Newsfilter article unlocker

All right, everybody. We're going to go ahead and get started and continue rolling along for our 46th Annual Growth Conference. For those who have not yet had the chance to meet, my name is Luke Hannon. I am a consumer products analyst based out of our Toronto office. And next up presenting, we have the founder and CEO, Kim Rivers of Trulieve Cannabis, which for those also who are not familiar is a leading cannabis multi-state operator in the U.S. with over 230 dispensaries across the country and one of the four real big MSOs within the space and also worth noting the most profitable. So, Kim, it's great to have you here because there's a lot going on in the space. If we take a step back and look at the totality of the cannabis space, it is not outlandish for me to say that the setup is arguably the strongest that it has been. Maybe the strongest it has become or certainly the strongest in some time, particularly when it comes to rescheduling, which we are going to get into. But I think where I would like to start off with this fireside, because you are a little bit unique in this position that you have recently uplisted. You've made history with being the first plant touching cannabis operator in the U.S. to have listed on the New York Exchange. So I'd like to start if you can just take us through what was the process behind the process involved behind the uplisting? You know, what was required on your end? And then also, what's the reaction been like from the investors that you've spoken to both at the conference and then in any roadshows that you're in? What have you done around that uplist? Yeah, so I'll just do a shameless plug. We're actually ringing the closing bell on Tuesday of next week. So we're very excited about that. And I know it's kind of a pinch me moment for sure. And, you know, once President Trump signed the executive order and we realized that there was going to be an opportunity for rescheduling to occur, we, of course, began renewed conversations with the exchanges, with both NASDAQ and NYSE. It became very apparent to us that NYSE actually was very much further along in their analysis of rescheduling and their risk tolerance around cannabis, vis-a-vis NASDAQ, which was candidly somewhat surprising to me anyway at the time. Then once Attorney General Blanch, now I can say officially Attorney General, back then it was Acting Attorney General Banch, in April signed the reschedulding order, which officially rescheduled state-licensed medical cannabis companies to a Schedule 3 and also created a pathway for DEA registration, we immediately got back on the phone and asked NYSE, hey, how are you thinking about this and what would the process look like for us to potentially follow in Canopy's shoes and Constellation Brands to deconsolidate the company and actually uplist a clean medical-only DEA-registered portfolio of assets on the NYSE. And they, again, surprising to Christine and I were on that call, actually, and they said, yeah, we think we can do it. And we said, okay, great. We'll be back in touch. And so about 24 hours later, we had the legal team that was responsible for that canopy transaction hired and on the phone with us with NYSE and their legal counsel, and we got the same answer. And so it was a six-week process from start to finish. At Truly, we moved fast, for those of you who aren't familiar with us. And thankfully, and I will say, you know, kudos to Constellation and Canopy. It's not often that we have a roadmap to follow, but in this case, we did. And we literally took the documents that were filed and SEC approved from that transaction and hit copy-paste and brought them over into our transaction. And so just if I can, I'm a recovering lawyer, so I'll try not to get too in the weeds here. But literally what that looks like is we were able to sell the non-medical assets, mixed-use state assets, to an independent third-party investor. And we sold control, so 100% of control and 10% of the economics. There was independent valuation done by an outside valuation company. And 10% of that value was purchased by that independent investor. So 90% of the economic interest continues to come through our Trulieve financials. I sit on the board as a non-voting member with the exception of extraordinary events. And that board is made up of three individuals, two that were appointed by the independent investor and then myself. And we will continue in this. And then, of course, the auditors had to confirm that it was an actual deconsolidation transaction. Once we checked those boxes, we were able to uplist on the NYSE. And it has been, you know, kind of off to the races since then. And that happened June 10th. And since then, we have been on the road. I have been across the U.S. as well as Canada. And there's been an exceptionally warm welcome, I would say, from not only existing shareholders, but also a lot of new accounts. And so we are talking to funds that are predominantly, I бы say, long onlys, funds that were out of the cannabis space that are now kind of considering coming back into the cannabis space. And those conversations are, it reminds me of kind of initial days back in 2018, when we listed first on the CSE and the OTC around, okay, take us through and how do we think about this and how should we build our model and why are you different and what does this look like over the next three to five years? And so, but I will also say that it's not going to be immediate. And I, you know, as much as I've been waiting for this for a decade, so to me it feels like, you