Good morning, everyone, and welcome to the Trulieve Cannabis Corporation third quarter 2023 financial results conference call. My name is Danielle, 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, Christine Hersey, Vice President of Investor Relations for Trulieve. You may begin.
Thank you. Good morning, and thank you for joining us. During today's call, Kim Rivers, Chief Executive Officer, and Ryan Blust, Chief- or Interim Chief Financial Officer, will deliver prepared remarks on the financial performance and outlook for Trulieve. Following the prepared remarks, we will open the call to questions. This morning, we reported third quarter 2023 results. A copy of our earnings press release and PowerPoint presentation may be found on the Investor Relations section of our website, www.trulieve.com. An archived version of today's conference call will be available on our website later today.
As a reminder, statements made during this call that are not historical facts constitute forward-looking statements, and these statements are subject to risks, uncertainties, and other factors that could cause our actual results to differ materially from our historical results or from our forecasts, including the risks and uncertainties described in the company's filings with the Securities and Exchange Commission, including Item 1A, Risk Factors of the company's Annual Report on Form 10-K for the year ended December 31st, 2022, as well as our periodic quarterly filings. 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 the United States Generally Accepted Accounting Principles, or GAAP. We generally refer to these as non-GAAP financial measures. These measures should not be considered in isolation or as a substitute for Trulieve's financial results prepared in accordance with GAAP. A reconciliation of these non-GAAP measures to the most directly comparable GAAP measures is available in our earnings press release that is an exhibit to our current report on Form 8-K that we furnished to the SEC today and can be found in the Investor Relations section of our website. Lastly, at times during our prepared remarks or responses to your questions, we may offer metrics to provide greater insight into the dynamics of our business or our financial results.
Please be advised that we may or may not continue to provide these additional details in the future. I'll now turn the call over to our CEO, Kim Rivers.
Thank you, Christine. Good morning, everyone, and thank you for joining us. We are excited to share our third quarter results and provide an update on the considerable progress made on our plan for 2023. Before diving in, I want to emphasize what an incredibly exciting time this is for the industry and for Trulieve. Several significant catalysts are on the horizon, including potential rescheduling of cannabis to Schedule III, progress on broader federal reform, and adoption of adult-use programs in markets such as Florida, Ohio, and Pennsylvania. For Trulieve, the timing of these developments couldn't be better. Just as the outlook for U.S. cannabis has brightened, all the steps we have taken to strengthen our competitive position are driving a meaningful improvement in financial results. Initiatives this year are focused on three pillars: cash generation, cash preservation, and investments to support long-term growth.
Third quarter results clearly demonstrate the efficacy of our approach with better-than-expected revenue, lower expenses, reduced inventory, and improved cash generation. Our team has done a phenomenal job prioritizing efforts to deliver on our plan and set the stage for future growth. Third quarter revenue of $275 million exceeded guidance. Gross margin at 52% improved by 2%, demonstrating a balance between increased branded products through branded retail, promotional activity, cost reduction, idle capacity costs, and inventory reduction initiatives. GAAP SG&A expenses were further reduced this quarter, reflecting the benefit of multiple cash preservation initiatives across the organization. Adjusted EBITDA was $78 million, or 28% margin, representing our 23rd consecutive profitable quarter. Our relentless focus on cash drove third quarter operating cash flow of $93 million and free cash flow generation of $87 million.
Company-wide efforts to improve efficiencies, lower expenses, and reduce inventory resulted in tax-adjusted cash flow from operations of $184 million year to date. Before we move on to our balance sheet, I'd like to touch briefly on our tax position and strategy. Following Hurricane Idalia, based on our location, we were granted an extension to make estimated tax payments for Q3 and Q4 in February 2024. In a separate development, Trulieve filed amended federal tax returns for several entities in October for the years 2019, 2020, and 2021, claiming a total refund of $143 million for taxes already paid. The amended returns are supported in part by a challenge to Trulieve's tax liability under Section 280E of the Tax Code.
While the refund claims are under review, Trulieve intends to make tax payments as a customary U.S. taxpayer without tax liabilities associated with 280E. Turning now to our balance sheet. Cash at quarter end was approximately $200 million. With significantly improved cash generation, we have proactively taken steps to reduce debt. During the third quarter, we completed an open market purchase of $57 million of our 2026 notes at a 16.5% discount for $47.6 million. Yesterday, Trulieve announced the planned early redemption on December 1 of $130 million in senior notes due in 2024. With this combined reduction in debt, we expect to realize savings of approximately $20 million in interest expense that would have been paid through maturity.
Trulieve remains aligned with our shareholders and is committed to strengthening our balance sheet with non-dilutive measures while investing in growth initiatives. Investments to support growth have been designed to provide customers with access to legal cannabis products while delivering exceptional customer experiences. The investments made over the years to support this mission have positioned Trulieve as the largest legal cannabis retailer in the world. Investments made today are reinforcing our leading retail position while preparing for significant growth in traffic, units sold, and customers served. These investments are focused on three primary areas. One, perfecting the customer experience. Two, delivering high-quality products, and three, expanding access and distribution of legal cannabis. One measure of customer experience is customer retention, which remains steady quarter-over-quarter, with 65% of customers company-wide and 74% in medical-only markets returning.
