Earnings Call: Q3 2020

Nov 17, 2020

Earnings release

Ladies and gentlemen, thank you for standing by and welcome to the Trulieve Cannabis Corporation Third Quarter 2020 Financial Results Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer Please be advised that today's conference is being recorded. Thank you. I would now like to hand the conference over to your host for today, Ms. Lynn Ritchie, Director of Investor Relations for Trulie. Please go ahead. Thanks, Jack. Good morning, ladies and gentlemen, and thank you for joining us today. On the call with me today are Kim Rivers, Chief Executive Officer and Alex D'Amico, 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. Statements made on this call speak only as of today, and we assume no obligation to update any of this forward looking information. Our financial results are provided in IFRS. Also, our prepared remarks this morning reference non IFRS financial measures in order to provide greater transparency regarding Trulieve. Where applicable, we may also provide a comparison to GAAP and non GAAP financial measures to assist investors. Any non IFRS financial measure 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 September 30, 2020, as well as in the table at the end of the earnings press release. We believe our profitability and performance are further demonstrated using these non IFRS metrics. Please note that all dollar references are to U. S. Dollars. This morning, we reported results for the Q3 of 2020. A copy of our news release, financial statements and MD and A may be found on 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 later today. Now I will turn the call over to our CEO, Kim Rivers. Thanks, Lynn. Good morning, everyone, and welcome to today's call. Truly has exceeded consensus for revenues and EBITDA again this quarter, achieving approximately $136,000,000 in revenue, representing a sequential quarter over quarter increase of 13%. Trulieve's 3rd quarter pro form a revenue, including the Pennsylvania acquisitions that closed last week, was $154,900,000 Our adjusted EBITDA was $67,500,000 or 50% in the 3rd quarter. This is a 93% increase in revenues and an 83% increase in EBITDA on a year over year basis. We are proud of that industry leading profitability performance. As discussed last quarter, we are transitioning to GAAP by year end. An area that has a significant difference between IFRS and GAAP is net income. Our net income on a GAAP basis would have been $17,400,000 resulting in an impressive earnings per share of $0.15 Alex will provide additional details around our Q3 results and the transition from IFRS to GAAP. Before we get to that, I would like to highlight our hub model expansion strategy election, which is, of course, still top of mind for everyone. Cannabis was a decisive winner on election night. All medical and adult use ballots passed in a clean sweep from the New Jersey adult use ballot in the Northeast to Mississippi's medical ballot in the South, the overwhelming support of these measures sends a signal to our political leaders in Washington that cannabis is not a partisan issue, but a human one. We are encouraged for brighter days ahead in the U. S. Regarding the cannabis industry and we are actively preparing for what that might mean in the years to come. One of the ways we are preparing is our hub expansion strategy, which divides the country into 5 hubs or regions: Northeast, Southeast, Midwest, Northwest and Southwest. We will leverage the experience we have gained across the supply chain in these hubs, a process we have started in the Northeast. We have established our Northeast hub via acquisitions in Connecticut, Massachusetts and most recently Pennsylvania. As we have stated before, when we evaluate an acquisition opportunity, we focus on the culture of the potential target and whether it matches Truly's values. A second focus is whether the acquisition will be accretive. Pennsylvania embodies both. With the closing of the Salivo and Pierpen acquisitions last week, we're expanding our Northeast hub. Pierapen is a premier cultivation and production company and Solivo brings us 3 successful medical marijuana dispensaries in the Pittsburgh area. These acquisitions are a game changer for our expansion plans as they create an immediate and significant presence in Pennsylvania, a large and growing market. Pennsylvania is the 5th most populated state in the U. S. With approximately 13,000,000 people and an expanding medical marijuana patient base of approximately 380,000 patients as of September 30. Pierpen and Salivo are proven and profitable operators with strong management teams. Each company also has deep ties and support within their communities. The transactions offer state of the art facilities, a premium product portfolio, a strong and growing patient base and a statewide wholesale customer base of 100 percent of the 93 dispensaries in Pennsylvania. We are expanding our 35,000 square feet of cultivation to 90,000 square feet and the additional facilities are expected to come online by the end of Q1 2021. The expansion will allow TrueLeaf to meet demand in Pennsylvania, particularly with the potential for recreational use more likely now that New Jersey has passed a recreational initiative. On the dispensary side, Solivo's customer centric philosophy has been wonderful to see throughout the acquisition process. Solivo experienced healthy patient growth this quarter and had a customer retention rate of 83%, reflecting strong customer loyalty. Pennsylvania is a major milestone for Trulieve and we will continue to explore additional strategic growth opportunities and look forward to sharing more in Pennsylvania in future quarters. I'll now turn to Connecticut, where we began our Northeast hub operations. Connecticut was another successful transaction for us as it met the criteria I just described customer centric values and profitability. Our Connecticut dispensary continues to hold market share in an expanding market. Our Bristol store is now one of 18 open dispensaries in the state, yet maintains an outsized 10% market share. We are incredibly proud of our Connecticut team for their outperformance. Another exciting state for us in the Northeast region is Massachusetts. Wholesale flower pricing remains strong in Massachusetts and given there is currently a significant flower shortage in the state, we believe that this continues to be a great opportunity for Trulieve to bring high quality products to the market. Navigation of the regulatory environment has been a slow road, but we are currently in the inspection and approval phase of our 1st dispensary as well as our 140,000 square foot cultivation and production facility. Absent additional delays attributable to COVID shutdowns, we are confident that we can get both approved and commence operations in the first half of twenty twenty one. We look forward to giving a more specific timing update on our Q4 call. Another recent addition to our Northeast hub is West Virginia. Just last week, we announced that we had been awarded a processor permit. Approval as a medical cannabis licensee provides Trulieve with an opportunity to bring the Trulieve brand to our new patients through wholesale opportunities. Let's now switch to the Southeast. Our home base in Florida is the cornerstone of our Southeast hub. As more Southern states legalize and launch cannabis programs, we will look to expand. Trulieve is the undisputed leader in Florida. A foundation of this success is our ability to quickly execute as demonstrated by having the first sale of medical marijuana, the first sale of flower and the first sale of edibles in the state. Truly sold the first edible products in the state on September 2. We've been planning for edibles