Q4 2024 Trulieve Cannabis Corp Earnings Call
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Speaker Change: Good morning, everyone and welcome to the truly <unk> Cannabis Corporation fourth quarter and full year 2020 for financial results Conference call.
Andrea: My name is Andrea and I will be your conference operator for today.
Andrea: As a reminder, this conference call is being recorded.
Andrea: I would now like to introduce your host for today's conference Christine Hersey, Vice President of Investor Relations for true lease you may begin.
Speaker Change: Thank you good morning, and thank you for joining us during today's call Kim Rivers, Chief Executive Officer, and West Gutmann, Chief Financial Officer will deliver prepared remarks on our financial performance and outlook for Trulia.
Andrea: Following the prepared remarks, we will open the call to questions.
Andrea: This morning, we reported fourth quarter and full year 2024 results a copy of our earnings press release, and Powerpoint presentation may be found on the Investor Relations section of our website Www Dot true leaves dot com.
Andrea: An archived version of today's conference call will be available on our website later today.
Andrea: 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.
Andrea: As described in the company's filings with the Securities and Exchange Commission, including item one a risk factors of the company's most recent annual report on Form 10-K, as well as our periodic quarterly filings.
Andrea: 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.
Andrea: 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.
Andrea: Virtually financial results prepared in accordance with GAAP.
Andrea: 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.
Andrea: 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.
Speaker Change: I'll now turn the call over to our CEO Kim rivers.
Kim Rivers: Thank you Christine and good morning, everyone and thank you for joining US today, we're excited to report impressive quarterly and annual results our relentless focus on serving customers while driving continuous continued improvement led to outstanding performance during the fourth quarter and throughout 2024.
Kim Rivers: Team came together to generate additional torque from our core business and deliver industry, leading margins and record cash flow I want to congratulate everyone for successfully driving continuous improvement in the business fundamentals during an election here be carrying the adult use ballot initiatives in Florida from our vantage point, while amendment three fell short of the 60% required for passage.
Kim Rivers: There are many positive takeaways from the adult use effort first we are highly encouraged by the fact that almost 6 million floridians or approximately 56% of voters supported adult use the foundational work that was done to raise awareness and educate voters about the many benefits of adult use legalization sets the stage for.
Kim Rivers: Virtual adoption through legislation or another ballot initiative.
Kim Rivers: And mine that several other states, including Arizona, Nevada, Ohio, and even the Florida Medical Amendment required two ballot initiatives for successful passage. We believe the support of the majority of Floridians, including President Trump sends a very strong signal. The voters are ready for common sense cannabis reform.
Speaker Change: Before moving into our financial results I'd like to take a moment to congratulate Jason Fresnel on his new role as president of true leave as one of truly as co founders Jason has been instrumental in the growth and success of this organization over the past decade. Most recently Jason has played an integral part in the outstanding performance achieved in Florida I look.
Kim Rivers: Working with Jason and the entire team in the year ahead.
Kim Rivers: Turning now to our results full year revenue grew 5% compared to last year with increased sales in both retail and wholesale.
Kim Rivers: Fourth quarter revenue increased 5% versus last year, and 6% sequentially aided by strong traffic and record unit sold gross margin improved to 62% driven by lower production costs and our disciplined approach to promotional activity.
Kim Rivers: Adjusted EBITDA increased by $15 million to $111 million or <unk> 37 per cent margin contributing to record full year adjusted EBITDA of 420 million up 98 million or 30% from 2023.
Kim Rivers: Higher revenue and gross margin paired with expense control in our core business contributed to increased profitability full year operating cash flow of $271 million exceeded our target of $250 million.
Kim Rivers: And the year with $300 million in cash and investments truly continues to separate from the pack effectively leveraging scale to yield stellar financial results.
Kim Rivers: In addition to exceeding our financial targets, we made substantive progress on the strategic initiatives that we laid out at the start of the year.
Kim Rivers: Following a strong finish to 2023, we set goals to further improve the customer experience expand retail and wholesale channels and increased distribution of branded products, while continuing investments to support these initiatives.
Kim Rivers: Since inception truly this growing the company guided by a customer first philosophy, our unwavering commitment to providing exceptional customer experiences dictates. Our approach in 2024, we did several things to enhance the customer journey, we aligned incentives for store managers with positive customer experiences rolled out a new website.
Kim Rivers: Platform, enabling smoother customer interactions and we launched a revamped loyalty program.
Kim Rivers: First we adopted a thoughtfully designed bonus program companywide to appropriately incentivize our store general managers by rewarding specific outcomes for metrics, including net promoter score overall satisfaction and lead times compensation is appropriately aligned with our team's ability to deliver positive customer experiences throughout 2024, we realize the bench.
Kim Rivers: <unk> of the new program evidenced by incremental improvements in the customer experience and customer retention progress continued during the fourth quarter with higher NPS and steady or improved overall satisfaction across all markets to further illustrate the strength of our retail team wait times during the busy holiday season or six minutes.
Kim Rivers: On average demonstrating our ability to maintain elevated customer service level service levels during peak traffic times.
Kim Rivers: We rolled out a new website built upon more advanced technology, which we call web to do.