Trulieve aims to build lasting brand equity for the retail platform and branded products across a loyal customer base. In the coming months, we are launching new customer-facing initiatives, including a revamped website designed to prioritize mobile access and direct-to-consumer convenience, as well as effortless product exploration, physician discovery, and store location assistance. In addition, we look forward to launching our revamped loyalty program, beginning with Arizona, before year-end. Another area that Trulieve continues to invest in is our data platforms. Maintaining great customer relationships requires clear and effective messaging regarding products and promotions. Over a year ago, Trulieve began utilizing a proprietary customer data platform for targeted outreach and tailored messaging to customers. With this tool, we are able to make specific product recommendations based on prior purchasing behavior.
The CDP also identifies the best time of day for messaging based on prior customer interactions and response rates. With embedded machine learning and artificial intelligence capabilities, as the platform continues to expand, the tool is learning to provide more sophisticated approaches and solutions. As traffic and customers served across our network increase, the platform becomes more useful in helping to refine and advance targeted outreach. A second key driver for customer satisfaction is consistently having high-quality branded products available in the right place at the right price. Trulieve sells the highest volume of branded products through branded retail in the U.S., reaching over 11 million units of internal products sold, excluding wholesale, during the third quarter. We continue to see growth in overall unit demand across our markets, supporting our thesis that cannabis continues to gain mainstream acceptance and adoption.
In the current economic climate, mid- and value-tier brands, Modern Flower and Roll One, have gained popularity, contributing to higher sales of internal branded products. Interestingly, demand for premium products has remained relatively steady, reflecting the strength of our premium brand portfolio. We continue to meet evolving customer preferences, including production of our best-selling brands, while introducing new form factors and sizes across our markets. Following years of investment and introductions, Trulieve has amassed over four million sq ft of supply chain capacity. Our capacity is not currently fully utilized in all markets, providing significant flexibility to meet growing demand with minimal capital investment today and in the years ahead. With major investments in production capacity largely completed for the near term, our team is focused on driving efficiencies and yields at our existing sites.
Our new state-of-the-art 750,000 sq ft indoor cultivation facility in Jefferson County, Florida, is fully built out and continues to ramp. Refinements to improve production will continue through year-end. Progress made to date has been fantastic, with current yields outperforming expectations by 10%, making this our top-performing facility company-wide. In addition, the cultivation team has been killing it, with average potency at this site currently coming in at 28% THC. As a reminder, as this facility has ramped, some legacy capacity was temporarily idled to align production with demand. Given the progress made on our inventory reduction plan in Florida and continued growth in the medical market, we have restarted some idle capacity during the fourth quarter. Higher yields at the new site and increased capacity utilization will help meet year-end holiday demand.
Finally, at Trulieve, providing customers with access to legal cannabis products is at the heart of what we do every day. Investments to expand our retail and wholesale distribution network while opening new markets are ongoing. Today, Trulieve has the largest retail network of 190 dispensaries, representing market-leading positions in Arizona, Florida, Georgia, Pennsylvania, and West Virginia. Our growing retail network provides customers with greater convenience and ease of access to our high-quality branded cannabis products. In the third quarter, we added new locations in Florida, Georgia, and Ohio, and launched recreational sales in Maryland. Investments made by Trulieve in Georgia exemplify our commitment to expanding patient access to cannabis products. We opened our fifth Georgia medical dispensary in September. Outreach and education efforts across the state are ongoing to raise awareness of the program and patient enrollment.
Last week, we launched product distribution through independent pharmacies, with our fifth pharmacy commencing sales today. Early progress on this initiative has been encouraging, and we are optimistic that this unique distribution channel will provide Georgia patients with more convenient access to products. With the launch of recreational sales in Maryland, wholesale revenue doubled compared to the first quarter, while in retail, third quarter traffic increased 235%, and sales per store increased 175% sequentially. Our team did a fantastic job managing the increase in traffic while serving medical patients and adult use customers. In the third quarter, we increased production at our Hancock facility to meet the increase in both retail and wholesale demand. In Ohio, Trulieve opened its first medical dispensary in Columbus in July. Just this week, Ohio voters passed a ballot measure to permit adult use sales.
Pending final regulation and regulatory approvals, we plan to serve adult use customers at this location, marking our fifth adult use state. At Trulieve, our commitment to advocacy is central to our mission. We are proud to be a driving force within the industry, working diligently to expand access to cannabis for medical patients and recreational consumers in new and existing markets. Over the next couple of years, we expect to realize significant growth as state-level catalysts continue to come to fruition. Two of our top three markets, Florida and Pennsylvania, may launch adult use programs by 2025. In these markets, Trulieve currently operates 149 medical dispensaries and has over three million sq ft of production capacity. Given our scale and leading retail positions in both markets, alongside our financial strength, we are uniquely situated to accelerate growth when adult use launches.
With federal and state catalysts on the horizon and improved performance across the organization, we are carrying recent momentum forward. As we approach year-end, our team remains focused on our three primary objectives: cash preservation, cash generation, and investments to support growth. Our industry-leading retail network, scaled operations in attractive markets, and balance sheet place Trulieve in an enviable position as the industry moves forward towards the next phase of accelerated growth. With that, I'll turn the call over to Ryan.
