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

Good morning, everyone, and welcome to the Trulieve Cannabis Corporation First Quarter 2022 Financial Results Conference Call. My name is Andrew, and I will be your conference operator today. As a reminder, this conference call is being recorded. [Operator Instructions] I would now like to introduce your host for today's conference, Christine Hersey, Director of Investor Relations for Trulieve. You may begin.

Thank you. Good morning, and thank you for joining us. During today's call, Kim Rivers, Chief Executive Officer; and Alex D'Amico, Chief Financial Officer, will deliver prepared remarks on the financial performance and outlook for Trulieve. Following their prepared remarks, we will open the call to questions. Steve White, President, will also be available to answer questions. As a reminder, the statements made during this call that are not historical facts constitute forward-looking statements, and these statements are subject to risks, uncertainties and other factors that could cause our actual results to differ materially from our historical results or from our forecast, including the risks and uncertainties described in the company's filings with the Securities and Exchange Commission, including Item 1A, Risk Factors of the company's annual report on Form 10-K for the year ended December 31st, 2021. Although, the company may voluntarily do so from time to time, it undertakes no commitment to update or revise these forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. During the call, management will also discuss certain financial measures that are not calculated in accordance with the United States Generally Accepted Accounting Principles or GAAP. We generally refer to these as non-GAAP financial measures. These measures should not be considered in isolation or as a substitute for Trulieve's financial statements prepared in accordance with GAAP. A reconciliation of these non-GAAP measures to the most directly comparable GAAP measures is available in our earnings press release, that is in exhibit to our current report on Form 8-K that we furnished to the SEC today and can be found in the Investor Relations section of our website. Lastly, at times during our prepared remarks or responses to your questions, we may offer metrics to provide greater insight into the dynamics of our business or our quarterly results. Please be advised that we may or may not continue to provide these additional details in the future. This morning, we reported results for the first quarter of 2022. A copy of our earnings press release and an accompanying PowerPoint presentation may be found on the Investor Relations section of our website, www.trulieve.com. And the archived version of today's conference call will be available on our website later today. I will now turn the call over to our CEO, Kim Rivers. Please go ahead.

