Q3 2024 Trulieve Cannabis Corp Earnings Call
I would now like to introduce your host for today's conference Christine Hersey, Vice President of Investor Relations for trial shortly.
Christine Hersey: You may begin.
Christine Hersey: The officer, and West Gutmann, Chief Financial Officer will deliver prepared remarks on our financial performance and outlook for two lease following their prepared remarks, we will open the call to question.
Christine Hersey: This morning, we reported third quarter 2024 results a copy of our earnings press release, and Powerpoint presentation may be found on the Investor Relations.
Christine Hersey: Section of our website www dot truly dotcom, an archived version of today's conference call will be available on our website later today.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 fact 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 historical results or from our forecast, including the risks and uncertainties described in the company's.
Christine Hersey: Filings with the Securities and Exchange Commission, including item one a risk factors of the Companys annual report on Form 10-K for the year ended December 31, 2023, as well as our other periodic quarterly filings.
Christine Hersey: 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.
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 truly.
Christine Hersey: <unk> financial results prepared in accordance with GAAP.
Christine Hersey: A reconciliation of these non-GAAP measures to the most directly comparable GAAP measures is available in our earnings press release that is an exhibit to our current report on form 8-K that we furnished to the SEC today and can be found in the Investor Relations section of our website.
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: Thank you Christine good morning, everyone and thank you for joining US today, we are pleased to report solid third quarter results.
Christine Hersey: As to the entire team for delivering outstanding gross margins and adjusted EBITDA during a seasonally slower quarter that was further impacted by hurricane hauling turning now to today's election, Florida voters are poised to make history today with the approval of cannabis legalization for personal use polling indicates strong bipartisan support for cannabis legalization.
Christine Hersey: Fed and likely passage of Amendment 30 <unk>.
Christine Hersey: Brought endorsements, including high profile figures, such as David Portnoy, and former President Trump underscore the widespread support for the common sense approach to cannabis.
Christine Hersey: Linda theory is about personal freedom, and giving adult ever the age of 21, the opportunity to purchase and consume limited quantities of cannabis without fear of arrest or adverse events from unregulated untested products, all while generating hundreds of millions of dollars in tax revenue to be reinvested into our communities.
Christine Hersey: We believe that Florida is ready to turn the page on prohibition and will vote, Yes on amendment, Barry I want to acknowledge everyone who has supported this campaign over the past two years, including elected officials members of law enforcement community leader position grassroots organizations and volunteers at truly we believe and leaving it all in the field.
Christine Hersey: And we can confidently say that that is the case with our supportive legalization in Florida is now up to the voters to decide one limit theory is top of mind for its really the presidential election has meaningful implications for the industry.
Christine Hersey: Both presidential candidates have publicly expressed support for federal reform acknowledging that the old approach of the current policies federal rescheduling of cannabis is underway with a preliminary hearings that for December 2nd an additional hearings in January or February to collect information on the proposed move to schedule three.
Christine Hersey: The administration will oversee the completion of the rescheduling process based on the favorable public positions as both candidates. We are optimistic the rescheduling could be completed in 2025, representing a meaningful milestone for the industry rescheduling not only removes the punitive QAD EE tax burden from legal cannabis operators, but at all.
Christine Hersey: Also reduces stigma and opens the door for research cannabis remains more popular than politician and we believe widespread support and continued adoption at the state level as pressure for broader federal reform.
Speaker Change: Before we dive into results I would like to say a few words on the recent hurricanes. Our hearts go out to all those who are affected by these storms thankfully none of our employees were injured, although several had significant damage to homes and personal property.
Christine Hersey: <unk> had been helping recovery effort through our employee assistance program and donations to speak disaster relief funds from an operational standpoint, none of our production facilities were damaged during either storm for retail 55 stores were closed during Helene and 108 stores were closed during mountain virtually all were able to resume normal operations.
Christine Hersey: Patients within two days.
Christine Hersey: Thank you to everyone on the team who worked around the clock to make sure that our customers have access to the products. They rely on especially those who are also personally impacted by the storm.
Christine Hersey: Moving onto our third quarter results revenue was in line with our guidance, while gross margin continue to exceed expectations revenue of $284 million up 3% from last year reflects solid performance despite headwinds from seasonality and hurricane Helene gross margin improved to 61% bolstered by efficiencies and lower.
Christine Hersey: Cultivation costs SG&A increased in the third quarter was higher spending to support additional store openings in infrastructure to manage long term growth alongside increased campaign support adjusted EBITDA of $96 million improved by 24% compared to last year adjusted EBITDA margin of 34% was driven by best in class.
Christine Hersey: Gross margin, partly offset by increased investment we ended the quarter with $319 million in cash and short term investments.
Christine Hersey: During the third quarter retail results were influenced by seasonality in Arizona, and Florida, as well as temporary store closures related to hurricane Helene traffic increased 10% year over year, and 1% sequentially, while basket size declined 3% compared to last year and 6% versus the second quarter average basket size declines.
Christine Hersey: What's really in all markets with seasonal pressure in Arizona, and Florida for the second year seasonal impact in Florida were influenced by new resident from Northern States, who leave Florida during hot summer months data shows some customers trading down into mid and value tier products and higher visits per month, indicating wallet pressures influencing customer behavior.
