Trulieve Cannabis Corp

Good morning, everyone, and welcome to the True Leave Cannabis Corporation First Quarter 2025 Financial Results Conference Call. My name is Debbie, and I will be your conference operator today. As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Christine Hershey, 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, Tim Rivers, Chief Executive Officer, and Ryan Bluss, Interim 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 2025 results. A copy of our earnings press release and PowerPoint presentation may be found on the investor relations section of our website, www.trueleave.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 An archived version of today's conference call will be available on our website later today.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 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 most recent annual report on Form 10-K, 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 four 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, and good morning, everyone, and thank you for joining us today. We are excited to report another strong quarter and fantastic start to the year. Best-in-class growth margin and strong operating cash flow during a seasonally slower quarter clearly demonstrate our commitment to operational excellence. First quarter revenue of 298 million increased slightly compared to an atypically strong first quarter last year. Growth margin improved to 62% versus 58% last year, driven by lower production costs and disciplined promotional activity. Adjusted EBITDA of 109 million, or 37% margin, improved by 1% compared to last year. Operating cash flow of 51 million contributed to cash of approximately $330 million at quarter end. First quarter results show strong demand for cannabis products. Retail traffic and units sold both increased 7% year over year, while pricing compression and loyalty point redemptions pressured retail revenue to decline slightly by 1%. Momentum in our wholesale business continued in the first quarter with revenue up 25% versus last year. Demand for truly branded products and expanded relationships with key wholesale partners in Maryland and Pennsylvania contributed to higher wholesale revenue. Since the start of the year, we have observed modest shifts in consumer behavior towards value-oriented products. As in prior cycles, we are actively refining our product offerings, pricing, and promotional activity to meet customers where they are. By leaning into competitive advantages, including deep connectivity to our customer base and the ability to quickly modify production mix and utilization, we are further solidifying our position as an industry leader. This year, we are building upon the strengths of our business with an emphasis of four key areas, customers, distribution, branded products, and reform to drive regulatory change. First and foremost, everything at Trulieve begins and ends with the customer in mind. Our store teams take great pride in serving our customers with care, knowledge, and convenience. A key component of our customer-centric approach is our ability to provide store managers and associates with training, support, and real-time feedback to drive overall customer satisfaction and outstanding experiences. During the first quarter, Net Promoter Score increased by 4 points compared to last year, and every market scored within our target range. Kudos to the entire retail team for driving such a notable improvement. As part of our strategy to attract and retain loyal customers, last year, Truly rolled out a refreshed rewards program company-wide, featuring portable, stackable, and redeemable points, all designed to reward repeat purchases and foster customer retention. At quarter end, the loyalty program reached over 625,000 members, growing by almost 20% in the first quarter. Consistent with last quarter, on average, loyalty program members spent 2.3 times more per month than non-loyalty members. Our data shows that consistently delivering elevated experiences, high-quality branded products, and generous loyalty rewards to customers reinforces retention. First quarter customer retention remains strong at 66% company-wide and 75% in medical-only markets. Turning now to our second focus area, distribution. Expanding our retail and wholesale distribution channels allows us to reach more customers while providing greater access to legal cannabis products. We are working to attract new customers in retail with new, relocated, and refreshed stores while accelerating wholesale distribution of branded products, particularly in Maryland and Pennsylvania. This year, we plan to open 10 new retail locations, relocate up to three stores, and refresh or remodel up to 45 dispensaries. During the first quarter, we opened 60 dispensaries in Arizona, Florida, and Ohio. We relocated one Pennsylvania dispensary, refreshed nine locations, and closed two Florida locations. Today, we operate 229 dispensaries in eight states. The power of our retail platform was on full display during the 4-20 holiday season. Compared to last year, units sold increased by 20% and traffic increased by 9%. Customers took advantage of 420 deals stocking up during sales while celebrating the holiday. Our retail team expertly managed the spike in customer traffic equipped with training, technology, and support. On average, customer wait times were less than four minutes, demonstrating our ability to provide superior service levels at higher volumes. The size and sophistication of our combined retail production and data platforms lend Trulieve a meaningful competitive edge in several ways, especially in dynamic macroeconomic environments. First, as a leading cannabis retailer in the U.S., Trulieve has unparalleled access to customers. Second, multiyear investments in data analytics enable early identification of changing customer behavior. Third, modular production capacity allows quick pivots in utilization and product mix in response to market conditions. In combination, these capabilities afford Trulieve the flexibility to identify and respond to evolving customer preferences, further