Trulieve Cannabis Corp

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Good morning, and welcome to the True Leave Cannabis Corporation First Quarter 2024 Financial Results Conference Call. My name is Chris, and I will be your conference operator today. As a reminder, today's event is being recorded. I would now like to introduce your host for today's conference, Christine Hersey, Vice President of Investor Relations for True Leave. You may begin.

Thank you. Good morning, and thank you for joining us. During today's call, Kim Rivers, Chief Executive Officer, and Wes Getman, Chief Financial Officer, will deliver prepared remarks on the financial performance and outlook for Trulieve. Following the prepared remarks, we will open the call to questions. This morning, we reported first quarter 2024 results. A copy of our earnings press release and PowerPoint presentation may be found on the investor relations section of our website, www.trulieve.com. An archived version of today's conference call will be available on our website later today. As a reminder, statements made during this call that are not historical facts constitute forward-looking statements, and these statements are subject to risks, uncertainties, and other factors that could cause our actual results to differ materially from our historical results or from our forecast, including the risks and uncertainties described in the company's filings with the Securities and Exchange Commission, including item 1A, risk factors of the company's annual report on Form 10-K for the year ended December 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 that 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, Jim Rivers.

Thank you, Christine, and good morning, everyone, and thank you for joining us today. Trulieve is in the best position that we have been in for several years. With stellar performance in our core business and several meaningful catalysts on the horizon, the outlook has never been brighter. Since our last call, definitive progress has been made on two major catalysts. First, the DEA has publicly confirmed its recommendation to reclassify cannabis as a Schedule III drug, and the administrative rulemaking process is underway. We remain optimistic that rescheduling will progress this year, marking the first major step in long overdue federal reform. Second, the Florida Supreme Court issued an affirmative ruling allowing the Smart and Safe Florida Adult Youth Amendment on the ballot this November. Kudos to the entire team who worked tirelessly to clear this hurdle. We are thrilled to be one step closer. However, we recognize that much work remains ahead. We believe passage with 60% approval is achievable, but we are not taking a single vote for granted. The campaign has shifted focus to raise awareness and support for Amendment 3, while educating voters about the many benefits of legal access for adults. Truly remains the lead financial supporter of the initiative and is pleased to see other Florida operators support the campaign. As we approach November, we anticipate the noise level around the election will be amplified, but we have full confidence that the campaign's strategic approach will result in passage at the polls. While the campaign is working diligently to drive victory in November, the team at Trulieve continues to deliver fantastic results. Ongoing efforts to achieve incremental improvement are paying off, particularly in retail operations and production, as shown by customer satisfaction scores, customer retention, and units sold. The team remains disciplined, keeping operating expenses in check while supporting revenue growth. This is an important year for Trulieve, and we are allocating resources with intentionality to balance operational improvement and preparations for future catalysts. I am continually inspired by the commitment of our team and their ability to deliver on our strategic plan. First quarter results were impressive, beating expectations with sequential improvements in revenue, gross margin, and adjusted EBITDA. Revenue increased quarter over quarter 4% to $298 million, driven by increased traffic, basket size, and our disciplined approach to pricing. Gross margin of 58% improved 5% due to lower production costs, reduced promotional activity, and higher capacity utilization. Adjusted EBITDA improved by 21% sequentially and 35% year-over-year to $106 million or 36% margin, representing our 25th consecutive profitable quarter. First quarter operating cash flow was $139 million and free cash flow was $124 million. Strong first quarter performance during what is typically a seasonally slower quarter was underpinned by strength across our retail platform. Traffic and basket size were each up 3% sequentially. Elevated performance across our retail operations is due in part to several initiatives designed to enhance the customer experience. Our relentless focus on the customer stems from our core belief that building a satisfied and loyal customer base is critical for lasting success. We incorporate customer feedback into process improvements on an ongoing basis to strengthen retail KPIs. Following reinforcement of targets and incentive alignment with our retail teams, first quarter retail KPIs, including overall