Trulieve 3Q22 earnings report.
Trulieve Cannabis Corp (TCNNF) is a Hedgeye Cannabis Best Idea Long.
In 3Q22, the company reported $301M in revenue, which is a 34% YoY increase, with retail sales accounting for 94% of revenue. They generated adjusted EBITDA margins of 33% and GAPP gross margins of 56% with gross profits coming in at $168M in the quarter and ending the quarter with $114M in cash. Trulieve net losses for the quarter were $115M ($169M for the year) and came despite Trulieve’s closure of several California dispensaries, its exit from the Nevada wholesale market, and closing down “redundant cultivation” in its home state of Florida. They invested $38 million in capital expenditures the quarter and management cited that they expect a significant decline in supply chain investments in 2023 following a multi-year investment cycle to support future growth. Management continues to harp on its growth plans in existing markets including Arizona, Florida, Georgia, and Pennsylvania.
"Our team demonstrated tremendous flexibility and cross-functional capabilities during the third quarter," said Kim Rivers, Trulieve CEO. "We navigated macroeconomic pressure, changes to dosing limits in our core state of Florida, and the impact of Hurricane Ian while making further progress streamlining the organization." Rivers continued, "U.S. cannabis has significant white space ahead, with many states yet to implement medical or adult use programs and a growing appetite for substantive federal reform. Trulieve has been preparing for this next phase of industry evolution for years, building our regional hub strategy, scaling cutting-edge cultivation and manufacturing capacity, expanding our leading retail platform, investing in data technology, and perfecting the customer journey."
Trulieve currently operates 178 retail dispensaries and has over 4 million square feet of cultivation and processing capacity across the United States. They were also awarded a cultivation license in Connecticut which allowed them to open up two additional dispensaries in that state. They anticipate 4Q22 results being influenced by holiday retail performance and promotional activity across core markets during the latter half of the quarter. Based on their performance YTD and current trends, they are targeting the low end of 2022 guidance of $1.25 billion to $1.3 billion in revenue and $415 million to $450 million in Adjusted EBITDA.
Oregan industry trends.
Oregan monthly cannabis sales came in at ~$16M in the month of October which is a sequential increase of 0.4% and a YoY decline of 1.4%. Unit growth in October was up 1.8% sequentially and up 8.8% YoY. Average cannabis product cost in the month was down 1.4% sequentially and down 9.3% YoY. We are seeing choppier levels of cannabis price in this industry which is a positive when you compare it to the free fall that we were seeing earlier in the year.
Cannabis Ballot Initiatives.
As it currently stands, it looks like we will either have a 50/50 Senate with the Vice President being the tie-breaker (so no change over the last two years) or a 51/49 split in favor of Republicans. To get any cannabis reform passed in DC, you will need to get 60 votes. Obviously, we will probably see fewer cannabis reform bills hit the floor if Republicans take the Senate but the outcomes of changes in the state will not change and will still be driven by the states. Five states had adult-use cannabis legalization votes on Tuesday, with North Dakota, South Dakota, and Arkansas voting it down while Missouri and Maryland became the 20th and 21st states respectively to pass recreational cannabis legalization. We will have to see how long it takes these states to roll out, as we are still waiting for east coast states to roll out their adult-use markets from nearly 2 years ago. These two states account for 3.7% of the U.S. population so we don't see major changes coming to the industry but GTI does have a solid presence in Maryland.
