Trulieve Cannabis (OTC:TCNNF) Corporation (CSE: TRUL), a leading cannabis company, has reported a solid performance in the first quarter of 2024, with revenue growth and improved profitability. The company's revenue climbed 4% to $298 million, surpassing market expectations. Gross margin also saw a boost, rising by 5% to 58%, attributed to lower production costs and reduced promotional activity.
Adjusted EBITDA showed a significant increase, both sequentially by 21% and year-over-year by 35%, reaching $106 million. Operating cash flow was strong at $139 million, with free cash flow reported at $124 million. Trulieve's retail platform demonstrated robust health through increased traffic and higher customer satisfaction scores. The company is also gearing up for potential growth opportunities, including the anticipated launch of adult-use cannabis sales in Florida, Ohio, and Pennsylvania, and is planning to open at least 25 new stores within the year.
Key Takeaways
- Trulieve's Q1 revenue increased to $298 million, a 4% rise, with a gross margin of 58%.
- Adjusted EBITDA grew to $106 million, marking a 21% sequential and 35% year-over-year increase.
- The company reported a net loss of $23 million, showing a 31% sequential improvement.
- Operating and free cash flows were strong at $139 million and $124 million, respectively.
- Trulieve aims to open at least 25 new stores and is monitoring legalization efforts in several states.
Company Outlook
- Trulieve is preparing for the launch of adult-use sales in Florida, Ohio, and Pennsylvania.
- The company anticipates Q2 revenue to be flat or slightly down due to seasonal trends and impacts from its loyalty program rollout.
- Trulieve remains optimistic about federal cannabis reform and its potential industry impact.
Bearish Highlights
- The company reported a net loss of $23 million for the quarter.
- Q2 revenue is expected to be flat or decrease slightly due to seasonal trends and loyalty program impacts.
Bullish Highlights
- Gross margin improved to 58% due to lower production costs and reduced promotions.
- Trulieve's retail platform is performing well with increased traffic and customer satisfaction.
- The company boasts a strong cash position of $327 million, with plans for strategic investments.
Misses
- There were no significant updates regarding the tax refunds owed to the company.
Q&A Highlights
- CEO Kim Rivers expressed confidence in the company's position and the upcoming advertising campaign for the election.
- The company is optimistic about the possibility of listing cannabis companies on exchanges in the future.
- Trulieve has idle capacity in Florida that can be used for adult-use sales and is considering further investments to maintain its leadership position.
Trulieve Cannabis Corporation closed the quarter with a strong cash balance of $327 million, while carrying a debt of $482 million. The company is actively considering capital allocation strategies, including debt management and possible market expansion. The success of its loyalty program in Arizona, which achieved a 30% adoption rate within 60 days, is a testament to Trulieve's focus on customer engagement and data capture. With a significant presence in Florida, including 135 locations and substantial cultivation and production capacity, the company is well-positioned to capitalize on potential regulatory changes in the state's cannabis market.
The CEO highlighted the efficiency of the JeffCo facility and the team's expertise in matching genetic profiles to growing environments, which contributed to the strong gross margin performance. Trulieve is also engaging with exchanges about the potential for cannabis company listings, indicating a proactive stance towards future market developments.
Trulieve's management concluded the earnings call by expressing their commitment to providing further updates in the next earnings call, maintaining a transparent communication with investors and stakeholders regarding the company's progress and strategic initiatives.
InvestingPro Insights
Trulieve Cannabis Corporation (CSE: TRUL) has demonstrated resilience and strategic agility in the dynamic cannabis industry. With a focus on profitability and market expansion, the company's recent financial performance has attracted the attention of analysts and investors alike. Here are some key metrics and insights from InvestingPro that shed light on Trulieve's financial health and future prospects:
- The company's market capitalization stands at $2.16 billion USD, reflecting its significant presence in the cannabis market.
- Despite a challenging environment, Trulieve has a high gross profit margin of 52.13% for the last twelve months as of Q4 2023, indicating efficient cost management and robust pricing power.
- Analysts have recognized Trulieve's potential, with a fair value estimation of $16 USD, suggesting room for growth from its previous closing price of $10.79 USD.
InvestingPro Tips for Trulieve highlight the company's high shareholder yield and the expectation of net income growth this year. Analysts have revised their earnings upwards for the upcoming period, which could signal confidence in the company's ability to navigate market uncertainties and capitalize on growth opportunities. It's also worth noting that Trulieve's stock price movements have been quite volatile, yet the company has shown a high return over the last year and a significant price uptick over the last six months.
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Full transcript - Trulieve Cannabis PK (TCNNF) Q1 2024:
Operator: Good morning, and welcome to the Trulieve Cannabis Corporation First Quarter 2024 Financial Results Conference Call. My name is Chris, and I will be your conference operator today. As a reminder, today's event is being recorded. I would now like to introduce your host for today's conference, Christine Hersey, Vice President of Investor Relations for Trulieve. You may begin.