Christine Hersey: We are closely monitoring the data to the third of the trend is emerging or transient pressure has abated spending patterns. During the last six weeks of the year will be an important indication of consumer flexibility.
Christine Hersey: Customers expect a clear value proposition for all products picking out reasonably priced products and value in midyear and truly differentiated quality for premium here.
Christine Hersey: As always we are prepared to meet evolving customer preferences by leaning into value and mid tier products, while maintaining very high standard for premium offering.
Christine Hersey: In Q3, we expanded our industry, leading retail network to 215 locations companywide with 14, new locations in Florida, and one in Pennsylvania.
Christine Hersey: Once a quarter and in Florida, we were able to open five additional locations that were previously delayed due to the hurricane our commitment to selling high quality branded products through our branded retail locations is a core part of our strategy. This has been a key driver of reinforcing customer loyalty and building long term brand equity.
Christine Hersey: Please I've ever 4 million square feet of production capacity companywide and the team continues to deliver very high quality products, while driving efficiencies and lower cost in the third quarter, we sold over $11 5 million branded product units in line with the second quarter low cultivation costs in Florida, and improving margins in other market contributed to gross.
Christine Hersey: This quarter wholesale revenue increased in Maryland, Pennsylvania, and West Virginia, due in part to greater availability of products over the past year, we have made continuous adjustments in our retail operations all designed to deliver best in class customer experiences a relentless push to drive customer retention and overall satisfaction.
Speaker Change: So your product customer service and effective messaging continues to pay dividends third quarter customer retention was 65% companywide and 74% and medical only market comparable to the second quarter overall satisfaction and NPS scores increased in nearly all markets training leadership engagement and Benin.
Christine Hersey: Incentives for employees collectively reinforce our customer centric focus across our retail platform. During the first half of the year, we rolled out a new customer awards program featuring believes stackable points that can be redeemed in all Margaret <unk>.
Christine Hersey: Enrollment in our fresh loyalty program has exceeded expectation, reaching over 450000 reward members up from 325000 at our last earnings call.
Christine Hersey: On average loyalty members spend approximately 123% more per month than non loyalty members.
Christine Hersey: In Ohio adult use sales commenced at our three retail locations on August six traffic per store increased by 60% and sales per store increased by 35% in the five weeks. Following the launch our team did a phenomenal job managing customer traffic, while working to maintain high service standards, we are planning to expand our western <unk>.
Christine Hersey: Location by year end and open additional Ohio retail locations in 2025 upgrades at our partner grower processor facility in Iron thin had been completed and we are on track to have truly brands available in Ohio by year end.
Christine Hersey: Working together with partner brands allows us to offer greater product assortment and optionality for customers, while providing specialty brands across access to our loyal customer base, We recently announced a partnership with block Buda offering premium flower in Arizona in Pennsylvania Block Buda as a purpose led women owned cannabis brand that aligns with Trillium.
Christine Hersey: Mental wellness innovation and quality to date customer feedback has been overwhelmingly positive and we are thrilled to be working with the brand truly.
Christine Hersey: Truly continues to believe new trail, ensuring the birth forest partnership for our non CBD cannabis company in August we announced partnerships with the professional took a ball Association and major League Pickle ball truly.
Christine Hersey: Truly with sponsoring a dozen pickle ball events in Arizona, Florida, and Georgia, This year and next allowing us to reach new audiences and foster a sense of community that accelerates cannabis acceptance.
Christine Hersey: Turning now to Florida voters will decide today, whether to legalize adult use cannabis with 23 million residents and 140 million annual tourists visits we estimate the Florida market could reach $6 billion in annual sale, assuming passage of amendment three adult use sales would be allowed six months from today.
Christine Hersey: Legislators have an opportunity before launch to further refine would per adult use that is prohibiting smoking in public and allowing homegrown.
Christine Hersey: Trulia is incredibly well positioned for an adult use launch in May of 2025, we have made significant investments in production retail and technology in preparation for catalysts such as this one today, we have over 3 million square feet of production capacity in Florida, given the modular nature of our production site idle capacity can be quickly ramp and further.
Christine Hersey: Pension can occur as needed in short order across our retail network of 156 dispensaries in Florida, we have the ability to manage higher traffic and utilize additional points of sale. We recently conducted a series of retail pilot study to improve the in store experience, assuming higher traffic and we can readily implement adjustments in advance of records.
Christine Hersey: Wholesale truly this committed to maintaining high service standards for all customers, especially our existing medical patients who rely on our products over the past several months, we completed the upgrade to our web platform and a major upgrade for S. E T platform, expanding functionality and capability to facilitate higher transaction volume.
Christine Hersey: We will be fully prepared to welcome adult use customer historic door next may with high quality products and world class customer service.
Christine Hersey: In summary, the team continues to develop to deliver outstanding results, while preparing for upcoming catalysts. We have done everything that we can to drive home a win at the polls today and truly will be fully prepared for adult use in Florida. When amendment three passes with that I'd like to turn the call over to our CFO West Gutman. Please go ahead.
West Gutman: Thank you Kim and good morning, everyone.
West Gutman: Third quarter revenue was $284 million up 3% year over year, driven by new store openings and growth in the wholesale channel.
West Gutman: Third quarter GAAP gross profit was $173 million with 61% margin of 1% from the second quarter.