Thanks, Christine, and good morning, everyone, and thank you for joining us today. I apologize about my voice, but we're going to give it a shot here. We're thrilled to report record first quarter results, delivering top line growth, GAAP margin improvement and positive operating cash flow. Throughout the quarter, momentum grew with the strongest results in March in line with historical trends. Following this great start to the year, we continue to make progress, as we execute on our strategic plan. Our team is laser-focused on further optimizing assets across our platform and positioning our organization for the next phase of growth. Given our strong balance sheet, cash generation and flexibility to adjust capital expenditures, Trulieve is incredibly well positioned in the current environment to take advantage of market conditions. I am highly confident in our strategy and our ability to capitalize on the opportunities ahead. Turning now to our first quarter results. Trulieve achieved record first quarter revenue of $318 million, up 64% year-over-year and 4% sequentially. First quarter revenue growth was primarily attributable to organic growth in both retail and wholesale channels. First quarter GAAP gross margin was 56%, as compared to 43% last quarter and adjusted gross margin was 58%. Adjusted EBITDA margin was 33% or $105 million, representing our 17th consecutive profitable quarter. First quarter operating cash flow was $45 million, and we exited the quarter with $267 million in cash. Our retail platform grew to 162 locations with market-leading positions in Arizona, Florida and Pennsylvania. During the first quarter, production increased by 91% year-over-year and 24% sequentially to approximately 9.8 million units. Distribution across our retail and wholesale network is supported by over 4 million square feet of cultivation and processing capacity. The benefits of our scale and depth in markets were further illustrated last month by our strong performance on 4/20. Compared to the prior record results on Black Friday 2021, we achieved record revenue, transactions and units, up 19%, 11% and 18%, respectively. We marked the occasion with numerous events, including new product launches, limited time offer strains and doorbuster promotions. The cannabis community turned out to celebrate the holiday enjoying food trucks and DJs with lines wrapped around the buildings. The spike in demand on 4/20 underscores the tremendous untapped potential for this industry. As always, our team rose to the occasion, delivering great customer service. Our success on 420 reinforces how our strategy and positioning are designed to provide fantastic experiences every day, while having the flexibility to accommodate sharp increases in traffic and demand. Turning now to our cornerstone markets. Strong first quarter results were driven by sequential revenue growth in Florida and Pennsylvania. In Florida, improved first quarter performance was attributable to a combination of factors: lower promotional activity, several new branded product launches, greater availability of premium products and greater depth of inventory for differentiated products, all contributed to strong results. In Pennsylvania, revenue increased compared to the fourth quarter, despite the recall of select vape products on February 4th due to stronger sales in the wholesale channel. During the fourth quarter call, we outlined plans to optimize assets and streamline operations across our affiliates. Year-to-date, we have made progress in accordance with our plan. We have been working to refine production mix and expand our branded product suite in order to better meet customer demand. We launched new branded products, including concentrates, flower and vape in premium and value segments. Throughout 2022, we are adding new branded products pending regulatory approvals. Our efforts to optimize our affiliated operations across Pennsylvania remain on track. In Arizona, we are focused on optimizing and augmenting our supply chain capacity to increase sales of internal products throughout our retail footprint. We have added indoor cultivation capacity, additional extraction technologies, added or changed lighting in some of the acquired facilities and started to add additional automation. So in addition to increased capacity in coming quarters, we anticipate seeing better efficiency in the near term. As we move through 2022, we will continue to optimize our supply chain. First quarter results demonstrate further progress, as we execute on our plan, building scale and depth in attractive markets. Our leadership and unrivaled success with this strategy to invest heavily in high conviction markets is undeniable. Trulieve has always tuned out the noise to focus on opportunities that meet our stringent criteria for investment. Given the current macro environment, we are actively managing our cash and expenditures. With $267 million in cash at quarter end and cash generation from operating assets, we are well positioned to weather short-term volatility in capital markets, and we can throttle capital expenditures based on market conditions and timing for expected catalysts. We have the flexibility and access to capital to be opportunistic with strategic acquisitions and investments within the tighter -- this tighter market environment. During our fourth quarter earnings call in March, we outlined 4 strategic priorities for Trulieve in 2022 to reinforce our leadership position and set the stage for the future. These 4 initiatives focus on number one, delivering exceptional customer and retail experiences; 2, expanding through our regional hub strategy; 3, distributing branded products through branded retail and wholesale channels; and 4, adhering to our disciplined approach to capital allocation. First, we are delivering exceptional customer and retail experiences with convenient transactions, frictionless returns, broad and innovative product assortment and enhanced loyalty and rewards programs. First quarter activities included rewards for return customers, appreciation offers for top customers and hyper-personalized marketing outreach for specific brand activations. Personalized marketing is an effective tool to drive traffic for specific products and events, ensuring high sell-through and preserving margins, while matching customers with their preferred products. We realized the benefits of this approach, garnering high sell-through rates for Muse, Live Diamonds and Muse Live Sugar product releases in the first quarter. Second, we are continuing to expand through our regional hub strategy. We are investing in our distribution network to deepen our presence in core [ 10 ] markets, while developing emerging markets. In the first quarter, we opened 3 new medical dispensaries in Pennsylvania and Florida. Trulieve exited the first quarter with 162 retail locations in 8 states, including 30% located outside of the state of Florida. This year, we're adding a total of 25 to 30 new dispensaries. Now turning to supply chain. In the first quarter, we added indoor cultivation capacity for premium flower in Arizona, continued our expansion efforts in Florida and Pennsylvania, added capacity in West Virginia and ramped capacity in Maryland ahead of adult use. We are leveraging our existing scale and depth across markets, providing a strong foundation for future growth. In the coming years, we fully expect to play a meaningful role in the development of new market opportunities in the Southeast like Georgia. In accordance with our regional hub strategy, we will continue to be opportunistic [ when ] expanding into new hubs and markets. Third, we are distributing branded products through branded retail and wholesale channels. Our product portfolio includes a wide variety of form factors across segments offered at appropriate price points. We are continually innovating in response to evolving preferences. In the first quarter, we launched several new products based on market feedback. Examples include RSO tinctures, value sized single-serve edibles, and high-end Primo buds, which have 1 or 2 buds [ per 8th ]. We are very encouraged by the high velocity of sell-through for these products. Differentiated products are an important part of our strategy to meet customer demand, while building and reinforcing long-term brand value. We now have a defined brand portfolio with specific brands that speak to customers and have successfully launched those brands across multiple markets. During the first quarter, we successfully launched Cultivar Collection, Muse, Modern Flower, Momenta and Roll One branded products across markets, including Florida, Maryland, Massachusetts, Pennsylvania and West Virginia. By offering the right branded products that customers want, we are demonstrating true brand-building capabilities. As we continue to launch branded products across our markets and hubs, we can provide customers with a more consistent retail experience and greater access to our evolving product portfolio. In support of our brand building efforts, in March, we welcomed the new brand ambassador to the [ True ] family, cancer survivor and winner of the survivor television show, Ethan Zohn, who recently finished the Boston Marathon using Momenta products, as part of his health and wellness program. Through sharing his personal experience, Ethan is an authentic and powerful advocate for cannabis and wellness, and we are thrilled to have him representing Momenta. Natural and mainstream media outlets, including ABC News, E! Online and Health Digest covered Ethan's participation in the marathon and his amazing journey, providing broader reach and exposure for Trulieve and the Momenta brand. Regional and local brand partnerships complement distribution of our own brands. In April, we launched Khalifa Kush, pre-rolls in Arizona and DeLisioso pre-rolls in Florida. While most folks know Wiz Khalifa, some may not be as familiar with Richard DeLisi. He is one of the longest-serving non-violent cannabis prisoners in U.S. history, having served 32 years of a 90-year sentence. DeLisioso is a Florida-based cannabis brand founded by Richard DeLisi and his son, Rick. The DeLisioso brand pays it forward by donating portion of its profits to nonprofits, including FreeDeLisi and the Last Prisoner Project, which was instrumental in securing DeLisi's release in December 2020. Early responses to both branded products have been fantastic. Working with these amazing partners, who bring such passion and energy to the industry is inspiring and further connects us to the community. Our branded retail platform is a key component of our overall customer experience and an important contributing factor to building long-term brand equity. During the first quarter, we completed the rebranding of all retail locations in Maryland and Pennsylvania to the Trulieve brand. Overall, initial performance for rebranded stores has been strong with higher revenue and units sold realized at most locations. Fourth, we remain committed to our disciplined approach to capital allocation. We have a clear and defined strategy and well-established criteria for evaluating assets and markets. During this quarter, we divested redundant cultivation assets in Florida and a non-revenue-generating location in Massachusetts, both of which were acquired as part of the Harvest transaction. We continually evaluate the performance of assets across our platform and may choose to divest additional assets in the future as appropriate. As we reposition assets and streamline operations, we will continue to invest in our markets to add capacity, expand distribution and fortify infrastructure to prepare for and support future growth. Our track record of profitability and disciplined capital allocation affords us access to growth capital at industry-leading terms. In January, we closed the second tranche of 8% senior secured notes totaling $75 million. Trulieve has sufficient capital to fund our growth plans and strategic initiatives in 2022. We expect our strong balance sheet, access to capital and financial discipline will uniquely position us to capitalize on market opportunities created by the macroeconomic factors impacting our industry. We are building a leading company in an emerging industry. As always, we are taking a proactive approach to strategic development and decision making. We have a long track record of financial outperformance and positioning ahead of changes in market conditions. As we previously signaled, we expect to realize improved performance, as our initiatives take hold. Year-to-date, we made great progress on our plan, and we're on track to reach our articulated goals this year. Trulieve is poised and ready to define the future of cannabis. With that, I'll turn the call over to Alex for more detail on our first quarter.

