Trulieve Cannabis (OTC:TCNNF) Corporation reported solid financial results for the third quarter of 2023, exceeding expectations with revenue of $275 million, a gross margin of 52%, and adjusted EBITDA of $78 million. The company has focused on cash generation, preservation, and investments for long-term growth, resulting in improved financial performance. Trulieve is prepared for accelerated growth as potential federal reforms and adult-use programs are on the horizon.
Key takeaways from the call:
- Trulieve experienced significant growth in retail traffic and sales per store in Q3, leading to increased production to meet demand.
- The company opened its first medical dispensary in Columbus, Ohio, and is prepared to serve adult-use customers pending regulation and regulatory approvals.
- Trulieve plans to reduce debt through open market purchases and redeem $130 million in senior notes, saving approximately $20 million in interest expenses.
- The company expects fourth-quarter revenue to be slightly lower due to various factors but remains optimistic about potential federal reform and the removal of punitive tax burdens.
- Trulieve aims to exit 2023 with lower expenses, normalized inventory levels, and reduced debt and interest expense.
In the earnings call, CEO Kim Rivers spoke about the company's plans for a more user-friendly, integrated program for consumers across all their markets. She also discussed the company's tax payment strategy, their bullish stance on Florida, and plans for additional retail locations. The company anticipates a favorable vote for the adult-use market in Florida, with polls showing approximately 70% support without active campaigning.
Rivers also discussed the company's efforts to improve its consumer demand and product mix, with a focus on transitioning customers to higher margin and higher-quality products at a lower cost. She noted that Trulieve's revenue per store in Florida is higher than that of its competitors.
The company's priority for generated cash is to pay down debt and make investments in expansion and retail. Trulieve has invested in a 4-million-square-foot cultivation production facility, which provides them with a competitive edge. The company plans to focus on expansion, retail, and core investments in an integrated commerce environment in 2024.
The earnings call concluded with a reminder to expect updates during the next earnings call. The company's ticker is NASDAQ:TCNNF.
InvestingPro Insights
In line with Trulieve Cannabis Corporation's focus on long-term growth and cash generation, InvestingPro data and tips offer some interesting insights. With a current market cap of $909.23M, the company has seen a strong return of 18.57% over the last three months. However, it's worth noting that the stock price movements have been quite volatile, as indicated by InvestingPro Tips.
The company's revenue, as of Q2 2023, stands at $1182.42M, with a growth rate of 2.51%. Despite this growth, the company's earnings per share show a declining trend and it has not been profitable over the last twelve months. This aligns with the InvestingPro Tip that highlights the company's significant debt burden.
Interestingly, three analysts have revised their earnings upwards for the upcoming period, suggesting an optimistic outlook. This optimism is further echoed by the prediction that the company will be profitable this year. This information may be particularly valuable to investors, especially when combined with the 100+ additional tips available through InvestingPro's premium service.
In conclusion, while Trulieve faces challenges, including a significant debt burden and volatile stock prices, the company's focus on cash generation and long-term growth, coupled with positive analyst predictions, paint an encouraging picture for future performance.
Full transcript - TCNNF Q3 2023:
Operator: Good morning, everyone, and welcome to the Trulieve Cannabis Corporation Third Quarter 2023 Financial Results Conference Call. My name is Danielle, and I will be your conference operator today. As a reminder, this conference call is being recorded. And I would now like to introduce your host for today's conference, Christine Hersey, Vice President of Investor Relations for Trulieve. You may begin.
Christine Hersey: Thank you. Good morning, and thank you for joining us. During today's call, Kim Rivers, Chief Executive Officer; and Ryan Blust, Interim Chief Financial Officer, will deliver prepared remarks on the financial performance and outlook for Trulieve. Following the prepared remarks, we will open the call to questions. This morning, we reported third quarter 2023 results. A copy of our earnings press release and PowerPoint presentation may be found on the Investor Relations section of our website, www.trulieve.com. An archived version of today's conference call will be available on our website later today. As a reminder, statements made during this call that are not historical facts constitute forward-looking statements, and these statements are subject to risks, uncertainties and other factors that could cause our actual results to differ materially from our historical results or from our forecast. Including the risks and uncertainties described in the company's filings with the Securities and Exchange Commission, including Item 1A Risk Factors of the company's annual report on Form 10-K for the year ended December 31, 2022 as well as our periodic quarterly filings. Although the company may voluntarily do so from time to time, it undertakes no commitment to update or revise these forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. During the call, management will also discuss certain financial measures that are not calculated in accordance with 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 an isolation or as a substitute for Trulieve's financial results prepared in accordance with GAAP. A reconciliation of these non-GAAP measures to the most directly comparable GAAP measures is available in our earnings press release, that is an exhibit to our current report on Form 8-K that we furnished to the SEC today and can be found in the Investor Relations section of our website. Lastly, at times during our prepared remarks or responses to your questions, we may offer metrics to provide greater insight into the dynamics of our business or our financial results. Please be advised that we may or may not continue to provide 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. We are excited to share our third quarter results and provide an update on the considerable progress made on our plan for 2023. Before diving in, I want to emphasize what an incredibly exciting time this is for the industry and for Trulieve. Several significant catalysts are on the horizon, including potential rescheduling of cannabis to Schedule 3 progress on broader federal reform and adoption of adult