Q1 2022 Trulieve Cannabis Corp Earnings Call
To revise these forward looking statements, whether as a result of new information future events or otherwise except as required by law.
During the call management will also discuss certain financial measures that are not calculated in accordance with United States generally accepted accounting principles or GAAP, we generally refer to as non-GAAP financial measures.
These measures should not be considered in isolation or as a substitute for <unk> financial statements prepared in accordance with GAAP.
A reconciliation of these non-GAAP measures to the most directly comparable GAAP measures is available in our earnings press release that is an exhibit to our current report on form 8-K that we furnished to the SEC today and can be found in the Investor Relations section of our website lastly at times during our prepared remarks.
<unk> or responses to your questions. We may offer metrics to provide greater insight into the dynamics of our business or our quarterly results. Please be advised that we may or may not continue to provide these additional details in the future.
This morning, we reported results for the first quarter of 2022, a copy of our earnings press release and an accompanying Powerpoint presentation may be found on the Investor Relations section of our website.
Www dot truly dot com.
An archived version of today's conference call will be available on our website later today.
I'll now turn the call over to our CEO Kim rivers.
Please go ahead, thanks, Chris Thanks, Christine and good morning, everyone and thank you for joining us today.
It is about my voice, but we're going to we're going to give it a shot here. We're thrilled to report record first quarter results delivering topline growth got margin improvement and positive operating cash flow throughout the quarter momentum grew with the strongest results in March in line with historical trends. Following this great start to the year, we continue to make progress as we execute on our strategic.
Plan our team is laser focused on further optimizing assets across our platform and positioning our organization for the next phase of growth given our strong balance sheet cash generation and flexibility to adjust capital expenditures truly does incredibly well positioned in the current environment to take advantage of market conditions I am highly confident.
And our strategy and our ability to capitalize on the opportunities ahead, turning now to our first quarter results truly achieved a record first quarter revenue of $318 million up 64% year over year, and 4% sequentially first quarter revenue growth was primarily attributable to organic growth in both retail and wholesale channels.
First quarter GAAP gross margin was 56% as compared to 43% last quarter and adjusted gross margin was 58% adjusted EBITDA margin was 33% or $105 million, representing our 17th consecutive profitable quarter first quarter operating cash flow was $45 million and we exited the quarter with 260.
$7 million in cash our retail platform grew to 162 locations with market, leading positions in Arizona, Florida, and Pennsylvania. During the first quarter production increased by 91% year over year, and 24% sequentially to approximately $9 8 million units distribution across our retail and wholesale network.
It's supported by over 4 million square feet of cultivation and processing capacity the.
The benefits of our scale and depth in markets, where further illustrated last month by our strong performance on <unk> compared to the prior record results on Black Friday 2021, we achieved record revenue transactions and units up 19%, 11% and 18% respectively.
We marked the occasion with numerous events, including new product launches limited time offers streams and doorbuster promotions. The Cana bis community turned out to celebrate the holiday enjoying food trucks and Djs with lines wrapped around the buildings the spike in demand on <unk> underscores the tremendous untapped potential for this industry as always our team rose to the occasion.
Delivering great customer service our success on for 'twenty reinforces how our strategy and positioning are designed to provide fantastic experiences every day, while having the flexibility to accommodate sharp increases in traffic and demand.
Turning now to our cornerstone markets strong first quarter results were driven by sequential revenue growth in Florida, and Pennsylvania, and Florida improved first quarter performance was attributable to a combination of factors lower promotional activity several new branded product launches greater availability of premium products and greater depth of inventory for differentiated products all.
Contributed to strong results in Pennsylvania revenue increase compared to the fourth quarter. Despite the recall selected <unk> products on February 4th due to stronger sales in the wholesale channel during the fourth quarter call, we outlined plans to optimize assets and streamline operations across our affiliates year to date, we have made progress in accordance with our plan we have been working.
To refined production mix and expand our product branded product suite in order to better meet customer demand, we launched new branded products, including concentrates flower and vape and premium and value segments. Throughout 2022, we are adding new branded products pending regulatory approvals our efforts to optimize our affiliated operations across Pennsylvania remain.
On track in Arizona, we are focused on optimizing and augmenting our supply chain capacity to increase sales of internal products throughout our retail footprint. We have added indoor cultivation capacity additional extraction technologies and interchange lighting and some of the acquired facilities and started to add additional automation. So in addition to increase capacity and.
Coming quarters, we anticipate seeing better efficiency in the near term as we move through 2022, we will continue to optimize our supply chain.
First quarter results demonstrate further progress as we execute on our plan building scale and depth in attractive markets, our leadership and unrivaled success with this strategy to invest heavily in high conviction markets is undeniable truly has always tuned out the noise to focus on opportunities that meet our stringent criteria for investment.
Given the current macro environment, we are actively managing our cash expenditures with $267 million in cash at quarter end and cash generation from operating assets, we are well positioned to weather short term volatility in capital markets and we can throttle capital expenditures based on market conditions and timing for expected catalysts, we have the flexibility and access to capital to be offered.
Mystic with strategic acquisitions and investments within the tighter tighter market environment.
During our fourth quarter earnings call in March we outlined four strategic priorities for <unk> in 2022 to reinforce our leadership position and set the stage for the future. These.
These four initiatives focus on number one delivering exceptional customer and retail experiences to expanding through our regional hub strategy strategy three distributing branded products are branded retail and wholesale channels and for adhering to our disciplined approach to capital allocation first we're delivering exceptional customer and retail experiences.
