Trulieve Cannabis Corp

Good morning, everyone, and welcome to the Trulieve Cannabis Corporation Third Quarter 2024 Financial Results Conference Call. My name is Dhawan, and I will be the conference operator today. As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Christine Hersey, Vice President of Investor Relations for Trulieve.

You may begin.

Officer and Wes Gettman, Chief Financial Officer, will deliver prepared remarks on the financial performance and outlook for Trulieve. Following the prepared remarks, we will open the call to questions. This morning, we reported third 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 An archived version of today's conference call will be available on our website later today.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 fact 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 forecasts. 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 other 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'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 thank you for joining us today. We are pleased to report solid third quarter results. Kudos to the entire team for delivering outstanding growth margins and adjusted EBITDA during a seasonally slower quarter that was further impacted by Hurricane Helene. Turning now to today's election. Florida voters are poised to make history today with the approval of cannabis legalization for personal use. Polling indicates strong bipartisan support for cannabis legalization and likely passage of amendment 30. Broad endorsements, including high-profile figures such as David Portnoy and former President Trump, underscore the widespread support for this common-sense approach to cannabis. Amendment 3 is about personal freedom and giving adults over the age of 21 the opportunity to purchase and consume limited quantities of cannabis without fear of arrest or adverse events from unregulated, untested products, all while generating hundreds of millions of dollars in tax revenue to be reinvested into our communities. We believe that Florida is ready to turn the page on prohibition and will vote yes on Amendment 3. I want to acknowledge everyone who has supported this campaign over the past two years, including elected officials, members of law enforcement, community leaders, physicians, grassroots organizations, and volunteers. At Trulieve, we believe in leaving it all in the field, and we can confidently say that that is the case with our support of legalization in Florida. It's now up to the voters to decide. While Amendment 3 is top of mind for Trulieve, the presidential election has meaningful implications for the industry. Those presidential candidates have publicly expressed support for federal reform, acknowledging the failed approach of the current policies. Federal rescheduling of cannabis is underway with a preliminary hearing set for December 2nd and additional hearings in January or February to collect information on the proposed move to Schedule 3. The next administration will oversee the completion of the rescheduling process. Based on the favorable public positions of both candidates, we are optimistic that rescheduling could be completed in 2025, representing a meaningful milestone for the industry. Rescheduling not only removes the punitive QAE tax burden from legal cannabis operators, but it also reduces stigma and opens the door for research. Cannabis remains more popular than politicians, and we believe widespread support and continued adoption at the state level adds pressure for broader federal reform. Before we dive into results, I would like to say a few words on the recent hurricanes. Our hearts go out to all of those who were affected by these storms. Thankfully, none of our employees were injured, although several had significant damage to homes and personal property. Chili's has been helping recovery efforts through our employee assistance program and donations to state disaster relief funds. From an operational standpoint, none of our production facilities were damaged during either storm. For retail, 65 stores were closed during Helene and 108 stores were closed during Milton. Virtually all were able to resume normal operations within two days. Thank you to everyone on the team who worked around the clock to make sure that our customers have access to the products they rely on, especially those who were also personally impacted by the storm. Moving on to our third quarter results. Revenue was in line with our guidance while gross margin continued to exceed expectations. Revenue of $284 million, up 3% from last year, reflects solid performance despite headwinds from seasonality and Hurricane Helene. Growth margin improved to 61%, bolstered by efficiencies and low cultivation costs. SG&A increased in the third quarter with higher spending to support additional store openings and infrastructure to manage long-term growth alongside increased campaign support. Adjusted EBITDA of $96 million improved by 24% compared to last year. Adjusted EBITDA margin of 34% was driven by best-in-class growth margin, partly offset by increased investment. We ended the quarter with $319 million in cash and short-term investments. During the third quarter, retail results were influenced by seasonality in Arizona and Florida, as well as temporary store closures related to Hurricane Helene. Traffic increased 10% year-over-year and 1% sequentially, while basket size declined 3% compared to last year and 6% versus the second quarter. Average basket size declined sequentially in all markets with seasonal pressure in Arizona and Florida. For the second year, seasonal impacts in Florida were influenced by new residents from northern states who leave Florida during hot summer months. Data shows some customers trading down into mid- and value-tier products and higher visits per month indicating wallet pressures influencing customer behavior. We are closely monitoring the data to discern if a trend is emerging or if transient pressure has abated. Spending patterns during the last