use programs in markets such as Florida, Ohio, and Pennsylvania. For Trulieve, the timing of these developments couldn't be better. Just as the outlook for U. S. Cannabis has brightened, all the steps we have taken to strengthen our competitive position are driving a meaningful improvement in financial results. Initiatives this year are focused on three pillars; cash generation, cash preservation, and investments to support long term growth. Third quarter results clearly demonstrate the efficacy of our approach with better than expected revenue, lower expenses, reduced inventory, and improved cash generation. Our team has done a phenomenal job prioritizing efforts to deliver on our plan and set the stage for future growth. Third quarter revenue of $275 million exceeded guidance, gross margin of 52% improved by 2%, demonstrating a balance between increased branded products through branded retail, promotional activity, cost reduction, idle capacity costs, and inventory reduction initiatives. GAAP SG&A expenses were further reduced this quarter, reflecting the benefit of multiple cash preservation initiatives across the organization. Adjusted EBITDA was $78 million, or 28% margin, representing our 23rd consecutive profitable quarter. Our relentless focus on cash drove third quarter operating cash flow of $93 million and free cash flow generation of $87 million. Company-wide efforts to improve efficiencies, lower expenses, and reduce inventory resulted in tax adjusted cash flow from operations of $184 million year to date. Before we move on to our balance sheet, I'd like to touch briefly on our tax position and strategy. Following Hurricane Idalia based on our location, we were granted an extension to make estimated tax payments for Q3 and Q4 in February 2024. In a separate development, Trulieve filed amended federal tax returns for several entities in October for the years 2019, 2020, and 2021, claiming a total refund of $143 million for taxes already paid. The amended returns are supported in part by a challenge to Trulieve's tax liability under Section 280E of the Tax Code. While the refund claims are under review, Trulieve intends to make tax payments as a customary U.S. taxpayer without tax liabilities associated with 280E. Turning now to our balance sheet. Cash at quarter end was approximately $200 million. With significantly improved cash generation, we have proactively taken steps to reduce debt. During the third quarter, we completed an open market purchase of $57 million of our 2026 notes at a 16.5% discount for $47.6 million. Yesterday, Trulieve announced the planned early redemption on December 1st of $130 million in senior notes due in 2024. With this combined reduction in debt, we expect to realize savings of approximately $20 million in interest expense that would have been paid through maturity. Trulieve remains aligned with our shareholders and is committed to strengthening our balance sheet with nondilutive measures while investing in growth initiatives. Investments to support growth have been designed to provide customers with access to legal cannabis products while delivering exceptional customer experiences. The investments made over the years to support this mission have positioned Trulieve as the largest legal cannabis retailer in the world. Investments made today are reinforcing our leading retail position while preparing for significant growth in traffic units sold and customers served. These investments are focused on three primary areas; one, perfecting the customer experience; two, delivering high quality products; and three, expanding access and distribution of legal cannabis. One measure of customer experience is customer retention, which remains steady quarter over quarter. With 65% of customers company wide and 74% in medical only markets returning, Trulieve aims to build lasting brand equity for the retail platform and branded products across the loyal customer base. In the coming months, we are launching new customer facing initiatives including a revamped website designed to prioritize mobile access and direct to consumer convenience as well as effortless product exploration, physician discovery, and store location assistance. In addition, we look forward to launching our revamped loyalty program beginning with Arizona before year end. Another area that Trulieve continues to invest in is our data platforms. Maintaining great customer relationships requires clear and effective messaging regarding products and promotions. Over a year ago, Trulieve began utilizing a proprietary customer data platform for targeted outreach and tailored messaging to customers. With this tool, we are able to make specific product recommendations based on prior purchasing behavior. The CDP also identifies the best time of day for messaging based on prior customer interactions and response rates. With embedded machine learning and artificial intelligence capabilities, as the platform continues to expand, the tool is learning to provide more sophisticated approaches and solutions. As traffic and customers served across our network increase, the platform becomes more useful in helping to refine and advance targeted outreach. A second key driver for customer satisfaction is consistently having high quality branded products available in the right place at the right price. Trulieve sells the highest volume of branded products through branded retail in the U.S., reaching over 11 million units of internal products sold, excluding wholesale during the third quarter. We continue to see growth in overall unit demand across our markets, supporting our thesis that cannabis continues to gain mainstream acceptance and adoption. In the current economic climate, mid and value tier brands, Modern Flower and Role 1, have gained popularity, contributing to higher sales of internal brand products. Interestingly, demand for premium products has remained relatively steady, reflecting the strength of our premium brand portfolio. We continue to meet evolving customer preferences, including production of our best-selling brands, while introducing new form factors and sizes across our markets. Following years of investment in production, Trulieve has amassed over 4 million square-foot of supply chain capacity. Our capacity is not currently fully utilized in all markets, providing significant flexibility to meet growing demand with minimal capital investment today and in the years ahead. With major investments in production capacity largely completed for the near term, our team is focused on driving efficiencies and yields at our existing sites. Our new state of the art 750,000 square-foot indoor cultivation facility in Jefferson County, Florida is fully built out and continues to ramp. Refinements to improved production will continue through year end. Progress made to date has been fantastic, with current yields