Earnings Call: Q3 2019

Nov 19, 2019

Earnings release

Good day, ladies and gentlemen, and welcome to the Trulieve Cannabis Corporation Third Quarter 2019 Financial Results Conference Call. My name is Julie, 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, Julie. Good morning, ladies and gentlemen, and thank you for joining us today to discuss financial results and corporate highlights for Trulieve Cannabis Corporation's Q3 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 discussions 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 September 30, 2019, and in the earnings press release that we furnished in connection with today's call. Statements made on this call speak only as of today and we 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 TruReid. Any non IFRS financial measures presented should not be considered an alternative to financial measures required by IFRS or unlikely to be comparable to non IFRS financial measures provided by other companies. Any non IFRS financial measures referenced on this call are reconciled to the most directly comparable IFRS measures in the company's MD and A for the quarter ended September 30, 2019, as well as in the table 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 night, we reported results for the Q3 of 2019. A copy of our news release, financial statements and MD and A may be accessed through our 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 the call over to our CEO, Kim Rivers. Thanks, Lynn, and good morning, everyone. Thank you for joining us. We are very pleased to share our earnings results and provide a business update to you all today. Following my prepared remarks, Mohan will discuss our Q3 financial results, and then we will open the call to analyst questions. Turning first to our quarterly results. Trulieve experienced another strong quarter, both financially as well as operationally and executing against our strategic plans and beating consensus estimates. Last night, we announced revenues of $70,700,000 for the Q3, which represents a sequential quarter over quarter increase of 22% and 150% increase over the same quarter last year. We are happy to say that this is another record revenue producing quarter for Trulieve. As we have said before, we believe it is critical to build a company profitably. Trulieve's adjusted EBITDA in the 3rd quarter was $36,900,000 or 52 percent compared to $31,600,000 or 55 percent in the 2nd quarter. Our strong consistent EBITDA performance has set us apart and become an important differentiator for Trulieve in the cannabis industry. Financial discipline is simply a part of who we are as a company. Throughout the 1st 9 months of the year, we have proactively built on our success here in Florida. We've implemented infrastructure, increased supply chain efficiencies, maintained financial discipline and profitability and enhanced our leadership team to support our future growth. We've discussed our groundwork on previous calls to illustrate how we are building not only on our strong lead in the Florida market, but a solid foundation for national expansion. As we walk through our Q3 activities and updates today, I believe you will get a sense for the tools we have available and ready, including cash through both financing and sustained positive cash flow, a strong retail brand, product expertise, strategic expansion initiatives and changes we have made to further increase our leadership and strength. I'll start with our financial strength. Through the Q3 of 2019, Trulieve remained profitable, posting strong EBITDA and generating positive cash flow. In addition, Trulieve was one of the few cannabis companies to successfully complete a non convertible public debt deal, delivering approximately $61,000,000 in gross proceeds to the company. The notes and the warrants carry the same terms as those issued in the June 2019 public offering, which raised an aggregate principal amount of $70,000,000 We were very pleased to have the investor demand that warranted reopening our previous debt offering, and we believe the debt support speaks to the value of our strong financial record. In addition to the debt offering, in July, we announced that we sold property in Holyoke, Massachusetts with favorable leaseback and build out plans in place. And last month, we announced a 2nd sale leaseback for cultivation property located in Quincy, Florida. This new $17,000,000 deal offered similar terms as our Massachusetts transaction, which are some of the most favorable in the industry with rent equal to 11% of the purchase price for the property. Adding nearly $78,000,000 cash from the public debt deal and the sale leaseback deal within the span of a few weeks bolsters our cash strength and well positions us to execute on strategic initiatives before year end. This additional capital along with cash flows provides the ability to invest for further growth and be agile during this challenging time in the cannabis industry when access to capital is declining and valuation alignment is increasing. Our strategy for national expansion is based on leveraging and replicating successes in Florida. Our market leading position in Florida continues to fuel our growth. Trulip has accomplished this dominant position by having the unique ability, expertise and drive to meet the ever increasing demand for cannabis in the state. A key to our success in Florida is the strength of our retail brand. We're happy to report that the Q3 saw an additional 6 Florida stores open in