Kim Rivers: This new web architecture provides greater functionality for users, including real time updates to products pricing and promos and product availability at nearby stores. The upgraded website supports higher traffic and enhanced data capabilities, enabling seamless interactions today, while preparing us for future growth.
Kim Rivers: Third we launched a refresh loyalty program be touring a simplified reward structure touring designed to reward repeat purchases and portability across markets. The program grew to over 550000 rewards members. This month up from 450000 last October loyalty members typically shop more frequently spending 2.3.
Kim Rivers: Times more per month than non loyalty members during the fourth quarter.
Kim Rivers: Our comprehensive approach to elevating the customer journey contributed to higher retention customer retention improved in the fourth quarter was 68% of customers companywide and 76% and medical only markets returning to the stores as.
Kim Rivers: As we prepare for future growth, we remain committed to investing in infrastructure technology platforms in talent to support our strategic initiatives. These foundational investments and upgrades to our customer service website and loyalty program strengthen our competitive position today and ensure readiness for long term success in this rapidly evolving industry.
Kim Rivers: Expansion and optimization of our distribution platform to reach customers is an important component of our long term strategy. During 2024, we grew our retail network, adding 33, new stores and exiting the year with 225 locations as part of ongoing efforts to optimize our retail footprint, we relocated one store in Pennsylvania.
Kim Rivers: Rebranded 16 stores in Arizona, and Ohio, and refreshed or remodeled 29 stores in Florida, We review the productivity of our retail locations on an ongoing basis to identify opportunities for expansion and areas for improvement in 2025, we plan to open 10, new retail locations relocated up to three stores and <unk>.
Kim Rivers: Refresh and remodel up to 45 dispensaries year to date, we have added five dispensaries in Arizona, Florida, and Ohio and closed one location in Florida.
Kim Rivers: Fourth quarter retail revenue increased 6% sequentially and 4% year over year with traffic up 4% from the third quarter and 13% versus last year robust holiday performance with record unit sold during Green Wednesday, and 12 days of cannabis highlight strong demand for our products.
Kim Rivers: Leveraging the strength of our brands, we grew wholesale revenue by 26% in 2024.
Kim Rivers: Expanded relationships with key partners drove higher revenue with sales in Maryland, and Pennsylvania contributing meaningfully to growth. This year, we plan to increase wholesale distribution of branded products.
Kim Rivers: Our commitment to selling high quality branded products through our branded retail locations is a core part of our strategy in the fourth quarter, we sold over $12 5 million branded product units up 12% compared to last year and 10% versus the third quarter.
Kim Rivers: Two of our most popular brands modern flower enroll one continue to resonate with customers. Both are among our top selling brands across our markets demonstrating the clear value proposition of approachable and consistent cannabis products. We recently launched modern power enrolled one in Ohio.
Kim Rivers: Availability of trusted high quality brands serves to reinforce customer loyalty and build long term brand equity.
Kim Rivers: With over 4 million square feet of capacity our team has successfully leveraged scale in production.
Kim Rivers: Who drives down cost by over 20% compared to 2023.
Kim Rivers: Higher yield and potency combined with process improvements and efficiencies across our platform all contributed to lower production expense.
'twenty 'twenty four we added new equipment and upgrades and most of our markets lend.
Kim Rivers: Lending to higher leading to higher product quality and expanded production capabilities.
Kim Rivers: Lower cultivation costs and cornerstone markets contributed to improved gross margins in the fourth quarter. This year, we will continue to identify opportunities for greater efficiencies and cost reduction throughout the value chain.
Kim Rivers: Turning now to our new growth initiative for tree leave yesterday, we launched a pilot program for a new premium THC beverage called onward, Farmville compliant onward beverages powered by Twilio are expertly crafted using premium ingredients to ensure consistency of effect and predictable experiences with products doses at three.
Kim Rivers: Milligrams, five milligrams and 10 milligrams onward drinks offer something for everyone from the curious beginner to season consumers.
Kim Rivers: Market leader in cannabis truly brings significant expertise to product development and brand marketing. We are excited to introduce this innovative beverage line for those seeking a new form of refreshment onward.
Kim Rivers: <unk> beverages comes in a variety of delicious flavors, including three milligram, Italian spirits, and Peach Bellini five milligram, blueberry Mojito and sea Salt Margarita and 10 milligram passion fruit Martini. These cocktail alternatives are available online at drink onward dotcom for shipments of 36 states in the coming weeks, we will be piloting the.
Kim Rivers: Brand in select total wind locations in Florida check the website for locations in availability near your next month onward will be featured in select total wine stores with in store sampling events to support the brand pilot.
Kim Rivers: We are excited about this new category and look forward to announcing additional distribution partners.
Kim Rivers: In summary, the core business remains strong delivering outstanding financial results, while enabling continued investments in strategic initiatives. The team is laser focused on strong execution to best position truly for long term growth 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: We delivered full year 2020 core revenue of $1 2 billion up 5% from 2023 with higher revenue in retail and wholesale channels, new dispensaries increased productivity in existing dispensaries and a full year contribution of adult use sales in both retail and wholesale Maryland drove our revenue growth as Kim noted fourth quarter revenue.