satisfaction scores and wait times, improved sequentially. We view customer retention as an important indicator of the efficacy of our approach. Customer retention held steady with 65% of customers company-wide and 74% in medical-only markets returning to stores. As part of our ongoing efforts to reinforce the Trulieve retail brand while efficiently serving our customer base, we are launching a revamped loyalty platform and web experience across all markets this year. The rollout of both programs across markets is modular with a new loyalty program in place in Arizona and Maryland and the new web platform live in Florida, Georgia, Maryland, Pennsylvania, and West Virginia. We have seen tremendous responses to both programs where available to date. The untapped potential of our retail platform was on full display recently with our results on 420. We shattered all prior records for traffic and customer served up 5% and 6% respectively versus last year's record-breaking results. Comparing a 14-day period of 420 performance year-over-year on a same-store sales basis, net revenue was up 3%, driven by a 6% increase in traffic and offset by a 3% decrease in basket for 173 stores. The team effectively managed higher traffic on 420, keeping average wait times reasonable at seven minutes. Our ability to quickly flex up capacity in order to effectively meet sharp increases in demand highlights the power of our platform. Another strategic focus meant to bolster brand equity for Trulieve is distribution of branded products through branded retail. Today, Trulieve has the largest cannabis retail network with 196 dispensaries supported by over 4 million square feet of production capacity. In the first quarter, we sold over 11 million branded product units, comparable to the fourth quarter, and up 6% versus last year. Value and mid-tier brands, Roll 1 and Modern Flower, continue to resonate with customers, gaining popularity and driving sales. Similar to last quarter, we saw signs of consumer strength, with greater willingness to spend to move up into premium or mid-tier, or take advantage of basket-building promotions. Producing high quality products at scale is another core competency that we continue to build upon. During the first quarter, production of the 750,000 square foot indoor cultivation facility in Jefferson County improved with higher yields and lower cultivation costs per gram compared to last quarter. We are extremely pleased with the quality and variety of product our team has been able to cultivate consistently at this site. Following the success of our plan to elevate product quality in Florida, we have rolled out our hashtag only grow fire initiative across other markets. While we continue to deliver strong results across the organization, the team is also preparing for several potential catalysts, including adult use sales in Florida, Ohio, and Pennsylvania. If the Florida adult use campaign is successful this November, we anticipate sales would begin six months after voter approval. We estimate the Florida market could ultimately reach $6 billion with expansion to include adult use. With 22 million residents and 138 million annual tourist visits, we believe Florida will be the best cannabis market in the world. Today, Trulieve operates 135 stores in Florida and over 3 million square feet of production capacity. The conversion to an adult use market represents the largest near-term opportunity for Trulieve and the industry. Trulieve remains the clear market leader, with 21% of stores in Florida selling over 135% more flour than the state average. Given our ability to ramp idle capacity and fund additional investment, we plan to build upon our leading position at launch in May 2025. Turning to retail, we've added 40 locations in Florida year-to-date, including our second pickup express store. We will continue to expand our retail network this year to serve the growing medical market as we prepare for future adult use sales. Moving on to other state catalysts. The launch of adult youth sales in Ohio is expected to commence this year. Trulieve operates one medical dispensary today in Columbus and expects to receive an additional license for development. Pending completion and final regulatory approval of the settlement with Harvest of Ohio, we expect to acquire additional operational dispensaries and licenses. We'll provide additional details as appropriate. We look forward to converting another market in the Northeast to serve adult youth customers. In neighboring Pennsylvania, momentum continues to build for bipartisan adult use legislation. Companion bills have been introduced in the House and the Senate, and several committee hearings have been conducted. We are encouraged by the level of discourse and thoughtful consideration by lawmakers. We will continue to monitor progress and will be prepared to serve adult use customers when permissible. Trulieve currently operates 20 affiliated retail locations and three grower processor sites. We plan to open an additional dispensary this year. In summary, the team has done a phenomenal job carrying forward the momentum from last year while driving out performance across the core business. With that, I'd like to turn the call over to our CFO, Wes Getman. Please go ahead.

