Earnings Call: Q1 2019

May 29, 2019

Earnings release

Good day, ladies and gentlemen, and welcome to Trulieve Cannabis Corporation First Quarter 2019 Financial Results Conference Call. My name is Jacqueline, 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, Ms. Lynn Ritchie, Director of Investor Relations for Trulieve. You may begin. Thanks, Jacqueline. Good morning, ladies and gentlemen, and thank you for joining us today to discuss financial results and corporate highlights for Trulieve Cannabis Corporation's Q1 of 2019. With me today are Kim Rivers, Chief Executive Officer and Mohan Srinivasan, Chief Financial Officer. Following our prepared remarks, we will open the call to questions. Before we get started, I would like to note that today's call is being recorded for the benefit of investors, individual shareholders, the media and other interested parties. Please remember that our discussion today may include forward looking statements that involve a number of risks, uncertainties and other factors that could cause actual results to differ materially from those forward looking statements. Certain material factors and assumptions were considered and applied in making forward looking statements. These risk factors are included in our MD and A for the quarter ended March 31, 2019 and in the earnings press release that we furnished in connection with today's call under the heading Forward Looking Statements. The forward looking statements made on this call speak only as of today and assume no obligation to update any of this forward looking information. Also, our prepared remarks this morning reference non IFRS financial measures in order to provide greater transparency regarding Trulieve. Any non IFRS financial measures presented should not be considered an alternative to financial measures required by IFRS and are unlikely to be comparable to non IFRS financial measures provided by other companies. Any non IFRS financial measure referenced on this call are reconciled to the most directly comparable IFRS measures in the company's MD and A for the quarter ended March 31, 2019, as well in the tables at the end of our earnings press release. We believe that our profitability and performance is further demonstrated using these non IFRS metrics. Please note that all dollar references are to U. S. Dollars. Last evening, we reported results for the Q1 2019. A copy of our news release, financial statements and MD and A may be accessed through the Investor Relations section of our website, trulieve.com, and were also filed on SEDAR. In addition, a webcast of today's conference call will be available on our website. Now, I will turn this call over to our CEO, Kim Rivers. Thanks, Lynn, and good morning, everyone. Thank you for joining us. I'll start today with a brief recap of the Q1 and then provide a business update, including our continued expansion and growth activities. Following my remarks, Mohan will discuss our Q1 financial results and updated guidance, and we will then open the call for questions. As a reminder, on our year end earnings call last month, we reaffirmed the 2019 guidance. Given recent developments regarding our settlement with the state Florida for an additional 14 dispensaries, the approval of Smokable Flower in Florida and expansion plans that have unfolded since going public, we announced that we would be adjusting our full year guidance. We are excited to share that information with you later in this call. Mohan will cover our updated guidance for 2019 as well as the preliminary extended outlook for 2020. I am very pleased with our Q1 results. This morning, we released strong results for Q1 with revenues of $44,500,000 and adjusted EBITDA of $19,000,000 Q1 was another record revenue producing quarter for us and a great start to the year, and we are looking forward to our Q2 performance. We believe our continued revenue growth and profitability reflects our branding strategy being well received in the marketplace, the execution of our strategic initiatives, the importance we place on financial discipline and our focus on each and every customer. I would like to outline our operations on a state by state basis. First, I'll cover Florida. Trulieve strongly believes in investing in overall customer experience and patient awareness. Some of the ways we achieve this is by actively investing in patient education and outreach programs as well as our patient care and call center, which interacts directly with the company's growing base of customers. Our investment has yielded significant results with the Trulip patient base increasing to 146,000 252 customers at the end of the Q1. As we previously disclosed, we entered into a settlement agreement with the state of Florida, which allows Trulieve to open 14 additional dispensaries on top of the current 35 statewide cap, currently allowing us a total of 49 dispensaries. Coupled with our rapid growth in Florida, the increased dispensary allowance gives us a competitive advantage. It is also important to note that the additional 14 locations are not subject to regional