Q2 2024 Trulieve Cannabis Corp Earnings Call
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Mom: You've got to fight for your rights!
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.
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. An archived version of today's conference call will be available on our website later today.
Christine Hersey: As a reminder, statements made during this call that are not historical facts constitute four 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 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 31 Although the company may voluntarily do so from time to time, it undertakes no obligation to update or revise these forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law.
Christine Hersey: 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. These measures should not be considered in isolation or as a substitute for Trulieve's financial results prepared in accordance with GAAP. A reconciliation of these non-GAAP measures to the most directly comparable GAAP measures is available in our earnings press release, which is an exhibit to our current report on Form 8K that we filed with the SEC today and can be found in the investor relations section of our website.
Speaker Change: During the call and as Matt 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. These measures should not be considered in isolation or as a substitute for true lease financial.
Matt: Results prepared in accordance with GAAP.
Matt: Reconciliation of these non-GAAP measures to the most directly comparable GAAP measures is available in our earnings press release that is an exhibit to our current report on form 8-K that we furnished to the SEC today and can be found in the Investor Relations section of our website.
Matt: 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 these additional details in the future.
Christine Hersey: 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 these additional details in the future. I'll now turn the call over to our CEO, Kim Rivers.
Kim Rivers: I'll now turn the call over to our CEO Kim rivers.
Kim Rivers: Thank you, Christine. Good morning, everyone, and happy Ohio Adult Youth Launch Day. We are thrilled to share results from another outstanding quarter. Strength in our core business was demonstrated by our third consecutive quarter of top-line growth and margin expansion. All of the effort and investment over the past two years to set a solid foundation for long-term success is paying dividends. The flexibility that we have embedded into the organization provides multiple pathways for growth and the ability to pivot quickly as the industry evolves. This summer is shaping up as we expected, with a heightened focus on major upcoming catalysts.
Kim Rivers: Thank you Christine good morning, everyone and happy, Ohio adult use once a day, we are thrilled to share results from another outstanding quarter strength in our core business as demonstrated by our third consecutive quarter of topline growth and margin expansion all of the effort and investment over the past two years to set a solid foundation.
Kim Rivers: At the state level, we are very pleased with the campaign efforts to deliver a yes-on-three vote in Florida this November. Recent polling of likely voters showed support in the mid-to-upper 60s, well above the 60 percent threshold required to pass the Abilities Initiative. 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.
Kim Rivers: 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-three. While there are many reasons to support legalization this November, here are the top three. First, a yes vote would decriminalize personal cannabis possession in Florida. No one should be in jail or fear arrest for personal cannabis possession. 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.
Kim Rivers: Third, legal cannabis offers numerous economic benefits through job creation and tax revenue collected on sales. 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. Last week, we launched our first Yes on 3 products, Yes on 3 whole flower apes 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.
Kim 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. Kudos to the state regulators who successfully rolled out this program following voter passage last year. 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.
Kim Rivers: 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.
Kim Rivers: In neighboring Pennsylvania, we believe momentum is building for the passage of adult use legislation. We currently operate 21 affiliated dispensaries, including a new location in Wilkes-Barre and three grower processor facilities. We remain optimistic that adult use sales in Pennsylvania could launch in the next 12 to 24 months, and the market could reach $4 billion in annual sales. At the national level, cannabis remains more popular than any politician, with over 70% of adults in favor of legalization.
Kim Rivers: The first major federal reform in decades is advancing through the formal rulemaking process to reclassify cannabis to Schedule III. Public comments showed overwhelming support, with 92% of over 43,000 comments received in favor of rescheduling or decriminalization. With this public support, we are optimistic that rescheduling can happen this year. We believe the time is right for the administration to take this historic step and reclassify cannabis.
Kim Rivers: 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. Last month, we celebrated the eight-year anniversary of our very first sale, which was actually the first medical market sale in the state of Florida. In 2016, when we recorded our first sale, that was the only transaction we conducted for many weeks as we worked to recruit physicians into the program.
Kim Rivers: In 2024, on the eight-year anniversary of our first sale, we conducted approximately 50,000 transactions. 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. This impressive growth and expansion of our industry-leading retail network is a true testament to the team and all that we have collectively accomplished.
Kim Rivers: Paris to reach our 100th store, we doubled our retail presence to 200 stores in less than three years. This impressive growth and expansion of our industry, leading retail network is a true testament to the team and all that we have collectively accomplished.
Kim Rivers: Now turning to our second quarter results revenue and margins beat our guidance with sequential and year over year improvements in each revenue increased to $303 million up 2% from Q1, and 8% compared to last year with growth in both retail and wholesale.
Kim Rivers: As expected strong retail performance was partly offset by higher promotional activities before 'twenty.
