Trulieve Cannabis Corp

Good morning, everyone, and welcome to the Trulieve Cannabis Corporation fourth quarter and full year 2023 financial results conference call. My name is Rocco, and I will be your conference operator today. As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Christine Hersey, Vice President 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 Wes Gettman, 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 fourth quarter and full year 2023 results. A copy of our earnings press release and PowerPoint presentation may be found on the investor relations section of our website, www.trulieve.com. An archived version of today's conference call will be available on our website later today. As a reminder, statements made during this call that are not historical facts constitute forward-looking statements, and these statements are subject to risks, uncertainties, and other factors that could cause our actual results to differ materially from our historical results or from our forecast, including the risks and uncertainties described in the company's filings with the Securities and Exchange Commission including item 1A, risk factors of the company's annual report on Form 10-K for the year ended December 31st, 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 in isolation or as a substitute for truly 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 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 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.

Thank you, Christine. Good morning, everyone, and thank you for joining us. This is an incredibly exciting time for Trulieve. We entered 2024 in a position of significant strength, just as the outlook for meaningful catalysts brightened. By the end of this year, we will have greater clarity on two of the biggest events for our industry, rescheduling and Florida adult use. The DEA is expected to make a recommendation on the classification of cannabis any time now. In Florida, the adult youth initiative is awaiting a court opinion for inclusion on the ballot this November. Either of these catalysts alone would be significant. Given our cash position and outsized market share in Florida, we are best positioned to realize a tremendous potential upside. However, it should be noted that without any catalysts, our base business remains strong and we are poised to build upon recent momentum. Having completed the lion's share of inventory reduction and optimization efforts, We are operating more efficiently, making higher quality products, elevating performance in retail, and generating more cash from our existing core business. In 2023, we cut SG&A expenses by 14% to 34% of revenue. Full-year adjusted EBITDA of $322 million, or 29% margin, underscores our operational strength, alongside full-year cash flow from operations in excess of $200 million, driven by a significant boost in cash flow in the back half of the year. The fourth quarter was exceptionally strong, the best quarter of the entire year, underpinned by substantial improvements in revenue, gross margin, and adjusted EBITDA. Revenue increased 4% to $287 million. Strong holiday sales in the last six weeks of the year contributed to outperformance. Gross margin of 54% improved 2% due to lower production costs, targeted promotional activity, and reduced pressure from inventory reduction efforts. Adjusted EBITDA margins improved to 31%, representing our 24th consecutive profitable quarter. Fourth quarter operating cash flow was $131 million, and free cash flow was $122 million. In addition, we recently added two seasoned executives to the leadership team, CFO Wes Gettman and COO Marie Zhang, and we are already benefiting from their contributions. We exited this year as a much stronger company and have carried that momentum forward into 2024. where we will continue our relentless focus on incremental improvement. Before we dive deeper into results, I want to discuss state catalysts starting with Florida. To date, Trulieve has been the primary financial supporter of the Smart and Safe Florida Adult Use Campaign. We are proud to be at the forefront, driving this opportunity to expand access to cannabis in our home state. Currently, we are awaiting a decision by the Florida Supreme Court to allow the initiative on the ballot this November. The court has until April 1st to make a determination or the initiative will automatically be included. Once on the ballot, the initiative requires 60% voter approval in order to pass. We anticipate a robust voter education and awareness campaign will be required to ensure success in November. Legal cannabis in Florida could be a $6 billion market opportunity, effectively tripling from today's medical-only market. With 22 million residents and 138 million annual tourist visits, we believe Florida will be the best cannabis market in the world. Adult use in Florida would be the largest conversion in U.S. cannabis history, and our team is working diligently to prepare for this monumental event. Trulieve maintains outsized market share, with 21% of stores in Florida selling over 115% more flour than the state average, eclipsing all competitors. Given our ability to ramp idle capacity and fund additional investments, we expect to build upon our leading position at launch in May of 2025. From a production standpoint, we are positively thrilled with the performance of our new 750,000 square foot state-of-the-art cultivation facility in Florida. The site is fully ramped and consistently producing high-quality, high-potency products at scale with lower costs. We are realizing an average potency of 28% THC and 3% terpenes, alongside a 30% reduction in cultivation costs. This strategic asset continues to outperform our internal expectations, and we believe additional benefits may be unlocked as we continue to dial in production. In 2023, we