Trulieve Cannabis (OTC:TCNNF) Corporation (ticker: TCNNF), a leading company in the cannabis industry, reported a steady increase in its second quarter 2024 financial performance with a revenue of $303 million. This reflects a 2% rise from the previous quarter and an 8% increase from the same period last year.
The company's gross margin saw an improvement to 60%, largely attributed to reduced cultivation costs. With a robust adjusted EBITDA of $107 million, Trulieve surpassed market expectations, bolstered by the higher gross margin and stringent cost controls. The company's cash reserves stood at $356 million at the quarter's end.
Key Takeaways
- Trulieve reported a 2% quarterly and 8% annual increase in revenue, reaching $303 million.
- The company's gross margin improved to 60%, thanks to lower cultivation costs.
- Adjusted EBITDA stood at $107 million, driven by higher gross margin and cost controls.
- Trulieve ended the quarter with a strong cash position of $356 million.
- Customer loyalty initiatives are paying off, with over 325,000 customers enrolled and 80% making purchases.
- The company is actively involved in the #YesOn3 campaign for the legalization of adult-use cannabis in Florida.
- Store expansion and infrastructure investments continue, with plans to open three additional dispensaries in Ohio by Q1 2025.
Company Outlook
- Third-quarter revenue is expected to decrease by mid-single digits from the second quarter but increase by mid-single digits year-over-year.
- Full-year targets have been raised to at least $250 million in cash flow from operations and $100 million in capital expenditures.
- Trulieve remains optimistic about the adult-use cannabis market in Florida and potential federal reform.
Bearish Highlights
- The company reported a net loss of $12 million for the quarter.
- Revenue is forecasted to dip slightly in the third quarter compared to the second quarter.
Bullish Highlights
- Strong adoption rates for the loyalty program indicate solid customer retention and engagement.
- The company is well-positioned to capitalize on new markets, with legislative changes in Florida, Ohio, and Pennsylvania.
- Investments in technology and infrastructure are set to enhance operational efficiency and market reach.
Misses
- Despite overall growth, the company did not provide details on licensing fees or revenue from the new service agreement with the Ironton production facility.
Q&A Highlights
- Trulieve is working with a coalition to support the #YesOn3 campaign in Florida.
- The company is focused on maximizing current opportunities and is open to strategic M&A.
- New express store models are performing well, and there are plans to open more.
- It is too early to assess the macroeconomic impact on consumer spending and pricing.
- The company is comfortable with its current margins but continues to seek efficiency improvements.
Trulieve's earnings call revealed a company in a strong financial position, with a strategic focus on growth and efficiency. With a clear plan for expansion and a commitment to customer loyalty, Trulieve is navigating the evolving cannabis market with a keen eye on both current operations and future opportunities. The next earnings call is anticipated to bring more updates on the company's progress and market developments.
InvestingPro Insights
Trulieve Cannabis Corporation (TCNNF) has demonstrated resilience and strategic acumen in its Q2 2024 performance, which is further illuminated by the following InvestingPro data and tips:
- The company's market capitalization stands at $1.83 billion, reflecting its substantial presence in the cannabis industry.
- Despite a challenging environment, Trulieve has maintained a strong gross profit margin of 53.63% over the last twelve months as of Q1 2024, underscoring its cost efficiency and pricing power.
- A significant year-to-date price total return of 86.76% showcases the market's positive reception to Trulieve's operational strategies and growth prospects.
InvestingPro Tips highlight that Trulieve is expected to see net income growth this year, with analysts revising their earnings upwards for the upcoming period. This aligns with the company's robust financials and suggests that Trulieve may continue to outperform market expectations. Additionally, Trulieve's substantial liquidity position, where liquid assets exceed short-term obligations, provides the company with financial flexibility to support its ongoing expansion and customer loyalty programs.
For more in-depth analysis and additional InvestingPro Tips, readers can explore the 8 other tips available, which provide a comprehensive view of Trulieve's financial health and future potential at https://www.investing.com/pro/TCNNF.
Full transcript - Trulieve Cannabis Corp (TCNNF) Q2 2024:
Operator: Good morning, everyone, and welcome to the Trulieve Cannabis Corporation Second Quarter 2024 Financial Results Conference Call. My name is Jamie, and I will be your operator today. As a reminder, today's event is being recorded. And at this time, I'd like to introduce your host for today's conference, Christine Hersey, Vice President of Investor Relations for Trulieve. Ma'am, you may begin.