for a long, long time and a main directive for our team was to have a go plan in place. Edibles regulations were released at the end of August and within a week Trulieve made its first sale of TruGel in our Tallahassee store to a long time patient and member of our TruVet program. We only have one full month of data, it's not enough to show a trend. However, with impressive sell through rates, I think we have a product that the market has clearly been waiting for. We currently offer 5 flavors of Trujell, 2 varieties of Trujell, 2 varieties of Trujell chocolate, brownies and cookies from Love's Oven, 2 varieties of Peruvian chocolate bars from Bensk and recently added true nano gels in 3 flavors. Our 10,000 square foot kitchen is cranking, working 3 shifts and we are already adding new equipment and lines to meet patient demand. In addition to the launch of edibles, we've added other exciting products such as True Keep, a high THC product and CBN launched with Blue River, which is a naturally occurring cannabinoid that can aid sleep without the psychoactive effect of THC. We also launched our cultivar collection, a line of premium quality strains with unique flavors and terpene profiles. This craft will be rotational and available at select stores throughout Florida. We've had wonderful feedback from our TrueLeaver community on these new additions. Our strength of execution has allowed us to achieve and maintain our consistent share of over 50% of the Florida market. Truly has built a powerful lead in the state and we have become the standard to patients for loyalty, trust, selection and quality. This is reflected in our ability to improve on already impressive market share. In October, we maintained a 51% share of dispensations of oil and increased to 54% for flower and recently had record breaking weeks in both categories. Our performance continues to remain strong in the 4th quarter, operating 22% of the dispensaries yet outperforming with approximately 52% of the market share. 3rd quarter patient growth in the state had approximately 62,400 new patients, just 300 patients shy of the entire patient count for the first half of the year. This is incredible growth. We are seeing that patient growth come through in our store count and performance. Our expectations of $7,000,000 to $8,000,000 per dispensary on an annualized basis are now nearing $10,000,000 per dispensary. During the quarter, we continued our unmatched pace of launching new stores, opening 9 new dispensaries in Florida. This month, we achieved our previously stated goal of 58 stores nationwide by year end. And yes, there will be more to come. As a matter of fact, we are looking forward to opening the Lake City location in Florida tomorrow. Let me take a moment now to update you on the key retail performance indicators we provide each quarter. Trulieve's customer retention rate was approximately 79% in the 3rd quarter, a sequential increase compared to 76% in the 2nd quarter and 74% in the 1st quarter. For me, this is quite meaningful as our focus on patient satisfaction translates to growing loyalty among our true leavers. We also track average basket size and number of visits. For the Q3, patients visited an average of 2.9 times per month, trending up from 2.7 times per month in Q2. Average basket size was $108 for the quarter. We expected basket sizes to normalize somewhat in the Q3 as there were macroeconomic drivers at play in Q2, such as COVID related buying, stimulus checks and tax refunds. In addition, we experienced a third party testing bottleneck in Florida during the Q3. Product availability caused some patients to have return visits, skewing the visits higher and contributing to the lower basket. Another metric we track is same store sales. The 29 stores opened for the entirety of Q3 of 2020 that were also opened for the full quarter in Q3 2019, we had same store sales increase of 19%. 15 of these stores were also opened in Q3 2018. From our analytics and based on the velocity of store openings and how rapidly their output ramps, we see this as indicative of healthy overall growth. Consistently achieving impressive results is a product of our ability to expand and optimize our production facilities. To support the continued patient growth I just outlined and importantly keep products on shelves, you need not only a large cultivation footprint, but also deep expertise in supply chain management, logistics and product development with a clear focus on efficiencies and optimization. These skills and scale will serve us well as regulatory barriers shift and we execute our hub model. As TrueLeaf continues to expand its cultivation footprint, we are not just adding more plants. We are making investments in our people, processes and production to meet ever growing demand. During Q3, we added 96,000 square feet of cultivation and another 24,000 square feet in October, which brings us to almost 1,900,000 square feet with annual capacity of over 86,000 kilograms and we're still building. We expect another 70,000 square feet to be added by year end. We are doing this while remaining agile enough to pivot responding to catalysts in the market such as the approval of new products or dealing with logs in third party testing. 3rd party testing slowdowns were unique to Florida, so let me take just a moment to add some context here. As mentioned earlier, at the start of Q3, new testing regulations were implemented that require all Florida licensees to test products at certified laboratories as well as adding additional testing requirements. Trulieve's protocols since inception have included internal testing in our GMP certified lab coupled with 3rd party testing. So this was nothing new for us. That was not true, however, for some of our competitors. When 3rd party testing was mandated, labs were immediately backlogged with product to test and the bottleneck it created impacted Truly's product distribution. Let me just say the process was painful and had an impact on 3rd quarter revenue. At one point, to put it in perspective, we had close to 600,000 units hung up in testing. We worked with our labs and changed some internal processes. And as we enter the Q4, we see improvement in the testing turnaround times as evidenced by our record setting weeks discussed earlier. I am very proud of our performance this quarter, not only in light of COVID, but despite it. The double digit revenue growth performance is even more remarkable considering it is building on the 26 percent increase to our revenue base generated in Q2. The leadership position we have in Florida and the distance between us and our next nearest competitor is unlike any other market in the country and the transformational path we are on for strategic expansion as we execute on our Northeast and Southeast hubs is exciting. I'll now pass the call on to our CFO, Alex D'Amico to share our Q3 financial highlights. And if he happens to cough and for the record, he does not have COVID, but he does have asthma. Alex? Thank you, Kim, and good morning, everyone. As Kim covered at the top of the call, we had a very strong quarter for revenue profitability. Trulieve had record quarterly revenue of $136,300,000 representing a sequential quarter increase of 13% and a 93% increase over the same quarter last year. Unaudited pro form a revenue, which includes Pure Pen and Salivo and assumes the acquisitions had occurred on January 1, 2020, would have been $154,900,000 for the current quarter $392,000,000 for the 9 months ended September 30. As a reminder, this will be our last quarter reporting on an IFRS basis. In moving to GAAP, there will be a subtle shift in how we report certain items. We will be discussing the GAAP equivalent to key financial line items for the current