idled legacy capacity as we ramped this new facility. During the fourth quarter, we brought a portion of our idle capacity back online to support increased customer demand. As demand increases alongside the Florida built-use opportunity, idle capacity will be restarted. Turning to retail, we were able to support higher traffic through a combination of increased staffing, additional points of sale, increased online orders, and express lanes. During the fourth quarter, we added four new stores in Florida, including our first dedicated express pickup location in Crawfordville. This efficient store concept is designed to provide customers with quick and convenient access to pickup orders. Early performance at this location has exceeded expectations and we will be opening more Express Pickup locations this year. Throughout 2024, we will be adding new locations in Florida, expanding our retail network to serve the growing medical market. Moving now to other adult use opportunities. A few weeks ago, the governor of Pennsylvania called for the state legislature to pass adult use legislation as part of his budget overview. The governor is aiming for an accident by July of 2024 with adult use sales launching on January 1st, 2025. Trulieve remains the leading operator in Pennsylvania with 20 affiliated dispensaries supported by three production sites. We are actively monitoring the progress in Pennsylvania and expect momentum will continue to build as nearby states adopt recreational programs. In Ohio, final regulations for the adult youth program are expected later this year with sales launching as soon as this fall. Trulieve operates one medical dispensary and may gain additional assets pending the outcome of ongoing litigation. We have reached a preliminary settlement agreement and expect our store count to expand with both operational and potential dispensaries. We will be in a better position to share additional information pending a final settlement agreement and adult use program details in Ohio. Shifting back now to our results and the current business climate. In 2023, we added 17 new locations in Arizona, Florida, Georgia, Ohio, Pennsylvania, and West Virginia, and launched recreational sales in Connecticut and Maryland. Today, Trulieve has the largest retail network of 193 dispensaries, serving as the primary conduit for our strategy to distribute branded products through branded retail. This year, we will complete the rebranding of all retail locations in Arizona to the Trulieve brand. In 2023, we sold approximately 45 million branded product units and gained traction with several of our brands, most notably Modern Flower and Roll One. From an operational standpoint, today we are running more efficiently with optimized assets streamlined processes, improved inventory levels, and lower production and operating costs. Adding to our strength from our improved competitive position, consumers are showing greater resilience. While it is too early to call a definite trend, signs of improving consumer health are emerging. Spending accelerated into year end with higher basket, trending up into higher price tiers, and greater trading up into higher price tiers, and greater willingness to participate in buy more, save more style promotions. This was evidenced by December traffic, which exceeded third quarter average traffic by 100,000. In addition, baskets were up in December in every market compared to every other month in the quarter, and BQ3 averages in total by 5%. Units sold during the fourth quarter increased by 4% sequentially. As our customer base continues to grow, we are adapting how we approach customer service and how we continue to motivate employees to maintain high service levels. During the fourth quarter, we piloted a revamped bonus program in Florida for our store general managers to incentivize favorable customer experiences. By rewarding specific outcomes for metrics, including net promoter score, overall satisfaction, wait time, and fulfillment times, compensation is appropriately aligned with our team's ability to deliver positive customer experiences. Based on the early success of this program, we're implementing this structure across our retail network this year. Our focus on the customer experience contributes to customer retention. During the fourth quarter, customer retention held steady, with 66% of customers company-wide and 74% in medical-only markets returning to stores. We aim to improve the customer experience and retention, reinforcing lasting brand equity for the retail platform and branded products across the loyal customer base. In January, we launched a new website in several markets built upon more advanced technology, which we call Web 2.0. This new web architecture provides greater functionality for users while supporting higher traffic and enhanced data capabilities. Building upon this upgrade, our revamped loyalty program rolled out in Arizona and Maryland and will be launching in other markets, including Florida and Pennsylvania soon. With a simplified reward structure, tiering designed to reward repeat purchases, and portability across markets, we expect this new program will attract and delight loyal customers. We plan to have all markets migrated to the Web 2.0 platform and refresh loyalty program this year. We remain committed to investing in infrastructure, technology platforms, and talent. These critical elements are necessary to solidify our competitive position today and ensure readiness for long-term success in this rapidly evolving industry. In summary, last year we successfully executed on our plan to reposition Trulieve ahead of the next growth cycle, just as we said we would do. We created a leaner organization that is ready to meet the opportunities ahead. With that, I'd like to turn the call over to our new CFO, Wes Gettman. Please go ahead.

