Trulieve Cannabis Corp. (TRUL) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to the Trulieve Cannabis Corporation Third Quarter 2020 Financial Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. Thank you. I would now like to hand the conference over to your host for today, Ms. Lynn Ricci, Director of Investor Relations for Trulieve. Please go ahead.

Thanks, Jack. Good morning, ladies and gentlemen, and thank you for joining us today. On the call with me today are Kim Rivers, Chief Executive Officer; and Alex D'Amico, 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. Statements made on this call speak only as of today, and we assume no obligation to update any of this forward-looking information. Our financial results are provided in IFRS. Also, our prepared remarks this morning reference non-IFRS financial measures in order to provide greater transparency regarding Trulieve, where applicable we may also provide a comparison to GAAP and non-GAAP financial measures to assist investors. Any non-IFRS financial measure 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 September 30, 2020, as well as in the table at the end of the earnings press release. We believe our profitability and performance are further demonstrated using these non-IFRS metrics. Please note that all dollar references are to U.S. dollars. This morning, we reported results for the third quarter of 2020. A copy of our news release, financial statements and MD&A may be found on 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 later today. Now I will turn the call over to our CEO, Kim Rivers.

Thanks, Lynn. Good morning, everyone, and welcome to today's call. Trulieve exceeded consensus for revenues and EBITDA again this quarter, achieving approximately $136 million in revenue, representing a sequential quarter-over-quarter increase of 13%. Trulieve's third quarter pro forma revenue, including the Pennsylvania acquisitions that closed last week, was $154.9 million. Our adjusted EBITDA was $67.5 million, or 50% in the third quarter. This is a 93% increase in revenues and an 83% increase in EBITDA on a year-over-year basis. We are proud of that industry-leading profitability performance. As discussed last quarter, we are transitioning to GAAP by year-end, an area that has a significant difference between IFRS and GAAP is net income. Our net income on a GAAP basis would have been $17.4 million, resulting in an impressive earnings per share of $0.15. Alex will provide additional details around our Q3 results and the transition from IFRS to GAAP. Before we get to that, I would like to highlight our hub model expansion strategy as well as update metrics we traditionally report on. But first, I would like to touch on the election, which is, of course, still top of mind for everyone. Cannabis was a decisive winner on election night. All medical and Adult-Use ballots passed in a clean sweep from the New Jersey Adult-Use ballot in the Northeast to Mississippi's medical ballot in the South, the overwhelming support of these measures sent a signal to our political leaders in Washington that Cannabis is not a partisan issue but a human one. We are encouraged for brighter days ahead in the U.S. regarding the cannabis industry, and we are actively preparing for what that might mean in the years to come. One of the ways we are preparing is our hub expansion strategy, which divides the country into 5 hubs or regions, Northeast, Southeast, Midwest, Northwest and Southwest. We will leverage the experience we have gained across the supply chain in these hubs, a process we have started in the Northeast. We have established our Northeast Hub via acquisitions in Connecticut, Massachusetts and most recently, Pennsylvania. As we have stated before, when we evaluate an acquisition opportunity, we focus on the culture of the potential target and whether it matches Trulieve's values. Our second focus is whether the acquisition will be accretive, Pennsylvania embodies both. With the closing of the Solevo and PurePenn acquisitions last week, we are expanding our Northeast Hub. PurePenn is a premier cultivation and production company, and Solevo brings us 3 successful medical marijuana dispensaries in the Pittsburgh area. These acquisitions are a game-changer for our expansion plans as they create an immediate and significant presence in Pennsylvania, a large and growing market. Pennsylvania is the fifth most populated state in the U.S. with approximately 13 million people and an expanding medical marijuana patient base of approximately 380,000 patients as of September 30. PurePenn and Solevo are proven and profitable operators with strong management teams. Each company also has deep ties and support within their communities. The transactions offer state of the art facilities, a premium product portfolio, a strong and growing patient base and a statewide wholesale customer base of 100% of the 93 dispensaries in Pennsylvania. We are expanding our 35,000 square feet of cultivation to 95,000 square feet and the additional facilities are expected to come online by