now, I want it to be a immediate, trust me. But folks, especially in that particular shareholder base that we want to attract, right, which is again, these more of these long-only larger funds, they need to see a couple quarters. They want to see the growth and the kind of the things come into from a regulatory catalyst perspective come to fruition. They wanna see broader rescheduling happen. They're interested in FinCEN guidance as another example. We now qualify for index inclusion. That is something we just completed and announced re-domestication of Trulieve from Canada to the US. That was done in partial part to qualify us for these indexes, which we will meet that deadline for rebalance before year end. So again, there's a sequencing here that we're in the middle of. Large bulge brackets, I'm in constant conversation with. They have started their internal process. Those guys have had a cannabis prohibition. So they, you know, we have to peel that back. And so that's making its way through their committee process. Now that's MasterCard and Visa. I have a call with Visa tomorrow at 2 PM. I've got, I've had multiple conversations with MasterCARD again, because we are NYSE listed schedule three DEA registered and licensed, right. That opens us up to the ability to have these conversations in a much more meaningful and specific way where we were not able to have those conversations before. And then overlaying all of that is that the organic growth opportunity that sits in front of you as well is pretty robust. Specifically, we'll start with Texas, but obviously we'll talk about Georgia as well. You just won a conditional license in Texas. Maybe just take us through what were some of the changes to the program there? And then also, why is the market set up favorably for you when it comes to, we will say, the next three or five years for organic growth? Yeah, everything is bigger in Texas. I cannot wait. The fact that we get to do Florida again. I am so excited. Our team is so excited, and so Texas, essentially what happened with Texas is it's had a medical cannabis, a pretty much dormant medical cannabis program for some time. There were only three operators there. There was huge structural problems with the program, and I'll just give you an example. Every single day, these operators were having to transport the product in their dispensaries to a warehouse every day, so think about that for a it and how inefficient that is. That's just an example and kind of illustrative of where the Texas program was. Essentially, the lieutenant governor in Texas got very interested in hemp and intoxicating hemp and really shined a light on all the problems that were happening with the unregulated hemp market. And so as he was bringing that to light, which Texas just effectively banned hemp starting last week, the legislature came in and said, okay, but we have to give these people a way to utilize this product in a regulated fashion. And so how do we, you know, create a more robust medical program while we're simultaneously eliminating hemp? And so a lot of changes have since occurred to the Texas program, including additional licenses, which we were awarded under. Andso in Texas, there is, under the medical program, a very robust list of conditions, including pain, which is different from Florida. Pain is not a condition in Florida. In Texas, it will be strict vertical integration like in Florida, so you have to make everything that is on your shelves for track and trace purposes. There is unlimited cultivation, unlimited production, and unlimited dispensaries like Florida. So it is copy-paste with less, I would say, friction. You also can do telemedicine. I can put a kiosk in the lobbies of my stores, a patient can come in or a prospective patient can come in, do a consultation for 50 bucks, get a recommendation, and begin shopping immediately. So the setup in Texas is very, very favorable in general. We have our phase one complete. We have notified the state that we are ready for inspection from a production and cultivation perspective. We also have 11 stores ready to go. So Texas is divided into 11 regions. You do have to have a single store in each region before you can then go anywhere else in the state. And again, unlimited dispensaries across the state once you check that box that you're at one in each 11. So when I say that we're ready to go in Texas, we're Ready to Go in Texas. I get asked about timing. We are and have been in constant communication with our regulators. We have a very good relationship there. We were just informed that we have no deficiencies they have one final financial review that they are doing and they've hired an independent firm to do basically a check check the scoring and and so that's happening now we have been informed that those of us without deficiencies will be prioritized in that process so again have every reason to believe that we're on track for before the end of the year in terms notification of that final. And like I said, we're ready to go. That's excellent. And then when it comes to Georgia as well, so again, another big organic growth pillar. And there is, because you already have a presence in the state and because of some program changes there as well. You're already starting to see that flow through the P&L. And I know there's going to be a bigger uptick in the balance of the year. You've seen great demand out of the gate. So maybe we'll just do the same thing with Georgia as we just did with Texas. Let's figure out or lay out the changes rather for everybody in the room and what