Earnings Call: Q4 2020

Mar 23, 2021

Earnings release

Good morning, ladies and gentlemen, and welcome to the Truly Cannabis Corporation 4th Quarter and Year End 2020 Financial Results Conference Call. My name is Jerome, 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, Jerome. 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. Conference Call. 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, statements we make during this call that are not statements of historical Factors. These statements are subject to risks, uncertainties and other factors that could cause our actual results to differ materially Securities and Exchange Commission, including Item 1A, Risk Factors, of the company's annual report on Form 10 ks for the year ended December 31, 2020. Although the company may voluntarily do so from time to time, it undertakes no commitment to update or revise these forward looking statements, whether as a result of new information, future events or otherwise, except as required by law. During the call, management will also discuss certain financial measures that are not calculated in accordance with United States Generally Accepted Accounting Principles or GAAP. We refer to these as non GAAP financial measures. Call. These measures should not be considered in isolation or as a substitute for Truly's financial results prepared in accordance with GAAP. Inc. A reconciliation of these non GAAP measures to the most directly comparable GAAP measures is available in our Annual Report on Form 10 ks filed today with the SEC and can be found on our press release on the Investor Relations section of our website. Lastly, as times in our prepared comments or responses to your questions, we may offer metrics to provide greater insight into dynamics of our business or our quarterly results. Please be advised that we may or may not continue to provide these additional detail in the future. This morning, we reported results for our Q4 of 2020 fiscal 2020. A copy of our earnings press release may be found in the Investor Relations section of our website, trulieve.com. 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, and good morning, everyone. Before we get started, I just wanted to say thank you to our brand partners, the Bellamy Brothers, for their great music and great partnership with Trulieve as we celebrate the 1 year anniversary of the launch of their old hippie stash line in Florida. Thanks, guys. Truly experienced a strong Q4 and outstanding year end, both financially as well as operationally. On a full year basis, we achieved revenues of $521,500,000 Inc. An increase of $268,700,000 over 2019 or 106%. Our 2020 adjusted EBITDA of $251,000,000 represents year over year growth of $124,500,000 or 99%. We delivered record revenues of $168,400,000 in the 4th quarter, up 24% sequentially and adjusted EBITDA of 78,200,000 an increase of 19% from the Q3. Our 2020 revenue and adjusted EBITDA doubled full year 2019 results And our EBITDA was nearly the same as our full year revenue performance in 2019. And Q4 is our 12th consecutive quarter of profitability. 2020 was a foundational year for Truly. We continued executing on our 5 region hub strategy, which established a focused national distribution model. In 2020, Trulieve sold 3,000,000,000 with a B, active milligrams of oil and 32.6 Tons of Flower. Trulieve also became a U. S. Reporting company, which is a major milestone to celebrate, and we implemented a world class ERP system with the launch of SAP S4 to have the correct infrastructure to scale nationally. Each of these activities provides the foundational basis needed as a strong MSO and affords us the ability to accelerate our growth as the landscape continues to change. As a data driven organization, we began providing retail metrics 2019 year end call. In addition to the quarterly metrics, we share several annual numbers. Although these numbers are primarily Florida Driven based on Florida's robust OMMU reporting. These results also include California, Connecticut and Pennsylvania as available. We share our customer retention rate quarterly. In comparing the Q3 with the Q4 of 2020, we had customer retention of 72% that remains consistent year over year, showing loyalty strength in a growing platform of retail locations. Another metric that reveals customer loyalty and plays into the customer lifetime value is average customer spend. As we look across our purchases year over year, We saw a shift in purchasing pattern trends with the introduction of an increased line of value products. The timing of these new product introductions in Q1 of 2020 Could not have been better for our customers as our value products provided broader access needed during COVID. In Q4, active customers visited Truly Stores on average 2.8 times per month, consistent with the full year average, with an average basket size of $112 On a full year basis, basket sizes were $115 per visit. Our average active spend in 2020 was approximately $3,900 had over 157,000 patients enter the program or a 53% increase over 2019. We continue to grow with that increase. We use a traditional same store sales metric to track these loyal customers at a store level. For the 22 locations that were opened in 2019 2020 for the entire year, The same store sales increased by 21%. If we remove the stores opened in 2018 or before, same store sales growth for the year was 40 7%. Lastly, we share the retail metric of revenue per square foot to track overall performance. In 2020, our 75 dispensaries across generated approximately $3,163 per square foot. This metric is based on days opened for our full year revenue and our total retail square footage as of the end of December 2020. Overall, we had a remarkable year of profitable growth, setting us up for our strategic plans for 2021, which are protecting our leadership position in the Southeast and building out our U. S. Hub model strategy. The first piece of the strategy mentioned is our continued focus on the Southeast Hub in Florida. Believe me, we are not sitting still. Our home state not only represents the foundation of our business today, but we believe it will be continue to be an incredible opportunity in future. We are in a unique position by virtue of footprint, customer loyalty, community support and ability to quickly pivot to address changing market dynamics to maintain our market leading performance and we fully intend to do so. BDSA sales data released this month has legal U. S. Cannabis sales in 2020 surpassing $17,500,000,000 46 percent above 20 19's $12,100,000,000 with Florida ranking 3rd in dollar gain in 2020 Behind 2 adult use markets. According to Leafly, the Florida medical market is the 3rd largest cannabis market in the U. S. Just behind California and Colorado to adult east markets. With major catalysts such as wholesale and the prospect of adult east ahead In a state with 130,000,000 annual tourists and 21,000,000 residents, the Florida opportunity is just beginning. Although we just crossed a major milestone of 500,000 patients in Florida, we've only penetrated 2% of the market to