Official Transcript: Trulieve Cannabis 2019-Q4 Conference Call Prepared Commentary

Trulieve Cannabis (CSE: TRUL) (OTC: TCNNF) hosted a conference call on Wednesday, April 8, 2020 to discuss its Q4 financials. Below is a copy of the company’s official prepared remarks.


Kim Rivers, CEO
Mohan Srinivasan, CFO
Lynn Ricci, Director Investor Relations


Good day, ladies and gentlemen, and welcome to the Trulieve Cannabis Corporation Fourth Quarter and Year End 2019 Financial Results Conference Call. My name is Marcella 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 Ricci, Director of Investor Relations for Trulieve. You may begin.

Lynn Ricci

Thanks, Marcella.

Good morning ladies and gentlemen and thank you for joining us today to discuss financial results and corporate highlights for Trulieve Cannabis Corporations’ fourth quarter and year end 2019. With me today are Kim Rivers, Chief Executive Officer, and Mohan Srinivasan, Chief Financial Officer. Following our prepared remarks, we will open the call to questions.

Before we get started, I would like to note that today’s call is being recorded for the benefit of investors, individual shareholders, the media, and other interested parties. Please remember that our discussions today may include “forward looking statements’ that involve a number of risks, uncertainties and other factors that could cause actual results to differ materially from those forward-looking statements. Certain material factors and assumptions were considered and applied in making forward-looking statements. These risk factors are included in our MD&A for the quarter ended December 31, 2019 and in the earnings press release that we furnished in connection with today’s call. Statements made on this call speak only as of today and we assume no obligation to update any of this forward-looking information.

Also, our prepared remarks this morning reference non-IFRS financial measures in order to provide greater transparency regarding Trulieve. Any non-IFRS financial measures presented should not be considered an alternative to financial measures required by IFRS and are unlikely to be comparable to non-IFRS financial measures provided by other companies. Any non-IFRS financial measures referenced on this call are reconciled to the most directly comparable IFRS measures in the Company’s MD&A for the quarter ended December 31, 2019 as well as in the table at the end of our earnings press release. We believe that our profitability and performance is further demonstrated using these non-IFRS metrics.
Please note that all dollar references are to U.S. dollars.

This morning we reported results for the fourth quarter and year end of 2019. A copy of our news release, financial statements and MD&A may be accessed through the Investor Relations’ section of our website,, and were also filed on SEDAR. In addition, a webcast of today’s conference call will be available on our website.

Now, I will turn this call over to our CEO, Kim Rivers.

Kim Rivers

Thanks, Lynn, and good morning everyone! Thank you for joining us. We are speaking with you all today in a distributed manner as we all practice social distancing. I want to wish everyone listening on the phone and online well and hope everyone is staying healthy during this time.

Before I cover our year-end results and provide a business update, I would like to share with you how Trulieve is dealing with COVID-19.


We were heartened to have medical marijuana gain essential status as markets we operate in issued stay at home orders. States deemed cannabis essential across our country, and those actions speak to shifting perceptions and the important acceptance we are gaining in the US. We are, in some ways, fortunate to be in an industry deemed essential and therefore not as directly impacted by the COVID-19 crisis; however, we are being affected in different ways.
From the way we go to market to the incredible investment in man-hours spent by our teams to address an uncertain and very fluid landscape. And although we have seen some short-term benefit, the enormity of this situation is not lost on us. The COVID-19 crisis is causing a severe impact to other industries, our country, our healthcare system, as well as the way it’s affecting our patients, communities, employees and their families.

As a company with properties at risk during hurricanes, we have an established preparedness team that we quickly convened for coronavirus planning in early March. Changes were immediately implemented throughout our facilities and in our Trulieve dispensaries to maintain safe, healthy environments to work and transact business.

