Trulieve Cannabis Corp

Good morning everyone and welcome to the Trulieve Cannabis Corporation first quarter 2022 financial results conference call. My name is Andrew and I will be your conference operator today. As a reminder, this conference call is being recorded. If you require operator assistance, please press star then zero. I would now like to introduce your host for today's conference, Christine Hersey, Director of Investor Relations for Trulieve. You may begin.

Thank you. Good morning and thank you for joining us. During today's call, Kim Rivers, Chief Executive Officer, and Alex D'Amico, 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. Steve White, President, will also be available to answer questions. 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, 2021. 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 in isolation or as a substitute for truly financial statements 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 8K 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 quarterly results. Please be advised that we may or may not continue to provide these additional details in the future. This morning, we reported results for the first quarter of 2022. A copy of our earnings press release and an accompanying PowerPoint presentation may be found on the investor relations section of our website, www.trueleads.com. An archived version of today's conference call will be available on our website later today. I will now turn the call over to our CEO, Kim Rivers.

Please go ahead. Thanks, Christine, and good morning, everyone, and thank you for joining us today. I apologize about my voice, but we're going to give it a shot here. We're thrilled to report record first quarter results delivering top-line growth, gap margin improvement, and positive operating cash flow. Throughout the quarter, momentum grew with the strongest results in March in line with historical trends. Following this great start to the year, we continue to make progress as we execute on our strategic plan. Our team is laser focused on further optimizing assets across our platform and positioning our organization for the next phase of growth. Given our strong balance sheet, cash generation, and flexibility to adjust capital expenditures, Trulieve is incredibly well positioned in the current environment to take advantage of market conditions. I am highly confident in our strategy and our ability to capitalize on the opportunities ahead. Turning now to our first quarter results. Trulieve achieved record first quarter revenue of $318 million, up 64% year-over-year and 4% sequentially. First quarter revenue growth was primarily attributable to organic growth in both retail and wholesale channels. First quarter gap growth margin was 56% as compared to 43% last quarter, and adjusted growth margin was 58%. Adjusted EBITDA margin was 33%, or $105 million, representing our 17th consecutive profitable quarter. First quarter operating cash flow was $45 million, and we exited the quarter with $267 million in cash. Our retail platform grew to 162 locations, with market-leading positions in Arizona, Florida, and Pennsylvania. During the first quarter, production increased by 91% year-over-year and 24% sequentially to approximately 9.8 million units. Distribution across our retail and wholesale network is supported by over 4 million square feet of cultivation and processing capacity. The benefits of our scale and depth in markets were further illustrated last month by our strong performance on 420. Compared to the prior record results on Black Friday 2021, we achieved record revenue, transactions, and units, up 19%, 11%, and 18%, respectively. We marked the occasion with numerous events, including new product launches, Limited time offers strains and doorbuster promotions. The cannabis community turned out to celebrate the holiday, enjoying food trucks and DJs with lines wrapped around the buildings. The spike in demand on 420 underscores the tremendous untapped potential for this industry. As always, our team rose to the occasion, delivering great customer service. Our success on 420 reinforces how our strategy and positioning are designed to provide fantastic experiences every day, while having the flexibility to accommodate sharp increases in traffic and demand. Turning now to our cornerstone markets, strong first quarter results were driven by sequential revenue growth in Florida and Pennsylvania. In Florida, improved first quarter performance was attributable to a combination of factors. Lower promotional activity, several new branded product launches, greater availability of premium products, and greater depth of inventory for differentiated products all contributed to strong results. In Pennsylvania, revenue increased compared to the fourth quarter despite the recall of select vape products on February 4th due to stronger sales in the wholesale channel. During the fourth quarter call, we outlined plans to optimize assets and streamline operations across our affiliates. Year to date, we have made progress in accordance with our plan. We have been working to refine production mix and expand our branded product suite in order to better meet customer demand. We launched new branded products, including concentrates, flour, and vapes in premium and value segments. Throughout 2022, we are adding new branded products pending regulatory approvals. Our efforts to optimize our affiliated operations across Pennsylvania remain on track. In Arizona, we are focused on optimizing and augmenting our supply chain capacity to increase sales of internal products throughout our resale footprint. We have added indoor cultivation capacity, additional extraction technologies, added or changed lighting in some of the acquired facilities, and started to add additional automation. So in addition to increased capacity in coming quarters, We anticipate seeing better efficiency in the near term. As we move through 2022, we will continue to optimize our supply chain. First quarter results demonstrate further progress as we execute on our plan, building scale and depth in attractive markets. Our leadership and unrivaled success with this strategy to invest heavily in high conviction markets is undeniable. Trulieve has always tuned out the noise to focus on opportunities that meet our stringent criteria for investment. Given the current macro environment, we are actively managing our cash and expenditures. With $267 million in cash at quarter end and cash generation from operating assets, we are well positioned to weather short-term volatility in capital markets, and we can throttle capital expenditures based on market conditions and timing for expected catalysts. We have the flexibility and access to capital to be opportunistic with strategic acquisitions and investments within this tighter market environment. During our fourth quarter earnings call in March, we outlined four strategic priorities for TrueLeave in 2022 to reinforce our leadership position and set the stage for the future. These four initiatives focus on number one, delivering exceptional customer and retail experiences. Two, expanding through our regional hub strategy. Three, distributing