caps for dispensary locations, which allows us to selectively explore and plan where we want to broaden our footprint. As of this call, we are happy to report 28 stores open in Florida. Approval of Smokable Flower in the state of Florida was granted in March 2019 and Trulieve executed the first sale of Smokable Flower in the state in Tallahassee. Since legislative and regulatory approval was received, the number of new patients added to the registry in Florida has increased from approximately 2,000 patients to over 3,000 patients per week. We have dedicated a large portion of our crop capacity to various strains of flower and continue to increase our cultivation capabilities in anticipation of greater demand. Flower sales are nearly 30% of our sales today. As new patients continue to come on board due to access to medical flower and previous patients adjust their recommendations, the percentage of flower sales will likely only increase. To that end, Trulieve increased cultivation square footage in Florida by 123,558 square feet during the Q1, bringing the total to 638,008 square feet at the end of the quarter. At this level, cultivation square footage represented an annual biomass capacity of 29,235 kilograms. Currently, our cultivation square footage is 686,008 square feet and our annual biomass capacity is 34,950 kilograms. The Q1 of 2019 was our 1st full quarter operating in our GMP certified state of the art processing facility, which increased our production capacity significantly and is key to support our growth trajectory. The new processing facility has us well positioned to build on the brand partners we discussed on our last call. Our facilities produce the best quality products and are designed to strengthen our brand recognition and scale to our anticipated product offerings. As part of our 3 tier brand approach that defines and differentiates our Truly's customer experience from the competition, we've established partnerships with customer favorite brands to bring new product offerings to the market, including Bang, Binsc, Loves Oven, Slang and Blue River, along with our local Sunshine Cannabis brand. This month, we successfully launched the first Blue River product on our shelves to incredible patient demand. To ensure proper brand placement, we recently completed a merchandising refresh for an enhanced shopping experience. This refresh will not only allow patients to more easily shop through our extensive variety of products, but will also seamlessly integrate brand partnerships onto our shelves. Trulieve's house of brands is comprised of over 195 SKUs available to our customers with multiple concentration ratios and strains. Trulieve continues to innovate, and we are thrilled to have launched our exciting new nanoemulsion product line last week. This technology will increase bioavailability with reduced onset and is truly a game changer across our Truly branded products. We are also ready and eager to enter the edible space in Florida as soon as the Department of Health releases corresponding rules. This will be an important new area and we are looking forward to launching our own truly branded products plus well known and luxury brand offerings from our partners. ArcView Market Research and BDS Analytics have forecasted cannabis edibles to be a $4,100,000,000 market in the U. S. And Canada by 2022. We are making great strides in maintaining our 1st mover lead in Florida and staying competitive through our programs, partnerships and innovative products that I just laid out. Our growing patient numbers in Florida and brand loyalty translates into our strong market share. In the Q1, we were dispensing over 60% of all milligrams sold in the state and we intend to maintain that lead through future expansion. Florida is an attractive state for cannabis and multiple competitors were entering the market. However, with our loyal following of true levers and market leading infrastructure, we will be able to competitively scale quality products, production and successfully deliver the customer experience our true leavers have come to count on. In addition to our expansion in Florida, we are making positive headway with our multistate operator strategy. We are achieving the strategic vision by leveraging our operational expertise and financial discipline to grow our business. Turning to California. We continue the regulatory approval process to acquire the remaining 20% ownership in our California company, Leaf Industries. We anticipate completion of that process in the next few weeks. We also continue to explore expansion opportunities in the massive California market. Moving now to Massachusetts. As we have been saying, we are primarily focused on expansion in the Northeast and Massachusetts was a prime target for us. Q1 was a quarter of execution and focus in Massachusetts, and we're happy to report that we anticipate beginning construction on our grow and production facility in Holyoke, Massachusetts in the coming weeks. This location is a former textile mill along the Connecticut River and the local government is