With convenient transactions frictionless returns brought an innovative product assortments and enhanced loyalty and rewards programs first quarter activities included rewards for return customers' appreciation offers for top customers and hyper personalized marketing outreach for specific brand Activations personalized marketing is an effective tool to drive trough.
<unk> for specific products and events, ensuring high sell through and preserving margins, while matching customers with their preferred products. We realize the benefits of this approach garnering high sell through rates for me is like Diamond and munis life sugar product releases in the first quarter.
Second we are continuing to expand through a regional hub strategy. We are investing in our distribution network to deepen our presence in cornerstone markets, while developing emerging markets in the first quarter. We opened three new medical dispensaries in Pennsylvania, and Florida Trillium exit exited the first quarter was 162 retail locations in eight states, including <unk>.
80% located outside of the state of Florida.
This year, we're adding a total of 25 to 30 new dispensaries.
Now turning to supply chain in the first quarter, we added indoor cultivation capacity for premium flower and Arizona continued our expansion efforts in Florida, and Pennsylvania added capacity in West, Virginia, and ramps capacity in Maryland ahead of adult use we are leveraging our existing scale and depth across markets, providing a strong foundation for future growth.
And the coming years, we fully expect to play a meaningful role in the development of new market opportunities in the southeast like Georgia.
In accordance with our regional hub strategy, we will continue to be opportunistic when expanding into new hubs in markets.
Third we are distributing branded products are branded retail and wholesale channels. Our product portfolio includes a wide variety of form factors across segments offered at appropriate price points. We are continually innovating in response to evolving preferences and the first quarter, we launched several new products based on market feedback examples include RSO tinctures value size.
Single serve edible and high end Primo buds, which have one or two months per eight we are very encouraged by the high velocity of sell through for these products differentiated products are an important part of our strategy to meet customer demand, while building and reinforcing long term brand value.
We now have a defined brand portfolio with specific brands that speak to customers and have successfully launched the brand across multiple markets. During the first quarter. We successfully launched cultivar collection Muse modern flower momentum and <unk> branded products across markets, including Florida, Maryland, Massachusetts, Pennsylvania, and West Virginia, but.
<unk> offering the right branded products that customers want we are demonstrating true brand building capabilities as we continue to launch branded products across our markets and hubs, we can provide customers with a more consistent retail experience and greater access to our evolving product portfolio.
In support of our brand building efforts in March we welcomed a new brand ambassador to the <unk> family cancer Survivor and winner of the Survivor television show Ethan Zone, who recently finished the Boston marathon using momentum products Thats part of it is health and wellness program through sharing his personal experience Ethan as an authentic and powerful advocate for cannabis in wellness and we are thrilled to have him representing moment.
Uh huh.
National and mainstream media outlets, including ABC News E online and helped digest covered Ethan participation in the marathon and his amazing journey, providing broader reach and exposure for relief and the momentum brand.
Regional and local brand partnerships complement distribution of our own brands in April we launched <unk> pre rolls in Arizona and Dalesio, So pre rolls in Florida, while most folks know Wiz Khalifa, some may not be as familiar with Richard <unk>. He is one of the longest serving non violet cannabis prisoners in U S history, having served 32 years of a 90 year Senate.
<unk> is a Florida based cannabis brand founded by Richard <unk>, and his son, Rick The <unk> brand pays it forward by donating a portion of its profits to nonprofits, including freely C and aloft prisoner project, which was instrumental in securing the least these release in December 2020.
Early responses to both branded products have been fantastic working with these amazing partners, who bring such passion and energy to the industry is inspiring and further connects us to the community.
Our branded retail platform is a key component of our overall customer experience and an important contributing factor to building long term brand equity during the first quarter. We completed the rebranding of all retail locations in Maryland, and Pennsylvania to the truly brand overall initial performance for rebranded stores has been strong with higher revenue and units sold realized.
At most locations fourth we remain committed to our disciplined approach to capital allocation, we have a clear and defined strategy and well established criteria for evaluating assets and markets. During this quarter, we divested redundant cultivation assets in Florida, and a non revenue generating location in Massachusetts, both of which were acquired as part of the Harvey.
Transaction, we continually evaluate the performance of assets across our platform and may choose to divest additional assets in the future as appropriate as we reposition assets and streamline operations. We will continue to invest in our markets to add capacity expand distribution and fortify infrastructure to prepare for and support future growth are true.
Our record of profitability and disciplined capital allocation affords us access to growth capital at industry, leading terms in January we closed the second tranche of 8% senior secured notes totaling 75 million.
We have sufficient capital to fund our growth plans and strategic initiatives in 2022, we expect our strong balance sheet access to capital and financial discipline will uniquely position us to capitalize on market opportunities created by the macroeconomic factors impacting our industry.
We are building a leading company in an emerging industry as always we are taking a proactive approach to strategic development and decision, making we have a long track record of financial outperformance and positioning ahead of changes in market conditions. As we've previously signaled we expect to realize improved performance as our initiatives take hold year to date, we made great progress.
And our plan and we're on track to reach our articulated goal. This year truly is poised and ready to define the future of cannabis with that I'll turn the call over to Alex for more detail on our first quarter.
Kim and good morning, everyone. We've made tremendous progress since closing the harvest transaction and we're carrying this momentum forward record first quarter revenue of $318 $3 million increased 64% year over year compared to $193 $8 million. During the first quarter of 2021 first quarter revenue increased four.
