Earnings Call: Q4 2019

Apr 8, 2020

Earnings release

Good day, ladies and gentlemen, and welcome to the Trulieve Cannabis Corporation 4th Quarter 2019 Results Conference Call. My name is Marcella, 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, Marcella. Good morning, ladies and gentlemen, and thank you for joining us today to discuss financial results and corporate highlights for Truly Cannabis Corporation's 4th quarter year end 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 December 31, 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 Trelief. 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 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 December 31, 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 non IFRS metrics. Please note that all dollar references are to U. S. Dollars. This morning, we reported for the Q4 year end 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 the call over to our CEO, Kim Rivers. Thanks, Lynn, and good morning, everyone. Thank you for joining us. We are speaking with you all today in a distributed manner as we all practice facial distancing. I want to wish everyone listening on the phone and online well and hope everyone is staying healthy during this time. Before I cover our year end results and provide a business update, I would like to share with you how Trulieve is dealing with COVID-nineteen. We were hurting to have medical marijuana gain essential status as markets we operate in issued stay at home orders. States deemed cannabis essential across our country, and those actions speak to shifting perceptions and the important acceptance we are gaining in the U. S. We are, in some ways, fortunate to be in an industry deemed essential and, therefore, not as directly impacted by the COVID-nineteen crisis. However, we are being affected in different ways, from the way we go to market to the incredible investment and man hours spent by our teams to address an uncertain and very fluid landscape. And although we have seen some short term benefit, the enormity of this situation is not lost on us. The COVID-nineteen crisis is causing a severe impact to other industries, our country, our health care system, as well as the way it's affecting our patients, communities, employees, and their families. As a company with properties at risk during hurricanes, we have an established preparedness team that we quickly convened for coronavirus planning in early March. Changes were immediately implemented throughout our facilities and in our Truly Dispensaries to maintain safe, healthy environments to work and transact business. Let me outline some of the more significant changes for you. Our first acts were to protect our patients by ensuring our retail dispensaries were safe, clean and healthy. We contracted with a licensed remediation contractor to conduct deep cleaning events across our facilities and implemented new cleaning procedures, dispensary limits and chair spacing in our lobbies to encourage facial distancing. In addition, special store hours are set aside for our immune compromised patients to address the special needs of that patient segment. Probably most noticeable is that we took a fresh look at how we could best approach TRULIEVRA interactions during this time. We launched new offerings and pilot programs such as mobile hubs, curbside pickup, stores dedicated to pickup only and making better use of technology for scheduling and delivery alerts. Internally, we've been busy as well. We moved quickly to protect our employees and facilities, updating policies to provide additional resources to our employees and added procedures to keep our workplaces safe, such as implementing temperature checks for all employees entering our facilities beginning in early March. Our team is focused on workforce balancing in anticipation of potential employee absences. We've also accelerated our hiring to meet these expected needs as well as known increases in deliveries and in call center and online chat volume. We made immediate changes to our production and sourcing. We're taking advantage of our oil inventory by increasing production to ensure we have 8 weeks of finished goods inventory available for our stores. We also have good insights and partnerships with suppliers and have sourced secondary suppliers, if needed. As a vertically integrated cannabis company, our supply chain visibility and control provide shelter from supplier risk. And finally, we made investments, such as increasing our leased fleet by over 80 delivery vehicles to prepare for increased delivery needs in the state. These actions were completed while our business experienced an increase in demand from patients as COVID-nineteen started to take hold in the U. S. This behavior followed similar patterns that we have seen before hurricanes hit. Analyzing the pre versus post COVID environment starting week ended March 13, Florida's weekly average demand increased by approximately 17% in oil and 37% in flour compared to the weekly average leading up to COVID. Trulieve outperformed the competition by achieving 21% growth in oil and 62% growth in flower during the same period. We were able to meet this heightened demand due to the on hand oil and flower inventory readily available to us via our robust supply chain. This has yielded us approximately 50% oil share and 58% flower share during this last 4 week period. Our ability to easily ramp up production, leverage our purchasing power for supply chain requirements and our large trained work force of approximately 3,000 employees that can shift as needed set us in an advantageous position to quickly address changes in market dynamics. The changes in our patient interactions and ramifications on how we conduct business will be felt for some time to come. I am confident, however, that the holistic and strategic thinking about our business during this crisis, along with investments we're making, will help us gain critical analytics to increase efficiencies across our business. There continues to be uncertainty with COVID-nineteen, but we are navigating this turbulent time and leveraging the strong foundation we've built. Our organization rising up as a team committed to serving our patients has been truly inspiring. They have done some amazing work preparing and adapting our business for COVID, and that ingenuity positions us to emerge from the situation stronger than ever. Now turning to our results. Trulieve experienced a strong 4th quarter, an exceptional year end, both financially as well as operationally. Our revenues were $79,700,000 for the 4th quarter, which represents a sequential quarter over quarter increase of 13% and 122% increase over the same quarter last year. On a full year basis, we achieved revenues of $252,800,000 exceeding our expectations as well as The Street's consensus. We are happy to end the year on a high note and deliver another record revenue quarter. Trulieve's adjusted EBITDA in the 4th quarter was $45,000,000 or 56% compared to $36,900,000 or 52% in the 3rd quarter. On a full year basis, our EBITDA performance was $132,500,000 or a consistent 52%, completing a second full year of profitability for Truly. Our leading profitability continues to set us apart in the industry and remains an important differentiator for Trulieve. 