Q3 2023 Trulieve Cannabis Corp Earnings Call

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Yeah.

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Thanks Al.

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Good morning, everyone and welcome to the truly cannabis Corporation third quarter 2023 financial results Conference call. My name is Danielle and I will be your conference operator today.

As a reminder, this conference call is being recorded I would now like to introduce your host for today's conference Christine Hersey, Vice President of Investor Relations for Shirley you may begin.

Thank you good morning, and thank you for joining us.

During today's call Kim Rivers, Chief Executive Officer, and Ryan was he.

<unk>, our interim Chief financial Officer will deliver our prepared remarks on the financial performance and outlook for Chile. Following their prepared remarks, we will open the call to questions.

This morning, we reported third quarter 2023 results a copy of our earnings press release, and Powerpoint presentation may be found on the Investor Relations.

Investor Relations section of our website www dot truly dot com.

The archived version of today's conference call will be available on our website later today as a reminder, statements made during this call that are not historical facts constitute forward looking statements and these statements are subject to risks uncertainties and other factors that could cause our actual results to differ materially from our history.

Eric will result, or from our forecast, including the risks and uncertainties described in the company's filings with the Securities and Exchange Commission, including item one a risk factors of the company's annual report on Form 10-K for the year ended December 31, 2022, as well as our periodic quarterly filings.

Although the company may voluntarily do so from time to time it undertakes no commitment to update or revise these forward looking statements whether as a result of new information future events or otherwise except as required by law.

During the call management will also discuss certain financial measures that are not calculated in accordance with United States generally accepted accounting principles or GAAP, we generally refer to these as non-GAAP financial measures.

These measures should not be considered in isolation or as a substitute for truly financial results prepared in accordance with GAAP.

Conciliation 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 or responses to your questions. We may offer metrics to provide greater insight into the dynamics of our business or our financial results. Please be advised that we may or may not continue to provide some additional details in the future.

Now I'll turn the call over to our CEO Kim rivers.

Thank you Christine good morning, everyone and thank you for joining US we are excited to share our third quarter results and provide an update on the considerable progress made on our plan for 2020 three before diving in I want to emphasize what an incredibly exciting time. This is for the industry and for Chile, several significant catalysts on the horizon, including potential.

Scheduling of cannabis to schedule three progress on broader federal reform and adoption of adult use programs in markets, such as Florida, Ohio, and Pennsylvania for truly the timing of these developments couldn't be better just as the outlook for U S. Cannabis has brightened all of the steps we have taken to strengthen our competitive position are driving a meaningful.

Improvement in financial results and it shouldn't this year are focused on three pillars cash generation cash preservation and investments to support long term growth third quarter results clearly demonstrate the efficacy of our approach with better than expected revenue lower expenses reduced inventory and improved cash generation are.

Team has done a phenomenal job prioritizing efforts to deliver on our plan and set the stage for future growth third quarter revenue of $275 million exceeded guidance gross margin of 52% improved by 2% demonstrating a balance between increased branded products through branded retail promotional activity cost reduction.

Idle capacity cost and inventory reduction initiatives GAAP SG&A expenses were further reduced this quarter, reflecting the benefit of multiple cash preservation initiatives across the organization adjusted EBITDA was $78 million or 28% margin, representing our 23rd consecutive profitable quarter, our relentless focus on.

Cash drove third quarter operating cash flow of $93 million and free cash flow generation of $87 million company wide effort to improve efficiencies lower expenses and reduce inventory resulted in tax adjusted cash flow from operations of $184 million year to date.

Before I move onto our balance sheet I'd like to touch briefly on our tax position and strategy.

Following hurricane ideal yeah based on our location, we were granted an extension to make estimated tax payments for Q3 and Q4 in February 2024.

In a separate development truly filed amended federal tax returns for several entities in October for the years 2019, 'twenty 2020 'twenty, one, claiming a total refund of $143 million pretax is already paid the amended returns are supported in part by a challenge just relieves tax liability under section two any of the tax code.

While the refund claims are under review truly been tends to make tax payments as a customary U S taxpayer without tax liabilities associated with two way to eat.

Turning now to our balance sheet cash at quarter end was approximately $200 million with significantly improved cash generation, we have proactively taken steps to reduce debt during the third quarter. We completed an open market purchase of $57 million of our 2026 notes and a 16.5% discount for $47 6 million.

Yesterday, she live announced the plan to early redemption on December one of $130 million in senior notes due in 2024 with this combined reduction in debt, we expect to realize savings of approximately $20 million in interest expense that would have been paid through maturity.

Really remains aligned with our shareholders and is committed to strengthening our balance sheet with non dilutive measures while investing in growth initiatives.

Investment to support growth have been designed to provide customers with access to legal cannabis products, while delivering exceptional customer experiences the investments made over the years to support this mission how could the century leave as the largest legal cannabis retailer in the world.

Investments made today are reinforcing our leading retail position, while preparing for significant growth in traffic units sold and customer served these investments are focused on three primary areas one protecting the customer experience to delivering high quality products and three expanding access and distribution of legal Canada.