<unk> sequentially compared to $305 $3 million during the fourth quarter truly ended the first quarter with 162 dispensary locations as of May 12 truly owns or operates 165 dispensaries supported by over 4 million square feet of cultivation and processing capacity.
In the first quarter reported gross profit was $178 $2 million or gross margin of 56% compared to $132 4 million or 43% during the fourth quarter 2021.
GAAP gross margin improved sequentially as the impact of fair value inventory step up charges were significantly reduced excluding the impact of transaction related and nonrecurring charges first quarter. Adjusted gross profit was $185 4 million or adjusted gross margin of 58%. We expect gross margin will continue to flow.
Actual quarter to quarter, depending on product and market mix and inventory flow through.
Turning now to SG&A expenses SG&A expenses in the first quarter were $106 4 million or 33% of revenue compared to $117 million or 38%. During the fourth quarter of 2021 first quarter expenses included approximately $11 $3 million of transaction and integration related.
Charge is primarily associated with the harvest acquisition. Excluding these charges first quarter SG&A was $95 1 million or 30% of revenue as we continued to invest for future growth. We expect quarterly fluctuations in SG&A expenses as investments are made ahead of increases in revenue.
Depreciation and amortization expense in the first quarter increased to $29 3 million compared to $28 3 million during the fourth quarter 2021, depreciation and amortization expense includes $20 4 million of depreciation of fixed assets and amortization of intangibles associated with the harvest transaction.
Depreciation and amortization expense will be recurring in nature over the useful life of the underlying assets.
Net loss was $32 million for the first quarter compared to net loss of $71 5 million for the fourth quarter 2021 first quarter net loss included $13 $8 million in asset impairments associated with the closure of redundant cultivation assets and a loss of $2 $7 million.
Due to the divestiture of a duplicative non revenue generating location.
Excluding nonrecurring charges first quarter net income would have been $1 7 million first quarter 2022 loss per share was <unk> 17.
Compared to a loss per share of <unk> 49 in the fourth quarter 2021, excluding nonrecurring charges first quarter earnings per share would have been one we.
We expect transaction and integration related charges will continue to impact reported EPS throughout 2022 with expected improvement as the year progresses.
Turning now to adjusted EBITDA for the first quarter 2022, adjusted EBITDA was $105 5 million or 33% compared to $100 9 million or 33% during the fourth quarter 2021, we expect adjusted EBITDA to improve as we optimize assets and execute on our strategic plan.
Moving onto our balance sheet and cash flow during the first quarter. We closed our second tranche of 8% senior secured notes totaling $75 million. We ended the first quarter with $267 million in cash and $553 million in debt first quarter operating cash flow was $45 1 million looking ahead.
We expect second quarter cash flow will be impacted by the timing of two tax payments during the quarter.
We are actively managing the cash conversion cycle and expect to realize further improvements in operating cash flow, our strong cash generation and financial profile provide a solid foundation to support our strategic initiatives.
Capital expenditures in the first quarter 2022 totaled $48 1 million. The majority of expenditures were comprised of investments in supply chain and retail assets as Tim highlighted we have tremendous flexibility to adjust the timing of our investments to take advantage of opportunities that arise based on market conditions.
Turning now to our outlook and guidance for 2022 based on our current expectations and performance year to date, we are reiterating 2022 guidance of one three to $1 4 billion in revenue and $450 million to $500 million and adjusted EBITDA as we have previously signaled we anticipate non linear growth throughout this year.
Following strong performance in March we anticipate second quarter 2022 revenue will be relatively flat compared to the first quarter 2022, given the timing of investments and ramping up supply chain capacity, we expect to report stronger performance in the back half of 2022 and exiting the year.
In summary, I am very pleased with the progress we've made thus far I am so proud of our team and how far we've come in a short period of time I am excited to keep building on our track record of focused execution and operational excellence. We have significant runway ahead to further optimize our assets as we prepare our organization for future growth and with that I'll turn the call.
Back over to Ken Thanks, Alex as I've said before we are still in early innings for U S. Cannabis everyday cannabis becomes more widely accepted by them.
Increasingly encouraged by the progress being made as an industry, we're well beyond the tipping point look no further than the widespread success of the <unk> hundred 20 holiday. This year demand for regulated cannabis products continues to grow stronger we are entering a new paradigm of mainstream acceptance. This groundswell in popularity highlights the growing need for common sense perform.
At the federal level, we are seeing firsthand increased discourse and desire to advanced cannabis legislation with interest and support from both sides of the aisle at the state level significant advancements continue as constituents increasingly support expanded access to cannabis within our own markets and initiative for adult use in Maryland is on the November ballot.
And we're seeing momentum build to allow adult use in Pennsylvania, we expect adult use sales in Connecticut will commence later this year in Georgia, we anticipate a potential resolution and green light to move forward with operation as early as midyear. We are proud to be at the forefront in this ever changing and rapidly evolving industry contributing to the development and expansion of <unk>.
Access to cannabis, we have made great progress, but much work remains to be done we will continue to advocate for change at all levels.
The opportunity set and growth expectations for this industry are phenomenal the legal U S. Cannabis industry is forecast to almost double again in the next five years, reaching over $46 billion in annual sales by 2026 truly is uniquely positioned and ready to meet the promise of this tremendous opportunity we lead with strategy followed with execution.
<unk> and go deep in markets like our profitability depends on it we will continue to do what we say, we're going to do tuning out the noise and staying true to form. Thank you for joining us today and as I always say onward.