outperforming expectation by 10%, making this our top performing facility company-wide. In addition, the cultivation team has been killing it with average potency at this site currently coming in at 28% THC. As a reminder, as this facility has ramped, some legacy capacity was temporarily idled to align production with demand. Given the progress made on our inventory reduction plan in Florida and continued growth in the medical market, we have restarted some idle capacity during the Q4. Higher yields at the new site and increased capacity utilization will help meet year-end holiday demand. Finally, at Trulieve, providing customers with access to legal cannabis products is at the heart of what we do every day. Investments to expand our retail and wholesale distribution network while opening new markets are ongoing. Today, Trulieve has the largest retail network of 190 dispensaries representing market leading positions in Arizona, Florida, Georgia, Pennsylvania, and West Virginia. Our growing retail network provides customers with greater convenience and ease of access to our high-quality branded cannabis products. In the third quarter, we added new locations in Florida, Georgia, and Ohio and launched recreational sales in Maryland. Investments made by Trulieve in Georgia exemplify our commitment to expanding patient access to cannabis products. We opened our fifth Georgia Medical Dispensary in September. Outreach and education efforts across the state are ongoing to raise awareness of the program and patient enrollment. Last week, we launched product distribution through independent pharmacies with our fifth pharmacy commencing sales today. Early progress on this initiative has been encouraging and we are optimistic that this unique distribution channel will provide Georgia patients with more convenient access to products. With the launch of recreational sales in Maryland, wholesale revenue doubled compared to the first quarter, while in retail third quarter traffic increased 235% and sales per store increased 175% sequentially. Our team did a fantastic job managing the increase in traffic while serving medical patients and adult-use customers. In the third quarter, we increased production at our Hancock facility to meet the increase in both retail and wholesale demand. In Ohio, Trulieve opened its first medical dispensary in Columbus in July. Just this week, Ohio voters passed a ballot measure to permit adult-use sales. Pending final regulation and regulatory approvals, we plan to serve adult-use customers at this location, marking our fifth adult-use state. At Trulieve, our commitment to advocacy is center to our mission. We are proud to be a driving force within the industry, working diligently to expand access to cannabis for medical patients and recreational consumers in new and existing markets. Over the next couple of years, we expect to realize significant growth as state level catalysts continue to come to fruition. Two of our top three markets, Florida and Pennsylvania, may launch adult-use programs by 2025. In these markets, Trulieve currently operates 149 medical dispensaries and has over 3 million square feet of production capacity. Given our scale and leading retail positions in both markets, alongside our financial strength, we are uniquely situated to accelerate growth when adult-use launches. With federal and state catalysts on the horizon and improved performance across the organization, we are carrying recent momentum forward. As we approach year end, our team remains focused on our three primary objectives, cash preservation, cash generation, and investments to support growth. Our industry leading retail network scaled operations in attractive markets and balance sheet place Trulieve in an enviable position as the industry moves forward towards the next phase of accelerated growth. With that, I'll turn the call over to Ryan.
Ryan Blust: Thank you, Kim, and good morning, everyone. Third quarter revenue of $275 million, declined 2% sequentially, representing improved performance compared to the 6% seasonal decline last year. The seasonal decline in retail revenue in Arizona and Florida was partly offset by increased wholesale revenue with strong performance in Maryland. Third quarter GAAP gross profit was $143 million or 52% margin representing a 2% improvement quarter-over-quarter. GAAP gross margin includes a 1% negative impact for idle capacity costs. Gross margin will continue to fluctuate quarter to quarter depending on product and market mix, inventory sell through, promotional activity and idle capacity costs. SG&A expenses in the third quarter were $94 million or 34% of revenue and improvement of $2 million compared to the second quarter. Reduced SG&A expenses are the result of ongoing efforts to lower core business expenses, including consolidation of production capacity and elimination of redundancies. Third quarter net loss was $25 million compared to net loss of $404 million in the second quarter. Third quarter loss per share was $0.13 compared to loss of $2.14 in the second quarter. Excluding non-recurring charges, third quarter loss per share would have been $0.08 flat compared to the second quarter. Third quarter adjusted EBITDA was $78 million, or 28%. Adjusted EBITDA reflects optimization efforts to maximize cash preservation and generation. We entered a quarter with approximately $200 million in cash. During the third quarter, cash flow from operations totaled $93 million, with free cash flow of $87 million. Inventory was reduced by $23 million in the third quarter as a result of targeted efforts to wind down specific volumes and product categories. Capital expenditures totaled $6 million in the third quarter and we expect Q4 CapEx to be approximately $10 million. Year-to-date, we have opened 15 new dispensaries and relocated five in line with our full year guidance. Turning now to our outlook. We anticipate fourth quarter revenue will be down low single digits, primarily due to the risk that revenue contribution from the Ohio VIEs may be deconsolidated from fourth quarter results contingent upon a receipt of financial information and also factor in informational activity and continued wallet pressure on consumer behavior. With respect to margins, we expect steps to streamline operations and reduce costs will benefit margins while idle capacity, holiday promotions and inventory reduction initiatives will pressure gross margin. Overall, our initiatives are driving significant cash generation. We are on track to exceed our target of $100 million in cash flow from operations and generate at least $70 million in free cash flow. We will exit 2023 having realized lower expenses, more normalized inventory levels, and reduced debt and interest expense. Kudos to our entire team for delivering on our key objectives this year. With that, I'll turn the call back over to Kim.