extremely excited about our bringing jobs and life to what is now an economically depressed area. The facility in Holyoke will provide us approximately 126,000 square feet of indoor cultivation as well as an additional 20,000 square feet of processing and product manufacturing space to serve both the medical and adult East markets in Massachusetts. Triliev already holds a provisional license for medical cannabis cultivation and product manufacturing at this site. Once the Cannabis Control Commission approves our architectural and security plans, we will begin construction. We will submit applications to the Cannabis Control Commission for adult use cultivation and product manufacturing permits in the coming days. Given the strong wholesale pricing in Massachusetts, our goal is to have fully functional cultivation facilities in Holyoke by early 2020. We will bring the growth and production experience we have in our Florida facilities and replicate that in Massachusetts. We also have a goal of opening a retail location in Massachusetts in early 2020. This will hinge on the speed with which we can obtain all necessary regulatory approvals in Massachusetts' backlog licensing process, which we are diligently pursuing. In addition to our efforts to open 3 adult youth retail and 3 medical marijuana retail locations, which is the maximum allowed by Massachusetts Law, we are also actively fostering relationships with what Massachusetts calls economic empowerment license applicants. In these arrangements, Trulieve will serve as an accelerator to help these applicants achieve success while providing a predictable wholesale outlet for Trulieve products in strategic retail locations. We have assisted with license applications for 2 such firms, one of which is 100% minority owned and the other which is women owned. As a recipient of the 2018 Diversity and Inclusion Champion of the Year Award for minorities for medical marijuana, we are pleased to support this Massachusetts initiative that will serve to create positive change and progress for our industry. Continuing with our Northeast expansion plan, we recently announced the acquisition of the Healing Corner Inc, a medical marijuana dispensary located in Bristol, Connecticut. Connecticut is an important market for us and there are more than 34,000 patients and nearly 1100 consulting physicians enrolled in the state. The Healing Corner holds 1 of 9 dispensary locations in Connecticut and has captured a 16% market share. We are pleased that all existing staff members will remain post closing. The Healing Corner has a similar culture to Trulieve and staff retention will help ensure this continues. The Healing Corner also shares our philosophy of growing a business profitably and has generated consistent profits. The acquisition was based on trailing EBITDA and we anticipate it will be accretive. In summary, we are executing on our vision for expansion in 2019 while maintaining our market dominance in our home state of Florida. I'll now turn the call over to Mohan to discuss our Q1 financial results and updated guidance. Mohan? Thank you, Kim, and good morning, everybody. I'll now proceed with the review of the Q1 ended March 31, 2019. Trulieve experienced significant growth in the Q1, achieving record revenues of $44,500,000 which represents a sequential quarter over quarter increase of 24% and 192% increase over the same quarter last year. This increase was primarily driven by 4 new store openings in the Q1 as well as increases from existing stores reflecting both organic and geographic growth. Flower sales were not a significant source of the increase as such sales were allowed only in final 2 full weeks of Q1. Taking into account the net change in the fair value of the biological assets required under IFRS accounting standards, for the Q1, the company had operating income of $26,800,000 and net income of $14,700,000 As a percentage of income before depreciation, before the provision for income taxes, our effective tax rate is 42% for the 3 months ended March 31, 2019. Our adjusted EBITDA in the Q1 of 2019 was $19,000,000 or 43 percent of revenue compared to an adjusted EBITDA of $6,100,000 or 40% of revenue in the same period last year. As we mentioned on our previous calls, we believe adjusted EBITDA, a non IFRS measure, provides valuable insight into our profitability and performance. Adjusted EBITDA excludes from net income as reported, interest, tax, depreciation, non cash expenses, RTO expenses, other income, growing costs related to unsold inventory and the non cash effects of accounting for biological assets. We reported adjusted EBITDA to help the investors assess the operating performance of our business. Turning now to stores. We had a total of 26 stores operating at the end of the Q1. For the 13 locations opened in both Q1 2019 and Q1 2018, same store sales increased by 87%. The 17 stores opened for the entire Q4 of 2018 as well as the Q1 of 2019 showed a quarter over quarter increase in sales of 12%. There have been and will continue to be significant increases to our cultivation