you're seeing on the ground today. Yeah, sure. So in Georgia, that growth is in the business right now as we speak. And so in Georgia in July 1st, new program changes went into effect. And the biggest ones are they removed the THC cap that previously existed, and they've allowed now for smokable flour, in addition with an expansion of conditions. And so with those changes, we saw a triple of demand at our stores and, you know, good and bad. We sold out of flour almost immediately. We have, as soon as the changes were announced, planted additional flour in our current capacity, as well as began the process of turning on additional capacity in Georgia. And so that will continue to ramp. Our store should be fully stocked with flour this month. So I'm waiting. It's kind of in the hands of the laboratories right now in terms of getting final testing results. But we'll have those fully, fully stocked. We have six stores currently in Georgia. We're about to open the seventh in Dunwoody. The way Georgia works is that every 10,000 patients, we qualify for another truly branded and owned store. And so at 45,000. So, again, we have the seven at 45000, which we just surpassed that qualifies us for the eighth store. And then we believe that we will quickly ramp to 55,000 hopefully ahead of the October meeting So this Commission meets once a quarter and at that Commission meeting That's when the line in the sand is drawn for the patient count and will tell us how many stores we qualify for And so if we get those two stores, which would bring us up to nine Those would eight and nine would open in the beginning of next year So think January timeframe and then in February, there's another meeting And so, again, depending on those velocities, as those velocties increase, the number of stores that we'll be able to open will increase as well. And just kind of for modeling purposes, for those of you at home, just think about that every time we get that approval, just think it's about 60 days-ish for us to get from approval to open, 60 to 90, depending on store particular requirements. In addition, in Georgia, what's also very exciting is that that program was written to have independent pharmacies participate in distribution and what happened early and so that program's been in place since 2023 the pharmacies there were 125 pharmacies initially that raised their hand and said hey we're interested in participating unfortunately the DEA which is kind of funny at this point the DEa sent letters and said you cannot participate because this is a schedule one drug right now those same pharmacies are able to register through this newly created DEA portal under the Schedule 3 treaty order that was signed by A.G. Blanchard in April and become fully licensed. And they can now distribute once they get that registration with DEA these products. And so we're already distributing now to a group of those pharmacies with more coming on every single week. And we also have this additional distribution channel through these independent pharmacies. I think also important to note is that those pharmacies in that model, we're able to JV with them. We can do a shop within a shop, meaning we can come in and brand Trulieve in their independent pharmacy. We can potentially do an adjoining space and extend their pharmacy license into an adjoint physical space. So there's all types of creative solutions in terms of those partnerships that we're exploring currently in Georgia with those independent pharmacies to expand really our retail and distribution presence. And then I'd be remiss also if we didn't talk about your home state of Florida as well, where it's amazing. So after they've opened up the ability, you know, first you were capped as far as the number of dispensaries that you could open. If you're an operator in the state, then they open that up. There's no caps anymore. Despite all of that, you still have around 40% market share, which is very impressive. So if we just think about the organic growth levers that you have within Florida. Well, maybe I'll take a step back. Adult use, it's not as topical as it would have been maybe a year or so ago, but still topical. We are going to have a change in the governor's seat in November as well, which I think is exciting for you. So frame that up for us. Maybe what the opportunity, the adult use opportunity,the likelihood of something happening over the course of, we'll say, the next three to five years. Yeah, absolutely. So, I mean, in Florida, right, we have a very robust medical program. We are coming up on, you know, a million patients, which will be the next kind of milestone in Florida which is interesting to think about because I think when we look back at our kind of our early modeling days in Florida no one ever thought that that program would be at that size. And what we're starting to see in Florida actually organically, and then I'll go to the adult use conversion topic, but we are seeing patient growth increase right now in Florida, which is very exciting. So if you look at Q1, on average, weekly patient growth was about 330 patients per week. In July, that number was approaching 1,000 patients per year. So significant increases from the beginning of the year until now. Why? That's a great question. I think that it's layered. I thing one, any time you have national news about cannabis and about rescheduling and whatnot, that tends to increase, right? We'll see that those numbers come through. We're also seeing patient growth in Pennsylvania. So there's a piece of it that I think is tied to more of a