Christine Hersey: Thank you. Good morning, and thank you for joining us. During today's call, Kim Rivers, Chief Executive Officer; and Wes Getman, Chief Financial Officer, will deliver prepared remarks on the financial performance and outlook for Trulieve. Following the prepared remarks, we will open the call to questions. This morning, we reported first quarter 2024 results. A copy of our earnings press release and PowerPoint presentation may be found on the Investor Relations section of our website, www.trulieve.com. An archived version of today's conference call will be available on our website later today. As a reminder, statements made during this call that are not historical facts constitute forward-looking statements, and these statements are subject to risks, uncertainties and other factors that could cause our actual results to differ materially from our historical results or from our forecast. Including the risks and uncertainties described in the Company's filings with the Securities and Exchange Commission, including Item 1A Risk Factors of the Company's annual report on Form 10-K for the year ended December 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 an 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 8-K 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.
Kim Rivers: Thank you, Christine. Good morning, everyone, and thank you for joining us. Trulieve is in the best position that we have been in for several years. With stellar performance in our core business and several meaningful catalysts on the horizon, the outlook has never been brighter. Since our last call, definitive progress has been made on two major catalysts. First, the DEA has publicly confirmed its recommendation to reclassify cannabis as a Schedule III drug and t he administrative rulemaking process is underway. We remain optimistic that rescheduling will progress this year, marking the first major step in long overdue federal reform. Second, the Florida Supreme Court issued an affirmative ruling allowing the Smart and Safe Florida adult use Amendment on the ballot this November. Kudos to the entire team who worked tirelessly to clear this hurdle. We are thrilled to be one step closer. However, we recognize that much work remains ahead. We believe passage with 60% approval is achievable, but we are not taking a single vote for granted. The campaign has shifted focus to raise awareness and support for Amendment 3 while educating voters about the many benefits of legal access for adults. Trulieve remains the lead financial supporter of the initiative and is pleased to see other Florida operators support the campaign. As we approach November, we anticipate the noise level around the election will be amplified, but we have full confidence that the campaign's strategic approach will result in passage at the polls. While the campaign is working diligently to drive victory in November, the team at Trulieve continues to deliver fantastic results. Ongoing efforts to achieve incremental improvement are paying off, particularly in retail operations and production as shown by customer satisfaction scores, customer retention and units sold. The team remains disciplined, keeping operating expenses in check while supporting revenue growth. This is an important year for Trulieve, and we are allocating resources with intentionality to balance operational improvements and preparation for future catalysts. I am continually inspired by the commitment of our team and their ability to deliver on our strategic plan. First quarter results were impressive, beating expectations with sequential improvements in revenue, gross margin and adjusted EBITDA. Revenue increased quarter-over-quarter 4% to $298 million driven by increased traffic, basket size and our disciplined approach to pricing. Gross margin of 58% improved 5% due to lower production costs, reduced promotional activity and higher capacity utilization. Adjusted EBITDA improved by 21% sequentially and 35% year-over-year to $106 million or 36% margin, representing our 25th consecutive profitable quarter. First quarter operating cash flow was $139 million and free cash flow was $124 million. Strong first quarter performance during what is typically a seasonally slower quarter was underpinned by strength across our retail platform. Traffic and basket size were each up 3% sequentially. Elevated performance across our retail operations is due in part to several initiatives designed to enhance the customer experience. Our relentless focus on the customer stems from our core belief that building a satisfied and loyal customer base is critical for lasting success. We incorporate customer feedback into process improvements on an ongoing basis to strengthen retail KPIs. Following reinforcement of targets and incentive alignment with our retail teams, first quarter retail KPIs, including overall satisfaction scores and wait times, improved sequentially. We view customer retention as an important indicator of the efficacy of our approach. Customer retention held steady with 65% of customer's companywide and 74% in medical only markets returning to stores. As part of our ongoing efforts to reinforce the Trulieve retail brand, while efficiently serving our customer base, we are launching a revamped loyalty platform and web experience across all markets this year. The rollout of both programs across markets is modular with the new loyalty program in place in Arizona and Maryland and the new web platform live in Florida, Georgia, Maryland, Pennsylvania and West Virginia. We have seen tremendous responses to those programs where available to date. The untapped potential of our retail platform was on full display recently with our results on 4:20. We shattered all prior records for traffic and customers served, up 5% and 6%, respectively versus last year's record-breaking results. Comparing a 14-day period of 4:20 performance year-over-year on a same-store sales basis, net revenue was up 3%, driven by a 6% increase in traffic and offset by a 3% decrease in basket for 173 stores. The team effectively managed higher traffic on 4:20, keeping average wait times reasonable at seven minutes. Our ability to quickly flex up capacity in order to effectively meet sharp increases in demand highlights the power of our platform. Another strategic focus meant to bolster brand equity for Trulieve is distribution of branded products through branded retail. Today, Trulieve has the largest cannabis retail network with 196 dispensaries supported by over 4 million square feet of production capacity. In the first quarter, we sold over 11 million branded product units comparable to the fourth quarter and up 6% versus last year. Value and mid tier brands, Roll One and Modern Flower, continue to resonate with customers, gaining