Trulieve Cannabis Corp

Good morning, everyone, and welcome to the Trulieve Cannabis Corporation Second Quarter 2024 Financial Results Conference Call. My name is Jamie, and I'll be your operator today. As a reminder, today's conference call is being recorded. And at this time, I'd like to introduce your host for today's conference, Christine Hersey, Vice President of Investor Relations for Trulieve. Ma'am, you may begin.

Thank you. Good morning, and thank you for joining us. During today's call, Tim Rivers, Chief Executive Officer, and Wes Getman, Chief Financial Officer, will deliver prepared remarks on the financial performance and outlook for Trulieve. Following the prepared remarks, we will open the call to questions. This morning, we reported second quarter 2024 results. A copy of our earnings press release and PowerPoint presentation may be found on the investor relations section of our website, www.trulieve.com. An archived version of today's conference call will be available on our website later today. As a reminder, statements made during this call that are not historical facts constitute forward-looking statements, and these statements are subject to risks, uncertainties, and other factors that could cause our actual results to differ materially from our historical results or from our forecast, including the risks and uncertainties described in the company's filings with the Securities and Exchange Commission, including item 1A, risk factors of the company's annual report on Form 10-K for the year ended December 31, 2023, as well as our periodic quarterly filings. Although the company may voluntarily do so from time to time, it undertakes no commitment to update or revise these forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law. During the call, management will also discuss certain financial measures that are not calculated in accordance with the United States generally accepted accounting principles or GAAP. We generally refer to these as non-GAAP financial measures. These measures should not be considered in isolation or as a substitute for Trulieve's financial results prepared in accordance with GAAP. A reconciliation of these non-GAAP measures to the most directly comparable GAAP measures is available in our earnings press release that is an exhibit to our current report on Form 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 happy Ohio Adult East lunch day. We are thrilled to share results from another outstanding quarter. Strength in our core business was demonstrated by our third consecutive quarter of top line growth and margin expansion. All of the effort and investment over the past two years to set a solid foundation for long-term success is paying dividends. The flexibility that we have embedded into the organization provides multiple pathways for growth and the ability to pivot quickly as the industry evolves. This summer is shaping up as we expected with a heightened focus on major upcoming catalysts. At the state level, we are very pleased with the campaign efforts to deliver a yes on three vote in Florida this November. Recent polling of likely voters showed support in the mid to upper 60s, well above the 60% threshold required to pass the Abilities Initiative. To date, the campaign has received almost 70 public endorsements from a wide variety of bipartisan supporters, including physicians, activists, educators, faith leaders, labor unions, law enforcement, elected officials, and celebrities. We are confident that targeted messaging to raise awareness and educate voters about the many benefits of legal cannabis will positively influence voter turnout and persuade Floridians to vote yes on three. While there are many reasons to support legalization this November, here are the top three. First, a yes vote would decriminalize personal cannabis possession in Florida. No one should be in jail or fear arrest for personal cannabis possession. Second, adults deserve access to safe, tested, and labeled cannabis products available in a normalized retail environment. No one should risk death from fentanyl or pesticide-laced products sold on the street. Third, legal cannabis offers numerous economic benefits through job creation and tax revenue collected on sales. At Trulieve, we are taking every available opportunity to feature Yes on 3 information at our store grand openings, physician education events, hiring events, and community events. Last week, we launched our first Yes on 3 products with Yes on 3 whole flower eights and pre-rolls. We plan additional product launches as we approach the election with a portion of proceeds going to support the campaign. And as always, we encourage other industry operators to use their platforms to help raise awareness. In Ohio, we are launching adult e-sales at our Beaver Creek, Columbus, and Westerville locations today. The team is thrilled to be among the first group of operators to serve adult use customers in the Buckeye State. Kudos to the state regulators who successfully rolled out this program following voter passage last year. We expect to have popular Chewy brands available in our stores before year-end through our support services arrangement with a Tier 1 grower processor. In addition, we are working through the regulatory process and with our partners to open additional locations in Columbus, Toledo, and Sainsville in early 2025, expanding our retail footprint to six dispensaries. We estimate Ohio could reach $2 billion in annual sales. In neighboring Pennsylvania, we believe momentum is building for the passage of adult use legislation. We currently operate 21 affiliated dispensaries, including a new location in Wilkes Bar and three grower processor facilities. We remain optimistic that adult use sales in Pennsylvania could launch in the next 12 to 24 months, and the market could reach $4 billion in annual sales. At the national level, cannabis remains more popular than any politician, with over 70% of adults in favor of legalization. The first major federal reform in decades is advancing through the formal rulemaking process to reclassify cannabis to Schedule III. Public comments showed overwhelming support, with 92% of over 43,000 comments received in favor of rescheduling or rescheduling. With this public approval, we are optimistic that rescheduling can happen this year. We believe the time is right for the administration to take this historic step and reclassify cannabis. Before turning to results, I'd like to acknowledge two major milestones we recently achieved at Trulieve, which lend perspective to how far we've come as an organization. Last month, we celebrated the eight-year anniversary of our very first sale, which was actually the very first medical market sale in the state of Florida. In 2016, when we recorded our first sale, that was the only transaction we conducted for many weeks as we worked to recruit physicians into the program. In 2024, on the eight-year anniversary of our first sale, we conducted approximately 50,000 transactions. On top of that, we opened our 200th retail location in June, a new store located in Brooksville, Florida. While it took us five years to reach our 100th store, we doubled our retail presence to 200 stores in less than three years. This impressive growth and expansion of our industry-leading retail network is a true testament to the team and all that we have collectively accomplished. Now, turning to our second quarter results. Revenue and margins beat our guidance with sequential and year-over-year improvements in each. Revenue increased to $303 million, up 2% from Q1 and 8% compared to last year, with growth in both retail and wholesale. As expected, strong retail performance was partly offset by higher promotional activity for 420, the beginning of seasonal headwinds in Arizona, and the highly successful launch of our Refresh Loyalty Program. Gross margin increased by 1% to 60%, primarily driven by lower cultivation costs. SG&A spending was comparable to the first quarter. Adjusted EBITDA of $107 million, or 35%, exceeded expectations, primarily driven by higher growth margin and cost controls. We ended the