West Gutman: 301 million improved 6% sequentially due to strong traffic and record units sold.
West Gutman: Full year GAAP gross profit was 716 million on 60% margins compared to $589 million and 52% margins last year meaningful gross margin improvement was primarily driven by lower production expenses and our disciplined approach to promotional activity.
West Gutman: Gross margin improved each quarter this year as we realize greater economies of scale and efficiencies across our platform.
West Gutman: Third quarter GAAP gross profit was $187 million was 62% margin, representing a 1% improvement sequentially.
West Gutman: Gross margin will continue to fluctuate quarter to quarter, depending on product and market mix inventory sell through promotional activity and idle capacity costs for the full year 2020 for SG&A expenses were $510 million or 43% of revenue compared to 386 million or 34% of revenue in 2023 higher SG&A.
West Gutman: <unk>, new store opening expenses technology, and infrastructure investments and support for the smart safe fully campaign.
West Gutman: <unk> expenses in the fourth quarter were $158 million or 52% of revenue comparable to the third quarter.
West Gutman: Net loss was $155 million for the full year 2024, compared to a loss of $527 million in 2023 net loss would have been $19 million in 2024, excluding nonrecurring charges.
West Gutman: Fourth quarter net loss was $60 million comparable to the third quarter.
West Gutman: Fourth quarter loss per share was 27 compared to a loss of 33 in the third quarter.
West Gutman: Excluding nonrecurring charges fourth quarter earnings per share would've been <unk> compared to a loss of <unk> <unk> in the third quarter.
West Gutman: Full year 2024, adjusted EBITDA was $420 million up almost 100 million compared to $322 million in 2023.
West Gutman: Fourth quarter, adjusted EBITDA was $111 million or 37%.
West Gutman: Fourth quarter, adjusted EBITDA margin reflects industry, leading gross margin and expense control in our core business.
West Gutman: Turning now to our tax strategy as a reminder, truly with the filing of amended returns starting with our 2019 tax year and continuing through today adopted a tax position challenging the applicability of $2 80 to our business to date, we have received refund checks over $114 million.
West Gutman: On a resolution to our approach may ultimately take years to conclude in the interim we continue to accrue an uncertain tax position on our balance sheet, while realizing lower cash tax payments upon.
West Gutman: Upon rescheduling of candidates to schedule III, the 280 tax burden would be removed effectively capping the downside risk to our tax challenge, notably if the impact of <unk> will removed 2024 results, which youll positive net income.
West Gutman: Moving on to our balance sheet, we ended the year with $300 million in cash and investments and $480 million of debt given the strength of our cash generation, we remain well positioned to address our near term financial obligations, we have $368 million in private placement notes maturing October 2026, we plan to retire at least hassle to notes and refinance the remainder.
West Gutman: Later this year.
West Gutman: Shifting to cash flow fourth quarter cash flow from operations totaled $31 million capital expenditures were $43 million with free cash outflows of $12 million absence of campaign contributions cash flow from operations would have been $86 million in free cash flow would have been $43 million.
West Gutman: Full year cash flow from operations totaled $271 million with free cash flow of $150 million.
West Gutman: Capital expenditures totaled $122 million for the year.
West Gutman: In 2024, we opened 31, new dispensaries and acquired two locations.
West Gutman: Turning now to our outlook based upon the visibility that we have today, we anticipate first quarter revenue will be down low single digits sequentially.
West Gutman: Typically first quarter results were seasonally slower following the holidays, we anticipate gross margin will fluctuate quarter to quarter and generally will be in line with the reported gross margin for full year 2024.
West Gutman: We expect full year cash flow from operations of at least $250 million and capital expenditures of up to $40 million we.
West Gutman: We plan to open 10 stores this year we.
Ken: We may refresh our forecast later this year, depending on the timing and progress for catalysts I look forward to working with the team in driving continued improvement this year with that I will turn the call back over to Ken.
West Gutman: Yeah.
Ken: Thanks, Wes momentum for comments on cannabis reform continues to build as demand for legal cannabis gross 2025 could be a pivotal year for the industry with potential progress on safe banking and rescheduling, we remain optimistic that the Trump administration will work to address in equities for state legal operators, including access to banking.
Ken: Expanded research and normalized tax rates American cannabis companies with hundreds of thousands of employees, who serve millions of customers deserve to operate on a level playing field repatriation of investments for U S companies to major exchanges would expand access to capital, allowing responsible state legal operators to further invest in <unk>.
Ken: Customers and employees within our cornerstone markets, we firmly believe that Florida, and Pennsylvania will eventually adopt adult use cannabis legalization.
Ken: You already have.
Ken: <unk> in both states support adult use cannabis.
Ken: Hopefully crafted programs contribute to tax revenue and allow law enforcement to focus resources on dangerous stripped out drugs such as fentanyl.
Ken: Truly we will continue to share the many benefits of the legal industry with elected officials and relevant decision makers empower to enact change.
Ken: The absence of reform U S. Legal cannabis sales are forecasted to reach $36 billion. This year up from 32 billion in 2020 for growth is fueled by increasing demand as consumers choose cannabis for relief and recreation.