facilities as we continue our growth in Florida. At the end of Q1, we had cultivation capacity of 638,008 square feet. We opened the year with annual cultivation capacity of 19,429 kilograms and have since added 9,806 kilograms of capacity in the Q1. Currently, we have 686,008 square feet and we have ongoing construction of additional space to be completed in the Q2 of 2019. Our current annual cultivation capacity of 34,956 kilogram offers us the ability to keep pace with our expected store and patient growth. Turning now to retail, sales and marketing expenses. These costs are largely dispensary related costs and in the Q1 amounted to $9,800,000 or 22 percent of revenue compared to 4,000,000 or 26 percent of revenue for the same period last year. This expense category was primarily due to expenses related to additional stores we opened in the Q1 and charges related to preparing for new store openings in the Q2 of 2019. The reduction in expenses as a percent of revenue reflects growth in revenue and the successful execution of leveraging our investment dollars as we rapidly expand. Our investments in sales and marketing is consistent with the company's efforts to establish strong brand recognition and is essential to the company's successful ongoing customer acquisition strategy. G and A expenses reflect growth in staff levels, talent mix and increased infrastructure costs related to operating as a public company. For the Q1, G and A was $2,100,000 or 5 percent of revenue, which is in line with $700,000 G and A expense for the same from the same quarter last year. Other non cash expenses include depreciation and amortization totaling $1,500,000 in the quarter ended March 31, 2019 compared to $200,000 for the same period last year. We will now turn our attention to the balance sheet and cash flow. At March 31, 2019, the company's cash balance was $20,600,000 down from $24,400,000 at December 31, 2018. We used $1,200,000 for financing activities and $13,000,000 for investing activities related to the expansion of our stores, cultivation and processing facilities. Our biological assets totaled $34,300,000 at the end of the quarter, up from $29,600,000 at the end of fiscal 2018. And now for guidance. As Kim mentioned earlier, based on the exciting changes regarding Smokable Flower and our settlement with the State of Florida to have 14 dispensary locations, our expansion plans and the recent acquisition of the Healing Corner, we are reforecasting our estimates for fiscal year 2019 and offering a 2020 outlook. For the full year 2019, we expect revenues in the range of $220,000,000 to $240,000,000 As previously disclosed, full year 2019 revenue growth guidance includes an expected increase in the number of dispensaries in Florida as well as increased patient growth in the state due to the onboarding of Smokable Flower. This is based on our current store footprint in Florida, plus expected new store openings as part of the cap and the additional 14 store approvals for our Palm Springs location and our Connecticut acquisition. This guidance does not contemplate Massachusetts generating revenues in 2019. Based on this revenue range, we anticipate adjusted EBITDA of approximately $95,000,000 to $105,000,000 or a range of 43% to 44% of revenue, reflecting our continued leverage of scale and financial discipline. Additionally, we have also revised our extended outlook for 2020. Guidance for 2020 incorporates our expansion into Massachusetts as well as continued growth in Florida, Connecticut and California. Based on these markets, current regulations and foreseeable store growth, we estimate 2020 revenues in the range of 3.80 $1,000,000 to $400,000,000 generating $140,000,000 to $160,000,000 in adjusted EBITDA. I'll now hand this over to Kim to say a few more words on the updated guidance and closing remarks. Kim? Thanks, Mohan. We are happy to be able to update you on not only 2019 guidance as promised, but a longer term view into 2020. I want to add just a little more color on this guidance and the market assumptions made in contemplating our anticipated revenue and EBITDA. As Mohan mentioned, several factors played into our restating 2019 2020 guidance. Fundamental changes are happening in the industry and we are moving into new markets. These are exciting times. And in true Trulieve fashion, when contemplating the 2019 2020 outlook, we took a methodical and disciplined approach. Our guidance took into account assumptions on new Florida stores, ramping cultivation and production ahead of demand and anticipated patient and doctor growth. Historical data and our expertise were layered on the forecasting build and we feel we can continue to expand at an accelerated rate through the second half of the year in 2020. We are comfortable with these projections, our strategy and the team to help us achieve these goals. In closing, I just want to reiterate, we believe the financial results discussed today reflect Trulieve's great strategic initiatives turning into strong financial performance. Our efforts continue to be laser focused on delivering a true customer centered brand experience while building a national company based on profitable growth. 