communities such as Key West and Clearwater Beach. More recently in October, we opened a store in Panama City Beach. The stores that I'm highlighting have a common thread. We are in some of Florida's most tourist centered areas. We believe it is just a matter of time before approval of Adult East in the state, and we will be prepared for the new market with our strong brand and loyal customer base and can opportunistically target which communities may be beneficial candidates when Florida opens the door to recreational use. Given our dominant lead in operational dispensaries and subject to applicable regulatory approvals, our plan is to have 44 stores ready by year end. Though we maintain our lead in operational dispensaries in Florida, a testament to the strength of our retail brand is the market share we enjoy over our competitors that try to match our pace of store openings. As of October 31, there were 187 dispensaries in Florida. Trulieve operated 38 of those stores with our 2 closest competitors having 36 and 26 stores respectively. Our Florida market share, however, remains at over 50%. In Connecticut, we are in the process of rebranding our dispensary, The Healing Corner, to operate under the Truly name. The Healing Corner is one of 15 dispensaries currently open and operating in the state. This recent addition continues to impress with a strong Q3 and growth within patients as well as revenues on track for the remainder of 2019. We continue to believe there is a high likelihood that adult use will soon become a reality in Connecticut. We are ready to expand our operations with adjacent property for additional dispensary space to serve the increased Connecticut market. Massachusetts also provides us with branding opportunities, both on a retail basis as well as a platform for our wholesale initiative. We are still on target for an early Q1 completion of Phase 1 of our cultivation facilities and opening our Northampton dispensary. Regulatory approvals in Massachusetts are challenging, but we are communicating and working closely with the regulatory bodies and hope they will move approvals along in a timely manner so we can open our doors and implement our plans for wholesale. Massachusetts will support a robust wholesaling opportunity, and we have already begun the groundwork for introduction of our brand into the market. As we prepare for the implementation of our wholesale strategy, we are more bullish than ever about the contribution the strategic growth arm will provide. Over the past few months, we have been speaking with potential customers to understand their wants and needs, determining a winning consumer driven product assortment, factually forecasting demand and using predictive analytics to ensure we are preparing for current state as well as future state. In the very near future, you can expect to see a scalable, purposeful, consumer based wholesale plan that brings a profitable revenue stream to Trulieve while meeting the needs of our Massachusetts customer. In addition to our dominant retail brand, a key to our success is our product expertise, both in the cultivation of quality plants as well as the innovation of product offerings. We continue to build out our cultivation capacity, focusing on incorporating efficiencies into our best in class agricultural practices. Our Florida cultivation footprint, including indoor grows and greenhouses, is currently hovering at just under 1,700,000 square feet. This is one of the largest U. S. Cultivation footprints, and we are still expanding. I'll note that having indoor cultivation is an important factor, particularly in Florida. Flower, which is now approximately 50% of the products sold from our Florida store shelves, is only grown indoor at Trulieve. Our brand is important to us, and we want to deliver the highest quality flower possible. The demand for flower in Florida has been extraordinary. But as we demonstrated in recent weeks, we see our supply catching up with the demand and look forward to bringing more flower and more strains to our patients as our new indoor grows continue to come online. We currently offer our Florida customers over 260 product choices, including smokeable flower, concentrates, topicals, capsules, tinctures and vape cartridges. We also anxiously await final regulations for the production and sale of edibles in Florida. We believe this will not only be another big growth area, but more importantly, a good alternative for our patients. Additionally, as we have noted, we have partnered with Bang, Binsc, Love Oven, Slang, Blue River and Sunshine Cannabis. Each of these companies are customer favorites with a unique value proposition and market penetration strategy. In California, our Palm Springs location is what we refer to as our R and D dispensary. We use this location to test the wide ranging demographics from the older affluent homeowners to the mix of tourists and visitors that flock to the area for festivals, vacations and weekend getaways. This data allows for us to strategically plan additions to our truly branded product offerings. As we think about how to leverage our strong foundation moving forward, we continue to remain committed to our current markets. As I have mentioned today, the opportunities ahead in each of our current markets are strong and we intend to continually focus on executing and further solidifying our position as the market leader. This is most true in our state of Florida, where patient demand continues to grow and competitors are refocusing