Trulieve Cannabis (CNSX:TRUL) Sets Cannabis Financial Standard with Flagship Quarter
Trulieve Cannabis Corp (CNSX:TRUL) (OTCQX:TCNNF) CEO Kim Rivers joins Midas Letter to discuss the company’s record quarter of growth in revenue and adjusted EBITDA. The CEO discusses the advantages for MSO’s (multi-state operators) operating in Florida. Florida has one of the fastest-growing markets in the US with respect to program adoption. Ms. Rivers also outlines the probability of a recreational market in Florida in the next year and how that decision would impact the company’s bottom line.
James West: I’m joined now by Kim Rivers, CEO of Trulieve Cannabis Corp. Kim, welcome back.
Kim Rivers: Thank you so much for having me.
James West: Kim, congratulations on I guess what we’re going to call the flagship standard-bearing quarter of all cannabis companies: $0.55 a share net income. That’s fantastic. Give me an overview of why that happened, and how that’s going to continue happening.
Kim Rivers: Well, as we’ve said at Trulieve, we’re very focused on building a profitable and sustainable company, and you know, what I hope to see is that we are the first of a number of companies in the US who will be reporting strong results for this quarter.
And we’ve always been focused about providing an exceptional level of service and an exceptional level of product quality to our patients, and certainly Florida remains our backyard and a key state for us. And again, our strategy was really to spend focusing on fundamentals, making sure that we’re delivering exceptional service and product quality to our customers, and really focusing on operations and operational excellence.
So we’re happy with our results, and this is just the beginning.
James West: Sure. What is it with the State of Florida? It seems like, of all the MSOs and all of the large-scale LPs, those operating in Florida have the best performance among every other LP. What is it about the State of Florida that makes it so accommodating for you?
Kim Rivers: Well, I would say that, you know, Florida, a couple of things. You know, one, we do have, of course, a very high rate of adoption from a month-over-month standpoint, and so Florida is one of the fastest-growing markets in the US with respect to folks coming into the program. So that certainly sets up a nice customer base for folks to sell to.
Secondly, in Florida, you know, we don’t have limitations with respect to our cultivation size, our cultivation footprint, nor our production footprint. And then, of course, as we know, while there is a cap currently with respect to retail outlets – that number for Trulieve is 49 stores – that cap comes off in the Spring of next year.
So I think just the ability to reach scale, and with that scale, I think that that’s, you know, may be a foreshadowing of what the cannabis industry can expect as some of these, you know, artificial limitations in some markets hopefully come off over time.
James West: Of your 110 million reported in gross profit, 90 million comes from the adjustment of growth of biological assets, which leads a skeptical person to say, well, looks like they’re basing a lot of their profit on future sales of inventory, which requires that the price that you account for it, at the time you account for it at, is the same when you actually sell it.
So is there any reason to look at that number and be a little nervous from the standpoint of an investor, in your opinion?
Kim Rivers: No, not at all. You know, we’ve had strong, of course, retail sales and growth quarter-over-quarter; there is, and continues to be, strong demand at our stores. We have had no price compression yet in the Florida market, however, it should be noted that in terms of our cost basis and efficiency, we’re actually getting more efficient at lowering our costs both on the cultivation and production side, on a quarter-over-quarter basis.
So, the other thing to keep in mind, of course, in this quarter, we did report, it was the first quarter that we’ve had full inclusion of our greenhouse footprint. And so we more than doubled our reportable cultivation footprint in this quarter. And so, that certainly would lend itself to higher inventory amounts. And with respect to biological assets, you will see, when we harvest those greenhouses, which will be approximately twice a year, you’re going to see some moles and peaks and valleys with respect to our biological number as it relates to that and as it relates to that inventory.
James West: Okay, so, besides Florida, you’ve got California, Massachusetts and Connecticut. What percentage of the performance in the last quarter was represented by those three states, ex of Florida?
Kim Rivers: Sure. So we don’t break it out specifically, but I can tell you that of course, currently, the lion’s share of our profitability comes from Florida. We are, as I mentioned on the public call yesterday, which is available for folks if they want to listen to it – it’s on our website – Connecticut continues to perform, but of course, we have a smaller footprint in Connecticut.
Massachusetts will come online next year, and will provide some meaningful contribution both to revenue and to EBITDA in 2020, and we’ll be updating folks as those cultivation and production and retail facilities, as well as our wholesaling initiative in Massachusetts, is fully approved by regulators in Massachusetts and is ready for (unintelligible).
James West: Mm-hmm. At what point does the state of Florida become saturated for you in terms of available locations? Is it, are we 10 percent of the way there, 80 percent of the way there, or is there just still a ton of growth ahead in Florida?
Kim Rivers: Well, we are just under 300,000 patients in the State of Florida, and as a reminder, Florida is the second-largest state in terms of population, with 21 million residents in the State of Florida. And of course, that’s just strictly in the medical program, and those are full-time residents. That doesn’t take into account any sort of potential future growth when you add in a potential adult use or recreational initiative and the tourism numbers.
So I would say that also, of course, the patient growth rate is something that we look at and monitor very closely, has not stalled either. So, you know, so far we think that there is definitely (unintelligible) growth potential for that.
James West: Sure. Does the prospect of a recreational market in Florida seem likely to you in 2020, and if so, what impact would that have on your bottom line?
Kim Rivers: Oh, my gosh. It would have a tremendous impact on our bottom line, of course, in a positive way. In terms of, you know, the likelihood of that initiative in Florida, getting a ballot initiative passed, like most states, it’s a multi-step process. So we have two initiatives now that are working their way through the Supreme Court approval process; I think that we’ll have better visibility in terms of likelihood, once that process is complete, which I believe will be near-term in early 2020. And it really then becomes a matter of whether or not the signatures can be garnered in the appropriate period of time.
So you know, I definitely think that there’s a possibility. I think it still is a little early to tell whether or not that’s probable, but we certainly are supportive, and we are very much, you know, hopeful that 2020, and if not, definitely 2022, we will hopefully see recreational.
James West: Sure. What is your most popular product category?
Kim Rivers: Oh, flower. [laughter] Right now. So, you know, Florida is an interesting state in that flower was not allowable; we were an oil-only state until March of this year. And so prior to the flower, certainly it was our vape or inhalation lines of products were most popular.
Since Florida has come online in terms of product mix, flower accounts for approximately 50 percent of the product that we sell in our stores, and I would say that we haven’t yet hit the top of the market with respect to flower. And we have been, you know, somewhat limited with respect to supply, and so I’m very interested, and we’re interested, really, to test if we’re continuing to ramp our available inventory with salable flower. And so we’re interested to test to see where the top of the market is for that product category. But it’s been very, very well-received.
James West: Sure. Kim, what excites you the most about 2020 in the cannabis industry for Trulieve?
Kim Rivers: There are so many things that excite me about 2020, and we are very excited to enter Massachusetts, to show, you know, the northeast what Trulieve can do in another state. We’re excited to launch our wholesaling initiative; we’ve been spending a lot of time behind the scenes developing those products and that penetration strategy, so I’m very excited about that.
And I think that there are going to be, you know, several catalysts. We’re of course watching very closely the discussions in Congress related to Safe Banking, and then, of course, the talks ongoing now related to other legalization and descheduling initiatives. So we think that, again, US cannabis is really, we’re in the early stages, but it’s, I think you’re going to see some incredible growth across the industry in 2020.
James West: You bet. Kim, a fantastic contribution as usual. It was great to talk to you. Please come and see us when you’re in Toronto next.
Kim Rivers: Will do. Thanks so much for reaching out.
James West: Thank you. Bye for now.
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