Let me outline some of the more significant changes for you:

Our first acts were to protect our patients by ensuring our retail dispensaries were safe, clean, and healthy. We contracted with a licensed remediation contractor to conduct deep cleaning events across our facilities and implemented new cleaning procedures, dispensary limits, and chair spacing in our lobbies to encourage social distancing. In addition, special store hours are set aside for our immunocompromised patients to address the special needs of that patient segment.
Probably most noticeable is that we took a fresh look at how we could best approach Truliever interactions during this time. We launched new offerings and pilot programs such as Mobile Hubs, curbside pickup, stores dedicated to pick up only, and making better use of technology for scheduling and delivery alerts.

Internally we’ve been busy as well:

We moved quickly to protect our employees and facilities updating policies to provide additional resources to our employees, and added procedures to keep our workplaces safe, such as implementing temperature checks for all employees entering our facilities beginning in early March.
Our teams focused on workforce balancing in anticipation of potential employee absences. We’re also accelerating our hiring to meet these expected needs, as well as known increases in deliveries and in call center and online chat volume.
We made immediate changes to our production and sourcing. We are taking advantage of our oil inventory by increasing production to ensure we have 8 weeks of finished goods inventory available for our stores. We also have good insights and partnerships with suppliers, and have sourced secondary suppliers if needed. As a vertically integrated cannabis company, our supply chain visibility and control provide shelter from supplier risk. And, finally
We made investments, such as increasing our leased fleet by over 80 delivery vehicles to prepare for increased delivery needs in the state.

These actions were completed while our business experienced an increase in demand from patients as COVID-19 started to take hold in the US. This behavior followed similar patterns that we have seen before hurricanes hit.

Analyzing the pre vs post COVID environment, starting week ending March 13, Florida’s weekly average demand increased by approximately 17% in oil and 37% in Flower compared to the weekly average leading up to COVID. Trulieve outperformed the competition by achieving 21% growth in oil and 62% growth in Flower during this same period. We were able to meet this heightened demand due to the on-hand oil and flower inventory readily available to us via our robust supply chain. This has yielded us approximately 50% oil share and 58% flower share during this last four-week period. Our ability to easily ramp up production, leverage our purchasing power for supply chain requirements, and our large, trained workforce of approximately 3000 employees that can shift as needed, sets us in an advantageous position to quickly address changes in market dynamics.

The changes in our patient interactions, and ramifications on how we conduct business, will be felt for some time to come. I am confident, however, that the holistic and strategic thinking about our business during this crisis, along with investments we’re making, will help us gain critical analytics to increase efficiencies across our business.

There continues to be uncertainty with COVID-19, but we are navigating this turbulent time and leveraging the strong foundation we’ve built. Our organization rising up as a team committed to serving our patients has been truly inspiring. They have done some amazing work preparing and adapting our business for COVID and that ingenuity positions us to emerge from this situation stronger than ever.

Now, turning to our results —


Trulieve experienced a strong fourth quarter and exceptional year end both financially as well as operationally. Our revenues were $79.7 million for the fourth quarter which represents a sequential quarter over quarter increase of 13% and a 122% increase over the same quarter last year. On a full year basis, we achieved revenues of $252.8 million — exceeding our expectations as well as the Street’s consensus. We are happy to end the year on a high note and deliver another record revenue quarter.

Trulieve’s adjusted EBITDA in the fourth quarter was $45.0 million, or 56%, compared to $36.9 million, or 52% in the third quarter. On a full year basis, our EBITDA performance was $132.5 million, or a consistent 52%, completing a second full year of profitability for Trulieve. Our leading profitability continues to set us apart in the industry and remains an important differentiator for Trulieve.

[Brief 2019 Recap]

2019 was an important year for our business. Results were driven by the introduction of smokable flower in Florida last spring. For those of you who have followed us over the last year, you’ll remember flower ramped up extremely fast — remaining in the 50% range of our product mix for the balance of the year.

Operational efficiencies also contributed to our success. These efficiencies were achieved by implementing automation, investing in technology platforms, and introducing new programs. We also added to our bench strength both within the executive team and our board of directors which brought new ideas, best practices, and procedures into the mix. And, we continued to build our brand by bringing high quality innovative products to our Trulievers, and delivering authentic customer experiences. This all served to increase customer loyalty and maintain our leadership position.