Thank you, Kim, and good morning, everyone. First quarter revenue was $298 million, an improvement of 4% sequentially and year-over-year, driven by continued strength across our retail platform. First quarter GAAP gross profit was $174 million with 58% margin, representing a 5% improvement sequentially. Gross margin will continue to fluctuate quarter to quarter depending on product and market mix, inventory sell-through, promotional activity, and oil capacity costs. SG&A expenses in the first quarter were $101 million, worth 34% of revenue, holding steady on a percentage basis compared to the fourth quarter. First quarter net loss was $23 million compared to a net loss of $33 million in the fourth quarter, representing an improvement of 31% sequentially and 54% year over year. First quarter loss per share was $0.17 compared to a loss of $0.18 in the fourth quarter. Excluding non-recurring charges, first quarter loss per share would have been $0.05 compared to $0.12 in the fourth quarter. First quarter adjusted EBITDA improved by $18 million to $106 million with 36% margin. First quarter adjusted EBITDA margin reflects higher revenue and gross margin as well as continued operating expenses. Turning now to our balance sheet and tax strategy. We ended the quarter with $327 million in cash and $482 million in debt. As a reminder, Trulieve adopted a tax position challenging the applicability of 2AE to our business last year, filing amended returns for the tax years 2019 through 2021. To date, we have received refund checks for these amendments totaling $113 million including the previously disclosed $50 million this quarter. For 2022, we filed as a normal way corporate taxpayer, resulting in overpayment claims of $148 million. Final resolution to our approach may ultimately take years to conclude. If rescheduling of cannabis to Schedule III occurs this year, the 280E tax burden would be removed, effectively capping the downside risk to our tax challenge. In the interim, We continued to accrue an uncertain tax position on our balance sheet while realizing lower cash tax payments. Notably, we would have realized positive net income for the first quarter if rescheduling was in effect and the incremental impact of 280E was removed. First quarter cash flow from operations totaled $139 million, inclusive of $50 million in cash tax refunds from our amended returns. Capital expenditures were $16 million, with free cash flow of $124 million. Turning now to our outlook. Based upon the visibility that we have today, we anticipate second quarter revenue will be flat to down low single digits. Strong 420 results and continued momentum across the retail platform are contributors to replicating the top-line performance in the first quarter, balanced by historical seasonal trends, specifically in Arizona, and the initial impact of deferred revenue from the rollout of our refreshed loyalty program in our remaining markets. We anticipate gross margins will be at least in the mid-50s for the remainder of the year. Full year targets are unchanged with at least $225 million in cash flow from operations and capital expenditures of $70 million. We are on track 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 adult use in Florida, Ohio, and Pennsylvania. The team remains focused on executing to our plan. With that, I'll turn the call back over to Kim.

Thanks, Les. This is an incredibly exciting time for Trulieve and the industry. Our organization is in the strongest position that we have been in recently. Just as our team is hitting its stride, several historic industry catalysts are on the near-term horizon. Looking at state catalysts, the opportunity set in Florida cannot be overstated. With favorable demographics and a business-friendly environment, we believe our home state could set an example for other markets, demonstrating how to implement a well-crafted adult youth program without opening the floodgates for illicit market activity. Providing adults the option to consume responsibly while maintaining regulatory control over production, retail, and distribution strikes an appropriate balance, ultimately leading to increased state revenue and economic opportunity. We intend to remain out front in Florida, pushing for passage and common sense implementation of Amendment 3. The $6 billion market opportunity in Florida is tremendous, and we hope to see other operators continue to step up and actively support the campaign. Turning to other states. Ohio is poised to launch adult youth sales this year, following an affirmative vote last November. We estimate this market could reach $2 billion in annual sales. In Pennsylvania, efforts to enact bipartisan adult youth legislation continue to gain momentum, bolstered by strong support from Governor Shapiro. We estimate the Pennsylvania market could reach approximately $4 billion in sales. While states continue to embrace adult youth programs, lobbying efforts are ongoing in D.C., Activity at the federal level remains high with continued progress on rescheduling to move cannabis to Schedule 3 and ongoing efforts to advance safer banking legislation. We continue to believe that federal rescheduling of cannabis would represent a watershed moment and could be the first domino to set off a series of major reforms. Voters across all demographics increasingly support some form of legalization and access to cannabis. We remain optimistic that the federal government will eventually catch up to evolving attitudes and address the growing divide between state and federal laws. We are marching toward a meaningful inflection point and Trulieve is the best position for the coming wave of growth catalysts. With strong financial performance and significant scale in key markets, I wouldn't trade hands with anyone in the industry. Thank you for joining us today, and as I always say, onward and yes on three.

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

Thank you. We will now begin the question and answer session. As a reminder, to ask a question, you may press star then one on your touch-tone phone. 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 would like to withdraw it, please press star then two. At this time, we will pause momentarily to assemble our roster.

And today's first question comes from Luke Hannon with Canaccord Genuity.

Please proceed.

Thanks, and good morning, everyone. Congratulations. on the strong results. Kim, maybe we'll start with just overall what you're seeing as far as trends in consumer behavior. You gave great color in your prepared remarks as far as what's going on from a basket and a traffic perspective. But I guess I'm more curious specifically when it comes to the reactions to promos, what you're seeing exactly there. And across the price spectrum as well, when we think about good, better, best, what are the trends specifically when it comes to reaction to promos across the price spectrum?