Thank you, Kim, and good morning, everyone. We delivered full-year 2022 revenue of $1.13 billion, highlighted by a strong fourth quarter to close out the year. 2023 was another pivotal year, marking substantial completion of our transformation strategy ahead of the next wave of catalysts. As Kim noted, Fourth quarter revenue of $287 million improved 4% sequentially driven by stronger retail performance across all markets during the last six weeks of the year. Fourth quarter results include contribution from Ohio VIE operations. Even without inclusion of our Ohio VIE, fourth quarter revenue exceeded guidance. Full year gap gross profit was $589 million on 52% margins compared to $689 million on 57% margins in 2022. Price compression and inventory reduction efforts pressured gross margin, partly offset by lower costs. We exited the year with stabilized pricing, reduced pressure from inventory, and lower operating costs, all of which aided fourth quarter margins. Fourth quarter gap gross profit was $154 million with 54% margin, representing a 2% 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. For the full year 2023, SG&A expenses were $386 million for 34% of revenue, improving from $447 million for 37% of revenue in 2022. SG&A expenses in the fourth quarter were $96 million for 34% of revenue, holding steady compared to the third quarter. Net loss was $527 million for the full year 2023 compared to a loss of $246 million in 2022. Net loss would have been $70 million in 2023, excluding the second quarter of goodwill impairment and other non-recurring charges primarily associated with strategic repositioning of assets to improve our cash flow. Fourth quarter net loss was $33 million compared to net loss of $25 million in the third quarter. Fourth quarter loss per share was $0.18 compared to a loss of $0.13 in the third quarter. Excluding non-recurring charges, fourth quarter loss per share would have been $0.12 compared to $0.08 in the third quarter. Full year, 2023 adjusted EBITDA was $322 million on 29% margin compared to $398 million or 32% during 2022. Fourth quarter adjusted EBITDA was $88 million or 31%. Fourth quarter adjusted EBITDA margin reflects the culmination of optimization efforts to maximize cash preservation and generation. During the fourth quarter, cash flow from operations totaled $131 million with free cash flow of $122 million. Inventory was reduced by $17 million in the fourth quarter as a result of continued efforts to wind down specific volumes and product categories. Capital expenditures totaled $9 million in the fourth quarter and $40 million for the year. In 2023, we opened 17 new dispensaries and relocated five in line with guidance. Moving to our balance sheet and tax strategy. We exited the year with $208 million in cash and $483 million in debt, a reduction of $166 million from last year's debt balance. In the fourth quarter, we redeemed $130 million in senior notes with an interest rate of 9.75% and closed a $25 million mortgage financing at a fixed rate of 8.3%. Our next debt maturity is not until October 2026, providing ample runway to generate cash and support investments in long-term growth initiatives. As we highlighted during the last call, we recently took a tax position challenging the applicability of 280E to our business. Last October, we filed amended tax returns for multiple business entities for the years 2019, 2020, and 2021 based on our legal interpretation of 280E. To date, we've received approximately $113 million in cash refunds associated with a portion of these amended returns, of which $62 million was received prior to year end. We also received correspondence denying one amended return amounting to $1.2 million. Due to the unknown final outcome of this tax position, at this time we continue to accrue an uncertain tax position on our balance sheet. In summary, this accrual includes three parts. The amounts received for some of the amended returns, plus the estimated incremental tax liability for 2022 and 2023, offset by estimated overpayments on our tax accounts. Until this process reaches a final resolution, we anticipate the uncertain tax position will increase over time. We will continue to make timely payments as an ordinary corporate taxpayer. As mentioned earlier, the DEA is currently evaluating opposed rescheduling of Canvas to Schedule 3. If the 280E burden is lifted, truly could realize hundreds of millions in savings over the next few years. Turning now to our outlook. Based upon the visibility that we have today, we anticipate first quarter revenue will be similar to the fourth quarter. While we continue to see momentum across our retail platform, marked results will be influenced by the timing and size of tax refund checks and consumer spending. In 2024, we are targeting cash flow from operations of at least $225 million and capital expenditures of $70 million. We plan to open at least 25 stores this year. We may refresh our forecast later this year depending on the timing and progress for industry catalysts, including the adult use initiative in Florida, progress on adult use legislation in Pennsylvania, and program details to the Ohio adult use market. We're off to a fantastic start, and the team remains focused on further improving the business while preparing for the next phase of accelerated growth. With that, I'll turn the call back over to Kim.