quarter with $356 million in cash. Strong retail performance was driven by a 3% increase in traffic, partly offset by a 1% decline in basket. Our relentless push to sell branded products through branded retail is the foundation of our strategy to build lasting brand equity. We sold over 11.5 million branded product units in the second quarter. up 4% sequentially. Consumer behavior at the start of the second quarter was largely consistent with patterns observed in the first quarter with willingness to spend more for compelling products and bundle-style promotions. As the second quarter progressed and continuing into the third quarter, we are realizing softer conditions in retail across the portfolio, consistent with seasonal headwinds. As always, we are closely monitoring retail KPIs as we amplify messaging to highlight the value proposition of our product offerings. With the flexibility built into our capacity, we are able to adapt our production to meet evolving consumer preferences. During the second quarter, our industry-leading retail network grew to 200 stores nationwide with new dispensaries in Florida and the acquisition of two stores in Ohio. In June, we completed the rebranding of all retail locations in Arizona and Ohio to the Trulieve brand. Subsequent to quarter end, we opened five more stores in Florida and one in Pennsylvania. We remain on track to open at least 25 new stores this year. Product quality and world-class customer service are key drivers for our strength in retail. Our production team continues to turn out high-quality products at scale while harnessing efficiencies and driving down costs. Yields, potency, and costs at our flagship 750,000-square-foot indoor facility in Florida remain at peak performance levels. Yields at our legacy sites in Florida outperformed our plan by double digits, further reducing cultivation costs. Across the organization, we are focused on incremental improvements designed to enhance product quality and fortify our brand portfolio. In-house brands such as Modern Flower and Roll One continue to resonate with customers, and we continue to expand product offerings with new launches of various sizes and form factors in our markets. Customer experience metrics show incremental improvements across our retail network with higher NPS scores in virtually all markets during the second quarter. Overall, customer satisfaction is further underscored by our customer retention, which improved at 66% company-wide and 75% in medical-only markets. Infrastructure investments to reinforce customer loyalty are having an immediate impact on our business this year while setting the foundation for future growth. Three examples of infrastructure investments include our Web 2.0 platform, revamped loyalty program, and enhanced customer data platform. Migration to our Web 2.0 platform was successfully completed in Q2, bringing enhanced functionality including real-time updates to products, pricing, and promos, and product availability at nearby stores. The rollout of our refreshed loyalty platform was completed in early June. The Best in Cost program features fully stackable points that can be redeemed across all brands in all markets. The simplified and intuitive program design has led to high adoption rates, exceeding our goals in all markets. To date, over 325,000 customers have signed on to the loyalty program, and 80% of members have made at least one purchase since opting in. Many of our own employees are loyalty members, providing them an opportunity to earn rewards and effectively communicate the benefits of the program to customers. The rewards program itself was built inside of our customer data platform, allowing interconnectivity between rewards, website, and the customer data platform. In April, we rolled out enhanced capabilities in the CDP to enable automatic basket-level analysis powered by machine learning, which we used to further personalize customer messaging. These technological improvements provide a meaningful competitive advantage today, allowing us to forge deeper customer relationships cemented by hyper-personalization. Across the organization, as our company continues to grow, we are investing in new technology and tools to support more sophisticated marketing outreach, business planning, and inventory and warehouse management. Last week, we completed a significant upgrade to our SAP platform, adding expanded functionality and capacity for future growth. We anticipate these infrastructure investments will increase in the back half of this year. In summary, our team continues to deliver spectacular results while we prepare for future growth, as we believe adult youth in Florida is a key unlock for cannabis adoption in the U.S. 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. Second quarter revenue was $303 million, up 2% sequentially at 8% year-over-year, driven by continued strength across our retail platform and growth in the wholesale channel. Second quarter GAAP gross profit was $182 million with 60% margin, representing a 1% improvement sequentially. Gross margin will continue to fluctuate quarter to quarter depending on product and market mix, inventory sell-through, promotional activity, and idle capacity costs. SG&A expenses in the second quarter were $103 million, or 34% of revenue, in line with the first quarter as we balanced spending to support both our retail network expansion and infrastructure improvements with expense controls. Second quarter net loss was $12 million compared to a net loss of $23 million in the first quarter, representing a 48% improvement sequentially. Second quarter loss per share was $0.05 compared to a loss of $0.17 in the first quarter. Excluding non-recurring charges, second quarter results would have been break-even compared to a loss of $0.05 in the first quarter. Second quarter adjusted EBITDA improved by $1 million to $107 million with 35% margins. Adjusted EBITDA margin reflects higher revenue and gross margin. Turning now to our balance sheet and tax strategy. We ended the quarter with $356 million in cash and $481 million in debt. As a reminder, Trulieve adopted a tax position challenging the applicability of 28E to our business last year, filing amended returns for tax years 2019 through 2021. To date, we have received refund checks totaling $115 million inclusive of $2 million received during the second quarter. Final resolution to our approach may ultimately take years to conclude. In the interim, we continue to accrue an uncertain tax position on our balance sheet while realizing lower cash tax payments. Upon rescheduling of cannabis to Schedule III, the 280 tax burden would be removed, effectively capping the downside risk to our tax challenge. Notably, if the impact of 280 were removed, we would have realized positive net income for both the first and second quarters. Cash flow from operations totaled $71 million in the second quarter. Capital expenditures were $26 million, with free cash flow of $45 million. Turning now to our outlook. Based upon the visibility that we have today, we anticipate third quarter revenue will be down by mid-single digits from the second quarter and up mid-single digits year over year. Top-line contribution from new store openings and the launch of adult use in Ohio are expected to be offset by seasonal headwinds in both Arizona and Florida. We anticipate gross margins will be at least in the mid-50s each quarter for the remainder of the year. We are increasing our full-year targets to at least $250 million in cash flow from operations and capital expenditures of $100 million. The revised targets include outperformance realized in the first half of the year, as well as provisions for greater financial support for the Florida Adult Use Ballot, alongside investments to support long-term growth initiatives and expansion in markets with adult use catalysts. We have opened 12 stores this year and are on track to open at least 25 stores in 2024 with the pace of store openings accelerating in August and September. The team remains focused on executing to our plan. With that, I'll turn the call back over to Kim.

