U.S. Markets open in 7 hrs 19 mins

Edited Transcript of TRUL.CD earnings conference call or presentation 15-Aug-19 2:00pm GMT

Q2 2019 Trulieve Cannabis Corp Earnings Call

Sep 4, 2019 (Thomson StreetEvents) -- Edited Transcript of Trulieve Cannabis Corp earnings conference call or presentation Thursday, August 15, 2019 at 2:00:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Kimberly Rivers

Trulieve Cannabis Corp. - CEO & Chairman

* Lynn Ricci

Trulieve Cannabis Corp. - Director of IR

* Mohan Srinivasan

Trulieve Cannabis Corp. - CFO

================================================================================

Conference Call Participants

================================================================================

* Jason Zandberg

PI Financial Corp., Research Division - Special Situations Analyst

* Matt Bottomley

Canaccord Genuity Corp., Research Division - Analyst

* Robert Fagan

GMP Securities L.P., Research Division - Equity Research Analyst of Healthcare

* Russell Stanley

Beacon Securities Limited, Research Division - Research Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Good day, ladies and gentlemen, and welcome to the Trulieve Cannabis Corporation Second Quarter 2019 Financial Results Conference Call. My name is Julie, 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, Trulieve Cannabis Corp. - Director of IR [2]

--------------------------------------------------------------------------------

Thanks, Julie. Good morning, ladies and gentlemen, and thank you for joining us today to discuss financial results and corporate highlights for Trulieve Cannabis Corporation's second quarter of 2019. With me today are Kim Rivers, Chief Executive Officer; and Mohan Srinivasan, our 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 and applied in making -- for the quarter ended June 30, 2019, and in the earnings press release that we furnished in connection with today's call under the heading Forward-Looking Statements. The forward-looking statements made on this call speak only as of today and assume no obligation to update any of these 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 June 30, 2019, as well as in the table at the end of the 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. Last night, we reported results for the second quarter of 2019. A copy of our news release, financial statements and MD&A may be accessed through the Investor Relations section of our website, trulieve.com 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 the call over to our CEO, Kim Rivers.

--------------------------------------------------------------------------------

Kimberly Rivers, Trulieve Cannabis Corp. - CEO & Chairman [3]

--------------------------------------------------------------------------------

Thanks, Lynn, and good morning, everyone. Thank you so much for joining us. We are very excited to share our financial results and provide a business update with you all today. Following my remarks, Mohan will discuss our second quarter financial results, and then we will be happy to take your questions.

Now onto our results. Trulieve had strong performance again this quarter, and I'm very happy with how we are tracking against our strategic plans. Last night, we announced revenues of $57.9 million for the second quarter, which, on a sequential quarter-to-quarter basis, was an increase of 30% and was another record revenue-producing quarter for Trulieve. Of course, at Trulieve, revenue is only half the story. Our adjusted EBITDA on the second quarter was $31.6 million or 55% compared to $19 million or 43% in Q1, 2019.

Our industry-leading profitability sets us apart and is an important differentiator for Trulieve. The first half of 2019 was focused on setting the foundation to support explosive growth and a strong national presence. Trulieve made substantial progress in the first half of the year on strengthening our infrastructure and building efficiencies into our business. And we are well positioned now for future growth. Let me walk you through some of the highlights.

First, I am excited to finally share with the world our full greenhouse data. An area of focus for us has been gaining efficiencies through scale to combat future price compression, which leads us to our experimental greenhouses. Vertical integration is a requirement for us in Florida, and we have looked for ways to leverage our acreage and establish indoor footprint. In addition to the 710,000 square feet of cultivation we generally speak of, which is primarily indoor growth facilities and includes established greenhouses, we've also mentioned our large-scale greenhouse experimentation for additional low-cost ways to expand cultivation.

These greenhouses provide a highly efficient and cost-effective alternative to expand our oil biomass and will allow us to shift indoor capacity to focus on premium flower as market segments shift. As such, we have been adding a significant amount to our cultivation and capacity. As we have said, we wanted the years' worth of data before discussing more broadly, and we now have that. Combined, Trulieve has just over 1.6 million square feet in active cultivation across all sites, with a biomass capacity of 54,609 kilograms. Plus, we have approximately 72,000 square feet of indoor grow under construction with expected completion during Q3, which, when completed, will bring our cultivation footprint to 1,684,408 total square feet and biomass capacity to 63,189 kilograms.

In Q2, we also announced the purchase of nearly 85 acres in Jefferson County, Florida. We have already started phase 1 of our 4-phase construction plan there. This future indoor cultivation build-out will allow continuous expansion as we keep ahead of both current and future demand to supply Florida's medical marijuana and, importantly, expected future recreational and wholesaling opportunities in the state.

For the first half of 2019, we have also been operating in our GMP-certified state-of-the-art processing facility. This is another critical transformation for Trulieve as it increases our production capacity significantly and allows us to keep ahead of demand.