popularity and driving sales. Similar to last quarter, we saw signs of consumer strength with greater willingness to spend to move up in a premium or mid-tier or take advantage of basket building promotions. Producing high quality products at scale is another core competency that we continue to build upon. During the first quarter, production of the 750,000 square foot indoor cultivation facility in Jefferson County improved with higher yields and lower cultivation cost per gram compared to last quarter. We are extremely pleased with the quality and variety of product our team has been able to cultivate consistently at this site. Following the success of our plan to elevate product quality in Florida, we have rolled out our [#OnlyGrowthFire] initiative across other markets. While we continue to deliver strong results across the organization, the team is also preparing for several potential catalysts including adult use sales in Florida, Ohio and Pennsylvania. If the Florida adult use campaign is successful this November, we anticipate sales would begin six months after voter approval. We estimate the Florida market could ultimately reach $6 billion with expansion to include adult use. With 22 million residents and 138 million annual tourist visits, we believe Florida will be the best cannabis market in the world. Today, Trulieve operates 135 stores in Florida and over 3 million square feet of production capacity. The conversion to an adult use market represents the largest near-term opportunity for Trulieve and the industry. Trulieve remains the clear market leader with 21% of stores in Florida selling over 135% more flower than the state average. Given our ability to ramp idle capacity and fund additional investment, we plan to build upon our leading position launch in May 2025. Turning to retail, we've added four new locations in Florida year-to-date including our second pickup express store. We will continue to expand our retail network this year to serve the growing medical market as we prepare for future adult use sales. Moving on to other state catalysts. The launch of adult use sales in Ohio is expected to commence this year. Trulieve operates one medical dispensary today in Columbus and expects to receive an additional license for development. Pending completion and final regulatory approval of the settlement with Harvest of Ohio, we expect to acquire additional operational dispensaries and licenses. We'll provide additional details as appropriate. We look forward to converting another market in the Northeast to serve adult use customers. In neighboring Pennsylvania, momentum continues to build for bipartisan adult use legislation. Companion bills have been introduced in the House and the Senate and several committee hearings have been conducted. We are encouraged by the level of discourse and thoughtful consideration by lawmakers. We will continue to monitor progress and will be prepared to serve adult use customers when permissible. Trulieve currently operates 20 affiliated retail locations and three grower processor sites. We plan to open an additional dispensary this year. In summary, the team has done a phenomenal job carrying forward the momentum from last year while driving outperformance across the core business. With that, I'd like to turn the call over to our CFO, Wes Getman. Please go ahead.
Wes Getman: Thank you, Kim, and good morning everyone. First quarter revenue was 298 million an improvement of 4% sequentially and year-over-year, driven by continued strength across our retail platform. First quarter GAAP gross profit was $174 million with 58% margin, representing a 5% improvement sequentially. Gross margin will continue to fluctuate quarter-to-quarter depending on product and market mix, inventory sell through, promotional activity, and idle capacity costs. SG&A expenses in the first quarter were $101 million or 34% of revenue, holding steady on a percentage basis compared to the fourth quarter. First quarter net loss was $23 million compared to a net loss of $33 million in the fourth quarter, representing an improvement of 31% sequentially and 64% year-over-year. First quarter loss per share was $0.17 compared to a loss of $0.18 in the fourth quarter. Excluding nonrecurring charges, first quarter loss per share would have been $0.05 compared to $0.12 in the fourth quarter. First quarter adjusted EBITDA improved by $18 million to $106 million with 36% margin. First quarter adjusted EBITDA margin reflects higher revenue and gross margin, as well as continued operating expenses. Turning now to our balance sheet and tax strategy, we ended the quarter with $327 million in cash and $482 million in debt. As a reminder, Trulieve adopted a tax position challenging the applicability of 280E to our business last year, filing amended returns for the tax years 2019 through 2021. To date, we have received refund checks for these amendments totaling $113 million including the previously disclosed $50 million this quarter. For 2022, we filed as a normal way corporate taxpayer, resulting in overpayment claims of $148 million. Final resolution to our approach may ultimately take years to conclude. If rescheduling of cannabis to Schedule III occurs this year, the 280E tax burden would be removed, effectively capping the downside risk to our tax challenge. In the interim, we continue to accrue an uncertain tax position on our balance sheet, while realizing lower cash tax payments. Notably, we would have realized positive net income for the first quarter if rescheduling was in effect and the incremental impact of 280E was removed. First quarter cash flow from operations totaled $139 million inclusive of $50 million in cash tax refunds from our amended returns. Capital expenditures were $16 million with free cash flow of $124 million. Turning now to our outlook, based upon the visibility that we have today, we anticipate second quarter revenue will be flat to down low-single-digits. Strong 4:20 results and continued momentum across our retail are contributors to replicating the top-line performance in the first quarter, balanced by historical seasonal trends, specifically in Arizona, and the initial impact of deferred revenue from the rollout of our refreshed loyalty program in our remaining markets. We anticipate gross margins will be at least in the mid-50s for the remainder of the year. Full year targets are unchanged with at least $225 million cash flow from operations and capital expenditures of $70 million. We are on track to open at least 25 stores this year. We may refresh our forecast later this year depending on the timing and progress for industry catalysts including adult use in Florida, Ohio, and Pennsylvania. The team remains focused on executing to our plan. With that, I'll turn the call back over to Kim.