capital and efforts to other states while slowing expansion in Florida. As others pull back, we believe now is the time to double down in this critical market. As other companies are reevaluating balance sheets and available access to capital, we're witnessing more companies with realistic valuations seeking M and A conversations. The pipeline has become much more interesting and robust for us with inbound calls increasing weekly. To be clear, our criteria for M and A is rigorous and specific, and I will reiterate that we will not grow for growth sake, but we'll consider partnerships with companies that fit our profile of being established and executing in key states, having solid management teams that are keen to be a part of a fast growing company, exhibiting core customer centric values and importantly, offering accretive deals or a line of sight to profitability with a combination of Trulieve. We hold the opportunities that we evaluate to a high standard, ensuring they meet Trulieve's core values, which upon acquisition, we believe will translate to greater success and future growth. So with cash on hand, increasing strength in the market and a richer pipeline of acquisition targets, we are laser focused on continuing to capitalize on our current markets as well as the right M and A opportunities. As I say often, stay tuned. In addition to our current growth opportunities, we have also added an organic growth team that has developed a license application strategy targeting key states as open license applications are available. This will allow Trulieve to grow organically in key markets where our brand and expertise will help us achieve rapid success. As we look at the initiatives underway to successfully compete at a national level, we are continuing our focus on bench strength. We've touched on this in the past and we've made a number of important internal moves during the Q3 that prepare us for the remainder of 2019 as well as 2020 beyond. Some of that organizational work is behind the scenes, such as the addition of the organic application team now in place and with refocusing personnel and other org chart changes, but a few are more visible. For instance, Tim Morey was recently elevated to Chief Sales Officer, leading the U. S. Retail store growth, delivery and call centers. Also, Kyle Landrum was promoted to Chief Production Officer, overseeing our already vast and quickly expanding cultivation and production areas. We believe these moves will not only drive revenue, but increase effectiveness within the organization and supports our internal strategic goals of financial strength, market dominance, a customer centric focus and being the employer of choice. With that, let me turn the call over to Mohan to review the quarterly results before I add my closing remarks and open the call for Q and A. Mohan? Thank you, Kim, and good morning, everybody. Kim spent time outlining the tools we have at our disposal, what we have established as a company and the financial discipline and operational efficiencies we have in place will allow us to maintain our revenue growth, strong profitability and continue expansion as a multistate operator. I'll now proceed with the review of the 3rd quarter results ended September 30, 2019. Trulieve exceeded our internal forecast, achieving a record revenue of $70,700,000 which, as Kim mentioned, represents a sequential quarter over quarter increase of 22% and 150% increase over the same quarter last year. For the Q3, we achieved earnings per share of $0.55 exceeding estimates. Our 3rd quarter revenue increase continued to be driven by increased patient counts, demand for flower and successful new store openings. Let us look at the same store sales as they are an important indicator for patient awareness of our brand and customer loyalty. In Florida, we had a total of 35 stores operating at the end of the Q3. For the 15 locations that were opened in both Q3 2019 and Q3 2018, for the entire quarter, same store sales increased by 43%. The 26 stores that were open for the entire quarters of Q3 and Q2 showed 11% increase quarter over quarter in sales. The revenue growth of these stores year over year is an important metric for us and an indicator for growing our business successfully and profitably. I'll now discuss gross profit. The 3rd quarter gross profit before net changes in the fair value of biological assets was $44,000,000,000 or 62%, which is relatively in line with $37,600,000 or 65 percent of revenue in the 2nd quarter. I would like to remind you that under our financial policy, we expense growth costs, whether it is in the biological assets or in the inventory. We should expect fluctuation to see fluctuations from quarter to quarter as more cultivation facilities come online and as inventories grow and fluctuate to accommodate the accelerated pace of new store openings in the second half of the year. For comparison, if we were to account for capitalization of growth costs, our gross profit was 75% for Q3 compared to 77% in Q2. As cultivation forms part of cost of goods sold, I'll now turn to cultivation. There have been and will continue to be significant increases to our cultivation facilities as we continue our growth in Florida, allowing us to keep pace with market demand. And I will remind you that during this quarter, we brought online the experimental greenhouses, essentially more than doubling our square footage in August. As we entered the Q3, we had reportable cultivation capacity of 710,000 square