Kim Rivers: Thanks Ryan. It bears repeating this is an incredibly exciting time for U.S. Cannabis and for Trulieve. With meaningful federal reform and state market catalysts on the horizon, we are poised for accelerated growth. The recommendation by the Department of Health and Human Services to reschedule cannabis to Schedule 3 from Schedule 1 represents an explicit acknowledgment by the FDA that cannabis does in fact have medical value. Rescheduling would open the door for additional research, expanding our understanding of cannabis and potentially enabling broader development of products and formulations. A Schedule 3 classification would also definitively remove the punitive tax burden of Section 280E, driving a meaningful step up in financial performance for state legal operators. We are optimistic that rescheduling would eventually lead to further federal reform to address the growing divide between federal and state laws. While the industry awaits federal reform, state markets continue to expand through medical and adult use programs, spurring greater adoption and mainstream acceptance of tested and regulated cannabis products. In Pennsylvania, we remain optimistic that adult use could be enacted through legislation in the next 24 to 36 months. Governor Shapiro remains a steadfast supporter of adult use cannabis. With almost 13 million residents, we believe adult use could increase the Pennsylvania market to over $4 billion in annual sales. Given Trulieve's production capacity, branded product portfolio, and leading retail network, we expect to increase market share when adult use is adopted. In Florida, Trulieve is the largest supporter of the adult use Ballot initiative. The campaign has gathered over 1 million validated signatures, representing 7.5% of registered voters and surpassing the required threshold. The final hurdle for inclusion on the November 2024 ballot is an affirmative ruling by the Florida Supreme Court. Yesterday, the court conducted a hearing of oral arguments from the Smart and Safe Florida Campaign and the Attorney General regarding the Citizens Initiative. We believe that the campaign's lawyers properly conveyed their case to the court and remain hopeful that the justices will ignore the political rhetoric, stick to the law, and give Floridians the opportunity to vote on this important initiative. As a reminder, the court can issue an opinion anytime between now and April 2024. Once on the ballot, the initiative passes with 60% voter approval. With 22 million residents and 138 million annual tourist visits, we believe Florida will be the best cannabis market in the world, reaching $6 billion in annual sales. Trulieve maintains outsized market share in Florida, selling 130% more products than the state average, eclipsing all competitors. Given our scale, competitive production costs and ability to quickly flex up production with minimal investment, we are prepared to expand our market-leading position with this opportunity. This year, we successfully implemented meaningful changes to bolster our business resilience, just as we said we would do. By taking proactive steps to strengthen our balance sheet, streamline operations, and reduce inventory, we will exit 2023 as a leaner organization. With strong cash generation and a clearly defined strategy, Trulieve is best positioned for the coming wave of meaningful growth catalysts. I've said it before and it remains true today. I wouldn't trade positions with anyone in cannabis. Thank you for joining us today and as I always say, onward. At this time, Kim Rivers and Ryan Blust will be available to answer any questions. Operator, please open up the call for questions.
Operator: [Operator Instructions] The first question comes from Luke Hannon of Canaccord Genuity (TSX:CF). Please go ahead.
Luke Hannon: Thanks. Good morning, everyone, and congratulations on the strong results. Kim, I want to pick your brain, if I can, on just how you're thinking about the balance sheet and capital allocation here. Our quick math shows even with the repurchases of the 2024 notes and the chunk of the 2026 that you did in Q3, you should still finish the year in a fairly attractive cash balance position. Just curious to think about how we should be thinking about that going forward?
Kim Rivers: Yes, so we are absolutely incredibly excited about the position and the work that the team has done this quarter and continues through the end of the year as we execute against our initiatives. As we stated at the beginning of this year, really one of our primary goals was to focus on cash this year, and the team continues to do that which provides of course an significant optionality in the business. That's particularly important today given the catalysts that are in front of us. So as I mentioned, right, we had an incredible day yesterday with the Florida Supreme Court hearing and the oral arguments and the posture of that court definitely leaned positive as it relates to the possibility that the court would rule in favor of allowing the adult use amendment on the ballot. That of course is the single biggest catalyst for Trulieve and I would argue for the industry if in fact we are able to get that measure on the ballot and then approved in November. With that of course, we're going to continue to invest in Florida and of course, as a leading retailer, I feel very comfortable continuing to invest in retail in many of our markets. In addition though and I don't think that this can be understated, it's also really important that we continue to have an eye on the future in a more normalized integrated commerce environment. As I mentioned during our prepared remarks, we're going to continue to invest on what we deem to be foundational, customer facing initiatives throughout next year. We mentioned the website, we mentioned the loyalty program, we're also looking at optimization efforts in our retail platform across all of our markets. And again, just looking for any opportunity to reduce friction with the consumer because of course we've got these state catalysts but then broader federal reform we believe is on the horizon as well.
Luke Hannon: That's great. And then for my follow up here, you did mention the revamped loyalty program I'm curious to know if you can share with us what the difference is, I guess from the consumer's perspective, but then also from your perspective the new capabilities that will give you and then eventually how that will show up to the consumer the new loyalty program?
Kim Rivers: Yes. We're really -- we're really excited about it. One just in terms of ease of use and the ability for consumers to have more transparency in terms of how the loyalty program actually functions, it's going to seem more intuitive and in line with many other leading retail loyalty programs that we're used interacting with on a regular basis. Again our goal is as we think about cannabis through the lens of integrated commerce, how do we make it less clunky and more just more user friendly? So there are a lot of features and that again, we're really excited to preview with our customers that you all will of course get a first look at as well. But I would say that the main thing is for it to just be a more normalized, trackable, intuitive program for consumers across and also of course, for it to be able to be integrated across all of our markets. That's another goal here is for us to look beyond kind of the four walls of each state and to be able to offer a platform that is portable across markets because ultimately we think that's at some point anyway where this is headed.
Luke Hannon: That's great. I'll pass the line. Thank you very much.
Kim Rivers: Thanks.
Operator: The next question comes from Aaron Grey of Alliance Global Partners (NYSE:GLP). Please go ahead.