date. When compared to other more mature medical markets, that 2% penetration rate can easily double. At the end of Q4, we had approximately 2,600 patients entering the Florida program each week. The 6 week trend line at the end of February was closer to 5,300 patients per week, a doubling in a relatively short period of time. In 2020, Trulieve increased our market share in Florida, ending the year with 49% of the oil market and 53% of the flower market. The magnitude of that patient growth on a consumption basis is approaching a regular sales rate for Truly of 1 ton of flower or 32,000 ounces per week. At the end of Q4, so week of December 25, we surpassed that mark selling over a ton of flower with sales of 36,000 ounces in a week, an amazing number. In addition, we just had a record oil week in late February at 107,000,000 milligrams dispensed, and we continue to see that barbell effects that we've described in the past with the new value entrance and high end products both performing well. We will continue to watch market trends as we move further into 2021. Our plans for 2021 call for new stores and continued cultivation and production construction to support this customer growth. We began 2020 with 42 stores in Florida and 44 nationally with a goal of 68 stores in the U. S. By year end. We organically opened 70 stores in Florida, an increase of 28 stores or 67% for 2020. With our U. S. Count of 75 stores, which includes the 3 stores from our Pennsylvania acquisition, our dispensary footprint in 2020 increased by 79%. We have since opened 8 new stores and now stand at 83 stores in the U. S. As of today. During 2020, we also added over 200,000 square feet of cultivation, Ending the year with almost 2,000,000 square feet. But it's not just about building stores and cultivation and production to support patient growth and demand. It's about getting the right products to our customers for the release they need. Our R and D team released a host of new products and we also launched edibles in late August. In true Truly fashion, we swiftly introduced edible products, the first in the state to do so. We ramped production to meet the pent up demand with Truly branded products and The reception of our edibles product line has been overwhelmingly positive as patients appreciate the depth and the variety of product offerings. As a matter of fact, we are launching a new sour gel line today called Trujell Puckers that will be available in lemon hibiscus, kiwi green apple and a Florida favorite key lime. We expect this will be well received and have plans to add more fun flavors to the lineup soon. Our location in the northern part of Florida within an hour of Georgia and Alabama, Coupled with our scale, one of the largest footprints in the country has us situated in a prime position. We are confident that Trulieve is poised to be the undisputed market leader in the Southeast. As discussed earlier, we also made great strides during Q4 with our hub model strategy outside of the Southeast. Pennsylvania, the 5th most populated state in the country with phenomenal patient growth rates hitting 3% penetration already is an incredible addition to our Northeast hub will be an essential contributor to our 2021 revenue plan. We completed our acquisitions of Pure Pen and Slevo in November. The acquired companies are operational, growing and we have established leaders with deep expertise in place. Given strong relationships with every dispensary in the state, new indoor coming online will provide additional sell through capability. Pennsylvania in general has a flower shortage, so our go to market plan is straightforward, grow more high quality flower. And remember, higher quality flower means higher terpenes and flavonoids, leading to better products overall. On the dispensary side, we ended the year with nearly 30,000 patients in our database. With over 460,000 registered patients in Pennsylvania, advocates and politicians both calling for legalization and a bi bipartisan marijuana adult use bill proposed a few weeks ago, Pennsylvania looks to be poised for accelerated growth. We see Pennsylvania as an important state Our Northeast Hub strategy and we'll continue to look for additional M and A opportunities to expand. In Massachusetts, we announced yesterday That we received approvals to begin planting from the state's cannabis control commission. We have over 60,000 square feet of canopy as defined by Massachusetts regulations and 18,000 square feet production. Our dispensary time line has our first location targeted to open in the second quarter with more locations coming in the second half, Plus, we will be launching our wholesale business after our first harvest in the second half of twenty twenty one. Moving to Connecticut. Connecticut is medical only, But perhaps not for long. Our Bristol dispensary continues to outperform as one of 18 stores opened in the state with approximately 10% of the medical patients. Connecticut is another state that recently has been vocal about adult use. We are closely watching Connecticut and believe it will be another market that will expand. And West Virginia. Yesterday, we announced we signed a definitive agreement with Mountaineer Holdings, holders of permits for cultivation and 2 dispensaries. Coupled with our previously awarded permits, we will have fully vertical operations in the state with cultivation, processing and 6 dispensaries. We look forward to adding West Virginia operations. Now looking to the Southwest. Our Palm Springs, California location continues to serve a great purpose for us by giving insight into brands and products that will eventually head to the East Coast. We monitor that product velocity and that dispensary gives us a great view into future brands and trends, which we apply to our strategy across our U. S. Platform. We look forward to 2021 and executing on our strategic goals. Now Now let me turn the call over to Alex for more details on our Q4 results, full year performance and financial focus for 2021. Thank you, Kim, and good morning, everyone. As Kim just outlined, the Q4 was an outstanding end to the year, not only based on financial performance, but also for executing on large projects across the organization. Most notably was the filing of our S-one registration statement. This was a significant undertaking, and I am happy to report that this work is now behind us. In addition, we completed our migration to the SAP S4 platform, which was a heavy lift across all functions of the company. I would like to thank our operations and corporate teams for their extensive contributions to this initiative. As Kim covered at the top of the call, We had record annual revenue of $521,500,000 an increase of 106% over the $2,800,000 of revenue achieved in 2019 and surpassing the top end of our mid year revised guidance range of $485,000,000 We also had record quarterly revenue of $168,400,000 representing a 111% increase over the $79,700,000 of revenue earned in the same quarter last year. This strong performance in Q4 represents a 24% sequential top line increase over