Thank you, Kim, and good morning, everyone. Third quarter revenue of $275 million declined 2% sequentially, representing improved performance compared to the 6% seasonal decline last year. The seasonal decline in retail revenue in Arizona and Florida was partly offset by increased wholesale revenue, with strong performance in Maryland. Third quarter GAAP gross profit was $143 million, or 52% margin, representing a 2% improvement quarter-over-quarter. GAAP gross margin includes a 1% negative impact for idle capacity costs. Gross margin will continue to fluctuate quarter to quarter, dependent on product and market mix, inventory sell-through, promotional activity, and idle capacity costs. SG&A expenses in the third quarter were $94 million, or 34% of revenue, an improvement of $2 million compared to the second quarter.
Reduced SG&A expenses are the result of ongoing efforts to lower core business expenses, including consolidation of production capacity and elimination of redundancies. Third quarter net loss was $25 million, compared to net loss of $404 million in the second quarter. Third quarter loss per share was $0.13, compared to a loss of $2.14 in the second quarter. Excluding non-recurring charges, third quarter loss per share would have been $0.08, flat compared to the second quarter. Third quarter adjusted EBITDA was $78 million, or 28%. Adjusted EBITDA reflects optimization efforts to maximize cash preservation and generation. We entered the quarter with approximately $200 million in cash. During the third quarter, cash flow from operations totaled $93 million, with free cash flow of $87 million.
Inventory was reduced by $23 million in the third quarter as a result of targeted efforts to wind down specific volumes and product categories. Capital expenditures totaled $6 million in the third quarter, and we expect Q4 CapEx to be approximately $10 million. Year to date, we have opened 15 new dispensaries and relocated five, in line with our full year guidance. Turning now to our outlook, we anticipate fourth quarter revenue will be down low single digits, primarily due to the risk that revenue contribution from the Ohio VIEs may be deconsolidated for fourth quarter results, contingent upon receipt of financial information, and also factor in informational activity and continued wallet pressure on consumer behavior. With respect to margins, we expect steps to streamline operations and reduce costs will benefit margins, while idle capacity, holiday promotions, and inventory reduction initiatives will pressure gross margin.
But overall, our initiatives are driving significant cash generation. We are on track to exceed our target of $100 million in cash flow from operations and generate at least $70 million in free cash flow. We will exit 2023 having realized lower expenses, more normalized inventory levels, and reduced debt and interest expense. Kudos to our entire team for delivering on our key objectives this year. With that, I'll turn the call back over to Kim.
Thanks, Ryan. It bears repeating, this is an incredibly exciting time for U.S. cannabis and for Trulieve. With meaningful federal reform and state market catalysts on the horizon, we are poised for accelerated growth. The recommendation by the Department of Health and Human Services to reschedule cannabis to Schedule III from Schedule I represents an explicit acknowledgment by the FDA that cannabis does in fact have medical value. Rescheduling would open the door for additional research, expanding our understanding of cannabis and potentially enabling broader development of products and formulations. A Schedule III classification would also definitively remove the punitive tax burden of Section 280E, driving a meaningful step-up in financial performance for state legal operators. We are optimistic that rescheduling would eventually lead to further federal reform to address the growing divide between federal and state laws.
While the industry awaits federal reform, state markets continue to expand through medical and adult-use programs, spurring greater adoption and mainstream acceptance of tested and regulated cannabis products. In Pennsylvania, we remain optimistic that adult use could be enacted through legislation in the next 24-36 months. Governor Shapiro remains a steadfast supporter of adult-use cannabis. With almost 13 million residents, we believe adult use could increase the Pennsylvania market to over $4 billion in annual sales. Given Trulieve's production capacity, brand and product portfolio, and leading retail network, we expect to increase market share when adult use is adopted. In Florida, Trulieve is the largest supporter of the adult use ballot initiative.
The campaign has gathered over 1 million validated signatures, representing 7.5% of registered voters and surpassing the required threshold. The final hurdle for inclusion on the November 2024 ballot is an affirmative ruling by the Florida Supreme Court. Yesterday, the court conducted a hearing of oral arguments from the Smart and Safe Florida campaign and the attorney general regarding the citizens' initiative. We believe that the campaign's lawyers properly conveyed their case to the court and remain hopeful that the justices will ignore the political rhetoric, stick to the law, and give Floridians the opportunity to vote on this important initiative. As a reminder, the court can issue an opinion any time between now and April 2024. Once on the ballot, the initiative passes with 60% voter approval.
With 22 million residents and 138 million annual tourist visits, we believe Florida will be the best cannabis market in the world, reaching $6 billion in annual sales. Trulieve maintains outsized market share in Florida, selling 130% more products than the state average, eclipsing all competitors. Given our scale, competitive production costs, and ability to quickly flex up production with minimal investment, we are prepared to expand our market-leading position with this opportunity. This year, we successfully implemented meaningful changes to bolster our business resilience, just as we said we would do. By taking proactive steps to strengthen our balance sheet, streamline operations, and reduce inventory, we will exit 2023 as a leaner organization. With strong cash generation and a clearly defined strategy, Trulieve is best positioned for the coming wave of meaningful growth catalysts.
