Colorado Cracking Down on Underage Medical Use
Colorado, which has historically had very lenient laws regarding cannabis, will make it harder to get medical marijuana. The new law is purposed to make it more difficult for underage individuals to gain access to these products by requiring a doctor to make more steps to authorize a medical marijuana card, particularly for those aged 18-20. This new law will create a medical marijuana purchase tracking system to prevent patients from visiting multiple stores exceeding the pre-purchase cap. It will also limit single-day purchases to 8 grams instead of 40.
The bill was initially planned to include potency caps for concentrates but did not include them, which is an overall win for the cannabis industry. Concentrates have been the fastest-growing segment in Colorado. The average potency of concentrates is 69% compared to a pre-rolled joint which is just 18%.
Senate Bill Allowing CBD-Infused Foods
In the 2018 farm bill passed under Trump, CBD was legalized but was not technically allowed in consumable products such as foods, drinks, and dietary supplements. A new senate bill looks to change that. The bill titled, The Hemp Access and Consumer Safety Act was filed by Ron Wyden (D-OR), Rand Paul (R-KY), and Jeff Merkley (D-OR). CBD products are legally being used and produced across the nation. Yet because the FDA has failed to update its regulations, consumers and producers remain in a regulatory gray zone,” Wyden said in a press release. “It’s been more than two years since I worked with colleagues to have Congress legalize hemp and hemp-derived products. It’s long past time for the FDA to get with the program, for the sake of American consumers and farmers.” Hemp-derived products are already widely available, but the US needs the FDA to issue clear regulations for companies to follow.
TRSSF Earnings
TRSSF reported net sales up 106% to $53.4MM YoY and increased 8% sequentially. Driving the growth was cultivation expansions in Pennsylvania and California, the initial ramp-up of sales in New Jersey, and continued growth and ramp-up of the three Apothecarium dispensaries in Pennsylvania (and the two new locations in California.) The branded manufacturing business increased by 121% YoY, while the retail business increased 77%. The higher growth of branded manufacturing was driven by cultivation expansion in Pennsylvania and California, while retail growth was driven by new store openings in Pennsylvania, California, and New Jersey. The higher-margin branded manufacturing business represented 72% of the revenue mix this quarter.
The adjusted gross margin for Q1 was 65% compared with 60% in Q4. The 500 basis points of sequential improvement in gross margin were primarily driven by a greater mix of higher-margin business in Pennsylvania and the initial ramp in New Jersey operations.
TRSSF focused on cost control, with SG&A dropping 1,200BPS YoY to 30% of net sales. The improvement even included a one-time increase in legal and severance costs and an increase related to planned investments in personnel systems and other capabilities to enable future growth. The improvement in margins should continue as operations scale over the balance of the year. The company reported 1Q21 (A)EBITDA of $22.6 million, representing a 42% (A)EBITDA margin. The quarterly progression, adjusted EBITDA margins improved throughout 2020 from 14% in 1Q20 to 24% in 2Q20 to 35% in 3Q20, 40% in 4Q20, and 42% in 1Q21. There is room for further margin expansion as New Jersey comes online and gains efficiencies in Pennsylvania.
TRSSF ended the quarter with $234 million in cash due to the $175 million equity offering in January. In 1Q21, TRSSF generated $13 million in cash from operations, while CapEx spending during the quarter was approximately $8 million - the second consecutive quarter of positive free cash flow generation.