One measure of customer experience is customer retention, which remains steady quarter over quarter with 65% of customers companywide and 74% and medical only markets returning truly and aims to build lasting brand equity for the retail platform and branded products across a loyal customer base in the coming months.

We are launching new customer facing initiatives, including a revamped website designed to prioritize mobile access and direct to consumer convenience as well as effortless product exploration Division discovery and store location Assistant. In addition, we look forward to launching a revamped loyalty program, beginning with Arizona before year end.

Another area, that's really continues to invest in is our data platforms.

Painting, great customer relationships relationships requires clear and effective messaging regarding products and promotions.

Over a year ago truly began utilizing our proprietary customer data platform for targeted outreach and tailored messaging to customers with this tool we were able to make specific product recommendations based on prior purchasing behavior. The C. D. P. Also identifies the best time of day for messaging based on prior customer interactions and response rate with embedded Ms.

E learning and artificial intelligence capabilities as a platform continues to expand the towards learning to provide more sophisticated approaches and solutions as traffic and customer served across our network increase the platform becomes more useful in helping to refine and advance targeted outreach a second key driver for customer satisfaction, it's consistent.

And just finally, having high quality branded products available in the right place at the right price truly sell the highest volume of branded products through branded retail in the U S. Reaching over 11 million units of internal products sold excluding wholesale during the third quarter.

We continue to see growth in overall unit demand across our markets supporting our thesis that cannabis continues to gain mainstream acceptance and adoption in the current economic climate mid and value tier brands modern flower enroll one have gained popularity contributing to higher sales of internal branded products interestingly demand for premium products.

Has it remained relatively steady reflecting the strength of our premium brand portfolio, we continue to meet evolving customer preferences, including production of our best selling brands, while introducing new form factors and sizes across our markets.

Following years of investment in production Trillium has amassed over 4 million square feet of supply chain capacity. Our capacity is not currently fully utilized in all markets, providing significant flexibility to meet growing demand with minimal capital investment today and in the years ahead.

With major investments in production capacity largely completed for the near term our team is focused on driving efficiencies and yields at our existing sites, our new state of the art 750000 square foot indoor cultivation facility in Jefferson County, Florida is fully built out and continues to ramp refinements to improve production will continue through year end.

Progress made to date has been fantastic with current yields outperforming expectation by 10%, making this our top performing facility companywide. In addition, the cultivation team has been killing it with average potency at this at this site currently coming in at 28% THC.

As a reminder, as this facility has ramped some legacy capacity was temporarily idled to align production with demand given the progress made on our inventory reduction plan in Florida and continued growth in the medical market. We have restarted some idle capacity during the fourth quarter higher yields at the new site and increased capacity utilization will help meet year end holiday demand.

Finally, I truly providing customers with access to legal cannabis products is at the heart of what we do every day.

Investments to expand our retail and wholesale distribution network, while opening new markets are ongoing.

Today truly it has the largest retail network of 190 dispensaries, representing market, leading positions in Arizona, Florida, Georgia, Pennsylvania, and West Virginia are growing retail network provides customers with greater convenience and ease of access to our high quality branded cannabis products in the third quarter, we added new locations in <unk>.

Florida, Georgia, and Ohio, and launched recreational sales in Maryland invest.

Investments made by truly been GA exemplify our commitment to expanding patient access to cannabis products, we opened our fifth Georgia medical Dispensary in September.

Outreach and education efforts across the state are ongoing to raise awareness of the program in patient enrollment last week, we launched product distribution through independent pharmacies with our fifth pharmacy commencing sales today.

Early progress on this initiative has been encouraging and we are optimistic that this unique distribution channel will provide GA patients with more convenient access to products with the launch of recreational sales in Maryland wholesale revenue doubled compared to the first quarter, while in retail third quarter traffic increased 235% and sales per store increased.

175% sequentially, our team did a fantastic job managing the increase in traffic, while serving medical patients and adult use customers in the third quarter, we increased production at our Hancock facility to meet the increase in both retail and wholesale demand in Ohio, It's really opened its first medical dispensary in Columbus and.

July just this week, Ohio voters passed a ballot measure to permit adult use sales pending final regulation and regulatory approvals, we plan to serve adult use customers at this location, marking our fifth adult use states.

Actually leave our commitment to advocacy is central to our mission. We are proud to be a driving force within the industry working diligently to expand access to cannabis for medical patients and recreational consumers in new and existing markets over the next couple of years, we expect to realize significant growth as state level catalysts continue to come to fruition.

Two of our top three markets, Florida, and Pennsylvania May launch of adult use programs by 2025 and these markets truly currently operates 149 medical dispensaries and has over 3 million square feet of production capacity.

Our scale and leading retail positions in both markets alongside our financial strength, we are uniquely situated to accelerate growth when adult use launches.

With federal and state catalysts on the horizon and improved performance across the organization. We are carrying recent momentum forward as we approach year end. Our team remains focused on our three primary objectives cash preservation cash generation and investments to support growth our industry, leading retail network scaled operations and attractive.

Markets and balance sheet place truly been an enviable position as the industry moves forward towards the next phase of accelerated growth with that I'll turn the call over to Ryan. Thank you, Tim and good morning, everyone third quarter revenue of $275 million declined 2% sequentially, representing an improved performance compared to the 6% seasonal decline last.