2019 is an exciting year for us across the board and we look forward to sharing more on our progress as we continue throughout the year. We will now open the line for questions. Operator? Thank you. Your first question comes from Robert Fagan from GMP Securities. Your line is open. Hey, thanks for taking my questions guys. Congrats on a really great quarter and for that great visibility with the guidance update. I guess my questions are probably going to focus on that guidance and on maybe 1st on the 2019 outlook. Maybe if you guys can just give us a bit of indication what give you the confidence to go ahead and update that now? And I'm guessing that as you might have suggested, Kim, is in light of the good traction for Smokable Flower. Maybe you can give any more color on the impact you're seeing and maybe what you think the market impact can be not only for yourselves but overall? Sure. Thanks, Rob. So as we RTO public offering. Since September, of course, a number of developments have occurred. Focusing, of course, in Florida since that is primarily where the 2019 revenue is generated. Certainly, we've been looking at the trend lines related to smokeable flower as it affects not only of course the product mix, but maybe more importantly the patient on boarding rate. And so in looking at the 6 week trend, we have gotten comfortable with increasing the patient onboard rate from approximately 1500 to 2000 patients per week to we're seeing a trend line somewhere up around the 3,000 patients per week. Keeping in line of course with the fact that the market is increasing, we also have to do a double check though against doctor activity, because as we all know, it is a requirement in Florida for a patient to physically see a physician to get their medical card. And it also is a requirement for patients see a physician every year to renew their medical card. So part of our analysis also looked at the number of recommending physicians, the rate at which that was increasing and quite frankly any potential bottlenecks that may have on the patient growth moving forward. So we did take a look at the growing market. I think it is important to note we did factor into our guidance for 2019 even though we have remained at above 60% of the milligrams dispensed, we did put a trend line down to 50% market share in 20 19 and down to 40% market share in 2020 just out of sensitivity to the fact that we do recognize of course that competition is coming online in Florida, although we will continue to fight extremely hard and be focused on maintaining more than our fair share of the market in Florida. Other maybe high level facts to take into account in the guidance, we are looking at onboarding by the end of 2019 44 stores in Florida. We have all of those stores located. They are in progress. It will be a very busy Q3 and Q4 for us with respect to store openings. And I think that those are the high level assumptions. One other thing I'll mention edibles is not included in this guidance because we're unsure of at this point of when that will come online from the Department of Health. Okay, great. That's very good additional color. I guess just shifting on to the 2020 guidance. I think that's a great outlook. Also, you guys being one of the only companies that to kind of provide a long term outlook instills confidence. But can you kind of maybe rank the contribution from your 4 states in that outlook? And I guess if there's anything that's also not included maybe in addition to edibles in the 2020 guidance? Sure. So in 2020, of course, Florida continues to be the lion's share of the guidance, which we feel at this point very confident in our ability to model out. Next would be Massachusetts. Important to note in Massachusetts is there is a mix of retail and again the vertical model and also wholesale. As I mentioned on the call, we will have our cultivation facility coming online and there is a very robust wholesale market in Massachusetts. So we'll have the ability to have those revenue streams in that Massachusetts market. And then for Connecticut and California, those were very much based on historical performance, financial performance. We have historicals on both, of course, Connecticut and California, and those were just simply projected forward. It does not include any M and A activity in any of these markets nor does it include any regulatory changes in any of these markets. So in Connecticut, for example, if that market does go adult use or recreational, that would not be contemplated in the outlook given today. Okay, great. That's quite helpful. And I noticed Mohan had mentioned in his remarks that you guys were kind of updating your 2020 guidance. Can you just remind us what your previous 2020 outlook had been? Sure. So previously, in our deck in 2020, we had guidance of on the revenue side of 290 $700,000 and EBITDA was $126,700,000 or $126,700,000 Great, great. And not to take too much of your time, but I just thought I would slip one