quarter as I walk through our financial results. A measure unique to IFRS is production expenses and cost of goods from third party suppliers. I would like to remind all of you about something that was communicated on our prior calls. This line is not cost of goods sold as you would find under GAAP. It is the cost of goods plus other production costs. An accounting election under IFRS allows for production costs or pre harvest costs to be expensed as incurred. Therefore, the additional costs added here and what differs from the cost of goods sold line under GAAP for those of you attempting to reconcile are those production costs related to the unsold inventory or said another way, what we call grow costs for unsold inventory. I am very happy to say that this is the very the final quarter we will have this dynamic. On a consolidated basis, production expenses in Florida and cost of goods from 3rd party suppliers in Connecticut and California totaled $34,100,000 for the 3rd quarter. Revenue less these production expenses and costs was $102,200,000 for the quarter or 75 percent of revenue. This compares to $91,100,000 or 75 percent in the 2nd quarter. As we stated last quarter, we are continuing to realize the benefits of our efficient production and cultivation processes in conjunction with the fact that we did not do a spring greenhouse planting. It is possible for our gross margin to fluctuate a few basis points in either direction from quarter to quarter depending on inventory flow through and product mix. Under GAAP, we also had gross margin of 75%. Now I'd like to update you on inventory. At the end of Q3, we had a total of 205 $300,000 of inventory, which includes a significant amount of fair value. We also had $34,800,000 of biological assets. This compares to $219,000,000 of inventory $33,300,000 of biological assets at the end of Q2. On a quantity basis, we ended the quarter with approximately 6 months of inventory on hand, down from approximately 7 months at the end of Q2, resulting in a $13,700,000 reduction in inventory in the quarter. Inventory and biological assets are 2 of the areas that show the greatest difference between IFRS and GAAP for our business. Under GAAP, we don't have the concept of biological assets and all fair value is removed from inventory. As such, the $240,000,000 of inventory and biological assets that we reflect under IFRS would equate to $77,700,000 of inventory under GAAP. Our oil inventory levels remain a differentiator, enabling us to quickly respond to challenges such as COVID and catalysts such as edibles. I'll now turn to expenses. 3rd quarter SG and A expenses, excluding depreciation and amortization, were $37,900,000 or 28 percent of revenue compared to $33,100,000 or 27 of revenue in the Q2 of 2020. The slight increase this quarter is primarily due to the opening of 9 stores in the quarter versus 5 stores in the prior quarter. We expect increases in operating expenses through 2021 as we continue to add dispensaries, enter new markets and ramp our infrastructure to support our growth initiatives and go forward compliance, but we do not anticipate a material change as a percentage of revenue. Overall, keeping a high degree of financial discipline around expenses is one of our keys to profitability. Operating income for the company was $43,400,000 this quarter compared to $37,500,000 last quarter. Net income was $4,700,000 for the 3rd quarter compared to $6,600,000 in Q2, resulting in EPS of $0.04 Under IFRS, for net income and EPS, it's important to note that if the fair value impact of biological assets and the revaluation of our debt warrants were excluded, net income would increase to $33,300,000 for the 3rd quarter compared to $28,400,000 in Q2, resulting in EPS of $0.30 Under GAAP, the fair value impact of biological assets accounting goes away, but the revaluation of our debt warrants will remain. As Kim mentioned, net income under GAAP would be $17,400,000 resulting in EPS of $0.15 on a fully diluted basis. Focusing now on EBITDA. 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, share based compensation, 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 assess the operating performance of our business. Adjusted EBITDA for the Q3 of 2020 was $67,500,000 or 50 percent of revenue compared to $60,500,000 or 50 percent of revenue in Q2 2020. The $7,000,000 improvement in adjusted EBITDA this quarter is primarily due to the increase in revenue, partially offset by increases in operating expenses and production expenses and cost of goods from 3rd party suppliers. This is even more impressive when you consider the COVID response costs incurred in the quarter to keep our employees and patients safe and the investments we've made throughout our facilities and dispensaries. In this quarter, the GAAP equivalent adjusted EBITDA was approximately $65,800,000 or 48 percent of revenue. The primary reason for this difference relates to the accounting treatment of leases under GAAP, which was factored in when we provided our increased guidance last quarter. Turning to taxes. As a percentage of gross profit, including the net change in fair value of biological assets, our tax rate was 25% for this quarter. We continue to maintain a strong balance sheet and cash position. Through the end of the third quarter, we have delivered $73,700,000 in cash flows from operations for the year. This is the result of our continued quarter over quarter profitability. In the quarter itself, we had the unique one time impact of the COVID tax extension, whereby we paid $45,400,000 in tax payments in July that were delayed from the prior quarter. This was coupled with our standard quarterly tax payment in Q3 to lead to $70,900,000 of tax payments in the quarter. The double tax payment resulted in negative $4,200,000 of cash flows from operations in the quarter, where we would have been positive in both Q2 and Q3 had the timing of tax payments remain standard. As such, it is more appropriate in this case to look at the last two quarters combined where we have delivered $49,100,000 in cash flows from operations. We fully anticipate positive cash flows from operations on a quarterly basis for the foreseeable future. We ended the quarter with a cash balance of $193,400,000 Our strong cash position allows us to quickly leverage the foundation we have built to capitalize on expansion opportunities, organic growth and go deeper in the states where we operate. In that regard, we plan to continue ramping our indoor buildings as we monitor the market and respond to the demand for flower. We will invest back into the business with CapEx expenditures through the remainder of the year and throughout 2021 to support our raised revenue guidance for this year and our planned 2021 revenue targets, which we will detail for you next quarter. Total CapEx spend for the quarter averaged just over $11,000,000 per month. This includes the build out of our Florida production and cultivation facilities as we continue respond to the market demand for flower and the construction of our new dispensaries. This amount also includes what we refer to as operational CapEx, fit outs of dispensaries, equipment utilized for automation and processing efficiencies, security and systems inclusive of upgrades. Finally, we have our build outs in markets outside of Florida. We expect a similar run rate through the remainder of the year. We also anticipate continuing to ramp our production and dispensary facilities in 2021 as we support our growth initiatives. As we look forward to 2021 and beyond, we will evaluate market demand and growth in our current markets to determine our expected CapEx. Last quarter, we raised guidance for revenues in the range of $465,000,000 to $485,000,000 and adjusted EBITDA