Kim Rivers: Thanks Wes. This is an incredibly exciting time for Trulieve and the industry. Our organization is the strongest is in the strongest position that we have been in recently. Just as our team is hitting its stride, several historic industry catalysts are on the near-term horizon. Looking at state catalysts, the opportunity set in Florida cannot be overstated. With favorable demographics and a business-friendly environment, we believe our home state could set an example for other markets, demonstrating how to implement dates for illicit market activity. Providing adults the option to consume responsibly while maintaining regulatory control over production, retail, and distribution strikes an appropriate balance, ultimately leading to increased state revenue and economic opportunity. We intend to remain out front in Florida, pushing for passage and commonsense implementation of Amendment 3. The $6 billion market opportunity in Florida is tremendous and we hope to see other operators continue to step up and actively support the campaign. Turning to other states. Ohio is poised to launch adult use sales this year following an affirmative vote last November. We estimate this market can reach $2 billion in annual sales. In Pennsylvania, efforts to enact bipartisan adult use legislation continue to gain momentum, bolstered by strong support from Governor Shapiro. We estimate the Pennsylvania market could reach approximately $4 billion in sales. While states continue to embrace adult use programs, lobbying efforts are ongoing in DC. Activity at the federal level remains high with continued progress on rescheduling to move cannabis to Schedule III and ongoing efforts to advance SAFER Banking legislation. We continue to believe that federal of cannabis would represent a watershed moment and could be the first domino to set off a series of major reforms. Voters across all demographics increasingly support some form of legalization and access to cannabis. We remain optimistic that the federal government will eventually catch up to evolving attitudes and address the growing divide between state and federal laws. We are marching toward a meaningful inflection point and Trulieve in the best position for the coming wave of growth catalysts with strong financial performance and significant scale in key markets, I wouldn't trade hands with anyone in the industry. Thank you for joining us today. And as I always say, onward and yes on three.
Christine Hersey: At this time, Kim Rivers and Wes Getman will be available to answer any questions. Operator, please open up the call for questions.
Operator: Thank you. We will now begin the question-and-answer session. [Operator Instructions] And today's first question comes from Luke Hannan with Canaccord Genuity. Please proceed.
Luke Hannan: Kim, maybe we'll start with just overall what you're seeing as far as trends in consumer behavior. You gave great color in your prepared remarks as far as what's going on from a basket and a traffic perspective. But I guess I'm more curious specifically when it comes to reactions to promos, what you're seeing exactly there and across the price spectrum as well when we think about good, better, best. What are the trends specifically when it comes to reaction to promos across the price spectrum?
Kim Rivers: Sure. So, as we mentioned in the prepared remarks, we were really pleased with consumer behavior in the first quarter. I think we said on the last quarter call that really this quarter, specifically, March behavior was going to be critical to performance. And consumer sentiment did continue to carry over from what we saw in Q4 into Q1. We certainly continue to also see responsiveness to promos that were focused on building basket, really targeted to drive increased AOT, along with frequency promos. So some win back promos or punch card promos also did exceptionally well in the quarter. So again, I think more carryover from what we saw in Q4, but of course with the backdrop in Q1 of lower overall promotional activity led to some of lower overall promotional activity led to some of the outstanding results that we saw in the quarter.
Luke Hannan: And then, when it comes to the gross margin performance as well, very, very strong. Can you help us think about what were the biggest factors in the quarter-on-quarter increase in gross margin? And realizing, of course, there's a lot at play when it comes to the balance of the year, your guidance allows for at least mid-50s gross margin for the balance of the year. But what would help you sustain the gross margin performance that you saw in Q1 for the balance of the year? What would need to go right there, I guess, in order to sustain that?