Kim Rivers: The beginning of seasonal headwinds in Arizona and the highly successful launch of our refreshed loyalty program gross margin increased by 1% to 60% primarily driven by lower cultivation costs.
Kim Rivers: SG&A 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.
Kim Rivers: Turning now to our balance sheet and tax strategy. In the interim, we continue to accrue an uncertain tax position on our balance sheet while realizing lower cash tax payments.
Kim Rivers: Yeah.
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 fifties each quarter for the remainder of the year.
Speaker Change: We are increasing our full year targets to at least $250 million in 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 pellets alongside investments to support long term growth initiatives and expansion markets with adult use catalyst.
Speaker Change: 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.
Speaker Change: With that I'll turn the call back over to Ken.
Ken: Thanks, Ken.
Ken: One three a campaign it is progressing according to plan.
Ken: Certainly we are going to continue to be a supporter and continue to lead from the front I mean, we've gotten this.
Speaker Change: Thus far if you will.
Speaker Change: So I think it would be a mistake to let off the gas and coming into coming into home plate. If you will.
Ken: We are continuing to work.
Ken: Work with our coalition of additional companies and supporters.
Ken: Fundraiser last week for some of our ancillary partners and are continuing to look for ways to work with folks of course, not only and we remain very hopeful and optimistic that books will contribute again coming into the coming into the vote.
Ken: But also looking for ways that we can coordinate with our stores and our employee engagement or customer engagement.
Ken: As well across all to leave our stores in the state of Florida. Currently as an example, fix 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 theres going to be and a lot of continued activity on the S. Three.
Ken: Campaign as we as we move as we move forward towards the towards November here.
Wes Getman: Sure, and you know, we continue to remain a, you know, Arizona is a cornerstone market for us, and it continues to be an important market for us. And, you know, in the quarter, we saw a couple of positives, right?
Wes Getman: One, I would say the adoption rate of our loyalty program in Arizona was very exciting. And that's a market where previously, because of the nature of adult youth, and there really, there was a lack of data, for us in that market, and we just didn't have emails and, you know, phone numbers, etc. So, the loyalty program has given us a way to incentivize folks to provide that information and for us to be able to market specifically and directly to our customers there.
Wes Getman: And really overwhelming for the first time, we have that information, of course, for our medical patients there, but for adult youth consumers who are local, and that information previously was not available.
Wes Getman: So, we have launched and are marketing in Arizona to a larger audience now, and we're seeing some good results from that. 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 that our market share has actually been increasing alongside that downward trend. So, I mean, we always challenge ourselves, and we always say that our biggest competitors are ourselves.
Wes Getman: So, we're looking for ways to remain competitive there and to, again, improve every day so we can continue to refine our product offerings and our, you know, again, our marketing tactics to meet the customer demand there. But Arizona is absolutely, and I think you all know this; it is a very seasonal market. So, you know, we are in Q3. That's the time when that market has the most pressure from a seasonality perspective. And then, of course, it rebounds in Q4 and Q1.
Speaker Change: But Arizona is absolutely and I think you all know this is a very seasonal market.
Speaker Change: So we are in the Q3 is our.
Speaker Change: That's the.
Speaker Change: 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 very good color.
Speaker Change: And then 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 in prices stabilizing and maybe even recovered. So is that something that you will receive neuro operations in Pennsylvania, and would you expect that sort of recovery.
Speaker Change: To continue.
Speaker Change: Yeah, I mean, Pennsylvania is a great market for us and you know similarly, we are in.
Speaker Change: Continue to see price stabilization, there along with our internal brands are really performing exceptionally well and in Pennsylvania, and I think you know we have.
Speaker Change: Built our data and not in that state, where we are very tuned into our customers and have adjusted our product mix to they're shifting their shipping demand and over time. In addition, we are and have been leaning into wholesale and Pennsylvania and have been effective.
Speaker Change: <unk>, increasing our wholesale.
Speaker Change: Reach there as well so you know, Pennsylvania again is a very strong market and 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 increase there just wanted to.
Russell Stanley: How much that increases dedicated earmarked for.
Speaker Change: Supporting the adult use campaign effort itself is of course too.
Speaker Change: Physical expansion in Florida or other markets. Thanks.
Speaker Change: Yeah, So we wouldn't put and dollars and just to clarify the rest we would not put dollars for that campaign.
Speaker Change: Pocket in a kind of a capex line.
Speaker Change: So zero I guess would be that.
Speaker Change: Infer.
Speaker Change: I'm not sure if you have up here if I could rephrase refresh. Your question just a sort of all of that incremental 30 going into going into Florida, then or could you give us a sense, obviously I imagine for it as the bulker, but other markets, where it may be you could look to capex.
