Trulieve reported 2Q22 Earnings.
TCNNF, a Hedgeye Cannabis Best Idea Long, reported revenue growth of 49% YoY.
Trulieve 2Q22 revenue was $320.3M, which is a 1% increase sequentially and a 49% increase from last year. Retail revenue increased 3% to $298.6 million, and wholesale, licensing, and other revenue declined by 22% sequentially to $21.7 million. Gross profit of $182.2 million and GAAP gross margin of 57% in the second quarter compared to gross profit of $178.2 million and GAAP gross margin of 56% in the first quarter of 2022. Adjusted EBITDA grew 17% year over year to $111.0 million*, or 35% of revenue in the second quarter, compared to Adjusted EBITDA of $105.5 million*, or 33% of revenue in the first quarter of 2022. They had $181.4M in cash by the end of the quarter and saw a net loss of $22.5M in the quarter.
TCNNF exited the second quarter with operations in 11 states, with 32% of its retail locations outside of the state of Florida. Trulieve opened six new dispensaries in Fort Myers and Zephyrhills, Florida; Framingham, Massachusetts; Coatesville, Pennsylvania; and Parkersburg and South Charleston, West Virginia. They relocated one dispensary in New Port Richey, Florida. They had unit growth of 79% YoY and hit 10M units produced in the quarter. Trulieve operates 175 retail dispensaries and over 4.0 million square feet of cultivation and processing capacity in the United States.
Trulieve saw a tick-up in top-line growth and margin improvement in the quarter. Management commented that they are focused on how they use their cash these days based on all the industry's headwinds. Management lowed guidance by saying, "Factoring in strategic changes across our business, the impact of inflation on consumer spending, softness in wholesale markets, and the lack of visibility in the current macroeconomic environment, we are adjusting 2022 revenue guidance by 5% from the low end of our prior outlook to $1.25 billion to $1.3 billion. Accordingly, we anticipate Adjusted EBITDA will be in the range of $415 million to $450 million."
All in all, they didn't blow out the quarter, but with everything going against the cannabis industry regarding macro factors, we weren't expecting them to. They printed solid results, and the stock is probably only down slightly due to management being conservative about guidance expectations, but hey, I can't blame them on that one. They are seeing sales pressure and a weakening consumer. TCNNF remains the best idea long.
CRON Reported 2Q22 Earnings.
Cronos, a Hedgeye Cannabis Best Idea Long, reported revenue growth of 48% YoY, which was driven by a net revenue increase of 212% in Israel.
Cronos reported net revenue of $23.1M in 2Q22, which is a $7.4M increase from a year ago or 48% YoY growth. The increase was due solely to their growth in the Israel medical cannabis market. Israel's revenue grew 212% YoY and now accounts for $7.2M in revenue for the quarter. Gross profit of $4.1 million in Q2 2022 improved by $19.9 million from Q2 2021. The improvement year-over-year was primarily driven by the absence of inventory write-downs in the current period, increased revenue in the ROW segment driven mainly by sales of cannabis flower, a favorable mix of cannabis extract products that carry a higher gross profit and gross margin than other product categories, and lower cannabis biomass costs. Adjusted EBITDA of $(18.8) million in Q2 2022 improved by $31.0 million from Q2 2021. The improvement year-over-year was driven by the improvement in gross profit, decreased sales and marketing, and general and administrative expenses due to the Company's strategic Realignment.
Cronos began a phased exit of the wholesale beauty category to focus the portfolio of adult-use product formats within the direct-to-consumer channel. As a result, the Company reduced its sales and marketing headcount in the U.S. to better align the business structure with the new strategy. Due to the restructuring of the U.S. business and other newly identified cost savings opportunities, the Company now expects to incur approximately $6.4 million in expenses in connection with the Realignment, an increase from the previously stated $5.8 million.