2019 was an important year for our business. Results were driven by the introduction of smokeable flower in Florida last spring. For those of you who have followed us over the last year, you'll remember Florida ramped up extremely fast, remaining in the 50% range of our product mix for the balance of the year. Operational efficiencies also contributed to our success. These efficiencies were achieved by implementing automation, investing in technology platforms and introducing new programs. We also added to our bench strength both within the executive team and our Board of Directors, which brought new ideas, best practices and procedures into the mix. And we continue to build our brand by bringing high quality innovative products to our true levers and delivering authentic customer experiences. This all serves to increase customer loyalty and maintain our leadership position. 2019 was also shaping up to be a very important year across our industry. With profitability in sight for many of our peers, the U. S. MSOs decoupling from the Canadian market and the proposed Safe Banking Act making progress. Then the fall brought a shift in capital markets. Lack of access to capital caused many companies to reevaluate their expansion strategies. We anticipate that Trulieve's disciplined approach to our M and A strategy and our patience as we watch the capital markets decline will present us with many attractive expansion opportunities in the coming months. We began the year in 2020 excited about our future, and we still are. Despite the capital market upset in the back half of twenty nineteen and competitors pulling out of our rich and robust Florida market to invest in other areas, we were in good financial shape and kept our foot on the gas, opening 7 stores in Q4, ending the year at 42 dispensaries here in Florida. At year end, our Florida employee count stood at 2,866 or 18.5 percent of all Florida cannabis related jobs according to the Leafly year end report. We are not only the largest cannabis employer in the state and Gaston County, Florida's largest employer in general, but with our current headcount of over 3,000 employees in the U. S. As of the end of Q1, we believe that makes us the largest MSO employer in the country. And our team continues to outperform as Trulieve is currently enjoying a solid market share with 19% of the Florida dispensaries generating approximately 50% of the market share. It's a market we understand and has what we believe to be incredible growth ahead. Florida is our backyard, and we intend to dominate this market. In 2020, we will plan to continually open stores in strategic locations where we can either service a high rate of deliveries, answer the call of patient requests and populations or secure solid locations ahead of the expected recreational market in 2022. Let me give you a quick update on the other states with the Truly presence. In Massachusetts, we are close to completing the Phase 1 cultivation build out and nearing completion of our 1st dispensary build out in Northampton. However, we currently have reduced visibility with regard to executing on our plans. Due to the COVID-nineteen crisis, Massachusetts has limited construction activity and has postponed CCC inspections. We will reassess our time line once inspections resume. In Connecticut, we just recently rebranded our Bristol dispensary to a Trulieve location. We waited to complete this branding to assure a seamless transition and the patients understood that the customer experience they relied on was not changing with the acquisition amid a number of new dispensaries also opening in the state. Despite dispensaries in Connecticut growing from 9 to 14 at year end, we were happy with our performance and being able to maintain an outsized market share. We believe this is based on the great customer focused team in place. We are watching for the recreational market to open up, which will be an important catalyst for the state. In our Palm Springs, California location, we are also in the process of rebranding the store and will be moving to a new store footprint within the same plaza. The California dispensary has been treated as experimental, like an R and D store, where we tested products based on time of year, festivals, etcetera. We curated the product assortment, reducing the number of products as more of a hybrid model of the West Coast, add everything under the sun to your shelves and the East Coast, more medical feel, and we had success. The revenue performance has increased, which we believe is based on the improved presentation of less SKUs and our employees' knowledge of products. Let me now talk a little bit more about our retail dispensary performance. I believe we are dominating the market in many ways, which can be seen in our retail metrics. A year end call is a good time to offer a little more detail, and these metrics are too good not to share in order for you to think about our business beyond cannabis and in a pure retail light. I'll walk you through our metrics for payback per store, customer retention, same store sales and revenue per square foot. In Florida, we achieved a payback period for each new store in just under 2 years. This includes store build out, inventory, CapEx for indoor grow to support the store and assumptions for cash margin. Doing business in Florida is less expensive in part by our scale advantages, so this payback period may not be the same as operations in other states. A metric that is traditionally used in retail to reveal customer loyalty is our customer retention rate. In comparing the Q3 with the Q4 of 2019, we had a customer retention rate of 72%. We previously tracked customer loyalty using a Boomerang report, which required analysis of patients' actions through various stages of the life cycle, tracking shopping patterns for a combined scoring methodology, but we will start instead reporting on this industry standard customer retention metric going forward. A second but closely aligned metric average patient spend year over year. Average active patient spend is tracked on a monthly basis using basket size and visits per month. As we look across our patient purchases year over year, we have seen a shift in purchasing pattern trends. At year end 2018, active patients visited a Trulieve store on average 1.6 times per month with an average basket size of $145 These trends have shifted to smaller basket sizes but more frequent visits. As of year end 2019, we had on average 2.7 visits per month by active patients with an average basket size of $121 So although basket size is smaller, it's a net positive with the overall revenue