At this time, Kim rivers, Alex D'amico, and Steve White will be available to answer any question.
Greater please open up the call for questions.
We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad.
Youre using a speakerphone please pick up your handset before pressing the keys.
And any time your question has been addressed and you'd like to withdraw your question. Please press Star then two.
This time, we will pause momentarily to assemble our roster.
The first question comes from Derek <unk> with Canaccord Genuity. Please go ahead.
Hi, good morning, and congrats on another set of really strong results I wanted to start off by just asking if we can get an update on how the integration of harvest is progressing.
Yeah, Good morning, Eric and.
The harvest integration is progressing really well and then when you take a step back and you think about the fact that we are literally one year and two days removed from deal announcement, and it's pretty unbelievable when we when we walk through our progress we closed the deal in five months, we reran it.
Stores in Florida, Pennsylvania, and Maryland, So 29 stores total we've combined our product portfolio and launching new branded products across Florida, Pennsylvania, Maryland, West, Virginia, Massachusetts integrated operations launched a leadership structure and all three hubs.
We've gotten.
<unk> gotten rid of less efficient than non contributing assets, we streamline operations, which is evidence of course in our decrease in SG&A and our increase margin as a new company. We've added supply chain across all markets to execute on our strategic priorities and we set and smashed combined company records on 420, So yes, I would say it's <unk>.
Pretty well.
Okay, Yes, I would agree with that.
So you mentioned margins and.
Notice this quarter that the gross margin.
It took a big step up on a sequential basis.
Can you just comment on.
Some of the initiatives you've put in place the processes or perhaps again like you just mentioned integration of harvest has helped driving that that margin movement movement materially higher.
Yes, I'll take that and I guess, Ken mentioned focus on execution was a big driver there one of the big wins. This quarter was the shakeout of the deal related impact to margin and you see our GAAP gross margin getting closer to our adjusted gross margin and this was primarily driven by that fair value step up of inventory impact it was $38 million last quarter and less than 400 <unk>.
Quarter, so kudos to the team executing it's selling through that inventory.
And then.
As we go forward our margin we look forward to expected improvement in the area of further improvement as we execute on our strategy Kim mentioned building out our supply chain and infrastructure and pumping that internal product, where our internal retail channels.
And sorry that that inventory step up that happened in Q4.
We shouldnt expect that there shouldn't be another one of those and like later this year, it's kind of sorted for now.
The harvest related inventory is sold through.
Okay perfect.
Great. Congrats thanks again.
The next question comes from Matt Mcginley with Needham. Please go ahead.
Thank you.
On the G&A your sales and marketing dollars, where we fairly flat compared to the fourth quarter, but your G&A dollars dropped by about $11 million quarter over quarter. The question is like will there be additional cost reductions related to harvest in the second quarter or will that total G&A, which I think Alex you said, it's close to $95 million.
About the same into the second quarter, given youll have roughly flat revenue as you alluded to.
Yes, I mean, we as we always indicate we expect SG&A to grow in whole dollars.
As we as we build out our regional hub structure over over time, but as a percentage of revenue again. This is another area, where like margin, we see a lessening of the transaction and integration costs right.
Adjusted basis, we were at 30% versus 32% last quarter and Thats closer to our traditional wheelhouse as a percentage of revenue.
We are always kind of shining the Apple and optimizing the organization and we do expect incremental improvement as we go along but we feel good about where we were we were able to come as an organization in just that short period of time.
I really appreciate the cash flow reconciliation table that you provide that helps identify some of the ongoing cash flow headwinds related to the acquisition integration. So my question is when will we not see that table going forward or when will the harvest assets be fully integrated where we won't continue to see those cash flow headwinds and I guess relative to what we.
Saw in the first quarter, what would you expect those cash flow I wouldn't be in the second quarter.
Yeah always just continued improvement and lessening from an exit from the deal related impact we see that in margin, we see that in the SG&A side. Obviously it flows through cash flow to ops, we had add backs of $73 million last time 30, almost $34 million at a time, so significant improvement there.
See we will see those costs coming through.
We're out the year, but we look forward to continued lessening of those.
As you mentioned that like our cash flow from operations, while $45.1 million in the quarter on an adjusted basis. If you remove those deal related impacts.
Almost $79 million. So we look forward to continuing to getting that back in line like margin and SG&A and for context last year and the first through the first three quarters, we were at $75 million and our cash flow from operations. So if you again take kind of the adjusted view, which were working very diligently to get to get to.
We would have we would've be three quarters worth of operating cash flow in a single quarter. This year this quarter.
Okay, great. Thank you.
The next question comes from Camilo Lyon with <unk>. Please go ahead.
Thank you good morning, everyone.
Back to the gross margin topic.
If you could provide maybe some color on.
Uh huh.
What played out in the quarter from an operating perspective.
On the gross margin any puts and takes that are worth calling out maybe on pricing pressures.
In Florida, and how those appear to have stabilized it looks like pricing may have been up actually quarter on quarter, but just wanted to confirm that and how that then should play out for the balance of the year should we continue to see a stable level of gross margin performance as you saw in Q1 or should we expecting to build off of this Q1 level.
Yes, so again.
Again, one of the big wins in the quarter was that was that GAAP gross margin getting closer to an adjusted gross margin. So on an adjusted basis, the delta is less than 1% quarter over quarter and for US. This is your standard flux quarter to quarter that we've mentioned in the past is normal for our business inventory flow through product and market mix.
We saw expected improvement.