Speaker Change: Yeah, I mean, I think with with Capex. There are a few different a few different things right and so one and we mentioned that we have this opportunity to invest and additional dollars in Ohio.
Speaker Change: And what do we think of course, given the adult use conversion makes a ton of sense and so we will be investing there and the three additional stores. In addition to the three that are converting to adult use worth today, we have three more that we'll be opening and we hope very very early 'twenty 25, which means the bulk of that investment also will.
Speaker Change: Come in 2024 and in addition, as we as we have mentioned and we do plan to and invest in some additional.
Speaker Change: 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 current current state. So we do have and 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 supply right for those for those.
Speaker Change: Ours, as well and so and yes, I mean to your point certainly we will need to make some calls them ahead of adult use conversion and the bulk of that of course, we're attempting to to derisk and to offer but there will be you know there will be something moving into moving into the boat.
Speaker Change: Maybe if I could just my last question is just around stores in Florida are you you've already I think opened more this year than you did all of last year and I understand you're still guiding to 25 slides companywide just wondering in Florida are you finding it.
Speaker Change: Are you seeing any increased challenge in identifying the.
Speaker Change: Ideal sites for new locations.
Speaker Change: Generic geographic pockets has got some more attractive under an adult use scenario. So just would love to hear your thoughts on on how on how you're finding exciting new stores and the extent to which that's a.
Speaker Change: Becoming easier or harder.
Speaker Change: Yeah.
Speaker Change: I'll call it the largest opportunity in the.
Speaker Change: In the cannabis sector is in front of us and we're the leader and as it relates to that opportunity that we that we make sure that we.
Speaker Change: We do everything we can to realize that first.
Speaker Change: I appreciate the color there and just some.
Speaker Change: So you saw on kind of additional color on the overall campus consumer.
Speaker Change: Since it's a more challenging macro environment today will be kind of appear through quarter and trends towards value you called that out kind of as go into the value trade down here, but.
Speaker Change: But how it relates to pricing I guess now with your <unk> can you provide more kind of loyalty kind of success in metrics there to kind of offset.
Speaker Change: Pricing in potential seasonal volume demand for you in those Arizona, Florida side of things just a sense of the consumers spend what are you seeing from a trend standpoint.
Speaker Change: Cutting and kind of a little tougher micro and macro environment here for the consumer.
Speaker Change: Yeah, I mean, I think that and again and.
Speaker Change: Right now seasonal seasonal pressure.
Speaker Change: It remains certainly relatively in line and I think it's a little early to be able to call or to be able to give color on significant color on if there's anything additional on as it relates to the macro on the cannabis consumer specifically and again I'll just say that we have you know I think fortunately been through.
Speaker Change: Through a number of cycles at this point and are able to and have levers that we can we can easily pull.
Speaker Change: We are if we see those trends.
Speaker Change: Just trying to develop and as it relates to the trade the trade down from a value perspective, and you know we as I mentioned, we are we are certainly seeing that again, a little bit too early to be able to comment and if it's any different than kind of normal normal season, all right I don't know that we're going to have full visibility on.
Speaker Change: That and just candidly until.
Speaker Change: Until the end of the third quarter and as we go into the fourth quarter, when that seasonality or coming out of that seasonal seasonal time period.
Speaker Change: So a little bit of <unk>.
Speaker Change: Mix in there right now for market to market as I mentioned and because not all markets are affected by the seasonal trends and then of course, you know, we have Ohio Brennan as well so a little bit of a mixed bag right now and but you know again feel good about our ability to flex and to respond to specific specific consumer behaviors.
Speaker Change: As we see them.
Speaker Change: Thanks for the color.
Speaker Change: Yep.
Speaker Change: Our next question comes from Mike Regan from M. J Research company. Please go with your question.
Speaker Change: Alright, thanks, everyone.
Mike Regan: Most of my questions have been asked but I guess a quick question on the New Express store model you start opening.
Mike Regan: Do you have any updates on sort of how that's performing and how many.
Speaker Change: Do you have and how many would like to open up that model versus the more traditional store. Thanks.
Speaker Change: Yeah, Thanks, Mike and so we have two of those are open currently in the portfolio and they have been performing 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.
Speaker Change: And to have that capability, particularly in specific communities that may not warrant a full blown and fully staffed if you will location, but still have and you know that customers, who would otherwise be driving a good ways and then also that we would otherwise be delivering a good way so and.
Speaker Change: Yeah, it's a good and a good tool in our toolbox as we as we look out.
Speaker Change: For further expansion sites.
Speaker Change: Got it and just to follow up on Scott's question, if I heard you correctly it sounds like the trade down environment. The trade down effect, so far seems to be more seasonal rather than competitive or consumer health or at least you can't tell.