Aaron Grey: Hi, good morning and thank you very much for the question. So first question for me. Just wanted clarification on your tax payment strategy going forward. I know you filed for the refund for some of the historical years, but wanted to get clarification on whether you mentioned the intention to not make some of those 280E payments going forward. So just clarification on your tax payment strategy on a go forward basis, particularly as it relates to 280E as you await the refund from the IRS potential rescheduling? Thank you.
Kim Rivers: Sure. So there's a lot going on as it relates to tax payments. Let's break that down just so we're very clear because I know it can be a little, again, there's a lot of puts and takes. So in this quarter, we had because of the hurricane, I think we should just maybe call Q3 for Trulieve maybe the hurricane quarter because that seems to be the last two years. So we have a deferral that's granted automatically. And so Q3 and Q4, taxes are not due currently. They will be due in February. And we plan to continue to pay taxes, so just to be clear, we are not paying taxes. We will be paying taxes, but we plan to pay taxes under a normalized corporate tax regime and in absence of those 280E payments moving forward as we await the IRS response on our refund claim. So again, no tax payment due for us until February of next year due to the deferral. And then moving forward, we are taking the position that we will continue to pay taxes, so taxes again will be paid when due but they will be paid as a quote, normal corporate filer.
Aaron Grey: Okay. Great. Thank you very much for the clarification there. And then secondly, just on the hearing yesterday, I heard you say, you mentioned that it leaned positive in terms of how you think the justice kind of heard the argument. Anything that you saw that was maybe unexpected from the other side or was everything pretty much in line in terms of some things they were arguing via the allow, single subject or otherwise. And then secondly, in terms of investment in the state, you talked about Florida still being a priority there. So I just want to know in terms of expanded stores, do you think just within the medical market there's enough there to kind of continue to add stores as we look towards 2024. Would you want to wait until you saw whether or not adult use might be coming up on the ballot or even passing in 2024 before you really start to add additional stores in the state. Thanks.
Kim Rivers: Yes. Well, as per our past cadence, we're going to be releasing guidance which will likely include store counts at the end of the year. So stay tuned for that and that'll provide some additional color as it relates to projected retail expansion into 2024. That being said, as I mentioned, we do absolutely remain very bullish on Florida and on the opportunity set here. With our, again, capacity on the supply chain side, we are again in a unique position that we're able to fill new doors, and the return on investment for those new doors remains strong. So, you know, and we also believe that there remains strategic opportunities as it relates to locations in the state. So we certainly will be building additional retail locations in Florida. Again, quantities, I would say stay tuned for that as we look to give additional color on that next quarter. As it relates to the court, as I said, no surprises in terms of arguments. It was based on the previously filed briefs briefed by the attorney general's office. I think maybe what was a little bit surprising and I think it's reflected in the news coverage that came out as well, and that we'll probably see continue today, was just the external posture, a number of the justices in terms of really being supportive of the language as written. The sponsors of the initiative did work very diligently to track previous Supreme Court guidance, and I think that the court understands that altering or shying away from or rewriting that guidance has broad implications, not just for this particular amendment, but for the entire citizens ballot initiative process in the state of Florida. And so that's not something that they would do lightly and it was really encouraging to see that several of the justices saw that and appeared to understand that this wasn't something that just affects a particular policy, which they may or may not agree with, but it has potential broad sweeping impact on the entire posture of citizens ballot initiatives in the state of Florida. So good to hear and very encouraging I would say and often in those types of hearings, you don't get that type of external feedback from as many justices.
Aaron Grey: Okay. Yes. Great to hear. And we'll keep an eye out for a Supreme Court decision. I'll jump back into the queue.
Kim Rivers: Thanks.
Operator: The next question comes from Russell Stanley of Beacon Securities. Please go ahead.
Russell Stanley: Good morning and, and thank you for taking my question. Maybe on Georgia, this is now a unique market opportunity that pharmacies carrying products early days, but given the uniqueness of this as a channel hasn't really been done before, I guess how quickly do you envision the patient count expanding? You know, in the past, you've drawn parallels between Georgia and Florida's early days, but this channel is so different. I'm wondering how you're thinking about this market now?
Kim Rivers: Yes, it is, it is a really unique channel, and I think it's an, it's an incredible opportunity for us to test and learn and for us to build -- to build on our, you know, on our capabilities as it relates to this type of distribution again with a third-party partner and really a true kind of you know, restock service model, you know, access and improved access close to patients in a convenient fashion typically will of course result in increased demand. I think a little too early to tell full impact yet, you know, as I mentioned, we're actually, you know, working and are excited to launch sales with a fifth pharmacy today, but I think that, you know, the next step here, and it just all sort of will likely happen simultaneously will be some changes in the legislature, you know, as it relates to conditions or products that would, of course, also lead to market expansion. I think one of the real benefits of having pharmacies online will be we now have another advocacy partner, right, at the legislature to be able to speak firsthand as to the importance of access for patients that they see come into their particular pharmacies and to speak with that medical authority as we, as we go to the legislature to ask for and advocate for expansion over the next little while. So excited about, of course, the direct, but also maybe some longer-term impacts of having that channel open for us in Georgia.
Russell Stanley: Great. Thanks for that. And maybe if I could switch to Ohio, with your first store opening there and the voting results earlier this week, how you're thinking about this market, you know, is this an area where you can and might step on the gas in terms of adding retail and expanding into expanding into this, given the pending adult use legalization?