Christine Hersey: Gross margin will continue to fluctuate quarter to quarter, depending on product and market mix inventory sell through promotional activity in idle capacity cost.
Christine Hersey: G&A expenses in the third quarter were 149 million or 52% of revenue fire rescue to include new store opening expenses technology and infrastructure investments and additional support for the Smart State Florida campaign.
Christine Hersey: Third quarter net loss was $60 million compared to a net loss of 12 million in the second quarter.
Christine Hersey: Third quarter loss per share was 33 cents compared to a loss of five cents in the second quarter.
Christine Hersey: <unk> $48 million in Champaign support and other nonrecurring charges third quarter net loss would have been six cents per share compared to breakeven results in the second quarter.
Christine Hersey: Third quarter, adjusted EBITDA of 96 million or 34% margin reflects strong gross margin, partly offset by investments in retail and infrastructure.
Christine Hersey: Turning now to our balance sheet and tax strategy, we ended the quarter with $319 million in cash and short term investments and $481 million in debt.
Christine Hersey: As a reminder, truly have adopted a tax position challenging you could build your two eight each of our business last year. Following the many returns protect your 2019 through 2021 to date, we have received refund checks totaling over $115 million.
Christine Hersey: Final resolution to our approach may ultimately take years to conclude in the interim we continue to approve an uncertain tax position on our balance sheet, while realizing lower cash tax payments.
Christine Hersey: Upon rescheduling of cannabis to schedule III with 280 tax burden will be removed effectively capping the downside risks to our tech challenge, notably is the impact of 280 or move year to date results, which were positive net income.
Christine Hersey: Cash flow from operations totaled 30 million in the third quarter capital expenditures were $37 million with free cash flow outflows of $7 million absent. The noted campaign contributions cash flow from operations would have been $78 million and free cash flow would have been $41 million.
Christine Hersey: Year to date cash flow from operations totaled 241 million with free cash global $162 million.
Christine Hersey: Turning now to our outlook based upon the visibility that we have today, we anticipate fourth quarter revenue will be up low single digits sequentially typically fourth quarter results include higher holiday traffic and promotional activity, we anticipate fourth quarter gross margins will be consistent with margins year to date, we expect full year cash flow from operations will be at least 200 feet.
Christine Hersey: <unk> million with capital expenditures of $130 million increase in capital expenditures is due to investments in new retail locations production upgrade and long term infrastructure to support future growth. The team remains focused on executing to our plan with that I'll turn the call back over to Kim.
Christine Hersey: Thanks, but cannabis continues to gain momentum with the majority of Americans in favor of legalization and broad support across all demographics proving that cannabis is not a part of the issue is the human one adoption from medicinal and recreational purposes is increasing as adults choose cannabis as a preferred alternative to prescription drugs and alka.
Christine Hersey: The hall this industry is far beyond the tipping point and eventually reform will catch up to evolving attitude opportunities for incremental reform in the near term are progressing at both federal and state level with rescheduling the schedule three well underway, we remain optimistic that the process will be completed and ultimately lead to further federal reform.
Christine Hersey: Hmm next month, a preliminary hearing will be conducted followed by a hearing in early 2025 to provide additional information on the record. We believe a final rule could be published in 2025, marking the first major federal reform in decades with both presidential candidates in favour of cannabis reform, we believe additional progress such as safe banking could.
Christine Hersey: Advanced in the next administration state effort to support medical and adult use cannabis markets continue to gain traction as cannabis becomes more mainstream and Pennsylvania bipartisan momentum continues to build as neighboring states adopt adult use programs. We remain optimistic that adult use legislation will pass in Pennsylvania, and the next one to two years.
Christine Hersey: Today's general election includes cannabis balanced measures in four states in Florida, We expect amendment three to path leading to the largest adult use conversion in the industry to date was 176 stores in Florida scaled production capacity and sufficient capital to support further investment truly the best position to fully prepare for the <unk>.
Christine Hersey: The launch of recreational sales next spring.
Christine Hersey: Clearly that's been out front pushing for expanded access to cannabis for years and I am So proud to lead this team as I've said before I wouldn't trade hands with anyone in the industry. Thank you for joining us today and as I always say onward, and yet Hungary at.
Speaker Change: At this time, Kim rivers, and Westgate men will be available to answer any questions. Operator, Please open up the call for questions.
Christine Hersey: Certainly.
Speaker Change: We will now begin the question and answer session.
Speaker Change: To ask a question you May press Star then one on your telephone keypad.
Speaker Change: If you were using a speakerphone please pick up your handset before pressing the keys.
Speaker Change: If at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.
Speaker Change: At this time.
Speaker Change: Sure.
Speaker Change: Comes from Luke Hannan with Canaccord Genuity.
Speaker Change: Go ahead.
Luke Hannan: Thank you and good morning, everyone.
Luke Hannan: Tim it's been a long journey to get to where we are today when it comes to the prospects of there being an adult use cannabis market in Florida, you mentioned in your prepared remarks that polling indicates likely passage of amendment three but.
Speaker Change: To know are there any other learnings.
Speaker Change: Insights that have come out of your efforts and getting out the vote that also underpin your conviction here along with the favorable pulling data.