six weeks of the year will be an important indication of consumer flexibility. Customers expect a clear value proposition for all products, seeking out reasonably priced products in value and mid-tier and truly differentiated quality for premium tier. As always, we are prepared to meet evolving customer preferences by leaning into value and mid-tier products while maintaining very high standards for premium offerings. In Q3, we expanded our industry-leading retail network to 215 locations company-wide with 14 new locations in Florida and one in Pennsylvania. Subsequent to quarter end in Florida, we were able to open five additional locations that were previously delayed due to the hurricanes. Our commitment to selling high-quality branded products through our branded retail locations is a core part of our strategy. This has been a key driver for reinforcing customer loyalty and building long-term brand equity. Freely has over 4 million square feet of production capacity company-wide, and the team continues to deliver very high-quality products while driving efficiencies and lower costs. In the third quarter, we sold over 11.5 million branded product units in line with the second quarter. Low cultivation costs in Florida and improving margins in other markets contributed to gross margin this quarter. Wholesale revenue increased in Maryland, Pennsylvania, and West Virginia due in part to greater availability of products. Over the past year, we have made continuous adjustments in our retail operations, all designed to deliver best-in-class customer experiences. Our relentless push to drive customer retention and overall satisfaction through superior products, customer service, and effective messaging continues to pay dividends. Third quarter customer retention was 65% company-wide and 74% in medical-only markets, comparable to the second quarter. Overall satisfaction and NPS scores increased in nearly all markets. Training, leadership engagement, and financial incentives for employees collectively reinforce our customer-centric focus across our retail platform. During the first half of the year, we rolled out a new customer rewards program featuring fully stackable points that can be redeemed in all markets. Enrollment in our For Fresh Loyalty program has exceeded expectations, reaching over 450,000 rewards members, up from 325,000 at our last earnings call. On average, loyalty members spend approximately 123% more per month than non-loyalty members. In Ohio, adult use sales commenced at our three retail locations on August 6th. Traffic per store increased by 60% and sales per store increased by 35% in the five weeks following the launch. Our team did a phenomenal job managing customer traffic while working to maintain high service standards. We are planning to expand our Westerville location by year end and open additional Ohio retail locations in 2025. Upgrades at our partner's grower processor facility in Ironton have been completed, and we are on track to have Trulieve brands available in Ohio by year end. Working together with partner brands allows Trulieve to offer greater product assortment and optionality for customers while providing specialty brands access to our loyal customer base. We recently announced a partnership with Black Buddha, offering premium flower in Arizona and Pennsylvania. Black Buddha is a purpose-led, women-owned cannabis brand that aligns with Truly's commitment to wellness, innovation, and quality. To date, customer feedback has been overwhelmingly positive, and we are thrilled to be working with the brand. Trulieve continues to blaze new trails, entering the first sports partnership for a non-CBD cannabis company. In August, we announced partnerships with the Professional Pickleball Association and Major League Pickleball. Trulieve is sponsoring a dozen pickleball events in Arizona, Florida, and Georgia this year and next, allowing us to reach new audiences and foster a sense of community that accelerates cannabis acceptance. Turning now to Florida. Voters will decide today whether to legalize adult use cannabis. With 23 million residents and 140 million annual tourist visits, we estimate the Florida market could reach $6 billion in annual sales. Assuming passage of Amendment 3, adult use sales would be allowed six months from today. Florida legislators have an opportunity before launch to further refine rules for adult use, such as prohibiting smoking in public and allowing home grow. Trulieve is incredibly well positioned for an abilities launch in May of 2025. We have made significant investments in production, retail, and technology in preparation for catalysts such as this one. Today, we have over 3 million square feet of production capacity in Florida. Given the modular nature of our production site, idle capacity can be quickly ramped and further expansion can occur as needed in short order. Across our retail network of 156 dispensaries in Florida, we have the ability to manage higher traffic and utilize additional points of sale. We recently conducted a series of retail pilot studies to improve the in-store experience of seeming higher traffic, and we can readily implement adjustments in advance of recreational sales. Trulieve is committed to maintaining high service standards for all customers. especially our existing medical patients who rely on our products. Over the past several months, we completed the upgrade to our Web 2.0 platform and a major upgrade to our SAT platform, expanding functionality and capability to facilitate higher transaction volumes. We will be fully prepared to welcome the Bill East Customer Store next May with high-quality products and world-class customer service. In summary, the team continues to deliver outstanding results while preparing for upcoming catalysts. We have done everything that we can to drive home a win at the polls today and truly will be fully prepared for adult youth in Florida when Amendment 3 passes. With that, I'd like to turn the call over to our CFO, Wes Getman. Please go ahead.