Sure.

The seasonal decline in retail revenue in Arizona, and Florida was partly offset by increased wholesale revenue with strong performance of Maryland third.

Third quarter GAAP gross profit was 143 million or <unk>, 50, 752% margin, representing a 3% improvement quarter over quarter.

GAAP gross margin includes a 1% negative impact for idle capacity cost gross margin will continue to fluctuate quarter to quarter dependent on product and market mix inventory sell through promotional activity and idle for the call.

SG&A expenses in the third quarter were 94 million or 34% of revenue an improvement of 2 million compared to the second quarter.

Reduced SG&A expenses are the result of ongoing efforts to lower core business expenses, including consolidation of production capacity and elimination of redundancies.

Third quarter net loss was $25 million compared to net loss of one 4 million in the second quarter.

Third quarter loss per share was <unk> 13, compared to a loss of $2.14 in the second quarter excluding.

Excluding nonrecurring charges third quarter loss per share would have been eight.

To the second quarter.

Third quarter, adjusted EBITDA was $78 million or 28% adjusted EBITDA reflects optimization efforts to maximize cash preservation and generation.

We ended the quarter with approximately $200 million in cash during the third quarter cash flow from operations totaled $93 million with free cash flow of $87 million.

Inventory was reduced by $23 million in the third quarter as a result of targeted efforts to wind down specific volumes and product categories.

Capital expenditures totaled $6 million in the third quarter, and we expect Q4 capex to be approximately $10 million.

Year to date, we have opened 15, new dispensaries and relocated five in line with our full year guidance.

Turning now to our outlook, we anticipate fourth quarter revenue will be down low single digits, primarily due to the risks that revenue contribution from the Ohio via you maybe deconsolidation for fourth quarter results.

Hinging upon receipt of financial information and also factor in promotional activity and continued wallet pressure on consumer behavior with.

With respect to margins, we expect steps to streamline operations and reduce costs will benefit margins, while idle capacity holiday promotions and inventory reduction initiatives will pressure gross margin.

Overall, our initiatives are driving significant cash generation we.

We are on track to exceed our target of $100 million in cash flow from operations and generate at least $70 million of free cash flow we.

We will exit 2023, you haven't realized lower expenses more normalized inventory levels and reduce debt and interest expense.

So our entire team for delivering on our key objectives. This year with that I'll turn the call back over to Kevin. Thanks.

Thanks, Ryan It bears repeating this is an incredibly exciting time for U S cannabis and virtually with meaningful federal reform and state market catalysts on the horizon. We are poised for accelerated growth the recommendation by the department of health and human services to reschedule cannabis schedule III from schedule, one represents an explicit and all.

I meant by the FCA that cannabis doesn't back half medical value rescheduling would open the door for additional research expanding our understanding of cannabis and potentially enabling broader development of products and formulations unscheduled reclassification would also definitively removed the punitive tax burden infection to ETE driving a meaningful step up in financial performance.

First date legal operators, we are optimistic the rescheduling would eventually lead to further federal forum to address the growing divide between federal and state laws, while the industry a week's federal reform state markets continue to expand through medical and adult use programs spurring greater adoption in mainstream acceptance of tested in regulated cannabis products.

In Pennsylvania, we remain optimistic that adult use could be enacted through legislation in next 24 to 36 months Governor Shapiro remains a steadfast supporter of adult use cannabis with almost 13 million President we believe adult use could increase the pennsylvania market to over $4 billion in annual sales given to release production capacity Brandon.

Portfolio and leading retail network, we expect to increase market share when adult use is adopted in Florida truly is the largest supporter of the adult use ballot initiative. The campaign has gathered over 1 million validated signatures, representing seven 5% of registered voters and surpassing the required threshold.

The final hurdle for inclusion on the November 2024 ballot is an affirmative ruling by the Florida Supreme Court yesterday. The court conducted a hearing of oral arguments from the smart safe or a campaign and the attorney General regarding the citizens initiative, we believe that the campaigns lawyers properly conveyed their case to the court and remain hopeful that the justice as well.

Nor the political rhetoric stick to the law and get Floridians the opportunity to vote on this important initiative as a reminder, the court can issue an opinion anytime between now and April 2024. Once on the ballot initiative passes was 60% voter approval with 22 million residents and $138 million annual tourist visits.

We believe Florida will be the best cannabis market in the world, reaching $6 billion in annual sales truly maintains outsized market share in Florida, selling 130% more products than the state average eclipsing all competitors, given our scale competitive production cost and ability to quickly flex our production with minimum.

Investment we are prepared to expand our market leading position with this opportunity. This.

This year, we successfully implemented meaningful changes to bolster our business resilient just as we said we would do by taking proactive steps to strengthen our balance sheet streamline operations and reduce inventory, we will exit 2023, as a leaner organization with strong cash generation and a clearly defined strategy truly does best.

Position for the coming wave of meaningful growth catalysts, I've said, it before and it remains true today I wouldnt trade positions with anyone in cannabis.