of approximately $205,000,000 to $225,000,000 While we are not adjusting guidance at this time, we do not expect declines in Q4. Please note that our guidance does not contemplate our recent acquisitions in Pennsylvania, where we will have the benefit of approximately 1.5 months of revenue in our consolidated year end results. I will end by saying that I'm proud of what we've accomplished to date. We have optimized our accounting and finance departments, enabling us to fully capitalize on all opportunities as we continually assess our M and A and applications pipeline. We have upgraded our SAP platform, which will lead to increased compliance and analytics capabilities for years to come. And we are well on our way evidenced by the GAAP metrics provided today. Finally, we have begun the formal build out of our Sarbanes Oxley program, which will continue throughout 2021. This will enable us to quickly take advantage of uplift opportunities when they arise. We are looking forward to an exciting end of the year and an even better 2021. I'll now hand this call back over to Kim for closing remarks. Kim? Thanks, Alex. 2020 has been a marked year for change, not only with COVID, but in a more encouraging manner around the social justice conversations we are having as a country, Giving back to communities we operate in and supporting diversity, equity and inclusion efforts are part of our core values. In addition to social issues, our team is actively supporting many great causes that are important for our patients and their communities. Making a positive impact doesn't stop there. We understand environmental issues are important, which is why we just issued a sustainability review of where we are and where we will be focused in the year to come. There is more to growing a business than just the day to day operations and bottom line. We are growing a socially and environmentally responsible company that is ready for the future. And that future is exciting. As I shared last quarter and throughout our remarks today, Trulieve is on a strong trajectory and we are operating with a clear set of priorities to maintain our leadership and we are excited about not and we are excited about not only ending a great year, but also the road ahead as we enter 2021 bringing the Trulieve brand into new markets. Thank you for joining us today and as I always say onward. Operator, we can now open it up for questions. Certainly. Derek Dley with Canaccord Genuity, your line is open. Yes. Hi, thanks and congrats on another really, really strong quarter. I just wanted to talk a little bit about sort of capital allocation priorities and plans. You guys are obviously in a very fortuitous balance sheet position and we did see an increase in CapEx this quarter. Should we expect something similar over the next sort of few quarters as you guys execute on what seems to be quite a big number of growth opportunities? Thanks, Derek. Our CapEx is really something that we focus on and we strategically evaluate on a continuous basis and that will continue. It is important for us to make sure that in our core markets we're continuing to invest appropriately so that we can generate that return on every dollar spent and that is something that we hold ourselves to a very high standard. Clearly Florida has been a market where that investment has a significant return for us and generates cash that we're then able to continue to invest not only in Florida but in our other growth markets. So what I would say is that we're not prepared on this call to provide specific guidance on a forward basis related to CapEx. But we do of course have ambitious growth plans not only for the remainder of this year as was reflected in our increased guidance, but also as we look into 2021 and as we're putting that plan together, which we're going to share with you all on the next call. And it will require of course investments in CapEx as we build out that platform. So more to come on that. But certainly as you heard from Alex, you can expect the current run rate in Q4. And really that Q4, as we all know, those Q4 capital investments are really 2021 capital investments at this point because particularly when we're talking about cultivation and production investments, those require an investment upfront, but it takes minimum of a quarter for us to begin through it to realize revenue and output from those investments. Okay. Thank you. That's helpful. And just in terms of when we think about some of the additional states that you brought on or certainly that are going to play a bigger part in 2021, namely I'm thinking Pennsylvania and Massachusetts, which do have wholesale markets obviously different than Florida. Can you just talk about I'd be curious to hear your approach to wholesale and how you're thinking about attacking that portion of the market? Yes. We are extremely excited to get into activate our wholesale line of business. We have been on the ground in Massachusetts now for quite some time, really feel like we have a fantastic understanding and grasp on that market. Clearly, in Massachusetts, with the restriction on number of retail, we do believe that wholesale will be an important line of business for us to be successful on. And again, it's a tool in the toolbox that we'll need to deploy depending on the regulatory regime of the market. We do understand and I think everyone understands that having a vertical platform is certainly the most profitable and something that we have excelled on. So we will continue to have vertical channels wherever we're that's allowable. However, we also understand that in some markets there is limitation to what that channel can provide and to diversifying into a wholesale channel where you then have access to an ever increasing slice of the pie, if you will, with respect to other dispensaries that are coming on board is very, very important too. So Massachusetts, that plan has been developed and we're looking forward to launching in Pennsylvania. Specifically, we're very excited that we have 100% penetration currently in through the wholesale channel and we'll be looking to maintain that while also of course producing enough that we have good depth of product across all product types in stores that are also under the company umbrella. Russell Stanley with Beacon Securities. Your line is open. Good morning and congratulations as well. Just wondering, pardon me, with respect to Florida and the dispensary build out there. Congrats on reaching your target well in advance. Can you, I guess, elaborate just how many openings we might see before year end? If you have any preliminary thoughts on the pace of expansion in 2021? Thanks, Russ. We're not going to give a specific number for year end. Like I mentioned, we are we do have a grand opening tomorrow in Lake City, which is a fantastic location. It's actually off of 2 primary interstates I-seventy five and I-ten and is in a I think a great area for both medical and then one day potentially recreational market here in Florida. We continue to monitor of course all of our metrics that lead to lead us to make the decision for store expansion including of course customer demand, current sell through rates and wait times on existing dispensaries. And then of course with an eye towards what's to come and that potential of recreational coming to fruition in Florida, which again with the recent activity with the elections across the country and sort of the tone politically, we think certainly has a shot here in Florida in 2022. Great. That's helpful. And maybe if I could just around the impact of the testing delays, I think you still be consensus and certainly our estimates, But can you quantify the revenue impact of those testing delays? Yes. Russ, we actually we don't