reinforcing customer satisfaction and retention. Knowing what our customers want dictates efforts in our third focus area, branded products. Consistent availability of approachable, high-quality products is essential to long-term success. With over 4 million square feet of capacity, our production team continues to deliver outstanding results. Yields and potencies remain strong overall in the first quarter, contributing to gross margins while supporting the value proposition of branded products. Trulieve's brand portfolio includes meticulously crafted internal brands augmented by popular third-party brands. In the first quarter, Trulieve sold over 12 million branded products through our branded retail network, up 7% versus last year. Trulieve brands Modern Flower and Roll1 continue to gain momentum, representing over 40% of our branded products sold. The expanded reach of these accessible brands demonstrates true resonance with customers across the country. Our edibles brand, Sweet Talk, continues to gain traction in Arizona, Florida, and Maryland. We plan to launch additional products under the Sweet Talk brand in existing markets this year. Turning now to a new branded product category for Trulieve, THC beverages. In February, we launched Onward, a line of Farmville-compliant beverages. Premium Onward beverages powered by Trulieve are available in select locations in ABC Fine Wine and Spirits, Shores Liquors, and Total Wine in Florida, and online at drinkonward.com. Through a combination of in-store sampling events and training sessions, we are raising awareness and understanding of the THC beverage category and the Onward brand. Next month, we plan to launch an exciting new energy drink called Upward. Upward leverages our proprietary CBD and THC emulsion blend to provide an enjoyable, focused occasion like no other. Combining CBD and THC with natural caffeine creates an elevated feeling that is simultaneously calming and energizing. The upside is for consumers seeking clarity and focus without the jitters or crash associated with traditional caffeine-based energy drinks. Upward will be available in four flavors, five milligram lemonade, peach nectarine, and strawberry tea. and 10 milligram pink lemonade. Broad distribution of high quality branded products is essential to building lasting brand equity supported by an army of loyal customers. We look forward to expanding branded product offerings and distribution through new and established channels. Finally, our fourth key area is reform. Trulies continues to lead from the front, tirelessly pushing for a common sense approach that acknowledges the value of cannabis and reflects popular opinion. This year, we are investing to support meaningful advancement, including rescheduling, state banking, and state 2.0 at the federal level and adult use in Florida and Pennsylvania. Our action includes individual efforts by Trulieve and a leadership role in the U.S. Cannabis Roundtable. For decades, federal costification of cannabis as a Schedule I drug has blocked medical research, prevented full development of the regulated industry, and limited access to natural relief provided by the plant. Rescheduling to Schedule 3 would acknowledge the medicinal value of cannabis and enable cannabis research, representing a meaningful step towards greater reform. At the same time, rescheduling would remove the 280E tax burden, allowing state-licensed operators to pay normalized tax rates, bringing up capital to invest in the regulated industry. Safe banking would allow financial institutions to provide ordinary banking services to cannabis companies and employees, reducing reliance on cash and improving safety for dispensary workers. Safe banking enjoys strong bipartisan support as it would accelerate economic growth and the development of a more robust legal industry. Since 2019, safe banking legislation passed in the House seven times and moved out of the Senate Banking Committee. We are optimistic that safe banking legislation will be revisited this year. Last month, bipartisan legislators introduced a new bill called the States 2.0 Act. If passed, this bill would allow each state to determine its own approach to regulating cannabis. Stage 2.0 removes cannabis from the Controlled Substances Act, allows oversight by the TTB and the FDA, and removes the 280E tax burden for compliant operators. In our home state of Florida, last November, voters fell just shy of the 60% threshold required for passage. However, approximately 6 million Floridians voted in favor of personal adult use. In December, the Smart and Safe Florida Campaign filed revised ballot language for personal adult use legislation. incorporating learnings from the 2024 campaign. The campaign is currently working on signature gathering required for inclusion in the November 2026 election cycle. To date, the campaign has collected over 700,000 signatures, which once validated, is sufficient to trigger review by the Florida Supreme Court. With 23 million residents and 143 million tourist visits per year, Florida has the potential to be the best legal cannabis market. In Pennsylvania, support for adult use legalization continues to build momentum as most neighboring states have launched adult use programs. Earlier this week, adult use legislation was filed in the House of Representatives, kicking off the first step towards reaching a bipartisan agreement. Trulia has been working to educate legislators and key stakeholders about the benefits of cannabis and legalization for adults. We remain optimistic that adult use legalization can happen in the near term. With increasing acceptance of cannabis, Trulieve will continue to push for meaningful cannabis reform and expanded access for patients and adults. In summary, we're advancing our leading edge in four areas this year, customers, distribution, branded products, and reform. By leaning into our intrinsic strengths, Trulieve continues to separate from the pack, propelled by a differentiated strategy and meaningful competitive advantages. With that, I'd like to turn the call over to our interim CFO, Ryan Blust. Please go ahead.

Thank you, Kim. Good morning, everyone. First quarter revenue was $298 million, up slightly year over year, driven by new store openings, adult use sales in Ohio, and growth in the wholesale channel. First quarter gross profit was $183 million, or 62% margin, up $9 million from last year. 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 first quarter were $119 million, or 40% of revenue, compared to $101 million, or 34% last year. Higher SG&A included new store opening expenses, technology and infrastructure investments, and catalyst campaign support. First quarter net loss was $33 million compared to a loss of $23 million last year. First quarter loss per share was $0.17, which was comparable to last year. Excluding non-recurring charges, first quarter loss per share would have been $0.02 compared to a loss of $0.05 last year. First quarter adjusted EBITDA was $109 million, or 37%, representing a margin improvement of 1% compared to last year. First quarter adjusted EBITDA margin reflects industry-leading growth margin and expense control in our core business. Moving on to our balance sheet, we entered the quarter with approximately $330 million in cash and $480 million in debt. Given the strength of our cash generation, we remain well positioned to address our near-term financial obligations. As we indicated in our last call, we are prepared to retire our senior secured notes due in 2026 later this year with a target to refinance up to half of the $368 million outstanding. Shifting to cash flow. First quarter cash flow from operations totaled $51 million. Capital expenditures were $17 million with free cash flow of $34 million. Absent the Catalyst campaign contribution, cash flow from operations would have been $74 million and pre-cash flow would have been $57 million. Turning now to our outlook, we anticipate second quarter revenue will be flat to up low single digits sequentially. We anticipate gross margin will fluctuate quarter to quarter and expect full year gross margin will be comparable to 2024. We expect full year cash flow from operations of at least $250 million and capital expenditures of up to $40 million. We may refresh our forecast later this year, depending on macroeconomic conditions and the timing and progress for catalysts. I look forward to working with the team as we execute on our plan. With that, I'll turn the call back over to Kim.

Thanks, Brian. Cannabis is an integral part of daily life for millions of Americans. Legal cannabis provides safe products for patients and adults seeking relief and recreation. This is a growing American industry that employs almost half a million workers directly while generating tax revenue and contributing to economic growth through support services. U.S. cannabis sales are projected to reach $36 billion this year. Today, the U.S. has 39 states with medical and or adult use programs all operating in direct conflict with federal law and popular opinion. Most Americans support reform, including rescheduling, safe banking, and expanded access, especially for medicinal use. A March poll conducted by Fabrizio Lee and Associates showed 72% of registered voters support rescheduling, with 80% of voters aged 18 to 34 in favor. The growing divide between federal and state law is unsustainable. We remain optimistic about the future of the industry under the current administration. In Florida and Pennsylvania, a majority of constituents support adult use legalization. We believe it is a matter of when and not if these states will launch adult use programs. Trulieve will do its part, continuing to push for common sense reform, working directly with elected officials, regulators, and key decision makers alongside industry peers. Bolstered by industry-leading margins and strong cash generation, Trulieve has the flexibility to make strategic investments while reducing balance sheet leverage. With our loyal customer base, branded products, and reform efforts, she really stands out as an industry leader. I am so proud to lead this team. Together, we are ready to define the future of cannabis. Thank you for joining us, and as I always say, onward.