Christine Hersey: Thank you. Good morning, and thank you for joining us. During today's call, Kim Rivers, Chief Executive Officer; and Wes Getman, Chief Financial Officer, will deliver prepared remarks on the financial performance and outlook for Trulieve. Following the prepared remarks, we will open the call to questions. This morning, we reported second quarter 2024 results. A copy of our earnings press release and PowerPoint presentation may be found on the Investor Relations section of our website, www.trulieve.com. An archived version of today's conference call will be available on our website later today. 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, 2023 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 Happy Ohio Adult Youth Lunch Day. We are thrilled to share results from another outstanding quarter. Strength in our core business was demonstrated by our third consecutive quarter of top-line growth and margin expansion. All of the effort and investment over the past two years to set a solid foundation for long-term success is paying dividends. The flexibility that we have embedded into the organization provides multiple pathways for growth and the ability to pivot quickly as the industry evolves. This summer is shaping up as we expected, with a heightened focus on major upcoming catalysts. At the state level. We are very pleased with the campaign efforts to deliver a #YesOn3 vote in Florida this November. Recent polling of likely voters showed support in the mid to upper sixties, well above the 60% threshold required to pass the adult use initiative. To-date, the campaign has received almost 70 public endorsements from a wide variety of bipartisan supporters, including physicians, activists, educators, faith leaders, labor unions, law enforcement, elected officials and celebrities. We are confident that targeted messaging to raise awareness and educate voters about the many benefits of legal Cannabis will positively influence voter turnout and persuade Floridians to vote #YesOn3 while there are many reasons to support legalization this November, here are the top three. First, a guest vote would decriminalize personal Cannabis possession in Florida, no one should be in jail or fear arrest for personal Cannabis possession. Second, adults deserve access to safe, tested and labeled Cannabis products available in a normalized retail environment. No one should risk death from fentanyl or pesticide laced products sold on the street. Third, legal Cannabis offers numerous economic benefits through job creation and tax revenue collected on sales. At truly, we are taking every available opportunity to feature #YesOn3 information at our store, grand openings, physician education events, hiring events and community events. Last week, we launched our first #YesOn3 products with #YesOn3, whole flower eight and pre rolls. We plan additional product launches as we approach the election, with a portion of proceeds going to support the campaign. And as always, we encourage other industry operators to use their platforms to help raise awareness. In Ohio, we are launching adult use sales at our Beaver Creek, Columbus and Westerville locations today, the team is thrilled to be among the first group of operators to serve adult use customers in the Buckeye state. Kudos to the state regulators who successfully rolled out this program following voter passage last year, we expect to have popular truly brands available in our stores before year end through our support services arrangement with a tier-one grower processor. In addition, we are working through the regulatory process and with our partners to open additional locations in Columbus, Toledo and Gainesville in early 2025, expanding our retail footprint to six dispensaries. We estimate Ohio could reach $2 billion in annual sales in neighboring Pennsylvania. We believe momentum is building for the passage of adult use legislation. We currently operate 21 affiliated dispensaries, including a new location in Wilkes-Barre and three grower processor facilities. We remain optimistic that adult use sales in Pennsylvania could launch in the next twelve to 24 months and the market could reach $4 billion in annual sales. At the national level, Cannabis remains more popular than any politician, with over 70% of adults in favor of legalization. The first major federal reform in decades is advancing through the formal rulemaking process to reclassify Cannabis to schedule. Three public comments showed overwhelming support, with 92% of over 43,000 comments received in favor of rescheduling or de-scheduling. With this public approval, we are optimistic that rescheduling can happen this year. We believe the time is right for the administration to take this historic step and reclassify cannabis. Before turning to results, I'd like to acknowledge two major milestones we recently achieved at Truleave, which lend perspective to how far we've come as an organization. Last month, we celebrated the eight year anniversary of our very first sale, which was actually the very first medical market sale in the state of Florida. In 2016. When we recorded our first sale, that was the only transaction we conducted for many weeks as we worked to recruit physicians into the program. In 2024, on the eight year anniversary of our first sale, we conducted approximately 50,000 transactions. On top of that, we opened our 200 retail location in June, a new store located in Brooksville, Florida. While it took us five years to reach our hundredth store, we doubled our retail presence to 200 stores in less than three years. This impressive growth and expansion of our industry leading retail network is a true testament to the teaM&All that we have collectively accomplished. Now, turning to our second quarter results, revenue and margins beat our guidance. With sequential and year-over-year improvements in each revenue increased to $303 million, up 2% from Q1 and 8% compared to last year, with growth in both retail and wholesale. As expected, strong retail performance was partly offset by higher promotional activities for 420, the beginning of seasonal headwinds in Arizona and the highly successful launch of our refresh loyalty program. Gross margin increased by 1% to 60%, primarily driven by lower cultivation costs. SG&A spending was comparable to the first quarter. Adjusted EBITDA of $107 million, or 35%, exceeded expectations, primarily driven by higher gross margin and cost controls. We ended the quarter with $356 million in cash. Strong retail performance was driven by a 3% increase in traffic, partly offset by a 1% decline in basket. Our relentless push to sell branded products through branded retail is the foundation of our strategy to build lasting brand equity. We sold over 11.5 million branded product units in the second quarter, up 4% sequentially. Consumer behavior at the start of the second quarter was largely consistent with patterns observed in the first quarter, with willingness to spend more for compelling products and bundle style promotions. As the second quarter progressed and continuing into the third quarter, we are realizing softer conditions in retail across the portfolio consistent with seasonal headwinds. As always, we are closely monitoring retail KPI's