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

Good morning, everyone, and welcome to the Trulieve Cannabis Corporation Third Quarter 2023 Financial Results Conference Call. My name is Danielle, and I will be your conference operator today. As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Christine Hersey, Vice President 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 Ryan Blust, Interim 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. This morning, we reported third quarter 2023 results. A copy of our earnings press release and PowerPoint presentation may be found on the Investor Relations section of our website, www.trulieve.com. An archived version of today's conference call will be available on our website later today. As a reminder, 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 31, 2022, as well as our periodic quarterly filings. 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 results 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 an 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 financial results. Please be advised that we may or may not continue to provide these additional details in the future. I'll now turn the call over to our CEO, Kim Rivers.

Thank you, Christine. Good morning, everyone, and thank you for joining us. We are excited to share our third quarter results and provide an update on the considerable progress made on our plan for 2023. Before diving in, I want to emphasize what an incredibly exciting time this is for the industry and for Trulieve. Several significant catalysts are on the horizon, including potential rescheduling of cannabis to Schedule III, progress on broader federal reform, and adoption of adult-use programs in markets such as Florida, Ohio, and Pennsylvania. For Trulieve, the timing of these developments couldn't be better. Just as the outlook for U.S. Cannabis has brightened, all the steps we have taken to strengthen our competitive position are driving a meaningful improvement in financial results. Initiatives this year are focused on 3 pillars: cash generation, cash preservation, and investments to support long-term growth. Third quarter results clearly demonstrate the efficacy of our approach with better-than-expected revenue, lower expenses, reduced inventory, and improved cash generation. Our team has done a phenomenal job prioritizing efforts to deliver on our plan and set the stage for future growth. Third quarter revenue of $275 million exceeded guidance. Gross margin of 52% improved by 2%, demonstrating a balance between increased branded products through branded retail, promotional activity, cost reduction, idle capacity costs, and inventory reduction initiatives. GAAP SG&A expenses were further reduced this quarter, reflecting the benefit of multiple cash preservation initiatives across the organization. Adjusted EBITDA was $78 million, or 28% margin, representing our 23rd consecutive profitable quarter. Our relentless focus on cash drove third quarter operating cash flow of $93 million and free cash flow generation of $87 million. Companywide efforts to improve efficiencies, lower expenses, and reduce inventory resulted in tax-adjusted cash flow from operations of $184 million year to date. Before we move on to our balance sheet, I'd like to touch briefly on our tax position and strategy. Following Hurricane Idalia, based on our location, we were granted an extension to make estimated tax payments for Q3 and Q4 in February 2024. In a separate development, Trulieve filed amended federal tax returns for several entities in October for the years 2019, 2020, and 2021, claiming a total refund of $143 million for taxes already paid. The amended returns are supported in part by a challenge to Trulieve's tax liability under Section 280E of the tax code. While the refund claims are under review, Trulieve intends to make tax payments as a customary U.S. taxpayer without tax liabilities associated with 280E. Turning now to our balance sheet. Cash at quarter end was approximately $200 million. With significantly improved cash generation, we have proactively taken steps to reduce debt. During the third we completed an open market purchase of $57 million of our 2026 notes at a 16.5% discount for $47.6 million. Yesterday, Trulieve announced the planned early redemption on December 1st of $130 million in senior notes due in 2024. With this combined reduction in debt, we expect to realize savings of approximately $20 million in interest expense that would have been paid through maturity. Trulieve remains aligned with our shareholders and is committed to strengthening our balance sheet with nondilutive measures while investing in growth initiatives. Investments to support growth have been designed to provide customers with access to legal cannabis products while delivering exceptional customer experiences. The investments made over the years to support this mission have positioned Trulieve as the largest legal cannabis retailer in the world. Investments made today are reinforcing our leading retail position while preparing for significant growth in traffic, units sold, and customers served. These investments are focused on 3 primary areas: 1, perfecting the customer experience; 2, delivering high-quality products; and 3, expanding access and distribution of legal cannabis. One measure of customer experience is customer retention, which remained steady quarter over quarter, with 65% of customers companywide and 74% in medical-only markets returning. Trulieve aims to build lasting brand equity for the retail platform and branded products across the loyal customer base. In the coming months, we are launching new customer-facing initiatives, including a revamped website designed to prioritize mobile access and direct-to-consumer convenience, as well as effortless product exploration, physician discovery, and store location assistance. In addition, we look forward to launching our revamped loyalty program beginning with Arizona before yearend. Another area that Trulieve continues to invest in is our data platforms. Maintaining great customer relationships requires clear and effective messaging regarding products and promotions. Over a year ago, Trulieve began