feet of indoor cultivation and greenhouse facilities. We announced on our Q2 earnings call that the experimental greenhouses were coming online, and we ended the 3rd quarter with 1,660,408 Square Feet, providing annual cultivation capacity of 60,330 kilograms. Currently, in the 4th quarter, we have 120,000 square feet of ongoing construction in Florida with 24,000 anticipated to be completed in the 4th quarter as well as the Massachusetts Space 1 cultivation build out facility underway. We expect to end the quarter with 1,684,408 Square Feet in Florida and that the Phase 1 Massachusetts build out will be completed in early Q1. Now turning to our expenses. I'll first cover sales and marketing expenses. These costs are largely dispensary related costs and in the Q3 amounted to $14,700,000 or 21 percent of revenue compared to $6,500,000 or 23 percent of revenue for the same period last year and was $11,400,000 or 20 percent of revenue for the prior quarter. The increase in cost in this expense category was primarily due to costs related to 6 additional stores that were opened in the 3rd quarter and costs related to preparing for new store openings for the Q4 of 2019. G and A for the quarter was $3,200,000 or 5 percent of revenue compared to $1,500,000 or 5 percent of revenue for the same period last year and was $3,400,000 in the prior quarter. The increase in G and A expenses from the same period last year also reflects growth in staff levels, talent mix and increased infrastructure costs related to operating as a public company. Overall, keeping a high degree of financial discipline with the expenses essentially aligned year over year leads us to profitability. Operating income for the company was 89,500,000 dollars and net income was $60,300,000 for the quarter taking into account the net changes the fair value of biological assets required under IFRS accounting standards. 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 biological assets and unsold inventory and the non cash effects of accounting for biological assets. We report adjusted EBITDA to help investors to assess the operating performance of our business. Our adjusted EBITDA in the Q3 of 2019 was $36,900,000 or 52 percent of revenue compared to an adjusted EBITDA of 31,600,000 dollars or 55 percent of revenue in the previous quarter. On a sequential quarter to quarter basis, the adjusted EBITDA increased by 17%. Please note that the capitalization of grow cost fluctuates as new facilities are brought online as selling and marketing cost varies depending on new dispensary openings and inventory levels, and as we enter new states like Massachusetts where the cost structure can vary, we believe our normalized adjusted EBITDA will be around 43%. Now turning to taxes. As a percentage of gross profit, including the net change in the fair value of biological assets, our effective tax rate was 28% for this quarter. As a reminder, we began explaining taxes in this manner starting in the Q2 of 2019 based on our belief that this is a better and more stable measure of calculating effective tax rate than as a percentage of income before taxes based on discussions with our tax advisers. Moving now to our balance sheet. As of the end of September 2019, our cash balance was 31,000,000 dollars or a decrease of $23,000,000 from $54,000,000 at the end of Q2. This was primarily the result of additional capital expenditure of $21,000,000 in the Q3 related to the expansion of our stores, cultivation and processing facilities. In addition, we met interest payment on all our debt and note obligations and our fixed charge coverage ratio is approximately 4.88. Subsequent to Q3, we completed 2 financing activities, the debt deal and the sale and leaseback of property in Quincy, Florida. These two transactions further strengthened our balance sheet by nearly $78,000,000 And as of November 15, our cash balance is approximately $100,000,000 Finally, we are reaffirming our 2019 guidance range of $220,000,000 to $240,000,000 for the year with the anticipated adjusted EBITDA of approximately $95,000,000 to $105,000,000 This is based on our current store footprint in Florida, plus expected new store openings, the revenue guidance issued in May for Connecticut and does not contemplate revenue from Massachusetts. We will continue to exercise financial discipline while leveraging our scale. We are also reiterating our outlook for 2020, which 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 $380,000,000 to $400,000,000 generating $140,000,000 to $160,000,000 in adjusted EBITDA. This financial summary highlights the strength of our balance sheet, profitability and the financial and operational disciplines in place. I'll now hand this over to Kim for closing remarks. Kim? Thanks, Mohan. In closing, we are pleased with our strong third quarter results, especially in the face of wider challenges in the cannabis sector. The disappointing results in recent quarters from large Canadian based cannabis companies have weighed on the wider industry in general. Their financial losses, write downs and negative revenue trends are causing investors, both institutional and retail, to increasingly demand better results and shareholder value. This is Trulieve's opportunity. As capital allocated for cannabis increasingly begins to look for companies with proven fundamentals, Trulieve will stand above the pack. I've talked a lot on this call about the foundation we've built and the tools we have ready as a company to be one of the top