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

At this time, Kim rivers, and Ryan plus will be available to answer any questions. Operator, 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 Touchtone phone if.

If youre using a speakerphone please pick up your handset before pressing the keys.

To withdraw your question. Please press Star then two.

The first question comes from Luke Hannan of Canaccord Genuity. Please go ahead.

Thanks, and good morning, everyone and congratulations on the strong results Jim I want to pick your brain. If I can on just how youre thinking about the balance sheet and capital allocation here quick math shows even with the repurchases of 2024 notes on the chunk of the 2026 is that you did in Q3, you should still finished the year.

Really attractive cash balance position, just curious to think about how we should be thinking about that going forward.

Yeah. So we are absolutely incredibly excited about the position and the work that the team has done this quarter and continue through the end of the year as we execute against our initiatives.

As we stated at the beginning of this year really one of our primary goals was to focus on cash this year and the team continues to do that which provides of course and significant optionality in the business. That's a particularly important today given the the catalysts that are in front of us. So as I mentioned right, we had an incredible Vega.

Today with the Florida Supreme Court hearing.

And the oral arguments in the posture of not court are definitely leaned positive as it as it relates to and the possibility that the court would rule in <unk> and.

In favor of allowing the adult use amendment on the ballot and that of course is the single biggest catalyst and four for truly even I would argue for the industry. If in fact, we are able to get that measure on the ballot and then approved in November and with that of course, we're going to continue to invest in Florida and and of <unk>.

<unk> is a leading retailer feel very comfortable continuing to invest in in retail and in many of our markets. In addition, though and I don't think that this can be understated. It's also really important that we continue to have a eye on the future and in a more normalized integrated commerce environment as I mentioned during our prepared.

Our remarks, we're going to continue to invest in what we deem to be foundational customer facing initiatives throughout next year I only mentioned the website. We mentioned the loyalty program. We're also looking at optimization efforts in our retail platform across all of our markets and again, just looking for any opportunity to reduce friction with the consumer because.

Of course, we've got these state catalysts, but then you know broader federal reform, we believe is on the horizon as well.

That's great and then for my follow up here you did mention the revamped loyalty program I'm curious to know if you can share with us.

What the differences I guess from the consumer's perspective, but then also from your perspective, the new capabilities that will give you and then eventually how that will show up to the consumer.

The new loyalty program.

Yeah. We're we're really we're really excited about it one just in terms of ease of use and the ability for consumers to have more transparency in terms of and how the loyalty program actually function and it's going to seem more intuitive and in line with and many other leading retail loyalty programs that were.

We're used to interacting with them on a regular basis again, our goal is as we think about cannabis and through the lens of integrated commerce, how do we how.

How do we make it less clunky and more are you just more user friendly said there are a lot of features and that that again, we're really excited to preview with our customers that you all will of course get a first look at as well, but I would say that the main thing is for it to just be a more normalized trackable intuitive program and.

For it for both for consumers across and also of course for it to be able to be integrated across all of our markets. That's all another goal here is for us to look beyond kind of the four walls of each state and to be able to offer a platform that is a that is portable across markets. Because ultimately we think that that's at some point anyway, where this is headed.

That's great I'll pass the line. Thank you very much.

Thanks.

The next question comes from Aaron Grey of Alliance Global Partners. Please go ahead.

Hi, good morning, and thank you very much for the question.

So first question for me just wanted clarification on your tax payment strategy going forward I know you filed for the refund for some historical years, but wanted to get clarification on whether you know you mentioned the intention to not make some of those two to eight E payments going forward.

Clarification on your tax payment strategy on a go forward basis, particularly as it relates to annuity as you await the refund from the IRS potential reschedule them. Thank you.

Sure. So there's a lot going on as it relates to taxes. So let's break that down just so we're very very clear because I know it can it can be a little again, it's there's a lot of puts and takes so in this quarter, we had and because of the hurricane I think we should just maybe called Q3 virtually maybe the our Hershey corridor, but it seems to be the last two years.

So we have the deferral and that's granted automatically and so Q3 and Q4 taxes are not do currently they will be due in February.

And we plan to continue to pay taxes.

Just to be clear, we are not not paying taxes, we will be paying taxes, but we would plan to pay taxes under a normalized corporate tax regime.

And in absence of those 280 E payment moving forward as we await the IRS response on our refund claim so and again no tax payment and due for US until February of next year due to the deferral and then moving forward.

We're taking the position that we will continue to pay taxes to Texas again will be paid when do but they will be paid and as a quote normal corporate filer.

Okay, great. Thank you very much for the clarification there.

And then secondly, just on the hearing yesterday.

Did you say you mentioned that lean positive in terms of how you think.

Just as kind of heard the argument.

Anything that you saw that was you know maybe unexpected or from the other side or was everything pretty much in line kind of some things they were arguing you know.

The allowance single subject or otherwise and then secondly in terms of investment in the state you know you talked about you know, Florida still being a priority there.

So I just want to know in terms of expanded stores.

Do you think just wouldn't in the medical market. There's enough there to kind of continue to add stores as we look towards 2024 would you want to wait until you saw whether or not you know adult use Mike.