During the second quarter, we had a number of automation initiatives launched or underway in our facilities to further increase our efficiencies, product output and innovation. In addition to the automation initiatives, we undertook a major transformative initiative by investing in an enterprise resource planning software platform, SAP. For anyone out there who has been through an SAP integration, you understand the time and operational commitment it takes to fully on-board. Our teams recently completed this customized SAP implementation, and we are already seeing analytical and operational benefits. Our website interface to SAP, for example, allows customers to have an enhanced online shopping experience, garnering overwhelming positive feedback.

In addition, more inventory visibility greatly enhanced our throughput at the store level for efficiencies, thereby, enhancing patient experiences. With 30% of our sales driven through online ordering, it is imperative that we continue to build a strong infrastructure to grow this segment of the business. These best-in-class efficiency initiatives, such as the SAP implementation, automation projects, and the added greenhouse capacity will allow us to continue to scale efficiently.

In addition, these initiatives add a level of professionalism and discipline into our operations that will let us do so intelligently. And as we look at investing in the foundation for growth on a national level, we are also focused on bench strength. The implementation and scale of our strategic plans and the initiatives to support those plans require a strong, dedicated and seasoned team, which we view as key assets of the organization. With over 2,000 employees, we continue to invest in our human capital and recruit best-in-class to bring to the team. Peter Healy, joining our Board of Directors, demonstrates that commitment as Peter brings an impressive legal background with capital market and financing experience and will provide fresh insights as our business continues to grow at an accelerated pace. In addition, we have continued to add managers to prepare the leadership team for national expansion efforts. Looking ahead, we will continue to add corporate and board bench strength as we scale up our business and grow both our product lines and our geographic footprint.

These areas of investment and growth need capital, of course, and we are now well capitalized to execute on our plans. Our team hit the ground running earlier this year and the pace has only increased. Operating as a profitable company allows us to continually reinvest in our business, however, we quickly determined that increasing our capital would allow us to be more agile in our rapidly-evolving industry and provide a faster path to our end goal.

In June, we completed a public debt offering raising an aggregate principal amount of $70 million, which, based on our strong financial record, was the first public pure debt offering in the cannabis industry. In July, we announced that we sold property in Holyoke, Massachusetts, with a favorable leaseback and build-out plan in place. I am happy to say that the public debt offering and the leaseback in Massachusetts provide us with the capital to solidly execute on our business plan, while minimizing dilution for our shareholders, a true win-win. In addition, with shareholder value in mind, last month, we had also announced the voluntary extension of our founder lock-up agreement. The lock-up extension was a show of confidence in the company's strategy. We believe the thoughtful approach to the extension allows for a measured and orderly release of shares to the market this summer and in 2020, which will increase liquidity and create long-term shareholder value.

So with best-in-class infrastructure in place and the capital to fund growth, where are we going? Trulieve's approach to customer experience sets us apart and differentiates us in the market, which is why we believe we will be a leader in the states we enter. We don't just have customers, we have Trulievers, a dedicated and passionate customer base that helps us form business decisions. We expect the efficiency initiatives will have a wide-sweeping positive impact across our company, and importantly, for our customers. And to build on this new intelligent enterprise advantage, we are executing diversification initiatives that will allow us to effectively compete on a national level. Over the last few quarters, we've shared our brand strategy, how we go to market with a 3-tier house-of-brands approach, and how we intend to grow organically and diversify to expand our profitable business beyond Florida.

Currently, Trulieve has 1 standard in-house brand under which all of our Trulieve products are sold. With the business on national expansion and in anticipation of the new potential for wholesale, this is the ideal time to re-segment and reestablish product lines as well as to re-merchandise our retail stores. Our new brand segmentation initiative is currently underway along with a product packaging refresh to allow for clear product segmentation for the customer based on addressable markets. In addition, our stores just completed a refresh to allow for proper display space to highlight new product offering segments and brand partnership products.

Speaking of brand partners, Trulieve has selectively partnered with some of the leading cannabis brands in the industry, and we plan to continue that vision on a national and local level. As part of our 3-tier brand approach, we are building partnerships with customer-favorite, national and local bands. We have established partnerships with industry leaders, such as Bhang, Binske, SLANG, Love's Oven and Blue River. We view these partnerships as another competitive differentiator in the market as we are able to bring new, innovative and exciting products to our shelf. For example, in early July, we announced RESERVE, the first SLANG product to be offered in Florida under a strategic partnership with Trulieve. RESERVE is an extension of the O.penVAPE brand. The popular O.pen and RESERVE vape carts were an exciting addition, and we look forward to launching more of their brands here in Florida.

Building on our Trulieve name, which patients connect with product quality and industry-leading service, we aim to consistently deliver an exceptional customer experience. As covered in the past, we use an internal boomerang report to track customer loyalty based on a sample size of our patients in market. Our boomerang metrics remained quite strong in July with Trulievers trending just north of 42%, 5 points higher than our last report. With hoppers and traders, which are those who hop around to different dispensaries or those who just leave, dropping to 28% and 4%, respectively. These numbers are suggesting more patients are becoming Trulievers based on the strength of our products and brand and reflects our ability to maintain our lead in Florida. This is all set up for our foundation to execute on our strategic expansion plans to be a leading multistate operator.