performing cannabis companies in North America. We are proud of the success we have achieved. I believe the recently closed debt deal illustrates not only our market leading fundamentals, but also enthusiasm for Trulieve as a company. With our demonstrated operational and financial strength, we are quickly solidifying our position as a prominent MSO, further widening the gap in the market from non performers. In addition, the ongoing work being done internally is establishing a strong corporate foundation, not just in cannabis, but one that would be reputable in any industry. We are well positioned moving forward and welcome attention to our story. I look forward to providing further updates soon. Onward. Your first question comes from the line of Robert Fagan with GMP Securities. Please go ahead. Hi Kim and everybody and congrats on a fantastic quarter. Thanks, Rob. Yes, I just thought I would ask about your capital allocation plans. Obviously, you guys are sitting in a pretty enviable position with the liquidity you have. And just wondering if you could update us on your previously discussed plans to enter a couple of new states perhaps this year. And if you've had any kind of shift in your strategy given some of your comments around the more attractive M and A pipeline now, are you looking more for existing operators versus kind of ground up construction? And any color you can provide around that would be great. Thanks, Rob. So we are, of course, continuing conversations with respect to folks who meet the criteria as outlined on the call. We are definitely interested in the accretive opportunities as they're presented. With the addition of our organic application team, we're going to use that as our pipeline for ground up potential and are very interested in partnering opportunities again with folks who meet our very specific and rigorous criteria. It should be noted that in addition and hopefully this came through on the call that we are continuing to focus of course on expansion opportunities in our current markets as well. Okay, great. I guess this might be more for Mohan, but I just wanted to ask about the guidance. Obviously, I think you guys are always very conservative with your outlook. But wondering just if there could be some potential upside to the 2020 outlook given the way in which your sales are trending now. It's a rough estimate from us, but we could suggest something like 35% market share in 2020 for Florida. And for us, that would seem pretty conservative, of course. And then wondering if you will provide any maybe a breakout of where you see the Massachusetts contribution landing there in the context of a little bit of a slower licensing process? Yes. Thanks, Rob. I mean, I think that at this point and you touched on it with respect to Massachusetts. Until we have some additional color from the regulators there, we are not prepared to adjust current projected guidance for next year. But certainly as things progress, we'll continue to update investors. Okay. All right. Well, last one for me before I maybe get back in the queue is, I really liked your comments, Kim, around how maybe some other players are pulling back in Florida to refocus capital allocation strategy while you guys are hitting it on all cylinders there. Can you update us a bit on maybe what's the growth outlook for Florida in terms of where the I guess the process is for the wholesale market opening and kind of like your pipeline for store expansions given you're getting close to your 44 percent number limit until the cap comes off in April? Just some details around that would be great. Sure. Thanks, Rob. So we have so just to remind everyone, truly we have 49 stores currently that we're able to open. And then again also as a reminder that when every 100,000 active patients in Florida which we're relatively close to that next benchmark, we'll get an additional 5 locations. And so we continue to have a very robust and complete pipeline with respect to real estate opportunities in Florida. Wholesaling in Florida, as you know, is currently prohibited. However, so that would take a legislative change. We are in session early this year because it's an election year in Florida. So we begin session in January and go through March. So that would take a legislative change for wholesaling to be allowed. And then also as a reminder for folks, the cap is and dispensary locations is currently set to sunset automatically in Florida law. So any change to that would also require an affirmative legislative action. Your next question comes from the line of Russell Stanley with Beacon Securities. Please go ahead. Good morning and congrats on an excellent quarter. Thanks, Russ. First question, I guess, with respect to actually the 2019 guidance, even the upper end of that revenue range suggests a comparatively modest quarter in Q4. I just want to get your thinking on that. Are you just being conservative? Or are there any headwinds that you see coming up? Yes. Thanks, Russ. We do try of course to base our model. It is as we've discussed a very specific ground up model that we've built based on patient count increases, physician increases and so forth in Florida. And we haven't seen any fundamental changes to the model. And so we've signaled previously that we'll be keeping guidance until and unless those things change in terms of our underlying assumptions. So we did want to go ahead and keep it the same. The other thing that I'll mention is that we did see some significant increases earlier