Q2 2024 Trulieve Cannabis Corp Earnings Call
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Jamie: Good morning everyone, and welcome to the Trulieve Cannabis Corporation second quarter 2024 financial results conference call. My name is Jamie, and I'll be your operator today. As a reminder, today's conference call is being recorded. And at this time, I'd like to introduce your host for today's conference, Christine Hersey, Vice President of Investor Relations for Trulieve. Ma'am, you may begin.
Speaker Change: Good morning, everyone, and welcome to the Trulieve Cannabis Corporation's second quarter 2024 financial results conference call.
Jamie: My name is Jamie and I'll be your operator today.
Jamie: As a reminder, today's conference call is being recorded. And at this time, I'd like to introduce your host for today's conference, Christine Hersey.
Christine Hersey: Vice President of Investor Relations for Trulieve, ma'am, you may begin.
Christine Hersey: Thank you. Good morning, and thank you for joining us. During today's call, Kim Rivers, Chief Executive Officer, and Wes Getman, Chief Financial Officer, will deliver prepared remarks on the financial performance and outlook for Trulieve. Following the prepared remarks, we will open the call to questions. This morning, we reported second quarter 2024 results. A copy of our earnings press release and PowerPoint presentation may be found on the Investor Relations section of our website, www.trulieve.com.
Speaker Change: Thank you. Good morning and thank you for joining us. During today's call, Kim Rivers, Chief Executive Officer, and Wes Getman, Chief Financial Officer, will deliver prepared remarks on the financial performance and outlook for Trulieve. Following the prepared remarks, we will open the call to questions.
Speaker Change: This morning we reported second quarter 2024 results.
Speaker Change: A copy of our earnings press release and PowerPoint presentation may be found on the investor relations section of our website, www.trulieve.com. An archived version of today's conference call will be available on our website later today.
Christine Hersey: An archived version of today's conference call will be available on our website later today.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 four looking statements, and these statements are subject to risks, uncertainties, and other factors that could cause our actual results to differ materially from our historical results or from our forecast, including the risks and uncertainties described in the company's filings with the Securities and Exchange Commission, including item 1A, risk factors of the company's annual report on Form 10-K for the year ended December 31st, 2023, as well as our periodic quarterly filings.
Speaker Change: During the call, management will also discuss certain financial measures that are not calculated in accordance with the United States Generally Accepted Accounting Principles, or GAAP. We generally refer to these as non-GAAP financial measures.
Speaker Change: These measures should not be considered in isolation or as a substitute for Trulieve's financial results prepared in accordance with GAAP.
Speaker Change: This summer is shaping up as we expected, with a heightened focus on major upcoming catalysts.
Speaker Change: To date, the campaign has received almost 70 public endorsements from a wide variety of bipartisan supporters, including physicians, activists, educators, faith leaders, labor unions, law enforcement, elected officials, and celebrities.
Speaker Change: We are confident that targeted messaging to raise awareness and educate voters about the many benefits of legal cannabis will positively influence voter turnout and persuade Floridians to vote YES on Zuri.
Speaker Change: First, a guest vote would decriminalize personal cannabis possession in Florida.
Speaker Change: No one should be in jail or fear arrest for personal cannabis possession.
Speaker Change: Second, adults deserve access to safe, tested, and labeled cannabis products available in a normalized retail environment. No one should risk death from fentanyl or pesticide-laced products sold on the street.
Truly: At Trulieve, we are taking every available opportunity to feature Yes on 3 information at our store grand openings, physician education events, hiring events, and community events.
Speaker Change: Last week, we launched our first Yes on 3 products with Yes on 3 Whole Flour Eats and Pre-Rolls. We plan additional product launches as we approach the election, with a portion of proceeds going to support the campaign. And as always, we encourage other industry operators to use their platforms to help raise awareness.
Kimberly Rivers: In Ohio, we are launching adult-use sales at our Beavercreek, Columbus, and Westerville locations today. The team is thrilled to be among the first group of operators to serve adult-use customers in the Buckeye State.
Speaker Change: Kudos to the state regulators who successfully rolled out this program following voter passage last year.
Speaker Change: We expect to have popular Trulieve brands available in our stores before year-end through our support services arrangement with a Tier 1 grower processor.
Speaker Change: In addition, we are working through the regulatory process and with our partners to open additional locations in Columbus, Toledo, and Dainesville in early 2025, expanding our retail footprint to six dispensaries. We estimate Ohio could reach $2 billion in annual sales.
Speaker Change: In neighboring Pennsylvania, we believe momentum is building for the passage of adult youth legislation.