per patient. As of Q4 2018, our average active patient spend per year was approximately $2,800 That has grown to approximately $3,900 in Q4 2019 or an additional $1100 or so per average active patient. What makes this such a great number to see is that the growth in patient spend is not due to price increases but customer demand and loyalty as we have not raised prices over the last year. To track these loyal True Levers at an individual store level, we use the traditional same store sales metric. For the 13 locations that were open in both 2018 2019 for the entire year, same store sales increased by 44%. I'll note for this metric that as our business continues to mature, some of these stores will start to reach their peak in number of patients served. Our expectations are that there will be a growing number of stores in this comparison, which will start to reflect that ceiling, offset by growth in average patient spend. And finally, the typical retail metric of revenue per square foot to track overall performance. In 2019, our 44 dispensaries across the U. S. Generated approximately $2,300 per square foot. This is based on days open for our full year revenue and our total retail square footage as of the end of December 2019. Comparatively, this retail metric puts Trulieve in line with other world class retailers. We believe in the retail world these metrics are impressive and are key performance indicators for growing our business successfully and profitably. Ultimately, what's driving our continued market share is a mix of our core values for safe quality products, innovation that resonates with our true levers and consistent delivery of authentic customer experiences. This approach helps us achieve the high level of customer satisfaction and loyalty that generates the positive word-of-mouth effect we're seeing within our Trulieve community. Building on these strong retail metrics and our success in Florida, we are planning to expand the Trulieve brand. Expansion for us is not a land grab. I'll remind you that we make calculated decisions based on our criteria to assure our investments will not only be financially successful but will promote the Trulieve brand that we have strategically curated and nurtured since the beginning. While we continually evaluate acquisition opportunities and we have implemented a strategic initiative for applications for licenses in new states, we also focused on organic growth. As Mohan will speak about, we strategically increased our indoor cultivation facilities in Florida to maintain pace with the demand for smokeable flower. We convert dry cannabis that has not sold us flower into oil to preserve shelf life. We supplement our oil reserves with harvest from our greenhouses. The ability to reap large scheduled harvest from our greenhouses is an important tool for us to manage production costs while maintaining scalability in our stable oil inventory. We can easily ramp up or down oil production to match customer demand, particularly when edibles become available for sale in Florida. Before I turn the call over to Mohan to review the financial results, I want to offer the following. I am hopeful, as you all are, that a successful global effort will be made to eradicate COVID-nineteen. In the meantime, we have a commitment to our true levers to provide access to the medicine they rely on, to our employees to provide safe, healthy workplaces where they can earn a living in this new economy and to our shareholders by continuing to execute against our strategy and create value. Despite the uncertainty across the country, we remain excited about our business strategy, the growth of our teams and our new innovative plans and products on the horizon. As a road map for TRULIEV in 2020, our focus is on these four actions. 1, we will continue to invest and grow in Florida and fully intend to maintain our market dominance. We will continue to explore and look for smart, accretive acquisitions and participate in license application processes that will offer us expansion possibilities, new revenue streams and broadening our Trulieve brand into new markets. We will continue to invest in our innovative track, assuring we address our commitment to provide a wide variety of options and choice for our patients. And we will stay focused on building a sustainable business, meaning being financially disciplined to maintain profitability and deliver shareholder value. Lastly, although we had hoped to be in a position to update guidance on this call, the underlying assumptions, as I just outlined for all of you, have not changed or gained additional clarity, and COVID-nineteen has added a layer of uncertainty. We do, however, feel comfortable reiterating the annual guidance range previously provided for 2020 at this time and will consider updating as things come into focus. With that, I'll turn the call over to Mohan before I add my closing remarks and open the call to Q and A. Mohan? Thank you, Kim, and good morning, everybody. Let's move to the company's 2019 financials. Trulieve has been dedicated to building a business with a strong financial foundation. This has served us well As we enter 2020 and are faced with the coronavirus and the uncertainty this has caused across many sectors, there are cannabis companies, particularly those with exposure to the recreational marijuana market, who lack access to capital markets and may not fare well in this global economic slowdown. As the most profitable public cannabis company in the U. S. And with cash on hand, Trulieve is well positioned to continue execution of our growth plan. As Kim covered, we had a strong end to 2019, exceeding our internal forecast as well as discrete estimates, achieving a record quarterly revenue of $79,700,000 which as Kim mentioned represents a sequential quarter over quarter increase of 13% and a 122% increase over the same quarter last year. For the full year, we achieved diluted earnings per share of $1.54 Before I move on to revenue less production expenses and cost of goods from 3rd party suppliers, let me highlight here for you an accounting process that continues to be a challenge for some investors here in the U. S. As the IFRS method in this respect is different to GAAP methodology. Under GAAP, expenses for grow costs for biological assets will be capitalized until they are sold. As per our accounting policy under IFRS, we expense grow costs. Because we expense these costs, we expect fluctuations from quarter to quarter. Grow costs typically include soil, nutrients and anything that is used as an input for growing plants, including labor costs as well as direct and indirect overhead. So on a consolidated basis, production expenses in Florida and cost of goods from 3rd party suppliers in Connecticut and California totaled $28,100,000 for the quarter. Revenue less production expenses and costs was $51,000,000 51,500,000 for the quarter or 65 percent of revenue. This compares to $20,800,000 or 