Thanks, Les. We are on the cusp of what could be a historic tipping point for U.S. cannabis. Rescheduling of cannabis to Schedule 3 would represent a watershed moment after over 50 years of classification as a Schedule 1 drug. This major development could set off a series of reforms, ultimately leading to greater acceptance and adoption of cannabis across the country. The clear validation of accepted medical use for cannabis and the unredacted HHS recommendation for Schedule 3 confirms what everyone in the industry has known for years, that cannabis has tremendous potential as a medicine. Similarly, the analysis completed by HHS clearly demonstrates that cannabis is less dangerous than many scheduled drugs and alcohol. This data aligns with prevailing attitudes of consumers between 21 and 40 years old who do not attribute the same social stigma to cannabis as those who grew up during the war on drugs. Recognition of the unfair characterization of cannabis is a meaningful starting point for future reform. While cannabis continues to gain mainstream acceptance, Many of the state markets we operate in are increasingly likely to adopt adult youth programs in the near term. Ohio is poised to launch adult youth sales this fall. We estimate this market could reach $2 billion in annual sales. Efforts to advance adult youth legislation in Pennsylvania are gaining momentum, propelled by strong support from Governor Shapiro. We estimate the Pennsylvania market could reach approximately $4 billion in sales. Pending court review and voter approval, Florida will launch adult yeast sales in 2025. Our number one priority this year is to secure and prepare for adult yeast in Florida. Today, Trulieve is not only the largest operator in Florida with over 3 million square feet of production capacity and 132 stores, but also the clear market leader. Given our scale, competitive production costs, and ability to quickly flex up production, we are prepared to expand our market leading position with this opportunity. With strong cash generation and a clearly defined strategy, truly the best position for the coming wave of meaningful growth catalysts reinforced by a solid core business. I'm fully confident in our ability to execute on our plans, and I wouldn't trade hands with anyone in the industry. Thank you for joining us today, and as I always say, onward.

At this time, June Rivers and Wes Gettman will be available to answer any questions. Operator, please open up the call for questions.

Thank you. If you would like to ask a question, please press star then 1 on your telephone keypad. If your question has already been addressed and you'd like to remove yourself from queue, please press star then 2. Once again, ladies and gentlemen, that's star then 1 if you have a question. And today's first question comes from Luke Hahn with Canaccord Genuity. Please go ahead.

Thanks, and good morning, everyone. Congratulations on the strong results. Kim, I just wanted to ask, I realize I'm putting the cart a little bit before the horse here because we have until April 1st where we have a more definitive picture of whether or not the adult use market measure should be on the November ballot. But in the event that it is and we do get acceptance, it's passed by the people of Florida and we have an adult use market that stood up in 2025. How should we be thinking about any incremental investments required from Trulieve in advance of that happening? I imagine if we were to go into the stores in Florida, we know that there's a lot of POS terminals, so you'd need more people to staff those and handle the additional traffic. Is there any other investments we should be thinking about? Jeff goes rampant, and there's also the legacy grow that you can bring back online. What else should we be considering?