Speaker Change: We currently operate 21 affiliated dispensaries, including a new location in Wilkes-Barre and three grower processor facilities.
Speaker Change: We remain optimistic that adult youth sales in Pennsylvania could launch in the next 12 to 24 months, and the market could reach $4 billion in annual sales.
Truly: At the national level, cannabis remains more popular than any politician, with over 70% of adults in favor of legalization. The first major federal reform in decades is advancing through the formal rulemaking process to re-procify cannabis to Schedule III.
Speaker Change: Public comments showed overwhelming support, with 92% of over 43,000 comments received in favor of rescheduling or rescheduling. With this public approval, we are optimistic that rescheduling can happen this year.
Truly: We believe the time is right for the administration to take this historic step and reclassify cannabis.
Speaker Change: Before turning to results, I'd like to acknowledge two major milestones we recently achieved at Trulieve, which lend perspective to how far we've come as an organization.
Truly: Last month we celebrated the eight-year anniversary of our very first sale, which was actually the very first medical market sale in the state of Florida.
Truly: In 2016, when we recorded our first sale, that was the only transaction we conducted for many weeks.
Truly: as we work to recruit physicians into the program.
Truly: In 2024, on the eight-year anniversary of our first sale, we conducted approximately 50,000 transactions.
Truly: On top of that, we opened our 200th retail location in June , a new store located in Brooksville, Florida. While it took us five years to reach our 100th store, we doubled our retail presence to 200 stores in less than three years.
Speaker Change: SG&A's spending was comparable to the first quarter. Adjusted EBITDA of $107 million, or 35%, exceeded expectations, primarily driven by higher gross margin and cost controls. We ended the quarter with $356 million in cash.
Truly: Strong retail performance was driven by a 3% increase in traffic, partly offset by a 1% decline in baskets.
Truly: Consumer behavior at the start of the second quarter was largely consistent with patterns observed in the first quarter with willingness to spend more for compelling products and bundle-style promotions. As the second quarter progressed and continuing into the third quarter, we are realizing softer conditions in retail across the portfolio, consistent with seasonal headwinds.
Truly: As always, we are closely monitoring retail KPIs as we amplify messaging to highlight the value proposition of our product offerings. With the flexibility built into our capacity, we are able to adapt our production to meet evolving consumer preferences.
Truly: During the second quarter, our industry-leading retail network grew to 200 stores nationwide with new dispensaries in Florida and the acquisition of two stores in Ohio. In June , we completed the rebranding of all retail locations in Arizona and Ohio to the Trulieve brand.
Truly: Subsequent to quarter end, we opened five more stores in Florida and one in Pennsylvania. We remain on track to open at least 25 new stores this year.
Truly: Product quality and low-cost customer service are key drivers for our strength in retail. Our production team continues to turn out high-quality products at scale while harnessing efficiencies and driving down costs.
Truly: Yield, potency, and cost at our flagship 750,000-square-foot indoor facility in Florida remain at peak performance levels.
Truly: Yields at our legacy sites in Florida outperformed our plan by double digits, further reducing cultivation costs. Across the organization, we are focused on incremental improvements designed to enhance product quality and fortify our brand portfolio.
Truly: In-house brands such as Modern Flour and Roll One continue to resonate with customers, and we continue to expand product offerings with new launches of various sizes and form factors in our markets.
Truly: Customer experience metrics show incremental improvements across our retail network with higher NPS scores in virtually all markets during the second quarter.
Truly: Overall, customer satisfaction is further underscored by our customer retention, which improved to 66% company-wide and 75% in medical-only markets.
Truly: Infrastructure investments to reinforce customer loyalty are having an immediate impact on our business this year while setting the foundation for future growth.
Truly: Migration to our Web 2.0 platform was successfully completed in Q2, bringing enhanced functionality including real-time updates to products, pricing, and promos, and product availability at nearby stores.
Truly: The rollout of our Refresh Loyalty platform was completed in early June . The Best in Cost program features fully stackable points that can be redeemed across all brands and all markets.
Truly: Many of our own employees are loyalty members, providing them an opportunity to earn rewards and effectively communicate the benefits of the program to customers.
Truly: The rewards program itself was built inside of our customer data platform, allowing interconnectivity between rewards, website, and the customer data platform.
Truly: In April , we rolled out enhanced capabilities in the CVP to enable automatic basket-level analysis powered by machine learning, which we used to further personalize customer messaging.
Truly: These technological improvements provide a meaningful competitive advantage today, allowing us to forge deeper customer relationships cemented by hyper-personalization.
Truly: Across the organization, as our company continues to grow, we are investing in new technology and tools to support more sophisticated marketing outreach, business planning, and inventory and warehouse management.