branded products through branded retail and wholesale channels. And four, adhering to our disciplined approach to capital allocation. First, we are delivering exceptional customer and retail experiences. with convenient transactions, frictionless returns, broad and innovative product assortments, and enhanced loyalty and rewards programs. First quarter activities included rewards for return customers, appreciation offers for top customers, and hyper-personalized marketing outreach for specific brand activations. Personalized marketing is an effective tool to drive traffic for specific products and events, ensuring high sell-through and preserving margins while matching customers with their preferred products. We realize the benefits of this approach, garnering high sell-through rates for Muse Live Diamonds and Muse Live Sugar product releases in the first quarter. Second, we are continuing to expand through our regional hub strategy. We are investing in our distribution network to deepen our presence in cornerstone markets while developing emerging markets. In the first quarter, we opened three new medical dispensaries in Pennsylvania and Florida. Trulieve exited the first quarter with 162 retail locations in eight states. including 30% located outside of the state of Florida. This year, we're adding a total of 25 to 30 new dispensaries. Now turning to the supply chain. In the first quarter, we added indoor cultivation capacity for premium flower in Arizona, continued our expansion efforts in Florida and Pennsylvania, added capacity in West Virginia, and ramped capacity in Maryland ahead of adult use. We are leveraging our existing scale and depth across markets, providing a strong foundation for future growth. In the coming years, we fully expect to play a meaningful role in the development of new market opportunities in the southeast, like Georgia. In accordance with our regional hub strategy, we will continue to be opportunistic when expanding into new hubs and markets. Third, we are distributing branded products through branded retail and wholesale channels. Our product portfolio includes a wide variety of form factors across segments offered at appropriate price points. We are continually innovating in response to evolving preferences. In the first quarter, we launched several new products based on market feedback. Examples include RSO tinctures, value-sized single-serve edibles, and high-end Primo buds, which have one or two buds per eighth. We are very encouraged by the high velocity of sell-through for these products. Differentiated products are an important part of our strategy to meet customer demand while building and reinforcing long-term brand value. We now have a defined brand portfolio with specific brands that speak to customers and have successfully launched those brands across multiple markets. During the first quarter, we successfully launched Cultivar Collection, Muse, Modern Flower, Momenta, and Roll1 branded products across markets including Florida, Maryland, Massachusetts, Pennsylvania, and West Virginia. By offering the right branded products that customers want, we are demonstrating true brand building capabilities. As we continue to launch branded products across our markets and hubs, we can provide customers with a more consistent retail experience and greater access to our evolving product portfolio. In support of our brand-building efforts, in March we welcomed a new brand ambassador to the True Family, cancer survivor and winner of the Survivor television show, Ethan Zahn, who recently finished the Boston Marathon using Momenta products as part of his health and wellness program. Through sharing his personal experience, Ethan is an authentic and powerful advocate for cannabis and wellness, and we are thrilled to have him representing Momenta. National and mainstream media outlets, including ABC News, E! Online, and Health Digest, covered Ethan's participation in the marathon and his amazing journey, providing broader reach and exposure for Trulieve and the Momentum brand. Regional and local brand partnerships complement distribution of our own brands. In April, we launched Khalifa Kush pre-rolls in Arizona and Delisioso pre-rolls in Florida. While most folks know Wiz Khalifa, some may not be as familiar with Richard Delisi. He is one of the longest-serving nonviolent cannabis prisoners in U.S. history, having served 32 years of a 90-year sentence. Delisioso is a Florida-based cannabis brand founded by Richard Delisi and his son, Rick. The Delisioso brand pays it forward by donating a portion of its profits to nonprofits, including Free Delisi and The Last Prisoner Project, which was instrumental in securing Delisi's release in December 2020. Early responses to both branded products have been fantastic. Working with these amazing partners who bring such passion and energy to the industry is inspiring and further connects us to the community. Our branded retail platform is a key component of our overall customer experience and an important contributing factor to building long-term brand equity. During the first quarter, we completed the rebranding of all retail locations in Maryland and Pennsylvania to the Trulieve brand. Overall, initial performance for rebranded stores has been strong, with higher revenue and units sold realized at most locations. Fourth, we remain committed to our disciplined approach to capital allocation. We have a clear and defined strategy and well-established criteria for evaluating assets and markets. During this quarter, we divested redundant cultivation assets in Florida and a non-revenue generating location in Massachusetts, those of which were acquired as part of the harvest transaction. We continually evaluate the performance of assets across our platform and may choose to divest additional assets in the future as appropriate. As we reposition assets and streamline operations, we will continue to invest in our markets to add capacity, expand distribution, and fortify infrastructure to prepare for and support future growth. Our track record of profitability and disciplined capital allocation affords us access to growth capital at industry-leading terms. In January, we closed the second tranche of 8% senior secured notes, totaling $75 million. Trilieve has sufficient capital to fund our growth plans and strategic initiatives in 2022. We expect our strong balance sheet, access to capital, and financial discipline will uniquely position us to capitalize on market opportunities created by the macroeconomic factors impacting our industry. We are building a leading company in an emerging industry. As always, we are taking a proactive approach to strategic development and decision-making. We have a long track record of financial outperformance and positioning ahead of changes in market conditions. As we previously signaled, we expect to realize improved performance as our initiatives take hold. Year to date, we've made great progress on our plan and we're on track to reach our articulated goals this year. Trulieve is poised and ready to define the future of cannabis. With that, I'll turn the call over to Alex for more details on our first quarter.