Sure. So, you know, as we mentioned in the prepared remarks, we were really pleased with, you know, consumer behavior in the first quarter. I think we said on the last quarter call that really, you know, this quarter specifically March behavior was going to be critical to performance and consumer sentiment did continue to carry over from what we saw in Q4 into Q1. We certainly continue to also see responsiveness to promos that were focused on building basket and really targeted to drive increased AOT along with frequency promos. So some win back promos or punch card promos also did exceptionally well in the quarter. Again, I think more carryover from what we saw in Q4, but of course with the backdrop in Q1 of lower overall promotional activity led to some of the outstanding results that we saw in the quarter.

Okay, great. And then when it comes to the gross margin performance as well, very, very strong. Can you help us think about what were the biggest factors in the quarter-on-quarter increase in gross margins? And realizing, of course, there's a lot at play when it comes to the balance of the year. Your guidance allows for at least mid-50s gross margin for the balance of the year. But what would help you sustain the gross margin performance that you saw in Q1 for the balance of the year? What would need to go right there, I guess, in order to sustain that?

Sure. So, I mean, speaking to the quarter, of course, when you have revenue increases, it certainly helps support higher gross margin. As we mentioned, Jefferson County is now firing on all cylinders, and really that came in as a critical support point. In the quarter. Additionally, we have a reduction in pressure from our inventory wind down efforts, again, specifically in Florida, which takes that pressure off of growth margin. And we've been signaling that those things are coming now for a while. And it's, again, continues to show up in the financials. And then, you know, I would also, you know, kudos to the team for continuing our discipline and our targeted promotional strategy. That continues to show up also in a meaningful way. And so, you know, I think that those things will need to continue. And, you know, we believe that those will continue throughout the remainder of the year. that support for growth margin. But I think also it's important to note that, look, there are fluctuations, of course, that happen from quarter to quarter. Again, as we mentioned, we have a couple of things happening in Q2 that will provide pressure to top line. And as we mentioned, you've got seasonality that will begin to show up, particularly in Arizona, which we know is somewhat seasonal for us in the coming months. in the back part of Q2. And then in addition, specifically in Q2 for us, we've got our deferred revenue hit that we'll take for rolling out loyalty in Florida. We're super excited about that program. And again, the results that we've seen in markets that have deployed to date, specifically Arizona and Maryland, have been very positive. So we know it's the right move for the long term. But there will be pressure in the near term, in the quarter, And we estimate that to be 1%, 1.5%, something like that, for both top line and for gross margin in Q2.

Got it. Okay, thanks. Last one, quick one, and then I'll pass the line here. On that higher cost inventory in Florida, is that fully sold through at this point, or is there still some to come for the balance of this year?

Yeah, I mean, I'm not going to, I don't have it in front of me in terms of if it's every single penny is sold through. As we said, the majority, the vast majority of that is out of the inventory at this point in time and has sold through. So it would be a de minimis contribution at this point.

Got it. Okay, great. Thank you very much. Thanks. And the next question comes from Aaron Gray with Alliance Global Partners. Please proceed.

Hi, good morning, and thank you for the question. It's a nice quarter there. First question for me, I just want to come off back a little bit of the last question in terms of the loyalty program. You mentioned some tremendous performance, very positive Arizona, Maryland. Any type of KPIs or metrics you could provide in terms of maybe basket size increases there versus other markets? percentage of sales that you're seeing from members of the loyalty program and how that's kind of trended versus what you were expecting in terms of any key metrics that you're watching. Thanks.

Sure. Thanks for the question, Aaron. We had a question you were going to ask it. So, yeah, happy to give you some additional details on our loyalty results. And we'll just dig into Arizona just because there's a larger customer base there. You know, we saw frequency actually increase by approximately 50%. for folks that have enrolled in that loyalty program versus folks who have not. Plus, we saw significant AOT increases. I think also importantly, particularly in markets where we have adult use programs, when we think about the fact that a lot of those customers are buying anonymously. having this loyalty program has really increased our data capture rate, which allows us to then more specifically lean into our CDP and our personalization platform to bring those customers back to shop with us and to make sure that we're serving up promotions and serving up product launches, et cetera, to them that meet their particular preferences. So it makes sense that the more data we can get and the more folks we can get to sign in to our loyalty platform, the better, of course, we'll have as it relates to frequency and AOT and all those other good metrics. And super proud of the Arizona team. We had loyalty in market for approximately 60 days in that market. And during that period of time, we had a 30% adoption rate into the loyalty program. And so that will be, ultimately, we feel a real game changer in that market. And As we think about Florida, right, and the shift to adult youth, again, really important tool for us to have as we are able to talk to folks about signing up and so that we can get them into our data platforms.