We believe we need a mixture of both strong organic and inorganic growth to succeed. A smart and compelling mix of organic growth leveraging our product quality, diverse range of SKUs, and importance placed on customer service in stores and online will deliver competitive strength against other players in the market. Also, maintaining a disciplined M&A approach to targeting states and company partners, where we see the highest future potential and share a strategic vision instead of a land grab, to us, makes the most sense and aligns with our business approach. As we say, we are a multistate operator, not a multistate aggregator.

I'll now cover on a state-by-state basis, where we are with our expansion plans, starting with our home state of Florida. In Florida, we maintain our first-mover advantage and hold an impressive market share. Florida is a large vibrant target for medical cannabis, and we intend to maintain our dominant position moving forward. Delivering the optimal customer experience and ensuring patient awareness are part of the Trulieve's mission. We believe this is a foundational aspect to our mandate of growing 1 patient, or customer, at a time. The sizable Trulieve patient base reflects our attention to patients and the investments we make. In the second quarter, with the exclusive patient growth in Florida as a result of smokable flower, an amazing 96% of the 36,021 new patients in Florida visited a Trulieve dispensary, increasing our patient count to 181,020 patients at the end of the second quarter. With our ever-increasing patient count comes the need for additional stores and ways to service these patients to keep ahead of the demand. We currently have 30 stores opened in Florida today, with 14 more planned by year-end, and just this morning, we got approval to open another store in Clearwater Beach tomorrow.

We are pleased to be making progress on our new store rollout and will be accelerating our dispensary build-out in the second half of the year.

The second quarter was our first full quarter with smokable flower. As you may recall, smokable flower was approved in March in Florida, and Trulieve executed the first sale of smokable flower in the state. Flower sales are now nearly 50% of our product mix today compared to approximately 30% as reported on our Q1 earnings call.

Our success with flower demonstrates our ability to meet evolving patient needs in a quick and efficient manner. On a trailing 1-month basis, according to OMMU reports, Trulieve dispensed an average of 52% of the flower sold in the state. This is nearly 3x the flower market share over our next nearest competitor and was achieved without the need for deep discount sales leading into the reporting periods. For the second quarter, we maintained our dominant market share of milligrams sold with a blend of oil and flower sales, and we hold an estimated 55% overall market share in the state. In addition, we are geared up and ready for the introduction of edibles into our stores as soon as the DoH releases corresponding rules. We fully believe that edibles will be launched in 2019, and we look forward to bringing Trulieve-branded edibles as well as products from the brand partners mentioned earlier to expand patient access.

Looking beyond the medical market in Florida, we are cautiously optimistic by the recent developments surrounding the potential for adult-use legalization in the state. Recently, the requisite number of signatures was achieved to trigger a review of the language that would be included within a ballot question in November 2020 to legalize adult-use cannabis. While the next hurdle to get the question placed on the ballot is high, we are encouraged by the initiative. We intend to maintain our lead through future expansion and are confident we will continue to hold our leadership position in Florida by successfully delivering the customer experience our Trulievers expect and count on.

Now turning to Connecticut. In May, we announced the acquisition of The Healing Corner, a medical marijuana dispensary in Bristol, Connecticut. The Healing Corner numbers were only included for a portion of the quarter, but we are very pleased with the team in place, the revenue performance and continued profitability. We see an entrenched propensity in the Connecticut team for delivering great customer experiences translating into a variable customer base. In June, 5 new qualifying conditions were accepted for treatment by Connecticut's Regulation Review Committee. Once approved and added to Connecticut's growing medical marijuana program, it will bring the qualifying conditions total to 36 for adults and 10 for patients 18 and under, which could translate into increased patient growth in the state. We also believe there is a high likelihood that adult use will become a reality in Connecticut in 2020. We are hopeful and excited for the upside revenue potential recreational marijuana could bring and have adjacent property that can be converted into additional dispensary space. In short, we're extremely happy to have The Healing Corner team as part of the Trulieve family and are looking forward to the future.

In California, we recently acquired an additional 19% of the outstanding ownership of Leef Industries Inc. in June, bringing our total ownership to 99% of the company, almost there. Our Palm Springs location is optimally located for R&D and exploring a wide cross-section of the state to evaluate our direction. We continue to identify and explore options for this thriving market.

Turning now to Massachusetts, we made significant progress since Q1 with our cultivation facility activities in Holyoke, in advancing our search for potential Trulieve dispensaries and developing partnerships. As mentioned earlier, we now have financing in place for the build-out of the cultivation and processing facility in Holyoke, and we made progress with our North Hampton dispensing location. We plan to have functional cultivation and production facilities online by early 2020 in order to participate in the thriving wholesale market in Massachusetts and start building inventory for the dispensaries planned in 2020 and beyond. Also, Trulieve is working with a number of economic empowerment applicants. Our goal is to have a robust, true accelerator program in place to provide the seed capital and executive mentoring to help build thriving minority-owned businesses within our industry.