as we amplify messaging to highlight the value proposition of our product offerings. With the flexibility built into our capacity, we are able to adapt our production to meet evolving consumer preferences. During the second quarter, our industry leading retail network grew to 200 stores nationwide, with new dispensaries in Florida and the acquisition of two stores in Ohio. In June, we completed the rebranding of all retail locations in Arizona and Ohio to the truly brand. Subsequent to quarter-end, we opened five more stores in Florida and one in Pennsylvania. We remain on track to open at least 25 new stores this year. Product quality and world class customer service are key drivers for our strength in retail. Our production team continues to turn out high quality products at scale while harnessing efficiencies and driving down costs, yield, potency and cost at our flagship 750,000 square foot indoor facility in Florida remain at peak performance levels. Yields at our legacy sites in Florida outperformed our plan by double-digits, further reducing cultivation costs across the organization. We are focused on incremental improvements designed to enhance product quality and fortify our brand portfolio. In-house brands such as modern flower and roll one continue to resonate with customers, and we continue to expand product offerings with new launches of various sizes and form factors in our markets. Customer experience metrics show incremental improvements across our retail network, with higher NP's scores in virtually all markets during the second quarter. Overall customer satisfaction is further underscored by our customer retention, which improved to 66% company-wide and 75% in medical-only markets. Infrastructure investments to reinforce customer loyalty are having an immediate impact on our business this year while setting the foundation for future growth. Three examples of infrastructure investments include our Web 2.0 platform, revamp loyalty program and enhanced customer data. Platform migration to our Web 2.0 platform was successfully completed in Q2, bringing enhanced functionality including real time updates to products, pricing and promos, and product availability at nearby stores. The rollout of our refresh loyalty platform was completed in early June. The best-in-class program features fully stackable points that can be redeemed across all brands in all markets. The simplified and intuitive program design has led to high adoption rates exceeding our goals in all markets. To-date, over 325,000 customers have signed on to the loyalty program and 80% of members have made at least one purchase since opting in. Many of our own employees are loyalty members, providing them an opportunity to earn rewards and effectively communicate the benefits of the program to customers. The rewards program itself was built inside of our customer data platform, allowing interconnectivity between rewards website and the customer data platform. In April, we rolled out enhanced capabilities in the CDP to enable automatic basket level analysis powered by machine learning, which we used to further personalize customer messaging. These technological improvements provide a meaningful competitive advantage today, allowing us to forge deeper customer relationships cemented by hyper personalization across the organization. As our company continues to grow, we are investing in new technology and tools to support more sophisticated marketing outreach, business planning, and inventory and warehouse management. Last week, we completed a significant upgrade to our SAP platform, adding expanded functionality and capacity for future growth. We anticipate these infrastructure investments will increase in the back half of this year. In summary, our team continues to deliver spectacular results while we prepare for future growth as we believe adult use in Florida is a key unlock for Cannabis adoption in the US. With that, I'd like to turn the call over to our CFO, Wes Getman. Please go ahead.
Wes Getman: Thank you Kim and good morning everyone. Second quarter revenue was $303 million, up 2% sequentially at 8% year-over-year, driven by continued strength across our retail platform and growth in the wholesale channel. Second quarter GAAP gross profit was 182 million with 60% margin representing a 1% improvement sequentially. Gross margin will continue to fluctuate quarter-to-quarter depending on product and market mix, inventory, sell through, promotional activity and idle capacity costs. SG&A expenses in the second quarter were $103 million, or 34% of revenue in-line with the first quarter as we balanced spending to support both our retail network expansion and infrastructure improvements with expense control. Second quarter net loss was $12 million compared to a net loss of $23 million in the first quarter, representing a 48% improvement sequentially. Second quarter loss per share was $0.05 compared to a loss of $0.17 in the first quarter. Excluding nonrecurring charges, second quarter results would have been breakeven compared to a loss of $0.05 in the first quarter. Second quarter adjusted EBITDA improved by $1 million to $107 million with 35% margin. Adjusted EBITDA margin reflects higher revenue and gross margin. Turning now to our balance sheet and tax strategy, we ended the quarter with $356 million in cash and $481 million in debt. As a reminder, Trulieve adopted a tax position challenging the applicability of 280E to our business last year, filing amended returns for tax years 2019 through 2021. To-date, we have received refund checks totaling $115 million, inclusive of $2 million received during the second quarter. Final 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 rescheduling of Cannabis to schedule three, the 280 tax burden would be removed, effectively capping the downside risk to our tax challenge. Notably, if the impact of 280 were removed, we would have realized positive net income for both the first and second quarters. Cash-flow from operations totaled $71 million in the second quarter. Capital expenditures were $26 million with free cash-flow of $45 million. Turning now to our outlook, based upon the visibility that we have today, we anticipate third quarter revenue will be down by mid-single digits from the second quarter and up mid-single digits year-over-year. Top-line contribution from new store openings and the launch of adult use in Ohio are expected to be offset by seasonal headwinds in both Arizona and Florida. We anticipate gross margins will be at least in the mid fifties each quarter for the remainder of the year. We are increasing our full year targets to at least $250 million, cash-flow from operations and capital expenditures of $100 million. The revised targets include outperformance realized in the first half of the year, as well as provisions for greater financial support for the Florida adult use ballot alongside investments to support long-term growth initiatives and expansion in markets with adult use catalysts. We have opened twelve stores this year and are on track to open at least 25 stores in 2024. With the pace of store openings accelerating in August and September, the team remains focused on executing to our plan. With that, I'll turn the call back over to Kim.