Kim Rivers: Yes. We were very excited, of course to open our store in Columbus and that, that store is ramping really, really nicely. Team there has done a great job in terms of connecting with community and really building that customer base ahead of adult use in Ohio, kind of as mentioned in Ryan's remark, we currently have a VIE situation and so are in current pending litigation with that relationship. That was an inherited relationship with the harvest acquisition. The portfolio when question includes three retail locations, production and cultivation. So I would say stay tuned as it results to the resulting outcome in Ohio.
Russell Stanley: That's great. Thanks for the call and I'll get back in the queue.
Kim Rivers: Thanks.
Operator: The next question comes from Frederick Smith of ATB Capital. Please go ahead.
Frederick Smith: Hi, good morning. Thank you for taking my questions. First question is, just given your guidance for cash flows for the year and I guess for next quarter as well, so can you provide some color on the working capital items. Did you expect to impact cash flows next quarter? Do you expect how much in terms of further reduction in inventory and if you could expand on some of the other items as well impacting that guidance? Thank you.
Kim Rivers: Yes. So as we mentioned, off course, there's a lot of moving parts and fourth quarter is an interesting one because, off course, we're against the backdrop of the most promotional quarter of the year. So as it relates to product mix and ins and outs, it is a very dynamic quarter. What I will tell you is that as it relates to our inventory wind down effort, specifically as mentioned in the prepared remarks, Florida has come to basically have landed that initiative, with the exception of some additional movement in oil. But in all, I would say material effects that has come to an end and the team has done a great job there and we're now ramping that capacity to feather in and really even out or smooth out the product availability to demand mix, if you will in Florida. That being said, we still have inventory wind down efforts underway in other markets and so those efforts as a company will continue through Q4 into next year. And the teams are again making a lot of progress against those initiatives. I think just because I'm pretty sure this will probably be a follow up. So as it relates to Florida in particular, you know, what is interesting is it's very difficult and challenging to land these things perfectly. We did have some, a little bit of bumpiness as it relates to certain products and again capacity and what not. So that's being smoothed out now you some of that towards the end of Q3 and coming into Q4 that's right sizing at this point in time. What we are able to do now in Florida is really take those lessons that we've learned and we're looking at this as really a test, again, as we land some of these other inventory wind down initiatives across other states. To look at our consumer demand and our mix as it relates to particularly margin and cost again taking advantage of efficiencies out of JeffCo now and transitioning customers into higher margin, quite frankly, in some cases higher quality products that are at a lower cost basis for us with the consumer cost impact being the same, or in some cases even better. So really looking for those opportunities to learn from our inventory wind down initiative and make pivots in the business and in the portfolio that improve both the customer experience and also the financial results, which, again, we'll continue to optimize in the quarters ahead.
Frederick Smith: Perfect. Thank you for that. Next question is just going back to your, I guess, your tax strategy going forward. Can you give some color, I guess, in terms the impact to cash flows expected from that, I guess not paying the liabilities associated with 280E, how much of that in 2024 maybe you expect to get a benefit from?
Kim Rivers: Sure. So I would refer you to RK, of course, which isn't filed yet, but in RK each year we have a note that breaks out and talks specifically about our 280E tax liability. We don't do that on a quarterly basis, but I would just point you to the K that, of course, will be filed along with your end.
Frederick Smith: Perfect. Thank you.
Operator: The next question comes from Sonny Randhawa from Seaport. Please go ahead.
Sonny Randhawa: Hi. Thanks for taking my question. I guess just obviously the Supreme Court hearing was, it seemed net positive. I guess if you could just talk generically about what you think the margin and competitive landscape would look like in Florida if it is on the ballot versus it not being on the ballot. I know you commented previously that if it's not on the ballot in '24, you'd probably wait till '28 to get it back on the ballot. So just generically thinking about if it is on the ballot, how the competitive landscape would change versus it not being on the ballot and kind of what you would expect going into mid-2025 when adult use starts?
Kim Rivers: Yes. I mean, I think that it's important to remember that Florida is a bit of a different market than others in that it is forced vertical, right? So it's different in the sense that you can't just lean into retail without having the supply chain capacity across form factors and across depth of product to service that retail. The supply chain, of course, takes the longest and is one of the more expensive generally for most companies than retail expansion. So I don't know that we would see any, in other words, if someone were to make a decision today, right, that they wanted to expand Florida footprint. It would take until more than likely almost the end of the year for that capacity to be built, approved by the state, planted, production ramps up, and products coming through and into retail locations. So there is a bit of a difference in Florida versus other markets as it relates to full supply chain build out when you're talking about expansion. That's one of the reasons why, again, we really like our position in Florida, because we have made multi-year investments into the state, not only just for capacity. But for really efficient capacity that generates a significant high-quality product portfolio that then, of course, it's distributed through our market-leading retail network, of currently 127 stores across the state. So, I don't know that we would necessarily see, as opposed to any, differential in terms of what folks currently have planned versus what folks, would then plan in 2024. I think that that may come into play more in 2025. But again, I think that as far as we're concerned, we have the ability, again, to continue to meet demand, while also making investments, to really optimize and get additional torque out of existing facilities, and retail locations into and through 2024. So again, in a very different kind of apples and oranges position, as it relates to folks who need to build new capacity in order to have an increased competitive position. And as it relates to what I see this next year, I think that as far as we're concerned, as far as Trulieve is concerned, this is all kind of according to plan, right? And we believe very strongly that Florida, as I said, and I'll say it again, will be the best cannabis market in the world. We believe that the legislature, when they go to implement the amendment, will certainly continue to be focused, on ensuring safety and traceability. I don't know that I see a situation, where there's a complete decoupling away from vertical, at least from a holistic approach. And I think that we'll continue, to be able to operate our business as we have been operating. And that's really when our scale will really show and we'll be able to fully lean in and bring everything that we've been working on to bear in the market, against a backdrop of significantly increased consumer demand. So really excited about that possibility and can't wait, to be able to show everyone what we've got.