Ken: Average to raise awareness and educate the public about the many benefits of legal cannabis continue to chip away at the stigma and misconceptions surrounding the plant.
Ken: Legal cannabis provides a viable alternative to pharmaceuticals, and alcohol offering safe and tested products for patients in adults truly theres been a staunch advocate for reform and expanded access to cannabis and we will continue continue to lead with action and purpose with our scaled operations financial strength and loyal customer base truly.
Ken: Stands out among peers as an industry leader with a differentiated strategy.
Ken: As I've said before I wouldn't trade hands with anyone in the industry. Thank you for joining us again and as I always say onward.
Speaker Change: At this time, Kim rivers, and West Gutmann will be available to answer any questions. Operator, Please open up the call for questions.
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 are using a speakerphone please pick up your handset before pressing the keys.
Speaker Change: To withdraw your question. Please press Star then two.
Speaker Change: Once again that was star then one to ask a question at this time, we will pause momentarily to assemble the roster.
Speaker Change: And our first question will come from Luke Hannan of Canaccord Genuity. Please go ahead.
Luke Hannan: Thank you good morning, everyone and congratulations on the results Jim I just wanted to ask for your perspective for the year ahead.
Luke Hannan: West gave great color in your prepared remarks on high level, what you expect to see.
Speaker Change: Throughout the course of the year, but I'm, specifically curious on Florida, and sort of what you've seen thus far since the vote in November as far as I mean, there are some folks that.
Speaker Change: Perhaps thought the bottom end of the market might begin to fall out now that adult use hasnt come to fruition just yet is that similar to what youre seeing in the high level. What are you expecting as far as pricing in Florida over the near term. Thanks.
Speaker Change: Sure. Thanks, Thanks, Luc and so I continue to be to be bullish on Florida, and I've always said and it remains true today that Florida is in my opinion and the best the best market in the in the United States.
Speaker Change: And.
Speaker Change: I think that for us in particular.
Speaker Change: We have and as I think some of you know our large scaled operation from a cultivation and production standpoint in Florida, and we have been able to maintain our pricing and I think that really I think what is a key differentiator for trillium is the fact that the quality of our products.
Speaker Change: Remains high and in fact has actually increased and when you look at are both are our yield as well as our effectiveness and our only grow fire program and our THP percentages had been particularly outstanding in Florida, and so we have not changed.
Changed our pricing structure or pricing dynamics in the state of Florida, and it has had an incredible stickiness with our customers and I think really again, it's that.
Speaker Change: And that brand promise that comes through over and over and over again and we believe that our customers are loyal as a result, most of that shows up in a number of metrics right, we talked about our customers.
Speaker Change: Loyalty metrics, we talked about our net promoter scores, we talked about our our our loyalty program and really again I'm really proud of the team in Florida to continuing to continue to focus on the core business and really even in a year with a lot of external.
Speaker Change: <unk> [laughter] external activity happening and particularly in the state of Florida, So and.
Speaker Change: That may be true for some folks.
Speaker Change: But candidly.
Speaker Change: For from our lens and from my lens, and Florida remains a fantastic market for Edison and we see great great things ahead in this market.
Speaker Change: That's great. Thank you for that and maybe sort of a follow on to that you talked about during the year I think it was 29 dispensaries that you had to refresh and then you had mentioned for the year ahead, just youre going to refresh remodel up to 45 dispensaries, how do the returns on capital for those refreshes compare to opening new stores.
Speaker Change: Relocating some of those older stores and then also what exactly is sort of involved and the refresh of the store compare to those to other activities.
Speaker Change: Sure well I mean.
Speaker Change: Store opening obviously is it varies depends on whether it's a ground up build or whether it's a.
Speaker Change: White envelope kind of.
Speaker Change: Remodel or if it's literally a remodel or an exit some sort of an existing facility. So that can be very different depending on the specific requirements of the site.
Speaker Change: Our refresh similarly can vary across across locations right. I mean, we have some stores in our platform now that are seven years old.
Speaker Change: And the state of Florida, and so those stores if there is.
Speaker Change: They're on the books for a refresh and some cases can be expensive and but in other cases, we're literally talking about an updated floor plan for a more efficient customer flow and traffic flow.
Speaker Change: We're continuously looking at all aspects of our business you know when folks think about efficiency oftentimes they think.
Speaker Change: Only about our cultivation, our production sites, but in reality, we've done a lot of work over the last 12 to 18 months around the customer experience and candidly the employee experience in our stores as it relates to <unk>.
Speaker Change: Inventory flow and.
Speaker Change: Service levels and.
Speaker Change: Some of that is physical in nature, and so it really does vary and per per state and per location.
Luke Hannan: Luke and so I can't really give you a specific answer there in general, though I would say of course refreshes are going to be significantly less capital intensive than our new store open or a new store build.
Speaker Change: I will tell you just my personal philosophy is that it is critical that we are constantly.
Speaker Change: Looking back at our store footprint, because and I think it's a <unk>.
Speaker Change: Policy to try and save money on your stores.
Speaker Change: That's the first place that brand degradation I believe are one of the first places that brand degradation can occur and if you look at you know retailers over history, what as soon as they.