Kim Rivers: Thanks Wes. Bless cannabis is becoming increasingly mainstream and more socially acceptable every day. Daily use of cannabis recently surpassed alcohol for the first time, highlighting the generational shift in attitudes and acceptance of cannabis. US consumers are increasingly turning to cannabis for relief from unmet medical needs such as pain, insomnia and PTSD, or simply to relax and enjoy life. Favorable views by younger voters were further illustrated by a recent poll in Florida, which showed all respondents between 18 and 29 years old and 82% of those between 30 and 39 are in favor of the adult use #YesOn3 initiative. And it isn't just consumers who favor legalization. Two weeks ago, the American College of Physicians released a position paper outlining support for decriminalization of small amounts of personal cannabis. This policy, briefed by a credible organization with over 161,000 members, further illustrates evolving approaches to cannabis as an important public health issue. While cannabis is gaining popularity, momentum is building for federal reform, rescheduling of cannabis to schedule three is underway. This would represent the first major reform in decades, setting the stage for additional federal reform, including safer banking. Not only would rescheduling remove the punitive tax burden imposed on state legal operators, but it would reduce the stigma and ease the process for cannabis research. We remain optimistic that the final rulemaking could be published this year. Today, we are 91 days from a historic vote in Florida. We intend to remain out front, pushing for passage and common sense implementation of amendment three. Adult use cannabis in Florida is a tremendous opportunity. With over 650 medical dispensaries today, expansion to include adult use would represent the largest conversion in legal cannabis history. With 23 million residents and 138 million annual tourist visits, we estimate the market to reach $6 billion in annual sales. Last quarter, we sold 135% more flower per store than the average operator. Following passage of the initiative, we plan to quickly ramp idle production capacity and prepare our retail network for adult use sales. We fully expect to expand our market leading position when adult use sales launch. Currently, 178 dispensaries, or 86% of our retail network, serves only medical patients; truly is best positioned for the next wave of markets converting to adult youth, including Florida and Pennsylvania. Given our strong balance sheet, cash-flow generation, and significant scale in key markets, I've said it before and it remains true today. I wouldn't trade hands with anyone in the industry. Thank you for joining us today and as I always say, onward and #YesOn3.
Christine Hersey: At this time, Kim Rivers and Wes Gatman will be available to answer any questions. Operator, please open up the call for questions.
Operator: Ladies and gentlemen, at this time, we will open the floor for questions. [Operator instructions]. Our first question today comes from Aaron Grey from Alliance Global Partners (NYSE:GLP). Please go ahead with your question.
Aaron Grey: Hi, good morning and thank you much for the questions and congrats on the quarter. So first question for me is on the gross margins, a nice job there with the 60% you guided to the right remainder of the year being mid-fifties or better. Just wanted to dig a little bit deeper to that. You mentioned lower cultivation costs driving some of the beating this quarter or benefiting. So just as we look going forward, how much of it is just lower volume leveraging, fixed costs, as you guys see lower sales and less of the higher cultivation, lower cost flowing through as well as Ohio benefit? Just trying to better understand some of the guide there to the lower gross margin back half relative to the really nice gross margins you just put up. Thank you.
Kim Rivers: Yes, thanks, Erin. So a couple of points there and our guide on gross margins has been consistent in this quarter. We had some unforeseen positive influence on gross margin, as we mentioned in the prepared remarks. So we had JeffCo, which is our large facility, was definitely firing on all cylinders. And in addition, we had some legacy capacity that we brought back online that candidly outperformed fairly significantly for us this quarter. That being said, a lot of the benefit that we're receiving right now in our cultivation gains have to do with yields. And candidly, that is very strain specific. So depending on our pre-mix and depending on how that plays out from a customer preference perspective, that will shift those gains to some extent. So I think that's one thing. The other thing that I would mention is in the four door, we also saw wholesale margin improvement across a couple of our markets, again, really having to do with product mix, which of course, in addition will be tied to consumer preferences as well as demand in those markets. And then, of course, also product mix is a huge, is a huge contributor to gross margin, quarter to quarter. So in Q3, as I think everyone understands, a couple of our really key markets do have seasonality and built into them. And so with that seasonal pressure along with, again, potential mix-shift, and we believe again, that mid-fifties target was a valid one, particularly in this next quarter when we've got some additional seasonal pressure on the business in line with historical trends.