Thank you, Kim, and good morning, everyone. We've made tremendous progress since closing the harvest transaction, and we're carrying this momentum forward. Record first quarter revenue of $318.3 million increased 64% year over year, compared to $193.8 million during the first quarter of 2021. First quarter revenue increased 4% sequentially compared to $305.3 million during the fourth quarter. Trulieve ended the first quarter with 162 dispensary locations. As of May 12, Trulieve owns or operates 165 dispensaries supported by over 4 million square feet of cultivation and processing capacity. In the first quarter, reported gross profit was $178.2 million or a gross margin of 56% compared to $132.4 million or 43% during the fourth quarter of 2021. GAAP gross margin improved sequentially as the impact of fair value of inventory step-up charges were significantly reduced. Excluding the impact of transaction-related and non-recurring charges, first quarter adjusted gross profit was $185.4 million or adjusted gross margin of 58%. We expect gross margin will continue to fluctuate quarter to quarter depending on product and market mix and inventory flow through. Turning now to SG&A expenses. SG&A expenses in the first quarter were $106.4 million or 33% of revenue compared to $117 million or 38% during the fourth quarter of 2021. First quarter expenses included approximately $11.3 million of transaction and integration related charges primarily associated with the harvest acquisition. Excluding these charges, first quarter SG&A was $95.1 million or 30% of revenue. As we continue to invest for future growth, we expect quarterly fluctuations in SG&A expenses as investments are made ahead of increases in revenue. Depreciation and amortization expense in the first quarter increased to $29.3 million compared to $28.3 million during the fourth quarter 2021. Depreciation and amortization expense includes $20.4 million of depreciation of fixed assets and amortization of intangibles associated with the harvest transaction. This depreciation and amortization expense will be recurring in nature over the useful life of the underlying assets. Net loss was $32 million for the first quarter compared to net loss of $71.5 million for the fourth quarter 2021. First quarter net loss included $13.8 million in asset impairments associated with the closure of redundant cultivation assets and a loss of $2.7 million due to the divestiture of a duplicative non-revenue generating location. Excluding non-recurring charges, first quarter net income would have been $1.7 million. First quarter 2022 loss per share was 17 cents compared to loss per share of 49 cents in the fourth quarter 2021. Excluding non-recurring charges, first quarter earnings per share would have been 1 cent. We expect transaction and integration-related charges will continue to impact reported EPS throughout 2022, with expected improvement as the year progresses. Turning now to adjusted EBITDA. For the first quarter of 2022, adjusted EBITDA was $105.5 million, or 33%, compared to $100.9 million, or 33%, during the fourth quarter of 2021. We expect adjusted EBITDA to improve as we optimize assets and execute on our strategic plan. Moving on to our balance sheet and cash flow. During the first quarter, we closed a second tranche of 8% senior secured notes totaling $75 million. We ended the first quarter with $267 million in cash and $553 million in debt. First quarter operating cash flow was $45.1 million. Looking ahead, we expect second quarter cash flow will be impacted by the timing of two tax payments during the quarter. We are actively managing the cash conversion cycle and expect to realize further improvements in operating cash flow. Our strong cash generation and financial profile provide a solid foundation to support our strategic initiatives. Capital expenditures in the first quarter of 2022 totaled $48.1 million. The majority of expenditures were comprised of investments in supply chain and retail assets. As Kim highlighted, we have tremendous flexibility to adjust the timing of our investments to take advantage of opportunities that arise based on market conditions. Turning now to our outlook and guidance for 2022. Based on our current expectations and performance year to date, we are reiterating 2022 guidance of $1.3 to $1.4 billion in revenue and $450 million to $500 million in adjusted EBITDA. As we have previously signaled, we anticipate nonlinear growth throughout this year. Following strong performance in March, We anticipate second quarter 2022 revenue will be relatively flat compared to the first quarter 2022. Given the timing of investments and ramping of supply chain capacity, we expect to report stronger performance in the back half of 2022 and exiting the year. In summary, I am very pleased with the progress we've made thus far. I am so proud of our team and how far we've come in a short period of time. I'm excited to keep building on our track record of focused execution and operational excellence. We have significant runway ahead to further optimize our assets as we prepare our organization for future growth. And with that, I'll turn the call back over to Kim.

Thanks, Alex. As I've said before, we are still in early innings for U.S. cannabis. Every day, cannabis becomes more widely accepted. I am increasingly encouraged by the progress being made. As an industry, we're well beyond the tipping point. Look no further than the widespread success of the 420 holiday this year. Demand for regulated cannabis products continues to grow stronger. we are entering a new paradigm of mainstream acceptance. This groundswell in popularity highlights the growing need for common sense reform. At the federal level, we are seeing firsthand increased discourse and desire to advance cannabis legislation with interest and support from both sides of the aisle. At the state level, significant advancements continue as constituents increasingly support expanded access to cannabis. Within our own markets, an initiative for adult use in Maryland is on the November ballot, and we are seeing momentum build to allow adult use in Pennsylvania. We expect adult use sales in Connecticut will commence later this year. In Georgia, we anticipate a potential resolution and green light to move forward with operations as early as mid-year. We are proud to be at the forefront of this ever-changing and rapidly evolving industry, contributing to the development and expansion of access to cannabis. We have made great progress, but much work remains to be done. We will continue to advocate for change at all levels. The opportunity set and growth expectations for this industry are phenomenal. The legal U.S. cannabis industry is forecast to almost double again in the next five years, reaching over $46 billion in annual sales by 2026. Trulieve is uniquely positioned and ready to meet the promise of this tremendous opportunity. We lead with strategy, follow with execution, and go deep in markets like our profitability depends on it. We will continue to do what we say we are going to do, tuning out the noise and staying true to form. Thank you for joining us today, and as I always say, onward.