Speaker Change: Stopped spending money on their on their stores right in the perception and customer experience fell off quickly thereafter. So that is an important part of that is part of our DNA and youll see that from us and probably every year moving forward.
Speaker Change: Understood. Thanks last one here and then I'll pass the line on the onwards beverage announcements can you just give us a look.
Speaker Change: Behind the scenes how much work has been going on in the background, leading up to this announcement and then what really put you guys over the edge to to go forward with this strategy.
Speaker Change: So we are super excited about about this category and.
Speaker Change: Entrepreneurship is in our DNA and right you've got folks that are actually leave that I've started here when we started and certainly a lot of folks around the executive table that has been here for many many years and so and it's exciting for us to be able to you and kind of put that entrepreneurial hop back on and jump into and really good I believe.
Speaker Change: Finally, the good products start with.
Curiosity.
Speaker Change: And really and this team over the last year Dove headfirst into trying to understand the beverage segment.
Speaker Change: In total a lot of research a lot of talking with companies that are currently in the business a lot of products.
Speaker Change: Testing and sampling and traveling and really talking to anyone and everyone, who would who would talk to us about the beverage category.
Speaker Change: And for US, we believe that we saw white space and in the current offerings and our ability to lead with education and lead with our competency and candidly within the THC space and is a differentiator along with our ability to understand.
Speaker Change: Growth in how to scale, a particular, a particular business and so this is not a I would just say this is not like a fly by night, we're not approaching it that way and we are approaching it with a <unk>.
Speaker Change: <unk> towards growing an actual <unk>.
Speaker Change: Bottom line in a business and within <unk> and we're starting it similar to how we approach, Florida, which for those of you who remember it was with again a crawl walk run approach right now we're trying to learn everything we possibly can about this group of consumers and about this particular segment of the market and so.
Speaker Change: The partnership with total wine was intentional because we will be able to get significant data insights as well as and the in store sampling in markets, where we have physical presence. So the markets that we chose to enter with them are markets, where we have folks on the ground teams on the ground, who can interact with customers and.
Speaker Change: Who can interact with sales associates to again get that feedback loop going which was so critical and continues to be critical in the truly DNA in terms of how we make adjustments to our offerings in our approach and so going in with a premium product targeted to and the alcohol consumer and <unk>.
Speaker Change: Looking on that transition conversation and away from alcohol and into a hemp derived THC beverage using nano almost emulsified and ingredient to have consistency of impact to.
Speaker Change: Prepared that TFC with with.
Speaker Change: CBD to ensure that it's a I'll call. It a smoother experience as opposed to some of the other products that are currently on the market. We put a lot of work and some formulation and to really ensuring that again the brand the ingredients the experience and both on a product level and the customer experience as much as we are able to interface. There is.
Speaker Change: Really top tier so.
Speaker Change: And there is product and Theres new lines that are going to be coming at mers and product expansion, that's going to be coming soon and again looking forward to a continued rollout and across the state of Florida. We are going to focus on Florida first and then once we feel that we're comfortable you'll see some pretty rapid expansion from there as far as distribution as can.
Speaker Change: <unk> of course, it's direct to consumer available in 36 states today.
Speaker Change: That's great. Thank you very much I appreciate the commentary.
Speaker Change: Thanks Luke.
Speaker Change: The next question comes from Don Angela Volpi of Beacon. Please go ahead.
Speaker Change: Hey, good morning, guys and congratulations on the results I'm, calling on behalf of our Russell Stanley.
Speaker Change: So first regarding on Arizona.
Speaker Change: Up to 'twenty two dispensaries in this market how are you thinking about further growth here and would you add more retail or what other growth options are available are attractive.
Speaker Change: Sure are you talking about Arizona specifically.
Speaker Change: And if you could touch yes, if you could touch on other growth opportunities that also would be appreciated.
Speaker Change: Yeah sure. So Arizona remains one of our cornerstone markets and we had a recent and store opening announcement in Arizona that store has performed exceptionally well for us and.
Speaker Change: And kudos to that team and for really again, hitting the ground running and not location.
Speaker Change: Our brands and Arizona continue to gain momentum.
Speaker Change: To begin resonating with that consumer base out in Arizona, we have been very focused on that and very focused on now that we have our entire footprint rebranded under the truly banner.
Speaker Change: <unk> part of that strategic positioning was to get our brands.
Speaker Change: And in more consumers' hands and to grow our brand awareness and Arizona, which we're making good strides against in that market.
Speaker Change: Not only in Arizona, but in any of our markets and we're always evaluating the opportunities for growth and certainly you also saw that we just opened a store in Ohio. As an example, and are again constantly looking for the opportunity to grow the business in markets, where that makes sense for us.
Speaker Change: I want to point out and just highlight again, though the tremendous growth that we've had which highlights again the focus on our on our brand.
Speaker Change: Our brands across the across the country in our wholesale channel and that team really took the initiative that we gave them throughout the year to grow that channel seriously and have done an amazing job on leaning in and not only growing the units sold but also significant margin improvement.
Speaker Change: Again, focusing on the products that not only makes sense from a margin perspective, but also that are resonating with consumers again across across the country. So.