Speaker Change: Yeah, and I would tell you that and you know it has been just so encouraging for us to have such a broad base of support and I think that you know our opportunity has been which I think we've taken full advantage of to talk to floridians and across different walks of life and different ideologies and different terms.
Speaker Change: Graphics about cannabis and really to lean into and education first campaign, that's backed by data and science and and you know that.
Speaker Change: That's what we all do in this industry every day and is to really and again educate folks and fight back against the stigma and so you know sitting here today. The fact that we have right former President Trump who is a floridian and he was specifically endorsed amendment theory.
Speaker Change: And in no uncertain terms. The fact that we have another presidential candidate on the Democratic side.
Speaker Change: Come on here as he just this week and expressed her support for Canada.
Speaker Change: Reform and I think maybe more importantly, just down as we as we drill down to the local level and have gotten.
Speaker Change: Folks on all sides of the issue.
Christine Hersey: All sides of the spectrum really excited and enthusiastic about going to the polls and voting and voting, yes on theory, and you know I talked to people every single day. The campaign talking to people every single day, hundreds and hundreds of thousands of phone calls have been made over the last over last period and it just.
Christine Hersey: Again, and the response that we're getting is very encouraging.
Speaker Change: That's great to hear thanks, and then for my follow up here I wanted to ask if I heard you correctly in your in your prepared remarks, you mentioned that you've you've done a series of retail pilot studies to sort of figure out what happens with adult use sales in Florida. If we do get passenger I'm curious to know are there any kpis or maybe other learnings you can share that that came out of those.
Christine Hersey: Studies that indicate.
Christine Hersey: Well positioned you are in the event that we do get passage.
Speaker Change: Yeah, I mean, I think that you know this team and again right I mean, we're running this company and its.
Christine Hersey: I'm very proud of our results this quarter and how the team has been able to really focus in on on today and right and making sure that we're continuing to service our medical our medical patients here in the state of Florida. While also rate looking ahead and planning for all kinds of different scenarios right because it's Gordon.
Christine Hersey: Mentioned, all jigsaw puzzle right now.
Christine Hersey: You also have of course, QAD EE and looming ahead, as well and and so within that work, great and going in and doing and a bunch of pilot studies in different scenario planning workforce management planning I mean, theres a lot that goes into and thinking through are beginning to think through a conversion of this magnitude and so.
Christine Hersey: And what we what we found is that we're really well positioned and with and again the upgrades that we have been layering in into this organization over the last several years right. This doesn't happen overnight and I mentioned in the remarks, our web two <unk> upgrade as an example, along with our SAP upgrade.
Christine Hersey: None of these things are flashy rate or necessarily really exciting and but they provide the infrastructure to enable us to handle transactions in a faster manner.
Christine Hersey: To make sure that we've got the ability to have separate lines in dedicated registered then the flow within our retail locations from back of house to front of house, and and again, along with our technology upgrades that will allow folks to.
Christine Hersey: <unk> minimized, our weight and transaction times on a on a convergence. So I do feel like we're well positioned in candidly those are those investments drove us kind of regardless right and you know as we look at our improved and our improved opportunity across the country.
Christine Hersey: Not only today, but in the in the upcoming years.
Speaker Change: That's great. Thank you very much and best of luck Tonight.
Christine Hersey: Thanks.
Speaker Change: Thank you.
Speaker Change: The next question comes from Frederico Gomez with <unk> capital markets. Please go ahead.
Frederico Gomez: Hi, good morning, Thanks for taking my questions.
Frederico Gomez: First question on Ohio.
Frederico Gomez: Hum sales in depth market performed in line with your expectations I think you mentioned.
Speaker Change: Sales per store increase of 35%. So that's sort of what you were expecting and also.
Frederico Gomez: In terms of the supply demand balance in Ohio pricing et cetera, how has that evolved.
Speaker Change: So July thanks.
Speaker Change: Got it and so.
Speaker Change: Absolutely, Ohio is performing and we're very proud of that team as we mentioned we have some limitations and have had some limitations in Ohio, and just given our footprint along with some product availability.
Speaker Change: That is again not unusual in a in a conversion and that is improving and when I mentioned that we're going to be doing some expansion. There. That's really so that we can more effectively.
Speaker Change: Third through the transactions and the and the candidly the customer base that we know that we've got.
Speaker Change: Ohio, So and I feel like the team did a phenomenal job with what we have today.
Speaker Change: But again and that actual market in our physical presence in that market. If you will is improving and will continue to prove improve not only through the end of this year, but also through and through next year. You know, we're very excited to get our brands into that market and have been working very very hard on that and so.
Speaker Change: That'll be an important next milestone for us and in Ohio, as we get those into the market by the end of the year.
Speaker Change: Thank you and then my second question is just on <unk>.
Speaker Change: I guess looking back in Florida.
Speaker Change: From a customer behavior standpoint have you seen any noticeable impact from from the Florida campaign, I guess, just just given that.
Speaker Change: Consumers probably have increased awareness.
Speaker Change: The campaign that going on there. So have you seen any sort of change in terms of consumer behavior, it for better or worse.
Speaker Change: I mean, I would say that the Florida business has been very consistent and in line as I mentioned on the prepared remarks, right with our with our seasonal with our seasonal trends I think I can really what we're starting to see in Florida and so to answer. Your question. No. There has not been any kind of dramatic change and that would be.