58% in Q4 2018. On a full year basis, our revenue less production expenses and cost of goods from third party suppliers was 100 63,000,000 or 64 percent compared with $68,600,000 or 67% of revenue in 2018. For comparison, on a full year basis, if we were to account for capitalization of growth costs as we previously discussed under GAAP, we would have been at 76% for both 2019 2018. As cultivation forms part of production costs, I will now turn to cultivation. There have been and will continue to be increases to our cultivation facilities as we continue our growth, allowing us to keep pace with market demand. At the end of the 4th quarter, we reached reportable cultivation of 544,408 Square Feet of Indoor Cultivation and 1,140,000 Square Feet of Greenhouse Facilities. Combined, our cultivation footprint of 1,684,400 Square Feet had capacity of 63,190 kilograms annually. In the Q1, we completed 72,000 square feet of indoor cultivation construction in Florida with an additional 24,000 square feet of indoor cultivation anticipated to be completed in the Q2. Since we are discussing cultivation, this may be a good segue to our inventory discussion. We had a total of $204,000,000 as inventory, which includes significant amount of fair value. Just on a quantity basis, this will translate into 5 weeks of flower inventory and 22 weeks of oil inventory. Please note that inventory levels are influenced by harvest cycle. The recent harvest from our greenhouses have given us a supply of oil inventory that we can draw down upon and strategically schedule harvest from these greenhouses in the future as necessary. Now turning to our expenses, I'll first cover sales and marketing expenses. These costs are largely dispensary related costs and in the 4th quarter amounted to $18,100,000 or 23 percent of revenue, compared to $14,700,000 or 21% of revenue in the 3rd quarter. On a full year basis, sales and marketing expenses accounted for $53,900,000 or 21%. The increase in cost in this expense category from Q3 to Q4 was primarily due to payroll costs related to 7 additional stores that were opened in the Q4, plus costs related to preparing for new store openings for the Q4 of for the Q1 of 2020. G and A for the quarter was $5,300,000 or 7% of revenue compared to $3,200,000 or 5% of revenue for the prior quarter. This increase was primarily driven by expenses related to new market opportunities in the 4th quarter. On a year over year basis, G and A was $14,100,000 in 20.19 versus $19,200,000 in 20.18. The decrease in G and A expenses from prior year was primarily due to stock compensation expense related to 8,800,000 dollars previously disclosed warrants issued in conjunction with our going public in 2018 that we found to be understated. This understatement is currently an immaterial amount and it is a non cash expense that has no impact for 2019 and did not require the company to refile or recertify its prior year financial statements. Total expenses in 2019 were 30% compared to 44% in 2018. Overall, keeping a high degree of financial discipline around expenses is one of our keys to profitability. On a full year basis, operating income for the company was $285,900,000 compared to $60,200,000 in 20.18. Net income was $178,000,000 for the year, taking into account the net change in the fair value of biological assets required under IFRS accounting standards versus $27,900,000 in 2018. This was a year over year increase of 5 38%. 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 non cash effects of accounting for biological assets. We report adjusted EBITDA to help investors assess the operating performance of our business. Our adjusted EBITDA in the Q4 of 2019 was $45,000,000 or 56 percent of revenue compared to an adjusted EBITDA of $36,900,000 or 52 percent of revenue in the previous quarter. On a sequential quarter to quarter basis, the adjusted EBITDA increased by 22%. Please note that capitalization of growth costs for biological assets and unsold inventory fluctuates as new facilities are brought online, as selling and marketing costs 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%. On a full year basis, adjusted EBITDA was $132,500,000 or an increase of 159% over 2018. 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 23 percent compared to 27% for fiscal 2018. As a reminder, we began explaining taxes in this manner starting in the Q2 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 Q4 2019, our cash balance was $92,000,000 or an increase of $61,000,000 from the end of Q3. This was primarily the result of completing financing activities during 2019. These transactions further strengthened our balance sheet by nearly $68,000,000 In addition, we met interest payments on all our debt and note obligations. Finally, as Kim mentioned, we are reaffirming our 2020 guidance range of $380,000,000 to $400,000,000 for the year with anticipated adjusted EBITDA of approximately $140,000,000 to $160,000,000 or 37% to 40%. We will continue to exercise financial discipline while leveraging our scale. In closing, 2019 was a successful year for us. We delivered top line growth, up 146 percent year over year, and we feel very good about the momentum in our business. I'll now hand this over to Kim for closing remarks. Kim? Thanks, Mohan. Trulieve is gaining recognition for our financial discipline and strategic direction. We fully believe the strategy we have is the right one for us. We demonstrate our core values through the quality products we bring to market, the initiatives we put in place for the safety of our employees and patients and the financial discipline we maintain to deliver shareholder value. Medical cannabis is one of the few economic engines in this new economy, and we can be powerful contributors. We will continue to grow our business responsibly, sustainably and profitably. And I would be remiss if I didn't take this opportunity to personally thank our employees. From the folks in our cultivation and production facilities that we heavily depend on daily to grow high quality plants and produce industry leading products for our shelves to the dispensary and retail employees who work so closely with our true levers to deliver the ultimate customer experience and be our brand ambassadors and of course, the executive team and corporate employees who have implemented best practices and brought industry leading approaches to our business. We appreciate how everyone has stepped up as we are all in this together, growing Trulieve one customer at a time. And as I always say, onward. Thank you for joining us today. We look forward to updating you on our progress again next quarter. Your first question comes from the line of Robert Fagan from Stifel GMP. Your line is open. Hi, guys, and congrats on a fantastic quarter here. Okay. He has disconnected. So our next question will come from the line of Pablo Zaneck from Cantor Fitzgerald. Your line is open. Good morning, everyone. Thank you. Kim, two