2019 was also shaping up to be a very important year across our industry – with profitability in sight for many of our peers, the US MSOs decoupling from the Canadian market, and the proposed SAFE Banking Act making progress – then the Fall brought a shift in capital markets. Lack of access to capital caused many companies to reevaluate their expansion strategies. We anticipate that Trulieve’s disciplined approach to our M&A strategy and our patience as we watched the capital markets decline will present us with many attractive expansion opportunities in the coming months.


We began the year in 2020 excited about our future — and we still are.

Despite the capital market upset in the back half of 2019, and competitors pulling out of our rich and robust Florida market to invest in other areas, we were in good financial shape and kept our foot on the gas, opening seven stores in Q4 ending the year at 42 dispensaries here in Florida. At year end our Florida employee count stood at 2,866, or 18.5% of all Florida cannabis-related jobs according to the Leafly year-end report. We are not only the largest cannabis employer in the state, and Gadsden County Florida’s largest employer in general, but with our current headcount of over 3,000 employees in the US as of the end of Q1, we believe that makes us the largest MSO employer in the country. And our team continues to outperform as Trulieve is currently enjoying a solid market share with 19% of the Florida dispensaries generating approximately 50% of the market share. It’s a market we understand and has, what we believe to be, incredible growth ahead.

Florida is our backyard and we intend to dominate this market. In 2020, we will plan to continually open stores in strategic locations where we can either service a high rate of deliveries, answer the call of patient requests and populations, or secure solid locations ahead of the expected recreational market in 2022.

Let me give you a quick update on the other states with a Trulieve presence.

In Massachusetts we are close to completing the Phase 1 cultivation build out, and nearing completion of our first dispensary build out in Northampton, however, we currently have reduced visibility with regard to executing on our plans. Due to the COVID19 crisis, Massachusetts has limited construction activity and has postponed CCC inspections. We will reassess our timeline once inspections resume.

In Connecticut, we just recently rebranded our Bristol dispensary to a Trulieve location. We waited to complete this branding to assure a seamless transition and that patients understood that the customer experience they relied on was not changing with the acquisition amid a number of new dispensaries also opening in the state. Despite dispensaries in Connecticut growing from 9 to 14 at year end, we were happy with our performance and being able to maintain an outsized market share. We believe this is based on the great customer-focused team in place. We are watching for the recreation market to open up which will be an important catalyst for the state.

In our Palm Springs, California location, we are also in the process of rebranding the store and will be moving to a new store footprint within the same plaza. The California dispensary has been treated as experimental, like an R&D store, where we tested products based on time of year, festivals, etc. We curated the product assortment, reducing the number of products as more of a hybrid model of the west coast’s add everything under the sun to your shelves and the east coast’s more medical feel. And . . . we had success. The revenue performance has increased which, we believe, is based on the improved presentation of less SKUs and our employees’ knowledge of products.


Let me now talk a little more about our retail dispensary performance. I believe we are dominating the market in many ways which can be seen in our retail metrics. A year end call is a good time to offer a little more detail – and these metrics are too good to not share – in order for you to think about our business beyond cannabis and in a pure retail light. I’ll walk you through our metrics for payback per store, customer retention, same store sales, and revenue per square foot.