Speaker Change: Don't want put words in your mouth is that basically what I'm understanding at this point.
Speaker Change: Yeah, I mean listen traffic is is everything right now is relatively.
Speaker Change: In line with seasonal the seasonality right. So it's difficult for us to tell because of that seasonality. If there is something else at play.
Speaker Change: 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 like it's not like something we're seeing across the entire portfolio and you know in a in a uniform way and that would point absolutely see.
Speaker Change: I'm, sorry, if I'm not grow shift that's showing up right now now it could mean, because we've seen this before too that it just showed up at different times in different markets, depending on and you know everything is local to a certain extent depending on what's happening.
Speaker Change: 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 and that's just what we're seeing today I think we'll have a lot more to share on that topic and next quarter. When we have and all of Q3 behind us and a bit of Q4 two.
Speaker Change: To compare and contrast against.
Speaker Change: Oh, great. Thanks, a lot.
Speaker Change: Yep.
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.
Andrew Semple: Just wanted to ask on <unk>.
Speaker Change: Your comments about squeezing costs.
Speaker Change: Cost of goods sold line and particularly.
Speaker Change: Jefferson County facility being a big part of that.
Speaker Change: Did mentioned that Jeff co was kind of operating in Europe performance. So.
Speaker Change: How has that tailwind to margins, mostly been realized or is there more room to go there and maybe outside of Jessica all across the country at some of your other cultivation facilities, how much more room do you feel there is to continue squeezing.
Speaker Change: Cost of the business and margins higher from here.
Speaker Change: The other states.
Speaker Change: Thanks for that question. So I think as we said you know Jeff how we feel like is.
Speaker Change: Welcome to <unk> performance and in addition.
Speaker Change: We mentioned that and the yields this past quarter and that again really has to do with the mix of the.
Speaker Change: Streams specifically.
Speaker Change: Of what's playing out there was exceptionally high so and you know.
Speaker Change: That's part of the reason why we're not guiding to higher margins, because we do believe that that will fluctuate and and probably shouldn't fluctuate depending on consumer preferences. I mean in other words, we're not going to plant the exact same thing.
Speaker Change: All the time, because that would not meet the needs of the business from a consumer perspective, so there will be variability there depending on depending on plant.
Speaker Change: In yields in the particular quarter.
Speaker Change: As it relates to you know.
Speaker Change: So I'll say that I'll also say that of course, we look for costs cost savings and efficiencies across the portfolio every day. So you.
Speaker Change: You know again and I think that we will continue to be disciplined as we as we look for ways to increase efficiencies and there isn't anything in front of me today that I could point to that would say, yes. There's there's no additional low hanging fruit that we can go after there and I think the team has done a phenomenal job driving those costs down.
Speaker Change: Over the last 12 months and getting us to where we are today and again, that's why we were guiding to that that mid fifties because when you think about again, where we are today and where we've got Fox fluctuation or variability could go on the cultivation side, but then also when we think about where we are again the seasonal price.
Speaker Change: For our consumer preferences product mix shifts potentially et cetera.
Speaker Change: That's where we're that's where we're comfortable but we wake up every day.
Speaker Change: Always try to re strike for incremental improvement and that's one of our that's one of our mantras here its release.
Speaker Change: Got it that's helpful. And then maybe just turning to the Ohio markets.
Speaker Change: What's your thoughts in that state just longer term about.
Speaker Change: Are you comfortable being a retailer.
Speaker Change: In that state or would you are you on that.
Speaker Change: For cultivation to complement the retail footprint you're building out.
Speaker Change: Yeah, It's two and Ohio, Hudson very specific regulations around and around and ownership and what the what the lay out needs to be and which we of course are very focused on being in compliance and so as I mentioned, we have a V I E relationship.
Speaker Change: With a tier one.
Speaker Change: Population and processor and so we're very comfortable with that arrangement and then of course, we have our three stores now we have our three stores in the beginning of the year and then there's a possibility through our partner partnerships, but there could be another two dispensary opportunities depend.
Speaker Change: On lottery results in the future so.
Speaker Change: We would love to continue to build out that platform I think that's gonna be a great a great market for us and we're really excited to be on.
Speaker Change: To be among the first operators to open today for do it yourself.
Speaker Change: Great. Thanks for taking my questions that we get back into queue.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Ladies and gentlemen, with that we'll be concluding today's question and answer session.
Speaker Change: Like to turn the floor back over to Christine Hersey for any closing comments.
Christine Hersey: Thank you everyone for your time today, we look forward to sharing additional updates during our next earnings call. Thanks, again and have a great day.
Speaker Change: And with that ladies and gentlemen, we'll conclude today's conference call and presentation. We thank you for joining you may now disconnect your lines.