I've said it before and it remains true today. I wouldn't trade positions with anyone in cannabis. Thank you for joining us today, and as I always say, onward. At this time, Kim Rivers and Ryan Blust will be available to answer any questions. Operator, please open up the call for questions.
We will now begin the question and answer session. To ask a question, you may press Star, then One on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press Star then Two. The first question comes from Luke Hannan of Canaccord Genuity. Please go ahead.
Thanks. Good morning, everyone, and congratulations on the strong results. Kim, I want to pick your brain, if I can, on just how you're thinking about the balance sheet and capital allocation here. Quick math shows even with the repurchases of the 2024 notes and the, the chunk of the 2026s that you did in Q3, you should still finish the year in a fairly attractive, cash balance position. Just curious to think about, how we should be thinking about that going forward.
Yeah. So, you know, we are absolutely incredibly excited about the position, and the work that the team has done, this quarter and continues through the end of the year as we execute against our initiatives. As we stated at the beginning of this year, really, one of our primary goals was to focus on cash this year, and the team continues to do that, which provides, of course, significant optionality in the business. That's particularly important today, given the catalysts that are in front of us.
So, as I mentioned, right, we had an incredible day yesterday with the Florida Supreme Court hearing and the oral arguments, and the posture of that court definitely leaned positive as it relates to the possibility that the court would rule in favor of allowing the adult-use amendment on the ballot. That, of course, is the single biggest catalyst for Trulieve, and I would argue for the industry, if in fact, we are able to get that measure on the ballot and then approved in November. With that, of course, we're going to continue to invest in Florida, and of course, as a leading retailer, feel very comfortable continuing to invest in retail in many of our markets.
In addition, though, and I don't think that this can be understated, it's also really important that we continue to have an eye on the future, in a more normalized, integrated commerce environment. As I mentioned during our prepared remarks, we're going to continue to invest on what we deem to be foundational customer-facing initiatives throughout next year. We mentioned the website, we mentioned the loyalty program. We're also looking at optimization efforts in our retail platform across all of our markets. And again, just looking for any opportunity to reduce friction with the consumer, because, of course, we've got these state catalysts, but then, you know, broader federal reform, we believe is on the horizon as well.
That's great. And then for my follow-up here, you did mention the revamped loyalty program. I'm curious to know if you can share with us how what the difference is, I guess, from the consumer's perspective, but then also from your perspective, the new capabilities that will give you, and then eventually how that will show up to the consumer the new loyalty program?
Yeah. Yeah, we're really excited about it. Just in terms of ease of use and the ability for consumers to have more transparency in terms of how the loyalty program actually functions. It's gonna seem more intuitive and in line with many other, you know, leading retail loyalty programs that we're used to interacting with on a regular basis. Again, our goal is as we think about cannabis and through the lens of integrated commerce, how do we make it, you know, less clunky and more just more user-friendly? So there are a lot of features that again, we're really excited to preview with our customers, that you all will, of course, get a first look at as well.
But I would say that the main thing is for it to just be a more normalized, trackable, intuitive program for both consumers across and also, of course, for it to be able to be integrated across all of our markets. That's another goal here, is for us to look beyond kind of the four walls of each state and to be able to offer a platform that is portable across markets, because ultimately, we think that's at some point anyway, where this is headed.
That's great. I'll pass the line. Thank you very much.
Thanks.
The next question comes from Aaron Gray of Alliance Global Partners. Please go ahead.
Hi, good morning, and thank you very much for the question. So first question for me, I just wanted clarification on your tax payment strategy going forward. I know you filed for the refund for some of the historical years, but wanted to get clarification on whether, you know, you mentioned the intention to not make some of those 280E payments going forward. So just clarification on your tax payment strategy on a go-forward basis, particularly as it relates to 280E, as you await, you know, the refund from the IRS potential rescheduling. Thank you.
Sure. So there's a lot going on as it relates to taxes. So let's break that down just so we're very, very clear, because I know it can be a little... Again, it's, there's a lot of puts and takes. So in this quarter, we had because of the hurricane, I think we should just maybe call Q3 virtually maybe our hurricane quarter, because that seems to be the last two years. So we have a deferral that is granted automatically, and so Q3 and Q4 taxes are not due currently. They will be due in February. We plan to continue to pay taxes. So just to be clear, we are not paying taxes. We will be paying taxes, but we plan to pay taxes under a normalized corporate tax regime.
In absence of those 280E payments moving forward, as we await the IRS response on our refund claim. So, again, no tax payment due for us until February of next year due to the deferral. And then moving forward, we are taking the position that we will continue to pay taxes. So taxes, again, will be paid when due, but they will be paid as a quote, normal corporate filer.
Okay, great. Thank you very much for the clarification there. And then secondly, just on the hearing yesterday, you know, you know, I heard you say you mentioned that, you know, lean positive in terms of how you think, the justice kind of heard the arguments. Anything that you saw that was, you know, maybe unexpected or, you know, from the other side, or was everything pretty much in line in terms of some things they were arguing, you know, via the allow, single subject or otherwise? And then secondly, in terms of, you know, investment in the state, you know, you talked about, you know, Florida, you know, still being a priority there.