At this time, Kim Rivers, Alex D'Amico, and Steve White will be available to answer any questions. Operator, please open up the call for questions.

We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you'd like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. The first question comes from Derek Delay with Canaccord Genuity. Please go ahead.

Hi, good morning and congrats on another set of really strong results. I wanted to start off by just asking if we can get an update on how the integration of harvest is progressing.

Yeah, good morning, Derek. The Harvest integration is progressing really well. I mean, when you take a step back and you think about the fact that we are literally one year and two days removed from deal announcement, it's pretty unbelievable when we walk through our progress. We closed the deal in five months. We rebranded stores in Florida, Pennsylvania, and Maryland, so 29 stores total. We combined a product portfolio and launched new branded products. across Florida, Pennsylvania, Maryland, West Virginia, Massachusetts, integrated operations, launched a hub leadership structure in all three hubs. We've gotten rid of less efficient and non-contributing assets. We've streamlined operations, which is evidence, of course, in our decrease in SG&A and our increased margin as a new company. We've added supply chain across all markets to execute on our strategic priorities. And we set and smashed combined company records on 420 So, yeah, I would say it's going pretty well.

Okay, yeah, I would agree with that. So, you mentioned margins and notice this quarter that the gross margin took a big step up on a sequential basis. Can you just comment on some of the initiatives you've put in place or processes or perhaps, again, like you just mentioned, integration of harvest that's helped driving that margin movement materially higher?

Yeah, I'll take that. Like as Kim mentioned, focus on execution was a big driver there. One of the big wins this quarter was the shakeout of the deal related impact to margin. And you see our gap gross margin getting closer to our adjusted gross margin. And this was primarily driven by that fair value step up of inventory impact. It was $38 million last quarter and less than 400 grand this quarter. So kudos to the team on executing and selling through that inventory. And then, you know, as we go forward, On margin, we look forward to expected improvement in the area, further improvement as we execute on our strategy. Kim mentioned building out our supply chain and infrastructure and pumping that internal product through our internal retail channels.

And, sorry, that inventory step-up that happened in Q4, we shouldn't expect that. There shouldn't be another one of those later this year. It's kind of sorted for now?

Yeah, the harvest-related inventory is sold through.

Okay, perfect. Great, congrats. Thanks again.

The next question comes from Matt McGinley with Needham. Please go ahead. Thank you.

On the G&A, your sales and marketing dollars were fairly flat compared to the fourth quarter, but your G&A dollars dropped by about $11 million quarter over quarter. The question is, like, will there be additional cost reductions related to harvest in the second quarter, or will that total G&A, which I think, Alex, you said was close to $95 million, Will that be about the same into the second quarter, given you'll have roughly flat revenue, as you had alluded to?

Yeah, I mean, as we always indicate, we expect SG&A to grow in whole dollars as we build out our regional hub structure over time. But as a percentage of revenue, again, this is another area where, like margin, we see the lessening of the transaction and integration costs, right? On an adjusted basis, we were 30% versus 32% last quarter last Right. And that's closer to the, you know, our traditional wheelhouse as a percentage of revenue. Uh, we, we are always kind of shining the apple and optimizing the organization and we do expect incremental improvement as, as we go along, but, uh, we feel good about where we, where we were able to come as an organization in just that short period of time.

And I would say, I really appreciate that cashflow reconciliation table that you provide that helps identify some of the ongoing cashflow headwinds related to the acquisition integration. So my question is, when will we not see that table going forward, or when will the harvest assets be fully integrated where we won't continue to see those cash flow headwinds? And I guess relative to what we saw in the first quarter, what would you expect those cash flow headwinds to be in the second quarter?

Yeah, always just continued improvement and lessening from the deal-related impact. We see that in margin. We see that on the SG&A side. Obviously, it flows through cash flow to ops. We had add-backs of $73 million last time and $32 almost $34 million this time, so significant improvement there. We'll see those costs, you know, kind of throughout the year, but we look forward to continued lessening of those. And, you know, as you mentioned that, like our cash flow from operations, while $45.1 million in the quarter, on an adjusted basis, if you remove those deal-related impacts, is almost $79 million. And we look forward to continuing to getting that back in line, like margin and SG&A.

And for context, you know, last year through the first three quarters, we were at $75 million in cash flow from operations. So if you, again, take kind of the adjusted view, which we're working very diligently to get to, you know, we would have beat three quarters worth of operating cash flow in a single quarter this quarter.

Great. Thank you.

The next question comes from Camilo Lyon with DTIG. Please go ahead.

Thank you. Good morning, everyone. So going back to the gross margin topic, you know, if you could provide maybe some color on what played out in the quarter from an operating perspective, you know, on the gross margin, any puts and takes that are worth calling out, maybe on pricing pressures, in Florida and how those appear to have stabilized. Looks like pricing may have been up actually quarter on quarter, but just want to confirm that and how that then should play out for the balance of the year. Should we continue to see a stable level of gross margin performance as you saw in Q1 or should we expect things to build off of this Q1 level?