have a specific revenue impact. Obviously, that's a multidimensional question. And but what we can say is that we have certainly seen the pull through into Q4, which I know that you all are all seeing as well as we look at the numbers on a weekly basis with respect to our performance and really the market as a whole here in Florida. So I know we saw those that sort of rate slowdown a bit last quarter and we really do think that that was due primarily to just again product availability. We certainly weren't meeting our targets with respect to depth in certain product categories that we know are drivers for patients. And yet what was has been very encouraging is that we've seen that demand bounce almost immediately back once we were able to get those products cleared from that bottleneck and back on shelves. So we are seeing kind of the I guess the pull through again in Q4. And I don't have an exact number for you, but we certainly do believe that we could have been higher in Q3 had that not occurred. Understood. That's great color. Thanks again and congrats. Thanks. Matt McGinley with Needham. Your line is open. Thank you. On the acquired assets in Pennsylvania, it looks like you had pretty strong sequential growth at least from the first half related into the 3rd quarter. But how much of that growth in the Q3 was driven by increases in retail productivity versus cultivation? I'm not sure if I should assume a similar sequential increase into the Q4 or if that Q3 is kind of like a baseline to model off of? Matt, yes, we're not prepared to give any additional depth of color. As you know, that's and as we've certainly stated there's unaudited numbers at this point. We'll have additional color for you all and as we again move into Q4 and year end and get through our audit and so that we can speak with a bit more confidence and specificity around those numbers. But yes, we're not at this point prepared to give any sort of breakdown on that. Okay. And does the pace of the unit growth in Florida, I mean, does that you've been growing at like 6 to 8 units per quarter. Does that feel sustainable into 2021? Or do you feel like either internally or externally you're sort of stressed with sustaining that sort of growth rate? I certainly don't think that it's a strain from an ability to execute standpoint. Clearly, we look at those numbers in a very analytical way in terms of pacing to meet demand and making sure that we're within our kind of operating metrics if you will. I don't think that it's certainly not a stretch from an execution or a team or what our pipeline looks like from a retail location standpoint. It just would be a question in terms of whether or not it makes sense given sort of the overall mix and how it fits into our metrics. Okay. Thank you very much. Pablo Zwaneck with Cantor Fitzgerald. Your line is open. Thank you. Good morning. Kim, just can you give us an update in terms of those Supreme Court cases in the state, one regarding wholesale, what are you hearing, how do we handicap that? And the second one I think is related to potential ballot for REG. But just if you can give more color and context around those two cases please and timing, if you have some sense of that. Thanks. Sure. I wish that I had a substantive update for you. I don't. We're waiting on the Supreme Court in both instances. So nothing new yet as a result of the oral arguments, the 2nd round of oral arguments on the we'll call it the wholesale case that the Supreme Court had oral arguments again on in October and then also nothing on the ballot initiative yet. So I really I don't have anything that you all don't know on either of those. But we'll certainly I'm sure be talking once we hear some news from the court. Okay. And just a quick follow-up. A lot of your competitors are talking about adding capacity in Florida. Obviously, it's a question more for them, but do you have a sense of what's really going on? When I look at the UMO data, I find it interesting that the number 2, 3, 4, 5 positions tend to shift week to week or month to month. And other companies are necessarily they don't have the same position in say oil versus flower. So that seems a bit erratic. I don't know how to make sense of that. But any color you can share there? Yes. I mean obviously I can't speak to competitors and what they may or may not be doing strategically. Although I can say that if you don't have enough capacity, then you do have to make decisions related to flour versus oil and how you're allocating that supply. Certainly, we've refined our product mix as well as our grow techniques and the way that we're allocating different material for different product lines. It's a very simple concept to say. It gets much more complex in practice. And as you know, we've diversified our grow with again the greenhouse inventory which gives us a robust supply chain of less expensive input material for biomass for oil products. And then of course we have our high quality indoor grow which is delineated between flower and then also higher in concentrates. And so I do think that our scale provides certainly a competitive advantage and our ability to continue to keep our product lines fresh and interesting and diverse while others may be finding themselves into more decision making having to make more specific decisions around PMICs due to supply constraints. Okay. If I can add one last one and maybe more for Alex. But in terms of the guidance you've given for Pennsylvania, so the deal value with add ons was 141,000,000 dollars right? And you said it's below 5 times EBITDA. So it means full year run rate of EBITDA about €30,000,000 If I assume a 25% margin, that means €120,000,000 in sales next year in New York, Pennsylvania operation. For this Q3, you did about €19,000,000 dollars right? That's 76,000,000 annualized. It would seem that number, it's quite doable and that you could actually beat that number based on the growth momentum in Pennsylvania. Any comments you may have there or Alex? Yes. I mean, as you know, Pablo, we're not providing guidance. And I think specifically said that this year's guidance does not include the Pennsylvania acquisition. Certainly, as we get into another round of guidance as we signal potentially coming as early as the next call, I think again as we get through the Pennsylvania audit and really make sure that we've got clear handle on exactly what that may look like. And then I think we'll be in a better position to comment on that specifically. But with respect to what we've released about the deal and of course just to remind everyone we do have a specific presentation on the acquisition available online at trulieve.com under our Investors tab that the folks are more than welcome to refer to. Thanks. Andrew Partheni with Stifel. Your line is open. Hi, thanks for taking my questions. I wanted to maybe discuss on the promotional environment currently in Q3 and Q4. Could you give a little bit of color on how you see that evolving? And as well the product mix that you had in Q3 and how that may or may not have affected average pricing? Sure. So we have very specific criteria that we hold ourselves to with respect to promotions and our acceptable range if you will on a monthly basis with respect to promotional activity. We've been within that range every month and well within that range. And so we feel very comfortable and haven't seen any significant shifts that we've at least affecting Truly. With respect to the market as a whole, certainly, and I think as the last as Pablo, the last speakers correctly identified, we certainly see swings among other competitors in terms of their changes in position. We believe based on our analytics that some of that does have to do with what promotions they're running or