Appreciate that, Claudia. That's helpful. Second question for me on Florida and potential adult youth market. Florida's a unique market as we see it, just given this one where, you know, there are some with size and scale and there's some level of barrier to entry. given the capital requirements out there. So given you are the market leader today and particularly kind of the top four that control a strong position there, how do you feel the adult use market could be different than other ones we've seen to where you guys and others in the top four kind of leverage that scale to further entrench yourself? Whereas in other markets, you've seen the initial market leaders have the market share leadership and then lose it over time. Whereas now you might be able to leverage that skill to kind of maintain leadership for a longer duration. How do you potentially leverage that in an adult use scenario? Thanks.

Yeah, no, appreciate the question. I mean, I think that first let's talk about our platform today, right? I mean, we have 135 locations in Florida and, as I mentioned, millions of square feet of cultivation and production capacity. So, I think that, you know, there has not been another operator that I'm aware of anywhere in the country that has had that type of scale. and significance in a market pre-conversion. I think that the other closest was approximately 20 locations that would convert into adult use. So the magnitude of what we're talking about as it relates to if it were to convert today, right, and as we've said, we plan to have additional stores and capacity come online. between now and launch. And secondly, I think that in all of my conversations with lawmakers, it is absolutely a goal to ensure that Florida is unique and that there is a very specific desire to maintain the integrity, if you will, of Florida and of our program. And so I don't believe that we're going to see a scenario where There's sort of the floodgates open, if you will, as it relates to the marketplace here in Florida, at least, again, based on conversations that I've had to date. I do think that there will be very strict regulatory control in the marketplace. I think that there will be likely product differentiation from medical versus adult use products. I think there will be a focus on maintaining the integrity of the medical program, which I also am a very big proponent of. in the state of Florida as we've got, you know, hundreds of thousands of people that rely on our products as part of their, you know, medication regime. So I think that, again, a lot of that is yet to be seen and will happen post-vote, but I think we're in an enviable position. I do think it's a very unique one given where we're starting from.

Okay, great. Appreciate the detail there, and I'll go ahead and jump back into the queue. Our next question comes from Frederick Smith with ATB Capital.

Please proceed.

Hi. Good morning. Thanks for taking my question. Just my first question, just on your loyalty program, can you just provide a bit more clarity on the deferred revenue coming from that in terms of the cadence of that and how that gets recognized from an accounting standpoint? Thank you.

Sure, yeah, this is Wes. I mean, in the early days, obviously there won't be redemptions that come through because people build a points balance. You know, details are out there on the state websites as far as how it all works. So, you know, the program is fairly simplistic. You know, points are redeemed for cash rebates at the point of sale. And so in the early days of that program, we don't get kind of flow through and redemption of those points. So we expect to see an uptick that's kind of outsized in the first, you know, six to eight months of that program. I'm not sure how much more color you'd like than that, but that's the gist.

Oh, that's helpful. Thank you. And then just second question, just on capital allocation, you know, you have built a lot of cash in the balance sheet now. And just curious, how do you look at that cash? What are the options you are considering in terms of allocating that? You know, would you consider buybacks? Would you look to repay some of your debt earlier? Would you have appetite for M&A and expansion to other markets? Just some clarity on your capital allocation strategy. Thank you.

Yeah. So, I mean, we love the fact that we've got optionality given our – the capital on hand and believe that we, you know, want to see some additional clarity come through prior to making any concrete decisions. But certainly, as you've seen us, we are very proactive in terms of managing our debt position, right? Recently, we took about $50 million off the table there at a discount. And so we'll continue to monitor our options as it relates to the debt, but certainly intend to be very proactive and in the best position as possible when that debt becomes due and believe that we're building to, again, have that flexibility. In addition, as we've said, we... are excited about the opportunity here in Florida and want to make sure that we also have the capital necessary to be able to lean in as appropriate to that opportunity as we think it's the single biggest play that we have in front of us. And then, of course, there's other markets there too, right? I mean, Pennsylvania could absolutely go adult youth. Ohio, rather, we are anxiously awaiting the finalization of that settlement. and regulatory approval. There's lots for us to do, and we want to have the ability to make those moves when they come into focus for us.