questions. I realized that you confirmed guidance for the full year, but can you comment about the Q1? Would you characterize it as a quarter where you saw acceleration in terms of a sequential growth versus a 13% growth you saw in the Q4? And the second question also related about 2020. The EBITDA margin implies about 38% for the year. You did 56% in the 4th quarter. Is the assumption that Massachusetts, California, Connecticut are going to be a large part of revenues and hence margins will come down? Some color there would help. Thanks. Thanks, Pablo. So to answer your first question, I would say that we certainly have seen and this is illustrated in the data that you all see from the Department of Health and the OMMU on a week over week basis. So we certainly have seen increased growth in Q1. So I can answer that question affirmatively. The second to answer your second question with respect to EBITDA for the year, I think that that as we repeatedly say, that number does tend to fluctuate based on a number of factors. With the heavy contribution from Florida, we would hope to be able to keep that EBITDA margin up. However, again, there are many, many factors that contribute to that EBITDA line. Okay. Can I ask you just a quick follow-up regarding the Q4 and I know that that's a bit dated now December? When I look at the OMO data for the December quarter, flower for you up 43% in terms of volumes, the rest of it brought up 7% and then you delivered 13% sequential growth after 20% sequential growth in the Q3. I'm just trying to understand in the Q4, did anything decelerate? Why is there a disconnect apparently between your sequential revenue growth and the OMO volume data? Was there more price competition in the market, a big change in mix? If you can give some color about that Q4, it would help. Thank you. That's it. Yes. No, Pablo, thanks for the question. Keep in mind, and I think we've said this in the past, that Q4 does tend to be a little bit more promotional. You have a couple of activities that happen in Q4 every year. The first is going to be that Black Friday and leading up to that in November. And then of course the holidays in December, which our typical philosophy is that we were not overly promotional. However, Q4 is, I would say, out of all the quarters, the most promotional that you'll see from us. So, it was likely that. And then on flower, I'm not sure again kind of everyone's got a little bit of a different way of building up their own models. But on flower, keep in mind that we do have different price points and tiers and products that go into that flower number. So while it is the by 8, it's $33, dollars 43, dollars 53 shelves, we also have pre rolls and then we also have our mini product, which is priced a little bit lower. So that category within the flower category, there is different products that speak to different customer segments. Got it. Thank you. Yes. Your next question comes from the line of Matt McGinley from Needham. Your line is open. Thank you. I think my first question is a follow-up on that promotion question. Does the promotional cadence change at all into the Q1 and into the present environment, given that kind of what's going on with the world? But how philosophically should we think about how you approach discounts or loyalty going forward or in the present environment compared to what we saw in the Q4 in last year? Yes. Thanks, Matt. It will like I said, it will change going into Q1. We always and this is again typical for us and follow the same pattern that we followed last year. So going into Q1, we typically slow down on promotions, certainly in January, as we refocus on wellness and just coming off of year end and the promotional heavy environment of December. So I think that you can expect that moving into Q1 that those that promotional activity will have slowed. Keep in mind, we do have, of course, 420. It's going to be a very different 420 than any of us, I think, probably had planned. So there will be and we're still working through that a little bit as to how best to still keep a celebratory environment around 4 20, but of course appropriately coupled with our realities and not wanting to encourage large crowds at any of our locations. So we're working through that now. And it's a work in progress I will tell you with respect to the philosophical balancing. It's something that we debate internally quite a bit in terms of wanting to add a sense of normalcy, wanting to be sensitive to folks in this current environment that there are folks who are out of work and maybe a little bit more price conscious at this point, but also making sure that we're still introducing high quality products that have a premium value attached to them and again having that balance. So I think you'll see a more balanced or normalized approach to us in Q1, which is normal. But I do just want to highlight for you that we do have $420,000,000 coming up in Q2. Right. And this is probably for Mohan. But on the inventory, how should we think about the composition of your inventory balances now compared to what we saw the Q4? I think you said that you wanted to keep around 8 weeks of finished goods inventory in the stores. Does that, I guess, infer that your inventory balances will become a source of cash in 2020? Or should we expect continued investment there in working capital to fund the growth of the business? Thank you for that question. So if you look at our inventory, primarily our work in process inventory has gone up. And we said that we have flower inventory of 8 weeks and probably 22 weeks of oil inventory. So we built this oil inventory in order to address what is needed for the marketplace and also we wanted to convert our biomass into oil reserves. So we basically believe that as we grow, we need the inventory for new stores, which are coming up, like we've opened 7 stores in December and we are planning to open a lot more stores in 2020. So the inventory levels will fluctuate depending on the store openings and how much inventory is required and also anything else we anticipate if there is going to be any hiccup in the supply line. So that is how we manage our inventory. Hey, Matt, really quick on that. So just as a reminder and we tried to touch on this in the script, but I think it's important to really highlight it again here. Our greenhouse cultivation footprint, which is very large, we harvested over the back half of twenty nineteen and just finished up in Q1. Now that we have completed that harvest, we have all of that oil inventory available to us as basically our supply to draw down from throughout the year, which then we'll be able to make a decision as to whether or not to replant all, part, none of that footprint depending on how quickly we're drawing down on those on that oil inventory throughout the remainder of the year. So we wanted to, when we did make the strategic decision, to plant the full square footage so that we could have a baseline to