the end of Q1 2021. The expansion will allow Trulieve to meet demand in Pennsylvania, particularly with the potential for recreational use more likely now that New Jersey has passed a recreational initiative. On the dispensary side, We are expanding our 35,000 square feet of cultivation to 95,000 square feet and the additional facilities are expected to come online by the end of Q1 2021. The expansion will allow Trulieve to meet demand in Pennsylvania, particularly with the potential for recreational use more likely now that New Jersey has passed a recreational initiative. On the dispensary side, Solevo's customer-centric philosophy has been wonderful to see throughout the acquisition process. Solevo experienced healthy patient growth this quarter and had a customer retention rate of 83%, reflecting strong customer loyalty. Pennsylvania is a major milestone for Trulieve, and we will continue to explore additional strategic growth opportunities and look forward to sharing more in Pennsylvania in future quarters. I'll now turn to Connecticut, where we began our Northeast hub operations. Connecticut was another successful transaction for us as it met the criteria I just described for customer-centric values and profitability. Our Connecticut dispensary continues to hold market share in an expanding market. Our Bristol store is now one of 18 open dispensaries in the state, yet maintains an outsized 10% market share. We are incredibly proud of our Connecticut team for their outperformance. Another exciting state for us in the Northeast region is Massachusetts. Wholesale flower pricing remains strong in Massachusetts. And given there is currently a significant flower shortage in the state, we believe that this continues to be a great opportunity for Trulieve to bring high-quality products to the market. Navigation of the regulatory environment has been a slow road, but we are currently in the inspection and approval phase of our first dispensary as well as our 140,000 square foot cultivation and production facility. After additional delays attributable to COVID shutdowns, we are confident that we can get both approved and commence operations in the first half of 2021. We look forward to giving a more specific timing update on our Q4 call. Another recent addition to our Northeast Hub is West Virginia. Just last week, we announced that we had been awarded a processor permit. Approval as a medical cannabis licensee provides Trulieve with an opportunity to bring the Trulieve brand to West Virginia patients through wholesale opportunities. Let's now switch to the southeast. Our home based in Florida is the cornerstone of our Southeast Hub. As more southern states legalize and launch cannabis programs, we will look to expand. Trulieve is the undisputed leader in Florida, a foundation of this success is our ability to quickly execute as demonstrated by having the first sale of medical Marijuana, the first sale of flower and the first sale of edibles in the state. Trulieve sold the first edible products in the state on September 2. We've been planning for edibles for a long, long time and a main director for our team was to have a go plan in place, edibles regulations were released at the end of August. And within a week, Trulieve made its first sale of TruGels in our Tallahassee store to a long time patient and member of our TruVet program. We only have 1 full month of data, so it's not enough to show a trend. However, with impressive sell-through rates, I think we have a product that the market has clearly been waiting for. We currently offer 5 flavors of TruGels, 2 varieties of TruChocolate, brownies and cookies from Love's Oven, 2 varieties of Peruvian chocolate bars from Binske and recently added TruNanoGels in 3 flavors. Our 10,000 square foot kitchen is cranking, working 3 shifts, and we are already adding new equipment and lines to meet patient demand. In addition to the launch of edibles, we've added other exciting products, such as TruKeif, a high-THC product and CBN launched with Blue River, which is a naturally occurring cannabinoids that can aid sleep without a psychoactive effect of THC. We also launched our Cultivar Collection, a line of premium quality strains with unique flavors in terpene profiles. This craft collection will be rotational and available at select stores throughout Florida. We've had wonderful feedback from our Trulievers community on these new additions. Our strength of execution has allowed us to achieve and maintain our consistent share of over 50% of the Florida market. Trulieve has built a powerful lead in the state, and we have become the standard to patients for loyalty, trust, selection and quality. This is reflected in our ability to improve on already impressive market share. In October, we maintained a 51% share of dispensations of oil and increased to 54% per flower and recently had a record-breaking weeks in both categories. Our performance continues to remain strong in the fourth quarter, operating 22% of the dispensaries yet outperforming with approximately 52% of the market share. Third