Kim Rivers: Sure. So, I mean, speaking to the quarter, of course, when you have revenue increases, it certainly helps support higher gross margin. And as we mentioned, Jefferson County is now firing on all cylinders and really that came in as a critical support point in the quarter. Additionally, we have a reduction in pressure from our inventory wind down efforts, again, specifically in Florida, which takes that pressure off of gross margin. And we've been signaling that those things are coming now for a while, and it's, again, continues to show up in the financials. And then, I would also kudos to the team for continuing our discipline and our targeted promotional strategy and that continues to show up in also in a meaningful way. And so, I think that those things will need to continue, and we believe that those will continue throughout the remainder of the year as support for gross margin. But I think also it's important to note that, look, there are fluctuations, of course, that happen from quarter to quarter. Again, as we mentioned, we have a couple of things happening in Q2 that will provide pressure to top-line. And as we mentioned, you've got seasonality that will begin to show up, particularly in Arizona, which we know is somewhat seasonal for us in the coming months, in the back part of Q2. And then in addition, specifically in Q2 for us, we've got our deferred revenue hit that we'll take for rolling out loyalty in Florida. We're super excited about that program. And again, the results that we've seen in markets that's deployed to date, specifically Arizona, Maryland, have been very positive. So, we know it's the right move for the long-term. But there will be pressure in the near-term in the quarter. And we estimate that to be 1%, 1.5%, something like that for both top-line and for gross margin in Q2.
Luke Hannan: Last one quick one and then I'll pass the line here. On that higher cost inventory in Florida, is that fully sold through at this point? Or is there still some to come for the balance of this year?
Kim Rivers: Yes. I mean, I'm not going to I don't have it in front of me in terms of if it's every single penny is sold through. As we've said, the majority the vast majority of that is out of the inventory at this point in time and has sold through. So, it would be a de minimis contribution at this point.
Operator: And the next question comes from Aaron Grey with Alliance Global Partners (NYSE:GLP). Please proceed.
Aaron Grey: First question for me, I just want to come off back a little bit of the last question in terms of the loyalty programs. You mentioned some tremendous performance, very positive Arizona, Maryland. Any type of KPIs or metrics you could provide in terms of maybe basket size increases there versus other markets, percentage of sales that you're seeing from members of the loyalty program, and how that's kind of trended versus what you were expecting in terms of any key metrics that you're watching?
Kim Rivers: Happy to give you some additional details on our loyalty results. And we'll just dig into Arizona, just because there's a larger customer base there. We saw frequency actually increase by approximately 50% for folks that have enrolled in that loyalty program versus folks who have not. Plus, we saw significant AOT increases. I think also importantly, particularly in markets where we have adult use programs, when we think about, right, the fact that a lot of those customers are buying anonymously. And so having this loyalty program has really increased our data capture rate, which allows us to then more specifically lean into our CDP and our personalization platform to bring those customers back to shop with us and to make sure that we're serving up promotions and serving up product launches, et cetera, to them that meet their particular preferences. So makes sense that the more data we can get and the more folks we can get to sign in to our loyalty platform, the better, of course, we'll have as it relates to frequency and AOT and all those other good metrics. And super proud of the Arizona team, we had loyalty in market for approximately 60 days in that market. And during that period of time, we had a 30% adoption rate into the loyalty program. And so that will be ultimately we feel a well game changer and in that market. And as we think about Florida and shift to adult use, again, really, important tool for us to have as we are able to talk to folks about signing up, and so that we can get them into our data platforms.
Aaron Grey: Second question for me on Florida and potential adult use market. Florida is a unique market as we see it, just given this one where there are somewhat size and scale and there's some level of barrier to entry given the capital requirements out there. So given you are the market leader today and particularly kind of the top four that control a strong position there. How do you feel the adult use market could be different than other ones we've seen to where you guys and others in the top four kind of leverage that scale to further entrench yourself, whereas in other markets, you've seen the initial market leaders have the market share leadership and then lose it over time, whereas now you might be able to leverage that skill to kind of maintain leadership for a longer duration. How do you potentially leverage that in an adult use scenario?
Kim Rivers: I mean, I think that first, let's talk about our platform today, right? I mean, we have 135 locations in Florida. And as I mentioned, millions of square feet of cultivation and production capacity. So, I think that there has not been another operator that I'm aware of anywhere in the country that has had that type of scale and significance in a market pre-conversion. And I think that the other closest was approximately 20 locations that would convert into adult use. So, the magnitude of what we're talking about as it relates to if it were to convert today and as we've said, we plan to have additional stores and capacity come online between now and launch. And secondly, I think that in all of my conversations with lawmakers, it is absolutely a goal to ensure that Florida is unique and that we there is a very specific desire to maintain the integrity, if you will, of Florida and of our program. And so, I don't believe that we're going to see a scenario where there's sort of the floodgates open, if you will, as it relates to the marketplace here in Florida, at least again based on conversations that I've had to date. I do think that there will be very strict regulatory control in the marketplace. I think that there will be likely product differentiation from medical versus adult use products. I think there will be a focus on maintaining the integrity of the medical program, which I also am a very big proponent of in the state of Florida, as we've got hundreds of thousands of people that rely on our products as part of their medication regime. So, I think that, again, a lot of that is yet to be seen and will happen post vote, but I think we're in an enviable position. I do think it's a very unique one, given where we're starting from.