Thank you very much for the call. I'll back you up, too. Thanks. The next question comes from Russell Stanley with Beacon Securities.

Please proceed.

Good morning, and thank you for taking my question. Just on Florida, congrats on Jeffco's performance. I'm just wondering, last couple of quarters, you've been bringing some legacy capacity back online. I'm just wondering how much remains idled and how you're thinking about pacing that back into the market, given the improved odds on adult use.

Yeah, so as you noted, Russ, we do have idle capacity, and we have begun to bring that online to pace and really keep pace with demand. As you know, throughout the country, really. Our platform is built in a very modular fashion, and so we're able to flex up and down as dictated by demand and also by trends that we see in the marketplace. So we'll continue to do that in the state of Florida. We do have capacity, significant capacity that is currently offline that we certainly would be leaning into in advance and kind of commiserate with adult youth coming online. Again, that's capacity that's already built, and it's really just waiting for us to turn on, and we can turn on that capacity fairly quickly. So, again, our ramp-up period there is fairly minimal, and, again, as a reminder, there is a six-month window from the day of the vote to the day of first sale.

Great. Thanks for that. And my second question also around Florida and the adult use campaign, beyond the governor's public comments, just wondering how stronger intensive competition, or the opposition rather, looks at this point, how it's lining up, especially given other items on the ballot this November. Thank you.

Yeah, I mean, it's, you know, First of all, there's a 50% threshold in Florida for any initiative. And so regardless of the other side, we've always known that we're going to have to run a very intentional campaign that's going to have to be run well and run in a very strategic way. Florida is a very diverse state and it's a very big state. And it's also a very critical state as it relates to the national conversation. And so our plans have not changed in the sense that we plan to run a hard, intentional, strategic campaign that speaks to all voters, both Republicans and Democrats, because as we know, this is a bipartisan issue. As it relates to the opposition, look, I mean, I think the governor has made it clear that he is not in favor of our amendment. And that being said, I think that it also is very clear that I think in terms of prioritization, I don't think that marijuana is the top amendment that he'll be focusing on. But again, regardless, we're excited about having the opportunity to be in front of voters and to be on the ballot and to be able to educate the public on adult youth cannabis and what it can look like and what it means for Floridians.

That's great, Kohler. I'll get back in the queue. Congrats on the quarter. Thanks. The next question comes from Gerald Pasquarelli with Wedbush.

Please proceed. Great. Thanks very much. Kim, on the Florida ballot initiative, you know, there's been some recent polls, the results you know, haven't looked overly favorable. And I understand that it's still very early and polling is likely to change as, as we get closer to the election. And on that point, when do you expect the bulk of advertising around this issue to step up this year? And I guess I ask that in the spirit of when we can establish a reasonable timeframe ahead of the election, when we could, you know, start to better assess the veracity of, uh, of this polling. Thanks.

Yeah. Um, so, uh, Yeah, don't leave everything you read. I would say this is going to get very noisy. That's what we said in the prepared remarks, right? There's going to be a lot of posturing and data points that are out there. Just a couple for you on the last round of polling. The two polls that you're referencing did not focus on registered voters. So they had over 10% of people that responded to those polls that actually weren't even registered to vote. So how you poll matters and your polling sources matter, but there are reasons that people put those polls out. It could be that the other side is attempting to drum up support or attempting to fundraise. You know, so I would just say at this point, certainly, you know, I wouldn't overly emphasize polling, except for directionally. All of our internal data still points to the fact that we are, I feel, very comfortable and confident in our current position. You know, advertising will begin to ramp, but again, I would say the last step Two and a half months of the campaign are really when things start to solidify. Right now, it's really about just trying to reinforce the base, if you will, and then it'll move into trying to influence or sway the undecideds, which really will come into play in the last couple months of campaign. in the last couple months of the campaign. That being said, I'm just someone who's been around Florida politics for a while now, and the 60% threshold is real. And so, you know, this will likely be a conversation right up until the night of election. So, you know, again, that's just how it goes in Florida. And, again, it's nearly every issue. On the medical side, just to give you an idea, that passed, by the way, overwhelmingly with over 70% approval rating. There were still mixed polling that was coming out and having it being defeated weeks before election night. So we're all in this together is what I would say. And we'll continue to give you guys updates along the way, but it's likely going to come down to right before.