Speaker Change: Tide and or that we would be tied to the to the campaign and theres a lot of enthusiastic patients and a lot of folks who are very excited to get out there and vote and four a four the amendment for sure and we see that enthusiasm at Grand openings that we have in and in our stores, where we've had and a lot of agitation.
Speaker Change: Information for folks about about the amendment and what adult use looks like in Florida.
Speaker Change: What we have seen no and I think this is an important point as it relates to Florida in this corner specifically is an increase keynote and we noted it last year, but I think it's important for folks to think about and also as we go into the into next year that this third quarter seasonality in Florida is becoming more pronounced.
Speaker Change: And again, we've had massive population shifts in Florida with new with new residents coming in and post Covid, particularly from northern States and those folks have a tendency to also do more snow bird type patterns in our in that third quarter timeframe. In addition, with the Hurricanes and.
Speaker Change: While our stores were closed only two days there still is impact rate in those communities, particularly in certain areas like the Tampa St. Pete area, where we had massive evacuation.
Speaker Change: Longtime power outages across across a large part of those communities and so it does take a bit to get those communities stabilized and back to back to normal and the reestablishment of we'll call it normal customer behavior patterns and in some of those areas also right as we mentioned our internal construction timelines were pushed.
Speaker Change: For a number of stores and that will continue to impact kind of some of those planned we're trying to play catch up right now, but and potentially through the end of the year. So there's a really a more of the of the patterns that we're seeing and then the only other thing I would say in Florida is as it relates to customer behavior is that loyalty program.
Speaker Change: And you know we did launch that in Florida, and what we are seeing and not just in Florida, but across the country, where we've launched that program is it frequency is way up.
Speaker Change: With folks who are utilizing that loyalty program, which makes sense right, because where we're able to push and communicate more real time onto those customers. They are coming in more often and that there are average spend per month is significantly higher rate than the numbers they got over 120% higher than the non loyalty members.
Speaker Change: But then there their basket per visit is is lower so again their average spend per month higher more frequent transaction, but average average per visit is is down so it's changing kind of the the buying patterns. If you will a little bit and within our stores. So we're monitoring that as well.
Speaker Change: Thank you very much for the color congrats on the quarter and good luck on the vote today.
Speaker Change: Thanks, so much.
Speaker Change: Thank you.
Speaker Change: Next question is from Devin.
Devin: Great with Airlines Global partners. Please go ahead.
Devin: Hi, good morning, and thank you for the questions nice to see the continued efficiency improvements and gross would be I'll call coming up I. Appreciate the efforts that we've made.
Speaker Change: Gordon Amendment degree.
Speaker Change:
Speaker Change: So gross margin up nicely Q over Q, despite the lower sales, which you attributed to efficiencies and more cultivation costs. So would be interested in if this was due specifically to some more cost savings or was it higher yields regarding jafco.
Speaker Change: They have come above expectations previously and.
Speaker Change: Then bigger picture as we move forward, particularly in adult use scenario. It seems like there's a lot of opportunity for higher margins as you do get a higher leverage of fixed costs and then they'll use scenarios. How are you thinking about re embarked reinvesting those cost savings to the benefit of the customer letting you dropped the bottom line and how that plays out.
Speaker Change: Talking as a competitive market increases ahead of adult use and when do you start thank you.
Speaker Change: Yeah. So there are quite a few.
Speaker Change: Nathan there at Aaron's I'm going to try and take them and just let me know if I if I leave anything out here that you'd like you'd like further clarification on.
Speaker Change: So what I can tell you is that in this quarter. Specifically, we had continued great performance of course in Florida by Jafco and and you know does the team they're continuing to really focus on and on efficiencies and productivity are also mentioned and we mentioned this as well in the call and we also on margin improvement.
Speaker Change: Outside of the state of Florida, and we have been laser focused on taking and continuing to take best practices wherever we can and applying them to other markets and really the teams in those other markets and done a great job in and and really again drilling down and focusing on and on improving margins across the across the platform.
Speaker Change: Not just in Florida, and we also mentioned that we pay to fulfill increase then you know one of the things with wholesale of course is that you know there are some margin of course degradation between our wholesale platform in retail platform, but really again also we're not wholesale channel. The team have done an amazing job of really focusing in on our product.
Speaker Change: Mix and the products that we're able to have great customer responses from that also are our margin margin contributed so I would say it is more than just a Florida story. It really is a company story and very proud of the team and getting those efficiencies and continuing to really deliver.
Speaker Change: We're on our commitment to be best in class as it relates to as it relates to margin and because of that and then going into your next question that gives us the flexibility and optionality.
Speaker Change: To lean in and in markets like Florida, where we have the ability to really leverage that incredible margin position in scale and as we look forward to a large adult use conversion and so certainly and even today, we have the ability to to really.
Speaker Change: Make strategic decisions to your point in terms of where we want to pass those savings onto customers, where we want to be more competitive on pricing and where we can absolutely recognize outside outsized results because of our efficiencies.
Speaker Change: That's really helpful color I appreciate that Tim and then a second quick one for me.
Speaker Change: In terms of stores that can be in Florida overall, yet you had 15 stores opened in the quarter for the company.