As expected and discounts coming off the high Q4 promo period, and then we have to pick up soon and with cap leading into a 400000 and that was partially offset by increase in wholesale in third party product sales, particularly in Pennsylvania, Yeah, and just to give you some color on.
Across markets. Obviously, you guys know, we don't segment by state, but we had significant improvement in our home state of Florida and.
Pennsylvania, there was still a little bit of noise in the quarter around the bay.
Kind of recall situation there so we did have.
The team did a great job in pivoting and.
They pivoted more to wholesale there which of course.
Brought down margins a bit, but we're able to achieve top line growth in that market. So it was the right call, but we certainly see opportunity there as well as in other markets to increase our branded products through branded retail throughout the year again and as we signaled we see that coming through.
More more in back half than front half, but.
So we see some incremental pickup ahead, but again.
So really good in terms of what the team was able to pull off in terms of Q1.
Got it and then maybe if I could ask a question on Arizona and how you think about.
Scaling that wholesale component.
What are how should we think about the progression of that initiative.
Yeah, I mean, I think that we've been pretty clear that the primary goal is branded product through branded retail so.
Our first priority in Arizona, and just like in many of our other markets is going to be to increase that production.
Production of products of internal products and to sell those through.
Our retail locations, we have opportunity in Arizona.
To increase that so.
While wholesale on the board.
Really doesn't come into play until again I would say late in the year, maybe even 'twenty three in Arizona.
So we think that the primary opportunity in Arizona is to get supply chain online get it and get it pretty thing our suite of branded products and then push those through our branded retail early indicators of those efforts are good.
We just seem to get some more some more volume through.
Perfect. Good luck with the rest of the quarter. Thank you.
The next question comes from Owen Bennett of Jefferies. Please go ahead.
Good morning, guys, So Paulo, well and yes. My first question is just on the recreational brand portfolio.
Okay.
Ladies and now Huawei that matter a lot.
Massachusetts, <unk> in West, Virginia, I'm, just curious to hear any early trends youre seeing with these brands any show a trial, what sort of repeat purchases and any of these states, where perhaps they're performing better than all of us. Thank you.
Yes.
Great great.
Feedback from our from our brand launches, thus far and I would tell you that we're seeing higher sell throughs on launches.
<unk> I'll call it legacy legacy products.
In most cases more than I'll call it 60% sell through.
Within the first week of launch in some cases, 90% in other words, the 24 24 hour sell through we're seeing at Cigna.
Significant.
Adoption and sell through in our premium brands, particularly on the cultivar collection.
Are things as well, which is our premium flower brand as well as army is hydrocarbon brand so both of those.
Both of those brands are doing exceptionally well, which of course is great news for us as we try and continue to to grow that premium customer base, which of course has significant significant.
Significant protection around margin.
Great. Thanks, and then just one follow up I was hoping maybe you could give us some details on how you're thinking about possible, New Jersey, and New York and keeping me and obviously, New Jersey opened running now looking like it could be this year, albeit for head and pulp races are you looking at M&A, obtaining licensees organically or could you even maybe do.
So one of the handful places in New York prior to obtain a license.
Yes, I mean, I think look.
The excitement around the new Jersey launch and the responses that we've seen thus far is very encouraging.
Absolutely in line with what we would expect to see and in our.
Pivot to recreational it certainly is reminiscent of the.
The same types of activity and enthusiasm we saw in Arizona with that market.
Last year went recreational so its encouraging we also love it because it puts additional pressure on neighboring markets, such as Pennsylvania, and others, which we which we look to see.
And there has been progress there in terms of opportunity for for recreational and.
Also of course, we've got a recreational initiatives coming in Maryland, So we'd love to see the energy, we love to see the excitement.
In the northeast around and around recreational sales I think when we think about and it's going to be interesting to continue to watch New Jersey and as it relates to the capacity and supply chain and how that market continues to be served product selection et cetera from a regulatory perspective.
If you look at our setup and then again in Pennsylvania, and the maturity of our supply chain and ability to serve through significant retail channels and again, where we take another really great sign.
<unk> of our of our.
Positioning as additional catalysts come online in the northeast.
Well, thanks, Ken is very helpful.
The next question comes from Spenser <unk> with Wolfe Research. Please go ahead.
Great. Thank you one of your competitors talked about the profitability ramp in the Florida market I guess have you seen any easing of the competitive environment or discounting down there and then how are you thinking about your just ability to take share as many operators furniture is building out new stores in Florida.
Sure so our profitability in Florida.
<unk> two <unk>.
Quarter over quarter increased as we said noted in our prepared remarks.
It was bolstered this quarter by our ability to continue to innovate.
<unk> products into the market.
As we all know.
The data that's shared by the AUM IMMU represents volume but of course not.
Not revenue.
And I think our numbers speak for themselves in terms of our ability to get high quality revenue continue to get high quality revenue out of the state of Florida.
We continue to invest in Florida continues to be a market that's growing last quarter. We had over 3700 patients per week, joining the program in Florida. So that's not that's not slowing down.
And we.
We continue to be very bullish on Florida, and again with over 40% of all our market share in oil and close to 50% in flower.
On the store on a per store basis, we continue to lead in terms of product sold and again, we actually are less promotional quarter over quarter, which I don't think can be said for our for our peers.
Got it that's helpful. And then could you talk a little bit about how your comp momentum trended in <unk> and <unk>.
Are you thinking about the sales lift from the relocations that youre planning to do for the stores.
Has that opened in 2017 and 18.
I'm sorry can you repeat the first part of that question Spencer.