Operator: Our next question comes from Frederick Smith with ATB Capital. Please proceed.
Unidentified Analyst: Just my first question is just on your loyalty program. Can you just provide a bit more clarity on the deferred revenue coming from that in terms of the cadence of that and how that gets recognized from an accounting standpoint?
Wes Getman: This is Wes. In the early days, obviously, there won't be redemptions that come through because people build a point of balance, details are out there on the state websites as far as how it all works. So, the program is fairly simplistic. Points are redeemed for cash rebates at the point of sale. So, in the early days of that program, we don't get kind of flow through on redemption of those points. So, we'd expect to see an uptick that's kind of outsized in the first six to eight months of that program. I'm not sure how much more color you'd like that, but that's the gist.
Unidentified Analyst: And then just second question, just on capital allocation. You have built a lot of cash in the balance sheet now. And just curious, how do you look at that cash? What are the options you are considering in terms of allocating debt? Would you consider buybacks? Would you look to repay some of your debt earlier? Would you do you have appetite for M&A and extensions to other markets? Just some clarity on your capital allocation strategy.
Kim Rivers: Yes. So, I mean, we love the fact that we've got optionality and given our capital on hand and believe that we want to see some additional clarity come through prior to making any concrete decisions. But certainly, as you've seen us, we are very proactive in terms of managing our debt position, right? Recently, we took some about $50 million off the table there at a discount. And so, we'll continue to monitor our options as it relates to the debt, but certainly intend to be very proactive and in the best position as possible when that debt becomes due and believe that we're building to, again, have that flexibility. In addition, as we said, we are excited about the opportunity here in Florida and want to make sure that we also have the capital necessary to be able to lean in as appropriate to that opportunity, as we think it's the single biggest play that we have in front of us. And then of course, there's other markets there too, right? I mean, Pennsylvania could absolutely go adult use. For Ohio, rather, we are anxiously awaiting the finalization of that settlement and regulatory approval there. So, there's lots for us to do, and we want to have the ability to make those moves when they come into focus for us.
Operator: The next question comes from Russell Stanley with Beacon Securities. Please proceed.
Russell Stanley: Just on Florida, congrats on JeffCo's performance. I'm just wondering last couple of quarters you've been bringing some legacy capacity back online. I'm just wondering how much remains idled and how you're thinking about pacing that back into the market given the improved odds on adult use?
Kim Rivers: Yes. So, as you noted, Russ, we do have idle capacity, and we have begun to bring that online to pace and really keep pace with demand. And as you know, throughout the country, really, our platform is built in a very modular fashion. And so, we're able to flex up and down as dictated by demand and also by trends that we see in the marketplace. So, we'll continue to do that in the state of Florida. We do have capacity, significant capacity that is currently offline that we certainly would be leaning into in advance of and kind of commensurate with adult use coming online. Again, that's capacity that's already built, and it's really just waiting for us to turn on. And we can turn on that capacity fairly quickly. So again, our ramp up period there is fairly minimal. And again, as a reminder, there is a six-month window from the day of the vote to the day of first sale.
Russell Stanley: And my second question also around Florida and the adult use campaign beyond the governor’s public comments. Just wondering, how strong or intensive competition or the opposition rather looks at this point, how it's lining up, especially given other items on the ballot this November?
Kim Rivers: First of all, there's a 60% threshold in Florida for any initiative. And so, regardless of the other side, we've always known that we're going to have to run a very intentional campaign that's going to have to be run well and run-in a very strategic way. Florida is a very diverse state, and it's a very big state, and it's also a very critical state as it relates to the national conversation. And our plans have not changed in the sense that we plan to run a hard, intentional, strategic campaign that speaks to all voters, both Republicans and Democrats, because as we know, this is a bipartisan issue. As it relates to the opposition, look, I mean, I think the governor has made it clear that he is not in favor of our amendment. And that being said, I think that it also is very clear that I think in terms of prioritization, I don't think that marijuana is the top amendment that he'll be focusing on. But again, regardless, we're excited about having the opportunity to be in front of voters and to be on the ballot and to be able to educate, the public on adult use cannabis and what it can look like and what it means for Floridians.
Operator: The next question comes from Gerald Pascarelli with Wedbush. Please proceed.