quarter patient growth in the state had approximately 62,400 new patients just 300 patients shy of the entire patient count for the first half of the year. This is incredible growth. We are seeing that patient growth come through in our store count and performance. Our expectations of $7 million to $8 million per dispensary on an annualized basis are now hearing $10 million per dispensary. During the quarter, we continued our unmatched pace of launching new stores, opening 9 new dispensaries in Florida. This month, we achieved our previously stated goal of 58 stores nationwide by year-end. And yes, there will be more to come. As a matter of fact, we are looking forward to opening the Lake City location in Florida tomorrow. Let me take a moment now to update you on the key retail performance indicators we provide each quarter. Trulieve's customer retention rate was approximately 79% in the third quarter, a sequential increase compared to 76% in the second quarter and 74% in the first quarter. For me, this is quite meaningful as our focus on patient satisfaction translates to growing loyalty among our Trulievers. We also track average basket size and number of visits. For the third quarter, patients visited an average of 2.9x per month, trending up from 2.7x per month in Q2. Average basket size was $108 for the quarter. We expected basket sizes to normalize somewhat in the third quarter as there were macroeconomic drivers at play in Q2, such as COVID-related buying, stimulus checks and tax refunds. In addition, we experienced a third-party testing bottleneck in Florida during the third quarter. Product availability caused some patients to have return visits, skewing the visits higher and contributing to the lower basket. Another metric we track is same-store sales. For the 29 stores opened for the entirety of the third quarter of 2020 that were also open for the full quarter in Q3 2019, we had same-store sales increase of 19%. 15 of these stores were also opened in Q3 2018. From our analytics and based on the velocity of store openings and how rapidly their output ramps, we see this as indicative of healthy overall growth. Consistently achieving impressive results is a product of our ability to expand and optimize our production facilities to support the continued patient growth I just outlined, and importantly, key products on shelves, you need not only a large cultivation footprint but also deep expertise in supply chain management, logistics and product development with a clear focus on efficiencies and optimization. These skills and scale will serve us well as regulatory barriers shift and we execute our hub model. As Trulieve continues to expand its cultivation footprint, we are not just adding more plants. We are making investments in our people, processes and production to meet ever-growing demand. During Q3, we added 96,000 square feet of cultivation and another 24,000 square feet in October, which brings us to almost 1.9 million square feet with annual capacity of over 86,000 kilograms, and we're still building. We expect another 70,000 square feet to be added by year-end. We are doing this while remaining agile enough to pivot, responding to catalysts in the market, such as the approval of new products or dealing with labs in third party testing. Thirdly-party testing slowdowns were unique to Florida. So let me take just a moment to add some context here. As mentioned earlier, at the start of Q3, new testing regulations were implemented that require all 4 licensees to test products that certify laboratories as well as adding additional testing requirements. Trulieve's protocol since inception have included internal testing in our GMP-certified lab, coupled with third party testing. So this was nothing new for us. That was not true, however, for some of our competitors. When third-party testing was mandated, labs were immediately backlogged with products to test and the bottleneck it created impacts the Trulieve's product distribution. Let me just say the process was painful and had an impact on third quarter revenue. At one point, to put it in perspective, we had close to 600,000 units hung up in testing. We worked with our labs and changed some internal processes. And as we enter the fourth quarter, we see improvement in the testing turnaround times as evidenced by our record-setting weeks discussed earlier. I am very proud of our performance this quarter, not only in light of COVID but despite it. The double-digit revenue growth performance is even more remarkable, considering it is building on the 26% increase to our revenue base generated in Q2. The leadership to the team we have in Florida and the distance between us and our next nearest competitor is unlike any other market in the country and the transformational path we are on for strategic expansion as we execute on our Northeast and Southeast Hub is exciting. I'll now pass the call on to our CFO, Alex D'Amico, to share our Q3 financial highlights. And if he happens to cough and for the record, he does not have COVID, but he does have asthma. Alex?