the $136,300,000 earned in Q3 of 2020. These results are inclusive of the Pennsylvania acquisitions, which closed on November 12. The opening balance sheet and results of operations from the date of close are contained within our consolidated financial statements. Trulieve is managed on a consolidated basis, and we do not report nor do we plan to report on a segment basis. Moving to gross profit. On a full year basis, the company achieved gross profit of $386,400,000 For a gross margin of 74% compared to $191,800,000 or 76% for the full year 2019. We generated gross profit in the Q4 of $119,900,000 Absent onetime events And the impact of acquisitions. Our margins in our core operations were in line with the previous quarter at approximately 75%. As mentioned, our Pennsylvania acquisitions closed in the middle of the quarter. It is important to note that all assets and liabilities of acquisitions Our fair valued at deal close. This includes inventory, which flows through cost of goods sold at fair value as opposed to cost. This dynamic has downward margin impact until this inventory is sold and new inventory is capitalized at cost. In addition, We had an approximate 1% decrease for pauses in production as a result of SAP implementation efforts. As such, our 4th quarter gross margin was 71% as compared to 75% in the 3rd quarter. It is important to mention that gross margin is negatively impacted as we enter new markets without full vertical integration As we will have in Pennsylvania through the earn out period in 2021 and as we ramp operations in new markets before revenue is earned like we have to date in Massachusetts. In general, as we have shared in the past, it is possible for our gross margin to fluctuate a few basis points in either direction from quarter to quarter Company, depending on inventory flow through and product mix. I will now turn to expenses. On a full year basis, SG and A expenses excluding depreciation and amortization were $155,500,000 or 30 percent of revenue compared to $73,400,000 or 29 percent for the full year of 2019. Although relatively flat in 2020 compared to 2019, 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. In the quarter itself, we had an approximate 3% impact related to one time costs for our SAP implementation, acquisition and integration costs and cost to enter new markets. This was partially offset by other operating efficiencies. As such, 4th quarter SG and A expenses, excluding depreciation and amortization, were $52,000,000 or 31 percent of revenue, compared to $39,400,000 or 29 percent of revenue in the Q3 of 2020. Moving to income. Our operating income for the year ended 2020 was $218,400,000 a 93% increase over the $113,300,000 earned in 2019. Operating income for the year was $63,900,000 as compared to $59,500,000 in the 3rd quarter. Net income was $63,000,000 for the year, resulting in EPS of $0.53 on a fully diluted basis. Net income was $3,000,000 for the Q4 compared to net income of $17,400,000 in Q3. As we discussed last quarter, our debt warrants originally denominated in Canadian dollars were converted to U. S. Dollars in December 2020. This resulted in a reclassification of the warrants from liabilities to equity, eliminating the fair value movement of the warrants that negatively impacts net income As our stock price increases in relation to the exercise price of the warrants. Absent the revaluation of our debt warrants, adjusted net income Would have been $105,700,000 for the full year $32,900,000 for the 4th quarter, resulting in EPS of $0.89 $0.28 respectively on a fully diluted basis. I am happy to note that we will no longer have this dynamic in 2021 and beyond, leading to a more transparent view of our bottom line. Focusing now on adjusted EBITDA. We believe adjusted EBITDA, a non GAAP measure, provides valuable insight into our performance. Adjusted EBITDA excludes from net income as reported interest, tax, depreciation, non cash expenses, RTO expenses, share based compensation, acquisition and transaction costs, fair value step up of inventory from acquisitions and other income. We report adjusted EBITDA to help investors assess the operating performance of our business. On a full year basis, adjusted EBITDA was $251,000,000 or 48%, which is particularly strong given the COVID response cost Incurred throughout the year to keep our employees and patients safe, inclusive of investments we made throughout our facilities and dispensaries, At an impact of approximately 2% for the year. Absent these costs, full year adjusted EBITDA would have been approximately 50%. We have mentioned the one time SAP implementation costs incurred across production and operations in the quarter. This had an approximate 2% impact on adjusted EBITDA in Q4. As such, adjusted EBITDA for the Q4 of 2020 was $78,200,000 or 46 percent of revenue compared to $65,800,000 or 48 percent of revenue in Q3 2020. Removing the impact of the SAP implementation, our adjusted EBITDA would have been in line with the previous quarter at approximately 48%. The $12,400,000 improvement in adjusted EBITDA this quarter is primarily due to the increase in revenue, partially offset by increases in operating expenses and cost of goods results. The impact of GAAP accounting for leases is included in both the current and comparative quarter, which impacts adjusted EBITDA by an approximate 1% to 2% for our business in the current year as compared to previous IFRS reported metrics. The company delivered $99,600,000 in cash flows from operations for the year due to our continued quarter over quarter profitability. This compares to $19,100,000 in 2019. We ended the quarter with a cash balance of $146,700,000 Our strong cash position allows us to quickly leverage the foundation we have built to capitalize on expansion opportunities, organic growth and to go deeper in the states where we operate. Now I'd like to update you on inventory. At the end of Q4, we had a total of $98,300,000 of inventory. This includes $11,800,000 of inventory from the Pennsylvania acquisitions that were recorded at fair value. This compares to $77,700,000 of inventory at the end of Q3. Companywide CapEx spend for the quarter averaged just over $13,000,000 per month, inclusive of all markets as well as our accelerated SAP implementation. In the back half of twenty twenty, we leveraged our strong operational cash flow position to invest in the necessary infrastructure to meet our rate of guidance for the year and pivot toward our 2021 revenue targets. We will continue to invest heavily in CapEx throughout 2021 in support of those targets and to capitalize on the positive patient trends in Florida and the anticipated demand in 2022. 