Truly: Last week, we completed a significant upgrade to our SAP platform, adding expanded functionality and capacity for future growth. We anticipate these infrastructure investments will increase in the back half of this year.
Speaker Change: In summary, our team continues to deliver spectacular results while we prepare for future growth, as we believe AdultEATH in Florida is a key unlock for cannabis adoption in the U.S. With that, I'd like to turn the call over to our CFO , Wes Getman. Please go ahead.
Speaker Change: Second quarter revenue was $303 million, up 2% sequentially at 8% year-over-year, driven by continued strength across our retail platform and growth in the wholesale channel.
Wes Getman: Second quarter GAAP gross profit was $182 million with 60% margin, representing a 1% improvement sequentially. Gross margin will continue to fluctuate quarter to quarter depending on product and market mix, inventory sell-through, promotional activity, and idle capacity costs.
Speaker Change: SG&A expenses in the second quarter were $103 million, or 34% of revenue, in line with the first quarter, as we balanced spending to support both our retail network expansion and infrastructure improvements with expense control.
Speaker Change: Second quarter net loss was $12 million compared to a net loss of $23 million in the first quarter, representing a 48% improvement sequentially.
Speaker Change: Second quarter loss per share was 5 cents compared to a loss of 17 cents in the first quarter. Excluding non-recurring charges, second quarter results would have been break-even compared to a loss of 5 cents in the first quarter.
Speaker Change: Second quarter adjusted EBITDA improved by $1,000,000 to $107,000,000 with 35% margin. Adjusted EBITDA margin reflects higher revenue and gross margin.
Speaker Change: Turning now to our balance sheet and tax strategy.
Speaker Change: We ended the Corps with $356 million in cash and $481 million in debt. As a reminder, Trulieve adopted a tax position challenging the applicability of 28E to our business last year.
Speaker Change: filing amended returns for tax years 2019 through 2021. To date, we have received refund checks totaling $115 million, inclusive of $2 million received during the second quarter.
Speaker Change: Final resolution to our approach may ultimately take years to conclude.
Speaker Change: Notably, if the impasse of 280 were moved, we would have realized positive net income for both the first and second quarters.
Speaker Change: Cash flow from operations totaled $71 million in the second quarter. Capital expenditures were $26 million with free cash flow of $45 million.
Speaker Change: Turning now to our outlook. Based upon the visibility that we have today, we anticipate third quarter revenue will be down by mid-single digits from the second quarter and up mid-single digits year over year.
Speaker Change: Top line contribution from new store openings and the launch of adult use in Ohio are expected to be offset by seasonal headwinds in both Arizona and Florida.
Speaker Change: We anticipate gross margins will be at least in the mid-50s each quarter for the remainder of the year.
Speaker Change: We are increasing our full-year targets to at least $250 million cash flow from operations and capital expenditures of $100 million.
Speaker Change: The revised targets include outperformance realized in the first half of the year, as well as provisions for greater financial support for the Florida Adult Use Ballot alongside investments to support long-term growth initiatives and expansion in markets with adult use catalysts.
Kim Rivers: We have opened 12 stores this year and are on track to open at least 25 stores in 2024, with the pace of store openings accelerating in August and September . The team remains focused on executing to our plan. With that, I'll turn the call back over to Kim.
Kim Rivers: Thanks, Blast.
Kim Rivers: Cannabis is becoming increasingly mainstream and more socially acceptable every day. Daily use of cannabis recently surpassed alcohol for the first time, highlighting the generational shift in attitudes and acceptance of cannabis.
Speaker Change: U.S. consumers are increasingly turning to cannabis for relief from unmet medical needs such as pain, insomnia, and PTSD, or simply to relax and enjoy life.
Speaker Change: Favorable views by younger voters were further illustrated by a recent poll in Florida, which showed all respondents between 18 and 29 years old, and 82% of those between 30 and 39, are in favor of the adult use Yes on 3 initiative.
Speaker Change: And it isn't just consumers who favor legalization. Two weeks ago, the American College of Physicians released a position paper outlining support for decriminalization of small amounts of personal cannabis.
Speaker Change: This policy brief by a credible organization with over 161,000 members further illustrates evolving approaches to cannabis as an important public health issue.
Speaker Change: While cannabis is gaining popularity, momentum is building for federal reform.
Speaker Change: Rescheduling of cannabis to Schedule III is underway. This would represent the first major reform in decades, setting the stage for additional federal reform, including safer banking.
Speaker Change: Not only would rescheduling remove the punitive tax burden imposed on state legal operators, but it would reduce the stigma and ease the process for cannabis research. We remain optimistic that the final rulemaking could be published this year.
Speaker Change: Today, we are 91 days from a historic vote in Florida.
Speaker Change: We intend to remain out front, pushing for passage and common sense implementation of Amendment 3.
Speaker Change: Adult use cannabis in Florida is a tremendous opportunity. With over 650 medical dispensaries today, expansion to include adult use would represent the largest conversion in legal cannabis history.
Speaker Change: With 23 million residents and 138 million annual tourist visits, we estimate the market to reach $6 billion in annual sales.
Speaker Change: Last quarter, we sold 135% more flour per store than the average operator. Following passage of the initiative, we plan to quickly ramp idle production capacity and prepare our retail network for adult-use sales. We fully expect to expand our market-leading position when adult-use sales launch.
Speaker Change: Currently, 178 dispensaries, or 86% of our retail network, serves only medical patients. Trulieve is best positioned for the next wave of markets converting to adult use, including Florida and Pennsylvania.
Speaker Change: Given our strong balance sheet, cash flow generation, and significant scale in key markets, I've said it before and it remains true today, I wouldn't trade hands with anyone in the industry. Thank you for joining us today, and as I always say, Onward and Yes on 3.
Speaker Change: At this time, Kim Rivers and Wes Getman will be available to answer any questions. Operator, please open up the call for questions.
Speaker Change: Ladies and gentlemen, at this time, we will open the floor for questions. If you'd like to ask a question, you may press star and then one using a touch-tone telephone. To withdraw your questions, you may press star and two.
Speaker Change: In the interest of time, we do ask that you please limit yourselves to one question and a single follow-up.
Speaker Change: Once again, that is star and then one to join the question queue.
Speaker Change: Our first question today comes from Aaron Grey from...
Speaker Change: Alliance Global Partners. Please go ahead with your question.
Speaker Change: Have a good morning and thank you much for the questions and congrats on the quarter.
Speaker Change: [inaudible]
Speaker Change: So, just as we look going forward, you know, how much of it is just, you know,
Speaker Change: Lower Volume, Leveraging Fixed Costs As You Guide to Lower Sales.
Speaker Change: and less of the higher cultivation, lower cost of cultivation that's going through, as well as Ohio benefit. Just trying to, you know, better understand, you know, some of the guide there to the lower gross margin, the back half relative to the really nice gross margin views put up. Thank you.
Speaker Change: Yeah, thanks, Aaron. So a couple of points there. Our guide on gross margins has been consistent. In this quarter, we had some unforeseen positive influence on gross margin, as we mentioned in the prepared remarks. So we had, you know, Jeffco, which is our large facility, was definitely firing on all cylinders. And in addition, we had some legacy capacity that we brought back online that candidly outperformed fairly significantly for us this quarter. That being said, a lot of the benefit that we're receiving right now in our cultivation gains have to do with yield. And candidly, that is very strain specific. So depending on our premix and depending on, you know, how that plays out from our
Speaker Change: [inaudible]
Speaker Change: And then, of course, also product mix is a huge contributor to gross margin quarter to quarter. So, you know, in Q3, as I think everyone understands, a couple of our really key markets do have seasonality built into them. And so with that seasonal pressure, along with, you know, again, potential mix shift, we believed, again, that that mid-50s target was a valid one, particularly in this next quarter, when we've got some additional seasonal pressure on the business in line with historical trends.
Speaker Change: Okay, great. That's a really helpful color there. And then just a second one on me, just as we think about Florida ballot measure, yes on three. Any commentary you can provide in terms of planned increase in campaigning as we get closer to the election? I know you had alluded to last time the plan for that, you know, pickup.
Speaker Change: as we get closer to November , and then just any commentary in terms of those, you know, contributing as an opponent to the measure, and if anything's been, you know, outside what you had been expecting there. Thank you.
Speaker Change: We remain hopeful and optimistic that folks will
Speaker Change: contribute again coming into the coming into the vote but also looking for ways that we can coordinate and with our stores and our you know employee engagement our customer engagement
Speaker Change: as well across all Trulieve stores in the state of Florida currently as an example. Folks can pick up a yard sign or a bumper sticker free of charge. So this is a shameless plug as well for anyone in the state of Florida. And we are encouraging our partners to do the same. So there's going to be a lot of continued activity on the Yes on 3 campaign as we move forward towards November here.
Unnamed Participant: Okay, great. Thanks so much for the call. I'll jump back into the queue.
Speaker Change: Okay, great. Thanks so much for the call. I'll jump back into the queue.
Speaker Change: Thanks.
Speaker Change: Our next question comes from Luke Hannan from Canaccord Genuity. Please go ahead with your question.