Sonny Randhawa: Right, just turning to Georgia. Obviously we don't have a lot of data on Georgia yet. You guys are one or two players in that market. Can you just kind of give us some insight on just what the current size of the market, is and what you're seeing in terms of patient count today and kind of what the growth rate you anticipate.
Kim Rivers: Yes. I mean, Georgia, look, Georgia is going to be, is a medical only market. It's starting out fairly conservative, again, very similar to what we saw in Florida. The patient ramp is approximately, I'll call it 14,000 or so patients today. Again, that data, we're trying to get into a better cadence of really, again, having accurate data a little bit more regularly. And we're working with the regulators there, who have been great partners with us. But as you ramp a program and as you bring a program online, some of that information, it's just, you know, a little difficult to get into a regular, I'll call it reportable format. And it was the same thing with Florida in early days. So, I mean, contrary to popular belief, we didn't always have Friday OMMU reports. We actually had to do information requests, which we did every week. And then I think they got tired of having to respond to Trulieve's information requests. And so, they started just publishing it on a regular basis, because I think all of the analysts also started making information requests. So you know it'll happen in Georgia. It's just going to take a little bit of time and again similar to Florida, we're seeing similar patient profiles as it relates to, you know, early adopters and then that'll again continue to expand over time. So I would say more to come, but not surprising to us and again, as planned, that Georgia is ramping at the rate that it is.
Sonny Randhawa: Great, if I could just squeeze one more in. I know one of your competitors, just recently provided state-level data and basically took some of the opaqueness out of the models. I don't know, if you've had a chance to look at it, but in terms of just revenues per store, were you surprised at the success they've had on the retail side?
Kim Rivers: You asking me to comment on another competitor's retail for store sales?
Sonny Randhawa: No, I'm trying to think about just, you know, we know volume growth is, or in terms of volume, you guys obviously do a lot better. In terms of revenue, we're just kind of trying to gleam, if there's some additional insight related to that on your overall revenue per store in Florida?
Kim Rivers: Yes, I would tell you that we make more per store in Florida than I think any of our competitors. I mean, you can extrapolate out any metric that, you would like on that. And again, the number that was given, as it relates to averages, is that we sell 130% more than the average on the state. I mean, again, OMMU data comes out every week, and pricing's available online. So I feel very, very comfortable as it relates to our store metric productivity versus competitors in the state.
Sonny Randhawa: Great. I'll turn it back.
Operator: The next question comes from Matt McGinley of Needham. Please go ahead.
Matt McGinley: Thank you. So my first question is on the cash flows that relates to taxes. You had a change in the other long-term liability line in your cash flow that was a $49 million benefit in the third quarter. Was that related to the amended tax return you filed, or was that $49 million related to the Hurricane Idalia deferrals? And that is that benefit baked into the $100 million target for operating cash flow, or is that more like 150ish if you include that for the full year?
Kim Rivers: Yes, so as we mentioned in the target, it's that we are targeting more than $100 million in operating cash flow for the full year, Matt.
Matt McGinley: Got it. And I guess what is that benefiting from and $49 million in the third quarter is a pretty substantial number. Is that a result of the reversal of the 280E that you're expecting to see or is that, I guess, the accounting treatment that is different from what we've seen before? I'm just not sure what we're looking at with that - big benefit you had in the quarter. It was about half of your overall operating cash flow?
Kim Rivers: So Matt I think you're - I think we might be talking apples to oranges here and we're happy to have a more detailed follow-up with you. But that's a, not to get too technical, but that's the uncertain tax position. So that's going to be our [UTP]. And again, happy to take that offline with you if you'd like. Yes, and just to clarify, there's no refund contemplated in any of our financials at all. So, I don't want the confusion there as well. We're trying to make it clear, again, in the notes and whatnot. But maybe - we need to have a further conversation around that.
Matt McGinley: Sure. Sounds good. And then on the G&A, how much opportunity do you see in reducing your core G&A dollars given the store growth? I mean - if your top line you know continues to see a little bit of pressure on price compression, but you're still putting up stores. Does that become a bigger drain on your profitability, or do you keep taking out efficiencies that could offset some of those impacts that you're seeing from store growth?
Kim Rivers: Yes, I mean, look, it's going to ebb and flow, right? I think there are still, and we obviously have a close line of sight and are monitoring it, and responding accordingly, as it relates to that efficiency balance vis-a-vis store growth. Of course, when you have stores that you're opening, you have some expense that may not net out specifically, depending on timing, right, on a quarter-over-quarter basis. And certainly we've experienced that in the past. I think, again, we try to be pretty communicative about that and we'll continue to do so, Matt. But I do think I don't see a continued drag necessarily or specifically on G&A there. I think there's enough kind of puts and takes, if you will, left. Of course, asterisks there will depend on timing.
Matt McGinley: Okay. Great. Thank you very much.
Operator: The next question comes from Eric Des Lauriers from Craig-Hallum. Please go ahead.
Eric Des Lauriers: Thank you for taking my questions. I appreciate the color that you've given on the JeffCo facility there. It's nice to hear yields and potencies are outperforming expectations. Could you comment on, how costs are tracking either relative to expectations, or relative to some of your earlier production facilities?