more in. And in the Connecticut acquisition, it seems like a nice market to be in, particularly with the optionality of recreational market happening there. Can you give us just a bit more of the strategic rationale around that market? I guess just in the context that right now there is, I believe, no vertical integration allowed, but given that's been your kind of preference for operating is there kind of an outlook that you see there that is that may be different from what's on the ground today? Again, we have been focused on the Northeast and building a hub of activity in our footprint in the Northeast. And Connecticut, of course, strategically from a geographic standpoint, fit within that goal. Additionally, we look at every M and A opportunity on an opportunity by opportunity basis. The Healing Corner, we're extremely proud to be in partnership with them. They share our fundamental core values on really focusing on the patient there. It is of course very strictly regulated medical market currently with high and they certainly have very high customer retention, which again having that built in customer loyalty and focused on that customer interaction is something that we certainly value at Trulieve. In addition, just a strong historical performance of again profitability. And so we were very much aligned and looked at that acquisition as a great entry point into that market and for us to be well postured and positioned for the current business, but then additionally if and when that market does expand. Great. Thanks so much guys and congrats on a good quarter again. Thank you, Rob. Thank you. Your next question comes from Matt Bottomley from Canaccord Genuity. Your line is open. Good morning, Kim and Mohan. Great quarter and appreciate the level of granularity you guys are giving on the guidance. Just one more quick follow-up on that guided number, particularly in 2020, you've obviously given the ordering of each market. In the Massachusetts side of thing, is there any period of time within 2020 that you're expecting to sort of have a ramped up recreational penetration, whether it's 1, 2, 3 locations in Massachusetts to support your revenue or is it more of a sort of weighted average of what you expect happen in 2020? Just wondering if there's a material assumption in there as to when your operations will be up and running in Massachusetts? No, thanks, Matt. At this point, it is a bit of a blend in Massachusetts with again us having the ability to supplement that vertical retail with a very robust and strong wholesale market there, which allows us some greater flexibility and, if you will assurances with respect to numbers in Massachusetts than we would otherwise be able to provide. With that, I think it should note we should note that we are stepped in how we believe that Massachusetts will roll out from a retail standpoint. In other words, we by no means make an assumption that all of our retail locations will be open at a certain point early on in 2020, but rather that it will be a step rollout. As we all know, things in Massachusetts have been going a bit more slowly than folks had maybe anticipated. So we did take a rather, in our opinion, somewhat conservative approach with respect to when those retail locations will be coming online and then supplemented it with the ability to sell into a robust wholesale platform in Massachusetts as well. Great. And on Connecticut and California, so you noted you're basically taking a historical number and obviously factoring in growth for the 20 year. Is that just the 2 retail locations between those two states that's included in the numbers? Yes, that's correct. Great. Okay. Next, just moving on to the flower in the Florida market. So, just looking at the more granular data that the state health department puts out there, you guys still, I guess, we're 2 months into the next quarter here, still have around that 60% market share without factoring in flower. You noted that flower is about 30% of your sales, I guess net currently. Do you have any indication on how that is relative to your peers? I guess, that's more of a function of what capacity is out there and who's been ready. But do you have any indication if you're over performing or underperforming what other operators are selling with respect to flower? Unfortunately, as noted, I think on the previous call, we don't have any state level data around flower dispensations. Unfortunately, we are hoping that that will change once the state updates the registry system, which is the function by which we get that those data points. But as of right now, unfortunately, Matt, we don't have any I can just give you anecdotally the fact that we have a very, very strong demand for flower. I think that we will continue to see flower sales as a percentage mix increase is our what we are anticipating. But visavis competitors, the only other data point I could give you is that based on menus and available product guides, we continue to have the largest selection in the flower category as well as the additional other oil categories. Great. And then maybe quickly just on the edible side of things. I know you have that strategic partnership with Bang. I'm sure you have your own in house stuff as well. Are you allowed to be doing anything in the background right now? I'm sure you're doing a lot of testing in R and D and formulation, but are you allowed to inventory product or what can you do to prep if all of a sudden the state opens the gate in a month or 2 or whatever it is? Sure. So, obviously, we have the kitchen that's been completely built out, equipment on-site. We've been working with our partners to make sure that we have any all of their SOPs, formulations. We've got personnel. They've undergone training. But to your specific point, no, it is specifically prohibited for us to be infusing an inventorying product ahead of state approval. So we cannot we can't do that. We have to have the actual facility inspected and cleared, which we aren't able to have them to for that to happen until we have the final rule. Great. And just last for me, you guys have previously guided to being into 6 states by the end of the year and currently in 4. I know you mentioned the Northeast, this might be a bit of a loaded question, but are you guys closer to knowing exactly what states you think you want to be in for those 2? And I just want to confirm that there's no update to that number as of today. There is no update to that number as of today. And we will let you know as soon as we are able to give any update on that front. Understood. Your next question comes from Russell Stanley from Beacon Securities. Your line is open. Good morning and congrats on the quarter and the guidance as well. Thanks, Brad. Just on I'll start, I guess, with Smogu products and apologize if I missed it, but just in terms of the uptick you're seeing, I guess, two questions. Can you provide some color, I guess, is it are you seeing that from existing patients or is this a new patient category? And I guess I'm looking for color on any sort of demographic trends you're seeing there. And secondly, are you seeing any cannibalization, I guess, potentially with respect to the pod product that you were out with before? Sure. No, that's a great question. So we are seeing it's a mix of current patients that have gone and gotten their smokeable recommendation. Again, as I think it's important to note, I think it demonstrates the strong trend for this product segment. Existing patients would need to go back to their physician and get an additional recommendation specific to the allowance of smokeable products. So we are we have seen that. And so it has been a mix of new entrants into the market as well as which is demonstrated of course by the additional patient numbers that are published on a week over week basis. And then in addition to that we have seen existing patients that are going back and going through the steps to get their the smokeable product added to their recommendation who are then purchasing. So it is a bit of a mixed bag. In terms of demographics, it is it's interestingly at least for now it is widely it's a wide variation across demographics. We're not necessarily seeing specific trend line there to date. We'll see with time if that changes. With respect to cannibalization, we certainly have seen some decrease in our pod products. I will say that there is still a very strong following for the pods because for those folks who aren't or have not gone and gotten the smokeable recommendation that is still their only product option for whole plant cannabis products in the state of Florida. So it's not it's declined some and the theory there of course is that it's being replaced by the smokeable flower product, but it is certainly a product that we will continue to have on the shelves at least for the time being. Great. Thank you for that color. And just looking now at your dispensary build out plan, I think in a waste of a couple of your markets, you saw the local communities restrict or stop allowing additional dispensaries in their markets. Are you seeing any more of that kind of activity? And ultimately just asking, I guess, what kind of additional entry barriers might be being erected around your existing build out? So, I would say that we aren't necessarily seeing additional moratoriums being placed. We continue to see extensions of those moratoriums, and we have been very active and will continue to be very active on the local front in a lot of communities that are very important communities that may have existing with local community leaders and invite them into a store that we may have close by to demystify and destigmatize the dispensary experience in Florida. And we have been successful with a couple of those communities in opening those up, which of course we then have strategically identified real estate opportunities in those communities that we're able to take advantage of. So it's important to remember that even in communities where there is no say legal limitation on numbers or so forth, there are still practical challenges in that site has to 1 be zoned as a pharmacy 2, there are certain