Luke Hannon: Thanks, good morning, and congrats on the results. I wanted to ask about free cash, or rather cash capital allocation. I mean, you generated a ton of cash this quarter, at least relative to our model coming in well ahead. And certainly, we...
Speaker Change: We understand investors realize that Florida adult use takes precedence as far as capital allocation goes But I guess my question is with this much cash on the balance sheet
Speaker Change: You think you can deploy everything that you need to for that initiative and also fund opportunities as well? Do you have a chance to sort of have your cake and eat it too here?
Wes Getman: Yeah, thanks for the question, Luke. Absolutely. I mean, we are in a, I think, enviable position as it relates to our cash, our cash generation capabilities and as well as, of course, the cash that we have currently on hand. So we feel like we are in a great, a great posture to be able to, as we said, of course, not only, you know, continue to invest as appropriate into the, into the Florida Adult Use Campaign, which we believe is a very, there's extremely extraordinarily high ROI on those, on those dollars and as well as to continue to support our growth initiatives across our portfolio, which will include, as we mentioned, investing in additional retail in Ohio, continuing our store filled out as we've discussed since the beginning of this year, and then the additional infrastructure, you know, foundational as well as longer term infrastructure improvements that we're continuing to invest in.
Speaker Change: Yeah, thanks for the question, Luke. Absolutely. I mean, we are in a, I think, enviable position as it relates to our cash generation capabilities, as well as, of course, the cash that we have currently on hand. So, we feel like we are in a great posture to be able to...
Speaker Change: As we said, of course, not only, you know, continue to invest as appropriate into the Florida Adult Youth Campaign, which we believe is a very, there's extremely extraordinarily high.
Speaker Change: are a lie on those dollars, as well as to continue to support our growth initiatives across our portfolio, which will include, as we mentioned, investing in additional retail in Ohio, continuing our store filled out, as we've discussed since the beginning of this year, and then the additional infrastructure, you know, foundational as well as longer-term infrastructure improvements that we're continuing to invest in. I mean, I think the reality is that some of those infrastructure investments that we started many years ago are now showing up in our business and showing up in our results. And so it is very important that we continue to invest, of course, not only for today, but also for the future.
Wes Getman: I mean, I think the reality is that some of those infrastructure investments that we started many years ago are now showing up in our business and showing up in our results. And so it is very important that we continue to invest, of course, not only for today but also for the future. But yes, we're very, we're very excited about our current and our future position.
Speaker Change: And yes, we're very excited about our current and our future position.
Speaker Change: That's great. And for my follow-up here, I wanted to ask about the quarter-to-date trends. Can you delineate how much of that mid-single-digit decline quarter-on-quarter, how much is related to traffic versus price? I imagine it's more traffic-related because of the seasonality.
Speaker Change: Yeah, I mean, so it's really it's a mix, and it's going to it's going to vary somewhat by market, Luke, and, you know, we've got both, both, of course, some softer traffic in certain markets with both, you know, snowbirds, etc. leaving the state as the weather gets
Speaker Change: As well as some shifts in consumer preferences with a bit more shifting back towards value. Beginning in first part of second quarter, we certainly saw some trading up.
Speaker Change: And into some of our more premium categories, again, consistent with what we've seen in the past.
Speaker Change: Over the summer, traffic lightens up some, and folks are a bit more cost conscious as they look for an increased value proposition, and so, again, that leads to a little bit of differences in product mix, et cetera, with a little bit more of a shift to value. I mean, I think the good news for us is that we've got really strong brand and strong brand performance.
Speaker Change: in each of those categories, and we're able to flex portfolio in response to those consumer preferences.
Speaker Change: Great. Thank you very much.
Speaker Change: Our next question comes from Frederic Smith from ATV Capital. Please go ahead with your question.
Frederick Smith: Hi, good morning. Congrats on the great quarter and great margins here.
Frederick Smith: My first question is just on Arizona.
Frederick Smith: Could you comment on what you're seeing that market in terms of just overall growth and competitive environment, you know, abstracting the seasonality here, it seems like it's a market where
Speaker Change: Our sales are decreasing sequentially and year-over-year, so could you comment on that dynamic and your strategy for Arizona? Thanks.
Speaker Change: Sure, you know, we continue to remain, you know, Arizona is a cornerstone market for us. It continues to be an important market for us. You know, in the quarter, we saw a couple of positives, right? One, I would say the adoption rate of our loyalty program in Arizona.
Speaker Change: It was very exciting. That's a market where previously, because of the nature of adult youth, there was a lack of data for us in that market, and we just didn't have e-mails and phone numbers, etc., so the loyalty program has given us away.