Thanks, Luke. So, obviously, we are incredibly excited and very laser-focused on the adult youth opportunity in Florida. It really can't be understated, the size of the opportunity. When we talk about a market, you know, converting into a $6 billion opportunity with, again, 138 annual tourist visits and 22 million residents, not to mention, of course, the neighboring state resident opportunities as well. It really is just an incredible, incredible opportunity. We, of course, have been doing a lot of work behind the scenes as it relates to modeling and running through different scenarios so that we can be in the best absolute position to take advantage of the opportunity as it presents. Like we said, we're going to update folks as things come into focus. But to your point, we certainly have... room within our existing footprint. We have stores that have, you know, that are underutilized currently, and that's strategic, that's by design. We have stores that are currently medical but would be better positioned as recreational locations. You know, Key West, our store in Daytona, We have several Beaches stores that come to mind as it relates to that footprint. And then as you mentioned, really the timing as it relates to the performance of Jeffco could not come at a better time as that site is now fully contributive. But we have additional efficiencies that we think we can eke out while we, of course, also have our legacy capacity that we can bring online as well. So really excited about the future as it relates to the adult use opportunity. And again, we'll say it again, believe that it is the biggest conversion opportunity. It is the biggest conversion opportunity in U.S. cannabis history.

That's great. And then following on that last question, line there the the you had mentioned that the the store economics the unit economics for the the express pickup stores were better than your expectations and you'll be rolling out some more of those over the course of the year can you give us a sense in a little more detail maybe how favorably those compare to the the traditional stores that you've rolled out and give me a directionally speaking where it is that you're able to find those better unit economics i imagine it's lower labor costs but is there anything else to consider there

Sure. So our express pickup location, we piloted it in Crawfordville. For those of you who aren't as familiar with geography, that's about 30, 45 minutes from our headquarters here. So we were able to get eyes on it. We knew that there was demand there as we're able to track both through deliveries and our heat mapping of our customer database, so we knew there was demand there. But it's a bit of a bedroom community, if you will, and so we didn't believe that it could support a full investment of a full service store location. So the current store averages between two and three employees. And again, we're able to turn around pickup orders in a very efficient manner. So the throughput capabilities of that store as well, and it's a smaller footprint because we don't have a full showroom and there's no walk-up service available. So it really is, in terms of the unit economics, significantly more efficient than our traditional stores. And of course, in that location, we have the demand that is supportive as well. So it really is a home run on all metrics. And we're looking for additional opportunities that have the same type of demographic metrics to really use in some cases as infill stores and other locations throughout the state in this upcoming year.

Great. Last question, and then I'll pass the line here. It's great to see that you're able to get the cash back from the 280E taxes that you've paid previously. And I realize there's really not a whole lot of detail you can share as it relates to your legal strategy here. But I wanted to ask when it comes to the legal opinion or the basis that you're relying upon, Is that information that's, I guess, applicable solely just to Trulieve, or is it mostly relying upon industry-wide information? I guess just trying to figure out if there's implications from the broader industry as a result of the information that you've shared on the refunds earlier today.

Yeah, so given the uncertain position of the claims as they sit today, we do view that as trade secret and in large part specific to our position in our organization. We are not going to be sharing that information publicly. given the fact that it is in or could be in a litigation posture. And, you know, specifically that information would become available if and when we actually get to a court filing. So that's really all I'm able to say about it to date. But, you know, there's going to be, I would say, a blend of, right, industry and truly specific positioning in our position.

Okay. I appreciate it. Thank you very much.

Thanks, Luke.

And our next question comes from Eric Desvarieux with Craig Hallam Capital Group. Please go ahead.

Great. Thank you for taking my question. And congrats on another very strong quarter here. So first, just a bit of a follow-up to that last question on the tax returns. I'm wondering if we could elaborate on the uncertain nature of these tax returns here. I mean, is this something that, you know, potentially we should sort of earmark these returns as potentially needing to be paid again down the road. Can you just elaborate a bit more on sort of how confident you feel that this cash will remain on the balance sheet? Thanks.