Speaker Change: Super proud of that team and they are in their focus there as well.
Speaker Change: Our cornerstone markets continue to be.
Speaker Change: Bright spots for us and look some of the growth. We're very encouraged about the news that has been coming out of Pennsylvania over the last week or so and as that market continues to.
Speaker Change: Appear poised for adult use through the legislature.
Speaker Change: And of course are watching other developments in other markets across the country as well.
Speaker Change: Okay. Thank you and then just one more question for me on.
Speaker Change: Georgia.
Speaker Change: We're standing this market is still in its infancy, but can you talk on that growth trajectory and how it compares to your expectation.
Speaker Change: Even how it compares to Florida years ago.
Speaker Change: What regulatory changes might we need to see to help accelerate growth here.
Speaker Change: Yeah sure so I remain very.
Speaker Change: Optimistic about Georgia, and the growth trajectory states will move at different paces dependent on where are they start as well as again sort of the.
Speaker Change: A lot of times, it's more process oriented as it relates to the legislature and how they operate and so.
Speaker Change: We are starting to see I'll call. It additional signs of life and in Georgia as it relates to willingness of legislators to have meaningful conversations and to engage on the issue of cannabis. We did see some programmatic changes that are meaningful to folks that are on the ground. There as it relates to how folks are actually getting their cars.
Speaker Change: And the speed at which they're getting their cars and Thats very similar Q, Florida in its infancy in Florida, I remember back when the program started and it took folks three months.
Speaker Change: You get a card and they were literally passport photos that you had to take that would then get rejected by the department of health. If your ear was showing as an example are there was a shadow and so and there.
Speaker Change: There are growing pains.
Speaker Change: Regulated program and so it is similar for my experience to what we did experience in Florida.
Speaker Change: And again, we're going to continue to be on the front lines. There were very active in Georgia as it relates to the legislative process and we're going to continue to push push for change there as well.
Speaker Change: Okay. Thank you.
Speaker Change: I'll hop back in the queue.
Speaker Change: Alright. Thanks.
Speaker Change: The next question comes from Aaron Grey of AGP. Please go ahead.
Aaron Grey: Hi, good morning, Thanks for the questions and congrats on the quarter.
Aaron Grey: So first question for me just wanted to dive a bit deeper in terms of the traffic rates up 13%.
Aaron Grey: So great job there I know thats for the whole company, but I just wanted to dive a bit deeper maybe in terms of Florida and I'm sure that was the big driver. There. So any color you could provide in terms of how much of that was capturing new patients stealing share of existing patients. How much would you attribute that to the loyalty program any color you could provide from surveys you conducted.
Aaron Grey: Or otherwise that helped drive that performance there. Thank you.
Aaron Grey: Sure So and we gave a couple of metrics, we talked about our and our that we were up in terms of our and retention or customer retention and in medical only markets, which of course, Florida is our leading medical only market I believe it was 76%.
Aaron Grey: On the customer attention and that's obviously, a very important metric for us and that customer stickiness.
Aaron Grey: Report, which we look at we look at pretty regularly and here at <unk> and the other thing that we talked about right was and then you guys to get every week is our market share in Florida, which has remained.
Aaron Grey: Really strong and is continuing to pretty much grow in line with the Florida market. Overall, so we're we're keeping pace with those increased units and I will tell you in Florida and in really in all of our states where we have.
Aaron Grey: The loyalty program launch it is a very robust program our customers love it our patients love it and they are using it and so as we mentioned right. When you have an astounding figure that loyalty program users are are responsible for over two times the revenue or <unk>.
Aaron Grey: Non loyalty folks obviously, that's going to lead to increased traffic right. So those folks are coming back more frequently which is part of part of the the intentionality behind our loyalty program right.
Aaron Grey: To serve up those customers on offers and offerings that are personalized based on their spending patterns and incentivize them to come in and use that and that loyalty program to take advantage of the offers that are presented so I think it's really a combination and I will also say that and again.
Aaron Grey: Again, because of our quality and consistency and the pricing tiered structure that has been in place now with us for a while I do believe that that is continuing to resonate and speaks to the broader consumer base and along with our ability to reach out and capture.
Speaker Change: New patients are first time patients, which has always been a key component to our strategic positioning in all markets, but certainly we we cut our teeth on that here in the state of Florida and that continues to be to be a material focus for us.
Speaker Change: Really appreciate that color that was helpful.
Speaker Change: Second question for me and apologies, if you talked to us in some of the prepared remarks, but just in terms of capital allocation. So cash flow of operations expected at least $250 million Capex 40, so over 200 after that so how should we best think about the allocation there.
Speaker Change: Do you think about addressing the balance sheet do you see potential for some M&A opportunities. So just how best to think about that.
Speaker Change: Just given the current position that you have on taxes and otherwise thank you.
Speaker Change: Yeah for sure so and yes, we did we did touch on and touch on it in our prepared remarks, we are looking.
Speaker Change: Looking to retire some debt this year and feel like we're in a great position to be able to do that and and we also of course love to have as you know optionality.
Speaker Change: The business and our ability to lean in and to opportunities as they are presented and so that continues to be a key differentiator for us, particularly with some of the I'll call. It instability in other in other companies and in this business and so we are in this industry rather.