Thank you, Kim, and good morning, everyone. We've made tremendous progress since closing the Harvest transaction, and we're carrying this momentum forward. Record first quarter revenue of $318.3 million, increased 64% year-over-year compared to $193.8 million during the first quarter of 2021. First quarter revenue increased 4% sequentially compared to $305.3 million during the fourth quarter. Trulieve ended the first quarter with 162 dispensary locations. As of May 12th, Trulieve owns or operates 165 dispensaries supported by over 4 million square feet of cultivation and processing capacity. In the first quarter, reported gross profit was $178.2 million or gross margin of 56% compared to $132.4 million or 43% during the fourth quarter 2021. GAAP gross margin improved sequentially, as the impact of fair value of inventory step-up charges were significantly reduced. Excluding the impact of transaction-related and non-recurring charges, first quarter adjusted gross profit was $185.4 million or adjusted gross margin of 58%. We expect gross margin will continue to fluctuate quarter-to-quarter depending on product and market mix and inventory flow through. Turning now to SG&A expenses. SG&A expenses in the first quarter were $106.4 million or 33% of revenue compared to $117 million or 38% during the fourth quarter of 2021. First quarter expenses included approximately $11.3 million of transaction and integration-related charges, primarily associated with the Harvest acquisition. Excluding these charges, first quarter SG&A was $95.1 million or 30% of revenue. As we continue to invest for future growth, we expect quarterly fluctuations in SG&A expenses, as investments are made ahead of increases in revenue. Depreciation and amortization expense in the first quarter increased to $29.3 million compared to $28.3 million during the fourth quarter 2021. Depreciation and amortization expense includes $20.4 million of depreciation of fixed assets and amortization of intangibles associated with the Harvest transaction. This depreciation and amortization expense will be recurring in nature over the useful life of the underlying assets. Net loss was $32 million for the first quarter compared to net loss of $71.5 million for the fourth quarter 2021. First quarter net loss included $13.8 million in asset impairments associated with the closure of redundant cultivation assets and a loss of $2.7 million due to the divestiture of a duplicative non-revenue-generating location. Excluding non-recurring charges, first quarter net income would have been $1.7 million. First quarter 2022 loss per share was $0.17 compared to a loss per share of $0.49 in the fourth quarter 2021. Excluding non-recurring charges, first quarter earnings per share would have been $0.01. We expect transaction and integration-related charges will continue to impact reported EPS throughout 2022, with expected improvement, as the year progresses. Turning now to adjusted EBITDA. For the first quarter 2022, adjusted EBITDA was $105.5 million or 33% compared to $100.9 million or 33% during the fourth quarter 2021. We expect adjusted EBITDA to improve, as we optimize assets and execute on our strategic plan. Moving on to our balance sheet and cash flow. During the first quarter, we closed a second tranche of 8% senior secured notes totaling $75 million. We ended the first quarter with $267 million in cash and $553 million in debt. First quarter operating cash flow was $45.1 million. Looking ahead, we expect second quarter cash flow will be impacted by the timing of 2 tax payments during the quarter. We are actively managing the cash conversion cycle and expect to realize further improvements in operating cash flow. Our strong cash generation and financial profile provide a solid foundation to support our strategic initiatives. Capital expenditures in the first quarter 2022 totaled $48.1 million. The majority of expenditures were comprised of investments in supply chain and retail assets. As Kim highlighted, we have tremendous flexibility to adjust the timing of our investments to take advantage of opportunities that arise based on market conditions. Turning now to our outlook and guidance for 2022. Based on our current expectations and performance year-to-date, we are reiterating 2022 guidance of $1.3 billion to $1.4 billion in revenue and $450 million to $500 million in adjusted EBITDA. As we have previously signaled, we anticipate non-linear growth throughout this year. Following strong performance in March, we anticipate second quarter 2022 revenue will be relatively flat compared to the first quarter 2022. Given the timing of investments and ramping of supply chain capacity, we expect to report stronger performance in the back half of 2022 and exiting the year. In summary, I am very pleased with the progress we've made thus far. I am so proud of our team and how far we've come in a short period of time. I'm excited to keep building on our track record of focused execution and operational excellence. We have significant runway ahead to further optimize our assets, as we prepare our organization for future growth. And with that, I'll turn the call back over to Kim.