  • In Florida, we achieve a payback period for each new store in just under 2 years. This includes store build out, inventory, capex for the indoor grow to support the store and assumptions for cash margins. Doing business in Florida is less expensive – in part by our scale advantages – so this payback period may not be the same as operations in other states.
  • A metric that is traditionally used in retail to reveal customer loyalty is our customer retention rate. In comparing the third quarter with the fourth quarter of 2019 we had a customer retention rate of 72%. We previously tracked customer loyalty using a boomerang report, which required analysis of patient’s actions throughout various stages of the lifecycle, tracking shopping patterns for a combined scoring methodology but we will start reporting on this industry standard customer retention metric going forward.
  • A second but closely aligned metric, that reveals customer loyalty and plays into the customer lifetime value, is growth in average patient spend year over year. Average active patient spend is tracked on a monthly basis using basket size and visits per month. As we look across our patient purchases year over year, we have seen a shift in purchasing pattern trends.
    • At this time last year, active patients visited a Trulieve store on average 1.6 times per month with an average basket size of $145.
    • These trends have shifted to smaller basket sizes but more frequent visits. We now have on average 2.7 visits per month by active patients, with an average basket size of $121.
    • So, although basket size is smaller, it’s a net positive with the overall revenue per patient.
    • And, as of Q4 2018, our average active patient spend per year was approximately $2800, and that has grown to approximately $3900 in Q4 2019, or an additional $1100 or so per average active patient.
    • What makes this such a great number to see is that this growth in patient spend is not due to price increases but customer demand and loyalty as we have not raised prices over the last year.
  • To track these loyal Trulievers at an individual store level, we use a traditional Same Store Sales metric. For the 13 locations that were open in both 2018 and 2019 for the entire year, same store sales increased by 44%. I’ll note for this metric that as our business continues to mature, some of these stores will start to reach their peak in number of patients served. Our expectations are that there will be a growing number of stores in the comparison which will start to reflect that ceiling, offset by growth in average patient spend.
  • And finally, the typical retail metric of revenue per square foot to track overall performance. In 2019, our 44 dispensaries across the US generated approximately $2300 per sq. foot. This is based on days open for our full year revenue and our total retail square footage as of the end of December 2019. Comparatively, this retail metric puts Trulieve in line with other world class retailers.

We believe in the retail world these metrics are impressive and are key performance indicators for growing our business successfully, and profitably.

Ultimately what’s driving our continued market share is a mix of our core values for safe, quality products, innovation that resonates with our Trulievers, and consistent delivery of authentic customer experiences. This approach helps us achieve the high level of customer satisfaction and loyalty that generates the positive word of mouth effect we’re seeing within our Truliever community.


Building on these strong retail metrics and our success in Florida, we are planning to expand the Trulieve brand. Expansion for us is not a land grab. I’ll remind you that we make calculated decisions, based on our criteria, to assure our investments will be not only financially successful, but will promote the Trulieve brand that we have strategically curated and nurtured since the beginning. While we continually evaluate acquisition opportunities and we have implemented a strategic initiative for applications for licenses in new states, we also focus on organic growth.

As Mohan will speak about, we strategically increased our indoor cultivation facilities in Florida to maintain pace with the demand for smokable flower. We convert dry cannabis that is not sold as flower into oil to preserve shelf life. We supplement our oil reserve with harvests from our greenhouses. The ability to reap large, scheduled harvests from our greenhouses is an important tool for us to manage production costs while maintaining scalability in our stable oil inventory. We can easily ramp up or down oil production to match customer demand, particularly when edibles become available for sale in Florida.

Before I turn the call over to Mohan to review the financial results, I want to offer the following. I am hopeful, as you all are, that a successful global effort will be made to eradicate COVID-19. In the meantime, we have a commitment to our Trulievers to provide access to the medicine they rely on, to our employees to provide safe healthy workplaces where they can earn a living in this new economy, and to our shareholders by continuing to execute against our strategy and create value. Despite the uncertainty across the country, we remain excited about our business strategy, the growth of our teams, and our new innovative plans and products on the horizon. As a roadmap for Trulieve, in 2020 our focus is on these four actions:

  • We will continue to invest and grow in Florida and fully intend to maintain our market dominance.
  • We will continue to explore and look for smart, accretive acquisitions and participate in license application processes that will offer us expansion possibilities, new revenue streams, and broadening our Trulieve brand into new markets
  • We will continue to invest in our innovative track, assuring we address our commitment to provide a wide variety of options and choice for our patients . . . and
  • We will stay focused on building a sustainable business, meaning, being financially disciplined to maintain profitability and deliver shareholder value.