Gerald Pascarelli: Kim, on the Florida ballot initiatives, there's been some recent polls, the results haven't looked overly favorable and I understand that it's understand that it's still very early, and polling is likely to change as we get closer to the election. And on that point, when do you expect the bulk of advertising around this issue to step up this year? And I guess I ask that in the spirit of when we can establish a reasonable timeframe ahead of the election when we could start to better assess the veracity of this polling?
Kim Rivers: So, I don't believe everything you read. I would say this is going to get very noisy. That's what we said in the prepared remarks, right? There's going to be a lot of posturing and data points that are out there. Just a couple for you on the last round of polling. The two polls that you're referencing did not focus on registered voters. So, they had over 10% of people that responded to those polls that actually weren't even registered to vote. So, how you poll matters and your polling sources matter, but there are reasons that people put those polls out. It could be that the other side is attempting to drum up support or attempting to fundraise. So, I would just say at this point, certainly, I wouldn't overly emphasize polling, except for directionally. All of our internal data still points to the fact that we feel very comfortable and confident in our current position. Advertising will begin to ramp, but again, I would say the last 2.5 months of the campaign are really when things start to solidify. Right now, it's really about just trying to reinforce the base, if you will, and then it will move into trying to influence or sway the undecideds, which really will come into play in the last couple of months of the campaign. And that being said, I'm just someone who's been around Florida politics for a while now, and the 60% threshold is real. And so, this will likely be a conversation right up until the night of election. So again, it's that's just how it goes in Florida on and again, it's nearly every issue. On the medical side, just to give you an idea, that passed by the way overwhelmingly with over 70% approval rating, there were still mixed polling that was coming out and having it, being defeated weeks before, election night. So, we're all in this together is what I would say, and we'll continue to give you guys updates along the way, but it's likely going to come down to right before.
Gerald Pascarelli: Second question just a housekeeping question. If I heard your prepared remarks correctly, I think you said basket was down on 4:20 this year versus last year. Is there anything to read into that? I just asked that in the context that your basket was up in the quarter. So just trying to under, I understand it's a highly promotional day, so just trying to understand, if basket being down on 4:20 should be overly indicative of what we could expect for the broader second quarter.
Kim Rivers: Yes. I wouldn't read too much into that. And again, that was over a 14-day period. And so, because we're trying to compare, it's a little bit of apples to oranges a bit because of this win for 2012 year-over-year and then the series or sequencing of promotions, which also depends somewhat on mix and how we're running bundles. So, we tended to, in this period, really lean into because we're also doing a lot of testing around consumer behavior as it relates to basket building and bundles. And so, some of this was a little bit of a test and learn period for us this quarter as well. And I wouldn't really read into that. And again, we were very enthusiastic about the fact that traffic was up significantly, which was the goal for our team for this 4:20 period.
Operator: The next question comes from Eric Des Lauriers with Craig-Hallum Capital Group. Please proceed.
Eric Des Lauriers: So, a follow-up from one of the earlier questions on gross margin. Understood, outperformance is driven by, both price and cost improvements. You mentioned reduced promotion and then improved capacity utilization. Just wondering, if you could comment on which had a greater impact this quarter pricing or costs?
Kim Rivers: Eric, I mean, again, we're giving you the outline in terms of what impacted gross margin. I'm not going to do a walk for you in terms of where what the ordering of magnitude. Again, I mean, I think that for us being really excited about the fact that a number of those things came together and really coalesced. And I mean, to be fair, right, a lot of those feed off of one another as well. And so, again, I think we were pretty trying to be pretty straightforward around what was contributing to performance and gross margin. And I will say, again, the JeffCo performance really continues to be very, very solid. I think that we're approaching kind of full utilization, if you will, on JeffCo and kind of, I think, coalescing around sort of steady state productivity there. And again, I think it's been just leaning into any of the other variables that we're able to continue to control.
Eric Des Lauriers: Actually, kind of leads into my next question. You mentioned the full utilization of JeffCo. I was going to ask if you see room for further improvement on yields and quality. In JeffCo, it sounds like just based on that comment there, we're perhaps sort of expecting to maintain these yields and qualities going forward. So just a clarification there and then in terms of the legacy production facilities in Florida beyond Jefferson County. How have yields and qualities trended there? Should we think of these as sort of consistent with their historical average? Or have there been overall operational improvements that you've seen from yields and quality improvements outside of JeffCo as well?
Kim Rivers: Yes. So, I mean, again, JeffCo continues to be kind of our crown jewel as it relates to efficiency and really just the design of that building, coupled with the team's ability to really have incredible talent as it relates to placing genetics that have that really like the environmental specific controls that we have in that footprint. And what's great about our platform is that, again, we do have some variability. And so, there are certain genetics that perform fantastic in JeffCo that maybe didn't historically perform great in our other growth heights and vice versa. And so, what we're able to do and what the team has been focused on is really matching genetic profiles to environments and to building styles and really dialing that in. So, we're going to continue to focus on incremental improvement across the entire platform. We always have and we always will. It's part of our DNA.