buffer requirements away from residential and churches, schools, etcetera. And then finally, and maybe important, we don't really talk about it much, but is the limitation that properties that have mortgages on them are often difficult just because of limitations that are in those leases related to federally illegal activities. So the local battle is still an important one and it is one that we feel that we've been successful in navigating. And again, the locations that we have mapped out are locations that are currently under our control and that we will be able to move forward with local government approval. That's great. That's all I had. Thanks for the color and congrats again on the quarter. Thank you, Rod. Appreciate it. Your next question comes from Neal Gilmer from Haywood Securities. Your line is open. Yes, good morning guys. A lot of my questions have been covered off obviously, but maybe just follow-up on one of the comments you made Kim in your prepared remarks with respect to the California market that you're sort of I can't remember the exact wording actively looking at other opportunities there. Are you looking any sort of color you can provide as far as sort of where on the value chain you're looking at? Looking for other dispensaries getting into cultivation or processing or anything like that? So there really isn't anything that I can share with you at this time. I mean, I think that we're still learning a lot in the California market and we are excited about moving forward with the repositioning of the current asset to gain greater visibility with how some of our strategies interplay with that market. And I think as I've noted previously that Palm Springs demographic is interesting to us because we have a nice cross section of the resident population there which mirrors Florida from a demographic standpoint in large part. But then we also get the festival traffic as Palm Springs is a hotbed of different festivals and activity that brings in a good cross section of recreational users as well. So we are continuing to look at California as our California assets now as that R and D and kind of window into that market. And as we learn more, we will be focusing on next steps in California. Okay. Thanks very much. Yes, I think that was all I had. The other guys sort of covered off the guidance and stuff. So thanks very much. Okay. Thank you. Your last question comes from Jason Sandberg from PI Financial. Your line is open. Hi, Kim. Thanks for taking my question. I wanted to find out if I get any insight into whether there's been any change in terms of the average age of your customer in Q1. I know you've been sort of in that 50 year old average age. I'm not sure whether smokeable flower has reduced that average age or if there's any trend that you can share with us? Sure. So Q1, just as a reminder, in Q1, smokeable flower was only online for the last 2 or so weeks. So there was no change in Q1 with respect to average age. It hovered right around 50. So for next quarter, I'll make sure we'll make a note that we will bring in the any sort of we'll just highlight with that if we see a difference in trend through Q2 on that data point, but no change in Q1. Okay, fair enough. As well, just on the guidance, I do very much appreciate providing the detail that you have. I did notice that the EBITDA margin in 2019 versus 2020 declined from sort of a low 40% to high 30%. And I want to caveat this, your EBITDA margins are fantastic and by far the best that I've seen in the U. S. Canada sector. So no criticism here, but just wanted to get your insight into why you see that EBITDA margin falling? Is that a price compression? Is that just expectation of ramping up operational expenses? Anything you can share would be great. Yes. No, great question and thanks for pointing that out. So as we certainly expand outside of Florida, right? Florida, we're able to certainly maintain margin through the entire supply chain and that in the strict vertical regulatory structure that we have in the state of Florida. As we go into other regulatory structures, we're required of course to flex to those opportunities. So in Massachusetts as an example, which I noted earlier, it's a mix of having that vertical chain with the stores that we are allowed to have and open under the Massachusetts regulatory scheme. But then supplementing that with a wholesale part of the model as well. And so with that and then certainly moving into Connecticut, which is included in the guidance as retail only, in California, you have different ability to perform on that EBITDA margin. And so we were we believe realistic with respect to what is achievable, but it's primarily driven by the regulatory structures that we'll find ourselves in as we move into those other markets. Okay, great. Thanks very much. There are no further questions at this time. Lynn Ritchie, I turn the call back over to you. Thank you everyone for joining us today. We look forward to speaking with you on our next quarterly call. Bye. This concludes today's conference call. You may now disconnect.