Lastly, although we had hoped to be in a position to update guidance on this call, the underlying assumptions as I just outlined for all of you have not changed or gained additional clarity and COVID19 has added a layer of uncertainty. We do, however, feel comfortable reiterating the annual guidance range previously provided for 2020 at this time and will consider updating as things come into focus.

With that, I’ll turn the call over to Mohan before I add my closing remarks and open the call to Q&A. Mohan?


Thank you, Kim, and good morning, everybody.

Let’s move to the company’s 2019 financials. Trulieve has been dedicated to building a business with a strong financial foundation. This has served us well. As we enter 2020 and are faced with the Coronavirus and the uncertainty this has caused across many sectors, there are cannabis companies, particularly those with exposure to the recreational marijuana market, who lack access to capital markets and may not fare well in this global economic slowdown. As the most profitable public cannabis company in the US, and with cash on hand, Trulieve is well-positioned to continue execution of our growth plans.

As Kim covered, we had a strong end to 2019, exceeding our internal forecasts as well as the Street’s estimates, achieving record quarterly revenue of $79.7 million, which, as Kim mentioned, represents a sequential quarter-over-quarter increase of 13%, and a 122% increase over the same quarter last year. For the full year, we achieved diluted EPS of $1.54

Before I move on to revenue less production expenses and cost of goods from third party suppliers, let me highlight here for you an accounting process that continues to be a challenge for some investors here in the US as the IFRS method, in this respect, is different to GAAP methodology. Under GAAP, expenses for grow costs for biological assets would be capitalized until they are sold. As per our accounting policy under IFRS, we expense grow cost. Because we expense these costs, we expect fluctuations from quarter to quarter. Grow costs typically include soil, nutrients and anything that is used as an input for growing plants including labor cost as well as direct and indirect overhead.

So, on a consolidated basis, Production Expenses in Florida and Cost of Goods from third party suppliers in CT and CA, totaled $28.1 million for the quarter. Revenue less these production expenses and costs was $51.5 million for the quarter, or 65% of revenue. This compares to $20.8M or 58% in Q4 2018. On a full year basis, our Revenue less Production Expenses and Cost of goods from third party suppliers was $163 million, or 64%, compared with $68.6 million or 67% of revenue in 2018. For comparison, on a full year basis, if we were to account for capitalization of grow costs as we previously discussed under GAAP, we would have been at 76% for both 2019 and 2018.

As cultivation forms part of production costs, I will now turn to cultivation. There have been and will continue to be increases to our cultivation facilities as we continue our growth, allowing us to keep pace with market demand. At the end of the fourth quarter, we reached reportable cultivation of 544,408 square feet of indoor cultivation and 1,140,000 square feet of greenhouse facilities. Combined, our cultivation footprint of 1,684,408 had capacity of 63,190 kg annually. In the first quarter, we completed 72,000 square feet of indoor cultivation construction in Florida, with an additional 24,000 square feet of indoor cultivation anticipated to be completed in the second quarter.

Since we are discussing cultivation this may be a good segue to our inventory discussion. We had a total of $204 million as inventory, which includes significant amount of fair value. Just on a quantity basis this will translate into 5 weeks of flower inventory and 22 weeks of oil inventory. Please note that inventory levels are influenced by harvest cycle. The recent harvests from our greenhouses have given us a supply of oil inventory that we can draw down upon and strategically schedule harvests from those greenhouses in the future as necessary.

Now, turning to our expenses, I will first cover sales and marketing expenses. These costs are largely dispensary related costs, and in the fourth quarter amounted to $18.1 million, or 23% of revenue, compared to $14.7 million, or 21% of revenue in the third quarter. On a full year basis, sales and marketing expenses accounted for $53.9 million or 21%. The increase in cost in this expense category from Q3 to Q4 was primarily due to payroll costs related to 7 additional stores that were opened in the fourth quarter plus costs related to preparing for new store openings for the first quarter of 2020.