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

We will now begin the question and answer session. To ask a question, you may press star then one on your touch tone phone. If you are using a speaker phone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster And also, as a reminder, please limit yourselves to one question and one follow-up. The first question comes from Luke Hannon with Canaccord Genuity. Please go ahead.

Thanks. Good morning, everybody, and congratulations on the results. Kim, I wanted to dig in. I mean, you touched on in your prepared remarks that it is an industry-leading margin and very robust cash flow that you're able to deliver during the quarter. But Q1 is typically seasonally a slower quarter. Despite that, you delivered a 62% gross margin. I know that that sort of ebbs and flows throughout the year and you're still anchored around that 60%, but can you just shed some light on what specifically drove that sort of outperformance versus the 60% during this quarter if there happened to be one or two items that were really behind that? Thanks.

Yeah, thanks, Luke. As we've said consistently, right, that the margin really will fluctuate from quarter to quarter depending on specifics in terms of what's happening within the quarter. And, you know, I would, of course, like to take the opportunity to give kudos to the entire team that has remained focused on continuing to deliver exceptional operational efficiencies across the platform. Everything from, of course, you know, expense control at retail, but really also outperformance, not only from a discipline expense control side on the production and cultivation, but of course, outperformance also on the yields and the quality of the flower and products that we're able to produce. Product mix also has a bit to do with it in terms of what folks are gravitating towards in the quarter. The company remains very disciplined in our strategic positioning of our products. And again, that's kudos to the entire team and our shared services department. who focuses on really deep understanding of the customers. And it's one thing to understand the customer. It's another thing to be able to actually take those learnings and monetize and react, right, quickly to changing patterns and trends. And so, you know, I think that we as an organization are continuing to build upon those expertise, which are pulling through in the numbers. That being said, I would just say that, again, as we look through and we look down the pike at the rest of the year, that it will absolutely, we fully expect it to ebb and flow just with certain dynamics that may be happening in a quarter. Again, that product mix and the consumer preferences, we have an obligation. We're always going to meet the customer where they're at. And so we'll see where that ends up for the rest of the year. But really, I think it's controlling the controllables and really a laser focus on continuing to deliver efficiently, but also, of course, like I said, meeting that customer where they're at.

That's great. Thanks. And for my follow-up, I did want to ask about your beverage line as well. So you've touched on some of the success that you've witnessed to date. When it comes to the sort of consumer that you're attracting or that that product or product line is attracting rather, is that more of the typical cannabis connoisseur? Is it gaining traction with those who maybe haven't been quite as familiar with THC products or cannabis in the past? And then I realize this is sort of a few questions in one here, but I'm curious to know how the consumer education and perhaps government education efforts have gone so far as well. Thanks.

Sure. And so it's still early days, Luke, as it relates to, you know, to that, to Onward. But we are very excited as it relates to initial findings. And I mentioned in our prepared remarks that we were focused on connectivity with the consumer. And that's one of the reasons why we've leaned so heavily into sampling events across the stores that we are selling in. And we have hundreds of those events scheduled throughout the summer. so that we can continue to directly interface with the consumer and directly gather that data in Intel because, again, that's something that we feel strongly about at Trulieve. And early indications are that it's a mixed bag as it relates to consumers, which we find very exciting. So as we look to call it the stronger products, call it 10 milligram products, right, It certainly appears that some of those consumers are familiar with cannabis and have definitely understand right tolerance levels and how they integrate cannabis into their regular consumption habits. Whereas, you know, on the fives and the threes, we're doing a lot of conversation around folks who haven't tried cannabis. cannabis before or who are the canna curious or maybe they've tried here and there and are interested in really in our case because we are through a standard call it beer and wine or liquor distribution channel are curious about maybe replacing or augmenting alcohol consumption with a cannabis product. So we believe education is key to the sustainability of this category and are working not only, of course, directly with consumers, but also have a whole education platform behind the scenes with our distribution partners to make sure that the sales teams and associates, because we are finding that there's knowledge gaps for sure as it relates to Salesforce training in these stores because they're just not familiar with the category. So we see that as a very large opportunity for us to come in and really be the leading expert and source of information for the sales force on the ground and also, of course, through our distribution partners as well.