Aaron Grey: Okay, great. That's really helpful. Color there and then just a second one on me just to think about. Florida ballot measure #YesOn3. Any commentary you could provide in terms of planned increase in campaigning as we get closer to the election? I know you had alluded to last time, the plan for that to, pick up as we get closer to November and then just any commentary in terms of those contributing in an opponent to the measure. And if anything's been outside what you had been expecting there? Thank you.
Kim Rivers: Yes, we are continued. We continue to be very fired up and excited, of course, about the #YesOn3 campaign. It is progressing according to plan. Certainly. We are going to continue to be a supporter and continue to leave from the front. I mean, we've gotten kind of this far, if you will. So I think it would be a mistake to let off the gas coming into home plate, if you will. We are continuing to work with a coalition of additional companies and supporters. We had a fundraiser last week for some of our ancillary partners are continuing to look for ways to work with folks. Of course, not only, and we remain very hopeful and optimistic that folks will contribute again coming into the vote, but also looking for ways that we can coordinate with our stores and our employee engagement, our customer engagement as well, across all two leave stores in the state of Florida currently, as an example, folks can pick up a yard sign or a bumper sticker free of charge. So this is a shameless plug as well for anyone in the state of Florida, and we're encouraging our partners to do the same. So there's going to be a lot of continued activity on the #YesOn3 campaign as we move forward towards November here.
Operator: Our next question comes from Luke Hannon from Canaccord Genuity (TSX:CF). Please go ahead with your question.
Luke Hannon: Yes, thanks. Good morning, and congrats on the results. I wanted to ask about free cash or other cash capital allocation. I mean, you generated a ton of cash this quarter, at least relative to our model coming in well ahead. And certainly we -- and we understand investors realize that Florida adult use takes precedence as far as capital allocation goes. But I guess my question is, with this much cash on the balance sheet, do you think you can deploy everything that you need to for that initiative and also fund opportunities as well? Do you have a chance to sort of have your cake and eat it, too here?
Kim Rivers: Yes. Thanks for the question, Luke. Absolutely, I mean, we are in a, I think, enviable position as it relates to our cash generation capabilities and as well as, of course, the cash that we have currently on hand. So we feel like we are in a great, great posture to be able to, as you said, of course, not only continue to invest as appropriate into the Florida adult use campaign, which we believe is a very, there's extremely extraordinarily high ROI on those dollars, as well as to continue to support our growth initiatives across our portfolio, which will include, as we mentioned, investing in additional retail in Ohio, continuing our store build out, as we've discussed since the beginning of this year, and then the additional infrastructure, foundational as well as longer term infrastructure improvements that we're continuing to invest in. I mean, I think the reality is that some of those infrastructure investments that we started many years ago are now showing up in our business and showing up in our results. And so it is very important that we continue to invest, of course, not only for today but also for the future. But yes, we're very excited about our current and our future position.
Luke Hannon: Great and from my follow up here, I wanted to ask about the quarter-to-date trends. Can you delineate how much of that mid-single digit decline, quarter on quarter, how much is related to traffic versus price? I imagine it's more traffic related because of the seasonality?
Kim Rivers: Yes. I mean, so it's really, it's a mix and it's going to, it's going to vary somewhat by market. Luke, we've got both, of course, some softer traffic in certain markets with both, snowbirds, et cetera, leaving the state as the weather gets hotter and as well as some shift in consumer preferences with a bit more shifting back towards value. Right. Beginning in first part of second quarter, we certainly saw some trading up as an, into some of our more premium categories, again, consistent with what we've seen in the past over the summer. Traffic lightens up some and folks are a bit more cost conscious as they look for an increased value proposition. And so again, that leads to a little bit of differences in product mix, et cetera, with a little bit of a, more of a shift to value. I mean, I think the good news for us is that we've got really strong brand and strong brand performance in each of those categories and we're able to flex portfolio in response to those consumer preferences.
Operator: Our next question comes from Frederick Smith from ATV Capital. Please go ahead with your question.
Frederick Smith: Hi. Morning. Congrats on the great quarter and great margins here. My first question just on Arizona. Could you comment on what you're seeing that market in terms of just overall growth and competitive environment? Abstracting the seasonality here. It seems like it, it's a market where sales are decreasing sequentially and year-over-year. So could you comment on that dynamic and your strategy for Arizona? Thanks.