2020 was a remarkable year, But we believe we are only getting started. As we contemplate the strategic vision that we have planned for the company in 2021 and beyond, I can only say how proud I am of what the team has accomplished in 2020 to build out our infrastructure and set the foundation in place for this incredible road ahead. With that, I will turn the call back over to Kim. Thanks, Alex. The results just covered reflect the outstanding work we've accomplished as a company and our focus on continuous improvement. This continuous improvement initiative and core approach to gaining efficiencies in our business as we gain scale has served Trulieve and our shareholders well 2021 guidance, which I will run through with you now. For the full year 2021, we expect revenues in the range of $815,000,000 to 850,000,000 We anticipate adjusted EBITDA in a range of $355,000,000 to $375,000,000 or approximately 44 percent of revenue. Our 2021 EBITDA margin reflects expansion into new states with new revenue streams and expected margin impacts combined with conversion to GAAP. We believe this margin reflects our continued substantial leverage of scale and financial discipline. For 2021 guidance, we are assuming continued growth in Florida and Pennsylvania, maintaining share in California and Connecticut and commencing sales in Massachusetts. To support the anticipated patient growth, we will continue to build supply chain and retail infrastructure to support the expected demand. For store count, we anticipate opening 39 stores in the U. S. By the end of 2021, reaching 114 stores nationwide. We could not be more enthusiastic about what is on the horizon for Trulieve and our industry, and we believe this will be a truly transformational year. On the political front, the tide is starting to turn regarding cannabis policy at the federal level. Although we can't predict how and when meaningful change will happen, We are encouraged by the opportunities ahead. With the Safe Banking Act being reintroduced in the House last week and now being introduced to the Senate this week, We believe we will see movement this year and are keeping a close eye on development, but are not losing sight of our current operating framework and strategic plans. For our shareholders, we want to continue to stress our belief that we are just getting started. Building out our hubs, expanding footprint and introducing our brand's new customers and new markets is essential for our future strategic vision. The work accomplished in 2020 between the impressive financial results, the internal infrastructure initiative and the execution of our strategic expansion and vision has ideally positioned Trulieve for 2021. It is this foundational strength that we will build upon as a national cannabis brand, and we believe we are far from finished growing with a bright future ahead. Lastly, on top of all the successes covered today, we want to take a moment to thank the Truly Leaf team across the organization. Our passionate and dedicated employees Worked tirelessly throughout a challenging and crazy year to achieve this success. When it comes to customer experience in the stores, we have a motto, just say yes. Our employees embraced that during 2020 and brought it to every job function across our company. I am heartened to know that they did so not only for the company, but with our true levers in mind. Those values resonate with our customers and keep us working to consistently improve and strive for greater success. Thank you for joining us today. And as I always say, onward. Thanks. Operator, I think we can open it up for questions now. Your first question comes from the line of Derek Dley with Canaccord. You may now ask your question. Hi, good morning and congrats on the exceptional results yet again. I was wondering if we could just start with touching on Pennsylvania. I know it's early days. You guys were in there for about 1.5 months of the quarter. But I guess subsequent to the quarter, can you comment on how that market is Rolling out relative to your expectations and just given some of the different dynamics within Pennsylvania, namely wholesale, What you've learned from the market structure in Pennsylvania? Yes. Thanks, Derek. Pennsylvania is an incredible market and Our partners there are also fantastic. As I've mentioned several times, Pure Pen has a wholesale relationship with 100% of the dispensaries in Pennsylvania and we continue to see very strong demand for their current product offering. Similarly, Solivo has a very passionate and dedicated patient base and they continue to impress with their results as well as their retention and loyalty metrics across their customer base. We are very much looking forward to having them additional capacity online which is as we've said in the past is coming online this quarter that additional 90,000 square feet on the Pure Pen side and bringing again an expanded variety of products particularly on the flower space To the market. And we know that our wholesale customers as well as the customers that visit Salivo are very much looking forward to that increased flower offerings that we're going to be bringing to market very soon. Okay. That's great and really helpful. You mentioned the plans for Dispensary Growth this year, 39 new stores this year. I believe you've already opened 8 in Florida to start the year. So I guess my question is just given the healthy cash position. So what do you expect for CapEx? I would imagine a little higher than that $13,000,000 a month That you quoted in Q4 and where do you intend to target a lot of these capital investments this year? Yes. So we're not going to give specific CapEx guidance Because we do have, as you mentioned, a lot of growth opportunities ahead of us in 2021. And we are going to, of course, I think as everyone would expect us to do continue to reinvest into the business and to make sure that we've got appropriate supply chain as well as of course retail locations to serve the demand that we're seeing, which is incredibly strong across all of the markets that we're in currently with catalysts coming. So I would say of course stay tuned for additional announcements as we look to expand in all of the markets that we're currently in, but particularly our core markets, of course, which are the Southeast and the Northeast. Okay, great. And then just one more if I can sneak one in. Some of your competitors commented on their quarterly calls that they witnessed some disruption in Q4 related to, I guess, 2nd wave of COVID. Can you comment, did you experience any of that? And also just on the testing You guys mentioned last quarter as they relate to edibles. Were those rectified during Q4? Yes. No, thanks for that. So on the testing, we were able to clear those bottlenecks. We had we worked very closely with our lab partners and we're able to smooth out the testing implications that we were experiencing in Q3. We still from time to time experience a lag because we are continuing to ramp very, very quickly to meet this amazing surge of patient demand particularly in the state of Florida that we're seeing since the beginning of the year. I think as I mentioned on the call, we've seen the patient count coming online in Florida increased from about 2,400, 2,500 a week to nearly double that, actually in some cases over double that in Florida at the beginning of 2021. So We're of course similarly pacing our production to make sure that we're meeting that demand, which