So just want to know in terms of, you know, expanded stores, you know, do you think just within the medical market, there's enough there to kind of continue to add stores as we look towards 2024? Would you want to wait until you saw whether or not, you know, adult use might, you know, be coming up on the ballot or, or even passing in 2024 before you really start to add additional stores in the state? Thanks.
Yeah, well, as per our past cadence, we're gonna be, you know, releasing guidance, which will likely include store counts, at the end of the year. So stay tuned for that, and that'll provide some additional color as it relates to, you know, projected retail expansion into 2024. That being said, as I mentioned, you know, we do and, you know, absolutely remain very bullish on Florida and on the opportunity set here. With our again capacity on the supply chain side, we are again in a unique position that we're able to fill new doors, and the return on investment for those new doors remains strong.
So, you know, and we also believe that there remains strategic opportunities as it relates to locations, in the state. So we certainly will be building additional retail locations in Florida. Again, quantities, I would say, you know, stay tuned for that, as we look to give additional color on that next quarter. As it relates to the court, as I said, no surprises in terms of arguments. It was based on, the previously filed briefs, briefed by the, by the Attorney General's office.
I think maybe what was a little bit surprising, and I think it's reflected in the news coverage that that came out as well, and that we'll probably see continue today, was just, you know, the external posture of a number of the justices, in terms of really being supportive of the language as written. You know, the sponsors of the initiative did work very diligently to track previous Supreme Court guidance. And I think that the court understands that, you know, altering or shying away from or rewriting that guidance has broad implications, not just for this particular amendment, but for the entire citizens' ballot initiative process in the state of Florida.
You know, that's not something that they would do lightly, and it was really encouraging to see that, you know, several of the justices saw that and appeared to understand that, you know, that this wasn't something that just affects, you know, a particular policy, which they may or may not agree with, but it has potential broad sweeping impacts on the entire, on the entire, you know, posture of citizens' ballot initiatives in the state of Florida. So, good, good to hear, and very encouraging, I would say. Often in those types of hearings, you don't get that type of external feedback from as many justices.
Okay, yeah, great to hear, and we'll keep an ear out for a Supreme Court decision. I'll jump back into the queue.
Thanks.
The next question comes from Russell Stanley of Beacon Securities. Please go ahead.
Good morning, and thank you for taking my question. Maybe on Georgia, this is now a unique market opportunity for pharmacies carrying products, early days, but given the uniqueness of this as a channel. It hasn't really been done before. I guess, how quickly do you envision the patient count expanding? You know, in the past, you've drawn parallels between Georgia and Florida's early days, but this channel is so different. I'm wondering how you're thinking about this market now.
Yeah, it is, it is a really unique channel, and I think it's a, it's an incredible opportunity for us to, to test and learn, and for us to build, to build on our, you know, on our capabilities, as it relates to this type of distribution, again, with a, a third-party partner and, really a true kind of, you know, restock service model. You know, access and improved access, close to patients in a convenient fashion, typically, will, of course, result in increased demand. I think a little too early to tell full impact yet. You know, as I mentioned, we're actually, you know, working and, and are excited to launch sales with a fifth, pharmacy today.
But I think that, you know, the next step here, and this all sort of will likely happen simultaneously, will be some changes in the legislature, you know, as it relates to conditions or products that would, of course, also lead to market expansion. I think one of the real benefits of having pharmacies online will be we now have another advocacy partner, right, at the legislature to be able to speak firsthand as to the importance of access for patients that they see come into their particular pharmacies, and to speak with that medical authority as we go to the legislature to ask for and advocate for expansion over the next little while.
excited about, of course, the direct, but also, maybe some longer-term impacts of having that channel open for us in Georgia.
Great. Thanks for that. And maybe if I could switch to Ohio, with your first store opening there and the voting results earlier this week, how you're thinking about this market. You know, is this an area where you can and might step on the gas in terms of adding retail and expanding into this, given the adult use, the pending adult-use legalization?
Yeah, we were very excited, of course, to open our store in Columbus, and that store is ramping really, really nicely. Our team there has done a great job in terms of connecting with community and really building that customer base ahead of adult-use. In Ohio, kind of as mentioned in Ryan's remark, we currently have a VIE situation, and so are in current pending litigation with that relationship. That was an inherited relationship with the Harvest acquisition. The portfolio in question includes 3 retail locations, production, and cultivation. So I would say, you know, stay tuned as it relates to the resulting, you know, outcome in Ohio.
That's great. Thanks for the color. I'll get back in the queue.
Thanks.
The next question comes from Frederick Smith of ATB Capital. Please go ahead.
Hi, good morning. Thank you for taking my questions. First question is just, given your, your guidance for, for cash flows, for the year, and, and I guess for next quarter as well. So can you provide some, some color on the working capital items? Did you expect to impact cash flows next quarter? You know, do you expect, how much in terms of, further reduction in inventory? And, if you could, you know, expand on some of the, the other items as well, impacting that guidance. Thank you.