<unk> be coming up on the ballot or even passing in 'twenty 'twenty four before you really start to add additional stores in the state.

Yeah, well as per our per our past and our past cadence, we're going to be and it really saying guidance, which will likely include store counts and at the end of at the end of the year. So stay tuned for that and I will provide some additional color as it relates to projected or retail.

Expansion into 2024, and that being said and as I mentioned and you know we do and.

Absolutely remain very bullish on Florida and on the opportunity set here and with our again capacity on on the on the supply chain side and we are again in a unique position that we're able to we're able to fill new doors and the return on investment for those new doors remains strong so.

You know and we also believe that there are.

There remains strategic opportunities as it relates to locations in the state. So we certainly will be building additional retail locations in Florida again quantities I would say stay tuned for that and as we as we look to give additional color on that next quarter as it relates to the court as I said no surprises in terms of.

Arguments.

Just on the previously filed briefs.

Briefed by the by the Attorney General's Office, I think maybe what was a little bit surprising and I think it's reflected in the news coverage that that came out as well and that we will probably see continued continue today.

It was just you know the external posture of a number of the Justice says.

In terms of really being supportive of the of the language.

The sponsors of the initiative did work very diligently to track previous Supreme Court guidance, and I think that the court understands that.

Altering or shying away from or rewriting not guidance has broad implications not just for this particular amendment before the entire citizens valid initiative process in the state of Florida, and so and that's not something that they are that they would do lightly and it was really encouraging.

<unk> to see that and.

Several of the justices and saw that and appear to understand that and you know that this wasn't something that just affects you know.

A particular policy, which they may or may not agree with but it has potential broad sweeping impact on the entire.

And the entire you know posture of our citizens valid initiatives in the state of Florida. So good good to hear and very encouraging I would say and often in those types of hearings you don't get that type of.

External feedback from Asmonean justices.

Okay, Yeah, great to here and we'll keep an eye out for Supreme Court decision and I'll jump back into queue.

Thanks.

The next question comes from Russell Stanley of Beacon Securities. Please go ahead.

Good morning, and thank you for taking my question maybe on the GA.

This is a unique market opportunity the pharmacies.

Carrying products are early days, but given the uniqueness of this as a challenge.

<unk>.

It hasn't really been done before I guess, how quickly do you ambition.

The patient County, expanding you know in the past you've drawn parallels between Georgia and in Florida is early days, but this channel is so different I'm wondering how you're how you're thinking about this market though.

Okay.

Yeah. It is it is a really unique channel and I think it's a it's an incredible opportunity for us to test and learn and for us to build and to build on our on our capabilities and as it relates to this type of distribution again with a third party partner and really a true kind of you know.

Restock service model and you know access and improved access and close to patients in a convenient fashion typically and will of course result in increased demand and I think a little too early to tell whole impact yet and you know as I mentioned, we're actually.

Working in and are excited to launch sales with a fifth and pharmacy today.

But I think that you know the next step here and it just all sort of will likely happen simultaneously will be some changes in the law in the legislature you know as it relates to conditions or products that would of course also lead to market expansion I think one of the real benefits of having pharmacies online will be we.

Now have another advocacy partner right at the legislature and to be able to speak firsthand as to the importance of access for patients that they see come into their particular pharmacies and to speak with that that medical authority and as we as we go to the legislature to ask for and an advocate for <unk>.

Expansion over the next little while so I'm excited about of course, the direct but also and maybe some longer term impacts of having that channel open for us in Georgia.

Great. Thanks for that and maybe if I could switch to Ohio.

What's your first store opening there and the voting results earlier this week, how youre thinking about this market.

It's a scenario where you can where you can.

Step on the gas in terms of adding retail and expanding into expanding into this giving me of the adult use.

Adult use legalization.

Yeah, we were very excited of course to open and our store in Columbus and that store is ramping up really really nicely team. There has done a great job in terms of connecting with the community and really building and building that customer base ahead of adult use and in in Ohio.

As mentioned in Ryan's remarks, we currently have a V E and situation and so and are in and in current pending litigation without relationship that wasn't inherited relationship and with the harvest acquisition and the portfolio. When question include three retail locations production and cultivar.

Sure.

So I would say you know stay tuned as it results to the resulting outcome in Ohio.

That's great. Thanks for the color I'll get back in the queue.

Thanks.

The next question comes from Fredrik Smith of ATB capital. Please go ahead.

Hi, good morning.

Thank you for taking my question.

First question is just.

Given your guidance for free cash flow for the year and I guess for next quarter as well. So can you provide some color on the working capital items.

Did you expect them to crack cash flow. So next quarter would you expect.

Correct.

How much in terms of further reduction in inventory.

Could you expand on some of the other items as well and in fact that guidance. Thank you.

Yeah, and so you know as we mentioned of course, there's a lot of moving parts and and in fourth quarter is an interesting one because of course, we're against the backdrop of you know the most promotional quarter of the year. So as it relates to product mix and ins and outs and you know it is it is a very dynamic quarter.

What I will tell you is that as it relates to our inventory wind down efforts specifically as mentioned in the prepared remarks, Florida has come to you know we were basically have landed that initiative with the exception of some some additional movement in oil, but in all I would say material effect that that has.