Operator: Our next question comes from Scott Fortune with Roth Capital. Please proceed.
Scott Fortune: I just wanted to follow up on the capital markets here. Obviously, you have a strong cash position, but just an update there, obviously, with rescheduling coming through, but that does not necessarily open up the exchanges. But Kim, any additional color on new discussions with the exchanges and thoughts around capital markets looking for kind of additional safe harbor language or an attorney general memo? And then a follow-up to that kind of discussions with lenders and the potential pending and rescheduling here and lowering the cost of capital, just kind of thoughts or discussions around those two topics.
Kim Rivers: Sure. So, we're in we've got a good relationship and certainly are in communication with the exchanges. I think look, I think there's a desire to list cannabis companies, but I think they've got compliance departments and legal departments. And until there is either broader federal reform or specific safe harbor language included in or coming out of Congress, and I think they're not able, right, to currently at least accept cannabis companies. As it relates to SAFER Banking and again rescheduling, I think both of those things continue to be optimistic about both of them. I do believe that rescheduling is underway, and we're going to enter into the proposed rulemaking period here soon and then there'll be a public comment period, et cetera. And so, we are certainly hopeful that that could wrap this year, and certainly would be exciting for us to have clarity as it relates to 280 relief for calendar year 2024. So, I don't think anything really kind of earth shattering to report on the capital market posture, although, again, I think each incremental step gets us again one step closer.
Operator: The next question is from Andrew Semple with Echelon Capital Markets. Please proceed.
Andrew Semple: I just want to go back, first of all, to the balance sheet strategy and just maybe ask a clarifying question there. Obviously, great to see over $300 million of cash on the books, that gives you a lot of flexibility. But just around the strategy of that, are you planning to hold that sizable cash balance on the books while you're waiting for a definitive outcome on the 280E tax situation? Or are you viewing that available as available for deployment in the business or potentially to return capital to debtor shareholders?
Kim Rivers: No. So, we are not holding the question is, are we holding kind of a reserve or restricted reserve as it relates to 280E? The answer to that is, no, we are not. And it is reflected, of course, in the financials, as Wes went over in his prepared remarks in the uncertain tax position. But we are not looking at that as restricted capital. We are looking at, again, as I said before, in terms of having optionality in terms of where to appropriately invest that capital. And of course, those include debt repayment alongside investing in the business ahead of catalyst.
Andrew Semple: And maybe as we look as we model this out a few years and the significant cash flow Trulieve is now generating. There's not an active share repurchase program in place. Some notably, one of your peers has gone ahead with that. Is that something that Trulieve team would evaluate if you continue to build cash? And just given the CapEx outlook seems to be at a more moderated pace than in prior years.
Kim Rivers: I mean, it is it's something that, the board has discussed and will discuss in the future. I mean, I think it should be noted that we have made meaningful contributions to the campaign here in Florida. It would be great if those other operators could also, contribute in a more meaningful way to the catalysts that are ahead that will help us all continue to generate that great cash balance. And so, we've got some pretty big moves ahead of us in the coming months. We want to make sure that we can get through and but absolutely, look as the largest shareholder of this company and absolutely making sure that we continue to have the best interest of shareholders in mind with our investment decision remains top priority.
Operator: And the next question comes from Mike Regan with Excelsior Equities. Please proceed.
Mike Regan: In terms of the taxes, is there any feedback or additional updates on I think you still have about $30 million of refunds that you filed that are still outstanding. Is there has there been any feedback from the IRS on receiving those or being denied those?
Wes Getman: Yes, there's really been no material update since we last talked to you guys about 60 days ago, as reflected in the Q1 financials in the remarks. Yes, really nothing to report on that front. Our position remains as it was, and we continue to monitor and be optimistic.
Mike Regan: And then in terms of the second question on the talking about basically the Florida, adding additional capacity, in Florida ahead of the adult use launch, if that happens, obviously, you have a lot of idle capacity there. So would you be is that just meaning turning on the idle capacity, or is that actually also adding additional capacity, I guess, what after the ballot actually passes, or would you actually start to build additional capacity ahead of the ballot passes passing?
Kim Rivers: Yes. So, again, I mean, I think we're in an enviable position and that we have, again, we have optionality, which is, I think, the word of the call. And so, we've got idle capacity that, no question, we'll be able to lean into and bring back online as needed. That being said, we, of course, will continue to look at what makes sense as it relates to investment. And we absolutely are committed to maintaining our leadership position in Florida with the opportunity of adult use.
Operator: And at this time, we are showing no further questionnaires in the queue. And this does conclude our question-and-answer session. I would now like to turn the conference back over to Christine Hersey for any closing remarks.
Christine Hersey: 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.
Operator: The conference is now concluded. Thank you for attending today's presentation and you may now disconnect.
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