Speaker Change: It seems like the most we've had in a number of years for truly so just as we look forward. How are you thinking about tour factories in Florida, particularly adult use scenario. It sounds like you've got some world who can come on line as well that got delayed because overall outlook for retail with afford it would be helpful. Thank you.
Speaker Change: Yeah.
Speaker Change: And obviously, we've got you know.
Strategy as it relates to our store openings and we're looking and we have a again, a pretty robust modeling and that happened where we're looking at again traffic.
Speaker Change: Traffic counts and what we anticipate demand will be in certain areas and registered we said we'd done a whole bunch of modeling as it relates to retail efficiencies though.
Speaker Change: What youre seeing from US is somewhat of a result of that work that the team has put in.
Speaker Change: And so I think we feel very comfortable in terms of where we're where we're headed as it relates to our retail footprint here in the state of Florida, and just remember right that these stores have come in over time and so some of our earlier locations. We were very restricted in terms of where we could go store footprints there may not be as.
Speaker Change: And as high as it relates to a number of registered that we have in those locations.
Speaker Change: Or even you know storage areas or volte areas, and so and we also look to augment and offset some of some of those limitations as well, though and again feel feel great and into your point and you know we had a really busy who had a really busy quarter this quarter as it relates to the store.
Speaker Change: Our openings and in the state of Florida, and really proud of the team for the push.
Speaker Change: Okay, great. Thanks, so much for the color and I'll go and jump back in queue.
Speaker Change: Okay.
Speaker Change: Thank you.
Speaker Change: The next question is from Russell Stanley with Beacon Securities. Please go ahead.
Speaker Change: Yeah.
Russell Stanley: Good morning, and thanks for your question, maybe if I could switch gears, Arizona.
Russell Stanley: Just wondering if you can update us there as Q4 is kind of a normal seasonal.
Russell Stanley: Ramp up after after the typically slow Q3.
Russell Stanley: And I think as well the states now.
Russell Stanley: Home delivery for adult use wondering if that's something you'd be.
Speaker Change: You'd be looking to add et cetera, where the opportunity how much how much opportunity there is great. Thanks.
Speaker Change: Yeah, I think breadth and so Arizona.
Speaker Change: Again very proud of the team there we've been making great progress in terms of again, increasing efficiencies and really focusing on margin improvement in that state and and you know the team again is continuing to really improve also on our customer metrics there as it really.
Speaker Change: Two our customer satisfaction NPS had an amazing and very successful launch of our loyalty program in Arizona as well, but Q3 is always tough in Arizona and I think we're very transparent about that and you know.
Speaker Change: Per usual right Q4 is starting to come back and and I think that we're going to have kind of a normal normal ish and seasonal trend, but just like we said on the call a lot of that's going to depend on how holiday does right Q4 is always somewhat dependent on how we see customers behave.
Speaker Change: In November and December during the holiday period, but.
Speaker Change: Feel good that the Arizona team, that's focused on the right things and we'll see right and I think it is.
Speaker Change: We're just going to have to see how delivery plays out and delivery has had varying successes in different markets and so and again in Arizona, where we're hopeful that it will be an additive for sure and but we'll have to see how it how it.
Speaker Change: How it shakes out there.
Speaker Change: And maybe for my follow up I won't be here, you're doing this year around.
Speaker Change: On acquisitions I know you highlighted.
Speaker Change: Call the importance of staying focused but given you're closing in on the end of the campaign aspect of adult use in Florida I was wondering what your appetite is now.
Speaker Change: Right.
Speaker Change: Yes, why don't we talk about that maybe next quarter.
Speaker Change: Three the vote today.
Speaker Change: And then we can we can have we can does that conversation.
Speaker Change: Alright sounds good thanks again.
Speaker Change: Thanks.
Speaker Change: Thank you.
Speaker Change: The next question. Please from Patrick Delirious with Craig Hallum Capital Group. Please go ahead.
Patrick Delirious: Great. Thank you for taking my questions.
Patrick Delirious: First one is I guess a bit of a follow up on sort of the seasonality in Q4 to date, so it sounds like in Florida.
Patrick Delirious: Some of the sort of consumer down trading trends are looking.
Patrick Delirious: Continuing into Q4, so far.
Speaker Change: Overall are you seeing any.
Speaker Change: Kind of change in foot traffic are you seeing any of this.
Speaker Change: Snow birds that are coming back to Florida, and Arizona, just kind of any.
Speaker Change: Insights on the <unk>.
Speaker Change: Seasonality in Arizona, and Florida, and I guess, the hurricane impact as well.
Speaker Change: Yeah. So we are I mean, we are seeing again kind of the traffic and purchasing patterns begin to show up in line right with what we've seen in the past and you know.
Speaker Change: Think that again last year, we were a little bit uncertain still as to sort of the seasonality.
Speaker Change: Impact in Florida, and then we called that out and a year ago and so I think now we're saying, yes, right that that is absolutely more of the.
Speaker Change: And we'll call it predicted trend now.
Speaker Change: With it also though of course, you know starting to come back and into into Q4, and again I mean, I just want to make sure everybody heard me on the loyalty program that is also I think potentially shifting some of our consumer behavior and that we're seeing increased frequency increased and total spend per month.
Speaker Change: But as it decrease on average order per time, which makes sense right. If we're coming in before you only came in maybe.