Ensuring diversity is core to our values as a company, and we applaud the ongoing efforts in Massachusetts to establish the economic empowerment program. In addition to the 4 states we just touched on, there is also a lot of M&A pipeline activity underway to achieve our goal of being in 6 states by year-end. Our team is targeting the most important and strategic markets and as such, we are continually evaluating the landscape. Many states are debating or enacting adult-use programs in the Northeast, and that remains an interesting target area for us. Geographic location aside, it is also important that M&A targets meets a high standard for growth and profitability, or have the potential to quickly reach profitability with the combination of Trulieve to assure M&A transactions are accretive. It is also critical that these potential acquisitions match our own company philosophy and values relative to delivering exceptional customer experiences. Trulieve is dedicated to ensuring we are aligning ourselves with the best opportunities in key markets. I'll now hand the call over to Mohan to discuss our second quarter financial results. Mohan?

--------------------------------------------------------------------------------

Mohan Srinivasan, Trulieve Cannabis Corp. - CFO [4]

--------------------------------------------------------------------------------

Thank you, Kim, and good morning, everybody. I'll now proceed with the review of the second quarter ended June 30, 2019. Trulieve experienced significant growth in the second quarter, achieving record revenue of $57.9 million, which, as Kim mentioned, represents a sequential quarter-over-quarter increase of 30% and 149% increase over the same quarter last year.

For the second quarter, we achieved earnings per share of $0.52. The increase in revenue reported in the second quarter was primarily driven by growth in flower sales, revenue realized from The Healing Corner, our Connecticut acquisition, and the new store openings. The second quarter gross profit before net changes in the fair value of biological assets was $37.6 million or 65%, which is relatively in line with $29.9 million or 67% of revenue in the first quarter.

Taking into account the net change in the fair value of biological assets required under IFRS accounting standards, for the second quarter, the company had operating income of $87.2 million and net income of $57.5 million. As a percentage of gross profit, including the net change in fair value of biological assets, our effective tax rate was 27% for the 3 months ended June 30, 2019. We believe 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 advisers.

Our adjusted EBITDA in the second quarter of 2019 was $31.6 million or 55% of revenue, compared to an adjusted EBITDA of $19 million or 43% of revenue in the March quarter. On a sequential quarter-to-quarter basis, the adjusted EBITDA increased by 66%, driven primarily by the adjustment for increase in grow cost associated with increases in biological assets and unsold inventory.

Under our financial policy, the expense grow cost, whether it is in the biological assets or in the inventory. We should expect to see fluctuations from quarter-to-quarter as more cultivation facilities come online and as inventories grow and fluctuate to accommodate the accelerated pace of new store openings in the second half of the year. We believe, adjusted EBITDA, the non-IFRS measure, provides valuable insight into our profitability and performance. Adjusted EBITDA excludes from net income as reported, interest, tax, depreciation, noncash expenses, RTO expenses, other income, growing costs related to biological assets and unsold inventory and the noncash effects of accounting for biological assets. We report adjusted EBITDA to help investors assess the operating performance of our business.

Turning now to our store metrics. In Florida, we had a total of 29 stores operating at the end of the second quarter. For the 13 locations that were opened in both Q2 2019 and Q2 2018 for the entire quarter, same-store sales increased by 48%. The 22 stores opened for the entire first quarter and second quarter of 2019 showed a quarter-over-quarter increase in sales of 16%. As Kim mentioned, we are ready to declare victory on our experimental greenhouses and start including them as part of our cultivation.

As we stand today, with our previously disclosed cultivation footprint of 710,000 square feet in July, combined with the experimental greenhouses, we are at 1,612,408 square feet, with a combined biomass capacity of 54,609 kilograms. Based on our planned indoor construction of 72,000 square feet by the end of September, we expect to exit Q3 with a combined cultivation in Florida of 1,684,408 square feet, delivering an annual biomass capacity of 63,189 kilograms. Between our planned construction of indoor grow in Q3 and the additional greenhouses we just mentioned, we will more than double our previously reported cultivation by the end of the quarter, which will provide us the ability to keep pace with our expected store and patient growth and stay ahead of demand.

Turning now to retail sales and marketing expenses. These costs are largely dispensary-related costs, and in the second quarter, amounted to $11.4 million or 20% of revenue, compared to $4.9 million or 21% of revenue for the same period last year. The increase in cost in this expense category was primarily due to costs related to additional stores that were opened in the second quarter and costs related to preparing for new store openings for the second half of 2019.

G&A for the quarter was $3.4 million or 6% of revenue, compared to $1.1 million or 5% of revenue for the same period last year. Included in the G&A cost is approximately $600,000 related to The Healing Corner transaction and the debt issuance cost which are expensed. Excluding these costs, the G&A expenses are at 5%. G&A expenses also reflect growth in staff levels, talent mix and increased infrastructure cost related to operating as a public company. Other noncash expenses include depreciation and amortization totaling $1.9 million in the quarter ended June 30, 2019, compared to $200,000 for the same period last year.