Thanks, Alex. As I've said before, we are still in early innings for U.S. cannabis. Every day, cannabis becomes more widely accepted. I'm increasingly encouraged by the progress being made. As an industry, we're well beyond the tipping point. Look no further than the widespread success of the 4/20 holiday this year, demand for regulated cannabis products continues to grow stronger. We are entering a new paradigm of mainstream acceptance. This groundswell and popularity highlights the growing need for common sense reform. At the federal level, we are seeing firsthand increased discourse and desire to advance cannabis legislation with interest and support from both sides of the aisle. At the state level, significant advancements continue, as constituents increasingly support expanded access to cannabis. Within our own markets, an initiative for adult use in Maryland is on the November ballot, and we are seeing momentum build to allow adult use in Pennsylvania. We expect adult use sales in Connecticut will commence later this year. In Georgia, we anticipate a potential resolution and Greenlight to move forward with operations, as early as midyear. We are proud to be at the forefront of this ever-changing and rapidly evolving industry, contributing to the development and expansion of access to cannabis. We have made great progress, but much work remains to be done. We will continue to advocate for change at all levels. The opportunity set and growth expectations for this industry are phenomenal. The legal U.S. cannabis industry is forecast to almost double again in the next 5 years, reaching over $46 billion in annual sales by 2026. Trulieve is uniquely positioned and ready to meet the promise of this tremendous opportunity. We lead with strategy, follow with s execution and go deep in markets like our profitability depends on it. We will continue to do what we say we are going to do, tuning out the noise and staying true to form. Thank you for joining us today. And as I always say, [ onward ].

At this time, Kim Rivers, Alex D'Amico, and Steve White will be available to answer any questions. Operator, please open up the call for questions.

[Operator Instructions] The first question comes from Derek Dley with Canaccord Genuity.

Congrats on another set of really strong results. I wanted to start off by just asking if we can get an update on how the integration of Harvest is progressing?

Yes, Derek. The harvest integration is progressing really well. I mean when you take a step back and you think about the fact that we are literally 1 and 2 days removed from deal announcement. It's pretty unbelievable when we walk through our progress. We closed the deal in 5 months. We rebranded stores in Florida, Pennsylvania and Maryland, so 29 stores total. We combine a product portfolio and launch new branded products across Florida, Pennsylvania, Maryland, West Virginia, Massachusetts, integrated operations, launched a hub leadership structure in all 3 hubs. We've gotten rid of less efficient and non-contributing assets. We've streamlined operations, which is evidence, of course, in our decrease in SG&A, and our increased margin, as a new company. We've added supply chain across all markets to execute on our strategic priorities. And we set and smashed combined company records on 4/20. So yes, I would say it's going pretty well.

Okay. Yes, I would agree with that. So you mentioned margins, and I noticed this quarter that the gross margin took a big step up on a sequential basis. Can you just comment on some of the initiatives you've put in place or processes or perhaps, again, like you just mentioned integration of Harvest that's helped driving that, that margin movement materially higher?

Yes. I'll take that. Like as Kim mentioned, focus on execution was a big driver there. One of the big wins this quarter was the shakeout of the deal-related impact to margin. And you see our GAAP gross margin getting closer to our adjusted gross margin, and this was primarily driven by that fair value step-up of inventory impact. It was $38 million last quarter and less than [ 400 grand ] this quarter. So kudos to the team are executing and selling through that inventory. And then as we go forward on margin, we look forward to expect an improvement in the area, further improvement, as we execute on our strategy, Kim mentioned building out our supply chain and infrastructure and pumping that internal product to our internal retail channels.

And sorry that, that inventory step-up that happened in Q4, we shouldn't expect that there shouldn't be another one of those in like later this year, it's kind of sorted for now?

Yes. The Harvest-related inventory is sold through.

The next question comes from Matt McGinley with Needham.

On the G&A, your sales and marketing dollars were fairly flat compared to the fourth quarter, but your G&A dollars dropped by about $11 million quarter-over-quarter. The question is like, will there be additional cost reductions related to Harvest in the second quarter? Or will that total G&A, which I think, Alex, you said is close to $95 million. Will that be about the same into the second quarter given you'll have roughly flat revenue, as you've alluded to.

Yes. I mean as we always indicate, we expect SG&A to grow in whole dollars, as we build out our regional hub structure over time. But as a percentage of revenue, again, this is another area, where, like margin, we see the lessening of the transaction and integration costs, right? We -- on an adjusted basis, we were at 30% versus 32% last quarter, right? And that's closer to the -- our traditional wheelhouse, as a percentage of revenue. We are always kind of shining the apple and optimizing the organization, and we do expect incremental improvement, as we go along. But we feel good about where we -- where we were able to come as an organization in just that short period of time.

And Alex, I really appreciate the cash flow reconciliation table that you provide that helps identify some of the ongoing cash flow headwinds related to the acquisition integration. So my question is, when will we not see that table going forward? Or when will the Harvest assets be fully integrated, where we won't continue to see those cash flow headwinds? And I guess, relative to what we saw in the first quarter, what would you expect those cash flow headwinds to be in the second quarter?

Yes. Always just continued improvement and lessening from the deal-related impact, we see that in margin, we see that in the SG&A side. Obviously, it flows through cash flow to ops. We had add backs of $73 million last time and $30 million -- almost $34 million this time, so significant improvement there. We'll see those costs kind of throughout the year, but we look forward to continued lessening of those. And as you mentioned that, like our cash flow from operations, while $45.1 million in the quarter on an adjusted basis, if you remove those deal-related impacts is almost $79 million. So -- and we look forward to continuing to getting that back in line like margin and SG&A.