Yeah, so again, one of the big wins in the quarter was that gap gross margin getting closer and adjusted gross margin. So on an adjusted basis, The delta is less than 1% quarter over quarter. And for us, this is your standard flux quarter to quarter that we've mentioned in the past is normal for our business. Inventory flow through product and market mix. We saw expected improvement as expected in discounts coming off the high Q4 promo period. And then we had pickups in WIPCAP leading into 420. And that was partially offset by increase in wholesale and third-party product sales, particularly in Pennsylvania.

Yeah, and just to give you some color on, you know, across markets, obviously you guys know we don't segment by state, but, you know, we had significant improvement in our home state of Florida. Pennsylvania, there was still a little bit of noise in the quarter around the vape recall situation there. The team did a great job in pivoting. They pivoted more to wholesale there, which of course brought down margin a bit, but were able to achieve top-line growth in that market. It was the right call, but we certainly see opportunity there as well as in other markets to increase that branded product through branded retail throughout the year. Again, and as we've signaled, we see that coming through, you know, more in back half than front half. But so we see some incremental pickup ahead. But again, feel really good in terms of what the team was able to pull off in terms of Q1.

Got it. And then maybe if I could ask a question on Arizona and how you think about scaling that wholesale component how should we think about the progression of that initiative?

Yeah, I mean, I think that we've been pretty clear that the primary goal is branded product through branded retail. So our first priority in Arizona, just like in many of our other markets, is going to be to increase that production of products, of internal products, and to sell those through our retail locations. We have opportunity in Arizona specifically to increase that. So while wholesale is on the board, it really doesn't come into play until, again, I would say late in the year, maybe even 23 in Arizona. So we think that the primary opportunity in Arizona is to get supply chain online, get it producing our suite of branded products and then push those through our branded retail. Early indicators of those efforts are good. We just need to get some more volume through.

Perfect.

Good luck with the rest of the quarter.

Thank you. Thanks.

The next question comes from Owen Bennett of Jefferies. Please go ahead.

Morning, guys. Hope all well. Yeah, my first question. It's just on the recreational brand portfolio that you announced in August. So if I heard correctly, these are now in Florida, Maryland, Massachusetts, PA, and West Virginia. I'm just curious to hear any early trends you're seeing with these brands, any sort of trial, what sort of repeat purchases, and any of these states where perhaps they're performing better than others. Thank you.

Yeah, so great question. feedback from our brand launches thus far. I would tell you that we're seeing higher sell-throughs on launches vis-a-vis, I'll call it legacy products. In most cases, more than, I'll call it 60% sell-through within the first week of launch. In some cases, 90%, in other words, a 24-hour sell-through. We're seeing significant adoption and sell-through in our premium brands, particularly on the cultivar collection side of things as well, which is our premium flower brand, as well as our Muse hydrocarbon brand. So both of those brands are doing exceptionally well, which of course is great news for us as we try and continue to grow that premium customer base, which of course has significant protection around margin.

Great, thanks, Lynn. Just one follow-up. I was hoping maybe you could give us some details on how you're thinking about a possible New Jersey and New York entry from here. Obviously, New Jersey up and running now, New York looking like it could be this year, albeit for hemp operators. Are you looking at M&A obtaining licenses organically, or could you even maybe do something with one of the hemp operators in New York prior to obtaining a license? Thanks.

Yeah, I mean, I think, look, you know, the... The excitement around the New Jersey launch and the responses that we've seen thus far is very encouraging. That's absolutely in line with what we would expect to see in a pivot to recreational. It certainly is reminiscent of the same type of activity and enthusiasm we saw in Arizona when that market, you know, last year went recreational. So it's encouraging. We also love it because it puts additional pressure on neighboring markets, such as Pennsylvania and others, which we look to see, you know, and there has been progress there in terms of opportunity for recreational. You know, also, of course, we've got a recreational initiative coming in Maryland. So we love to see the energy. We love to see the excitement. in the Northeast around recreational sales. I think when we think about, and it's going to be interesting to continue to watch New Jersey as it relates to the capacity and supply chain and how that market continues to be served, product selection, et cetera, from a regulatory perspective. You know, we look at our setup, again, in Pennsylvania and the maturity of supply chain and ability to serve through, you know, significant retail channels. And, again, we take it as a really great sign of our positioning as additional catalysts come online in the Northeast.

Well, thanks, Kim. It's very helpful.

The next question comes from Spencer Hanner with Wolf Research. Please go ahead.

Great, thank you. One of your competitors talked about a profitability ramp in the Florida market. I guess, have you seen any easing of the competitive environment or discounting down there? And then how are you thinking about your stability to take share as many operators prioritize building out new stores in Florida?

Sure. So our profitability in Florida continues to, you know, quarter over quarter increased as we signaled in our prepared remarks. You know, we, it was bolstered this quarter by our ability to continue to innovate and get premium products into the market. You know, as we all know, you know, the data that's shared by the OMMU represents volume, but of course not revenue. And I think our numbers speak for themselves in terms of our ability to get high-quality revenue, continue to get high-quality revenue out of the state of Florida. We continue to invest in Florida. It continues to be a market that's growing. Last quarter, we had over 3,700 patients per week joining the program in Florida. So that's not slowing down. And, you know, we continue to be very bullish on Florida. And, again, you know, with over 40% of all market share in oil and close to 50% in flour, you know, on a per-store basis, we continue to lead in terms of products sold. And, again, we actually are less promotional quarter of a quarter, which I don't think can be said for our peers.

Got it. That's helpful. And then could you talk a little bit about how your comp momentum trended in 1Q, and how are you thinking about the sales lift from the relocations that you're planning to do for the stores that opened in 17 and 18?