of course results in additional testing samples that go to the labs. But again, so far that hasn't been the magnitude of the issue that we experienced in Q3. With respect to COVID, I think Alex shared for the year that we had a 2% impact in terms of bottom line impact as it relates to COVID for the year. In the quarter that was it was relatively in line, Maybe a little bit of an increase in the quarter, but we've continued to, of course, make sure that our first and foremost that our employees and our patients are safe And are happy to invest those dollars to ensure that we continue to operate within and above CDC guidelines. Okay, great. Thank you very much. Thanks, Derek. Your next question comes from the line of Pablo Zwaneck with Cantor Fitzgerald. You may now ask your question. Thank you and good morning. Kim, there's been other companies talking about the potential for counties or municipalities in Florida to start imposing caps on the number of stores. I wanted to hear what are you hearing about that? Do you have any views on that potential risk for the current incumbents? Thank you. Yes. So I'm not really sure where they're getting that from. I would disagree completely with that statement. Currently under Florida law In statute, it's required that counties have 1 of 2 choices. They either can ban dispensaries completely Or they are required to zone us the same as pharmacies. So any change to that would require a legislative change. That's not something That a county or municipality could decide from market to market. So I don't see Any risk to the current structure absent a legislative change, and there is no legislative change that I'm aware of that's pending. Okay. Thank you. And then just one last one. So at the Vincinga conference, to one of the questions, you said you made a comment that Recreational could be on the ballot by November 22 or maybe November 24. Just under quite an uncial answer about it. And to me, it seems like You're pretty much assuming that this is going to be more an issue of the ballot in 2024. Any comments on that? And if you have an update on potential wholesaling regulation or changes in Florida that would help also. Thank you. Sure. So both of those questions are tied to Supreme Court actions. And so we've got on the wholesale initiative, I'll just start there, a court case that's making its way through. And we don't unfortunately, we don't have a ruling on that yet. However, I would expect time in 2021 for that ruling to come down. After assuming that the court does determine that wholesaling would be an avenue then I I would expect that to go to the legislature for implementation. So but perhaps it could go through rulemaking, so that's a little bit more of a gray area. And again, we're watching very closely for that court ruling to come down. The In addition, I would say that there certainly is conversation at the legislature around wholesaling as well. And so I think that that's A bit more it could go again based on the Supreme Court case or we could see the movement in the legislature on that particular issue, which we see as an amazing opportunity for Trulieve quite frankly. We are the largest by far in the state with over 2,000,000 square feet of cultivation capacity, the ability to have additional outdoor plantings which we can dial our inventory of oil up or down which Of course, it would be branded finished good products that we would be very excited to wholesale across the state. In addition, of course, we would look at that as an for other product manufacturers or small craft cultivators. So I think in kind of all aspects, we would see that as a positive. On the second question related to legalization in of the adult use market in Florida, that there are 2 pending ballot initiatives that are Their way through the court. Really, it's all a question of timing. And so that 2022 versus 2024, it becomes very pretty formulaic in terms of when the Supreme Court rules, How much time is left to continue to get signatures for ballot placement. So again, waiting on the court to rule The validity of the language that's currently pending. I can tell you that we just participated in a poll that was done and there is overwhelming Report and for an adult use initiative here in the state of Florida. And actually medical, which I'll just touch on because it was just so impressive, actually came back with a 90% approval rating on a cross partisan, very legitimate poll. And so that's Incredibly high. And then adult use is pulling well over 70%. So it's pulling very, very well. I I think that the threshold issue is just getting it on the ballot, which does require, of course, some legal steps and does have to make it through the Supreme Court. Thank Thank you. It's very helpful. If I can squeeze one just last one. So, medical, you said 2% penetration, Arizona 4%, Pennsylvania 3%. What has held back that number? I know it's going to continue to grow, but what are the key drivers we should be looking for? New conditions, a more relaxed prescribing system, More Stores. What has to happen for that penetration ratio to continue to go up in Florida Medical? Thanks. Yes. I mean, I think that it's All of those, of course, could contribute to an additional increase in acceleration. I do think though that what we're seeing right now is a couple of things right. I mean certainly last fall we introduced edibles which is a great form factor for folks who are new to cannabis and it's obviously very approachable for folks who are entering the market. As I mentioned, we've also though of course seen a doubling, right, of patient inbound coming into the program in the state of Florida. And so which we have seen over time, right? It's there's I think if you look back and you look at the 2018 to 2019, 2019 to 2020 growth, which I'm sure most of you track Analyst on the call pretty closely. You'll see these step up times across the program. And so we just experienced that step up again with patient increases well into the 4000, 5000 patients coming into the program per week, which is a pretty much a standard weekly trend now in 2021. Some of that is also coming from the fact that it's good old fashioned just organic market growth when you've got a certain mass of folks who then are telling friends and they're telling friends, right? And so this viral effect definitely happens as well. And then I would say of course certainly new form factors in the market and just mentioned that we're going to be bringing some new products to market today. We also have hydrocarbons that we believe will be approved via rulemaking at some point this year. That's been in rule development. And so that would of course allow us in the state using hydrocarbon extraction method. So all of those would be considered a win and would continue to contribute to accelerated patient growth and penetration in Florida. Great. Thank you. Yes. Your next question comes from the line of Matt McKinley with Needham. You may now ask your question. Thank you. My first question is on the margin rate implied in the EBITDA guidance. I think