Thank you, Kim, and good morning, everyone. As Kim covered at the top of the call, we had a very strong quarter for revenue and profitability. Trulieve had a record quarterly revenue of $136.3 million, representing a sequential quarter-over-quarter increase of 13% and a 93% increase over the same quarter last year. Unaudited pro forma revenue, which includes PurePenn and Solevo and assumed the acquisitions had occurred on January 1, 2020, would have been $154.9 million for the current quarter and $392 million for the 9 months ended September 30. As a reminder, this will be our last quarter reporting on an IFRS basis. Moving to GAAP, there will be a subtle shift in how we report certain items. We will be discussing the GAAP equivalent to key financial line items for the current quarter as I walk through our financial results. A measure unique to IFRS is production expenses and cost of goods from third-party suppliers. I would like to remind all of you about something that was communicated on our prior calls. This line is not cost of goods sold as you would find under GAP. It is a cost of goods plus other production costs. And accounting election under IFRS allows for production costs or preharvest costs to be expensed as incurred. Therefore, the additional cost added here and what differs from the cost of goods sold lying under GAAP for those of you attaching to reconcile, are those production costs related to the unsold inventory, or said another way, what we call grow cost for unsold inventory. I am very happy to say that this is a very -- the final quarter we will have this dynamic. On a consolidated basis, production expenses in Florida and cost of goods from third-party suppliers in Connecticut and California totaled $34.1 million for the third quarter. Revenue less these production expenses and costs was $102.2 million for the quarter or 75% of revenue. This compares to $91.1 million or 75% in the second quarter. As we stated last quarter, we are continuing to realize the benefits of our efficient production and cultivation processes in conjunction with the fact that we did not do a spring greenhouse planting. It is possible for our gross margin to fluctuate a few basis points in either direction from quarter-to-quarter depending on inventory flow-through and product mix. Under GAAP, we also had gross margin of 75%. Now I'd like to update you on inventory. At the end of Q3, we had a total of $205.3 million of inventory, which includes a significant amount of fair value. We also had $34.8 million of biological assets. This compares to $219 million of inventory and $33.3 million of biological assets at the end of Q2. On a quantity basis, we ended the quarter with approximately 6 months of inventory on-hand, down from approximately 7 months at the end of Q2, resulting in a $13.7 million reduction in inventory in the quarter. Inventory and biological assets are 2 of the areas that show the greatest difference between IFRS and GAAP for our business. Under GAAP, we don't have the concept of biological assets and all fair value is removed from inventory. As such, the $240 million of inventory and biological asset that we reflect under IFRS would equate to $77.7 million of inventory under GAAP. Our oil inventory levels remain a differentiator, enabling us to quickly respond to challenges such as COVID and catalysts such as edibles. I'll now turn to expenses. Third quarter SG&A expenses, excluding depreciation and amortization, were $37.9 million or 28% of revenue compared to $33.1 million or 27% of revenue in the second quarter of 2020. The slight increase this quarter is primarily due to the opening of 9 stores in the quarter versus 5 stores in the prior quarter. We expect increases in operating expenses through 2021 as we continue to add dispensaries, enter new markets and ramp our infrastructure to support our growth initiatives and go forward compliance, but we do not anticipate a material change as a percentage of revenue. Overall, keeping a high degree of financial discipline around expenses is one of our keys to profitability. Operating income for the company was $43.4 million this quarter compared to $37.5 million last quarter. Net income was $4.7 million for the third quarter compared to $6.6 million in Q2, resulting in EPS of $0.04. Under IFRS, for net income and EPS, it's important to note that if the fair value impact of biological assets and the revaluation of our debt warrants were excluded, net income would increase to $33.3 million for the third quarter compared to $28.4 million in Q2, resulting in EPS of $0.30. Under GAAP, the fair value impact of biological assets accounting goes away, but the revaluation of our debt warrants will remain. As Kim mentioned, net income under GAAP would be $17.4 million, resulting in EPS of $0.15 on a fully diluted basis. Focusing now on EBITDA. We believe adjusted EBITDA, on 