I'm sorry, can you repeat the first part of that question, Spencer?

Yeah, could you talk about how your same-store sales momentum trended in the first quarter? Did you see any acceleration there? And then how are you thinking about the relocations? and the sales from those changes that you're making to your portfolio.

Yeah, absolutely. Thanks. So we give same-store sales data out on an annual basis, particularly given, you know, which I think is relevant here given, you know, again, a combined portfolio at this point. However, I can say that our sales on a per store basis in Florida continue to be strong. As I mentioned, we continue to invest in retail in Florida because it makes a ton of sense on a performance basis. The relocation of stores, as expected, is positive. We are getting improvement out of those relocated stores, and we'll continue, as we noted on our year-end call, that we have, you know, up to six repositionings of stores that we are planning to move forward with, again, due to positive and strong results in initial store relocations.

Great. Thank you.

The next question comes from Andrew Perthineau with Stiefel GMT. Please go ahead.

Hi. Good morning. Thank you for taking my questions, and congrats on the great quarter. You know, current market conditions arguably puts a newfound premium on cash flow and a strong balance sheet. You mentioned being opportunistic to take advantage of this environment. Could you discuss your outlook on M&A and what kind of opportunities that you are seeing right now? Any color on timing, geography, area of the supply chain, and valuations would be useful.

Sure. So we've said it before and it bears repeating that when we evaluate M&A opportunities, we are building a sustainable and profitable business. We're not looking for a trade. So our criteria hasn't changed. We're still looking at the strategic fit or alignment with our overall plan. We're evaluating the assets, the team, the price, and the timing. What we have seen most recently with changes in market conditions is affects pricing, but it does not affect our criteria. So we're still going to continue to be opportunistic, and we are hopeful that given the current market conditions that we will find additional opportunities to expand the business into additional markets and go deeper in some of our existing markets.

Thanks for that, Ben.

Maybe the next question on the consumer. Could you provide any color on what you're seeing in terms of the health of the consumer? Are you seeing any trading down from premium to value? You mentioned that your initial premium launches have been successful. How's value doing? Is the consumer more focused on volumes versus quality of their purchases? Any color on basket sizes, transactions, or foot traffic would be useful.

Sure. So, you know, not all markets are the same as it relates to customers. And, you know, really, even within markets, there's not, in some cases, There's divergence between certain areas or geographies and certain demographics vis-a-vis others. So it's a difficult question to extrapolate because we are seeing differences across each of our markets, you know, as an aside. What we talk about here is that each one of our markets is in different phases of growth, and that's what makes this business so interesting to some extent. We've got startup markets. We've got more mature markets. We've got markets that we're positioning ahead of catalysts, and they all behave a little bit differently. On top of that, we have consumers within those markets that similarly have different pressures depending on their specific makeup So that being said, we continue in most of our markets to experience growth, again, along a barbell pattern with growth on premium segments and growth on value. In some areas of states, we're seeing a continued increase in value, value product buying, But in others, to be quite frank, we're seeing the opposite in terms of additional growth on the premium side. So it becomes important and remains important for us to be very specific in terms of how we are both innovating products, pricing products, and distributing those products to ensure that we've got the right mix, the right segmentation on our shelves to speak very specifically to the customers that go into that particular location You know, it's certainly interesting to talk high level, but the reality is this business is won or lost on a transaction-by-transaction, customer-by-customer basis, and it's our job to make sure that we understand who that customer is and what store they're going into and what that customer wants to see on the shelves when they go to make a purchase.

Thank you for taking my questions. I'll get back in the queue.

The next question comes from Russell Stanley with Beacon Securities. Please go ahead.

Good morning and congrats on the quarter. You mentioned Georgia briefly during the prepared remarks. Just wondering how you envision, I guess, the regulatory delays or legal battles, I guess, playing out and can you elaborate on your game plan for this market given it's a big state obviously with a ton of potential?

Sure. You know, we, as we've signaled, we love our position in Georgia. You know, this is nothing new as it relates to cannabis. It's kind of part of the playbook at this point that if you don't win a license, you know, you launch a lawsuit and hope that you can kind of quote, unquote, you know, win a license that way. You know, we are encouraged by the fact that now that process has been moved to the ALJ arena, which is streamlined and specific in terms of deadlines. And so we think that that'll move much more quickly at this point. We are also encouraged by, you know, information that we're getting from that market that we do believe that, again, that that'll be resolved here over the next several months and that we'll get the final green light to to move forward. That being said, we see the setup very similarly, actually in some ways better than the setup was in Florida in early days. So we think that there's tremendous growth ahead. It will require some moves, incremental moves by the legislature. But again, nothing that we haven't seen before. And certainly based on conversations and behavior that we saw this past legislative session, We think that there's a strong path and that there's an appetite among lawmakers there for continual improvement of the program.

Thanks for that. And maybe if I could, one more just on CapEx. I think you've noted you've got a lot of flexibility there to throttle up or down in different markets. Just wondering if you're if your total spend outlook has changed for the year. And apologies if I missed it there, but also wondering, you know, if your allocation by market has changed at all and which markets you might be stepping on the gas and which markets you might be using up on, if any.