Kim Rivers: Sure. And, we continue to remain, Arizona is a cornerstone market for us. It continues to be an important market for us. And, in the quarter we saw a couple of, a couple of positives right. One, I would say the adoption rate of our loyalty program in Arizona was very exciting. And that's a market where previously, because of the nature of adult youth, there was a lack of data for us in that market and we just didn't have emails and phone numbers, et cetera. So the loyalty program has given us a way to incentivize folks to provide that information and for us to be able to market specifically and directly to our customers there really overwhelmingly for the first time we have that information, of course, for our medical patients there. But for our adult use consumers who are local, that information previously was not available. So we have launched marketing in Arizona to a larger audience now, and we're seeing some good results from that. And we'll certainly utilize our platforms to learn more and more about those consumers as time goes on. And so that would be, one, one data point. Secondly, of course, we have now have a unified platform there. So we're all, 100% truly branded in Arizona. We've been ramping up our internal brands in Arizona as well, to your point. And, Arizona as a whole, when you look at the statewide data, and there has been pressure on that market, I think for us, right, what we see as a positive is our market share has actually been increasing alongside of that, of that downward trend. So, I mean, I think, I think for us, we always challenge ourselves and we always say that our biggest competitors are ourselves. So we're looking for ways to remain competitive there and to, again, better every day for us to better understand the consumer and the market there so we can continue to refine our product offerings and our, again, our marketing tactics to meet the customer demand there. But Arizona is absolutely, and I think you all know this is a very seasonal market. And so, we are in the Q3 is our, that's, that's the, the time where that market has the most pressure from a seasonality perspective. So, and then, of course, it rebounds in Q4 and Q1.
Frederick Smith: Thank you for the great caller. My second question is on Pennsylvania. I think we continue to see some good data from that market in terms of growth and prices stabilizing and maybe even recovering. So is that something that you're seeing in your operations in Pennsylvania, and would you expect that sort of recovery to continue?
Kim Rivers: Yes, I mean, Pennsylvania is a great market for us. Similarly, we are and have continued to see price stabilization there, along with our internal brands are really performing exceptionally well in Pennsylvania. I think we have built our data in that state where we are very tuned into our customers and have adjusted product mix to their shifting, their shifting demand over time. In addition, we are and have been leaning into wholesale in Pennsylvania and have been effectively increasing our wholesale reach there as well. So Pennsylvania again is a very strong market. The team there has been doing a fantastic job.
Operator: Our next question comes from Russell Stanley from Beacon securities. Please go ahead with your question.
Russell Stanley: Good morning and congrats on the quarter. I guess my first question around CapEx and the increase there, just wanted to clarify how much of that increase is dedicated or earmarked for supporting the adult use campaign effort itself as opposed to physical expansion in Florida or other markets? Thanks.
Kim Rivers: Yes. So we wouldn't put dollars, and just to clarify, Ross, we would not put dollars for the campaign passage into a CapEx line. So zero, I guess, would be the answer.
Russell Stanley: I'm not sure if you have a follow up, if I could rephrase the question. Just all of that incremental 30 going into Florida then, or can you give us a sense, obviously, I imagine Florida is the bulk there, but other markets where maybe you've looked at CapEx?
Kim Rivers: Yes. So, I mean, I think with, with CapEx there are a few different, a few different things. Right. And so one, and we mentioned that we have this opportunity to invest in additional dollars in Ohio, which we think, of course, given the adult use conversion, makes a ton of sense. And so we will be investing there, the three additional stores, in addition to the three that are converting to adult use for us today, we have three more that will be opening and we hope very, very early 2025, which means the bulk of that investment also will come in 2024. In addition, as we have mentioned, we do plan to invest in some additional capacity across our portfolio. I mentioned we were bringing some legacy capacity online in Florida right now, and that's to support kind of, current, current state. So we do have with these additional stores in Florida that we're bringing online as well. Just keep in mind. Right. We have to make sure we've got enough supply. Right. For those, for those stores as well. So, and yes, I mean, to your point, certainly we will need to make, some calls ahead of adult use conversion and the bulk of that, of course, we're attempting to de-risk to after. But there will be, there will be some moving into, moving into the vote.
Russell Stanley: Maybe if I could just, my last question, just around stores in Florida, you've already, I think, opened more this year than you did all last year. And understand you're still guiding to 25 plus company wide. Just wondering, in Florida, are you finding it? Are you seeing any increased challenge in identifying ideal sites for new locations? I imagine there are geographic pockets that become more attractive under an adult use scenario. So just would love to hear your thoughts on how you're finding sighting new stores and the extent to which that's becoming easier or harder. Thanks.