Thanks, Les. Cannabis is becoming increasingly mainstream and more socially acceptable every day. Daily use of cannabis recently surpassed alcohol for the first time, highlighting the generational shift in attitudes and acceptance of cannabis. U.S. consumers are increasingly turning to cannabis for relief from unmet medical needs such as pain, insomnia, and PTSD, or simply to relax and enjoy life. Favorable views by younger voters were further illustrated by a recent poll in Florida, which showed all respondents between 18 and 29 years old and 82% of those between 30 and 39 are in favor of the adult use Yes on 3 initiative. And it isn't just consumers who favor legalization. Two weeks ago, the American College of Physicians released a position paper outlining support for decriminalization of small amounts of personal cannabis. This policy brief by a credible organization with over 161,000 members further illustrates evolving approaches to cannabis as an important public health issue. While cannabis is gaining popularity, momentum is building for federal reform. Rescheduling of cannabis to Schedule III is underway. This would represent the first major reform in decades, setting the stage for additional federal reform, including safer banking. Not only would rescheduling remove the punitive tax burden imposed on state legal operators, but it would reduce the stigma and ease the process for cannabis research. We remain optimistic that the final rulemaking could be published this year. Today, we are 91 days from a historic vote in Florida. We intend to remain out front, pushing for passage and common sense implementation of Amendment 30. Adult use cannabis in Florida is a tremendous opportunity. With over 650 medical dispensaries today, expansion to include adult use would represent the largest conversion in legal cannabis history. With 23 million residents and 138 million annual tourist visits, we estimate the market to reach $6 billion in annual sales. Last quarter, we sold 135% more flour per store than the average operator. Following passage of the initiative, we plan to quickly ramp idle production capacity and prepare our retail network for adult youth sales. We fully expect to expand our market-leading position when adult youth sales launch. Currently, 178 dispensaries, or 86% of our retail network, serves only medical patients, truly the best position for the next wave of markets converting to adult youth, including Florida and Pennsylvania. Given our strong balance sheet, cash flow generation, and significant scale in key markets, I've said it before and it remains true today, I wouldn't trade hands with anyone in the industry. Thank you for joining us today, and as I always say, onward and yes on three.