Yeah, I think our philosophy remains the same, you know, as we said at your end about the majority of our CapEx is in our core markets, building our supply chain and infrastructure. As Kim noted, we have tremendous flexibility to dial that back. and will, if market conditions call for it. Keep in mind that a good portion of our CapEx spend from last year was set to come online Q2 this year and later, and also a good portion of our CapEx plans for this year are for next year and beyond. So as we assess the market, we have that capability to dial back if necessary. And then also keep in mind we will continue to invest ahead of Catalyst's The timing of that is extremely important and the build-out of new markets.

That's great. Thank you for the caller. I'll get back in the queue.

The next question comes from Vivian Azor with Cohen and Company. Please go ahead.

Hi, good morning. This is actually Victor Ma on for Vivian Azor, and thank you for the questions. So first off, can you offer color on the promo spend in Florida over the quarter? I know you mentioned forward promo activity quarter over quarter, but can you maybe quantify what the decrease was? Also, was promo spend in 1Q used more to drive basket size and basket count or to drive attention to higher market categories? Thank you.

Yeah. So, as I've said, and I think as we've said repeatedly, we're not going to segment by market or give specific details around markets. However, what I can tell you is It's in line with what we see quarter to quarter. Q4, which we always signal, is the highest promotional quarter within a year's cycle for us. Q1, with our, again, very specific focus on understanding our customer, speaking to that customer, and being strategic in terms of discounts, we're able to, again, drive activity, and it's different Different activity is driven by different, again, strategic marketing execution. So certain promotions are designated or designed to drive an average ticket. Others are designed to drive absorption of a particular product. in a particular segment. So it really, it's not a one size fits all. But what I'm very excited about is that we have the capabilities to be specific and to be strategic with how we're targeting and how we're speaking to customers, again, in certain categories. So we've deployed a CDP platform this quarter In Florida, we're going to roll that out nationally over the coming quarters, and our ability to take this massive amount of data that we accumulate every single day and refine that into actionable wins at the store level is really this next leg of the journey for us, and we're really excited about it.

Great. Thanks for the call, Eric. And then also just to kind of follow up with the same question, I know your 10Q disclosed that you generated about 9% of total sales from wholesale licensing. Can you offer directional commentary on kind of where the split is headed through the year and maybe where it will shake out for the full year? Thanks.

You're asking about wholesale outlook? Yes.

Yeah, so as we, again, we're building out our infrastructure and supply chain, so we look at further developing that wholesale channel, and especially particularly in our acquired markets, the core to our strategy. So we look for that to ramp throughout the year as well.

Yeah, to be specific, though, as I signaled, I mean, Pennsylvania in particular, right, there was a shift this quarter into additional wholesale activity in Pennsylvania vis-a-vis retail due to the – due to the, again, the vape recall there. So, you know, Pennsylvania was likely maybe you could see a little bit of a higher wholesale number in Pennsylvania this quarter vis-a-vis activity in the future.

The next question comes from Kenneth Teig with ATB Capital Markets. Please go ahead.

Thank you, and good morning. Kim, I heard all your comments on the loyalty and related initiatives and on promotional, but could you perhaps call out or highlight just how much smarter is your promotional capability today and how much more efficient is that promotional capability today, both in absolute and relative terms? I'm just trying to establish how much of a differentiator your loyalty capabilities are versus peers in the market.

Yeah, I mean, I would say, Kendrick, just using ourselves, and we always say here at TrueLeave that we're our first competitor is ourselves. And, you know, when we look back at where we were a year ago to where we are today, our ability, again, to utilize data to run very targeted and specific offers for specific types of customers is night and day. So our ability to understand a customer's preferences, to be able to say, okay, you know, Kenrick is a historical, you know, concentrate user. He enjoys, you know, these types of strains. His basket is comprised of, you know, shatter and crumble, but every now and then he also buys flour. that has these categories, and then for us to develop targeted promotional activity towards you as a customer, we have those capabilities now, and quite frankly, we did not necessarily have those capabilities before. We might know that information, but our ability to extract it in a way that is usable and then to develop a campaign and reach back out to you to drive certain activities, so for example, With our live diamond launch, we actually extended a specific offer to specific customers and invited them to make a reservation for our first drop, which resulted in 100% sell-through within 24 hours of that product launch. And it also solidified those customers' understanding that we know who they are. We appreciate their preferences. and we're going to single them out and, again, include them in top-tier launches such as that one.

Thanks, Kim. So you really are dialed in. I might have some explaining to do if you keep that up, but just for a quick follow-up question, if I could. On some of the new products and productions and sort of a more premium focus to it, how much of your success, and perhaps this is more Pennsylvania-directed, is more to market sooner versus more and better to market sooner than your competitors? And how do you believe you can sort of maintain your relative cadence of product introductions versus peers if it's simply a case of getting more to market sooner?

Yeah, I mean, I think, look, I mean, we're not, we're certainly, we don't follow a strategy of anything and everything makes sense. So I think that, you know, it depends on your definition, I guess, of better strategy. For us, it's, again, developing products along a very segmented and targeted strategy. You know, we like to have good, better, best where we can and, again, where we see market demand for that good, better, best pricing. You know, as an example, this is kind of hot off the press, we had two approvals yesterday come in late in the day from the Department of Health in Pennsylvania in the inhalation category and the vape category. which will round out now, it will kind of re-round out, if you will, our product offerings in the vape category to a good, better, best strategy with brands and segmentation in those three levels across those three products. And so we are strategic in terms of our product offerings, but look, I mean, we currently run and manufacture over 900 SKUs with our scale and our R&D development team that's been based in Florida and has been, again, continuing to innovate all of these years, we've got incredible capabilities. Not only do we have capabilities, but we understand what it takes and the efficiencies or inefficiencies that come with launching specific products. And so we're able to be highly strategic in terms of what products we're launching in which markets and understanding early on what the launch and being able to predict what that launch of that product should do from a margin perspective. So, you know, I think we've got an incredible jump on our competitors in the fact that we bring products to market and have been bringing products to market effectively for many, many years. And that's a core competency of our organization.