Yeah, so, you know, as we mentioned, of course, there's a lot of moving parts, and fourth quarter is an interesting one because, of course, we're against the backdrop of, you know, the most promotional quarter of the year. So as it relates to product mix and ins and outs, you know, it is a very dynamic quarter. You know, what I will tell you is that as it relates to our inventory wind down efforts, specifically, as mentioned in the prepared remarks, Florida has come to, you know, we've basically landed that initiative, with the exception of some additional movement in oil. But in all, I would say, material effects, that has come to an end, and the team has done a great job there.
And we're now ramping that capacity to feather in and really, you know, even out or smooth out the product availability to demand mix, if you will, in Florida. That being said, we still have inventory wind down efforts underway in other markets. And so that, those efforts as a company will continue through Q4 into next year. And the teams are, again, making a lot of progress against those initiatives. I think just because I'm pretty sure this will probably be a follow-up. So, as it relates to Florida in particular, you know, what is interesting, it's very difficult and, you know, challenging to land these things perfectly.
We did have some, a little bit of, bumpiness as it relates to certain products and, again, capacity and whatnot. So that's being smoothed out now. You saw some of that towards the end of Q3 and coming into Q4. That's right-sizing at this point in time. What we are able to do now in Florida is really take those lessons that we've learned, and we're looking at this as really a test as, again, as we land some of these other inventory wind down initiatives across other states, to look at consumer demand and our mix as it relates to particularly margin.
and cost, again, taking advantage of efficiencies out of JeffCo now and transitioning, customers into higher margin, quite frankly, in some cases, higher quality products that are at a lower cost basis for us, with the consumer cost impact being the same or in some cases, even better. So really looking for those opportunities to learn from, our inventory wind down initiative and make pivots in the business and in the portfolio that improve, both the customer experience and also, the financial results, which again, we'll continue to optimize, in the quarters ahead.
Perfect. Thank you for that. Next question is just, going back to your, I guess, your tax strategy, going forward. Can you give us some color, I guess, in terms of the impact to cash flows expected from that? You know, not, I guess, not, not paying the, the liabilities associated with 280E. How much of that, you know, in 2024 maybe, you expect to get a benefit from?
Sure. So I would refer you to our, you know, our 10-K, of course, which isn't filed yet. But in our 10-K, each year we have a note that breaks out and talks specifically about our 280E tax liability. We don't do that on a quarterly basis, but I would just point you to the 10-K that of course will be filed along with year-end.
Perfect. Thank you.
The next question comes from Pablo Zuanic from Seaport Research Partners. Please go ahead.
Hi, thanks, thanks for taking my question. I guess just obviously the Supreme Court hearing was it seemed net positive. I guess if you could just talk generically about what you think the margin and competitive landscape would look like in Florida if it is on the ballot versus it not being on the ballot. I know you commented previously that if it's not on the ballot in 2024, it probably you'd probably wait till 2028 to get it back on the ballot. So just generically thinking about if it is on the ballot, how the competitive landscape would change versus it not being on the ballot and kind of what you would expect you know going into mid-2025 when adult-use starts.
Yeah, I mean, I think that, you know, it's important to remember that Florida is a bit of a different market than others, and that it is forced vertical, right? So it's different in the sense that, you know, you can't just lean into retail without having the supply chain capacity across form factors and across depth of products to service that retail. You know, the supply chain, of course, is... takes the longest and is one of the more, you know, more expensive generally for most companies than retail expansion.
So, I don't know that we would see any, in other words, if someone were to make a decision today, right, that they wanted to expand, expand Florida footprint, it typically takes, it would take until more than likely, almost the end of the year for that capacity to be built, approved by the state, planted, production ramped up, and products coming through and into retail locations. So there is a bit of a difference in Florida versus other markets as it relates to full supply chain build-out when you're talking about expansion.
That's one of the reasons why, again, we really like our position in Florida, because we have made multi-year investments into the state, not only just for capacity, but for really efficient capacity that generates a significant high quality product portfolio that then, of course, is distributed through our market-leading retail network of about currently 127 stores across the state. So, you know, I don't know that we would necessarily see as opposed to any, you know, differential in terms of what folks currently have planned versus what folks would then plan in 2024. I think that that may come into play more in 2025.
But again, I think that as far as, as far as we're concerned, we have the ability again to continue to meet demand while also making investments to really optimize and get additional torque out of existing facilities and retail locations, into and through 2024. So, again, in a very different kind of apples and oranges position as it relates to folks who need to build new capacity in order to be, or in order to have an increased, competitive position. As it relates to, you know, what I see this next year, I think that as far as we're concerned, as far as Trulieve is concerned, this is all kind of according to plan, right?
We believe very strongly that Florida, as I said, and I'll say it again, will be the best cannabis market in the world. We believe that the legislature, when they go to implement the amendment, will certainly continue to be focused on ensuring safety and traceability. I don't know that I see a situation where there's a complete, you know, decoupling away from vertical and at least from a holistic approach. And I think that we'll continue to be able to operate our business as we have been operating, and that's really when our scale will really show, and we'll be able to fully lean in and bring, you know, everything that we've been working on to bear in the market against a backdrop of significantly increased consumer demand.
So really excited about that possibility and can't wait to be able to show everyone what we've got.
just turning to Georgia. Obviously, we don't have a lot of data on Georgia yet. You guys are one of two players in that market. Can you just kind of give us, you know, some insight on just what the current size of the market is and what you're seeing in terms of patient count today and kind of what the growth rate you anticipate?