what they're focused on with respect to particular product classes or segments. So you certainly may see a higher level of promotional activity and it may not be overall a higher level of activity just maybe a higher level focus on a particular product segment. And again, that may have to do with their product mix, etcetera. So, but overall, I would say globally it relates to Trulieve, we're certainly well within our range and have been consistently within that range from a promotional perspective quarter to quarter and month to month. Great. That's very helpful. Thank you. And just on another topic of M and A, you obviously have the ability to deepen your footprint within Pennsylvania, adding more store licenses there. Would you say that that could be a focus for you? Or how does that focus play with relative to entering even more new markets? Yes. As I've said historically, we certainly are focused on profitability and increasing profitability wherever possible in markets that we operate in. Obviously, that's dependent on opportunities that exist and we are opportunistic with respect to M and A. On the call, we tried to clearly identify our priorities with respect to the build outs of our Southeast and Northeast hubs, which we'll continue to focus on as we enter as we close out 2020 and enter 2021. Okay. Thank you and congrats on a good quarter. Thanks. Jason Zandberg with PI Financial. Your line is open. Thanks for taking my question. Just wanted to maybe shift gears on to West Virginia. Just first of all, congrats for recently being awarded a license in that state on the processing side. Just wanted to get your thoughts on pursuing further licenses in that state. How important do you see West Virginia in your roadmap moving forward? Just any color you could give would be fantastic. Thanks. Sure. As an adjoining state Pennsylvania, certainly again as we're thinking about operational efficiencies in that Northeast hub, West Virginia was a natural application target for us. The state of course is not through awarding licenses there. And so we'll have again a more complete evaluation of what that market may or may not look like once we're completely through the licensing award process. And again, clearly are going to be evaluating impacts and we'll have additional color as we look to contribution from that state in 2021. Kenric Tyghe with ATB Capital Markets. Your line is open. Thank you. Good morning and congrats on the quarter. Kim, just with respect to edibles, edibles in Florida, could you speak to how you see edibles as a form factor evolving as a percent of mix or rather what you see edibles representing, let's call it a year or 2 down the line? And then the follow on to that would be, what is the read through in terms of your gross margin profiles of edibles at weight? And how should we think about the potential impact of edibles at weight on your margin profile between here and there? Edibles has been a fantastic addition to our product mix so far. Clearly, we're in the ramp up phase. And certainly, in Q3, as we were bringing edibles online and then coupled with our testing bottlenecks, you have to remember that labs were also testing edibles for the first time which is a whole different that's a whole different animal with respect to how those tests are performed and quite frankly the number of tests that have to be performed on edibles as required by the state of Florida. So that's why we were hesitant in large part to give any specificity around those numbers for Q3 because quite frankly we had a lot of products hung up in testing that then got kind of shaken loose if you will towards the end of the quarter. Now we are seeing very impressive edibles is at the top of our sell through rate from a velocity perspective. So we are seeing very impressive sell through rates on our edibles and what that's telling us is that we need to make more of them faster. So that surrounds our the comments on the call around ramping production, making sure that we're fully staffed all three shifts, looking at expanding equipment, adding lines, so forth and so on because we know that the demand for that product category is here. So we see it as a strong contributor moving into Q4 as well as into early 2021. We haven't again given specific guidelines on margin contribution or profile. I think we all know that edibles in general are and do tend to have a stronger margin profile. Again, that was tempered somewhat because labs and so forth were trying to get their feet underneath them and actually required additional guidance that was just issued by the Department of Health around and adding some more practical quite frankly and we're appreciative of it guidelines in terms of how many tests and that will greatly affect both the cost and the timing flow through of getting edibles to market in Florida. So that's a bit influx right now, but they are certainly above average with respect to margin performance. That's great insight, Kim. Just on the velocity discussion, you mentioned you got 3 shipped today, very impressive kitchen that you have, the 10,000 square feet. But are there regulatory or other constraints that would preclude expanding that? I mean, I appreciate there's only so many new lines you can layer into a 10,000 square foot kitchen. How do we think about that? And is there a regulatory constraint for any potential expansion of your kitchen? Yes. In Florida, there's not. And there aren't any regulatory constraints across the supply chain, which is one of the reasons quite frankly it's such an important market for us and why we've been able to reach the scale that we've been able to reach, which we think of course will be important because as again the regulatory landscape shifts across the country, the ability to have operated and really understand what it takes to operate at truly scale, we think is critical in terms of our ability to actually produce volume. It's one thing when you have a 2,000 square foot kitchen and you're running 1 ship today, right? It's quite different when you're doing literally we're at a commercial manufacturing level, of course, all GMP certified and so forth. So there's not a regulatory constraint. We would think about adding an additional square footage for a kitchen and certainly are in discussions around that as we think about CapEx and we think about expansion going into 2021. Of course, there's the timing right on that and that of course is a separate conversation. But no regulatory constraint and certainly we see it as a strong contributor again as we move into 21. Thank you, Kevin. Just a very quick follow-up, I could just slip 1 in on Pennsylvania, please. Your capacity expansion to 90,000 square feet, is it largely or entirely to service the wholesale opportunity? Or is there an opportunity within the Solivo stores for increased penetration or less buying in of product? How should we think about that? Is it a direct to the wholesale exclusively? Or is there also some additional opportunity within the 3 stores that you have? So right now Pure Pen is selling into Salivo at a fairly low rate. So we definitely believe that there is increased availability to sell through into the Salivo location. And then of course in addition to expand our wholesale penetration as well not their penetration because they're at 100% of the stores, but to increase the mix and to increase the variety and quantity of product that they're also selling to wholesale market as well. So we think there's upside on both avenues. Thank you. And actually done. I'll leave it there. Thanks. Eric Delaurier with Craig Hallum Capital. Your line is open. All right, great. Thanks for taking my questions and offer you my congrats on the strong quarter as well. First one for me is a bit of