Moving now to our balance sheet and recent financing activities. In June, we strengthened our balance sheet by completing a $70 million public debt offering. In addition, subsequent to Q2, we closed on the sale of our Holyoke, Massachusetts property for $3.5 million and entered into a triple-net lease agreement with Innovative Industrial Properties for our cultivation facility in Massachusetts. As part of the terms of the lease, we can recoup building improvements, plan for cultivation build-out of up to $40 million. At June 30, 2019, prior to the real estate transaction just mentioned, the company's cash balance was $54 million. This represents an increase of $29.6 million from $24.4 million at December 31, 2018. This was primarily the result of approximately $66 million generated from the debt financing completed in June 2019, and $20 million of cash flow from operations offset by $53 million for investing activities related to the expansion of our stores, cultivation and processing facilities.

Finally, last quarter, we provided revenue and EBITDA guidance for full year 2019 and an outlook for 2020. We are reaffirming our guidance, reflecting a strong outlook for our second half as we continually exercise financial discipline, while leveraging our scale. Full year 2019 revenues are forecasted in the range of $220 million to $240 million, with anticipated adjusted EBITDA of approximately $95 million to $105 million based on our current store footprint in Florida, plus expected new store openings. This guidance does not contemplate Massachusetts generating revenues in 2019. Our outlook for 2020 incorporates our expansion into Massachusetts as well as continued growth in Florida, Connecticut and California. Based on these markets, current regulations and foreseeable store growth, we estimate 2020 revenues in the range of $380 million to $400 million, generating $140 million to $160 million in adjusted EBITDA. I'll now hand this over to Kim for closing remarks. Kim?

--------------------------------------------------------------------------------

Kimberly Rivers, Trulieve Cannabis Corp. - CEO & Chairman [5]

--------------------------------------------------------------------------------

Thanks, Mohan. In closing, I want to reiterate that our vision is to build a true cannabis brand focused on customers, while still delivering profitability to our shareholders. Our performance in the first half of 2019 has set us up well for the second half of the year. The team is moving full steam ahead here in the Sunshine state, and we are on track for another strong quarter. We are executing on our strategic expansion plans and are looking forward to leveraging the efficiencies and business diversification plans outlined earlier in the call during the second half of the year, which include establishing the foundation to support explosive growth and scale to reach a strong national presence through efficiencies and business diversification, deploying capital smartly to execute on our plans, replicating Trulieve's competitive differentiators in new target markets and employing a strong, dedicated and disciplined team to drive aggressive growth and future shareholder value. We will now open the line for any questions. Operator?

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) Your first question comes from Robert Fagan with GMP.

--------------------------------------------------------------------------------

Robert Fagan, GMP Securities L.P., Research Division - Equity Research Analyst of Healthcare [2]

--------------------------------------------------------------------------------

Congrats on a fantastic quarter. I thought I would just first ask a little bit about the nice profitability in Q2. If we adjust for the costs on biological assets, looks like you have gross margin north of 75%. Can you maybe give us some insight into the increased profitability and what was driving that?

--------------------------------------------------------------------------------

Mohan Srinivasan, Trulieve Cannabis Corp. - CFO [3]

--------------------------------------------------------------------------------

Sure. Thank you, Rob, for asking this question. As you know, our gross profit and adjusted EBITDA, basically, they are increased, driven primarily by adjustment for increase in grow costs associated with increases in biological assets and inventory. Under our financial policy, the expense cultivation cost, whether it is in the biological assets or in the inventory, we should continue to expect fluctuations from quarter-to-quarter as more cultivation facilities come online and as inventories grow and fluctuate to accommodate the accelerated pace of the new store openings in the second half of the year. At some point, this should normalize at 43% or 44%.

--------------------------------------------------------------------------------

Robert Fagan, GMP Securities L.P., Research Division - Equity Research Analyst of Healthcare [4]

--------------------------------------------------------------------------------

Okay. Maybe I'll just move on to a question kind of like around the capital allocation going forward. Obviously, in light of the addition of the previously experimental greenhouses, you have got a big increase in capacity even ahead of really expanding that new indoor facility. So does that kind of change you're -- the way you think about allocating capital? Maybe could have more devoted towards M&A? And in that respect, I know you had mentioned in the past that you're just going to enter into 2 new states by the end of this year. Could that now include maybe some larger M&A of some other public players? Or are you still going to go kind of build from ground up in new states?

--------------------------------------------------------------------------------

Kimberly Rivers, Trulieve Cannabis Corp. - CEO & Chairman [5]

--------------------------------------------------------------------------------

Thanks for the question, Rob. With respect to capital allocation, we are evaluating opportunities all the time. And as you know, with M&A, the pipeline does fluctuate, and we will look at opportunities that align, again, both with the goal of being accretive, and I think more importantly, being aligned with our culture of creating a customer-first brand. And also, focusing on financial discipline alignment, which, in this industry, definitely differentiates strong players from others. With respect to our cultivation footprint, we've been very focused on the first half of the year to make sure that we had capital in hand to execute on and make sure that we felt that we had the capital backing our adjusted guidance that we released last quarter. And so we do feel that we are in a good spot with respect to having the infrastructure in place to satisfy and perform to those numbers.