understand what that yield was and how we would be able to utilize that yield throughout the course of 2020, which then again because of the low cost basis for that product and that biomass comparative to an indoor footprint, it puts us in a strategic advantage we believe to then be able to optimize our indoor footprint for our high quality flower as well as our high quality concentrate products. So we can at most plant that greenhouse footprint twice a year. So we finished the one planting from last year. And then again, we'll be making that decision to replant as we move into the fall of this year. Yes, and I mean to be clear, right now, certainly under a COVID scenario, we're very, very thankful to have that available for us. Great. Okay. Thank you very much. Very helpful. Yes. Thanks, Matt. Your next question comes from the line of Robert Fagan from Stifel GMP. Your line is open. Very sorry about that guys technical difficulties. And I apologize if I overlapped the question here with somebody else in the line, but maybe I'll go with one that's a little more obscure. Can you guys give us an idea about what the backlog of registered versus qualified patients is now? States stopped giving us that data, but I think it's a good growth indicator. Is there any update on that? Yes, Rob, I don't have any data on that as well since the state stopped reporting on it. I can give you what we see in the marketplace, which is just that we do believe that the processing times have increased significantly from where we were, call it, a year or so ago. And we do know that folks are continuing to get their cards. In addition, I think it should also be noted that the state did pass an emergency order whereby folks who are renewing cards can do so via telemedicine. So there are many of the larger doctor practices in the that are taking advantage of that and have been very efficient in getting folks renewed via that telemedicine available option. Okay, great. Sounds good. And forgive me again if someone's asked this already, but obviously you guys aren't going to update the guidance now. But given where you've exited the year here on the highest margins of EBITDA to date, how do you reconcile that with your guidance calling for 38% kind of at the midpoint? I mean is that reasonable to expect there could be some upside to your profitability margin in the guidance? Yes. Thanks, Rob. And we answered this a little, I think, while you were maybe dialing back in, but happy to restate for you. Again, we certainly, as you know, we update guidance when we have changes to underlying assumptions that can be validated through some sort of data. If you'll recall, last year with Smokable Flower, right, there was a lot of asks for us to update guidance prior to that actually being implemented, which we declined. But we did, of course, update guidance after we had a couple of months' worth of data and could provide some certainty or more certainty around that guidance. And so similarly, we would have loved to have been in a position to update guidance today. We hope to be able to do that as we move through the COVID environment, but we're not in that position today. But we do feel strongly that we can reaffirm. With respect to the EBITDA margin question specifically, yes, we have, of course, had greater than 50% EBITDA margins in 2019. I think to Mohan's point that he definitely says repeatedly is that EBITDA margins of course can fluctuate based on a lot of factors. And at this point, we're going to reaffirm, but we're always hopeful that we can beat guidance. Okay, great. Just a quick one. I'm assuming with your very advanced delivery platform and experience in that area, that could even likely help you either keep your market share or gain share given the COVID situation? What's your thoughts there? Well, as we reported in our and certainly, I know most of you on the phone follow us on the OMME data pretty carefully. And as we reported in the pre versus COVID environment, we certainly are seeing our ability to increase market share at least in the short term. I think that it's a question as to what the broader market does. But we've added approximately 70 vehicles. We can add additional vehicles as needed. And so we certainly are leveraging infrastructure and our existing logistics team to amplify that segment of the business as market demand dictates. Great. Well, congrats on the quarter again. Thanks again. All right. Thank you. Your next question comes from the line of Andrew Sample from Echelon. Your line is open. Hi, everyone. Congrats on a great quarter. Thanks, Andrew. Thank you. Just wanted to ask, Florida is one of the latter states to have implemented a stay at home order just on April 1. Just wondering if you've seen any noticeable tapering of demand since that order went into effect? Yes. No, I appreciate that. So just to kind of update. So Florida, the governor prior to April 1 was allowing mayors and local county governments to govern their particular areas individually. And so there was a bit of a patchwork. However, there were existing stay at home orders for the majority, I would say, of South Florida prior to that April 1. And actually, the April 1 incorporated the Miami Dade order into that statewide order. So that has been obviously, there's a large population down in South Florida. We have seen there's been some up and down frankly with respect to demand again and I think this is all publicly available information on that OMMU website. So we saw kind of pre hurricane spike, then we saw sort of a little bit of a lower week. I should mention that when I say lower, I do not mean lower as in back to 2018. I mean lower as in right before, which was trending up as it was, kind of I'll call it our normalized growth rate prior to any sort of stocking up activity. So we saw it go back to sort of normalized growth. Then the stay at home order, we saw kind of another spike And then we're sort of at normalized growth. So it's been, I guess, spikes along a growth curve is how I can best characterize it. But again, all of that data being available on the OMMU website. But so far, we have not seen any sort of rapid decline in the market. I appreciate your comments there. That's very helpful for my thinking on it. Okay. What would your outlook be on opening new dispensaries in this environment and receiving the regulatory approvals to do so? So the great news is that we have been in touch with our regulators. As you can imagine, they've been extremely helpful in all aspects of our business through since the COVID crisis began to take hold. We have been in talks with them about inspections. And as of right now, they are willing to continue to move forward with inspections. So we are looking to continue. It's basically no change from our previous plans with respect to store openings. So I think you'll you can expect some store opening announcements from us barring any changes there. We'll likely be opening a little