a follow-up on Kenric's question. So I believe right now Pure Pen or Moxie production is 100% concentrates. I guess correct me if I'm wrong there. But you also stated that you'll be expanding cultivation from 35,000 square feet to 90,000 square feet and, of course, further room for expansion. Should we expect to see some flower production coming from that expansion? And if you can offer any color whether it will be Moxie or Truly branded? And then any color on the margin profile difference between concentrates and flower, if you're willing to offer it would of course be helpful. Yes. So just a quick reminder on Pennsylvania as we move into 2021 and I know you all know this, but we are in earn out. So there is we are and we look at that very as a true partner. And so we are in a bit more of a consultative relationship through 2021. That being said, certainly there is an expansion. We are in deep conversations with our partners around product mix and running different models and considering the different strategic alternatives for the expansion of that 35000 to 90 1000 square feet. Certainly, Pierpen in the past has provided flower. So they are equipped to and know how to grow very high quality premium flower that had incredible sell through. As we know the Pennsylvania market of course does have a current flower shortage like a lot of markets across the country. So that is part of the discussion. And so I'm not in a position to comment today on that. However, again, conversations are ongoing. We have a great outlook for Pennsylvania and for that relationship moving forward and look forward to being able to bring a variety of products to the market. Okay. That's helpful. And then lastly from me regarding the testing backlog in Florida. First, can you comment on how you were able to get edibles out so quickly amid that backlog? And then any commentary on whether you expect the testing backlog to improve? I know from my personal experience that testing backlog is difficult to work through and especially with edibles with the various matrices involved there. So any comments on whether seeing more labs opening or current labs increasing capacity? Just any kind of comment on your thoughts on that testing backlog and how we should think about it going forward? Sure. With respect to our ability to get edibles out the door, as we've mentioned now, I think you all literally heard me talk about edibles now for the last three calls or so. So I think we can all appreciate that it's been top of mind and it was no surprise that we were sitting on go related to edibles. And what that meant is that we had oil in reserve allocated ready to be batched. We had all of our formulations. Our kitchen was approved in advance. Our amendments were drafted. We kept it very, very simple and what we thought could be approved easily by the department given edible section of Florida statute. So preparedness and then our team's laser focused on being on execution. I mean, the rules came out, I believe, mid afternoon. Our team worked literally around the clock until we made that first sale. So it wasn't something where we were looking at it like there were 12 hours of time to work in a day. I mean it literally was an all hands on deck 20 fourseven push. So in terms of the labs also when you're talking about smaller batches from a launch perspective that becomes much easier to handle than again as we ramp up to production level batches and varieties of products and we're talking about not only the true gels or gummies, but we're also talking brownies and cookies and chocolate and that becomes of course more complex depending on the form factor. With respect to how we see that clearing initially there was not to get too granular here but initially there was some confusion and it could have been interpreted that literally over 40 tests were required per batch of edibles. That now has been clarified by the Department of Health And some of that I would like to think is not only ourselves, but many of the other companies in the state asking for that clarification along with the labs. So we now have clarification. It's actually much fewer than that. So that helps in and of itself. In addition, we worked with our labs and have just had we have a high level of transparency. There's literally a report that goes off to them every single day with when they promised it, where they are and what our expectations are. And so I think it's just that working and making sure we've got good processes in place and also clear expectations that labs have also increased their equipment and additional labs to your point are getting certified in the state. So there's a multitude of factors in terms of what's going on with that dynamic. But I think as far as Truly this concerned, we have successfully cleared that backlog and are now back on track within our, I'll call it, pre testing backlog parameters in terms of sell through and flow through on our tests. All right. That's great to hear. I appreciate the color. Aaron Grey with Alliance Global Partners. Your line is open. Hi, Alad, my congrats on the quarter and thanks for the question. First one on me, I just want to kind of come back to edibles. I appreciate it's still very much early days, but just on regarding the sell through rates that you talked about, just wondering if you could give any kind of initial kind of consumer takes that you have. Have you seen an increased basket for those specific people who have been taking on edibles? Have they been adding on to maybe the other form factors they've been buying? And then also because you guys have been ahead of the curve in terms of getting edibles on your shelves, have you seen any uptick in terms of new patients that might be coming to Trulieve that have been going to a competitor prior because you do have some edibles available even though it might be constrained for you guys? Thanks. Yes. Certainly, we have approximately 90% of patients that are Florida patients have visited a Trulieve location. And so they're in our database and they're part of our group that we continually message and get product to you. And so I would say that certainly we continue to see a strong capture rate of patients in Florida. I can't speak again specifically because the impact on the quarter quite frankly was not significant enough due to what the comments that I made earlier around when edibles were approved and then what we saw when we were ramping in terms of production level batches and trying to get those on shelves. So I don't have that data specifically for the quarter. But certainly again, I believe that we'll be able to add some additional data points for you all next quarter as we see that come through in a more meaningful way in Q4. Okay. Thanks. Appreciate that. And then just second one for me just in terms of the store expansion as you guys look to 2021 specifically for Florida. Can you just talk about how you think about the locations and store setups, particularly with the potential for adult use maybe coming online in 2022 and how you might think about store locations and setups differently than maybe you had historically when it was a predominantly medical market a few years back? Thanks. Absolutely. The team is very excited about continuing to look at Florida not only as a medical but also potentially as a recreational market and certainly are have that as a consideration for stores through our build off in 2021. I think you'll begin to see from us is some different store footprints. So we kind of have a standard store and then we'll begin to look at some flagship or different locations as we think through. And again, trying not to be too premature on that, making sure that it is timed appropriately with the market. But for example, you