That has come to an end and the team has done a great job there and we were now and ramping and dock capacity to feather in and really even out or smooth out the.

The product availability to demand and more.

Mix, if you will and in Florida that being said and we still have inventory wind down efforts underway in other markets and so that those efforts as a company will continue.

Through Q4 into next year and and the teams are again, and making a lot of progress and against those against those initiatives and I think just because I'm pretty sure. This will probably be a follow up so and as it relates to Florida in particular and you know what is interesting it's very difficult and.

In a challenging to land these things perfectly and we did have some a little bit of and lumpiness as it relates to certain products and again capacity and whatnot. So that's being smoothed out now you saw some of that at the towards the end of Q3 and coming into Q4, that's that's right sizing at this point in time, what we are.

Well to do now in Florida, and it's really take those lessons that we've learned and we're looking at this as really a test is again as we land. Some of these other inventory wind down initiatives across other states to look at consumer demand and our mix as it relates to particularly margin.

And cost again, taking advantage of efficiencies out of just co now and transitioning.

Customers into higher margin quite frankly in some cases higher quality products that are at a lower cost basis for us and with the consumer cost impact being the same or in some cases, even better so really looking for those opportunities to learn from our inventory wind down initiative and make pivots in the business.

And in the portfolio that improve both the customer experience and also the financial result, and which again will continue to optimize in the quarters ahead.

Perfect. Thank you forget.

The next question is just.

Going back to your I guess your tax strategy.

Going forward.

Can you give some color I guess in terms of being back to cash flows expected from that.

I guess not paying the liabilities associated with 280.

How much of that.

I'm 24, maybe.

To get a benefit from.

Sure. So every and so I would refer you to our R. K of course, which isn't isn't filed yet but in our in our K and each year, we have a note and that breaks out and talk specifically about our two H E. A tax liability, we don't do that on a quarterly basis, but I would just point you to the K and.

And of course, there'll be filed along with along with year end.

Perfect. Thank you.

The next question comes from Sunny Sunny ran Halle from Seaport. Please go ahead.

Hi, Thanks, Thanks for taking my question I guess just.

Obviously, the Supreme Court hearing was.

It seemed that positive I guess, if you could just talk.

Generically about what you think the margin and competitive landscape.

Looks like.

In Florida.

If it is on the dollar versus not being on the dollar and I know you commented previously that.

Not on the ballot in 'twenty four it probably.

You'd probably wait till 2028.

Get it back on the dollar.

So just generically thinking about if it is on the how the competitive landscape will change versus not being on the dollar and kind of what you would expect.

Going into mid 2025, when adult starts.

Yeah, I mean, I think that and you know it's important to remember that Florida is a bit of a different market than others and that it is a forced vertical right. So it's it's different in the sense that and you can't just lean into retail without having the supply chain capacity across.

Form factors and across depth of product to service to service that retail and.

The supply chain of course is takes the longest and is one of the more expensive generally.

For most companies than retail expansion, so and I don't know that we would see any and in other words, if someone were to make a decision today right that they wanted to expand and expand Florida footprint.

It typically takes and it would take until more than likely almost the end of the year for that capacity to be built approved by the state planted production ramped up and products coming through and into retail location. So there is a bit of a difference in Florida versus other markets as it relates to full.

Supply chain build out when you were talking about expansion and that's one of the reasons why and again, we really like our position in Florida, because we have made multi year investments into the state not only just for capacity, but we're really efficient and capacity that generates.

Significant high quality product portfolio that then of course is distributed through our market leading retail network about currently 127 stores across the state So and I don't know that we wouldn't necessarily see as opposed to any differential in terms of what folks currently have planned versus.

What folks would then plan in 2024, I think that that may come into play more in 2025, and but again I think that as far as and as far as we're concerned and we have the ability again to continue to meet demand, while also making investments to really optimize and get additional.

Ill talk out of existing facilities and retail locations.

Into and through 2024, so and again in a very different kind of apples and oranges position as it relates to folks who need to build new capacity in order to be in order to have an increased our competitive position.

As it relates to you know what I see this next year and I think that as far as we're concerned is first really is concerned. This is all kind of according to plan right and we believe very strongly that Florida out as I said and I'll say it again will be the best cannabis market in the world.

We believe that the legislature when they go to implement the amendment will certainly.

<unk> to be focused on ensuring.

Safety and traceability and I don't know that I see a situation, where there's a complete you know decoupling away from vertical and at least from a holistic approach and I think that will continue to be able to operate our business as we have been operating in that's really when our scale will really show.

And we will be able to fully lean in and bring and everything that we've been working on a bear in the market against the backdrop of significantly increased consumer demand, so really excited about that possibility and and and.

And can't wait to be able to Chevron who got.

Great.

Turning to Georgia.

Obviously, we don't have a lot of data on GA, yet you guys are.

One or two players in that market can you just kind of give us.

Yeah. So the insight on just what the current size of the market is and what Youre seeing in terms of patient count today and kind of what the growth rate you anticipate.

Yeah.