Hey, thanks for the question, Eric. This is Wes. Yeah, I mean, from an accounting standpoint, you know, the rules are the rules, and these remain what's called uncertain statutes just because of how the statutes are currently written. So that's why the refunds received will continue to be accrued. until potentially a rescheduling happens. Operationally, you know, in conjunction with legal counsel and our board of directors, we're fully aligned on this process and on this filing position. You know, we don't count on additional refunds, but that said, we are not necessarily, you know, holding back the monies received as it relates to future investments in the growth initiatives.

Okay, great. Appreciate that, caller. And then you mentioned how... You've seen a bit of a shift in Q4 towards consumers purchasing more premium products, a bit of a mixed shift towards that premium end of things. Can you just comment on how you view your current inventory and production mix between value and premium? Obviously, you've highlighted the very impressive quality metrics coming out of your new facility in Florida. So, seemingly, you'd be sort of ready to meet that increased demand for premium products. I'm just wondering if you could. comment on sort of how you view that current inventory and production mix. Thank you.

Sure. So really what we saw in the fourth quarter was some mixed shifts, but I will say that it was really more weighted towards a trade-up from value to mid-tier. So we're seeing some more consumer flexibility in in the market. And so what I mean by that is, you know, earlier in 2023, there certainly was more of what appeared to be a hard and fast ceiling on spend and wallet pressure was significant, meaning that, you know, someone would come into the store and they literally only had, call it $20 to spend. Whatever dollars they had, that was it. There really was no ability to flux up or flux into either a higher category or with, you know, certain promotions such as a buy more, save more. We were finding those, that they were really not as effective in early 2023. That behavior has begun to shift. And I will, again, emphasize the fact that we're just starting to see that now. And we saw it some in the holiday period. We're watching it very closely, of course, in Q1. And as we mentioned, specifically March will be an important month as we see how consumers respond with some additional dollars in their wallet via tax-free funds. Again, modern flour has been a very strong category for us across all of our markets and has been performing exceptionally well, which is our mid-tier brand in both flour and we have a lot of oil products in that brand as well. And so it's great to see some consumer resilience, but a little bit, like I said, a little too early to call a definitive trend on that.

All right.

Appreciate the call. Thanks again.

Yep.

And our next question today comes from Aaron Gray with Alliance Global Partners. Please go ahead.

Hi, good morning. Thank you for the question, and congrats on the quarter. So I wanted to touch base a little bit more on the rewards program. You mentioned that you've launched it now in two states and plan to go forward, including in Florida. Any potential additional commentary you can provide in terms of the additional sales you're seeing generated from loyalty members with this new program? The ability you're able to see an increased basket sizes, you know, from those members and any differences we might see when it comes to a state like Florida is given the greater scale advantage you have in the state. Thank you.

Yeah, thanks, Erin. We are really excited to be in a position to launch our loyalty program alongside of, and it's important to note that really loyalty and our new website go hand in hand and really build upon one another. And so I'm excited to have that rolled out across all of our markets by the end of this year. Arizona was launched early in the year, and so we don't have a ton of data yet. However, I will say that having the robust loyalty program is increasing our ability to actually capture data in that market, which is, I think, interesting given the fact that Arizona is kind of an anonymous market, meaning that you can just shop, right, by showing your ID online. You're not necessarily required, right, unlike a state like Florida or Pennsylvania where there's a significant tracking of information because of the medical nature of those programs. So we are seeing significant increases in our ability to actually get folks into a program, get folks' data, and then begin to, of course, continue to market to them. And so I would say, Aaron, if you can ask me again on the next quarter, I'm hopeful that I'll have some additional color for you. And certainly as the year continues, as we roll it out across our markets, I think one of the biggest things that I'm excited about as it relates to that program is just the portability and the fact that we'll have a seamless loyalty program across all of our markets and across all of our stores. And I think that's really a big deal as we look to, we're always looking for ways to reduce friction in the, you know, in the landscape. You know, even though we have to deal with a lot of friction behind the scenes to make it as frictionless as possible for our customers is the goal. So I'm very excited and certainly more to come.

Okay, great. Thanks for the detail. We'll look for more color later on. Appreciate it.

Great. Thanks, Aaron.

Thank you. And our next question today comes from Don Angelo Volpe with Beacon. Please go ahead.