see our Daytona Beach store is a larger format store. We utilize part of that store currently as more of a delivery platform kind of back of house, but have plans that again that location will be we believe a very strong location from a recreational perspective. So could flip that store into a more we'll call it experiential location if and when recreational looks to be more certain. And so certainly we've got some other locations that we have our eye on that would be similarly positioned. Okay, great. Thanks. Andrew Semple with Echelon Capital Markets. Your line is open. Hi, good morning everyone and congrats on the results. Thanks. Kim, I just wanted to touch on a comment made in the prepared remarks, your average reaching $10,000,000 of sales per location. Just want to clarify, is that something that you've already achieved today? And I also want to get your thinking as forward as you continue to open new stores, do you think there is still a number of underserved markets where you can continue opening stores that would achieve this level of productivity, if you had any thoughts on that? Sure. So the answer is yes. We have achieved that. And in terms of additional store growth, certainly, look, we're not a company that is going to open stores. We've never been a company that does things just for the press release, right? So we're not going to open stores if we don't think that those stores would be able to be strong contributors to profitability and or are needed to make sure that we're keeping our customer service expectations in line for our true leavers for our patients. So that certainly is a strong consideration. But again, we're not going to do something just for the sake of the press release. Understood. Thank you for that. Just touching on Solivo and Pure Pen, when I look at your pro form a results for the 3 9 months, it appears Q3 was quite a strong quarter for those assets. Just wondering if you would be able to provide any additional color on that maybe and what the growth drivers there were? Yes. And as I mentioned before, we're not able to provide any additional comments at this time. And certainly, these were unaudited pro form a numbers. Of course, we also are happy with those numbers. And it was one of the their performance is one of the reasons why we found those assets to be and those partners to be so attractive for us to pursue those transactions. So we're excited about the performance. We're excited about the growth trajectory ahead. We of course know that Pierpen has additional square footage coming online in Q1 that should lead to additional increased profitability. And certainly, we believe that Solivo has run rate ahead of it as well. So again, can't give you any real specifics there, but are very could not be happier to have those 2 companies. And then really important note is their teams and the alignment between our companies has just been incredible. And they're actually there's a group of folks that are going to be here for a big meeting later on this week. And the integration continues to go really well and we're very excited. I think the entire team is excited about what Pennsylvania has to offer in terms of growth. Thank you for taking my questions and congrats again. Thanks. Paul Piotrzanski with M Partners. Your line is open. Hey, good morning, Kim. Congrats on a great quarter. Just one follow-up on West Virginia. So are you guys looking at all to acquire a cultivation license there? And is being kind of vertically integrated important to you guys in that state? Yes. Again, we're excited about West Virginia and think that as a from a strategic location perspective with the proximity and certainly the attachment to the Northeast and that hub that we're working to grow there is certainly a good solid state and a solid contributor. As I mentioned, West Virginia is not finished in terms of the entire process on licenses. And so we'll have additional comments from a strategy perspective once obviously that's all finalized. However, certainly having a production license is a key license for us because it gives us the flexibility to have both a wholesale relationship with all dispensaries through the state. And we certainly would believe that we would have the ability kind of with or without a grow to contract for supply if we need to and have the ability to have again control over kind of final product form factors and product mix which again is we think a key strategic requirement for us in that market. And then again, I think it remains to be seen in terms of what the rest of the supply chain may look like. Okay, great. Thank you. And now we are moving on to our final question, a follow-up question with Andrew Pryfaneu with Stifel. Your line is open. Hi, thanks for taking some additional questions. Just wanted to follow-up on M and A. With the election having obviously contributed to significant enthusiasm, Could you give a little bit of color on what you're seeing in terms of valuations and whatnot in the private markets? Yes. I think it continues to be I can't say that I've seen significant changes with respect to valuations. I mean at the end of the day, certainly there's excitement, but the way that we look at at least from our perspective the way that we look at businesses and the way that we have those conversations both internally and with potential partners really center again around pretty basic fundamentals. And the reality is that those fundamentals haven't necessarily changed, right? I mean, if you have square feet of production, that's what that's what there's only X amount of there's X amount of products that can be produced there. And similarly in terms of the fundamentals of this business. And so I think for us it's business as usual head down, staying true to our valuation metrics, making sure that we're disciplined in terms of how we're looking at partners. I think increasing enthusiasm and maybe a bit more of an understanding that scale will be important. And so perhaps some of the operators who have considered or maybe have not considered partnering up until this point, maybe kicking their head up and saying, okay, either we're going to need to get some additional capital and expand, right? Or we need to think in a very real way about potentially partnering, so that we can be positioned for change if it does and when it does occur in their particular markets. But in terms of how we're viewing M and A, I would say that we're continuing on the path that we've set out for ourselves. Thanks for that. And just to follow-up, you talked a little bit about how maybe players are understanding that scale is important. Would you say that that was an important consideration in the acquisition of your PA assets considering the attractive multiples that you guys executed on? Again, I'm not going to speak for our partners there, but I will say that that relationship was developed over the course of a year. So that was not something that's not a transaction that we began conversations on in the last 60, 90 days. And we thought that it was very, very important on both sides for us to appreciate and understand what each party was bringing to the table. And certainly, I think that there is a desire and a competitive spirit in both of those management teams and in the employees to want to continue to grow and win in their home state of Pennsylvania. And we're very excited to be partners with them and to be right there with them as we achieve that. Thanks very much for the questions and congrats again. Thanks so much. I will now turn the call back over to CEO, Kim Rivers for closing remarks. Thank you for joining us today, and we'll see you all next quarter. This concludes today's call. We thank you for your participation. You may now disconnect.