G&A for the quarter was $5.3 million, or7% of revenue, compared to $3.2 million, or 5% of revenue, for the prior quarter. This increase was primarily driven by expenses related to new market opportunities in the fourth quarter. On a year over year basis, G&A was $14.1 million in 2019 versus $19.2 million in 2018. The decrease in G&A expenses from prior year was primarily due to stock compensation expense related to 8.8 million previously disclosed warrants issued in conjunction with our going public in 2018, that we found to be understated. This understatement is currently an immaterial amount and it is a non-cash expense, that has no impact on 2019, and did not require the Company to re-file or re-certify its prior year financial statements.

Total expenses in 2019 were 30%, compared to 44% in 2018. Overall, keeping a high degree of financial discipline around expenses is one of our keys to profitability.

On a full year basis, Operating Income for the Company was $285.9 million compared to $60.2 million in 2018. Net income was $178 million for the year taking into account the net change in the fair value of biological assets required under IFRS accounting standards, versus $27.9 million in 2018. This was a year over year increase 538%.

We believe adjusted EBITDA, a non-IFRS measure, provides valuable insight into our profitability and performance. Adjusted EBITDA excludes from net income as reported interest, tax, depreciation, non-cash expenses, RTO expenses, other income, growing costs related to biological assets and unsold inventory, and the non-cash effects of accounting for biological assets. We report adjusted EBITDA to help investors assess the operating performance of our business.

Our adjusted EBITDA in the fourth quarter of 2019 was $45.0 million, or 56% of revenue, compared to an adjusted EBITDA of $36.9 million, or 52% of revenue, in the previous quarter. On a sequential quarter to quarter basis, the adjusted EBITDA increased by 22%. Please note that capitalization of grow cost for biological assets and unsold inventory fluctuates as new facilities are brought online, as selling and marketing cost varies depending on new dispensary openings and inventory levels, and as we enter new states like Massachusetts where the cost structure can vary, we believe our normalized adjusted EBITDA will be around 43%. On a full year basis, adjusted EBITDA was $132.5 million, or an increase of 159% over 2018.

Now turning to taxes. As a percentage of gross profit including the net change in fair value of biological assets our effective tax rate was 23% for this quarter. For the year 2019 it was 26% compared to 27% for fiscal 2018. As a reminder, we began explaining taxes in this manner starting in the second quarter of 2019 based on our belief that this is a better and more stable measure of calculating effective tax rate than as a percentage of income before taxes based on discussions with our tax advisors.

Moving now to our balance sheet.
As of end of the fourth quarter 2019, our cash balance was $92 million or an increase of $61 million from the end of Q3. This was primarily the result of completing financing activities during 2019. These transactions further strengthened our balance sheet by nearly $78 million dollars, offset by capital expenses in the fourth quarter. In addition, we met interest payments on all our debt and note obligations.

Finally, as Kim mentioned, we are reaffirming our 2020 guidance range of $380 – $400 million for the year with anticipated adjusted EBITDA of approximately $140-160 million, or 37-40%. We will continue to exercise financial discipline while leveraging our scale.

In closing, 2019 was a successful year for us. We delivered top line growth of 146% year-over-year and we feel very good about the momentum in our business.
I’ll now hand this over to Kim for closing remarks.



Thanks Mohan.

Trulieve is gaining recognition for our financial discipline and strategic direction. We fully believe the strategy we have is the right one for us We demonstrate our core values through the quality products we bring to the market, the initiatives we put in place for the safety of our employees and patients, and the financial discipline we maintain to deliver shareholder value. Medical cannabis is one of the few economic engines in this new economy and we can be powerful contributors. We will continue to grow our businesses responsibly, sustainably, and profitably.

And I would be remiss if I didn’t take this opportunity to personally thank our employees – from the folks in our cultivation and production facilities that we heavily depend on daily to grow high quality plants and produce industry leading products for our shelves, to the dispensary and retail employees who work so closely with our Trulievers to deliver the ultimate customer experience and be our brand ambassadors. And of course, the executive team and corporate employees who have implemented best practices and brought industry leading approaches to our business. We appreciate how everyone has stepped up as we are all in this together growing Trulieve one customer at a time
. . . and as I always say . . . Onward!

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