Yes could you talk about how your same store sales momentum trended in the first quarter do you see any acceleration there and then how are you thinking about the relocations.
The sales lift from those changes that youre, making to your to your portfolio.
Yeah, absolutely. Thanks, So we get the same store sales data out on a year on an annual basis.
Clearly given which I think is relevant here given given again the combined portfolio at this point.
However, I can say that our sales on a per store basis in Florida continue to be strong as I mentioned, we continue to invest in in retail and Florida makes a ton of sense on a performance basis, the relocation of sores as expected.
<unk> is positive and we are getting improvement out of those relocated stores and will continue.
As we noted on our on our.
Year end call that we have up to six repositioning of stores that we are planning to move forward with.
<unk> positive and strong.
<unk> initial store relocations.
Great. Thank you.
The next question comes from Andrew <unk> with Stifel GMP. Please go ahead.
Hi, Good morning, Thank you for taking my questions and congrats on the great quarter.
Current market conditions current market argued.
Arguably with the Dupont Premier Horn.
Cash flow and a strong balance sheet you.
You mentioned being opportunistic to take advantage of this environment.
Could you discuss your outlook on M&A.
And what kind of opportunities that you are seeing right now any color on.
Geography area right.
Valuation would be useful.
Sure. So we've said it before and it bears repeating that.
When we evaluate M&A opportunities, we are building a sustainable and profitable business, we're not looking for a true.
So our criteria hasn't changed we're still looking at the strategic fit or alignment with our with our overall plan, we're evaluating the assets the team.
And the timing.
What we have seen most recently with changes in market conditions.
Affects pricing, but it does not affect our criteria. So we're still going to continue to be opportunistic.
And we are hopeful that given the current market conditions that we will find additional opportunities to expand the business into additional markets and go deeper in some of our existing markets.
Thanks for that then.
Maybe the next question.
And the consumer.
Could you provide any color on what youre seeing in terms of the health of the consumer.
Are they.
Are you seeing any trading down from premium to value you mentioned that your initial premium launches have been successful how's value doing.
As the consumer moves Pakistan on volumes versus quality of their purchases and any color on basket sizes transactions or foot traffic would be useful.
Sure.
No.
Not all markets are the same as it relates to customers and.
And even within markets.
Not in some cases.
There is divergence between certain areas or geographies and certain demographics vis vis others. So it's a difficult question to extrapolate because we are seeing differences across each of our markets as an aside.
And when we talk about here is that each one of our markets is in different phases of growth and that's what makes this business. So interesting to some extent we've got startup markets. We've got more mature markets. We've got markets that were positioning ahead of catalysts and they all.
All behave a little bit differently on top of that we have consumers within those markets that similarly.
Different pressures, depending on depending on their specific.
Makeup.
That being said we continue in most of our markets to experience growth again, along a barbell pattern with growth on premium segments and.
And growth on value.
And in some areas of states, we're seeing it.
Continued increase in value.
<unk> product buying but in others to be quite Frank we're seeing the opposite in terms of additional growth on the premium side. So it becomes important and remains important for us to be.
Very specific in terms of how we are both innovating products.
Pricing products and distributing those products to ensure that we've got the right mix the right segmentation on our shelves to speak very specifically to the customers that go into that particular location.
<unk>.
It's certainly interesting to talk high level, but the reality is this business is won or lost on a transaction by transaction customer by customer basis, and it's our job to make sure that we understand who that customer is and what store, they're going into and what that customer wants to see on the shelves when they when they go to make a purchase.
Thank you for taking my questions I'll get back in the queue.
The next question comes from Russell Stanley with Beacon Securities. Please go ahead.
Good morning, and congrats on the quarter, you mentioned, Georgia briefly during the prepared remarks, just wondering.
How you envision I guess the regulatory.
Plays where legal battles playing out and can you elaborate on your game plan for this market given that.
It's a big state, obviously with a ton of potential.
Sure.
We as we've signaled.
We love our position in Georgia.
This is nothing new.
Rates to Canada, it's kind of part of the playbook at that point that if you and if you don't if you don't want a license.
Launch a lawsuit and hope that you can kind of.
Quote unquote, when a license that way.
We are encouraged by the fact that now that process has been moved to the ALJ Arena, which is.
Streamline and specific in terms of deadlines.
And so we think that that will move much much more quickly at this point.
We are also encouraged by and.
Information that we're getting from.
From that market that we do believe that again that will be resolved here over the next several months and that will we will get the final green light to move forward and that being said and we see the setup very similar very similarly actually in some ways better than the setup was in Florida in early days.
So we think that there's tremendous growth ahead, it will require some <unk>.
Move incremental moves by the legislature, but again nothing that we haven't seen before and certainly and based on conversations and behavior that we saw this past legislative session. We think that there's a strong path and that there is an appetite among lawmakers there for continual improvement of the program.
Okay. Thanks for that and maybe if I could one more just on Capex I think you've noted.
<unk> got a lot of flexibility there to throttle up or down in different markets. Just wondering if your if your total spend outlook has changed for the year and apologies if I missed it there but also wondering.
If your allocation by market has changed at all in which markets you might be.
Stepping on the gas in which which markets might be using all upon if any.
Yes, I think our philosophy remains the same.
As we said at year end about the majority of our Capex is in our core markets building, our supply chain and.
And infrastructure as Kim noted, we have tremendous flexibility to dial that back and we'll if market conditions call for it keep in mind that a good portion of our Capex spend from last year was set to come online in Q2. This year and later and also a good portion of our Capex plans for this year are for for next year in beer.