That's great. Thank you very much.

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

Hi, good morning. Thank you very much for the questions and congrats on the quarter. So, First question for me, just want to talk a bit about the rewards program. Seems to be getting some nice momentum. You can speak to how it's helped you to refine your promotional strategy, build a moat around your core consumer. And if you're looking to make any adjustments to it, I know it's been a couple quarters now that you've implemented it. So curious, any feedback you have now the program has been active for some time, kind of for about 7% of sales. So any kind of targets or potential changes you might want to implement now that it's been in there for a while? Thank you.

Yeah, thanks, Erin. I mean, the loyalty program has just really been a home run for us. And so, you know, we're continuing to focus on signups and adoption because, again, you know, it's still fairly new for us. And the feedback has been exceptionally positive. We're continuing to do some testing within the platform in terms of what types of additional offerings resonate with consumers. whether it's some increased points on specific brands, whether it's offering loyalty rewards members specific loyalty-only savings on certain days or certain products. So we're doing a lot of continued exploration and testing on what really resonates with that customer base. But I mean, look, we've got, as we mentioned, over 350,000 folks signed up and you know, when you've got over, you know, 68% of purchases in Q1 from folks that are subscribed, there obviously is definitely, it's a very exciting tool for us to continue to lean into.

Okay, great. Appreciate the color there. Second question for me, just on Florida and the promotional environment, can you comment on the promotional environment that you're seeing there? We're now six months removed from the adult measure not passing at the November election. So, You know, are you seeing any notable changes in the competitive environment in the state? Do you feel like now you've kind of worked through any potential inventory that might have built up, you know, ahead of anticipation, and it's more rational now with more of a focus needed on profitability and cash flow? So, you know, any commentary on what you're seeing in the environment in Florida would be helpful. Thanks.

Yeah, I mean, I think that, you know, across the country, and then I'll get to Florida specifically, but I think across the country, as I mentioned in the prepared remarks, right, we are starting to see some continued macroeconomic pressure on the consumer. We are seeing, and it's a mixed bag, depending on the specifics in the market, but I think just generally, right, and we saw this, you know, this has ebbed and flowed throughout our history as a company, so this isn't a pattern that we're unfamiliar with, but where customers are looking to stretch their dollar a little bit more, looking to potentially trade down. And so, again, having that right product mix is really key in every market. And in Florida specifically, again, as you know, we've got a variety of competitors in Florida, and not every competitor is approaching 2025 in the same way. We certainly are seeing some competitors who are – definitely, you know, continue to not be necessarily rational as it relates to pricing and, you know, continue to have kind of broad-based approaches to categorical, you know, discounts, et cetera. We're going to continue to operate the way that we've continued to operate, meaning that we're going to be strategic in terms of speaking directly to our customers while also ensuring that we have product offerings and availability to, again, meet customers where they are. So in an environment where you may have some trade-down occurring, you, of course, want to make sure that your value portfolio is robust and can speak to that customer while maintaining our high levels of service. And again, the loyalty program helps with that as it relates to retention to make sure we retain the customers that we have. You know, certainly there is, you know, wallet pressure in the market. But again, I think that's more than just a Florida conversation. I think that that's a national conversation. But I think that, you know, we're very aware of it and very equipped in how we're strategically addressing it. And it was present in the first quarter as well. And I think that we held our own.