Speaker Change: And so and look we are going to also continue to lead from the front as it relates to reform opportunities across across the country and whether that be in a state like Pennsylvania for example, or and wanted to make sure that we're ready and.
Speaker Change: <unk> dollars on hand to take advantage of those opportunities when they when they present themselves and when they actually come into into reality and in addition of course Theres a federal conversation that's happening as well and it's just in our DNA. We're just we lead from the front. So we're going to we're going to continue to do that but we also are.
Speaker Change: You know I think incredibly disciplined in ensuring that we have flexibility and we have the cash available to act when when those opportunities present themselves. So.
Speaker Change: Lucas for this year is absolutely in our balance sheet and ensuring that we are in.
Speaker Change: We are we get some of that debt and cleaned up and then again forward looking opportunities that.
Speaker Change: It's an exciting time as far as as far as we're concerned.
Speaker Change: Yeah.
Speaker Change: Okay, great. Thanks for the color, there and I'll jump back in the queue.
Speaker Change: The next question comes from Andrew Semple of Echelon capital markets. Please go ahead.
Andrew Semple: Good morning, Thank you for taking my question here.
Speaker Change: Let me stay on the balance sheet.
Andrew Semple: So I'm going to ask.
Speaker Change: It looks like the <unk>.
Andrew Semple: On certain tax position that truly right.
Andrew Semple: Crossed the halfway mark in either Q1 or Q2 2020.
Andrew Semple: Five.
Andrew Semple: I'm just wondering with the strong results youre seeing in your cash flow from operations improving is there any plan to slow down past accruals.
Andrew Semple: Also given what we've seen from the.
Andrew Semple: Federal administration, so far or are you comfortable letting that im sorry.
Andrew Semple: Uncertain tax position.
Andrew Semple: Continue to build over the course of this year.
Andrew Semple: Thanks, Andrew Yes.
Andrew Semple: <unk> is going to continue you can infer the growth by the delta between kind of pvt, and gross profit.
Andrew Semple: Which will continue throughout 2025.
Andrew Semple: So don't expect any changes there as it relates to the accrual.
Andrew Semple: We've made our position and that's kind of where we're going to stick. So if you want to kind of project out what that accrual looks like again, it's just the delta between gross profit and pvt.
Andrew Semple: We have roughly 25% effective tax rate and that will kind of walk you out what the <unk> look like throughout the rest of the year plus there is obviously some interest expense being a true if you look in footnote 16, youll see about $30 million.
Andrew Semple: Yeah, Andrew I would just say a couple a couple of things one keep in mind that that number also includes the $115 million of cash refunds that were issued.
Andrew Semple: So I think that's an important point too and also keep in mind that we are paying taxes. So this is again a differentiated strategy here and we are paying taxes and every single quarter.
Andrew Semple: Based on again and are filed a petition with with the with the administration with the IRS and that being said I and we have been very clear about this and we.
Andrew Semple: We don't believe that there has been any changes as it relates to indications from the administration I mean, I think you're inferring that theres been some sort of a negative stance their posture.
Andrew Semple: I certainly have not seen that and so as it would relate to our strategy around taxes and so you know.
Andrew Semple: We are maintaining our position and feel good about it and I've said all along I think we've said all along that.
Andrew Semple: The likely outcome here is litigation, which we.
Andrew Semple: Again, our are ready for and and so.
Andrew Semple: So yes. There is at this point, we don't see any any need for any kind of a pivot as it relates to our current position.
Speaker Change: Got it that's helpful and then my follow up here.
Andrew Semple: Tears.
Andrew Semple: Margins.
Andrew Semple: It's been an impressive March higher.
Andrew Semple: Sure the gross margin profile for us.
Andrew Semple: Five or six quarters here at the low end.
Andrew Semple: <unk> was just north of 50%, so youre up 12 percentage points on our gross margin profile.
Andrew Semple: And in the prepared remarks.
Andrew Semple: Speaking to opportunities for us.
Andrew Semple: And our focus on additional efficiency gains in 2025, maybe just your overall outlook on margin.
Andrew Semple: Margin profile from here can you maintain these levels of 60% or is it going to be tough with some of the pricing pressures.
Andrew Semple: Your peers are talking about continuing.
Andrew Semple: Into the year ahead.
Andrew Semple: Yeah. So what we said in the prepared remarks is that we would we.
Andrew Semple: We would point to a full year gross margin in 2025 of approximately 60%.
Andrew Semple: Line with full year of 2020, 'twenty 'twenty four right, it's always going to ebb and flow a bit quarter to quarter depending on specific.
Andrew Semple: Facts and circumstances that are happening within that quarter, particularly as it relates to product mix.
Andrew Semple: Et cetera. So we obviously had some some great margin performance and the end of 'twenty 'twenty, four and look where we make and I think we're we've got credibility in this in this area because we've outperformed against every every one of our peer set in this area and so we're going to continue to be head down and focused on efficiency gains.
Andrew Semple: So as I said throughout the entire value chain.
Andrew Semple: That being said right I mean look the reality is is that the team has done a phenomenal job over the last.