national conversation around cannabis and specifically medical cannabis. But I will also say that we are starting to see some hemp stores that are not taking full inventory loads that are not stocked like they were previously in Florida to give you an idea of what that looks like. In Florida, that hemp market is approximately $4 billion. The regulated medical market is about $2 billion. And when you think about the number of stores, we have about 700 and I think it's 30 something, could be a little less than that, in terms of medical marijuana stores in Florida, there are over 7,000 smoke shops in Florida. And so when you Think about that opportunity in and of itself, from a conversion perspective, it is significant. When you then look at kind of the demand metrics as it relates to an adult use conversion in Florida, there's 135 million or 35 million tourists per year that come to the state of Florida and again we're a state of 21 million people. So we've always looked at that conversion as a very conservative two times but more likely three times the the market that we're in today. So enormous opportunity in terms of future growth. Likelihood, again, I think we'll take another look at it in a couple years with the presidential, and we'll see if it makes sense at the time. But I do think that with the repositioning of a governor, candidly regardless of if it ends up being a Republican or a Democrat, more likely Republican just because of the voter registration situation in Florida. But regardless, I don't think we're going to be in a significantly more friendly environment than we have been with that state and even given that right the way that the program has continued to grow has been pretty incredible right we'll bring it back to rescheduling for a second so you gave a great overview of what's happened when it comes to medical use that being rescheduled obviously that allowed you to to uplist where do things stand today when it comes to resceduling adult use cannabis and when might we seen that see that actually be put into practice, whatever decision is made. When do we get finality on that, I guess? Yeah, well, I'll bust out the crystal ball and tell you that here's what we know for sure. We know that briefing, final briefs are due August 17th. So the other thing that Attorney General Blanche did in April is he reinitiated the broader rescheduling process, right, that was started under Biden back in 2023. With that HHS report that came out, everybody got super excited about it and then it stalled at the Department of Justice. What Attorney General Blanch did is he reopened that process and set very specific timelines around how that process was going to go and how it was going move through the ALJ avenue in a very expedited fashion. And so the ALA laid out a timeline, hit all of those targets, and that was encouraging to see because, you know, government timelines can not always be hit. And so it was great to see him actually meet those. And then now that the hearings have concluded, he has set the deadline of August 17th for final briefs due from the parties. He then will take those and incorporate them into his final recommendation to the attorney general. And we're not clear right now, I should note whether it will be Attorney General Blanch or if it will be the DA administrator at this point who is actually signing that final order. But ultimately it is under Blanch's authority. The fact that he was confirmed, barely, but he was informed this past, this past weekend or week, I guess, in his foreign in it, that is actually very positive for our industry and for getting this across the finish line. So I am still bullish on by the end of the year and candidly before midterms. But I think the one unknown piece of that is how long the ALJ takes to compile his final recommendation. I think that aligns with most folks views of when they also expect the same to happen as well. So maybe we'll just being mindful of time here and maybe we will close with with this just capital allocation in general. Maybe we'll do a two part question here. It sounds like the priority for organic growth in the near term is going to be Texas. I imagine that'll be the primary use of free cash flow in the near term, but you can correct me if I'm wrong. Secondly, M&A, it's obviously more topical of late, and I think everyone's trying to figure out what's going to be happening in the space. Is there going to Be a wave of consolidation? If so, what's Trulieve's role in that going to B over the near-term? Yeah. So, I mean, I think that, right, one of the other differentiators for us is, you know, our robust cash generation and the fact that, you know, we have and sit at, I'm on the medical side, right? Approximately 63% margin, over 35% adjusted EBITDA. Cash flow generation is very, very healthy. We have, you Know, 300 plus million dollars on the balance sheet. We're cash flow, cash net positive to debt. So I think it puts us in a unique position where we have optionality in terms of how we're spending those dollars. And we have runway, candidly, to be able to, I think, meet our goals from an organic perspective and still be inquisitive on the M&A front. I believe it's part of my role to be the most attractive partner available. And so when we think about folks particularly, so I think this is to answer your question more directly, come rescheduling, there is going to be an opportunity for combined companies, mixed-use companies, we'll call it, to list on the NYSE for sure. And that is also a time when we have the ability, we havethe option, but not