Georgia, Georgia is going to be is is a medical only marquette its starting out fairly conservative and again very similar to what we saw in in Florida.

And the patient ramp is approximately you know I'll call it 14000 or so patients today.

And again that data, we're trying to get into a better cadence of really again, having hunting accurate data and a little bit more regularly and we're working with the regulators there who have been great partners with us, but as you ramp a program and as he bring a program on line some of that information. It's just you know a little difficult.

To get into a regular I'll call. It reportable format and it was the same thing with Florida in early days, though I mean, contrary to popular belief, we didn't always have Friday O M. M U reports.

We actually had to do information requests, which we did every week and then I think they got tired of having to respond to it truly is information requests and so they started just publishing it on a regular basis, because I think all of the analysts also started making information requests so.

It'll it'll happen in Georgia, just it's just going to take a little bit of time and again similar to Florida, We're seeing similar patient profiles as it relates to you know early adopters and then that will again continue to expand over time, so I would say more to come but not surprising to us and again as planned the Georgia.

Is is ramping and at the rate that it is.

Great if I can just squeeze one more in.

I know one of your competitors.

Just recently provided state level data.

You know basically took somebody who will take us out of out of the model.

I don't know if you've had a chance to look at it but.

In terms of just revenues per store.

Were you surprised that at.

Yes.

The success they've had on the retail side.

Yeah.

Are you asking me to comment on another competitor's retails for store build I'm trying to think about just.

Yes, we know volume growth is in terms of volume you guys, obviously do a lot better in terms of revenue.

Kind of trying to gleam.

Some additional insight.

Related to that on your overall.

Revenue per store in Florida.

Yeah, I would tell you that we make more per store in Florida than I think any of our competitors. I mean, you can extrapolate out any metric that you would like on that and again the number that was given as it relates to averages is that we felt 130% more than.

And then the average on the state I mean again <unk> data comes out every <unk> every week and pricing is available online. So I feel very very comfortable as it relates to our store metric productivity versus <unk> versus competitors in the state.

Great I'll turn it back.

The next question comes from Matt Mcginley of Needham. Please go ahead.

Thank you so much.

First question is on the cash flow as it relates to taxes.

A change in the other long term liability line and your cash flow that was a $49 million benefit in the third quarter was that related to the amended tax returns filed or was that $49 million related to the hurricane Italia deferrals.

And is that benefit baked into that $100 million target for operating cash flow or is that more like a 150. If you include that for the full year.

Yeah, So as we as we mentioned in the target.

That we are targeting more than $100 million in operating cash flow for the full year Matt.

Okay.

Got it and I guess, what does that benefit you saw in 49 million in the third quarter.

Any substantial number that is that.

As a result of the reversal of the treaty that youre expecting to see her that.

I guess the accounting treatment that is different from what we've seen before and I'm just not I'm not sure what we're looking at it with that with that Big benefit you had in the quarter.

Yes, you are overall operating cash flow.

So Matt I think I think we might be talking apples to oranges here and we're happy to have a more detail.

Follow up with you, but that's a it's a not to get too technical but that's the uncertain tax position. So that's going to be our U T. R. U T P a and again happy to happy.

Happy to.

Take that offline with you if you'd like.

Yeah, No no and just to clarify there's no refund costs.

Contemplated in any of our any of our financials at all.

So I don't want to I don't want there to be confusion there.

As well, we tried to make it clear again in the notes and whatnot, but but maybe we are maybe we need to have a further conversation around that sure sounds good and then on the G&A how much opportunity do you see in reducing our core G&A dollars given the store growth I mean, if you're if your top line continues to see a little bit of pressure on price compression that you.

We're still putting up stores does that become a bigger drain on your profitability or do you feel like you have efficiencies that can offset some of those impacts that you're seeing from some store growth.

Yeah, I mean look it's going to it's going to ebb and flow right. I think there are still and we obviously have a close line of sight and are monitoring it and responding accordingly as it relates to that efficiency balanced vis a vis store growth of course, when you have stores that you're opening you have some expense that you know may not.

It out specifically, depending on timing right on a quarter over quarter basis, and certainly we've experienced out in the past and I think again, we try to be pretty communicative about that.

And we will continue to do so Matt, but I do think you know I don't see them a continued a continued drag necessarily or specifically on our G&A.

There I think there's enough kind of puts and takes if you will and left all of course aspects there will depend on timing.

Okay, great. Thank you very much.

The next question.

She comes from Eric Dey livery daily rate daily.

Yes.

David.

I'm Craig Hallum. Please go ahead.

Thank you for taking my questions.

Appreciate the color that you've given on Jeff.

Jeff Gull facility there.

You hear yields and potencies are outperforming expectations.

Could you comment on how costs are tracking either relative to your expectations or a relative to some of your earlier production facilities.

Yeah as we as we mentioned very very excited about the about the productivity of the Jafco facility.

And you know again costs are in line with our projections and we actually may have a little bit of kantar.

Continued work to do there as it relates to as it relates to bringing those completely in line you wouldn't be careful of course in how you manage that as you're continuing to ramp and so may still have a little tweaking there to do but very pleased with all aspects really of that of that facility and.