you said in the prepared remarks that the G and A doesn't change much in terms of rates, so the decline would come from gross margin presumably from the new states. Over the longer term, should the margin rate on those new states look materially different from Florida. And is this more of just a function of the ramping of that and you'll get the margin rates up higher by year end? And also do you assume any material change in the rate of your Florida operations in that guidance for 2021? Yes, I'll take that, Matt. Thank you. Yes, exactly right. As you said, the margin considers the entering of new markets, the ramping in those markets, Right. And keep in mind, as we enter markets with different rules and regulations, there's different margin impact, right? So throughout The next year will be non vertical in our PA operations. We will be ramping in Massachusetts until we have revenue coming online. So that's all, To your point, part of the ramp and it has margin impact. On a go forward basis, we'll continue to assess beyond 2021. But yes, expect On the platform upgrades, can you talk about the infrastructure upgrades you made with SAP that you completed last year and what capabilities that would give you in 2021. Does this just set you up for growth or does this provide you some tangible margin benefit or working capital efficiency that we could see this year. And Alex, can you repeat what the drag from that was on the margin related to the cost of implementing that in 2020? Sure. I'm going to have I'm going to let Alex, why don't you talk about the margin implications and then I can maybe get back on the Benefit? Sure. SAP on the margin itself was about 1%, different production stoppages as we implemented. It had 2 almost 3% impact across the Oregon EBITDA, about 1% in margin and 1% to 2% through our SG and A. Yes. And then in terms of the benefits that it will give us, so certainly it allows us to have a single platform That we're able to launch across all of our markets. So that as we think about a national conglomerate along with Of course, our scale, we're able to manage the business from a single platform system. In addition, of course, it will allow us to consolidate our financials and our financial reporting, which is a benefit as well. And then that coupled with some of our other technology upgrades including Magento and some other platforms, We're also able to have much deeper data insights into our customers, which of course assist us with our predictive data analytics as we think about The differences from market to market as well as regions and individuals at the individual store level as well as we're thinking about and our inventory management and making sure that we have the right products in the right stores at the right times for folks. And then finally I'll just Mention, as a U. S. Reporting company, SOX of course is and being SOX compliant is very important as well and this certainly provides a system That we can rely on for our stock compliance requirements on a go forward basis. Okay. Thank you very much. Yes. Your next question comes from the line of Camilo Lyon with BTIG. J. You may now ask your question. Thanks. Good morning, everyone. Just following up on the line of questioning with respect to gross margin. Alex, maybe you could just share the with greater detail the pricing dynamics on flower pricing in Florida and how you expect those to fluctuate or remain the same for this year? Yes. I'm actually I know I'm not Alex, but I'm going to jump in. You're welcome. I know it's early, but I'm still realize Good morning, Alex. So on the pricing dynamics with respect to flower, we're continuing to see strong growth. I think we went over this last call, right? Strong growth via what we call the barbell effect. So certainly, extremely strong growth in our value products which would include on the flower side both our mini products, our Ground products and our pre roll products as well as our lower tier, 8s. And that demand, of course, has continues to be strong. But in addition, we're also seeing about the same as last quarter, customer demand for our premium flower as well. We've launched both our cultivar collection, which is very specific genetics, requires very specific levels of both THC Terpene count and then we've also added flavonoids, as well as the type of genetics that we offer through that lineup. In addition, we have brand partners that also we have launched and that we continue to have a high sell through rate, again on that higher end price spectrum. And so the Bellamy Brothers have a line of flower, which I just mentioned as well as Vince, our partners and Sunshine Cannabis and then Black Tuna as well. And so all of those products do really well for us. And so I wouldn't expect that differences at least From what we're seeing now with the patient demand trends in either of those categories. And so I would think that Florida pricing of flower will likely remain fairly stable. So that's to say that you're not seeing any competitive pressures from participants trying to garner some of that market share that you are defending. So I would say that From our perspective, that's I've been answering this question for 3 years and have always said, look, Judges on our results, right? Last week, we sold our 2nd highest week of flower in the state with over 30,000 ounces being sold last week. We're selling 3 times the flower that we did in January of 2020. And I think that when you look at it from a competitive basis, We're selling a significant amount more. I think it's 6.2 times the amount of flower than our closest competitor. So we feel really good about our posture. Certainly, more folks are going to be bringing cultivation online. They need to be bringing more cultivation We're bringing more cultivation online because the demand particularly and that's by the way not only in Florida, I mean that's The same in look in Pennsylvania and also in our Massachusetts markets. Demand is on the rise across the country And it is important that we along with other folks are rising to meet that demand, so that folks have access. Great. And then just a follow-up. I know you just started your operations in Pennsylvania and there's a tremendous opportunity there, especially When that market goes recreational. You're circling the biggest opportunity though in New York and There's more positivity with respect to expectations or unfavorable legislation unfolding there. How do you view The plans or the strategic entry into this market, and is this more of a medium to longer term opportunity that you're contemplating? Or is this could we see something unfold in advance in advance of some legislation coming down or recreation sales actually beginning potentially as soon as next year. Yes. I mean I think that right we while we certainly appreciate future potential changes in the market, we also look to Make sure that we're executing to our fullest potential in the market under current regulations and current laws. And we've always operated the business that way. So in Pennsylvania, it was very important