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, share-based compensation, 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. Adjusted EBITDA for the third quarter of 2020 was $67.5 million or 50% of revenue compared to $60.5 million or 50% of revenue in Q2 2020. The $7 million improvement in adjusted EBITDA this quarter is primarily due to the increase in revenue, partially offset by increases in operating expenses and production expenses and cost of goods from third-party suppliers. This is even more impressive when you consider the COVID response costs incurred in the quarter to keep our employees and patients safe and the investments we've made throughout our facilities and dispensaries. In this quarter, the GAAP equivalent adjusted EBITDA was approximately $65.8 million or 48% of revenue. The primary reason for this difference relates to the accounting treatment of leases under GAAP, which was factored in when we provided our increased guidance last quarter. Turning to taxes. As a percentage of gross profit, including the net change in fair value of biological assets, our tax rate was 25% for this quarter. We continue to maintain a strong balance sheet and cash position. Through the end of the third quarter, we have delivered $73.7 million in cash flows from operations for the year. This is the result of our continued quarter-over-quarter profitability. In the quarter itself, we had the unique onetime impact of the COVID tax extension whereby we paid $45.4 million in tax payments in July that were delayed from the prior quarter. This was coupled with our standard quarterly tax payment in Q3 to lead to $70.9 million of tax payments in the quarter. The double tax payment resulted in negative $4.2 million of cash flows from operations in the quarter where we would have been positive in both Q2 and Q3 had the timing of tax payments remain standard. As such, it is more appropriate in this case, to look at the last 2 quarters combined, where we have delivered $49.1 million in cash flows from operations. We fully anticipate positive cash flows from operations on a quarterly basis for the foreseeable future. We ended the quarter with a cash balance of $193.4 million. Our strong cash position allows us to quickly leverage the foundation we have built to capitalize on expansion opportunities, organic growth and go deeper in the states where we operate. In that regard, we plan to continue ramping our indoor buildings as we monitor the market and respond to the demand for flower. We will invest back into the business with CapEx expenditures through the remainder of the year and throughout 2021 to support our raised revenue guidance for this year and our planned 2021 revenue target, which we will detail for you next quarter. Total CapEx spend for the quarter averaged just over $11 million per month. This includes the build-out of our Florida production and cultivation facilities as we continue to ramp our infrastructure to respond to the market demand for flower and the construction of our new dispensaries. This amount also includes what we refer to as operational CapEx. Fit-out of dispensaries, equipment utilized for automation and processing efficiencies, security and systems inclusive of upgrades. Finally, we have our build-outs in markets outside of Florida. We expect a similar run rate through the remainder of the year. We also anticipate continuing to ramp our production and dispensary facilities in 2021 as we support our growth initiatives. As we look forward to 2021 and beyond, we will evaluate market demand and growth in our current markets to determine our expected CapEx. Last quarter, we raised guidance for revenues in the range of $465 million to $485 million and adjusted EBITDA of approximately $205 million to $225 million. While we are not adjusting guidance at this time, we do not expect declines in Q4. Please note that our guidance does not contemplate our recent acquisitions in Pennsylvania, where we will have the benefit of approximately 1.5 months of revenue in our consolidated year-end results. I will end by saying that I'm proud of what we've accomplished to date. We have optimized our accounting and finance departments, enabling us to fully capitalize on all opportunities as we continually assess our M&A and applications pipeline. We have upgraded our SAP platform, which will lead to increased compliance and analytics capabilities for years to come. And we are well on our way in our transition to a U.S. reporting company, as is evident by the GAAP metrics provided today. Finally, we have begun the formal build-out of our Sarbanes-Oxley program, which will continue throughout 2021. This will enable us to quickly take advantage of uplift opportunities when they arise. We are looking forward to an exciting end of the year and an even better 2021. I'll now hand this call back over to Kim for closing remarks. Kim?