differently. For some of you who may have seen our store openings in the past, they're typically very large celebratory events. So we're going to have to approach that again a bit differently with respect to how we handle patient pickup orders and launch the delivery platform and do some things a little differently. But we do need those additional stores to be able to handle the demand that we're seeing. So we're going to continue down that path. Great. Just a final one for me on the patient trends before I turn it over. First of all, very much appreciate those metrics, very impressive overall. Just wanted to ask what were your thoughts on the large increase in the number of patients or the number of visits per patient per month. Do you have any insights as to why that jumped so sharply? Yes. I think that so I think that there's a couple of things. One, I think that that's in line with a market shifting from oil to having flour in the mix. So I think that the product mix in and of itself lends itself to more frequent visits with smaller basket sizes per visit. So I think that if I had to point to any one driver there, I would say that the onboarding of smokeable flower last year was probably the primary driver for that shift. We find that folks who are making those purchases of flower or primarily flower buyers do tend to come back more frequently as we have new strains that are coming because obviously those are tied directly to harvest and what we have available. We've added to our portfolio of strains. We're also adding to the rotation of strains that we have available for patients. So more frequent new strains as well as greater availability of strains across all of the various formats and price categories. In addition, we also, of course, have continued to innovate on the other product front. We've added a number of new products to our shelves, and it's one of our goals, quite frankly, as a company to maintain that pace of innovation. And so those new products also drive customer behavior to come back to our stores to pick up those new products. So I would say those would be the 2 potential drivers there. Thank you very much. You're welcome. Thank you. Your next question comes from the line of Jason Zandberg from PI Financial. Your line is open. Hi there and again congrats on a strong 4th quarter. Number of my questions have been answered. Maybe I could just get some more detail on your delivery fleet. You mentioned that you've increased your fleet by 70 vehicles. What is the total fleet size? And if you can share the percentage of sales or sort of whether you've seen a significant increase before and after this COVID outbreak? Sure. So we have increased our fleet. We're at the right now, we sit at just under 200 vehicles across Florida and our delivery orders have increased by 4 85%. So it's just a little bit. Okay. Thanks. And then as well, you'd mentioned some stats, some great stats in terms of number of visits and basket size. I believe that was for the Q4. Any insights into, again, this after this COVID outbreak in terms of what the basket size has increased to even if it's just sort of in round terms? Yes. We track that metric pretty carefully. And so for, we'll call it, over the last 30 days, I can tell you that our visits are have decreased slightly, which I think can be expected. So but just literally like half a point, so down from like 2.7 to 2.65. And then our basket sizes have increased though, again, I think to be expected. And so from $121 to $127 on average. And then again, that's a 30 day number. Okay, great. Thanks very much. Yes. Your next Thank you. Good. Thank you. Just maybe a question around pricing. Just wondering if you can comment on any pricing trends you're seeing from peers and how people are responding to COVID-nineteen, especially given a tight product supply for a number of products? Yes. Thanks, Russ. We really have not seen any major price adjustments from our peer group really at all. I can say that pricing has been relatively has remained relatively stable. We are again, I think the market itself of course has gone through a market increase in a couple of weeks. There were a couple of weeks that had more significant increases over the last 30 days. I do know that there appears to be some other folks who are maybe having a bit of a harder time maintaining and keeping up with demand. And so, again, I think that, that lends itself right to no price decreases when you're trying to ensure that shelves are adequately stocked. Again, I think that, that just highlights the fact that our oil available oil reserves coupled with the investment that we've made in our smokeable flower indoor cultivation are really coming to fruition and giving us the ability to introduce TRULIEVE to some patients that aren't finding what they would prefer to use on other shelves. So it's been an interesting time for us to recruit new Trilievers to our stores. Great. Thanks for that color. And just my last question is around dispensary additions and understanding your comments with respect to reiterating guidance for now. But with the recent expiry of the cap on dispensaries, what are your latest thoughts around how many you might add in 2020? And any commentary around how many locations you have locked down at this point? Yes. So we were very excited, of course, to see the expiration of the dispensary cap. It's something that I think that we had expected and we're but we're glad to see that finalized. We have a number of locations both under construction in LOI and or working their way through various processes. And so we expect to exit 2020. Our goal would be 68 dispensaries. I of course would love to see 70 for a nice round number, but my team is giving me if they could kick me now virtually, they would. So I would say that we're targeting that 68% number. Excellent. That's great color. Congrats again. Thank you. Thanks, Rod. Thank you. Your next question comes from the line of Derek Dley from Canaccord. Your line is open. Yes. Hi, thanks. And I'd also like to echo congratulations on a really strong quarter. I wanted to follow-up just on a couple of questions that have been asked. So, Kim, you mentioned your commentary just on some of your newer products. Can you talk about how these newer products have fared since their introduction, things like Minis and Flower and Blue River? And then maybe even at a high level, just some of the ideas or product forms that you may have coming down the pipe for new products for 2020? Sure, absolutely. So we've recently launched a number of products as I mentioned. One of the products that we're really excited to bring to market for a number of reasons is TruePowder. So TruePowder is a nano encapsulated cannabinoid product that's water soluble. So it basically dissolves in any liquid. And that onset time of it is similar to a vape in that it's got a more rapid onset. However, of course, it's ingested orally. And so that product has been very