for us to identify the right foundational partners For us to enter that market, because just like any market, there are certain specific nuances and specific regulations etcetera that we need to follow. But not only that, we also wanted to make sure that the partner that we were entering the market with We have the ability to scale and build the operations and the future of the business around that operation and around team. In Pennsylvania, as a reminder, there is no limitation on the amount of cultivation or processing you can have. The requirement under the law there is that you have to build on what's considered one site or one parcel. So we did take our time to make sure that where we were entering from a cultivation and production standpoint Had the ability to gain scale and had the ability for expansion, which you're seeing, of course, begin to come to fruition during Q1 With our first expansion there. As I've mentioned, I think we've been pretty transparent about, we certainly are interested and will be looking for additional opportunities in Pennsylvania, and that's ongoing and currently underway. Fantastic. All the best. Thank you. Thanks. Your next question comes from the line of Russell Stanley with Beacon Securities. You may now ask a question. Good morning and congrats on the quarter. Just coming back to Florida and the addition of edibles, wondering if you can Sharon, any color I guess as to what share of revenue they now contribute and whether you're seeing any sort of cannibalization of other products or product lines at this point? Hey, thanks Russ. So we're not in a position to break out specific product segments from a on a percentage basis for a number of reasons. But what I can tell you is that, it's continuing to be an increased percentage of product mix. We certainly, of course, wouldn't be ramping the product line and introducing additional products in If the demand wasn't there for those products. So it is certainly category that has been well received by the market. And as I said before, I think we'll continue to ramp to national averages as it relates 2 share of market. I don't think that Florida is going to be any different than what we see in other markets that have edibles as a distributor to product line. Great. Thanks. Thanks on that. And just one more, maybe on West Virginia and congrats on yesterday's announcement. Just wondering if you can share development timelines there when you what your thoughts are on construction and when you might be in a position to be generating revenue there? Thank you. Yes. Well, of course, we just announced the deal yesterday. And we do have to go through, of course, the regulatory approval process license transfer. I think we're going to be the first one to go through that process with the regulators there, although we So I would say more to come on that, Russ, after we get the license transfer completed. Just with that unknown, we'd Hate to give you guidance that isn't met. Of course, we'll be moving very quickly on the cultivation and production aspects of the business To get that up and going, would hope that construction certainly will happen this year. In terms of when first harvest will come in that of course is very, very dependent on regulators and inspections and All of that. And so we'll give you additional color on that as we work through and move down the road on that process. Great. Thanks again for the color and congrats again. Thanks, Russ. Your next question comes from the line of Eric Villarreal with Craig Hallum Capital. You may now ask your question. Great. Thanks for taking my questions and congrats on strong results. So first, in Massachusetts, it looks like you have a couple of potential transactions underway for additional retail locations in Massachusetts. Could you just run through the current status of those potential transactions. Where are those locations? Are they medical or adult use? And sort of how did you go about selecting those? Yes. No, thanks for the question. We'll be providing additional information on those as those move through the regulatory approval process. And we are very cautious in Massachusetts because of just how the regulators have moved on a number of fronts and just delays, etcetera, to not jump the gun in terms of getting folks excited about About certain things when they're not when they haven't happened yet. So similar to my comment on West Virginia, we're very, very excited about the future in Massachusetts. Are very, very hopeful That will have some good additional news to share with you later this year, but are not in a position to comment on that quite yet. Okay. That's fair and certainly understand the reasoning or thought process there. So Switching gears to Pennsylvania, but sticking on the M and A theme here. Can you just kind of talk about what the M and A environment is for retail licenses in Pennsylvania. If you're seeing any pressures on valuations or anything? And then just maybe overall help us understand where your M and A priorities currently lie, whether it's really focusing on going deeper within Massachusetts or Pennsylvania, or if there's any other expanding into new markets that could potentially be on the table for you guys. Sure. So Pennsylvania, as I said, we're certainly Active in Pennsylvania currently. And look, M and A is M and A and it's all very, very specific and very dependent on the particular target and operations team and what they're looking for. And we think that Truly has an incredible story of and track record of Education. When we think about how our currency stacks up against our peer set, we also really like our position there. Again, given our return in value to shareholders as well as our solid performance over time. So we continue to find those facts very attractive to partners and I wouldn't say experiencing anything unusual in the market to date. Aside from Pennsylvania, I think we've been pretty clear that we're executing on a hub strategy that involves 5 regions of the U. S. Each of those regions have their own dynamics and their own complexities. And certainly the Northeast is a region that we've been again very transparent about with us focusing on. That being said, We're also focused on organic growth and have and I don't think we should lose sight of the fact that we've got application an applications team That is very active and that continues to strategically apply in states and markets that we see again synergies with In executing and advancing our hub strategy, which of course, West Virginia was an example of success from that team. So It's certainly not only an M and A strategy, it will continue to be an organic growth strategy for us as well. Yes, for sure. Well, congrats on growth in both so far and thanks again. Thanks. To the number one on your telephone keypad. Your next question comes from the line of Aaron Krewe with Alliance Global. You may now ask a question. Hi, good morning. Thanks for the questions and congrats on another nice quarter and finish to the year. So first question for me. So you guys, 39 store openings you