--------------------------------------------------------------------------------

Robert Fagan, GMP Securities L.P., Research Division - Equity Research Analyst of Healthcare [6]

--------------------------------------------------------------------------------

Okay. So just to reiterate it, I mean, the entry into additional states, maybe 2 this year. You guys are still holding by that? Or is that maybe even have upside potential?

--------------------------------------------------------------------------------

Kimberly Rivers, Trulieve Cannabis Corp. - CEO & Chairman [7]

--------------------------------------------------------------------------------

We are still holding, as we discussed on the call, Rob, we're still holding to a goal of being in 6 states by the end of the year. But, of course, as you know, we'll -- we are very opportunistic, and we'll review opportunities from a qualitative perspective as they come.

--------------------------------------------------------------------------------

Robert Fagan, GMP Securities L.P., Research Division - Equity Research Analyst of Healthcare [8]

--------------------------------------------------------------------------------

Great. Okay, last one and then I'll get back in queue. Following the appellate court decision to, perhaps, suggest that vertical integration requirements in Florida were unconstitutional. Do you have any kind of updated timing on, perhaps, when we could see some final resolution to that? And do you have kind of any kind of vision into what the ultimate structure could look like? Just wondering how and when that could play out?

--------------------------------------------------------------------------------

Kimberly Rivers, Trulieve Cannabis Corp. - CEO & Chairman [9]

--------------------------------------------------------------------------------

Sure. I'll take a crystal ball question from you. So -- the state of Florida, the governor's office specifically filed, a couple of weeks ago, for an En banc hearing, which means that the case that -- the ruling that you're referring to at the appellate court level will now be reheard by the full court -- all of the judges at the appellate level, if that is granted. So right now, we are waiting to see whether or not that En banc hearing will be granted or not. Regardless, my gut is that this issue will likely be appealed all the way to the state Supreme Court, which could take some time. It's anyone's best guess with respect to timing on that full and final resolution. Of course, we move into session in Florida at the beginning of 2020. And so, we'll look for -- and as you know, and for those of you who have been following the Florida market for quite some time, there's always some push and pull around medical cannabis and around cannabis in the state, I don't think our state's any different here in Florida than others. So we'll continue to evaluate and look for those policy changes. We have always been focused on our business kind of heads down, making sure that we are building best-in-class, best-in-breed, along the supply chain to provide us with the most flexibility and ability to pivot regardless of what comes down from a policy level.

--------------------------------------------------------------------------------

Operator [10]

--------------------------------------------------------------------------------

Our next question comes from Russell Stanley with Beacon Securities.

--------------------------------------------------------------------------------

Russell Stanley, Beacon Securities Limited, Research Division - Research Analyst [11]

--------------------------------------------------------------------------------

Congrats on the quarter.

--------------------------------------------------------------------------------

Mohan Srinivasan, Trulieve Cannabis Corp. - CFO [12]

--------------------------------------------------------------------------------

Thank you.

--------------------------------------------------------------------------------

Kimberly Rivers, Trulieve Cannabis Corp. - CEO & Chairman [13]

--------------------------------------------------------------------------------

Thanks, Russ.

--------------------------------------------------------------------------------

Russell Stanley, Beacon Securities Limited, Research Division - Research Analyst [14]

--------------------------------------------------------------------------------

First question, I guess around the continued retail build-out. Can you remind us where you're out with respect to the number of locations you've secured? And to follow on that, I guess, given that the cap on the number of dispensaries is scheduled to -- and I believe, next April, how you're planning for the world beyond that?

--------------------------------------------------------------------------------

Kimberly Rivers, Trulieve Cannabis Corp. - CEO & Chairman [15]

--------------------------------------------------------------------------------

Sure. Thanks for the question. So as we stated, we have 30 dispensaries in Florida currently open. We'll be opening #31 tomorrow. We just actually got approval -- final approval from the Department of Health this morning prior to the call to be able to open up. We are on track to open our 44 that we have guided towards for 2019. Those are all well underway. And we are going to have a lot of announcements coming out in the next bit of while as we move forward to opening those stores. Beyond 2019, as you know, the Trulieve cap is set at 49 stores. All of those stores are currently in pipeline and under development and actually a number beyond that. So we are very much preparing and looking forward to that cap being removed and are optimistic that, that will, in fact, come out -- come off in April.

--------------------------------------------------------------------------------

Russell Stanley, Beacon Securities Limited, Research Division - Research Analyst [16]

--------------------------------------------------------------------------------

Great, and that answered one of my other questions. I guess I'll throw in another crystal ball question around adult-use in Florida. Just wondering, the extent to which you are supporting the initiative? And I guess what you see as the any sort of the key barriers to getting it done having observed what goes on in other states around adult use so far in 2019.