Cheers. Thanks, Kim. Congrats. And I'll get back in here.

The next question comes from Scott Fortune with Roth Capital. Please go ahead.

Good morning, and thanks for the question. Real quick, thanks for the color on the promotional activity, but can you provide a little more color into second quarter here with regard to seasonality and consumer demand usually picks up in the second quarter here and how that's playing out? And what you're seeing from the pricing side, a little more stabilization in the other states like Pennsylvania and what you're seeing on the west, a little more color there. That'd be helpful. Thanks.

Sure. You know, as we said in our prepared remarks, you know, we saw, you know, increased activity in March, which is normal, by the way. I mean, we typically see pull through in March. January and February are always a little bit softer. in the market and then pull through in March. We had a bit more pull through this March than we have had in the past on an absolute percentage basis. We're continuing to see, you know, stable, I would say, and inline trends through the beginning part of the quarter. We gave specificity around 420. It was a fantastic day. And, you know, look, I mean, for us to set and break records across the entire platform, vis-a-vis, you know, Black Friday, which is, you know, those two days always rival one another for the highest sales. So it was really, I think, you know, speaks to the strength of our combined platform. But, you know, I would say that things so far this quarter are in line with the trends that we've seen, you know, year over year. And again, I think that's, I think it's Again, we feel very, very good about where we are. We feel good about our ability to be strategic with promotions and with the quality of our products and our ability to continue to innovate and our ability to continue to push more kind of rational segmentation through brands.

I appreciate it. And real quick, I know it's a long call, but as far as the wholesale expectation that retail wholesale makes as you look at the states outside of Florida, what do you think kind of as the optimized percentage? Is there a range of your own house brands and third-party brands in your own retail stores? Is there a target there or kind of how are you looking at optimizing your, as you've mentioned, brands into your branded stores here?

Sure. I mean, look, it's going to depend. That's a very market-specific question. It's going to depend on a lot of factors. You know, not all markets allow for – in some markets, we've got limited retail. In some markets, we've got limited product availability because of regulatory constraints. So that's a very general question. And again, due to our lack of segmentation, You know, I think I've been clear that we expect and will always, you know, at least for the foreseeable future, we're going to lead this year strategically with branded product through branded retail. But also, you know, of course, we'll be continuing to bolster wholesale in markets where that makes sense.

Thanks. I'll jump back in the queue.

Thanks.

The next question comes from Aaron Gray with Alliance Global Partners. Please go ahead.

Hi, thanks for the question. I'll just keep it to one here. So just on Connecticut, I know you get some color in terms of how you're looking at New York and New Jersey, but on Connecticut where you have the Bristol dispensary, I just wanted to get any commentary in terms of how you're looking at the adult use market, especially in terms of maybe expanding to other dispensaries or maybe even getting vertical. I know some of the other Operators in that market have talked about utilizing the social equity and joint venture opportunities to maybe get vertical or add their exposure to the state. So how are you looking at Connecticut and the adult use opportunity besides your own current Bristol dispensary? Thank you.

Yeah, Aaron. So we are, as you mentioned, we're in Connecticut. We've been in Connecticut for quite some time. The dispensary that we have there outperforms consistently as one of the top performing dispensaries in the state. We love our team there and are excited to be in a position to expand into the adult youth arena, you know, at that location and have some plans for physical expansion there as well. You know, as everyone, I think, realizes there's an application process underway, we're anxiously awaiting the results of that process and we'll have more to come on that market as the regulatory team regulators get back to us in terms of results. All right.

Great. Thank you.

The next question comes from Eric Deloriers with Craig Hallam Capital Group. Please go ahead.

All right. Thank you for taking my question. I'll just keep it to one as well. So, you mentioned an improved mix of premium products in Florida in Q1. Just wondering if you could Just kind of touch on some of the dynamics involved there. Was this more of a kind of demand poll driven? Was this in response to increased competition on the value side? Has this kind of always been part of the plan? Just any color there would be great. Thank you.

Yeah, I think it's important to note that, as I said before, our biggest competition, particularly in Florida, comes from ourselves. So it was a response to what we see. as, again, that demand profile from our customers. We had an incredibly successful launch of hydrocarbon products last year, and that customer base has been growing steadily. And as we've been able to expand our capabilities in hydrocarbon extraction, it's made sense for us to bring additional product form factors through that channel. And so, you know, that being said, we also, of course, continue to also see increased, you know, buying on the flower side. That's a very large part of the Florida customer base in terms of their buying preferences. And so then the Primo product made sense for us. And again, we have the scale, which I think is the important differentiator. We've got the scale available to offer those products without sacrificing the the rest of the product lineup. So really it was a response to what we saw as white space in the Florida market and demand preferences by our customers.

That's great to hear. Thank you for the call.

This concludes our question and answer session. I would like to turn the conference back over to Christine Hersey for closing remarks.

Thank you everyone for your time today. We will be hosting an analyst event and webcast presentation in June. We look forward to sharing additional details on Trulieve at that time. Thank you all again and have a great day.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.