utilizing a proprietary customer data platform for targeted outreach and tailored messaging to customers. With this tool, we are able to make specific product recommendations based on prior purchasing behavior. The CDP also identifies the best time of day for messaging based on prior customer interactions and response rates. With embedded machine learning and artificial intelligence capabilities, as the platform continues to expand, the tool is learning to provide more sophisticated approaches and solutions. As traffic and customers served across our network increase, the platform becomes more useful in helping to refine and advance targeted outreach. A second key driver for customer satisfaction is consistently having high-quality branded products available in the right place at the right price. Trulieve sells the highest volume of branded products through branded retail in the U.S., reaching over 11 million units of internal products sold, excluding wholesale, during the third quarter. We continue to see growth in overall unit demand across our markets, supporting our thesis that cannabis continues to gain mainstream acceptance and adoption. In the current economic climate, mid- and value-tier brands, Modern Flower and Roll One have gained popularity, contributing to higher sales of internal branded products. Interestingly, demand for premium products has remained relatively steady, reflecting the strength of our premium brand portfolio. We continue to meet evolving customer preferences, including production of our bestselling brands, while introducing new form factors and sizes across our markets. Following years of investment in production, Trulieve has amassed over 4 million square feet of supply chain capacity. Our capacity is not currently fully utilized, providing significant flexibility to meet growing demand with minimal capital investment today and in the years ahead. With major investments in production capacity largely completed for the near term, our team is focused on driving efficiencies and yields at our existing sites. Our new state-of-the-art, 750,000 square foot indoor cultivation facility in Jefferson County, Florida is fully built out and continues to ramp. Refinements to improved production will continue through year end. Progress made to date has been fantastic, with current yields outperforming expectation by 10%, making this our top performing facility companywide. In addition, the cultivation team has been killing it with average potency at this site currently coming in at 28% THC. As a reminder, as this facility has ramped, some legacy capacity was temporarily idled to align production with demand. Given the progress made on our inventory reduction plan in Florida and continued growth in the medical market, we have restarted some idle capacity during the fourth quarter. Higher yields at the new site and increased capacity utilization will help meet year-end holiday demand. Finally, at Trulieve, providing customers with access to legal cannabis products is at the heart of what we do every day. Investments to expand our retail and wholesale distribution network while opening new markets are ongoing. Today, Trulieve has the largest retail network of 190 dispensaries, representing market-leading position in Arizona, Florida, Georgia, Pennsylvania, and West Virginia. Our growing retail network provides customers with greater convenience and ease of access to our high-quality branded cannabis products. In the third quarter, we added new locations in Florida, Georgia, and Ohio and launched recreational sales in Maryland. Investments made by Trulieve in Georgia exemplify our commitment to expanding patient access to cannabis products. We opened our fifth Georgia medical dispensary in September. Outreach and education efforts across the state are ongoing to raise awareness of the program and patient enrollment. Last week, we launched product distribution through independent pharmacies, with our fifth pharmacy commencing sales today. Early progress on this initiative has been encouraging, and we are optimistic that this unique distribution channel will provide Georgia patients with more convenient access to products. With the launch of recreational sales in Maryland, wholesale revenue doubled compared to the first quarter, while in retail third quarter traffic increased 235% and sales per store increased 175% sequentially. Our team did a fantastic job managing the increase in traffic while serving medical patients and adult-use customers. In the third quarter, we increased production at our Hancock facility to meet the increase in both retail and wholesale demand. In Ohio, Trulieve opened its first medical dispensary in Columbus in July. Just this week, Ohio voters passed a ballot measure to permit adult-use sales. Pending final regulation and regulatory approvals, we plan to serve adult-use customers at this location, marking our fifth adult-use state. At Trulieve, our commitment to advocacy is central to our mission. We are proud to be a driving force within the industry, working diligently to expand access to cannabis for medical patients and recreational consumers in new and existing markets. Over the next couple of years, we expect to realize significant growth as state level catalysts continue to come to fruition. Two of our top 3 markets, Florida and Pennsylvania, may launch adult-use programs by 2025. In these markets, Trulieve currently operates 149 medical dispensaries and has over 3 million production capacity. Given our scale and leading retail positions in both markets, alongside our financial strength, we are uniquely situated to accelerate growth when adult-use launches. With federal and state catalysts on the horizon and improved performance across the organization, we are carrying recent momentum forward. As we approach yearend, our team remains focused on our 3 primary objectives: cash preservation, cash generation, and investments to support growth. Our industry-leading retail network, scaled operations in attractive markets, and balance sheet place Trulieve in an enviable position as the industry moves forward towards the next phase of accelerated growth. With that, I'll turn the call over to Ryan.