And for context, last year, in the first -- through the first 3 quarters, we were at $75 million in cash flow from operations. So if you again take kind of the adjusted view, which we're working very diligently to get to, we would have beat 3 quarters' worth of operating cash flow in a single quarter this year -- this quarter.

The next question comes from Camilo Lyon with BTIG.

So going back to the gross margin topic. If you could provide maybe some color on what played out in the quarter from an operating perspective on the gross margin? Any puts and takes that are worth calling out maybe on pricing pressures in Florida and how those appear to have stabilized. It looks like pricing may have been up actually quarter-on-quarter, but I just want to confirm that. And how that then should play out for the balance of the year? Should we continue to see a stable level of gross margin performance, as you saw in Q1? Or should we expect things to build off of this Q1 level?

Yes. So again, like, again, one of the big wins in the quarter was that -- was that GAAP gross margin getting closer and adjusted gross margin. So on an adjusted basis, the delta is less than 1% quarter-over-quarter. And for us, this is your standard flux quarter-to-quarter that we've mentioned in the past is normal for our business. Inventory flow through product and market mix. We saw expected improvement, as expected in discounts and -- coming off the high Q4 promo period. And then we have pickups in [ WipCap ] leading into 4/20, and that was partially offset by increase in wholesale and third-party product sales, particularly in Pennsylvania.

Yes. And just to give you some color on across markets, obviously, like, we don't segment by state, but we had significant improvement in our home state of Florida, Pennsylvania, there was still a little bit of noise in the quarter around the vape -- the vape kind of recall situation there. So we did have -- and the team did a great job in pivoting and they pivoted more to wholesale there, which, of course, brought down margin a bit, but we're able to achieve top line growth in that market. So it was the right call. But we certainly see opportunity there, as well as in other markets to increase sub-branded products through branded retail throughout the year. Again, and as we've signaled, we see that coming through more in back half than front half. But -- so we see some incremental pickup ahead. But again, feel really good in terms of what the team was able to pull off in terms of Q1.

And then maybe if I could ask a question on Arizona and how you think about scaling that wholesale component, what are -- how should we think about the progression of that initiative?

Yes. I mean I think that we've been pretty clear that the primary goal is bring the product through branded retail. So our first priority in Arizona, just like in many of our other markets is going to be to increase that production of products of internal products and to sell those through our retail locations. We have opportunity in Arizona need to increase that. So while wholesale is on the board, it's -- it really doesn't come into play until again, I would say, late in the year, maybe even '23 in Arizona. So we think that the primary opportunity in Arizona is to get supply chain online, get it producing our suite of branded products, and then push those through our branded retail. Early indicators of those efforts are good. We just need to get some more -- some more volume through.

The next question comes from Owen Bennett of Jefferies.

And my first question is just on the recreational brand portfolio that you announced in August. If I heard correctly, these are now in Florida, Maryland, Massachusetts, PA in West Virginia. I'm just curious to hear any early trends you're seeing with these brands? Any sort of trial, what sort of repeat purchases? And any of these states, where perhaps they're performing better than others?

Yes. So great, great feedback from our -- from our brand launches thus far. And I would tell you that we're seeing higher sell-throughs on launches, vis-a-vis, I'll call it, legacy products. In most cases, more than, I'll call it, 60% sell-through within the first week of launch in some cases, 90%. In other words, a 24-hour sell-through. We're seeing significant adoption and sell-through in our premium brands, particularly on the Cultivar Collection side of things as well, which is our premium flower brand, as well as our Muse hydrocarbon brand. So both of those 2 -- both of those brands are doing exceptionally well, which, of course, is great news for us, as we try and continue to grow that premium customer base, which, of course, has significant -- significant protection around margin.

And just one follow-up. I was hoping maybe you could give us some details on how you're thinking about possible New Jersey and New York, [ kind of see from there ], obviously, New Jersey up and running now, New York looking like it could be this year or be it for hemp operators? Are you looking to get M&A, obtaining licenses organically? Or could you even maybe do something with one of the hemp operators in New York prior to obtain the license.

Yes. I mean, I think, look, the excitement around the New Jersey launch and the responses that we've seen thus far is very encouraging. That's absolutely in line with what we would expect to see in a pivot to recreational. It certainly is reminiscent of the same type of activity and enthusiasm we saw in Arizona when that market last year went recreational. So it's encouraging. We also love it because it puts additional pressure on neighboring markets, such as Pennsylvania and others, which we look to see, and there has been progress there in terms of opportunity for recreational. And also, of course, we've got a recreational initiative coming in Maryland. So we'd love to see the energy. We love to see the excitement in the Northeast around -- around recreational sales. I think when we think about -- and it's going to be interesting to continue to watch New Jersey, as it relates to the capacity and supply chain and how that market continues to be served, product selection, et cetera, from a regulatory perspective. We look at our setup in -- in -- again, in Pennsylvania and the maturity of supply chain and ability to serve through significant retail channels. And again, we're -- we take it as a really great sign of our positioning, as additional catalysts come online in the Northeast.

The next question comes from Spencer Hanus with Wolfe Research.

One of your competitors talked about a profitability ramp in the Florida market. I guess, have you seen any easing of this competitive environment or discounting down there? And then, how are you thinking about your [ disability ] to take share, as many operators prioritize building out new stores in Florida?