the requirement, to reconsolidate the rest of the business back under the TRLV NYSE umbrella. And so at that point in time, you're going to have a line in the sand, and there's going to be the haves and the have-nots. You're going to have the companies that are qualified and that can come over from the OTC and the CSC onto the NYSE platform, and then you're going to have companies that do not qualify. And on those companies that are smaller, that do not qualify, there is going to be a ton of pressure on them to figure something out, right? And candidly, I'm just going to say this, sorry if there's any of you in the room, there's going to be a tenor pressure on the debt holders of those companies to figure something out because suddenly, right, are they going to, you know, work to reposition so that they can be an acquisition target or are they gonna push them into some sort of a structured workout that's gonna take multiple years? I think that's going to be a threshold question for a lot of folks to determine kind of whether or not they have even the ability to be a reasonable or rational acquisition target. So I think that's what's gonna kind of shake out on the public because 99% of those companies are over levered and have, have a lot of cleanup work to do from a balance sheet perspective. Um, then I think on the private side, you're going to have similar, and those are already starting conversations around who do we want to hitch our wagon to and where do we think, right, these companies are going and how would we fit in and wanting and feeling like they need to be part of something that's bigger and broader. Um. And I think if you were to ask me today, again, absent kind of debt cleanup on some of the rest of it, that's probably where our interest would potentially lie. But yeah, we, of course, will remain inquisitive. It has to make sense for us. It has fit all of our criteria, which we have pretty robust criteria. But yeah. We're definitely open. That's great. Yeah, go ahead. I have three questions. So you can take them in any order. You can say .. The first big question I had was on interstate commerce. I listened to Ben Cole from TTI yesterday, said he needs the states to protect stranded assets in the state of Baltimore. Do you have a view on, assuming it's schedule three, whether or not we'll have true understand cops? The second question is, knowing that you're in Florida and have the lowest capacity, are you doing anything internationally in terms of exporting, in terms of capturing that opportunity? And third, in your home state of Florida, do you have any levers to pull Yeah, sure. So on interstate commerce, I think that the only pathway that I see for interstate commerce would have to be through the DEA channel. So if you think about it, rescheduling to Schedule 3 does not provide any type of a more broadly, so we'll call it in the broader cannabis world, right? There is no pathway there that would trigger any type of difference from an interstate commerce perspective than we are today, right? I mean, so it's a Schedule 3, but there's still no, I'll call it federal framework, right, that would allow for anything other than a state-by-state program. When you come over to the DEA side, and I think that's where there's been a lot of questions around, I think it's relatively unclear for now, although I would just say keep in mind that the trigger for or the approval for your DEA license hinges on your compliance with your state program. And every single state program to date, not saying this couldn't change, requires, has strict requirements of cultivating production and dispensing within the borders of that state. And so I don't know, absent some sort of change there, how, because you have to show that compliance certificate. And, I mean, we've had inspections from DEA agents physically in 100% of our dispensaries in Florida, Pennsylvania, and West Virginia. and I can tell you the diversion is their, like, I would say probably number one item that they're looking at, right? So, I mean, for track and trace purposes. So, again, I think there's a lot that would have to be developed in order for that to be, and if it's under that DA pathway, you're complying with treaty requirements, which means your reporting and your seed-to-sale tracking and all that would need to be figured out to meet international law. Second, in Florida, there was the question about my... Leverage the poll when it comes to enforcement. International. Not right now. So not right now, we are, I would say have our hands full with what we have and the opportunities that we have in front of us. And then finally, it was around... The hemp market down? Yeah, absolutely. So I think that both gubernatorial frontrunners, again, Dave Jolly on the Democratic side and Byron Donalds on the Republican side, are very much aligned as it relates to the hemp market and how, just especially on the intoxicating front, just their positions as it related to enforcement. In addition, Wilton Simpson is our agricultural commissioner who oversees actually, he's the chief regulator for that industry, he has done bus and has been active in terms of to the extent that he's been under Florida law able to. Florida law tracks federal law. So again, the federal ban would then come into Florida. And I have every reason to believe that there would be significant enforcement in Florida with I think even actually now, but definitely post-November for sure. I think just in the interest of time, we'll probably leave it there and we'll move on to the next session. Thanks again.