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

Ladies and gentlemen, at this time, we will open the floor for questions. If you'd like to ask a question, you may press star and then one using a touch-tone telephone. To withdraw your questions, you may press star and two. In the interest of time, we do ask that you please limit yourselves to one question and a single follow-up. Once again, that is star and then one to join the question queue. Our first question today comes from Aaron Gray from Alliance Global Partners. Please go ahead with your question. Hi, good morning. And thank you much for the questions that congrats on the quarter. So first question for me is on the gross margins, a nice job there with the 60%, you know, you guided to the remainder of the year being mid fifties or better. Just want to dig a little bit deeper to that. You mentioned lower cultivation costs, driving some of the beat in this quarter or benefiting. So just as we look going forward, you know, how much of it is just, you know, lower volume leveraging fixed costs as you guys in lower sales, And less of the higher cultivation, lower cost of cultivation that's flowing through, as well as Ohio benefit, just trying to, you know, better understand, you know, some of the guide there to the lower gross margin, the bad cap relative to the really nice gross margin juice put up. Thank you.

Yeah, thanks, Erin. So a couple of points there. Our guide on growth margins has been consistent. In this quarter, we had some, you know, unforeseen positive influence on growth margin, as we mentioned in the prepared remarks. We had Jeffco, which is our large facility, was definitely firing on all cylinders. In addition, we had some legacy capacity that we brought back online that candidly outperformed fairly significantly for us this quarter. That being said, a lot of the benefits that we're receiving right now in our cultivation gains have to do with yields. And candidly, that is very strain specific. So depending on our premix and depending on, you know, how that plays out from a customer preference perspective, that will, you know, shift those gains to some extent. So I think, you know, that's one thing. The other thing that I would mention is in the four-door, we also saw wholesale margin improvement across a couple of our markets. Again, really having to do with product mix, which, of course, in addition will be tied to consumer preferences as well as demand in those markets. And then, of course, also product mix is a huge contributor to gross margin quarter to quarter. So in Q3, as I think everyone understands, a couple of our really key markets do have seasonality built into them. And so with that seasonal pressure, along with, you know, again, potential mixed shifts, we believed, again, that that mid-50s target was a valid one, particularly in this next quarter when we've got some additional seasonal pressure on the business in line with historical trends.

Okay, great. That's a really helpful call there. And then just a second one on me. Just as we think about Florida ballot measure, yes on three. Any commentary you could provide in terms of planned increase in campaigning as we get closer to the election? I know you had alluded to last time the plan for that to, you know, pick up as we get closer to November. And then just any commentary in terms of those, you know, contributing and opponents to the measure? And if anything's been, you know, outside what you had been expecting there. Thank you.

Yeah, I mean, we continue to be very fired up and excited, of course, about the Yes on 3 campaign. It is progressing according to plan. Certainly, we are going to continue to be a supporter and continue to lead from the front. I mean, we've gotten kind of this far, if you will. So I think it would be a mistake to let off the gas coming into home plate, if you will. We are continuing to work with a coalition of additional companies and supporters We had a fundraiser last week for some of our ancillary partners and are continuing to look for ways to work with folks. Of course, not only, and we remain very hopeful and optimistic that folks will contribute, again, coming into the vote, but also looking for ways that we can coordinate with our stores and our employee engagement, our customer engagement, as well across all two-leave stores in the state of Florida. Currently, as an example, folks can pick up a yard sign or a bumper sticker free of charge. So this is a shameless plug as well for anyone in the state of Florida. And we're encouraging our partners to do the same. So there's going to be a lot of continued activity on the Yes on 3 campaign as we move forward towards November here.