Speaker Change: Two times, a month and now you're coming in four times a month rate. Your overall spend is actually increasing but youre not going to spend the same amount that you spend two times four times and so we are seeing some of those adjustments as well and not may and continue that.
Speaker Change: Again, we're in early days of the of the loyalty programs that we need that to settle a bit before we can so I'd just say that because we're talking about these could trends on consumers, but there is an added layer here that some of it may have an outsized influence because of again, one year's seasonality. So you've got folks that typically may spend more that are.
Speaker Change: Out of the system for a bit of time, because they're traveling over that over that period, plus you have right with customers who are remaining in system. You have again this loyalty impact and.
Speaker Change: Which is kind of again triangulating around us to being able to say is that the true underlying wallet pressure issue or are we actually driving some of this behavior because of the royalty construct.
Speaker Change: No that makes sense and actually segways nicely into my follow up question here. So on the loyalty program. That's certainly very encouraging metrics that you shared in the prepared remarks.
Speaker Change: Can you maybe talk about any differences that you've seen in customer adoption or sort of anything else worth calling out.
Speaker Change: Between adult use markets and medical markets and then the sort of obvious.
Speaker Change: Implication of sort of any insights into how you would potentially look to.
Speaker Change: Capture a strong share of adult use consumers into the loyalty program in Florida, If we do get a successful vote here.
Speaker Change: Yeah, I mean, I think that it was a really great breadth to be able to be inefficient to be able to launch this and this loyalty program. This year right ahead of and had a Florida adult use because we were able to launch it in Arizona, which had really no loyalty program and its heavy on the adult use side and so and how.
Speaker Change: Super strong adoption and so I think there's a lot of learnings from not Arizona market that we can bring into a market like Florida in or Pennsylvania went and ultimately converts and so and I would say that the strength in our adoption has been again very very encouraging and not just the strength in the adoption.
Speaker Change: Right, but also the utilization of the program once adopted and so again I think that speaks to and the.
Speaker Change: Just the way that the loyalty program that was constructed and that it is connecting in and resonating with our customers as we're seeing again with the and as I mentioned with the increased frequency and increased overall spend numbers.
Speaker Change: Very helpful. Congrats on a great quarter and good luck on it.
Speaker Change: Thanks.
Speaker Change: Thank you.
Speaker Change: We have the next question from Mike Regan with Excel Chair. Please go ahead.
Mike Regan: Hey, Thanks for taking the question a.
Mike Regan: Quick question on the the change in the frequency versus the.
Mike Regan: Basically coming to store more often and buying less when they come in each and each trip are you seeing a shift in actually the package size and basically would that impact the gross margin and the pricing sort of reverse bulk.
Mike Regan: Order you pay what you pay less per Gram when you buy more and pay more program when you buy less.
Speaker Change: Yeah no.
Speaker Change: We're not seeing that Mike.
Mike Regan: Oh, that's great to hear and then just.
Mike Regan: Looking just on the gross margin. It just seems like it's that sort of the higher plateau level. So if you have any thoughts on how.
Mike Regan: Your gross margins might can be inherently different under adult use.
Mike Regan: Ignoring any any choice to reinvest in margin here more just from a mixed standpoint, or a product standpoint anything like that.
Speaker Change: Yeah, I mean I think.
Mike Regan: But we would anticipate and murdering being relatively I mean, we're gonna say right until we no different than it would be relatively in line and because right I mean again, our underlying cost profile, we're continuing to focus on it but also at the same time right where.
Mike Regan: We've got you know our efficiencies are where they're at which we are very happy with and proud of them.
Mike Regan: I don't anticipate in adult use in Florida, and we've had a lot of conversation about this internally as well I think it's very important that we have pricing that is attractive.
Mike Regan: Listen the whole goal here is to get folks off of the treat and out of the black market and into a regulated environment right.
Mike Regan: It's still yet to be determined as it relates to the tax rate and although I am encouraged and believe that the legislature will will may get reasonable and but that being said right we need to make sure as an organization and we have the flexibility, which I'm very happy that we have the flexibility to ensure their pricing is reasonable so that we are.
Mike Regan: We're able to attract a strong customer base and unless that's one of the things that truly was known for I mean candidly when we opened Florida and we were first of all.
Mike Regan: Of the gate in Florida, there were a lot of markets across the country that we're launching medical programs, New York, and Pennsylvania come to mind, where pricing was ridiculously high in my opinion, and we made the strategic decision from the beginning to look at other markets more mature markets like in Arizona, like a Colorado and even.
Mike Regan: California to make sure that the products that we're selling to Florida medical patients were reasonable as it relates to price and I think that that has really served us well as an organization because it's focused us in on efficiency and ensuring that we are and very laser.
Mike Regan: Based on cost control and have been as an organization from day, one as opposed to some companies who started at a very very high price point and then it has had to reconfigure their business is and normalized pricing has come in and I'll use Pennsylvania as an example, right when we went to Pennsylvania, we've purposefully.
Mike Regan: Came in at what we consider more normalizing normalized pricing and it's one of the reasons that we've been so successful in Pennsylvania and hospital, a loyal customer base there today so.
Mike Regan: From our lens, we believe that it's very important that we come in again with.
Mike Regan: Normal I'll call strategic pricing in Florida, we have a shot to really make them.
