Exclusive Interview with Trulieve CEO Kim Rivers
Trulieve Cannabis Corp. (OTCQX: TCNNF) (CSE: TRUL) began with a team of 10 people building a company out of a former tomato packing plant in Quincy, Florida. In July 2022, CEO Kim Rivers spoke to New Cannabis Ventures about plans to hit more than $1 billion in revenue in 2022. The company reported $1.24 billion in revenue for the full year. In March, Rivers checked in to talk about how the company is managing through the current conditions impacting the cannabis industry and continued plans for growth.
Listen to the entire interview or read the summary below:
Trulieve has built its national footprint across the U.S. using a regional hub strategy. It has hubs in the southeast, northeast and southwest. It continues to lean into that model to improve its economies of scale.
The company’s cornerstone market is its home state of Florida. It recently opened a 750,000-square-foot cultivation facility, which will help to drive improved efficiencies in its cost of production. The company remains a market leader in the state with its significant retail presence, according to Rivers.
Less than two hours away, the company is in startup mode in Georgia. It has completed the first phase of its cultivation and production footprint in the state, and it has plans for retail stores. Rivers anticipates opening the company’s Georgia operations this year.
In the northeast, Pennsylvania is Trulieve’s cornerstone market. The company has vertical operations in the state, and it has had strong retail performance. Rivers pointed to positive consumer response to the company’s value products in Pennsylvania. She is also encouraged by Governor Josh Shapiro’s comments on adult-use cannabis.
The company also has operations in Maryland, where its team is focused on cultivation. The number of retail stores is restricted by regulations, and the team will be looking at expanding wholesale operations. Massachusetts, Connecticut and West Virginia are also a part of its footprint. Additionally, the company is in the process of bringing its first branded retail location to Ohio.
Arizona is the company’s cornerstone market in the southwest. Its retail presence in the state is a combination of Trulieve and Harvest-branded stores. It has production operations in Colorado, where its brands are making an impression in the market. Rivers noted that the company’s Co2lors brand is a top brand in the vape category in that market. The company also has retail locations in California.
Outlook in Florida
Trulieve remains bullish on its home state of Florida. On a week-to-week basis, the patient growth has been relatively stable, according to Rivers. She believes the number of patients being added to the program has outpaced initial estimates.
While new patients join the program, new operators continue to come online in Florida. New competition has been fairly consistent since the company began. Companies need scale to be competitive in the state, according to Rivers.
The company has more than 2 million square feet of available cultivation space. It has brought some of its legacy cultivation offline, replacing it with its new 750,000-square-foot building. But it has the capability to turn capacity back on to meet any increase in demand driven by the opportunity to wholesale or sell adult-use products.
Rivers is confident that adult-use cannabis will gather the necessary signatures needed to appear on the 2024 ballot. But the initiative will also need to pass review by the Florida Supreme Court. The advent of adult-use in Florida would represent a significant opportunity for Trulieve.
The company has had to face pricing pressure in markets like Arizona. Rivers acknowledged that cannabis has entered a new cycle. During the early days of the COVID-19 pandemic, cannabis companies were experiencing double-digit growth and scaling just to keep up with demand. Now, consumers are grappling with inflation and making careful decisions about where to spend.
Trulieve is seeing a slight increase in consumer visits, but basket size has decreased. Consumers previously purchasing mid-tier products are now more interested in value products. The company has seen some resilience in the premium category. The team does not anticipate the pressure on consumer wallets to change anytime soon, and it is positioning the company to meet consumers where they are.
Wholesale and Retail
The company has largely focused on branded retail and products, a strategy that has proven to be successful. Its loyalty metrics are over 74 percent in medical markets, according to Rivers. But that doesn’t mean the team hasn’t thought about wholesale. Right now, wholesale operations are a single-digit contributor to the company’s overall revenue. But wholesale could be critical depending on the market. Rivers offered the example of Maryland, where the number of retail stores operators can open is limited. Wholesale could bolster the company’s position in markets like that.
In 2023, the company has two main strategic priorities. First, it is focused on cash generation and preservation. Second, it is looking for strategic investment and opportunities for growth. But the company will be selective about those opportunities. It has no appetite to take on companies that have large debt portfolios, and it does not plan to utilize its stock as currency, according to Rivers. The company could find opportunities to pick up individual assets. Other companies with large debt maturities may need to offload assets to access cash.
Most near-term growth opportunities will be organic. Rivers pointed to the license the company won in Ohio has an example of organic growth, and it will continue to look for those kinds of opportunities, particularly in the southeast.
The Trulieve Balance Sheet
Since Rivers last spoke with New Cannabis Ventures, the company has secured two traditional mortgage-backed loans: $90 million in aggregate. The blended cost of capital is 7.5 percent, lower than the company’s previous blended debt rate of 8.2 percent. Trulieve was able to lock this latest interest rate, a strategic move in what could continue to be a volatile rate environment this year, according to Rivers.
Rivers is pleased with the company’s balance sheet and its ability to survive the current cycle the cannabis industry is experiencing. Last year was about the company integrating Harvest and the six other acquisitions it completed. It also focused on streamlining the organization and becoming operational independent of the financial markets. Rivers expects to see those efforts bear fruit this year.
The company reported its Q4 and 2022 full year results in March. It generated $1.24 billion in revenue for the full year, 32 percent year-over-year growth. It had $400 million adjusted EBITDA for the year, and 2 percent retail revenue growth sequentially. Gross margin for 2022 was 55 percent.
The company’s fourth quarter demonstrated its pivot to focus on cash. It had $55 million in operating cash flow and free cash flow of $21 million for the quarter.
Trulieve in 2023
That focus on cash generation and preservation continues in 2023. The company intends to be free cash flow positive, and it is planning to significantly lower its CapEx. In 2022, the company was at $155 million in CapEx, and it intends to decrease that by at least 50 percent. It also has a gross cost savings target of $100 million.
While the company will be decreasing costs, it still plans to invest in its retail network this year. Trulieve plans to open 15 to 20 stores. It is also considering up to six relocations as the leases on some older stores near their end.
The company has high adjusted EBITDA margins relative to its peers. In 2023, the company is focusing on inventory optimization. It will be pulling through products that were produced through its legacy footprint. Rivers anticipates some fluctuation in margins and pressure on gross profit margins, but the end result will be a pull through to cash.
Rivers sees the current cycle the cannabis industry is in as an opportunity for the company to relearn its customers. The company’s product portfolio is data-driven, and Trulieve will continue to look for ways to deliver the right products, at the right time and at the right price point.
To learn more, visit the Trulieve website. Listen to the entire interview: