Sure so on the ballot initiative and as we know and Supreme Court.

<unk> and 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 and.

In addition, there is cash.

On recession around and taking the lessons that were given from the Supreme Court and their ruling and they made very clear things that would need to be included and the language for them to consider and appropriate for inclusion on the ballot and.

And and crafting and new initiatives, so and I would say, it's still it's still in the works and I think that we're 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 and how that goes right, we'll have to and we'll have to take it from there.

And then in terms of stores in Florida, Florida is a very specific and and well documented.

Documented asset transfer and.

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.

On utilizing that that protocol to transfer to transfer assets and from from one company to the other and of course.

As we know there is absolutely no need and Florida would have more than one license and non is prohibited so there would necessarily be.

On a divestiture of the actual license.

And again, we're in touch with our with the regulator here and plan to work hand in hand with them to and.

Effectively.

Effectuate, both the asset transfer and then the licensing the actual license divestiture.

Thanks, and congrats and I'll get back from the queue.

Thanks.

Your next question comes from Eric Door, you book.

Craig Hallum Capital Your line is open.

Great. Thanks for taking my questions and congrats on the strong quarter.

I was on if you could shed some more light on what we can expect from your wholesale versus retail strategy and markets, where you can do both.

Should we expect.

Virtually 100% first party product mix and 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 and your <unk>.

Retail versus wholesale product next year. Thanks.

Sure and it's a very timely question of course as we as we are poised to launch, Massachusetts.

And have been having.

And having a lot of conversation and 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 and our footprint and our capacity on the supply chain side of the business right. So certainly we know that and.

And the more vertical and.

On the platform and.

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 and its quality control and brand awareness and stickiness.

And when you're able to completely and.

And have a say on how that product is presented the way in which it and.

As shown on store shelves and the way that it.

A way that it's explained to patients or customers and.

It certainly we believe and that 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.

And all markets that we operate and that being said, we do believe that and in some instances there will not be the ability whether it's due to canopy constraints or other constraints and of us to be able to provide a full and Florida. We have over 600, skus that we produce again with a 2 million square feet.

And our cultivation platform right and we're not going to necessarily have the ability just due to regulatory constraints to replicate that exact platform and other markets and so and those instances right will be we're going to make sure. We've got and what we consider truly staple products and that will be making sure that we have available to our to our customers on our shelves along with.

And some very special items that folks will only be able to find in our stores, but then of course, a very also a robust platform of very specifically identified on wholesale products that we'll be providing to the market. So there will be a mix of course of us externally wholesaling and then also on our shelves inbound wholesaling.

And to make sure that at the end of the day the customer needs a good good depth of products. They need a good experience and we have a couple of things here. It truly is that you always want to just say, yes, and you want to stop the no. So we want to have good variety of good depth. So we don't we don't run into a no or give them a reason not to visit us and then once they're on our <unk>.

And we want to have and.

A great environment for them and by creating and.

Our customer the customer is always right and.

And mentality of just saying, yes to make sure that we deliver that exceptional customer experience.

Okay, Great. That's helpful. I appreciate that.

And then on Massachusetts.

It's here.

Could you just help us understand the pace of the ramp here in Massachusetts.

Has been and the works for a long time.

Should we still think of that as sort of a slow normal ramp or do you anticipate sort of hitting the ground running.

With wholesale sales here. Thanks.

Yes, it has been a longtime coming and I.

And joke and say that I think any operator, and Massachusetts. We should all have we survived T shirt and made and.

So I would tell you that youre going to see a flurry of activity from us and Massachusetts. This year.

So we're a little gun shy of giving any specific timelines or.

Ramp projections, because really we want and get there and we want to get operational and we want to start making sales.

And we've had a lot of time to lay a solid foundation, which we certainly have and.

And we're working on and have been working to secure additional biomass and products and whatnot and so that we can begin processing.

Truly branded products and across various Skus again, both for our retail and then office to support our wholesale on operations there. So.

More and more to come on that but certainly I would say that you will you should expect contribution from Massachusetts in and.

In 2021.

The Massachusetts resident and I'll look forward to that thank you and welcome.

Yeah.

Your next question comes from Graeme Kreindler of seed capital. Your line is open.