Okay, great. Thanks so much for the call. I'll jump back in the queue.

Thanks. Our next question comes from Lou Cannon from Canaccord Genuity. Please go ahead with your question.

Yeah, thanks. Good morning and congrats on the results. I wanted to ask about free cash or other cash capital allocation. I mean, you generated a ton of cash this quarter, at least relative to our model coming in well ahead. And certainly we understand investors realize that Florida adult use takes precedence as far as capital allocation goes. But I guess my question is, with this much cash on the balance sheet, do you think you can deploy everything that you need to for that initiative? and also fund opportunities as well. Do you have a chance to sort of have your cake and eat it too here?

Yeah, thanks for the question, Luke. Absolutely. I mean, we are in a, I think, enviable position as it relates to our cash generation capabilities as well as, of course, the cash that we have currently on hand. So we feel like we are in a great posture to be able to As we said, of course, not only, you know, continue to invest as appropriate into the Florida adult youth campaign, which we believe is a very, there's extremely extraordinarily high ROI on those dollars, as well as to continue to support our growth initiatives across our portfolio, which will include, as we mentioned, investing in additional retail in Ohio, continuing our store filled out as we've discussed since the beginning of this year. And then the additional infrastructure, you know, foundational as well as longer-term infrastructure improvements that we're continuing to invest in. I mean, I think that, you know, the reality is that some of those infrastructure investments that we started many years ago are now showing up in our business and showing up in our results. And so it is very important that we continue to invest, of course, not only for today but also for the future. But yes, we're very excited about our current and our future position.

Great. And for my follow-up here, I wanted to ask about the quarter-to-date trends. Can you delineate how much of that mid-single-digit decline quarter-on-quarter, how much is related to traffic versus price? I imagine it's more traffic-related because of the seasonality.

Yeah, I mean, so it's really, it's a mix, and it's going to vary somewhat by market, Luke. You know, we've got both, of course, some softer traffic in certain markets with both, you know, snowbirds, et cetera, leaving the state as the weather gets better. gets hotter, as well as some shifts in consumer preferences with a bit more shifting back towards value. Beginning in first part of second quarter, we certainly saw some trading up and into some of our more premium categories, again, consistent with what we've seen in the past. you know, over the summer, traffic lightens up some and folks are a bit more cost-conscious as they look for an increased value proposition. And so, again, that leads to a little bit of differences in product mix, et cetera, with a little bit of a more of a shift to value. I mean, I think the good news for us is that we've got really strong brand and strong brand performance in each of those categories, and we're able to flex portfolio opportunities in response to those consumer preferences.

Great. Thank you very much. Our next question comes from Frederick Smith from ATV Capital.

Please go ahead with your question.

Hi. Good morning. Congrats on the great quarter and great margins here. My first question is just on Arizona. Could you comment on what you're seeing that market in terms of just overall growth and competitive environment, abstracting the seasonality here? It seems like it's a market where sales are decreasing sequentially and year over year. So could you comment on that dynamic and your strategy for Arizona? Thanks.

Sure. And, you know, we continue to remain, you know, Arizona is a cornerstone market for us. It continues to be an important market for us. And, you know, in the quarter, we saw a couple of positives, right? One, I would say the adoption rate of our loyalty program in Arizona was very exciting. That's a market where previously, because of the nature of adult youth, there really wasn't there was a lack of data for us in that market, and we just didn't have emails and phone numbers, et cetera. So the loyalty program has given us a way to incentivize folks to provide that information and for us to be able to market specifically and directly to our customers there. Really overwhelming for the first time. We have that information, of course, for our medical patients there, but for our adult-use consumers who are local. That information previously was not available. So we have launched marketing in Arizona to a larger audience now, and we're seeing some good results from that. And we'll certainly utilize our platforms to learn more and more about those consumers as time goes on. So that would be one data point. Secondly, of course, we now have a unified platform there. So we're all 100% truly branded consumers. in Arizona, we've been ramping up our internal brands in Arizona as well. To your point, Arizona as a whole, when you look at the statewide data, there has been pressure on that market. I think for us, right, what we see as a positive is our market share has actually been increasing alongside of that downward trend. So, I mean, I think for us, we always challenge ourselves and we always say that our biggest competitors are ourselves. So we're looking for ways to remain competitive there and to, again, better every day for us to better understand the consumer and the market there so we can continue to refine our our product offerings and our, you know, again, our marketing tactics to meet the customer demand there. But Arizona is absolutely, and I think you all know this, it is a very seasonal market. So, you know, we are in the Q3 is our, that's the, you know, the time where that market has the most pressure from a seasonality perspective. So, and then, of course, it rebounds in Q4 and Q1.