Kim Rivers: Yes. And so, listen, we've got a fantastic team here in Florida. And, I mean, the good news for us is we've been at this for a long time, and so we've got a pretty specific process for how we identify and rank and map out locations and where we would like to be. And that's a fairly long range plan that we execute against. So I think the team continues to do a great job identifying optimal sites and sites that we are excited about, regardless of what happens in November. And just keep in mind, right. That, look, our store opening cadence has ebbed and slowed, but this is in no way the fastest that we've ever opened stores. Right. So we're used to moving, fairly quickly as it relates to store openings. Lending opportunities present themselves. It's just not always linear. Right. And so, we'll have stores that are identified and negotiations with a landlord or permitting or what have you can speed up or slow down that process so it can, again, it's not always a perfect, a perfect science as it relates to how those end up rolling out. But, again, the team does a great job and we're really pleased with our progression against our goals for this year.
Operator: And our next question comes from Eric Des Lauriers from Craig Hallam Capital Group. Please go ahead with your question.
Eric Des Lauriers: Great. Thank you for taking my questions, and congrats on another impressive quarter here. My questions are on Ohio. Congrats on that settlement. I'm getting you two additional retail locations in time for adult use here. And I guess congrats on the first online sale as well. So my question is on the service agreement you've entered into providing operational support to the ironton production facility. Just wondering if there will be any licensing fees associated with that, any recognized revenue, and if so, if that will be material?
Kim Rivers: Yes, thanks for. Thanks for the question. So that agreement will continue to show up as a vie, so you'll be able to track it in the financials as. As a vie, Eric.
Eric Des Lauriers: All right, thank you for that. And then in terms of the three additional dispensaries, just wondering, rough timing right now. I mean, I know you got a lot going on expansion wise, and this is obviously pretty fresh. So I'm assuming these aren't ironed out here, but just kind of high level. Should we think of those three additional stores as opening kind of through year end 2025, or should we think of those as coming on maybe a bit sooner than that? Thanks.
Kim Rivers: Yes, I would have those coming on in Q1 2025. That's our goal.
Operator: And our next question comes from Scott Fortune from Roth Capital. Please go ahead with your question.
Scott Fortune: Good morning and thank you for the questions. I know you have a lot going on in Florida, obviously very exciting there, but just priorities for your cash position here. A lot of optionality, as you mentioned, sense for options like buying back stock, paying down debt, or M&A opportunities. And just kind of what are you seeing in potential M&A? We're seeing that kind of picking up here assets in the current marketplace, kind of outside of, obviously, your focus in Florida here, but just kind of a little bit of a color on the market from that side of things?
Kim Rivers: Sure. And as I mentioned before, we are very comfortable with our cash position. And I've said previously that right now it's very important that we fully execute against the opportunities that we have in front of us and remain focused there. I think that it's a mistake in business, and it's just philosophical to take your eye off of what's in front of you, to chase kind of a shiny object, if you will. I don't think that there are any opportunities that exist today that won't exist past November 5. So for us, it's very critical that we continue to focus to get the vote across the finish line, which, look, there's a 60% threshold, and so it is going to take every single bit of effort that we've got to get that passed. The other thing that I would say is that we like to have optionality in our opportunities, if you will. And, we're in a very comfortable spot, I think, right now, as we think about our debt position and how that could be repositioned moving forward. And again, we like to remain opportunistic on the M&A front, but also, of course, want to make sure that when, I'll call it, the largest opportunity in the cannabis sector is in front of us, and we're the leader as it relates to that opportunity, that we make sure that we do everything we can to realize that first, I appreciate the color there.
Scott Fortune: And just a follow up just on kind of additional color on the overall canvas consumer. In a sense, that's a more challenging macro environment today. A little bit kind of here, third quarter and trends towards value, you called that out kind of going the value trade down here. But how it relates to pricing, I guess, now can you provide more kind of loyalty, kind of success and metrics there to kind of offset, pricing in potential seasonal volume kind of demand for you in those Arizona and Florida side of things, just a sense of the consumer spend what you're seeing from a trend standpoint heading in kind of a little tougher micro, macro environment here for the consumer?
Kim Rivers: Yes, I mean, I think that again, right now, seasonal pressure remains certainly relatively in line. I think it's a little early to be able to call or to be able to give color, significant color on. If there's anything additional as it relates to the macro, on the cannabis consumer specifically. Again, I'll just say that we have, I think fortunately been through a number of cycles at this point and are able to, and have levers that we can easily pull as we, or if we see those trends, those trends develop as it relates to the trade down from a value perspective. As I mentioned, we are certainly seeing that, again, a little bit too early to be able to comment if it's any different than kind of normal seasonal, right? I don't know that we're going to have full visibility on that, just candidly, until the end of the third quarter and as we go into fourth quarter when that seasonality, when we're coming out of that seasonal time period. So a little bit of mix in there right now from market to market, as I mentioned, because not all markets are affected by those seasonal trends. And then of course, we have Ohio thrown in as well. So a little bit of a mixed bag right now, but, again, feel good about our ability to flex and to respond to specific consumer behaviors as we, as we see them.