Yesterday morning's results were not what we were hoping to see, but they are what we expected to see. The Canadian market is nearly impossible to operate these days, and the pricing destruction we are seeing in the country is a headwind that we didn't think Cronos could sail through. With that in mind, they are still best positioned in the country, and if anything were to ever change in the U.S. from a legislative point, Crono's growth drivers and strategic positioning would give them a huge boost in market share. Obviously, the stock price hasn't been in our favor for this name, but we continue to see them as a long-term winner in the space that is clearly having a really hard time.
Federal Reform
Cannabis reform faces an uphill battle; the slope is less steep.
House of Representative member Troy Carter out of Louisiana says he is optimistic that some form of social equity federal reform will go through this year which would include expunging misdemeanor cannabis convictions as they try and pair that type of language with cannabis banking reform before the end of this Congress. In the weeks since Senate leadership filed a much-anticipated legalization bill, the conversation has quickly shifted, with key lawmakers saying that there's promising momentum behind a package of incremental reforms that's still in the works. Expungements—along the lines of Carter's new standalone bill—are said to be a key part of the talks, along with marijuana business banking access, among other issues. We have written in the past that New Jersey Senator, Corey Booker, is also trying to push a SAFE+ bill that would include both banking and social equity reform, similar to what Rep. Carter is attempting in the House.
It is clear that incremental reform is the talks taking place in D.C. these days, as a complete cannabis reform bill doesn't have nearly the support needed to fight for at this point in time. www.marijuanamoment.net
cannabis ballot initiatives.
There are several states that are adding cannabis legislation to their November ballots. The newest state to confirm this is Missouri, but a meaningful market to watch is Florida. A campaign on Monday was started in the state of Florida to get adult-use cannabis legalization on the 2024 ballot. Trulieve is the state's largest medical cannabis operator, and they are backing this initiative by providing a $5M war chest. Past attempts to place adult-use legalization on the Florida ballot have been challenged and rejected by the state Supreme Court. But the Smart & Safe Florida political committee says the language of their proposed amendment to the state's marijuana law will avoid such a contest and prevail. To get this on the 2024 ballot, the group will have to get 900k valid signatures.
The CEO of TCNNF spent some time on the recent earnings call explaining how the process works in FL and why previous attempts failed:
"Florida is an interesting process, and we have very specific requirements in Florida that are state-specific in terms of what it will and will not be accepted as it relates to language that can be approved by the Supreme Court. So, in Florida, there are two signature thresholds. The first to get to the Supreme Court and the second to get actually on the ballot, and they can run – those the signature gathering efforts typically run simultaneously.
There were a couple of previous initiatives. One was struck down due to a lack of compliance with the single subject rule. In Florida, it is a requirement that a ballot initiative does need to be narrowly tailored to a single subject to avoid compound issues and potentially approve an initiative that has more than one issue embedded in it. The second initiative failed for the second reason that a ballot initiative can fail in Florida, which is that it was deemed to be misleading to voters because it did not clearly articulate the facts that a change in state law does not absolve someone from potential violation of federal law. The court deemed that to be an important distinction that someone may not realize that if they purchased in Florida and then, for example, maybe traveled across state lines or got on an airplane, right, they would potentially be in violation of federal law. And so, those were the two specific reasons that the court struck down previous initiatives.
This initiative has been extremely narrowly tailored and does leave the implementation of policy to the legislature, which is another, I'll call it, a political challenge that previous initiatives have had. In addition, it clearly states that there is no automatic absolve of federal potential liability for an individual if they purchase under an adult-use program here in Florida. So, I do believe that this initiative does adequately address the issues that the court has raised in the past. I think that it incorporates the court's comments, and I do believe has a significantly better chance than previous initiatives of actually passing, which is why, of course, you saw an initial investment from us. Our partners are very much involved as well, and we would expect and hope that other folks, particularly those who would like to also be leaders in this industry in the Florida market, would step up and participate as well. And we'll update that as that group continues to come together."