Hey, thank you for taking my question and congratulations on the results. Just looking at Florida, I guess my first question would be, were you guys surprised at all by Governor DeSantis' comments a while back predicting that the AU measure will get on the ballot? Not so much by the prediction itself, but by the fact that he said anything at all on this?

Yeah, I mean, I think that certainly that was a pleasant surprise, I would say. You know, I think that to that point, I think we are all and anyone who listened to the oral arguments from the court would believe, right, that the court is certainly postured favorably as it relates to a ruling. And, of course, you know, the lawyer in me would say that, you know, we, of course, need to wait until the official ruling happens. which could be any time between now and April 1st. But, you know, I do think that, you know, the governor was acknowledging, right, the reality of what we all heard in the courts and the oral arguments.

And so very much looking forward to it being official here soon.

Okay, thank you. And then I guess sticking with Florida, we expect additional licenses to be issued soon. What are your midterm expectations for the vertical integration requirement? And that is still a major entry barrier given the CapEx that it does require.

Yeah, I mean, look, I mean, I think new licenses have continuously been issued in Florida since our entry into the market, right? We were one of the original five license awardees, and now we have, you know, over 20 businesses, and there's more that will be licensed in accordance with the Florida program, which has licenses that come on board as the program grows. So, you know, not surprised by that, by any stretch. The Florida legislature is in session for another week and a half, and there is no pending legislation that would change the requirements of the program. As it relates to adult use, the current operators are grandfathered in in the current structure, and so I do not anticipate a landscape whereby vertical would not be permitted, and I think that as it relates to ongoing vertical, that's Just as it is now, that will be up to the legislature in future sessions if they decide that they want to allow for other license types moving forward. Again, we believe that Florida is the best cannabis market in the country and certainly will, you know, entrench that position with adult use sales. And with $6 billion in potential market, there's going to be plenty of business for folks and I would say it will be important for there to be capacity to meet demand. So, again, not only the adult use, but also that the medical program can continue to be serviced. So, we're certainly planning to do our part in terms of stepping up to the plate.

And, you know, I think that it's an exciting time to be in the state of Florida.

Okay. Thank you for answering my questions. I'll hop back in the queue.

Thank you. And our next question today comes from Brenna Turnington with ATB Capital Markets. Please go ahead.

Hi, good morning. This is Brenna on for Frederico. Congrats on the strong quarter. Just curious about the 5% basket increase in December. That was pretty impressive given the discounting trends seen in the holidays. So curious if you can provide any read-through or additional color on how your industry-leading data analytics helps to play into this gain. And more specifically, how do you think it's supporting the consumer resilience you're seeing? and do you see there being further room for improvements in that?

Yeah, thanks so much for the question. Our data capabilities is something that we've invested in very religiously over the last two years, and we are continuing to see results as it relates to that investment. I would be remiss if I didn't also point to our cultivation team. We launched a program initiative at the beginning of 2023 called Hashtag Only Grow Fire. That team has been doing an incredible, incredible job across the country on increasing the quality of our flower output, which leads downstream to increased quality of all of our products in our portfolio. So I think you had a number of things come to fruition in Q4. Specifically with promotions, we were able to be strategic and continue to be strategic, I should say, in our promotional activity. We were able to use our consumer data platform to segment and to target promotions towards specific individuals and specific products while protecting margins. And again, with the backdrop of increased quality in our products, really the result was a win-win. You know, we, of course, in Q4 also did not have the pressure of our inventory wind down through the entire quarter. And so a number of those factors came together that led to our improved results in the quarter. And I will say, you know, very excited about the future as it relates to, again, that quality of production and the quality of our products that we have coming through our facilities across the country and partnered with not only our consumer data sciences, but then when you overlay that with an improved web experience, our ability to use some of those consumer metrics into a targeted experience online, Vox is a loyalty program, right?

It really all starts to come together and lead to a world-class customer experience. Awesome. Thanks for the call. Thank you.

Thank you. And this concludes our question and answer session. I'd like to turn the call back to Christine Hersey for closing remarks.

Thanks, everyone, for your time today. We look forward to sharing additional updates during our next earnings call. Thanks again, and have a great day.

Thank you. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.