in 2019 due to flower coming online. And so there was kind of a singular shift with respect to patient growth and demand. Whether or not that actually continues on a quarter over quarter basis or instead was more of a stair step, I think it's still also to be determined. Thanks for that color. I think I might know the answer to the next question, but I wanted to ask about the inventory level. I think days in inventory climbed a fair bit in the quarter sequentially. And should we look at that as just tied to is that just the impact of the greenhouses coming online or is there something else beyond that? No, that's exactly right. And just moving on to Massachusetts, wondering, I believe one of these cities where you have a provisional license is Cambridge. And just wondering what your game plan is there, I guess, given the city's decision in September around new dispensaries? Yes. No, appreciate that. I mean, in Massachusetts, as we've signaled, we're moving forward with our 1st dispensary and that's important so that we can launch our retail but also our wholesale strategy in Massachusetts. We are very much and have been actively considering additional locations given the strict restriction on number of locations of retail facilities in Massachusetts. So those are certainly up for additional locations and or relocating current locations. And just one last question for me and I'll get back in the queue. And it's I guess a bit of an industry wide question, but I'm looking at the Omnia report and looking at the number of physicians that are qualified, I guess the growth in that number of physicians that can recommend cannabis is it's continued to grow, but I guess perhaps at a slightly more modest pace than some of the other market metrics. So I'm just wondering what you can do or what you're doing or what you can do on that front to help drive more patients or pardon me, more physician activity on that front? Sure. So we are very active into the Chin communities. We've got groups around the state, employees around the state who network at all of the physician conferences or meeting with doctors all of the time and educating. Really our platform is around educating physicians on the benefits of medical cannabis, incorporating medical cannabis into their existing practices and then of course supporting physicians to decide that they'd like to make medical cannabis a primary area of their practice. And so that is an area of focus for us. And we also see, though I will say over time, more and more physicians gaining efficiencies within their practices. And so being able to see additional patients as they move to renewals for a portion of their patients and as well as of course continuing to onboard new patients. So we're certainly active in the physician space. Excellent. That's great color. That's all for me. Thank you and congrats again. Thanks so much. Thanks guys. Your next question comes from the line of Derek Dley with Canaccord. Please go ahead. Yes. Hi, good morning, everyone. I also like to echo that congrats on the great quarter. So I just want to talk about flower pricing for a minute. Have you guys seen any changes? I think last time we spoke, pricing was sort of in the range of $9 to $10 per gram. And I think you had one competitor in the market, it looks like by the O and MU data that competitor is still there being a little bit more disruptive on the pricing. Can you just talk about any dynamics or trends that you've seen within the quarter? Sure. So no pricing has remained the same with respect to flower. We did introduce recently a new product category in flower with our Truflower minis, which is our smaller sized bud, which is which we're pricing at $27.08 So that is our product that we've released that has been received very, very well by the market. And I will tell you that other competitors and in particular the one that you're mentioning has actually increased some price categories of their flower. So it should be interesting to see how that plays out over the next quarter. Okay. That's helpful. And when you think about your supply of flower for the quarter, were you still in a bit of a shortage position? And I'm assuming that's part and parcel why you're looking to increase your cultivation capacity. But would it be fair to say that had you had more supply internally you would have been able to sell more flower? That's a fair assumption. Okay. And then in terms of just the consumption trends, obviously, there's been a lot of news in the market regarding vaping. Did you guys see a switch at all from vaping to flower during the quarter? And I get flower is relatively early in Florida, but just any discussion along the trends that you've seen there? Really nothing material. So we're seeing flower as I mentioned in my comments that it's approximately 50% of our product mix. So and really with vaping, I would say that there was a week that we were off in the vape category by about 4% to 5%, but it came back almost right away. So we really did not see any material or long term impact from the vaping issues. Okay. And then just sort of switching gears for a second. In terms of the home delivery or the click and collect or call and collect business. Can you talk about the penetration and what you've seen within that side of the market? Yes, absolutely. So delivery actually, it's very interesting and we watch this very closely. Delivery is actually reduced over kind of time. And so we're at about 6% with respect to delivery currently. I think that the reason for that is that we have a couple of things. 