Speaker Change: to incentivize folks to provide that information and for us to be able to market specifically and directly to our customers there. Really overwhelming for the first time. We have that information, of course, for our medical patients there, but for our adult youth consumers who are local, that information previously was not available. So we have launched marketing in Arizona to a larger audience now, and we're seeing some good results from that. And we'll certainly utilize our platforms to learn more and more about those consumers as time goes on. So that would be one data point. Secondly, of course, we now have a unified platform there. So we're 100% truly branded in Arizona.
Speaker Change: We've been ramping up our internal brands in Arizona as well. To your point, you know, Arizona as a whole, when you look at the statewide data, there has been pressure on that market. I think for us, right, what we see as a positive is our market share has actually been increasing alongside of that downward trend. So, I mean, I think for us, we always challenge ourselves and we always say that our biggest competitors are ourselves. So we're looking for ways to remain competitive there and to, again, better every day for us to better understand the consumer and the market there so we can continue to refine our product offerings and, again, our marketing tactics to meet the customer demand there.
Speaker Change: Arizona is absolutely, and I think you all know this, it is a very seasonal market. So we are in the Q3 is our, that's the time where that market has the most pressure from a seasonality perspective. So, and then of course it rebounds in Q4 and Q1.
Speaker Change: Thank you for the great caller. My second question is on Pennsylvania.
Speaker Change: I think we continue to see some some good data from that market in terms of growth and prices Stabilizing and maybe even recovering So is that something that you were seeing in your operations in Pennsylvania and and would you expect that sort of recovery? to continue
Speaker Change: Yeah, I mean, Pennsylvania is a great market for us.
Speaker Change: Similarly, we have continued to see price stabilization there, along with our internal brands are really performing exceptionally well in Pennsylvania. I think we have built our data in that state where we are very tuned in to our customers.
Speaker Change: have adjusted ProductMix to their shifting demand over time. In addition, we are and have been leaning into wholesale in Pennsylvania and have been effectively increasing our wholesale.
Speaker Change: reach there as well. So Pennsylvania, again, is a very strong market. The team there has been doing a fantastic job.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Russell Stanley from Beacon Securities. Please go ahead with your question.
Russell Stanley: Good morning and congrats on the quarter. I guess my first question around CapEx and the increase there, just wanted to...
Russell Stanley: clarify how much of that increase is dedicated or earmarked for supporting the the adult use campaign effort itself as opposed to physical expansion in Florida or other markets.
Speaker Change: I'm not sure if you have a follow-up. If I could rephrase the question, just, you know, all of that incremental 30 going into Florida then, or can you give us a sense, obviously I imagine Florida is the bulk there, but other markets where maybe you've looked at CapEx?
Speaker Change: Yeah, so, I mean, I think with CapEx there are a few different things, right? So, one, we mentioned that we have this opportunity to invest additional dollars in Ohio.
Speaker Change: which we think, of course, given the adult use conversion, makes a ton of sense, so we will be investing there. The three additional stores, in addition to the three that are converting to adult use for us today, we have three more that we'll be opening, we hope, very, very early 2025, which means the bulk of that investment also will come in 2024. In addition, as we have mentioned, we do plan to invest in
Speaker Change: Some additional, you know, capacity across our portfolio, and I mentioned we were bringing some legacy capacity online in Florida right now, and that's to support kind of, you know, current state. So we do have, with these additional stores in Florida that we're bringing online as well, just keep in mind, right, we have to make sure we've got enough
Speaker Change: Supply, right, for those stores as well.
Speaker Change: So, and yes, I mean, to your point, certainly we will need to make some calls ahead of adult youth conversion. The bulk of that, of course, we're attempting to de-risk to after, but there will be some moving into the vote.
Speaker Change: Maybe if I could, just my last question just around stores. In Florida, you've already, I think, opened more this year than you did all last year, and I understand you're still guiding to 25-plus company-wide. Just wondering, in Florida, are you finding it, are you seeing any increased challenge in identifying ideal sites for new locations? I imagine there are geographic pockets that become more attractive under an adult use scenario, so just would love to hear your thoughts on how you're finding, citing new stores and the extent to which that's becoming easier or harder. Thanks.
Speaker Change: We've got a fantastic team here in Florida. The good news for us is we've been at this for a long time. We've got a pretty specific process for how we identify and rank.
Speaker Change: map out locations and where we would like to be, and that's a fairly long range.