Sure. So our profitability in Florida continues to quarter-over-quarter increased as we signaled in our prepared remarks. We -- it was bolstered this quarter by our ability to continue to innovate and get premium products into the market. As we all know, the data that's shared by the OMMU represents volume, but of course, not revenue. And I think our numbers speak for themselves in terms of our ability to get high-quality revenue, continue to get high-quality revenue out of the state of Florida. We continue to invest in Florida. It continues to be a market that's growing. Last quarter, we had over 3,700 patients per week joining the program in Florida. So that's not slowing down. And we continue to be very bullish on Florida. And again, with over 40% of all market share in oil and close to 50% in flower on a store -- on a per store basis. We continue to lead in terms of products sold. And again, we actually are less promotional quarter-over-quarter, which I don't think can be said for -- for our peers.

And then could you talk a little bit about how your comp momentum trended in 1Q? And how are you thinking about the sales lift from the relocations that you're planning to do for the stores that opened in '17 and '18?

I'm sorry, can you repeat the first part of that question, Spencer.

Yes. Could you talk about how your same-store sales momentum trended in the first quarter? Do you see any acceleration there? And then, how are you thinking about the relocations and the sales lift from those -- from those changes that you're making to your portfolio?

Yes. Absolutely. Thanks. So we give same-store sales data out on a year -- on an annual basis, particularly given -- which I think is relevant here given, again, the combined portfolio at this point. However, I can say that our sales on a per store basis in Florida continue to be strong. As I mentioned, we continue to invest in retail, in Florida. It makes a ton of sense on a performance basis. The relocation of stores as expected is positive, and we are getting improvement out of those relocated stores. And we'll continue, as we noted on our year-end call that we have up to 6 repositionings of stores that we are planning to move forward with, again, due to positive and strong results in initial store relocations.

The next question comes from Andrew Partheniou with Stifel GMP.

Congrats on the great quarter. Current market conditions -- current market conditions arguably [indiscernible] premium on cash flow and a strong balance sheet. You mentioned being opportunistic to take advantage of this environment. Could you discuss your outlook on M&A and what kind of opportunities that you are seeing right now? Any color on timing, geography, areas of supply chain and valuations would be useful?

Sure. So we've said it before and it bears repeating that when we evaluate M&A opportunities, we are building a sustainable and profitable business, we're not looking for a trade. So our criteria hasn't changed. We're still looking at the strategic fit or alignment with our overall plan. We're evaluating the assets, the team, the price and the timing. What we have seen most recently with changes in market conditions, affects pricing, but it does not affect our criteria. So we're still going to continue to be opportunistic. And we are hopeful that given the current market conditions that we will find additional opportunities to expand the business into additional markets and go deeper in some of our existing markets.

And maybe the next question on the consumer. Could you provide any color on what you're seeing in terms of the health of the consumer? Are they -- are you seeing any trading down from premium to value? You mentioned that your initial premium launches have been successful. How is value doing? Is the consumer more focused on volumes versus quality of their purchases? Any color on basket sizes, transactions or foot traffic would be useful?

Sure. So not all markets are the same, as it relates to the customers and really even within markets, -- there's not -- in some cases, there's divergence between certain areas or geographies and certain demographics vis-a-vis others. So it's a difficult question to extrapolate because we are seeing differences across each of our markets. As an aside, what we talk about here is that each one of our markets is in different phases of growth, and that's what makes this business so interesting to some extent. We've got start-up markets. We've got more mature markets. We've got markets that we're positioning ahead of catalysts, and they all behave a little bit differently. On top of that, we have consumers within those markets that similarly have different pressures, depending on their specific makeup. So that being said, we continue in most of our markets to experience growth again along the barbell pattern with growth on premium segments and growth on value. In some areas of states, we're seeing a continued increase in value product buying. But in others, to be quite frank, we're seeing the opposite in terms of additional growth on the premium side. So it becomes important and remains important for us to be very specific in terms of how we are both innovating products, pricing products and distributing those products to ensure that we've got the right mix, the right segmentation on our shelves to speak very specifically to the customers that go into that particular location. It's certainly interesting to talk high level, but the reality is this business is won or lost on a transaction by transaction and customer by customer basis. And it's our job to make sure that we understand who that customer is and what store they're going into and what that customer wants to see on the shelves when they go to make a purchase.

The next question comes from Russell Stanley with Beacon Securities.

Congrats on the quarter. You mentioned Georgia briefly during the prepared remarks. Just wondering, well, how you envision, I guess, the regulatory delays or legal battles, I guess, playing out? And can you elaborate on your game plan for this market given it's a -- it's a big state, obviously, with a ton of potential.

Sure. We -- and we signaled, we love our position in Georgia. This is nothing new, as it relates to cannabis. It's kind of part of the playbook at this point that if you don't want a license, you launch a lawsuit and hope that you can kind of "win a license that way". We are encouraged by the fact that now that process has been moved to the ALJ arena, which is streamlined and specific in terms of deadlines. And so we think that, that will move much more quickly at this point. We are also encouraged by information that we're getting from that market that we do believe that, again, that will be resolved here over the next several months, and that we'll get the final green light to move forward. That being said, we see the setup very similar -- very similarly, actually in some ways better than the setup was in Florida in early days. So we think that there's tremendous growth ahead, that it will require some move -- incremental moves by the legislature. But again, nothing that we haven't seen before. And certainly, based on conversations and behavior that we saw just past legislative session, we think that there's a strong path and that there's an appetite among lawmakers there for continual improvement of the program.