Appreciate that. That's helpful, Carla. I'll go ahead and jump back in the queue.

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

Good morning, and thank you for taking my question. I just wanted to follow up on a prior question around Onward. I know, again, it's early days, but can you talk about where you're seeing the strongest traction in terms of distribution channel, direct-to-consumer versus retail shelves, and on the direct-to-consumer front, just wondering which states you're seeing most interest out of? Thank you.

Sure. So, Russ, look, I mean, I think we believe strongly that this is ultimately going to be a distribution play. You know, we have augmented some of our strategy as it relates to direct-to-consumer, and that has to do more with our pricing tiers and shipping costs and whatnot and our ability to negotiate that to a more reasonable position. So I think it's maybe a little early for us because that just happened for us. So there was a pretty large – spread, if you will, on cost between DCC and distribution previously. And so I would say check back with me on that maybe next quarter, and I can give you some additional color. And again, as it relates to states, same thing. I think it's a little early to be able to call balls and strikes in terms of who and where leadership is because we're, again, this is a reminder to everyone, this was a pilot for us. So we have kind of our first normalized manufacturing run that is literally coming off the line right now in time for summer. And so we'll be able to provide you guys, I think, some deeper color on that next quarter.

Great, thanks. And then specific to Florida, I just want to ask around, patient count growth. It varies week to week considerably, but most of April was pretty strong. Any thoughts on what's behind that beyond perhaps 420 and how sustainable the growth might be in Florida given the penetration rate's already quite high?

Sure. Yeah, I mean, I think, you know, of course, we're happy to see the numbers coming out of Florida in April. I mean, I think anytime you have a robust, you know, legalization campaign, it's going to impact, you know, to some extent, right, renewal rates, as well as new patients entering the market as they contemplate, you know, whether or not they want to spend the money to renew a card or get a renewal, right? vis-a-vis being hopeful that adult use will pass. And so, not always understanding the implementation timeline behind legalization post-amendment passage. So, I think that, you know, we may have some rebound happening there and, you know, we'll see, right? And again, I think we've got to kind of chart that out over the next call it three to six months. But look, I mean, Florida has, we have over 21 million residents, right? And as cannabis becomes more and more mainstream, you know, there, of course, is continued opportunity for Floridians to enter the program and to become patients, for sure.

Thanks for that. I'll get back in the queue. Congrats on the quarter.

Thanks. The next question is from Frederico Gomez with ATB Capital Markets. Please go ahead.

Good morning. Thanks for taking my questions. Congrats on the great quarter. First question, I believe you spent over $23 million in campaign and political contributions this quarter. So just curious if you could provide any estimate or how do you think that how much more capital will you then allocate to, I guess, other contributions through the year? And if, you know, that's already fully accounted for in your cash flow guidance for this year. Thank you.

Sure. So, our cash flow guidance is our cash flow guidance that incorporates everything that we see, you know, sitting here today. So, yes, I would say that that is fully based guidance. As it relates to the spend, this quarter, as mentioned, right, there were some pretty significant efforts that were happening across both federal and in Florida, specifically, in Q1. You know, 700,000 petitions have been collected for 2026 efforts. So, you know, I would not, what I would say is that, you know, that is outsized for what we see moving forward throughout the year, but this really is going to depend on what the opportunities are and what catalysts become clear and more in focus as the year continues. We do feel like it's important to be able to lean in and to invest as those opportunities arise.

Thank you very much for that. Second question is just how you're thinking about M&A in the current environment. We know that valuations are at all-time lows in the public space, but I'm just curious how you're seeing that and you know, considering the cash you have on hand at the same time, some of your leveraging initiatives, how do you think about M&A as a capital allocation alternative? Thanks.

Sure. So, you know, as we mentioned, we are absolutely focused on addressing, right, the balance sheet this year, and we'll be doing that. And that being said, of course, we're always interested to understand what the opportunities are that are out there. I am of the personal opinion that pricing is actually not as low as it's going to get. There's significant debt coming due for a lot of companies out there who I don't think, unless something dramatically changes, have the ability to pay that down like we do. And so I think folks are going to be facing some tough decisions. that creates opportunity, and so I think that we are going to make sure that we're in a position to be opportunistic when those opportunities arise, but I also think that there's no benefit here in not being patient.