Kim Rivers: Yes, as we mentioned, very, very excited about the productivity of the JeffCo facility. And again, costs are in line with our projections. We actually may have a little bit of continued work to do there as it relates to bringing those completely in line. You want to be careful, of course, in how you manage that as you're continuing to ramp. And so, may still have a little tweaking there to do, but very pleased with all aspects really of that facility and are going to be, again, sharing additional information with you all as we discussed going into next year.
Eric Des Lauriers: Yes. I appreciate that. And then just a bit more on the decision to bring back some of that idle capacity. You know, so it sounds like JeffCo obviously has a bit more capacity and that, you know, quality has been impressive. I understand there was some bumpiness with the inventory wind downs. I'm just kind of, I'm sort of wondering, you know, how this is all sort of coming together here. Is it that you're able to ramp these other facilities faster than JeffCo? Is this sort of, you know, almost like a bridge until JeffCo is fully ramped? Are these other facilities sort of able to produce maybe certain products that JeffCo can't and that we should sort of expect that, idle capacity, or these older facilities to remain online? Will they kind of come, back offline once JeffCo is fully ramped? If you can just give some more color on that decision, that'd be great? Thank you.
Kim Rivers: Sure. So, yes, as we said, you know, brought on some additional capacity. I should maybe quantify that on a relative basis, it's small compared to the JeffCo output. So, JeffCo remains our primary contributor to product in Florida today. And again, yes, it is continuing to ramp slightly, but we feel that we've got good line of sight at this point as it relates to output with respect to JeffCo. So, we do have additional 24K style buildings that we have brought back online. And again, by the way, those are pretty efficient models in and of themselves. So, from a blended cost basis and build incredibly strong, as it relates to our position there. Those buildings will serve as flex capacity for us as with again, JeffCo being our workhorse stable output facility. And then we're able to ramp up and, or down, depending on what's needed in the market. Of course, as we stated, holiday typically has increased unit demand. So really happy that we have that capacity to flex into to service what is typically a holiday surge for the year.
Eric Des Lauriers: Thank you.
Operator: The next question comes from Scott Fortune of Roth MKM. Please go ahead.
Scott Fortune: Good morning. Thanks for the call. While the question's been asked, real quick, just congratulations on the continuing cash flow generation and then optionality there. But just kind of get a sense for your priorities looking at the ROI for cash generated, obviously you're paying down debt. But how are you prioritizing any color around '24 cap backs to potentially grow some of these new adult use markets and states for you? Other options with the cash, you know, stock buyback and such. Just kind of give a sense for prioritizing that cash going forward here?
Kim Rivers: Yes, so, you know, I think that, look, I mean, the 2024 notes were due next year. So for us, that was always part of the plan. We're going to pay that debt when due. We were able to save some interest there, which we thought was the right decision, you know, moving into the end of the year. As I said at the top of the Q&A, you know, investments in both additional expansion and retail along with. What we deem to be really core investments through the backdrop of a continued progression to an integrated commerce environment will remain front and center in 2024. We'll give additional color on CapEx at the end of the year on our next call. Reminder that we're really coming out of a multi-year investment cycle, as it relates to our supply chain and production capacity. So just again, I think it bears repeating, because it is a differentiator. We have approximately 4 million square feet of cultivation production facility capacity. So again, very different position than many of our peers, who have not made that type of investment up to now, and are working to either catch up, or build out in kind of just-in-time fashion. And we've got the luxury of, again, having made the investment, really being able to dial in on efficiencies, getting the right product mix and dialing up and down, while really being able to focus, our efforts on the customer and our retail, again, market leading, world leading cannabis retail position in our market. So a little different than some of our peers thought.
Scott Fortune: I appreciate that. And just kind of a follow-up on this, Kim, obviously you're championing, truly championing adult youths in Florida. You've put a fair amount of money towards that. Let's say we get the pass of the Supreme Court, obviously the governor is not too favorable of it. You still need 60% of the voters to approve this. Can you step us through or kind of some of the strategy, not only just, your lead in getting the adult vote use passed here, but kind of the industry in general, kind of sense for the cash, or what needs to move forward to get a favorable vote potentially next year if we get to pass the Supreme Court here?
Kim Rivers: Yes, so I think a couple points on that. Number one, the medical initiative in Florida that was also a ballot initiative passed with the highest favorable rating of any ballot initiative in the history of the state of Florida with over 73% of a passage rate. Currently adult use is polling at approximately 70% without any kind of active campaigning or public facing initiative. Secondly, the governor doesn't have really, I mean his opinion of course is his opinion. He's remained relatively neutral on the topic, but just to be clear, there is no specific like veto or any sort of process intersection with the governor as it relates to at least the Florida process. And finally, I would say that we would expect and anticipate that our peers, particularly those who I know in their earnings calls have been talking about. How great a market Florida is and how excited they are about adult use, would come to the table post-Supreme Court approval, to participate in the publicly facing campaign efforts moving forward into 2024. So far, I have received and certainly they know who they are, and robust conversation, commitment that that will be the case and certainly hope that we all hold them accountable as we share in the benefit of what an incredible market, adult youth market in Florida would be.
Scott Fortune: Thanks, Kim. Appreciate the further detail.
Operator: This concludes our question-and-answer session. I would like to turn the call back to Christine Hersey for closing remarks.
Christine Hersey: Thanks, everyone, for your time today. We look forward to sharing additional updates during our next earnings call. Thanks again and have a great day.
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