Got it. Thanks. Thanks so much for the color. Second quick, just a housekeeping question. If I heard your prepared remarks correctly, I think you said basket was down on 420 this year versus last year. Is there anything to read into that? I just asked that in the context that your basket was was up in the quarter. So just trying to under I understand it's a highly promotional day. So just trying to understand you know, a basket being down on 420 should be overly indicative of what we could expect, you know, for the broader second quarter. Thanks.

Yes, I wouldn't read too much into that. And again, that was over a 14-day period. And so, because we were trying to compare, you know, it's a little bit of apples to oranges a bit because of just when 420 falls year over year and then the series or sequencing of promotions, which also depends somewhat on mix and how we're running, you know, bundles. So we we tended to, in this period, really lean into because we're also doing a lot of testing around consumer behavior as it relates to basket building and bundles. Some of this was a little bit of a test and learn period for us this quarter as well. I wouldn't overly read into that. Again, we were very enthusiastic about the fact that traffic was up significantly, which was the goal for our team for this 420 period.

Perfect. Thanks so much for the call. Yep. The next question comes from Eric DeLaurier with Craig Hallam Capital Group.

Please proceed.

Great. Thank you for taking my questions and congrats on a very strong quarter here. So, a follow-up from one of the earlier questions on gross margin, you know, understood outperformance is driven by both price and cost improvements. You know, you mentioned reduced promotion and then improved capacity utilization. Just wondering if you could comment on which had a greater impact, this quarter, pricing or costs.

Eric, again, we're giving you the outline in terms of what impacted gross margin. I'm not going to do a walk for you in terms of the ordering of magnitude. Again, I think that for us, being really excited about the fact that a number of those things came together and really coalesced. I mean, to be fair, right, a lot of those feed off of one another as well. And so, you know, and again, I think we were trying to be pretty straightforward around what was contributing to performance in gross margin. And, you know, I will say, again, the JustCo performance really continues to be very, very solid. You know, I think that we're approaching kind of full utilization, if you will, on JustCo and kind of, I think, coalescing around sort of steady state productivity there. And again, I think it's been just leaning into, you know, any of the other variables that we're able to continue to control.

No, that makes sense. I appreciate the color there. actually kind of leads into my next question you know you mentioned the full utilization of jeffco um i was going to ask um you know if you see room for further improvement on yields and quality in jeffco it sounds like um you know just based on that on that uh comment there you know that we're perhaps um uh sort of expecting to maintain these yields and qualities um going forward so just a clarification there and then um in terms of the you know, legacy production facilities in Florida beyond Jefferson County. How have yields and qualities trended there? You know, should we think of these as sort of consistent with their historical average or, you know, have there been, you know, overall operational improvements that you've seen some yields and quality improvements outside Jeffco as well?

Yeah. So, I mean, again, Jeffco continues to be kind of our crown jewel as it relates to efficiency and really just, you know, the design of that building coupled with the team's ability to really have, you know, incredible talent as it relates to placing genetics that have and that really like the environmental specific controls. that we have in that footprint. What's great about our platform is that, again, we do have some variability. And so there's certain genetics that perform fantastic in JustCo that maybe didn't historically perform great in our other platforms. grow types and vice versa. And so what we're able to do and what the team has been focused on is really matching, you know, genetic profiles to environments and to building styles and really dialing that in. So we're going to continue to focus on incremental improvement across the entire platform. We always have and we always will. It's part of our DNA.

Great. Thanks for taking my questions. Our next question comes from Scott Fortune with Roth Capital.

Please proceed.

Yeah, good morning, and thanks for the questions. A lot has been answered, but I just wanted to follow up on the capital markets here. Obviously, you have a strong cash position, but just an update there, obviously, with rescheduling coming through, but that does not necessarily open up the exchanges. But, Kim, any additional color on Newt discussions with the exchanges and thoughts around capital markets looking for kind of additional safe harbor language or an attorney general memo. And then I'll follow up that kind of discussions with lenders and the potential pending rescheduling here and lowering the cost of capital. Just kind of thoughts or discussions around those two topics.