--------------------------------------------------------------------------------

Kimberly Rivers, Trulieve Cannabis Corp. - CEO & Chairman [17]

--------------------------------------------------------------------------------

Sure. So we have been working with a group called Regulate Florida, which is the initiative that I mentioned on the call that just cleared the hurdle for Supreme Court review. Their petitions have been in our dispensary for a while. And we also have partnered with a local brand called Sunshine Cannabis, which are -- have been on the ground, grassroot supporters of Regulate Florida from the time that it started. Actually, we just launched another SKU of theirs this past week and are matching all of their donations to Regulate Florida this month. They currently are donating approximately 20% of their royalties to that initiative. So we are certainly supporters of that effort. The hurdles are procedural in nature, and that it's a requirement in Florida that any initiative be approved by the Supreme Court for single subject among other specific requirements and then, of course, it's a signature effort. So this is a citizen-driven ballot initiative with boots on the ground signature collection happening. So it'll just be a -- part of it is going to be the signatures that can be collected. The second thing, of course, is capital. And having an appropriately placed PR campaign around the initiative once it is approved by the Supreme Court to be placed on the ballot. There is and has been talk of support by a very prominent lawyer who was behind the medical initiative. He threw his ring in the hat a couple of weeks ago, tweeting his support. So it does look like there is some momentum building, which is a positive thing. And we certainly are going to be -- continue to be active in the initiative.

--------------------------------------------------------------------------------

Russell Stanley, Beacon Securities Limited, Research Division - Research Analyst [18]

--------------------------------------------------------------------------------

That's very helpful. Just one last one question for me, and I'll get back in the queue. Just moving to Massachusetts and your plans there to work on the developing of wholesale market there. Just wondering where you're at or where you can be at with respect to talking to potential customers and trying to build a customer base in advance of getting the facility online?

--------------------------------------------------------------------------------

Kimberly Rivers, Trulieve Cannabis Corp. - CEO & Chairman [19]

--------------------------------------------------------------------------------

Thanks, Russ. What I can tell you is that in Massachusetts, there is definitely more demand than there is supply. We inbound field calls very regularly, multiple times per week. Folks wanting to lock down supply agreements with us. We have not yet entered into any specific agreements. We wanted to get further down the road and have better visibility to what our projected needs are for stores that we have coming online prior to getting ourselves into specific supply agreements with third parties. But we feel very confident of -- with respect to our ability to wholesale excess supply there.

--------------------------------------------------------------------------------

Operator [20]

--------------------------------------------------------------------------------

(Operator Instructions) Our next question comes from Matt Bottomley with Canaccord.

--------------------------------------------------------------------------------

Matt Bottomley, Canaccord Genuity Corp., Research Division - Analyst [21]

--------------------------------------------------------------------------------

Congrats on the great results. Just wondering, Kim, if you can provide any color as it pertains to the trends in dry flower, or dry bud. You said it amounted to about 50% of the product mix. Can you give any color on how many of that is new customers that just want flower? Maybe some that are changing over from derivative products or maybe others that are trying it once and then going back? Just trying to get an assumption base of where we think the normalization as a percentage flower will end up.

--------------------------------------------------------------------------------

Kimberly Rivers, Trulieve Cannabis Corp. - CEO & Chairman [22]

--------------------------------------------------------------------------------

Thanks, Matt. We believe that there is still some room for that flower percentage to creep up. So I think internally, we don't believe that we've hit the top yet with respect to the flower mix. That being said, what I can tell you -- and this is a bit anecdotal, but we're not seeing a lot of tickets that are pure-flower tickets. Typically, there is still a mixed ticket although you may see predominant flower tickets, meaning that maybe it's 3 units of flower and 1 vape product as an example. As you can see in the week-over-week numbers, our oil milligrams continue on an absolute value -- from an absolute value -- dollar value standpoint to grow week-over-week. So that market is continuing to grow as well. So I don't have a specific breakout for you, but I can tell you that we see both segments of the market continuing to grow. Of course, we are looking forward to edibles coming online, as mentioned, and we'll be interested to see how that further shakes up the product mix for us.

--------------------------------------------------------------------------------

Matt Bottomley, Canaccord Genuity Corp., Research Division - Analyst [23]

--------------------------------------------------------------------------------

Great. And then, maybe just on pricing. Is there any anecdotes you have with respect to in wide groups of products, whether it's vape pens or tinctures and dried bud. How pricing is hanging in the state as more and more operators open up stores?

--------------------------------------------------------------------------------

Kimberly Rivers, Trulieve Cannabis Corp. - CEO & Chairman [24]

--------------------------------------------------------------------------------

Yes. No, thanks. So we continue to set pricing in Florida. New competitors that are coming in are either pricing at our price levels or slightly above, which we've seen historically. There have been a number of instances where competitors have had to adjust downward to meet our pricing, but we're not really seeing whole sector movements in pricing, I'll say yet, in Florida. So it's -- our pricing remains competitive. And remember when we launched Trulieve, we did so with the thesis that we wanted to create a brand that could penetrate Florida, but that can also replicated on the national scale. So when we price the product segment, we're pulling price comparisons from mature medical markets, so we're looking at the Californias, we're looking at Arizona, we're looking at markets that are more mature to price competitive too because we do want to have our value proposition withstand the test of time, which I think we are seeing proven out since -- these are the same prices that we launched with 3 years ago when we opened our first store.