We are going to be you know again sharing additional information with you all as we as we discussed going into next year.

Alright, I appreciate that.

And then just.

A bit more on the decision to bring back some of that idle capacity.

So it sounds like Jeff because he hasn't been more capacity in that quality has been impressive I understand there was some bumping us with inventory wind downs I'm, just kind of I'm sort of wondering.

This is all sort of coming together here is it that you're able to ramp these other facilities faster than Jeff how is this sort of almost like.

A bridge until Jeff co is fully ramped.

These other facilities sort of able to produce.

Maybe certain products that Jeff go cats.

We should sort of expect that idle capacity or these these older facilities too.

<unk> remain online.

Well, they kind of come back offline once that goes fully ramped.

Kind of just give some more color on that on that decision that would be great. Thank you.

Sure. So yeah as we as we said and brought on some additional capacity it shouldn't I should maybe quantify that and on a relative basis, it's a small compared to the jafco output. So Jeff co remains our primary contributor.

Two product in Florida today.

And again, yes. It is it is continuing to ramp slightly and but.

But we feel that we've got good line of sight at this point as it relates to output and.

With respect to Jafco and so we do have additional 24 K style buildings that we have brought back online and again by the way those are pretty efficient models and in of themselves and so I you know from.

From a from a blend in blended cost basis and built incredibly strong.

Relates to our position there.

Those buildings will serve as flex capacity for us as and with again just co being our our workforce stable output facility and then we'll we're able to ramp them up and down depending on what's needed in the market of course as we stated you know holiday typically has.

Increased unit demand.

So really happy that we have that capacity to flex into to service what is typically a holiday surge for a for the year.

Okay. Thank you.

The next question comes from Scott Fortune of Rock N. K M. Please go ahead.

Good morning, and thanks for the call while the question's been asked but real quick just congratulations on the continuing cash flow generation and then optionality, there, but just kind of get a sense for your priorities looking at the Rois for cash generated obviously, you're paying down debt.

But how are you prioritizing.

And any color around 'twenty four capex too.

We grow some of these new adult use market since dates for you.

Other options with the cash.

Stock buyback and so it's just kind of give us sense for prioritizing.

Prioritizing that cash going forward here.

Okay.

Yeah, So and you know I think that look I mean, the 2024 notes were due next year. So you know.

For us that was always part of the plan and you know where.

We're going to we're going to pay that debt when when do we were able to save some interest there, which we thought was the right decision and moving into the end of the year.

As I said at the top of the Q&A you know investments in both additional expansion in retail along with what we what we deem to be really core investments through the backdrop of a continued progression to an integrated commerce environment will will remain front and center.

<unk> and in 'twenty 'twenty four will give additional color on capex at the end of the year on our next call.

Reminder, that where we're really coming out of our multi year investment cycle as it relates to our supply chain and production capacity. So just again I.

I think it bears repeating because it is a differentiator we have approximately 4 million square feet of cultivation and production facility capacity.

So again different very different position than many of our peers, who have not made that type of investment are up.

Up to now and are working to to either catch up or build out.

You know in kind of just in time fashion and we've got the luxury of again, having made the investment really being able to dial in on efficiencies getting the right product mix and dialing up and up and down and we're really being able to focus our efforts on and the customer and our retail again market leading world leading.

<unk> cannabis retail retail position.

Our in our market so.

A little different than some of our some of our peers.

I appreciate that and just kind of a follow up on this Kim.

Obviously, youre championing truly champing adult use in Florida, you have put a fair amount of money towards that.

Let's say, we get past the Supreme Court, obviously, the governor's not too favorable of it you still need 60% of the voters to approve this.

Step is to or kind of some of the strategy not only just your lead and getting but don't use low past here, but kind of the industry in general kind of sense for the <unk>.

Cash or what do you see to move forward is to gain a favorable vote potentially next year, if we get if we get the past the Supreme Court here.

Yeah. So I think a couple of points on that number one the medical initiative in Florida that was also a ballot initiative cost with the highest favorable rating of any ballot initiative in the history of the state of Florida with over 73% of our concentrate currently at adult use is pulling it apart.

Only 70% without any kind of active campaigning or public facing them.

Initiatives.

Secondly, the governor doesn't have it really I mean his opinion of course. This is opinion and he's remained relatively neutral on the topic and but just to be clear. There is no specific like vito or any sort of process and intersection with the governor.

As it relates to at least the Florida process and finally I would say that you know, we we would expect and anticipate.

That you know our peers, particularly those who I know in their earnings calls have been talking about how great a market, Florida is and how excited they are about adult use would come to the table post Supreme Court approval to participate and are in the publicly facing campaign efforts moving forward into 2020.

Sure and.

So far I have received and certainly they know who they are and robust conversation commitment to that will be the case and certainly hope that we all we all hold them accountable as we share in the benefit of what an incredible market an adult use market in Florida would be.

Thanks, Kim I appreciate it.

Bill.

This concludes our question and answer session I would like to turn the call back to Christine Hersey for closing remarks.

Thanks, everyone for your time today, we look forward to sharing additional updates during our next earnings call. Thanks, again and have a great day.