Yeah, I mean, Georgia, look, Georgia is gonna be a medical-only market. It's starting out fairly conservative. Again, very similar to what we saw in Florida. The patient ramp is approximately, you know, I'll call it 14,000 or so patients today. Again, that data, we're trying to get into a better cadence of really, again, having accurate data a little bit more regularly. And we're working with the regulators there, who have been great partners with us. But as you ramp a program and as you bring a program online, some of that information is just, you know, a little difficult to get into a regular, I'll call it, reportable format. And it was the same thing with Florida in early days.
So, I mean, contrary to popular belief, we didn't always have Friday OMMU reports. We actually had to do information requests, which we did every week, and then I think they got tired of having to respond to Trulieve's information requests, and so they started just publishing it on a regular basis, because I think all of the analysts also started making information requests. So, you know, it'll happen in Georgia. It's just gonna take a little bit of time. And, again, similar to Florida, we're seeing similar patient profiles as it relates to, you know, early adopters, and then that'll again continue to expand over time. So I would say more to come, but not surprising to us, and again, as planned, that Georgia is ramping at the rate that it is.
Great. If I could just squeeze one more in. I know one of your competitors, you know, just recently provided state-level data and, you know, basically took some of the opaqueness out of the models. I don't know if you've had a chance to look at it, but in terms of just revenues per store, were you surprised at the success they've had on the retail side?
You're asking me to comment on another competitor's retail per store?
No, I'm just trying to think about just, you know, we know volume growth is, or in terms of volume, you guys obviously do a lot better. In terms of revenue, we're just kind of trying to glean, you know, if there's some additional insight related to that, on your overall revenue per store in Florida.
Yeah, I would tell you that we make more per store in Florida than I think any of our competitors. I mean, if you can extrapolate out any metric that you would like on that, and again, the number that was given as it relates to averages, is that we sell 130% more than the average on the state. I mean, again, OMMU data comes out every week, and pricing's available online. So, feel very, very comfortable as it relates to our store metric productivity versus competitors in the state.
Great. I'll turn it back.
The next question comes from Matt McGinley of Needham. Please go ahead.
Thank you. So my first question is on the cash flow as it relates to taxes. You had a change in the other long-term liability line in your cash flow. That was a $49 million benefit in the third quarter. Was that related to the amended tax return you filed, or was that $49 million related to the Hurricane Idalia deferrals? And, is that benefit baked into the $100 million target for operating cash flow, or is that more like 150 if you include that for the full year?
Yeah. So as we mentioned in the target, it's that we are targeting more than $100 million in operating cash flow for the full year, Matt.
Got it. But I guess, what is that benefit that you saw in $49 million in the third quarter? That was a pretty substantial number. Is that a result of the reversal of the 280E that you're expecting to see, or is that, I guess, the accounting treatment of that is different from what we've seen before, and I'm just not, I'm not sure what we're looking at with that big benefit you had in the quarter. It was-
Yeah.
about half of your overall operating cash flow.
So, Matt, I think you're—I think we might be talking apples to oranges here, and we're happy to have a more detailed, you know, follow-up with you. But that's a—it's a, not to get too technical, but that's an uncertain tax position, so that's gonna be our UTP. And again, happy to take that offline with you if you'd like.
Okay.
No, no, and just to clarify, there's no refund contemplated in any of our financials at all. So I don't want there to be confusion there as well. We tried to make it clear, again, in the notes and whatnot, but maybe we need to have a further conversation around that.
Sure. Sounds good. And then on the SG&A, how much opportunity do you see in reducing your core SG&A dollars, given the store growth? I mean, if your top line, you know, continues to see a little bit of pressure on price compression, but you're still putting up stores, does that become a bigger drain on your profitability, or do you feel like you have efficiencies that could offset some of those impacts that you're seeing from store growth?
Yeah, it's—I mean, look, it's gonna, it's gonna ebb and flow, right? I, I think there are still, and we obviously have a close line of sight and are monitoring it and responding accordingly as it relates to that efficiency balance vis-a-vis store growth. Of course, when you have stores that you're opening, you have some expense that, you know, may not net out specifically, depending on timing, right, on a quarter-over-quarter basis. And certainly we've experienced that in the past. I think, again, we try to be pretty communicative about that, and we'll continue to do so, Matt. But I, I do think, I, you know, I don't see a continued, a continued drag necessarily or specifically on SG&A there. I think there's enough kind of puts and takes, if you will, left.
Of course, asterisks there will depend on timing.
Okay, great. Thank you very much.
The next question comes from Eric Des Lauriers from Craig-Hallum. Please go ahead.
Thank you for taking my questions. I appreciate the color that you've given on the JeffCo facility there. It's nice to hear yields and potencies are outperforming expectations. Could you comment on how costs are tracking, either relative to expectations or relative to some of your earlier production facilities?
Yeah, as we mentioned, very, very excited about the productivity of the JeffCo facility. And, you know, again, costs are in line with our projections, and we actually may have a little bit of continued work to do there as it relates to bringing those, you know, completely in line. You want to be careful, of course, on how you manage that as you're continuing to ramp. So, may still have a little tweaking there to do, but very pleased with all aspects, really, of that facility and are gonna be, you know, again, sharing additional information for—with you all, as we discussed, going into next year.