Thank you for the great caller. And then my second question is on Pennsylvania. So I think we continue to see some good data from that market in terms of growth and price is stabilizing and maybe even recovering. So is that something that you are seeing in your operations in Pennsylvania? And would you expect that sort of recovery to continue?

Yeah, I mean, Pennsylvania is a great market for us. Similarly, we are and have continued to see price stabilization there, along with our internal brands are really performing exceptionally well in Pennsylvania. I think we have built our data in that state where we are very tuned in to our customers and have adjusted product mix to their shifting demand over time. In addition, we are and have been leaning into wholesale in Pennsylvania and have been effectively increasing our wholesale, you know, reach there as well. So, you know, Pennsylvania, again, is a very strong market. The team there has been doing a fantastic job.

Thank you. Our next question comes from Russell Stanley from Beacon Securities. Please go ahead with your question.

Good morning and congrats on the quarter. I guess my first question around CapEx and the increase there. I just wanted to clarify how much of that increase is dedicated or earmarked for supporting the adult use campaign effort itself as opposed to physical expansion in Florida or other markets? Thanks.

Yeah, so we wouldn't put dollars, and just to clarify, Russ, we would not put dollars for the campaign efforts. passage into a CapEx line. So zero, I guess, would be the answer. I'm not sure if you have a follow-up.

If I could rephrase the question, just all of that incremental 30 going into Florida then, or can you give us a sense? Obviously, I imagine Florida is the bulk there, but other markets where maybe you've lifted CapEx.

Yeah. So, I mean, I think with CapEx, there are a few different things, right? So, one, we mentioned that we have this opportunity to invest additional dollars in Ohio, which we think, of course, given the adult use conversion, makes a ton of sense. So, we will be investing there. The three additional stores, in addition to the three that are converting to adult use for us today, we have three more that will be opening, we hope, very, very early 2025, which means the bulk of that investment also will come in 2024. In addition, as we have mentioned, we do plan to, you know, invest in some additional, you know, capacity across our portfolio. I mentioned we were bringing some legacy capacity online in Florida right now, and that's to support kind of, you know, current state. We do have, with these additional stores in Florida that we're bringing online as well, just keep in mind, right, we have to make sure we've got enough supply, right, for those stores as well. And yes, I mean, to your point, certainly we will need to make, you know, some calls ahead of adult use conversion. The bulk of that, of course, we're attempting to de-risk to after, but there will be, you know, there will be some moving into the vote.

Maybe if I could, just my last question, just around stores in Florida. You've already, I think, opened more this year than you did all last year and understand you're still guiding to 25 plus company wide. Just wondering in Florida, are you finding it, are you seeing any increased challenge in identifying ideal sites for new locations? I imagine there are geographic pockets that have become more attractive under an adult use scenario. So just would love to hear your thoughts on how on how you're finding, citing new stores and the extent to which that's becoming easier or harder.

Thanks. Yes. And so, you know, listen, we've got a fantastic team here in Florida. And, I mean, the good news for us is we've been at this for a long time. And so we've got a pretty specific process for how we identify and rank and, you know, map out locations and where we would like to be, and that's a fairly long-range plan that we execute against. So, you know, I think the team continues to do a great job identifying optimal sites and you know, sites that we are excited about and regardless of, you know, of what happens in November. So, and just keep in mind, right, that, look, our store opening cadence has ebbed and flowed, but this is in no way the fastest that we've ever opened stores, right? So, we're used to moving, you know, fairly quickly as it relates to store openings when the opportunities present themselves. It's just not always linear, right? And so, you know, we'll have stores that are identified and negotiations with the landlord or permitting or what have you can speed up or slow down that process. So it can, you know, again, it's not always a perfect science as it relates to how those end up rolling out. But And, you know, again, the team does a great job, and we're really pleased with our progression against our goals for this year.

That's great. Congrats again. I'll get back in the queue. Okay.