Good morning, and thank you for taking my question I wanted to follow up on some of the comments.

And that were made prior and the call regarding some of the demographic and patient trends seen in Florida.

Understanding is that the patient penetration rate is close to about two five per cent of the population and then and mature more mature medical markets from seen that penetration rate go closer to 4% and in some states like Oklahoma that is closer to 8% I was wondering just to expand almost previous comments and.

Is there any sort of.

Internal internal targeting or the way you think about where that patient penetration rates might go and and maybe independent of any sort of potential for adult use to come into Florida and do you see it falling in line with some of those more mature markets, where do you think Florida has a strong case that potentially be and out.

And why or to the upside there would appreciate your 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 and I think given the population and again, Florida is the third third and most populous state with over 20 million residents as well as you know that's growing by the way leaps and bounds, Florida is a very popular and I'll call. It post COVID-19.

And 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 those of that population and again trending and turning slightly older and from a from again from a financial capabilities perspective, as well. So I do think that there is a strong case.

And for Florida to certainly surpassed I would call on market average as it relates to medical penetration and.

And certainly the numbers are indicating that it would that we're headed in that direction right.

And the other things to consider of course is we.

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 and concentrate products, which and it'll be interesting to see and we'll win that it's already and statutes and we're just waiting on rules kind of similar to where we were with edibles previously and it'll be interesting to see with that product category.

If the demographic shift one would expect that when you are able to see those really hire and.

Cana kind of sore concentrate category open up that we may see and.

And a shift down in age from a demographic perspective, and so and then of course I'm also curious to see how that affects male female and.

Our ratios as well so.

I don't see there hasn't been any indication that we're slowing down and.

Florida as it relates to patient growth and I do think that given our particulars as a state and we.

And we very may well see.

And outlier on that on the higher and.

Understood I appreciate the thoughts thank you very much.

Yes.

Your next question comes from Scott Fortune of Roth Capital Partners.

And as 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 and each of the different regions. You know obviously you have new southwest region, you've done very well kind of local branding, but how should we look at from the strategy.

Wholesale building out and a national brand.

And you build out these different regions.

Sure So certainly.

<unk> and connectivity to consumers is something that has always been top of mind for truly across across the years certainly were.

Constrained.

And markets, we have to make sure that we're first and foremost always compliant and that being said, we have recently under and actually completed brand architecture work and 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.

We're so excited and again about with respect to our Massachusetts launch and then our continued and <unk>.

Development, and Pennsylvania to have the ability to really showcase brands and a way that and we may be somewhat limited on doing and Florida. As an example, because of packaging requirements and constraints on naming et cetera that exist and we always have to keep that in mind market to market. Another thing that I think we've been very consistent on and we plan to continue.

And is finding and embracing local brand partners to really highlight the regionalisation of of the market that were that were entering and so certainly and Florida. We've been very very successful with our local brand partners with.

Black 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.

We're excited to enter and Massachusetts with them as a partner as well and so always cognizant of the portfolio mix and cognizant of and how our brands are positioned in the marketplace.

And you will see some.

And some truly internal brands coming to shelves and the very near term and again as we as we launch that portfolio in Massachusetts, and then as we integrate those brands across the northeast so on.

And stay tuned and we've got some exciting things to come on that from.

Great I appreciate the color and just real quick.

A follow up on the federal legislation side and it seems like <unk> can be lumped in with more comprehensive side and any updates on thoughts on the federal.

Side of things and it seems to begin and pushed out here.

Sure So I'm not sure if.

Senator Schumer has treated today or not but rate I think it's there's it's quotes soon.

So.

It's the same we're monitoring it we are in contact.

And through.

In D C thru the resources, there and I think.

And it's consistent with what everyone is seeing and that and.

Certainly and.

We're in a different place than we were a year ago, I think into the positive where whereby.

Folks are wanting right and are very motivated to have cannabis policy and significant cannabis policy and.

And it happened 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 hoping for something so it's sort of the opposite side of the coin if you will and.

But similar similar to what to what you all are hearing and humor.

Humor continues to work on his comprehensive bill and.

And there certainly have been talks with other agencies and he is consulting and other agencies to get their input and ahead of time, which will be interesting. He is holding a very very close to the vest in terms of what all will be included however, we do believe.