Mike Regan: This market work from a conversion standpoint, and again get those folks off the street and and serve regulated retail environment.
Speaker Change: Oh, that's great to hear and thanks <unk>.
Mike Regan: Laden.
Speaker Change: Good luck with the vote today hopefully it goes.
Speaker Change: Yes.
Speaker Change: Hey, thanks, so much and listen just a shot out to anybody who's listening on this call I know that you all know people in Florida are you live here and so it does take the village. So I will just say my asked everybody on this call I know you. All know my asked me questions I'm going to ask you to do something this time.
Speaker Change: Go through your phone find five to 10 folks.
Speaker Change: <unk> or call them and ask them, if they voted and ask for their gun devote yachts boundary.
Speaker Change: Because it really is a team effort and I have always been taught it leaves everyday you don't ask for so.
Speaker Change: If you guys could do that for me today that would be great.
Speaker Change: Right.
Speaker Change: Thank you.
Speaker Change: The next question from Andrew Semple with Wyndham financial Please go ahead.
Andrew Semple: Great. Good morning, Congrats on the Q3 results.
Andrew Semple: First question here would just be on the full year capex guidance at $130 million.
Andrew Semple: Got it excludes software costs.
Andrew Semple: It seems implied 50 million for Q4s correct me, if I'm wrong there.
Speaker Change: It's probably safe to assume the bulk of Thats in Florida, maybe help us understand what sort of process improvements or capacity additions you might be looking to make a mistake and how much of that budget might be sensitive on the on the boat Tonight.
Speaker Change: Yeah. Andrew This is Wes I appreciate I. Appreciate the question Yeah, I mean look as Jim said in the prepared remarks, obviously you know this.
Andrew Semple: As potentially the biggest conversion.
Andrew Semple: Do we possibly have so there's a lot of things with store footprint redesign all the things noted.
Andrew Semple: One important in building and the optionality to be.
Andrew Semple: To scale production as needed we want to be ready on May 5th obviously Canadian Big day is going to drive this.
Andrew Semple: Vision in the next 24 hours as far as how we're looking at it but.
Andrew Semple: But we have a huge footprint, which the trial and supply those stores as best we can when we go live hopefully first week of May So systems.
Andrew Semple: <unk>.
Andrew Semple: You mentioned, the S&P upgrade, but well do that all working at things you'd hoped to help our customers will go better faster slicker quicker keeping in the ecosystem, both or all those sorts of things that we're focused on to build that loyalty against the questions rolling into Q around how you're thinking about me and royalty and that's a big part of our thinking about where the spend we want to get those.
Andrew Semple: First rent customers in the door, we wanted to stay within our ecosystem.
Speaker Change: Great. That's helpful. And then maybe just my follow up here given.
Speaker Change: Pretty significant improvements in margins and efficiencies achieved over the past few quarters. Just wanted to maybe clarify you spoke to cost efficiencies continue to be a big driver behind the margin profile here is that still largely coming from the just cold facility or are you also seeing efficiencies across your cultivation network.
Speaker Change: More broadly across the country.
Speaker Change: Yeah, and as I as I mentioned before.
Speaker Change: Her right and certainly <unk> in Florida continues to be and are amazed.
Speaker Change: An amazing asset for us and the team there continues to really focus and drive.
Speaker Change: Efficiencies at that facility, but again across the country. We're taking those best practices that we are able to and also adding and.
Speaker Change: Adding tweaks and hunting upgrade to our to our sites across the country as well.
Speaker Change: Also have margin improvement in other markets and so again, it's a company wide effort.
Speaker Change: I can assure you that Jeff co alone.
Speaker Change: And while it's important and it's contributing and is one piece of the puzzle and it really is a culture across to leave that we are focused absolutely everyday on incremental improvement in all aspects of the business that being said right I just want to be clear here right. We are very proud of our current margins instead.
Speaker Change: There will be margin fluctuation in the future right depending on the the puts and takes of a particular corner.
Speaker Change: No.
Speaker Change: Again happy with where we are today, but it feel like we're obviously we've made major strides this year.
Speaker Change: On on margin and but you know don't want those to get to do ahead of themselves.
Speaker Change: Moving forward again, bill like where we're firing pretty pretty well.
Speaker Change: And 60% range.
Speaker Change: As of where we are where we are today and Andrew I'd be remiss. If I didn't also mentioned on the Capex question that we are making investments in our other states as well.
Speaker Change: Particularly kind of our processing.
Speaker Change: West, Virginia, Pennsylvania, Arizona, where we are making significant investments in those markets as well just to be better at what we do so that is also a piece of it.
Andrew Semple: Great. That's helpful and Jim will certainly go through my phone just see what snowbirds I can find best of luck on the boat Tonight.
Speaker Change: Thank you very much.
Speaker Change: Thank you.
Speaker Change: This concludes our question and answer session.
Speaker Change: I would like to turn the call back to Christine Hersey for closing remarks.
Christine Hersey: Thanks to everyone for your time today, we appreciate your support of yes on three and your efforts to help turn out the vote today, we look forward to sharing additional updates during our next earnings call. Thanks, again and have a great day.
Speaker Change: Thank you. The conference has now concluded. Thank you for attending today's presentation you may now disconnect.