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

Great. Thank you for taking my questions, and congrats on another impressive quarter here. My questions are on Ohio. Congrats on that settlement. I'm getting you two additional retail locations in time for adult use here. And I guess congrats on the first online sale as well. So my question is on the service agreement you ventured into providing operational support to the Ironton production facility. Just wondering if there will be any licensing fees associated with that, any recognized revenue, and if so, if that will be material.

Yeah, thanks for the question. So that agreement will continue to show up as a VIE, so you'll be able to track it in the financials as a VIE, Eric.

All right, thank you for that. And then in terms of the three additional dispensaries, just wondering, rough timing right now. I mean, I know you've got a lot going on expansion-wise, and You know, this is obviously pretty fresh, so I'm assuming these aren't ironed out here, but just kind of high level, you know, should we think of those three additional stores as opening kind of through year end 2025, or should we think of those as coming on maybe a bit sooner than that?

Thanks. Yeah, I would have those coming on in Q1 2025. That's our goal.

Great. Thank you for taking my questions. No problem. And our next question comes from Scott Fortune from Roth Capital.

Please go ahead with your question.

Yeah, good morning and thank you for the questions. I know you have a lot going on in Florida, obviously very exciting there. But just priorities for your cash position here, you know, a lot of optionality as you mentioned. sense for options like buying back stock, paying down debt, or M&A opportunities? And just kind of what are you seeing in potential M&A? We're seeing that kind of picking up here, assets in the current marketplace, kind of outside of obviously your focus in Florida here, but just kind of a little bit of a color on the market from that side of things.

Sure. As I mentioned before, we are very comfortable with our cash position. And, you know, I've said previously that right now it's very important that we fully execute against the opportunities that we have in front of us and remain focused there. I think that it's a mistake in business, and it's just philosophical, to take your eye off of what's in front of you to chase kind of a shiny object, if you will. I don't think that there are any opportunities that exist today that won't exist past November 5th. So for us, it's very critical that we continue to focus to get the vote across the finish line, which, look, there's a 60% threshold, and so it is going to take every single bit of effort that we've got to get that passed. You know, the other thing that I would say is that we like to have optionality in our opportunities, if you will. You know, we're in a very comfortable spot, I think, right now as we think about our debt position. and how that could be repositioned moving forward. And again, we like to remain opportunistic on the M&A front, but also, of course, want to make sure that when I'll call it the largest opportunity in the cannabis sector is in front of us and we're the leader as it relates to that opportunity that we make sure that we do everything we can to realize that first.

I appreciate the color there. And just to follow up, just on kind of the additional color on the overall cannabis consumer, in a sense that it's a more challenging macro environment today, a little bit kind of here through quarter. And trends towards value, you called that out, kind of going the value trade down here. But how it relates to pricing, I guess now if you're – can you provide more kind of loyalty kind of success and metrics there to kind of offset, you know, pricing in potential seasonal volume kind of demand for you in the Arizona and Florida side of things? Just a sense of the consumer spend, what you're seeing from a trend standpoint, heading in kind of a little tougher macro environment here for the consumer. Sure.

Yeah, I mean, I think that, again, right now, seasonal pressure remains certainly relatively in line. I think it's a little early to be able to call or to be able to give significant color on if there's anything additional as it relates to the macro on the cannabis consumer specifically. Yeah. Again, I'll just say that we have, you know, I think fortunately been through a number of cycles at this point and, you know, are able to and have levers that we can easily pull as we or if we see those trends, you know, those trends develop. As it relates to the trade down from a value perspective, you know, as I mentioned, we are certainly seeing that. Again, a little bit too early to be able to comment if it's any different than kind of normal seasonal, right? I don't know that we're going to have full visibility on that, just candidly, until the end of the third quarter. And as we go into fourth quarter, when that seasonality, when we're coming out of that seasonal time period. So, you know, a little bit of... mix in there right now from market to market, as I mentioned, because not all markets are affected by those seasonal trends. And then, of course, you know, we have Ohio thrown in as well. So a little bit of a mixed bag right now. But, you know, again, feel good about our ability to flex and to respond to specific consumer behaviors as we see them.

Thanks for the commenter.

Our next question comes from Mike Regan from MJ Research Company. Please go with your question.

Hey, thanks, everyone. Most of the questions have been asked, but I guess a quick question on that new Express Store model you start opening. If you could have any updates on sort of how that's performing and how many you have and how many you'd like to open of that model versus the more traditional store. Thanks.