Operator: Our next question comes from Mike Regan from MG Research Company. Please go with your question.
Mike Regan: Hey, thanks everyone. Most of my questions have been asked, but I guess a quick question on that new express store model you start opening, if you could have any updates on sort of how that's performing and how many you have and how many you'd like to open of that model versus the more traditional store? Thanks.
Kim Rivers: Yes, thanks, Mike. So we have two of those open currently in the portfolio. They have been performing at or above expectation, depending on the metric. And we are looking to incorporate more of those into the portfolio where it makes sense. And so, Yes, we think it's a great option for us to have and to have that capability, particularly in specific communities that may not warrant a full blown, fully staffed, if you will, location, but still have customers who would otherwise be driving a good ways, and then also that we would otherwise be delivering a good way. So, Yes, it's a good tool in our toolbox as we look out for further expansion sites.
Mike Regan: To follow up on Scott's question, if I heard you correctly, it sounds like the trade down effect so far seems to be more seasonal rather than competitive or consumer health, or at least you can't tell, and I don't want the words in your mouth. Is that basically what I'm understanding at this point?
Kim Rivers: Yes. I mean, listen, traffic is, everything right now is relatively in line with seasonal, with seasonality, right. So it's difficult for us to tell because of that seasonality. If there's something else right at play, the only thing I can do is point out to some of those markets that don't have, in a uniform way. And that would point absolutely to some sort of a macro shift that's showing up right now. Now it could mean, because we've seen this before, too, that it just shows up at different times in different markets, depending on, everything is local to a certain extent, depending on what's happening with the economy in that particular area or region. So, again, I'm not trying to hide the ball here, just we and, that's just what we're seeing today. I think we'll have a lot more to share on that topic next quarter when we have all of Q3 behind us and a bit of Q4 to compare and contrast against.
Operator: And our next question comes from Andrew Semple from Echelon Capital Markets. Please go ahead with your question.
Andrew Semple: Hi there. Good morning. I just want to ask on your comments about squeezing costs out of the cost of goods sold line, and particularly Jefferson county facility being a big part of that. You didn't mention that Jepco was kind of operating here at peak performance. Has that tailwind to margins mostly been realized, or is there more room to go there? And maybe outside of Jesco, across the country at some of your other cultivation facilities, how much more room do you feel there is to continue squeezing costs out the business and margins higher in some of your other states?
Kim Rivers: Thanks for that question. So as we, as we said, JetCo, we feel like is relative peak performance. And in addition, we mentioned that the yields this past quarter and that again really has to do with the mix of, in the stream, specifically of what's planted there was exceptionally high. So that's part of the reason why we're not guiding to higher margins because we do believe that that will fluctuate and probably shouldn't fluctuate depending on consumer preferences. I mean, in other words, we're not going to plant the exact same thing all the time because that would not meet the needs of the business from a consumer perspective. So there will be variability there depending on plants and yields in the particular quarter as it relates to. So I'll say that. I'll also say that of course we look for cost savings and efficiencies across the portfolio every day. So, again, I think that we will continue to be disciplined as we, as we look for ways to increase efficiencies. And there isn't anything in front of me today that I could point to that would say, yes, there's, additional low hanging fruit that we can go after there. And I think the team's done a phenomenal job driving those costs down over the last twelve months and getting us to where we are today. And again, that's why we're guiding to that mid fifties. Because when you think about, again, where we are today and where that fluctuation or variability can go on the cultivation side, but then also when we think about where we are again, the seasonal pressure, consumer preferences, product mix shifts, potentially, et cetera, that's where we're comfortable. But we wake up every day and always try to strive for incremental improvement. That's one of our mantras here at twilight.
Andrew Semple: Got it. That's helpful. And then maybe just returning to the Ohio market, what's your thoughts in that state, just longer term about are you comfortable being a retailer in that state or would you, are you on the hunt for cultivation to complement the retail footprint you're building out?
Kim Rivers: Yes, so Ohio has some very specific regulations around, around ownership and what the layout needs to be, which we of course are very focused on being in compliance. And so as I mentioned, we have a vie relationship with a tier one, cultivation and I and processor. And so we're very comfortable with that arrangement. And then of course, we have our three stores now we have our three stores in the beginning of the year. And then there's a possibility through our partnerships that there could be another two dispensary opportunities depending on lottery results in the future. So we would love to continue to build out that platform. I think it's going to be a great market and for us, and I really excited to be among the first operators to open today for adult E-sales.
Operator: And ladies and gentlemen, with that, we'll be concluding today's question-and-answer session. I'd like to turn the floor back over to Christine Hersey for any closing comments.
Christine Hersey: Thank you everyone for your time today. We look forward to sharing additional updates during our next earnings call. Thanks again and have a great day.
Operator: And with that, ladies and gentlemen, we'll conclude today's conference call and presentation. We thank you for joining. You may now disconnect your line.
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