expect for the year, 8 today so far within Florida. So just as I kind of look in our model making some kind of wholesale assumptions, it does seem to imply that there might be some lower level of sales per dispensary compared to the current rate. So I wanted to know if you could offer some color there on whether There are some store openings and maybe some new markets or additional stores in Florida that might be in less populated communities or maybe in saturated markets where it might We assume that's going to be a lower level of sales per store, maybe the assumptions of what that might be or if it's just some conservatism built in, but some color behind the retail per store expectations going 2020 one would be helpful. Thank you. Yes. So unfortunately, we're not going to be able to open all of those stores tomorrow. So certainly the model has timing differentials built into it with respect To the store platform. There certainly is not an anticipated decline in store performance. So that's certainly not the case. We're averaging on a per store basis between $10,000,000 $11,000,000 per store, which Would hold true. So again, we're not I think that most likely it's the timing of when those stores are coming online and how long they'll be open for in the year. All right, great. Thanks. And the second question, you mentioned how for the past couple of years, people have often asked you about the competition kind of heating up Within Florida, it does seem there's been a number of acquisitions within Florida from some other operators who are looking to add in terms of their own Competition and capacity within the state. One thing that I believe Trulieve has been able to offer is kind of product availability And also diversification. So as your competitors look to increase their own capacity and product availability, how do you look to protect Your moat going forward, you have your loyalty program. Are you still comfortable with that where it stands today? Are you looking to make any adjustments? I know it's something that many have talked about in the past. I would love to hear about where you kind of stand there as you continue to defend your moat there. Thanks. Yes. Thanks for the question. So we're continuously looking For ways to improve and make sure that we have the best not only of course product selection and product quality which is really important, but also The best customer experience which keeps folks coming back and then of course lends itself to that incredible loyalty metrics that we report on Regularly. So what I can say on that is that we're certainly as I mentioned not sitting still and continuing to evolve. What's wonderful about the technology that we just implemented is it does give us additional capabilities on our loyalty program to program with additional features that we think folks are going to be really excited about. In addition, I would say that I think that it is to look at the reputation and again the repeat customers that we have that we've cultivated over the years, Which are of course a key driver for our business. And again folks open new stores in markets and in our Most competitive markets across the state. Those are actually the markets that we perform the best. So when you look at our top 3 to 5 stores across the state, Across the state of Florida, they happen to be located in the most competitively robust markets in the So I feel very, very confident about our ability to hold our own and to continue to hold our own against our competitors. And of course, Again, it's important to note that we're continuing to add products as well and continuing to innovate and are often Times continue to be first to market with new form factors and product offerings across different segments of the market as well. We're continuing to be very bullish on Florida and our position in Florida And feel very good about our performance to date and we'll be looking to continue that trajectory. Great. Thanks. And look forward to seeing some of those changes to the loyalty program. Best of luck. Thanks. And your next question comes from the line of Cut Fortune with Roth Capital Partners. You may now ask your question. Thanks for taking the questions. Real quick, a little more color on Massachusetts, Massachusetts, if possible, I know you just received the growing license to start there. What's kind of the timing on that? And does Massachusetts include much in your guidance for 2021 or that's kind of wait and see as the regulatory or the licenses come on board here? Yes. So we have plants in the ground in Massachusetts. So it's very exciting to get those first images of green in the building which we've got over the weekend. So that was very, very exciting. Of course now those plans have to actually grow up and flower and be processed and make their way through the supply chain. And as mentioned on the call, our first store will be coming online in the Q2 towards the backside of the Q2. Again, cultivation as well as our wholesale platform launch and hopefully some additional stores in the back half of twenty twenty one. So we're definitely looking forward to being contributive to our 2021 guidance. But as mentioned, we're not going to be segment reporting or giving any additional color on that. But Certainly, I would say this weekend and yesterday were a huge step to that becoming reality. Okay. I appreciate that. And then just real quick, shifting back to edibles in Florida and kind of what you're Seeing on the sell through rates with your loyal consumers and have you seen the increased basket size for those consumers? Can you step us through on how Your patient base is accepting of the edibles from that standpoint adding on to the basket size? Yes. As mentioned before, we're certainly seeing strong demand for our edibles products. Q4 was For us, it's all about ramping that production to meet that demand, which we did successfully in Q4, of course, coming out of that testing bottleneck issue that we had in Q3. So it was really about ensuring that our processes and our flow and how we were getting Those products to customers and on our shelves was there and was appropriate so that we can match demand on a go forward basis, which we believe we're in the process of doing now. But it's a strong seller and we expect it to continue to be a strong seller with our medical patients. Of course, in any market that has adult use or recreational edibles is certainly a very, very important product segment. So for us, it was key to not only launch and to, of course, be first to market with edibles, but also to continue to develop and innovate and have a very robust product line across a number of different form factors in the Edible segment To again be able to compete and meet customer demand. Thank you. I appreciate the color. Presenters. There are no further questions at this time. You may continue. Well, thank you for joining us today. We look forward to updating you again next quarter. Have a great day, everyone. Thank you. And that concludes today's conference. Thank you all for joining. You may now disconnect.