Andrew Semple: 12 months.
Andrew Semple: To to your point to get the margins up at the rate that they have.
Andrew Semple: In some of our larger scale assets for example, just co and some others, where we're pretty much. There. We think I mean, there may be again, some tweaks here and there and but so.
Andrew Semple: Im not seeing at this particular moment.
Andrew Semple: Step function increase like you had over the last 12 months now again. This team is very they are very focused and they are very disciplined around around and efficiencies and so we may have another breakthrough and it's just not on my radar today, but and so I think youre going to start to see consistency in <unk>.
Andrew Semple: And from US in 2025, which look its best in class and I am incredibly proud of the team for what they have for what they have achieved I mean look you can compare our business really any other consistent.
Andrew Semple: In our retail manufacturing sector and I think we would still we continue to stand out there too.
Speaker Change: Great. That's helpful. Thanks for taking my questions and I'll turn over the line.
Andrew Semple: Okay.
Andrew Semple: The next question comes from Brenna, Cummington ATB capital markets. Please go ahead.
Andrew Semple: Hi, This is Brent on for Frederico Congrats on the results this quarter and thank you for taking my questions.
Andrew Semple: First of all I, just wanted to say a nice touch on the beverages line name I like that.
Andrew Semple: So I was just looking at the different markets that you're in starting with Arizona, We know that the market was experiencing some issues last year with the weather impacting yields.
Andrew Semple: But it looks like that she just starting to recover a little bit. So just wanted to get some color on how the supply demand dynamics are in Arizona, and if you think about the weather related issues our results for now.
Andrew Semple: Yeah, I mean listen whether it's a funny thing right.
Andrew Semple: In Florida.
Andrew Semple: We had six inches of snow in Tallahassee, This december's, though.
Andrew Semple: Difficult.
Speaker Change: And it could be too predictive as it relates to the weather swings across across our states and Arizona did have a particularly brutal and brutal brutal summer there for a bit and that does seem to have mellowed out a little I mean, we'll see right. I mean end of Q2 and early Q3 is always kind of the tell tale.
Speaker Change: Our season for for that market, and but I will say as I as I said earlier, you know, Arizona and look at it it has been a challenging market for a lot of folks just given kind of where where it has been as it relates to pricing pressure and compression.
Speaker Change: Consumer behavior, and kind of that post COVID-19 in that.
Speaker Change: Post Covid world and not in that state. So, but we are seeing stability come back to that market and we are we are personally having a truly from chili's perspective.
Speaker Change: Really increased and improved success with our brands. There we had a huge initiative last year to rebrand and reposition all of our stores and to launch in a very meaningful way our internal brand portfolio. We were successful in doing both of those things and really in that market to me seems to be really.
Speaker Change: Coming together under the truly banner and a very meaningful way and we also launched loyalty and Arizona, which were seeing great initial success around which is also interesting for us because that's our adult use market, where you know, giving personal information or having a database where you can connect with those folks on.
Speaker Change: Recurring basis is incredibly valuable and something that it's more difficult to achieve and so our loyalty program has given us that capability and we're seeing we're starting to see pull through from those efforts in that market now as well, we just as I mentioned before and just launched and are opened a new store, there, which is doing incredibly well so.
Speaker Change: I would tell you that we are seeing and I'll call. It some some rebounding happening and in Arizona.
Speaker Change: But it's it's not going to be zero to 60, and overnight and hopefully to your point the weather the weather will cooperate with us in 2025 here.
Perfect Fair enough.
Speaker Change: And then lastly, just looking at West Virginia is the state that we don't hear about Super often and from what I recall over the state that the company was planning on doing some investments and so would just love to get a general update on how those are going your general funds receipts and market dynamics.
Speaker Change: Sure, So I'll West, Virginia, and we have a number of stores and in West, Virginia, and and it is going.
It's going well West Virginia is a little bit different and in terms of consumer profile and our value portfolio does really well in west Virginia.
Speaker Change: We have done some made some tweaks there to our cultivation and production facilities as we continue to learn more and more about consumer preferences, there and pricing and portfolio mix with our internally branded products. So.
Speaker Change: For example, we just launched a larger format and flower.
Speaker Change: Offering and in West Virginia that has done really exceptionally well that was a very recent launch of ours and so I wouldn't say I would characterize west Virginia as relatively steady, although it's interesting because some of the I'll call. It smaller maybe.
Speaker Change: Single state players in West, Virginia, and our I think we've seen some closures and some consolidation. So we will continue to watch that market and for growth for growth opportunities. Obviously, its a relatively small market for us in our portfolio, but yeah.
Speaker Change: Yeah, I mean, west Virginia that team.
Speaker Change: Again, it's about knowing our customers and knowing.
Speaker Change: What in our portfolio, we can offer to really service the wants and needs of that particular customer base.
Speaker Change: Makes sense. Thanks, so much I'll jump back in queue.
Speaker Change: Great.
Speaker Change: This concludes our question and answer session I would like to turn the call back to Christine Hersey for any closing remarks.
Speaker Change: Thank you for your time today, we look forward to sharing additional updates during our next earnings call.
Speaker Change: Thanks, everyone have a great day.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.