--------------------------------------------------------------------------------

Matt Bottomley, Canaccord Genuity Corp., Research Division - Analyst [25]

--------------------------------------------------------------------------------

Great. That's helpful. And then just last for me. Just the data from the OMMU for about 5 or 6 weeks if that they have been providing dried flower by volume. Just wanted to confirm, if: one, you think that, that data is a fair representation of what's happening at the macro level? It seems like it's good data to me, but you guys would know better. And then, secondly, is there any way to compare the flower versus the milligrams sold? Or is it apples and oranges with how they provide that break down?

--------------------------------------------------------------------------------

Kimberly Rivers, Trulieve Cannabis Corp. - CEO & Chairman [26]

--------------------------------------------------------------------------------

Oh, Matt, you just hit on a big internal debate here at Trulieve. So it is decent data. I mean they -- the reason that it's reported that way is because of the way that flower was written into statute. It's dispensed by weight as opposed by -- as opposed to active milligrams, which is the way that the rest of the products in Florida are dispensed. So it is with a different metric, and that's just kind of it is what it is, right? I mean good, bad or otherwise, it's the data that we have available. And I think it is accurate. It is pulling directly from dispensations across all dispensaries in the state. So I think it can be relied on from that perspective. There are a -- in order to convert or do some sort of a blended metric, there are a lot of assumptions that would have to be made. We certainly run some of that internally, but it's not anything that I would be comfortable with sharing because, obviously, it will depend on -- primarily on potencies, which we certainly have great data for what we sell, but we don't necessarily have data on every single strain that every single competitor is selling on a week-over-week basis, or the volume associated with those strains because it still becomes very assumption based.

--------------------------------------------------------------------------------

Matt Bottomley, Canaccord Genuity Corp., Research Division - Analyst [27]

--------------------------------------------------------------------------------

Right. So if you were selling, on average, strains for $12 a gram and a competitor was, obviously, if they're selling something of a lower quality or lower price, it's going to come up as the same data point in the state's summary?

--------------------------------------------------------------------------------

Kimberly Rivers, Trulieve Cannabis Corp. - CEO & Chairman [28]

--------------------------------------------------------------------------------

Correct.

--------------------------------------------------------------------------------

Operator [29]

--------------------------------------------------------------------------------

(Operator Instructions) Your next question comes from Jason Zandberg with PI Financial.

--------------------------------------------------------------------------------

Jason Zandberg, PI Financial Corp., Research Division - Special Situations Analyst [30]

--------------------------------------------------------------------------------

I wanted to -- I actually had a similar question to Matt about smokable flower. Maybe I could just add on another question, which relates to that. Just wondering if since that introduction of dried flower, whether you've seen a drop in the average age? I'm wondering if the demographics for smokable flower is a younger customer. And as well just the additional patients that have come on since the smokable flower? My hypothesis is that you would see an abrupt increase in customers. Just wondering if that's borne out by what you're seeing in your -- at the retail level?

--------------------------------------------------------------------------------

Kimberly Rivers, Trulieve Cannabis Corp. - CEO & Chairman [31]

--------------------------------------------------------------------------------

Sure. Great. Thanks. So we'll take that in 2 parts. So the first related to the age, average age of customer. We've seen a very slight decrease. So, again, our average age historically has been 50 years old. It's still on those, I would say, upper 40s, so a slight decrease in age. Again, we'll see once -- there's a number of products, of course, that are currently available in Florida that we're waiting on rules and edibles which we have touched on and also hydrocarbon products, which are going to be your -- some of your more concentrated and innovative products that are very popular out West. So we'll continue to monitor that and see if there are any additional swings there when those product categories come online. With respect to -- and your second question was with respect to the patient count. We did see an increase in patients and really it came prior to flower actually coming on-board, like prior to that March 18 date. We saw it leading up to that date. So, historically, in 2018, we reported 2,000 patients per week on average. Now we're at approximately between 2,800 patients per week, approximately. And again, you can track it on the OMMU. So there has been, over the first half of the year, certainly an increase in patients, and it will fluctuate from week-to-week. Some weeks we'll see 2,500, 2,600, 2,800. But in a 1-week time frame, we saw this amazing jump, that's one week I can't remember exactly what week it was. But it -- from 2,000 to 3,000 patients. So certainly we know, and we are feeling in our business that patient on-boarding rates have increased certainly over where they were in 2018.

--------------------------------------------------------------------------------

Operator [32]

--------------------------------------------------------------------------------

That brings us to the end of time allotted for questions. I will now turn it back over to Lynn Ricci for closing comments.

--------------------------------------------------------------------------------

Lynn Ricci, Trulieve Cannabis Corp. - Director of IR [33]

--------------------------------------------------------------------------------

Thank you, everyone, for joining us today. We look forward to updating you on our progress again next quarter. Have a good day.

--------------------------------------------------------------------------------

Operator [34]

--------------------------------------------------------------------------------

This concludes today's conference call. You may now disconnect.