And have worried that safe banking of course, as well as and some level of and.

And our 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 and I believe it was yesterday introduced a measure.

And the house, which was interesting rate and included.

A reduction in and scheduling and some other items, including face banking, 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 and.

That's really going to be what we're what we're going to be watching after its introduced which we would hope would be within the next short while.

Thanks, I appreciate the update.

Yes.

Your next question comes from Erinn growth of Alliance Global Partners. Your line is open.

Hi, just one from me thanks for the question and congrats on the quarter. So just wanted to ask about average basket right. So it was up a little bit sequentially it looks like still.

And down year over year I'm.

I'm wondering if you saw any boost.

Boost from the stimulus at the end of the quarter and then what impact you've seen from the edibles and 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 and as it relates to Tabasco and as we said previously we are we're seeing fairly consistent pretty consistent from on the basket side and but we are seeing of course and a rapid increase in patients. So when you think about 2500 ended the year to 6000 and just.

Significant increase in a very short period of time and so on.

With that we are seeing and.

We're seeing we're seeing folks.

Come in and that our new patients and.

But again that basket price is fairly it's fairly flat as it relates to and as it really relates to stimulus and.

Certainly we saw some increases around stimulus and.

And it was pretty identifiable and those days and when stimulus checks hit and so it wasn't a protracted I'm on.

And we'll say it was and a protracted period, where stimulus was affecting and therefore skewing baskets I think maybe part of the question is okay, where should we assume then that basket, they're going to decrease and in Q2, because you know maybe stimulus was increasing our creating a bump in Q and Q1.

It is not the case.

So and I think that again as we can tell right now things are fairly are fairly consistent and.

Again, edibles is increased and Q Q4 to Q1 and as I said is coming in line and are beginning to come in line with those national National averages that you see and product mix.

Okay, great. Thanks for the color.

Yes.

Your next question comes from Andrew simple low special on capital markets.

And as open.

Hi, good morning, and congrats on the quarter.

Based on your plan and the pace of additional production capacity expansions currently be both closed in Florida and I just wanted to clarify whether you feel supply constrained today or what their thoughts and anticipation of future.

Medical cannabis demand.

And perhaps you can comment whether any of those build outs.

And Mike might just be.

Potential buffer for potential adult use.

Yeah. So.

And we certainly are.

And we certainly try to pace right are our cultivation and production with growth and 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 and.

It was not necessarily anticipated.

So we are we are playing a bit of a bit of catch up and Florida, specifically around our cultivation and so and which is look that's a great a great problem to have and but we know.

From a patient perspective, we take it very very seriously and having again depth and category and depth and product is one of our hallmarks, though it is very important for us to make sure that we've got the right mix for folks and we were running a little thin and.

In Q1, because that did just that.

<unk> and patient demand and took us a little bit by surprise.

I would say, it's a little bit of a mix right and we expect we've accelerated plans that we had in place and for 2021 and we brought some of those forward to make sure that we are we are keeping up and then we will 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, and the last latter half of the year, specifically as we approached the end of the year right and that goes towards really our 2022 plans. So again cultivation, specifically has to be built and it has to be planted and that has to be harvested et cetera. So it's not an immediate when.

And when you have it online and when do you plan to it doesn't immediately come through from a revenue perspective. So we always try and stay one step ahead Q1 demand and Florida got a little ahead of us so where we're catching back up and.

I think and Alex's comments, he mentioned right the rate at which we're going to be bringing cultivation online and on our <unk>.

Go forward basis so.

Exciting times and lots and lots of growth ahead.

Understood and agreed to a very nice problem to us.

Just moving on to the next question here I 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.

Potential debt.

Capital.

For for potential opportunities to maybe lower the business's 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.

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 and 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 and over the year.

And in addition, as I mentioned and being able to go deeper and markets that were already established and so obviously, we clearly do that and Florida, where and the process of doing that and Pennsylvania, Youll see us be the same and Massachusetts.

West Virginia of course coming on line and then like I said plenty of other markets, particularly in the southeast that we hope to have and.

Again, the problem of spending on spending cash to add to build capex. So that we can build out those are those new new platforms and so lots of lots of uses of cash and 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 and 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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