And maybe if I could, one more just on CapEx. I think you've noted -- you've got a lot of flexibility there to throttle up or down in different markets. Just wondering if your total spend outlook has changed for the year, and I apologize if I missed it there. But also wondering if your allocation by market has changed at all and which markets you might be stepping on the gas and which markets you might be using up on, if any?

Yes. I think our philosophy remains the same. As we said at year-end about the majority of our CapEx is in our core markets, building out our supply chain and infrastructure. As Kim noted, we have tremendous flexibility to dial that back, and we'll, if market conditions call for it. Keep in mind that a good portion of our CapEx spend from last year was set to come online Q2 this year and later. And also, a good portion of our CapEx plans for this year are for next year and beyond. So as we assess the market, we have that capability to dial back, if necessary. And then also, keep in mind, we will continue to invest ahead of catalysts. The timing of that is extremely important and the build out of new markets.

The next question comes from Vivien Azer with Cowen & Company.

This is actually Victor Ma on for Vivien Azer. So first off, can you offer color on the promo spend in Florida over the quarter? I know you mentioned lower promo activity quarter-over-quarter, but can you maybe quantify what the decrease was. Also, was promo spend in 1Q used more to drive basket size and basket account or to drive attention to higher margin categories?

Yes. So as I -- as I've said, and I think as -- as we said repeatedly, we're not going to -- we're not going to segment by market or give specific details around markets. However, what I can tell you is that it's in line with what we see quarter-to-quarter Q4, which we always signal is the highest promotional quarter within a year cycle for us. Q1 with our, again, very specific focused on understanding our customer, speaking to that customer and being strategic in terms of discounts, we're able to, again, drive activity, whether -- and it's different activity is driven by different -- by different, again, strategic marketing execution. So certain promotions are designated or designed to drive an average -- an average ticket, other -- others is -- are designed to drive absorption of a particular product in a particular segment. So it really -- it's not a one-size-fits-all. But what I'm very excited about is that we have the capabilities to be specific and to be strategic with how we're targeting and how we're speaking to customers, again, in certain categories. So we've deployed a CDT platform this quarter in Florida. We're going to roll that out nationally over the coming quarters. And our ability to take this massive amount of data that we accumulate every single day and refine that into actionable -- actionable wins at the store level is really this next leg of the journey for us, and we're really excited about it.

And then, also just to kind of follow-up with the second question. I know your 10-Q disclosed that you generated about [ 9% ] of total sales from wholesale and licensing. Can you offer a directional commentary on kind of where this is headed through the year and maybe where it will shake out for the full year?

You're asking about wholesale outlook. Yes. We -- so we -- as we -- again, we're building out -- that our infrastructure and supply chain. So we look at further developing that wholesale channel and especially, particularly in our acquired markets a core to our strategy. So we look for that to ramp throughout the year as well.

Yes. To be specific though, as I signaled, I mean, Pennsylvania in particular, right? And there was a shift this quarter into additional wholesale activity in Pennsylvania, vis-a-vis retail due to the -- due to the, again, the vape recall there. So Pennsylvania would likely maybe you could see a little bit of a higher wholesale number in Pennsylvania this quarter vis-a-vis activity in the future.

The next question comes from Kenric Tyghe with ATB Capital Markets.

Kim, I heard you all your comments on the loyalty and related initiatives and on promotional, but could you perhaps call out or highlight just how much smarter are your -- is your promotional sort of capability today? And how much more efficient is that promotional capability today both sort of in absolute and relative terms. I'm just trying to establish how much of a differentiated your loyalty capabilities are versus peers in the market?

Yes. I mean, I would say, Kenric, just using ourselves, and we always say here at Trulieve that we're our first competitor is ourselves. And when we look back at where we were a year ago to where we are today, our ability again to utilize data to run very targeted and specific offers for specific types of customers is night and day. So our ability to understand customers' preferences to be able to say, okay, Kenric is a historical concentrate user. He enjoys these types of strains. His basket is comprised of shatter and crumble, but every now and then, he also -- he also buys flower that has these categories, and then for us to develop targeted promotional activity towards you, as a customer we have those capabilities now. And quite frankly, we did not necessarily have those capabilities before. We might know that information, but our ability to extract it in a way that is usable and then to develop a campaign and reach back out to you to drive certain activities. So for example, with our Live Diamond launch, we actually extended a specific offer to specific customers and invited them to make a reservation for our first drop, which resulted in a 100% sell-through within 24 hours of that product launch. And it also solidified those customers' understanding that we know, who they are, we appreciate their preferences, and we're going to single them out and, again, include them in top-tier launches such as that one.

So you really are dialed in. I may have some explaining to do if you keep that up, but just a real quick follow-up question, if I could. On some of the new product introductions and then sort of a more premium focus to it, how much of your success and perhaps this is more Pennsylvania direct that is more to market sooner versus more and better to market sooner than your competitors? And how do you believe you can sort of maintain your relative cadence of product introductions versus peers, if it's simply a case of getting more to market sooner?