Thanks, Alex. 2020 has been a marked year for change, not only with COVID but in a more encouraging manner around the social justice conversations we are having as a country. Giving back to communities we operate in and supporting diversity, equity and inclusion efforts are part of our core values. In addition to social issues, our team is actively supporting many great causes that are important for our patients and their communities. Making a positive impact doesn't stop there. We understand environmental issues are important, which is why we just issued a sustainability review of where we are and where we will be focused in the year to come. There is more growing a business than just the day-to-day operations and bottom line. We are growing a socially and environmentally responsible company that is ready for the future. And that future is exciting. As I shared last quarter and throughout our remarks today, Trulieve is on a strong trajectory, and we are operating with a clear set of priorities to maintain our leadership in Florida and expand our brand nationally. Our team is highly focused on executing strategic initiatives to support our hub model, and we are excited about not only ending a great year but also the road ahead as we enter 2021, bringing the Trulieve brand into new markets. Thank you for joining us today. And as I always say, onward.

Operator, we can now open it up for questions.

[Operator Instructions] Derek Dley with Canaccord Genuity.

Congrats on another really, really strong quarter. I just wanted to talk a little bit about sort of capital allocation priorities and plans. You guys are obviously in a very fortuitous balance sheet position, and we did see an increase in CapEx this quarter. Should we expect something similar over the next sort of few quarters as you guys execute on what seems to be quite a big number of growth opportunities?

Thanks, Derek. Our CapEx is really something that we focus on, and we strategically evaluate on a continuous basis. And that will continue. It is important for us to make sure that in our core markets, we're continuing to invest appropriately so that we can generate that return on every dollar spent, and that is something that we hold ourselves to a very high standard. Clearly, Florida has been a market where that investment has a significant return for us and generates cash that we're then able to continue to invest not only in Florida but in our other growth markets. So what I would say is that we're not prepared on this call to provide specific guidance on a forward basis related to CapEx, but we do, of course, have ambitious growth plans. Not only for the remainder of this year, as was reflected in our increased guidance. But also as we look into 2021, and as we're putting that plan together, which we're going to share with you all on the next call. And it will require, of course, investments in CapEx as we build out that platform. So more to come on that. But certainly, as you heard from Alex, you can expect the current run rate in Q4. And really that Q4, as we all know, those Q4 capital investments are really 2021 capital investments at this point because, particularly when we're talking about cultivation and production, investments, those require an investment up front, but it takes a minimum of a quarter for us to begin to realize revenue and output from those investments.

Okay. That's helpful. And just in terms of -- when we think about some of the additional states that you brought on or certainly that are going to play a bigger part in 2021, namely, I'm thinking, Pennsylvania and Massachusetts, which do have wholesale markets obviously different than Florida. Can you just talk about -- I'd be curious to hear your approach to wholesale and how you're thinking about attacking that portion of the market?

Yes. We are extremely excited to get and to activate our wholesale line of business. And we have been on the ground in Massachusetts now for quite some time. Really feel like we have a fantastic understanding and graph on that market. And clearly, in Massachusetts, with the restriction on number of retail, we do believe that wholesale will be an important line of business for us to be successful on. And again, it's a tool in the toolbox that we'll need to deploy depending on the regulatory regime of the market. We do understand, and I think everyone understands that having a vertical platform is certainly the most profitable and something that we have excelled on. So we will continue to have vertical channels wherever we're -- that's allowable. However, we also understand that in some markets, there is a limitation to what that channel can provide and to diversifying into wholesale channel where you then have access to an ever-increasing slice of the pie, if you will, with respect to other dispensaries that are coming onboard is very, very important too. So Massachusetts, that plan has been developed, and we're looking forward to launching in Pennsylvania. And specifically, we're very excited that we have 100% penetration currently through the wholesale channel, and we'll be looking to maintain that, while also, of course, producing enough that we have good depth of product across all product types. In stores that are also under the company umbrella.

Russell Stanley with Beacon Securities.

Congratulations as well. Just wondering, with respect to Florida and the dispensary build out there. Congrats on reaching your target well in advance. Can you, I guess, elaborate just how many openings we might see before year-end? And if you have any preliminary thoughts on the pace of expansion in 2021.