So as we could as we.
Assess the market we have.
We have that capability to dial back if necessary and then also keeping in mind, we will continue to invest ahead of catalysts.
<unk> of that is extremely important and the build out of new markets.
That's great. Thanks for the color I'll get back in the queue.
The next question comes from Vivien <unk> with Cowen and company. Please go ahead.
Hi, Good morning, this is actually Victor mall on because they're getting easier and thank you for the questions.
So first of all can you offer color on the promo spend in Florida over the quarter.
The board promo activity quarter over quarter, but can you maybe quantify what the decrease was also was promo spend and <unk> used more to drive basket size, and ducks account or to drive attention to higher margin categories.
Yes.
I've said and I think as we said repeatedly we're not going to we're not going to segment by market or give specific details around markets. However, what I can tell you is that.
It's in line with what we see.
Quarter to quarter, Q4, which we always signal is the highest promotional quarter.
Within your cycle for us.
Q1.
With our again very specific focused on understanding our customer speaking to that customer and being.
Strategic in terms of discounts, we're able to again drive activity.
And it's different different different activity is driven by different by different <unk>.
Different again strategic marketing and the <unk>.
Execution so.
In certain certain promotions are designated are designed to drive an average an average ticket other others are designed to drive absorption of a particular product in a particular segment. So.
It really it's not a one size fits all.
But what I, what I'm very excited about is that we have the capabilities to be specific and to be strategic with how we are targeting and how we're speaking to customers.
And again in certain.
Certain categories. So.
We've deployed a CDP platform.
Quarter in Florida, we're going to roll that out nationally over the coming quarters and our ability to take this massive amount of data that we accumulate every single day and refine that into actionable.
Actionable wins.
At the store level is really this next leg of the journey for us and we're really excited about it.
Great. Thanks for the color.
And then also just what kind of follow up on the third question I know you tend to disclose that.
That you generated about 9% of total sales from wholesale and licensing can you offer directional commentary on kind of where this is headed.
For the year, and maybe where it will shake out for the full year.
Youre asking about wholesale outlook.
Okay.
Yes.
As we again, we're building out our infrastructure and supply chain. So we look at further developing that wholesale channel, especially particularly our acquired markets are core to our strategy. So we look for that to ramp throughout the year as well.
To be specific though as I signaled I mean, Pennsylvania in particular, right and there was a shift.
This quarter.
Two additional wholesale activity in Pennsylvania vis.
<unk> retail due to the.
<unk>.
Again, the debate recall, there, so pennsylvania with likely maybe.
You could see a little bit of a higher wholesale number in Pennsylvania this quarter <unk>.
<unk> in the future.
The next question comes from Todd.
Hi.
<unk> capital markets. Please go ahead.
Thank you and good morning.
Kevin I heard your all your comments on.
The loyalty unrealized initiatives add on promotional but could you perhaps call ASO highlight just how much smarter audio promote Asia operational capability today, and how much more efficient as our promotional capability today, but sort of an absolute and relative terms I'm just trying to establish how much of a differentiator youll loyalty capabilities versus changes in the market.
Yes.
I would say Kendrick.
Just using ourselves and we always say here, it's really that we're our first competitor.
As ourselves and when we look back at where we were we were a year ago to where we are today, our ability again to utilize to utilize data to run very targeted and specific offers for specific types of customers is night and day.
So our ability to understand our customers' preferences to be able to say, okay. <unk> is a historical concentrate user he he enjoys.
These types of screens.
His basket is comprised of.
Shatter crum.
Crumble, but every now and then he also he also by flower.
That has these categories and then for us to develop.
Targeted promotional activity towards you as a customer.
We have those capabilities now and quite frankly, we did not necessarily have.
Those capabilities before we might know that information, but our ability to extract it in a way that is usable and then to develop a campaign and reach back out to you to drive certain activities. So for example, with our live Diamond launch, we actually extended a specific offer to specific.
Customers and invited them to make a reservation for our first drop which resulted in a 100% sell through within 24 hours of that product launch and that also solidified those customers understanding that we know who they are we appreciate their preferences and we're going to we're going to single them out.
And.
And again include them and in top tier launches such as that one.
Thanks, Tim So you're really all dialed in I might have some explaining to actually keep that.
Just a quick follow up question.
I'll answer that new product introductions, and then sort of a more premium focused yet how much of your success and perhaps this is more Pennsylvania director is more to market sooner versus more and better to market sooner than your competitors and how do you believe you can sort of maintain youll relative cadence of product introductions versus peers. If it's simply a case of getting more to market sooner.
Yeah, I mean, I think look I mean, we're not we're certainly we don't follow a strategy of of anything and everything makes sense.
So I think that it.
It depends on your definition I guess a better.
For us, it's again developing products, along a very segmented and targeted.
<unk>.
We like to have good better best where we can and again, where we see market demand for that good better best pricing.
For example, and this is kind of hot off the press, we had two approvals yesterday come in late in the day from the Department of Health in Pennsylvania, and the inhalation category in the Vape category, which will round out now it will kind of re round out if you will our product offerings in the vape category to a good better best strategy with Brad.
<unk> and segmentation in those three in those three levels across those three products and so.
We are strategic in terms of our product offerings, but look I mean, we currently.
Brian and manufacture over 900 Skus.
With our scale and our R&D development team that's been based in Florida and has been.
Has been.