Yes. I mean, I think -- look, I mean we're not -- we're certainly -- we don't follow a strategy of anything and everything makes sense. So I think that it depends on your definition, I guess, of better for us. It's, again, developing products along a very segmented and targeted strategy. We like to have good, better, best where we can. And again, where we see market demand for that good, better, best pricing. As an example, this is kind of hot off the press. We had 2 approvals yesterday come in late in the day from the Department of Health in Pennsylvania in the inhalation category and the vape category, which will round out now, it will kind of reround out, if you will, our product offerings in the vape category to a good, better, best strategy with brands and segmentation in those 3 -- in those 3 levels across those 3 products. And so we are strategic in terms of our product offerings. But look, I mean, we currently run and manufacture over 900 SKUs with our scale and our R&D development team that's been based in Florida and has been, again, continuing to innovate all of these years. We've got incredible capabilities. Not only do we have capabilities, but we understand what it takes in the efficiencies or inefficiencies that come with launching specific products. And so we're able to be highly strategic in terms of what products we're launching in which markets and understanding early on what the launch and being able to predict what that launch of that product should do from a margin perspective. So I think we've got an incredible jump on our competitors. And the fact that we bring products to market and have been bringing products to market effectively for many, many years, and that's a core competency of our organization.

The next question comes from Scott Fortune with ROTH Capital.

Real quick. Thanks for the color on the promotional activity, but can you provide a little more color into second quarter here with regard to seasonality and consumer demand usually picks up in the second quarter here and how that's playing out. And what you're seeing from the pricing side a little more stabilization in the other states like -- like Pennsylvania and what you're seeing on the West. A little more color there, that would be helpful?

Sure. As we said in our prepared remarks, we saw increased activity in March, which is normal, by the way. I mean, we typically see pull through in March. January and February are always a little bit softer in the market and then pull through in March. We had a bit more pull through this March than we have had in the past on an absolute percentage basis. We're continuing to see stable, I would say, and in-line -- in-line trends through the beginning part of the quarter. We gave specificity around 4/20 was a fantastic day. And look, I mean, for us to set and break records across the entire platform, vis-a-vis, Black Friday, which is those 2 days always rival one another for the highest sales. So it was really, I think, speaks to the strength of our combined platform. But I would say that things so far this quarter are in line with trends that we've seen year-over-year. And again, I think that's a -- I think it's -- we feel -- again, we feel very, very good about where we are. We feel good about our ability to be strategic with promotions and with the quality of our products, and our ability to continue to innovate and our ability to continue to push more kind of rational segmentation through brands.

And real quick, I know it's a long call, but on -- as far as the wholesale expectation, the retail wholesale mix, as you look at the states outside of Florida, what do you think kind of as the optimized percentage? Is there a range of your own house brands and third-party brands in your retail stores kind of -- is there a target there? Or kind of how are you looking at optimizing your -- as you've mentioned, brands into branded stores here?

Sure. I mean, it -- look, it's going to depend -- that's a very market-specific question. It's going to depend on a lot of factors. Not all markets allow for -- in some markets, we've got limited retail, in some markets, we've got limited product availability because of regulatory concern -- regulatory restraints. So that's a very general question. And again, due to our lack of segmentation, I think I've been clear that we expect and will always, at least for the foreseeable future, we're going to lead this year strategically with branded products through branded retail. But also, of course, we'll be continuing to bolster wholesale end markets where that makes sense.

The next question comes from Aaron Grey with Alliance Global Partners.

I'll just keep it to one here. So just on Connecticut, I know you gave some color in terms of how you're looking at New York, New Jersey, but on Connecticut, where you have the Bristol dispensary. I just want to get any commentary in terms of how you're looking at the adult use market, especially in terms of maybe expanding to other dispensaries or maybe getting vertical? I know some of the other operators in that market have talked about utilizing the social equity and joint venture opportunities to maybe get vertical or add their exposure to the state. So how you're looking at Connecticut and the abilities, opportunity besides your own current Bristol dispensary?

Yes. Aaron, so we are -- as you mentioned, we're in Connecticut. We've been in Connecticut for quite some time. The dispensaries that we have there outperforms consistently as one of the top-performing dispensaries in the state. We love our team there and are excited to be in a position to expand into the adult use arena at that location and have some, some plans to -- for physical expansion there as well. And as everyone, I think, realizes there's an application process underway. We're anxiously awaiting the results of that process. And we'll have more to come on that market, as the regulatory regulators get back to us in terms of results.

The next question comes from Eric Des Lauriers with Craig-Hallum Capital Group.

I'll just keep it to one as well. So you mentioned an improved mix of premium products in Florida in Q1. Just wondering, if you could just kind of touch on some of the dynamics involved there. Was this more of a kind of demand pull driven? Was this in response to increased competition on the value side, as this kind of always been part of the plan. Just any color there, would be great?

Yes. I think it's important to note that, as I said before, our biggest competition, particularly in Florida comes from ourselves. So it was a response to what we see as, again, that demand profile from our customers. We had an incredibly successful launch of hydrocarbon products last year, and that customer base has been growing steadily. And as we've been able to expand our capabilities in hydrocarbon extraction, it made sense for us to bring additional products to -- product form factors through those -- through that channel. And so that being said, we also, of course, continue to also see increased buying on the flower side. That's a very large part of the Florida customer base in terms of their buying preferences. And so then, the Primo products made sense for us. And again, we have the scale, which I think is the important differentiator. We've got the scale available to offer those products without sacrificing the rest of the product line up. So really, it was a response to what we saw as white space in the Florida market and demand preferences by our customers.

This concludes our question-and-answer session. I would like to turn the conference back over to Christine Hersey for closing remarks.

Thank you, everyone, for your time today. We will be hosting an analyst event and webcast presentation in June. We look forward to sharing additional details on Trulieve at that time. Thank you all, again, and have a great day.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.