Yeah, thanks, Mike. So we have two of those open currently in the portfolio. They have been performing, you know, at or above expectation, depending on the metric. And we are looking to incorporate more of those into the portfolio where it makes sense. And so, yeah, we think it's a great option for us to have and to have that capability, particularly in specific communities that may not warrant a full-blown, you know, fully staffed, if you will, but still have customers who would otherwise be driving a good ways and then also that we would otherwise be delivering a good ways. So, yeah, it's a good tool in our toolbox as we look out for further expansion sites.

And just to follow up on Scott's question, if I heard you correctly, it sounds like The trade-down effect so far seems to be more seasonal rather than competitive or consumer health, or at least you can't tell. And I don't want the words in your mouth. Is that basically what I'm understanding at this point?

Yeah, I mean, you know, listen, traffic is – everything right now is relatively – you know, in line with seasonality, right? So it's difficult for us to tell because of that seasonality if there's something else, right, at play. The only thing I can do is point, you know, to some of those markets that don't have that seasonal pressure, and there it's very consistent with what we've seen previously. So that's what I mean. It's a bit of a mix. Like, it's not like something we're seeing across the entire portfolio in a uniform way that would point absolutely to some sort of a macro shift that's showing up right now. Now it could mean, because we've seen this before too, that it just shows up at different times in different markets, depending on everything is local to a certain extent, depending on what's happening with the economy in that particular area or region. So, you know, again, I'm not trying to hide the ball here. Just we, you know, that's just what we're seeing today. I think we'll have a lot more to share on that topic next quarter when we have all of Q3 behind us and a bit of Q4 to compare and contrast against.

Great. Thanks a lot.

And our next question comes from Andrew Semple from Echelon Capital Markets. Please go ahead with your question.

Hi there. Good morning. I just want to ask on your comments about squeezing costs of the cost of goods sold line and particularly Jefferson County facility being a big part of that. You did mention that JEPCO was kind of operating here at peak performance. Has that tailwind to margins mostly been realized, or is there more room to go there? And, you know, maybe outside of Jeffco across the country at some of your other cultivation facilities, how much more room do you feel there is to continue squeezing, you know, clocks out of the business and margins higher in some of your other states?

Thanks for that question. So as we said, you know, Jeffco we feel like is – relative peak performance. And in addition, you know, we mentioned that the yields this past quarter, and that, again, really has to do with the mix of industry specifically of what's planted there was exceptionally high. So, you know, that's part of the reason why we're not guiding to higher margins because we do believe that that will fluctuate and probably should fluctuate depending on consumer preferences. I mean, in other words, we're not going to plant the exact same thing, you know, all the time because that would not meet the needs of the business from a consumer perspective. So there will be variability there depending on plant and yields in the particular quarter. As it relates to, you know, So I'll say that. I'll also say that, of course, we look for cost savings and efficiencies across the portfolio every day. So, you know, again, you know, I think that we will continue to be disciplined as we look for ways to increase efficiencies. There isn't anything in front of me today that I could point to that would say, yes, there's, you know, additional low-hanging fruit that we can go after there. And I think the team's done a phenomenal job driving those costs down over the last 12 months and getting us to where we are today. And again, you know, that's why we were guiding to that mid-50s, because when you think about, again, where we are today and where that fluctuation or variability could go on the cultivation side, but then also when we think about where we are, again, the seasonal pressure, consumer preferences, product mix shifts potentially, etc., That's where we're comfortable, but we wake up every day and always try to strive for incremental improvement. That's one of our mantras here at Trulieve.

Got it. That's helpful. And then maybe just returning to the Ohio market, what's your thoughts in that stage, just longer term, about are you comfortable being a retailer now? in that state or would you, you know, are you on the hunt for cultivation to complement the retail footprint you're building out?

Yeah, so Ohio has some very specific regulations around, you know, around ownership and what the layout needs to be. which we, of course, are very focused on being in compliance. And so, as I mentioned, we have a VIE relationship with a Tier 1, you know, cultivation and processor. And so we're very comfortable with that arrangement. And then, of course, we have our three stores now. We have our three stores in the beginning of the year. And then there's a possibility through our partnerships that we there could be another two dispensary opportunities depending on lottery results in the future. So we would love to continue to build out that platform. We think it's going to be a great market for us, and we're really excited to be among the first operators to open today for adult e-sales.

Great. Thanks for taking my questions. We'll get back to you.

And ladies and gentlemen, with that, we'll be concluding today's question and answer session. I'd like to turn the floor back over to Christine Hersey for any closing comments.

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.

And with that, ladies and gentlemen, we'll conclude today's conference call and presentation. We thank you for joining. You may now disconnect your lines.