Thank you very much.

Thanks. The next question is from Bill Kirk with MKM Partners. Please go ahead.

Good morning, everybody. I had a question on 420 year over year. What were dollars year over year? And I ask because units were a pretty big acceleration over 1Q, yet the 2Q revenue guide is not as large of an acceleration over 1Q. So I'm curious what dollars were for 420 year over year.

Yeah, so we don't give specific dollar or revenue by holiday. But what I can tell you is, right, I mean, 420 is one weekend. And we have a whole quarter, right? And so you have to look at how the consumer is reacting within that quarter right and so what we've what we've said is that um we've said that i mean the good news here is that we've got you know traffic increases we've got um you know strong retention um but what we also have is we have wallet pressure and we have a potential trade down um happening so so p mix is a big part of that equation um in terms of what what we could see in Q2. So it was an exceptionally strong 420 in terms of our ability to serve a bunch of customers and to continue to sell and have a number of transactions come through our platform, and that's across the country. But again, that's one weekend, and there's a ton of other factors at play.

Okay. And as a follow-up on the THC beverages, I believe you're allowed to pay retailers slotting fees for those. Alcohol is not allowed to pay slotting. So I guess, are you seeing the emerging Delta 9 beverages paying for shelf space as like a way to establish themselves? You know, there's a lot of new entrants. So do they go pay slotting to get established at retail accounts? And also, is that a way for THC beverages to kind of take space from alcohol. Alcohol can't pay the retailers for shelf space and get it right from those alcohol brands.

Yeah. So, again, we are not paying the slotting fees to date. And I do think that, you know, I think that that varies by state to state, specifically as these states pass hemp regulations and regulatory frameworks. we're seeing the emergence of specific regulatory structures around THC beverages in many cases that follow, you know, the three-tier classic system. So, you know, I don't necessarily believe that reliance on a spotting fee strategy is going to be a long-term sustainable strategy, not to say that, you know, in the short term in certain states perhaps it's being done. Again, right now in our pilot in Florida, we are not, we're not seeing that. We're not seeing that as a necessary or even widely used strategy among or in the THC beverage market.

I appreciate it. Thank you, Kim.

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

Good morning. Congrats on the Q1 results. My first question is just on the robustness of the supply chain with respect to tariffs and potential tariff interruptions that we might see here. Do you have any concerns on any of your product categories with sourcing, packagings, and other input materials as it relates to risks around tariffs, or are you feeling pretty good about how truly this decision is about to be made?

Yeah, thanks. We've done a very robust analysis around potential tariff impacts, and it's immaterial for our organization. Again, kudos to our supply chain team. They have had this on their radar for quite some time and have worked directly with our suppliers to ensure that the impact, you know, when and if would be minimal. And, in fact, that is what has come to fruition. So, we feel good about our position on that.

Great. Okay. Glad to hear it. And my follow-up here would just be on the company's inventory balance. Days of inventory have been creeping higher since 2024, and that continued into the first quarter of 2025. Is that reflective of growth expectations, or are you building any strategic inventory reserves in states such as Pennsylvania, maybe ahead of the adult use vote there, or the legalization opportunity there? Maybe just some thoughts about the company's inventory position as it stands today would be helpful.

Yeah, our inventory is in a place where, I mean, we're fairly comfortable. It's going to fluctuate quarter to quarter as it moves through the line. I mean, again, we're different than some of our peers in that we do believe very strongly in branded products through branded retail as a key cornerstone strategy of ours. And as we mentioned, right, we've been increasing wholesale sales. In certain markets, you know, we have, depending on this particular state, we may be, you know, billing towards the launch of certain products, et cetera. So it's, you know, again, I think it's a normal fluctuation given our current strategic priorities across the platform.

Great. That's helpful. Thanks for taking my questions. We'll get back into queue.

Great. Thanks.

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

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

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