Speaker Change: I think the team continues to do a great job identifying optimal sites and sites that we are excited about regardless of what happens in November . Just keep in mind that our store opening cadence has ebbed and flowed, but this is in no way the fastest that we've ever opened stores. We're used to moving fairly quickly as it relates to store openings when the opportunities present themselves. It's just not always linear. We'll have stores that are identified.
Speaker Change: Negotiations with the landlord or permitting or what have you and can can speed up or slow down that process So and it can you know, again, it's it's not always a perfect a perfect science as it relates to how those end up rolling out but
Speaker Change: And, you know, again, the team does a great job, and we're really pleased with our progression against our goals for this year.
Speaker Change: That's great. Congrats again. I'll get back in the queue.
Speaker Change: Okay.
Speaker Change: And our next question comes from Eric DeLaurier from Craig Hallam Capital Group. Please go ahead with your question.
Unnamed Participant: Great. Thank you for taking my questions and congrats on another impressive quarter here. My questions are about Ohio.
Eric DeLaurier: Thank you for taking my questions and congrats on another impressive quarter here.
Unnamed Participant: Congratulations on that settlement, getting you two additional retail locations in time for adult use here. And I guess congratulations on the first online sale as well. So my question is about the service agreement you ventured into providing operational support to the Ironson production facility. Just wondering if there will be any licensing fees associated with that, any recognized revenue, and if so, if that will be material.
Eric DeLaurier: My questions are on Ohio. Congrats on that settlement. I'm getting you two additional retail locations in time for adult use here. And I guess congrats on the first online sale as well.
Speaker Change: So, my question is on the service agreement you ventured into, providing operational support to the Ironton production facility. Just wondering if there will be any licensing fees associated with that, any recognized revenue, and if so, if that will be material.
Speaker Change: Yeah, thanks for the questions. So, that agreement will continue to show up as a VIE, so you'll be able to track it in the financials as a VIE, Eric.
Speaker Change: Alright, thank you for that. And then in terms of the...
Speaker Change: Three additional dispensaries just wondering rough timing right now. I mean, you know, I know you got a lot going on expansion wise and
Speaker Change: This is obviously pretty fresh, so I'm assuming these aren't ironed out here, but just kind of high-level, should we think of those three additional stores as opening kind of through year-end 2025, or should we think of those as coming on maybe a bit sooner than that?
Eric DeLaurier: Thanks.
Speaker Change: Yeah, I would have those coming on in Q1 2025. That's our goal.
Unnamed Participant: All right, thank you for taking my questions.
Speaker Change: All right, thank you for taking my questions.
Speaker Change: No problem.
Speaker Change: And our next question comes from Scott Fortune from Roth Capital. Please go ahead with your question.
Scott Fortune: Good morning and thank you for the questions. I know you have a lot going on in Florida, obviously, very exciting there, but just priorities for your cash position here, a lot of optionality, as you mentioned, but since for options like buying back stock, paying down debt, or M&A opportunities, and just kind of what are you seeing in potential M&A? We're seeing that kind of picking up here, assets in the current marketplace, kind of outside of obviously your focus in Florida here, but just kind of a little bit of a color on the market from that side of things.
Speaker Change: Sure. As I mentioned before, we are very comfortable with our cash position. I've said previously that right now it's very important that we fully execute against the opportunities that we have in front of us and remain focused there. I think that it's a mistake in business, and it's just philosophical, to take your eye off of what's in front of you to chase a shiny object, if you will. I don't think that there are any opportunities that exist today that won't exist past November 5th.
Speaker Change: So, for us, it's very critical that we continue to focus to get the vote across the finish line, which, look, there's a 60% threshold, and so it is going to take every...
Speaker Change: Every single bit of effort that we've got to get that passed. The other thing that I would say is that we like to have optionality in our opportunities, if you will. We're in a very comfortable spot, I think, right now as we think about our debt position and how that could be repositioned moving forward. Again, we like to remain opportunistic on the M&A front, but also, of course, want to make sure that when
Speaker Change: I'll call it the largest opportunity in the cannabis sector is in front of us, and we're the leader as it relates to that opportunity that we make sure that we do everything we can to realize that first.
Speaker Change: I appreciate the color there. And just a follow-up, just on kind of the additional color on the overall canvas consumer.
Speaker Change: But how it relates to pricing, I guess now, can you provide more kind of loyalty, kind of success and metrics there to kind of offset, you know, pricing in potential seasonal volume kind of demand for you in those Arizona and Florida side of things, just a sense of the consumer spend, what you're seeing from a trend standpoint.
Speaker Change: heading in kind of a little tougher macro environment here for the consumer.
Speaker Change: Yeah, I mean, I think that, again, right now, seasonal pressure remains certainly relatively in line. I think it's a little early to be able to call.