1, when we have really active delivery areas, that's where we target for a store. So we put a store in those areas, number 1. 2, we've increased and we've actually added quick style in store pickup windows. And the technology around that is that if you place an order, you'll actually receive a text message when your order is ready and then you're typically in and out of our store in approximately 10 minutes. So that's very different than a delivery where you have to actually wait on our drivers to get there and you have to sign for the delivery. So thesis is that it's actually more convenient from a time management perspective to actually stop by the store and do quick pickup as opposed to waiting for delivery. Interesting and of course we're all sort of thinking through the Amazon model and what that may look like one day. But the big difference here is that you're having to sign for that package as opposed to us being able to leave it on a doorstep. So we're going to one of our initiatives for 2020 is we're going to actually start doing some activities to drive delivery, which we haven't done to date. So it will be interesting to see how that number shifts over with those activities that we have planned. Okay. That makes sense. And just last one for me just related to that. Do you see any difference in terms of the basket size between whether it's delivery, whether it's the call in and collect versus the in store customer? I would say that the walk in in store customer versus delivery, delivery does tend to be a bit higher. And I think rational explanation for that is that we are we're charging a delivery fee. So the folks that also I think the folks in with coupled with kind of what I perceive at least as a little bit more of an inconvenience. I think the folks that are ordering for delivery are doing it in a more consolidated basis. And so they're ordering less often, but they're having it's a bigger ticket when they do order versus an in store or a pickup order. Yes, makes sense. Thank you very much. Yes, thanks, Eric. Thank you. Your next question comes from the line of Neil Gillemer with Haywood Securities. Please go ahead. Yes, good morning and once again congrats on the quarter. A number of my questions have been already asked, but I just did want to follow-up on one of your comments, Kim, in the prepared remarks, just on edibles and whether you have any sort of update on when those are going to be available in the Florida market? Hopefully see them in 2019. Any and every chance that we get to talk to the regulators about edibles and remind them that it is statutorily required for them to write rules, we do so. I unfortunately don't have any additional color other than there has been a bit of a start and stop to the process. I felt that we were making some decent progress and then the vape news hit which sort of took everyone a little bit off track. I do believe that we'll likely first see testing regulations in Florida come out and then likely behind that because there'll be an embedded piece on edibles testing within testing regulations and then right behind that we should see edibles. I would say that if we don't see it before session, I would expect that lawmakers may be applying a little bit of pressure. So if it's not during session, then hopefully early next year. Of course, we stand ready. Our edibles kitchen is fully built out. We're doing non infused sample batches now of all of our products. Of course, we've got our partners lined up, packaging that we're really sitting on go. So we're anxiously awaiting those products to be available to the Florida market. Okay. Thanks. I appreciate that update. Then maybe just on that, what you referred to as your R and D facility in California. So, I guess, you've been able to collect a fair amount of data probably to this point. Where do you take that from here as far as the data that you're gathering? Or does that give you a little bit more confidence as far as what your visibility and what you're hoping to do in the California market? Maybe just a couple of comments around that, please. Yes, sure. So I mean California has been very interesting in that we've been able to begin to make some decisions in that store based on feedback that we've gotten and data that we've collected. As a lot of folks know and understand, the typical dispensary in California is very saturated generally with brands and choices and so forth. And really we're trying to exercise a hypothesis that while choice is important, just human behavior would also appreciate a curated selection as opposed to just 40 of everything. And so we're now using the data that we've collected to actually curate down that product mix as well as we'll be building out the other side of that store location into a truly branded location and we're playing a little bit about a little bit with retail experience in that again blend of rec and medical patient format. So it's informing us on a number of fronts. I would say right now the thing that we're most focused on is that curated product selection in a combined rec and medical, we'll call it legacy market. Okay. Thanks very much. Thanks, Neil. Thank you. That brings us to the end of the time allocated for Q and A. I will now turn it back over to Lynn Ritchie. Thank you for joining us today. We look forward to updating you on our progress again next quarter. Have a good day. This concludes today's conference call. You may now disconnect.