Again, continuing to innovate all of these years, we've got incredible capabilities not only do we have capabilities that we understand what it takes and the efficiencies or inefficiencies that come with launching specific products and so we're able to be highly strategic in terms of what products we're launching.
And which markets and.
Understanding early on.
What the launch and being able to predict what that launch of that product should do.
From a margin from a margin perspective so.
I think we've got an incredible jump on our competitors and the fact that we we bring products to market and have been bringing products to market effectively.
For many many years and that's a core competency of our organization.
Sure. Thanks, Kim Congrats and I'll get back in queue.
Okay.
The next question comes from Scott Fortune with Roth Capital. Please go ahead.
Good morning, and thanks for the question real quick thanks for the color on the on the promotional activity, but can you provide a little more color into second quarter here with regard to <unk>.
Seasonality and consumer demand usually picks up in the second quarter here and how that's playing out and what youre seeing from the pricing side. It will more stabilization in the other states.
Pennsylvania.
Are you seeing on the west little more color there that'd be helpful. Thanks.
Sure.
As we said in our prepared remarks, we saw.
Increased.
Increased activity in March, which is which is normal by the way I mean, we typically see pull through in March January and February are always a little bit softer in the market and then pull through in March we had a bit more pull through this march than we have had in the past on a on an absolute percentage basis.
We're continuing to see.
Stable I would say an in line in.
<unk> trends through through the beginning part of the quarter, we gave specificity around $4 20, with a fantastic day and.
Look I mean for us to set and break records across the entire platform needs to be.
Black Friday, which is those two days always rival one another for the highest sales.
So it was really.
Think speaks to the strength of our combined platform.
But I would say that things so far this quarter are in line with the trends that we've seen year over year, and and again I think thats.
I think it's.
We feel again, we feel very very good about where we are we feel good about our ability to be strategic.
With promotions and with the quality of our products and our ability to continue to innovate and our ability to continue to.
Push more kind.
Kind of.
Our rational segmentation three brands.
Okay I appreciate it real quick I know, it's a long call but.
As far as the wholesale expectation that retail wholesale mix as you look at the states outside.
Outside of Florida.
What are you seeing kind of as you optimize percentage is there a range of your own house brands third party brands.
<unk> stores is there a target there.
Are you looking at optimizing.
As you've mentioned brands into brand new stores here.
Sure I mean look it's going to depend on a very market specific question, it's going to depend on a lot of factors.
Not all markets allow for in some markets. We've got limited retail in some markets. We've got limited product availability because of regulatory concerns regulatory restraints. So that's a very.
General General question and again due to our lack of segmentation.
I think I've been clear that we expect and we'll always at least for the foreseeable future we're going to lead this year.
Strategically with branded products are branded retail.
But also of course, we'll be continuing to bolster wholesale and markets, where where that makes sense.
Thanks, I'll jump back in the queue.
Thanks.
The next question comes from Aaron Grey with Alliance Global Partners. Please go ahead.
Hi, Thanks for the question I'll, just keep it to one here just on Connecticut. I know you gave some color in terms of how you're looking at New York, New Jersey, but on Connecticut, where you have the Bristol Dispensary just wanted to get any commentary in terms of how youre looking at the adult use market, especially in terms of maybe expanding to other expenses or maybe you can give them.
I know some of the other operators in that market I've talked about utilizing social equity and joint venture opportunities, maybe give vertical or add their exposure to the state. So how youre looking at Connecticut, and there's always opportunity. Besides your own current Bristol dispensary. Thank you.
Yes Aaron.
We are as you mentioned were in Connecticut, we have been in Connecticut for quite some time the debentures that we have theyre outperforms consistently.
One of the top performing dispensaries in the state.
Our team there and are excited to be in a position to expand into the adult use arena.
At that location and have some some some plants.
The physical expansion there as well.
As everyone I think realizes there is an application process underway.
<unk> still waiting the results of that process and we'll have more to come on that market as a regulatory and regulators get back to us in terms of our results.
Yeah.
Alright, great. Thank you.
The next question comes from Eric The lawyers with Craig Hallum Capital Group. Please go ahead.
Alright, Thanks for taking my question I'll, just keep it to one as well. So you mentioned improved mix of premium products in Florida in Q1, just wondering if you could.
Just kind of touch on some of the dynamics involved there was this more of a kind of demand pull driven was this in response to increased competition on the value side is this kind of always been part of the plan.
Any color there would be great. Thank you.
Yeah.
I think it's important to note that as I said before our biggest competition.
Particularly in Florida comes from ourselves. So it was it was a response to what we see as again that demand profile from our customers.
Had an incredibly successful launch of hydrocarbon products.
Last year and that customer base has been growing steadily and as we've been able to expand our capabilities in and hydrocarbon extraction. It's made sense for us to bring additional product product form factors through those through that channel and so.
That being said we also of course continue to also see.
Increased increased.
Buying on the flower side, that's a very.
A large part of the Florida customer base in terms of in terms of their buying preferences and so then the primo products made sense for us and again, we have the scale, which I think is the important differentiator. We've got the scale available to you to offer software those products without sacrificing the rest of the product lineup so really it.
With a response to what we saw as white space in the Florida market and demand demand preferences by our customers.
Well, that's great to hear thank you for the color.
This concludes our question and answer session I would like to turn the conference back over to Christine Hersey for closing remarks.
Thank you everyone for your time today, we will be hosting an analyst event and webcast presentation. In June we look forward to sharing additional detail on shore leave at that time. Thank.
Thank you all again and have a great day.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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