Thanks, Russ. We're not going to give a specific number for year-end. Like I mentioned, we are -- we do have a grand opening tomorrow in Lake City, which is a fantastic location. It's actually off of 2 primary interstate, I-75 and I-10. And is, I think, a great area for both medical, and then one day, potentially recreational market here in Florida. We continue to monitor, of course, all of our metrics that lead us to make the decision for store expansion, including, of course, customer demand, current sell-through rates and wait times on existing dispensaries. And then, of course, with an eye towards what's to come and that potential of recreational coming to fruition in Florida, which, again, with the recent activity with the elections across the country and sort of the tone and politically, we think certainly has a shot here in Florida in 2022.

Great. That's helpful. And maybe if I could, just around the impact of the testing delays, I think you still be consensus in some of our estimates. But can you quantify the revenue impact of those testing delays?

Yes. Russ, we actually -- we don't have a specific revenue impact. Obviously, that's a multidimensional question. And -- but what we can say is that we have certainly seen the pull-through into Q4, which I know that you all are all seeing as well as we look at the numbers on a weekly basis for -- with respect to our performance, really, the market as a whole here in Florida. So I know we saw that sort of rate slow down a bit last quarter, and we really do think that, that was due primarily to just, again, product availability. We certainly weren't meeting our targets with respect to depth in certain product categories that we know are drivers for patients. And yet, what was -- has been very encouraging is that we've seen that demand bounce almost immediately back once we were able to get those products cleared from that bottleneck and back on shelves, so we are seeing kind of the, I guess, the pull-through again in Q4. And I don't have an exact number for you, but we certainly do believe that we could have been higher in Q3, had that not occurred.

Matt McGinley with Needham.

On the acquired assets in Pennsylvania, it looks like you had pretty strong sequential growth, at least from the first half really into the third quarter. But how much of that growth in the third quarter was driven by increases in retail productivity versus cultivation. I'm not sure if I should assume a similar sequential increase into the fourth quarter or if that third quarter is kind of like a baseline to model off of?

Matt, yes, we're not prepared to give any additional depth of color. As you know, that's -- and as we've certainly stated, there are a lot of numbers at this point, we'll have additional color for you all. And as we, again, move into Q4 and year-end and get through our audit and so that we can speak with a bit more confidence and specificity around those numbers. But yes, we're not at this point prepared to give any sort of breakdown on that.

And does the pace of unit growth in Florida? I mean does that -- you've been growing at like 6 to 8 units per quarter, does that feel sustainable into 2021? Or do you feel like either internal or externally, you're sort of stressed with sustaining that sort of growth rate?

I certainly don't think that it's a strain from an ability to execute standpoint. Clearly, we look at those numbers in a very analytical way in terms of pacing to meet demand and making sure that we're within our kind of operating metrics if you will. I don't think that it's certainly not a stretch from an execution or a team or what our pipeline looks like. From a retail location standpoint, it just would be a question in terms of whether or not it makes sense given sort of the overall mix and how it fits into our metrics.

Pablo Zuanic with Cantor Fitzgerald.

Kim, just, can you give us an update in terms of those Supreme court cases in the state, one regarding wholesale? What are you hearing? How do we handicap that? And the second one, I think, is related to potential ballot for [ REC ]. But just if you can give more color and context around those 2 cases, please, and timing, if you have some sense of that?

Sure. I wish that I had a substantive update for you. I don't. We're waiting on the Supreme Court in both instances. So nothing new yet as a result of the oral arguments, the second round of oral argument on the, we'll call it, the wholesale case that the Supreme Court had oral arguments again on -- in October. And then also, nothing on the ballot initiative yet. So I really -- I don't have anything that you all don't know on either of those. But we'll certainly, I'm sure be talking once we hear some news from the court.