All right. I appreciate that. And then just a bit more on the decision to bring back some of that idle capacity. You know, so it sounds like JeffCo obviously has a bit more capacity and that, you know, quality has been impressive. I understand there was some bumpiness with the inventory wind downs. I'm just kind of, I'm sort of wondering, you know, how this is all sort of coming together here. Is it that you're able to ramp these other facilities faster than JeffCo? Is this sort of, you know, almost like a bridge until JeffCo is fully ramped? Are these other facilities sort of able to produce, you know, maybe certain products that JeffCo can't, and that we should sort of expect that idle capacity or these older facilities to remain online?
Will they kind of come back offline once JeffCo is fully ramped? If you can just give some more color on that, on that decision, that'd be great. Thank you.
Sure. So, yeah, as we said, you know, brought on some additional capacity. It shouldn't. I should maybe quantify that, on a relative basis, it's small compared to the JeffCo output. So JeffCo remains our primary contributor to product in Florida today. And again, yes, it is continuing to ramp slightly, but we feel that we've got good line of sight at this point as it relates to output with respect to JeffCo. So we do have additional 24 K style buildings that we have brought back online. Again, by the way, those are pretty efficient models in and of themselves. So, you know, from a blended cost basis, feel incredibly strong as it relates to our position there.
Those buildings will serve as flex capacity for us as with, again, JeffCo being our workhorse stable output facility, and then we're able to ramp up and/or down, depending on what's needed in the market. Of course, as we stated, you know, holiday typically has increased unit demand, so really happy that we have that capacity to flex into to service what is typically a holiday surge for the year.
Thank you.
The next question comes from Scott Fortune of Roth MKM. Please go ahead.
Good morning, and thanks for the call. A lot of the questions been asked, but real quick, just congratulations on the continuing cash flow generation and then optionality there. But just kind of get a sense for your priorities, looking at the ROI for cash generated. Obviously, you're paying down debt, but how are you prioritizing any color around 2024 CapEx to potentially grow some of these new adult-use markets and states for you? Other options with the cash, you know, stock buyback and such. Just kind of give a sense for prioritizing that cash going forward here.
Yeah. So, you know, I think that. Look, I mean, the 2024 notes were due next year. So, you know, for us, it. That was always part of the plan. You know, we're gonna, we're gonna pay that debt when, when due. We were able to save some interest there, which we thought was the right decision, you know, moving into the end of the year. As I said at the top of the Q&A, you know, investments in both, additional expansion in retail, along with, what we, what we deem to be really core investments, through the backdrop of a, of a continued progression to an integrated commerce environment, will, will remain, front and center, in 2024.
We'll give additional color on CapEx at the end of the year on our next call. Reminder, right, that we're really coming out of a multi-year investment cycle as it relates to our supply chain and production capacity. So just again, I think it bears repeating, because it is a differentiator. We have, you know, approximately four million sq ft of cultivation and production facility capacity. So again, very different position than many of our peers who have not made that type of investment up to now and are working to either catch up or build out, you know, in kind of just-in-time fashion.
And we've got the luxury of, again, having made the investment, really being able to dial in on efficiencies, getting the right product mix, and dialing up and up and down, while really being able to focus our efforts on the customer and our retail. Again, market-leading, world-leading, cannabis retail position in our market. So, a little different than some of our peer set.
I appreciate that. Just kind of a follow-up on this, Kim, you know, obviously you're championing and truly championing adult use in Florida. You've put a fair amount of money towards that. Let's say we get to pass the Supreme Court. Obviously, the governor is not too favorable of it. You still need 60% of the voters to approve this. Kind of step us through or kind of some of the strategy, not only just your lead in getting, you know, adult use vote passed here, but kind of the industry in general, kind of sense for, you know, the cash or what needs to move forward to get a favorable vote, potentially next year, if we get to pass the Supreme Court here.
Yeah. So I think a couple points on that. Number one, the medical initiative in Florida, that was also a ballot initiative, passed with the highest favorable rating of any ballot initiative in the history of the state of Florida, with over 73% of a passage rate. Currently, adult use is polling at approximately 70% without any kind of active campaigning or public-facing, you know, initiative. Secondly, the governor doesn't have really, I mean, his opinion, of course, is his opinion. He's remained relatively neutral on the topic. But just to be clear, there is no specific, like, veto or any sort of process intersection with the governor, on, you know, as it relates to at least the Florida process.
And finally, I would say that, you know, we would expect and anticipate that, you know, our peers, particularly those who I know in their earnings calls have been talking about how great a market Florida is and how excited they are about adult use, would come to the table post-Supreme Court approval to participate in the publicly facing campaign efforts moving forward into 2024. So far, I have received, and certainly they know who they are, in robust conversation, commitment to that will be the case, and certainly hope that we all hold them accountable as we share in the benefit of what an incredible market adult use market in Florida would be.
Thanks, Kim. Appreciate the further detail.
This concludes our question and answer session. I would like to turn the call back to Christine Hersey for closing remarks.
Thanks, everyone, for your time today. We look forward to sharing additional updates during our next earnings call. Thanks again, and have a great day.