well received. We're actually on additional formulations to potentially add right now it's flavorless and so to potentially add some flavor options to that product. In addition, that technology, which we've worked on by the way for about 18 months, that technology will allow us to formulate a number of other products using that technology as a base ingredient. So it really is potentially a game changer for us as we think about our edible suite of products that we were hoping to launch in 2020 once we get additional color from the department on edibles rules. And so again, being able to offer that rapid more rapid onset in an oral format, we think, is important. And that product has been very well received. Another product that I'll just highlight quickly is the Blue River THCA product. So this is a solventless product. As a reminder, all of Blue River products solventless, meaning that they're it's a non chemical based process. And so it uses heat and pressure primarily to separate the cannabinoids and to create concentrates. And so the THC A is an inhalation product and it's a very it's basically a pure THC product that you can add to a concentrate pen. It's also a powder, so not to be confused. We're very careful with the true powder I just mentioned. But again, that product Blue River really has a very loyal fan base, a very loyal customer base. It's very cult like in terms of its following. And so that product as expected has done really well. We've got additional Blue River products in the works, that we'll be announcing with them also here shortly, and those have been doing well as well. And just on that, your commentary there on edibles, has there been any regulatory movement on the eventual approval of edibles in the fortunately is very focused obviously on addressing all things related to COVID, including by the way in our facilities when we've needed approvals to changing processes and procedures, adding employees rapidly, adding delivery cards rapidly. They've been great in working with us. But that also say that any new rules and regulations have been put aside. We do know that they had moved forward with passing both packaging and testing rules at year end early 2019, which were precursors to and were required to be passed before edibles came online. So I've been told that there's a rule that's been drafted. I haven't seen it. That gives me hope that again assuming we can quickly get through the current environment that at some point in 2020, we'll have rules that we can act on. That certainly sounds encouraging. Just a couple of more quick ones, if I can. Have you in the I guess the period since March 13 when we really started worrying more about COVID, have you seen any sort of notable changes in either product mix or on a transaction level? Are you noticing as you've typically seen with delivery, a higher basket size over the last couple of weeks with those transactions? Yes. So with respect to the product mix, what I can say is that which has been on trend for us, so it's a little bit difficult to have visibility as to whether or not this would have been with or without COVID. We've basically just seen an amplification of what previously existed. So I wouldn't say that there have been any major shifts necessarily. We've seen flower continue to increase, which again is reflected in those weekly numbers. Yes, is the answer on basket size. Traditionally, right, we see delivery basket sizes are higher than a store in store basket size. And that typically is around I think that's normal for most retailers. So yes, and again, it's just to reiterate what we had said previously across all across a total metric is that our basket over the last 30 days size has increased from 121 to 127. And to your point, certainly deliveries increases in deliveries is assisting in driving that metric. Appreciate your update here in terms of how many stores you Appreciate your update here in terms of how many stores you intend to add in 2020. So when we think about sort of CapEx, maybe Milan, this one's more for you. Can you give us an update on sort of what your CapEx expectations are for 2020? And then secondarily, back to you, Kim, I suppose, is just on M and A. I mean, obviously, you guys are in a very, very, fortuitous situation here with a healthy balance sheet, industry leading profitability and free cash flow generation. So can you talk about what criteria or what would be attractive for you in terms of M and A from potential states that you're looking at? Sure. Thank you for your question. Kim, do you want to go ahead or? No, no, no. It's okay. It's okay Mohan, go ahead. Okay. So, our average CapEx spend is roughly about $5,000,000 per month. So we basically have taken into account all the dispensaries which were going to be opened in 2020 in that calculation. We are also don't forget that we have a sales leaseback transaction for Holyoke, which will basically reimburse approximately $38,000,000 still left on that line. So that will basically take care of that. So we believe that our plan we have a strong cash position and also we have enough cash to manage our business. So we are continuing to spend on our CapEx. So that would be answer from my part. Yes. No, thanks Mohan. With respect to M and A, Derek, our criteria that we've outlined a number of times remain the same and that M and A of course first needs to be accretive. I think I'll reiterate that it's not just about a land grab and it's not just about being in a state for the sake of being in a state. We look individually at the opportunity. We run it through a number of metrics including discounted we do a discounted cash flow analysis. We do a synergies analysis. We're looking and we rebuild tear apart and rebuild models, because quite frankly, as many of you can appreciate, valuations last year for the majority of the year simply just did not pass through that model when we ran those opportunities through, although we did look at a number of opportunities. We are finding that in the existing environment that we believe that valuations will come more in line, number 1. Number 2, it's also about the quality of the opportunity from a brand perspective and from a people perspective. So we do understand and certainly appreciate bandwidth constraints and want to make sure that as we think about new opportunities that we're also very focused on the strength of the team, the integration of that team with our existing business and the ability to really make a transaction that equates to 1 plus 1 equaling 3, 4 or 5. And that's something that's very important to us. Terrific. Appreciate the color. Thank you very much. Thank you. Thanks, Derek. There are no further questions at this time. I'll turn the call back over to Lynn Ritchie for closing remarks. Thank you for joining us today. We look forward to updating you on our progress again next quarter. Have a great day everyone. This concludes today's conference call. You may now disconnect.