Okay. And just a quick follow-up. A lot of your competitors are talking about adding capacity in Florida. Obviously, it's a question more for them, but do you have a sense of what's really going on. When I look at the OMMU data, I find it interesting that the number 2, 3, 4, 5 positions tend to shift week-to-week or month-to-month and the other companies aren't necessarily -- they don't have the same position in, say, oil versus flower. So that seems a bit erratic. I don't know how to make sense of that. But any color you can share there?

Yes. I mean, obviously, I can't speak to competitors and what they may or may not be doing strategically, although I can say that if you don't have enough capacity, then you do have to make decisions, related to flower versus oil and how you're allocating that supply. Certainly, we've refined our product mix as well as our growth techniques and the way that we're allocating different material for different product lines. It's a very simple concept to say. It gets much more complex than practice. And as you know, we've diversified our grow with, again, the greenhouse inventory, which gives us a robust supply chain of less expensive input materials for biomass for oil products. And then, of course, we have our high-quality indoor grow, which is delineated between flower and then also higher end concentrates. And so I do think that our scale provides certainly a competitive advantage and our ability to continue to keep our product lines fresh and interesting and diverse, while others may be finding themselves into more decision -- having to make more specific decisions around P mix due to supply constraints.

If I can add one last one and maybe more for Alex. But in terms of the guidance you've given for Pennsylvania, so the deal value with add-ons was $141 million, right? And you said it's below 5x EBITDA. So it means full year run rate of EBITDA, about $30 million. If I assume a 25% margin, that means $120 million in sales next year in your Pennsylvania operation. For this third quarter, they are about $19million, right? That $76 million annualized. It would seem that number is quite doable and that you could actually beat that number based on the growth momentum in Pennsylvania. Any comments you may have there? Or Alex?

Yes. I mean, as you know, Pablo, we're not providing guidance. And I think specifically said that this year's guidance does not include the Pennsylvania acquisition. Certainly, as we get into another round of guidance, as we signaled potentially coming as early as the next call. I think -- and again, as we get through the Pennsylvania audit and really make sure that we've got clear hand on exactly what that may look like. And then I think we'll be in a better position to comment on that specifically. But with respect to what we released about the deal, of course, just to remind everyone, we do have a specific presentation on the acquisition available online at trulieve.com under our Investors tab that the folks are more than welcome to refer to.

Andrew Partheniou with Stifel.

I wanted to maybe discuss on the promotional environment currently in Q3 and Q4. Could you give a little bit of color on how you see that evolving? And as well, the product mix that you've had in Q3 and how that may or may not have affected average pricing?

Sure. So we have very specific criteria that we hold ourselves to with respect to promotions and our acceptable range, if you will, on a monthly basis with respect to promotional activity. We've been within that range every month and well within that range. And so we feel very comfortable and haven't seen any significant shifts that we've -- at least affecting Trulieve. With respect to the market as a whole, certainly. And I think as the last -- as Pablo, the last speaker, correctly identified, we certainly see swings among other competitors in terms of their changes in position. We believe, based on our analytics, that some of that does have to do with what promotions they're running or what they're focused on with respect to particular product pluses or segments. So you certainly may see a higher level of promotional activity. And it may not be overall a higher level of activity, just maybe a higher level of focus on a particular product segment. And again, that may have to do with their product mix, et cetera. So -- but overall, I would say, globally, as it relates to Trulieve, we're certainly well within our range and have been consistently within that range from a promotional perspective quarter-to-quarter and month-to-month.

Great. That's very helpful. And just on another topic of M&A. You obviously have the ability to deepen your footprint within Pennsylvania, adding more store licenses there. Would you say that, that could be a focus for you? Or how does that focus play with relative to entering even more new markets?

Yes. As I've said historically, we certainly are focused on profitability and increasing profitability, wherever possible in markets that we operate in. Obviously, that's dependent on opportunities that are -- that exist. And we are opportunistic with respect to M&A. And on the call, we tried to clearly identify our priorities with respect to the build-out of our Southeast and Northeast hubs, which we'll continue to focus on as we enter -- as we close out 2020 and enter 2021.

Okay. Congrats on a good quarter.

Jason Zandberg with PI Financial.