Sure. So we're in, you know, we've got a good relationship and certainly are in communication with the exchanges. And I think, look, I think there's a desire to list cannabis companies, but I think they've got compliance departments and legal departments. And until there is, you know, either broader federal reform or specific safe harbor language included or coming out of Congress, you know, I think they're not able to to currently at least accept cannabis companies. As it relates to safer banking and, again, rescheduling, I think both of those things continue to be optimistic about both of them. I do believe that rescheduling is underway, and we're going to enter into the proposed rulemaking period here. And then there'll be a public comment period, et cetera. And so, you know, we are certainly hopeful that that could wrap this year. And it certainly would be exciting for us to have clarity as it relates to QAD relief for calendar year 2024. So, you know, I don't think anything really, you know, kind of earth shattering to report on the capital markets posture. Although, again, I think, you know, each incremental step gets us one, you know, gets us again one step closer.

I appreciate the color. Thank you. Yep.

The next question is from Andrew Semple with Echelon Capital Markets. Please proceed.

Good morning. Congrats to the full Trulieve team on the strong Q1 results here. I just want to go back, first of all, to the balance sheet strategy and just maybe ask a clarifying question there. Obviously, great to see over $300 million of cash on the books. That gives you a lot of flexibility. But just around the strategy of that, are you planning to hold that sizable cash balance on the books while you're waiting for a definitive outcome on the 280e tax situation? Or are you viewing that available as, you know, as available for deployment in the business or, you know, potentially to return capital to debtor shareholders?

Yeah, no, we, so we are not, we are not holding, if the question is, are we holding kind of a reserve or restricted reserve as it relates to 280E, the answer to that is no, we are not. And, you know, it is reflected, of course, in the financials as Wes went over in his prepared remarks in the uncertain tax position. But we are not looking at that as restricted capital. We are looking at, again, as I said before, in terms of having optionality in terms of where to appropriately invest that capital. And, of course, those include debt repayment, alongside investing in the business ahead of catalyst.

Great. And, you know, maybe as we look, you know, as we model this out a few years and, you know, the significant cash flow truly is now generating, you know, there's not an active share repurchase program in place. You know, notably one of your peers has gone ahead with that. Is that something the Trulieve team would evaluate if you continue to build cash and just given the CapEx outlook seems to be at a more moderated pace than in prior years?

Yeah, I mean, it's something that the board has discussed and will discuss in the future. I mean, I think it should be noted that we have made meaningful contributions to the campaign here in Florida. It would be great if those other operators could also contribute in a more meaningful way to the catalysts that are ahead that will help us all to continue to generate that great cash balance. And so, you know, we've got some pretty big moves ahead of us in the coming months that we want to make sure that we can get through. But, you know, absolutely, you know, look, as the largest shareholder of this company, absolutely, you know, making sure that we continue to have the best interest of shareholders in mind with our investment decision remains top priority.

Great. That's very helpful, Kim.

I appreciate the additional color. Thank you. Yep. And the next question comes from Mike Regan with Excelsior Equities.

Please proceed.

Hi, everyone. Thanks for the question, and congrats on a really strong quarter. In terms of the taxes, is there any feedback or additional updates on – I think you still have about $30 million of refunds that you filed that are still outstanding. Is there any feedback from the IRS on receiving those or being denied those?

Yeah, there's really been no material updates since we last talked to you guys about 60 days ago, you know, as reflected in the Q and financials and the remarks. Yeah, really nothing to report on that front. Our position remains as it was, and we continue to monitor and be optimistic.

Okay, and then in terms of the second question on the talk about basically the Florida, you know, adding additional capacity in Florida ahead of the adult use launch if that happens. Obviously you have a lot of idle capacity there. So would it be, is that just meaning turning on the idle capacity or is that actually also adding additional capacity, I guess what, after the ballot actually passes or would you actually start to build additional capacity ahead of the ballot passing? Yeah.

Yeah, so again, I mean, I think we're in an enviable position and that we have, again, we have optionality, right, which is, I think, the word of the call. And so we've got, you know, idle capacity that no question, right, we'll be able to lean into and bring back online information. as needed. That being said, you know, we, of course, will continue to look at what makes sense as it relates to investment. And, you know, we absolutely are committed to maintaining our leadership position in Florida with the opportunity of adult youth.

Great. Thanks a lot.

And at this time, we are showing no further questionnaires in the queue, and this does conclude our question and answer session. I would now like to turn the conference back over to Christine Hersey for any closing remarks.

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

The conference is now concluded. Thank you for attending today's presentation, and you may now disconnect.