Speaker Change: I'll just say that we have, you know, I think fortunately been through a number of cycles at this point and you know, are able to and have levers that we can easily pull as we or if we see those trends, you know, those trends develop.
Speaker Change: As it relates to the trade down from a value perspective, as I mentioned, we are certainly seeing that, again, a little bit too early to be able to comment if it's any different than kind of normal seasonal, right? I don't know that we're going to have full visibility on that, just candidly, until...
Speaker Change: you know, until the end of the third quarter, and as we go into fourth quarter, when that seasonality, when we're coming out of that seasonal time period. So, you know, a little bit of...
Speaker Change: Mix in there right now, from market to market, as I mentioned, because not all markets are affected by the seasonal trends, and then of course, you know, we have Ohio thrown in as well, so a little bit of a mixed bag right now, but, you know, again, feel good about our ability to flex and to respond to specific
Speaker Change: specific consumer behaviors as we see them.
Speaker Change: Thanks for the color.
Mike Regan: Our next question comes from Mike Regan from MJ Research Company. Please go ahead with your question.
Speaker Change: Our next question comes from Mike Regan from MJ Research Company. Please go with your question.
Mike Regan: Hey, thanks everyone. Most of my questions have been asked, but I guess a quick question on that new Express Store model you start opening. If you could have any updates on sort of, you know, how that's performing and how many you have and how many you'd like to open of that model versus the more traditional store. Thanks.
Speaker Change: Yeah, thanks, Mike. And so we have two of those open currently in the portfolio, and they have been performing, you know, at or above expectation, depending on the metric. And we are looking to incorporate more of those into the portfolio where it makes sense. And so, yeah, we think it's a great option for us to have, and to have that capability, particularly in specific communities that may not warrant a full-blown, you know, fully, you know, staffed, if you will, location, but still have, you know, customers who would otherwise be driving a good wave, and then also that we would otherwise be delivering a good wave. So, yeah, it's a good tool in our toolbox.
Speaker Change: as we look out for further expansion sites.
Speaker Change: And just to follow up on Scott's question, if I heard you correctly, it sounds like the trade-down effect so far seems to be more seasonal rather than competitive or consumer health, or at least you can't tell, and I don't want to put words in your mouth, but is that basically what I'm understanding at this point?
Kimberly Rivers: Yeah, I mean, listen, traffic is, everything right now is relatively, you know, in line with seasonality, right? So it's difficult for us to tell because of that seasonality. If there's something else right at play, the only thing I can do is point out to some of those markets that don't have that seasonal pressure, and there, it's very consistent with what we've seen previously. So that's what I mean.
Speaker Change: Yeah, I mean, you know, listen, traffic is, is, everything right now is relatively...
Speaker Change: It's difficult for us to tell because of that seasonality if there's something else right at play. The only thing I can do is point out to some of those markets that don't have that seasonal pressure. And there it's very consistent with what we've seen previously. So that's what I mean. It's a bit of a mix. It's not like something we're seeing across the entire world.
Kimberly Rivers: It's a bit of a mix. Like, it's not like something we're seeing across the entire portfolio in a uniform way that would point absolutely to some sort of a macro shift that's showing up right now. Now, it could mean, and we've seen this before too, that it just shows up at different times in different markets, depending on, you know, everything is local to a certain extent, depending on what's happening with the economy in that particular area or region.
Speaker Change: portfolio, you know, in a uniform way that would point absolutely to some sort of a macro
Speaker Change: shift that's showing up right now. Now it could mean, because we've seen this before too, that it just shows up at different times in different markets, depending on, you know, everything is local to a certain extent, depending on what's happening with the economy in that particular area or region. So, you know, again, I'm not trying to, I'm not trying to hide the ball here. Just we, you know, that's just what we're seeing today. I think we'll have a lot more to share on that topic next quarter when we have all of Q3 behind us and a bit of Q4 to compare and contrast against.
Kimberly Rivers: So, you know, again, I'm not trying to, I'm not trying to hide the ball here. Just we, you know, that's just what we're seeing today. I think we'll have a lot more to share on that topic next quarter when we have all of Q3 behind us and a bit of Q4 to compare and contrast again.
Unnamed Participant: Great. Thanks a lot.
Speaker Change: Great. Thanks a lot.
Speaker Change: And our next question comes from Andrew Semple from Echelon Capital Markets. Please go ahead with your question.
Andrew Semple: Hi there, good morning.
Speaker Change: Um...
Andrew Semple: Do you feel there is to continue squeezing, you know, cost of the business and margins higher in some of your other states?
Speaker Change: That's one of our mantras here at Trulieve.