Thank you, Kim, and good morning, everyone. Third quarter revenue of $275 million declined 2% sequentially, representing improved performance compared to the 6% seasonal decline last year. The seasonal decline in retail revenue in Arizona and Florida was partly offset by increased wholesale revenue with strong performance in Maryland. Third quarter GAAP gross profit was $143 million, or 52% margin, representing a 2% improvement quarter over quarter. GAAP gross margin includes a 1% negative impact for idle capacity cost. Gross margin will continue to fluctuate quarter to quarter depending on product and market mix, inventory sell-through, promotional activity, and idle capacity cost. SG&A expenses in the third quarter were $94 million, or 34% of revenue and improvement of $2 million compared to the second quarter. Reduced SG&A expenses are the result of ongoing efforts to lower core business expenses, including consolidation of production capacity and elimination of redundancies. Third quarter net loss was $25 million compared to net loss of $404 million in the second quarter. Third quarter loss per share was $0.13 compared to a loss of $2.14 in the second quarter. Excluding nonrecurring charges, third quarter loss per share would have been $0.08, flat compared to the second quarter. Third quarter adjusted EBITDA was $78 million, or 28%. Adjusted EBITDA reflects optimization efforts to maximize cash preservation and generation. We entered the quarter with approximately $200 million in cash. During the third quarter, cash flow from operations totaled $93 million with free cash flow of $87 million. Inventory was reduced by $23 million in the third quarter as a result of targeted efforts to winddown specific volumes and product categories. Capital expenditures totaled $6 million in the third quarter, and we expect Q4 CapEx to be approximately $10 million. Year-to-date, we have opened 15 new dispensaries and relocated 5 in line with our full year guidance. Turning now to our outlook, we anticipate fourth quarter revenue will be down low-single digits, primarily due to the risk that revenue contribution from the Ohio VIE may be deconsolidated from fourth quarter results, contingent upon a receipt of financial information and also factoring in promotional activity and continued wallet pressure on consumer behavior. With respect to margins, we expect steps to streamline operations and reduce costs will benefit margins, while idle capacity, holiday promotions, and inventory reduction initiatives will pressure gross margin. Overall, our initiatives are driving significant cash generation. We are on track to exceed our target of $100 million in cash flow from operations and generate at least $70 million in free cash flow. We will exit 2023 having realized lower expenses, more normalized inventory levels, and reduced debt and interest expense. Kudos to our entire team for delivering on our key objectives this year. With that, I'll turn the call back over to Kim.

Thanks, Ryan. It bears repeating, this is an incredibly exciting time for U.S. Cannabis and for Trulieve. With meaningful federal reform and state market catalysts on the horizon, we are poised for accelerated growth. The recommendation by the Department of Health and Human Services to reschedule cannabis to Schedule III from Schedule I represents an explicit acknowledgement by the FDA that cannabis does in fact have medical value. Rescheduling would open the door for additional research, expanding our understanding of cannabis, and potentially enabling broader development of products and formulations. A Schedule III classification would also definitively remove the punitive tax burden of Section 280E, driving a meaningful step up in financial performance for state legal operators. We are optimistic that rescheduling would eventually lead to further federal reform to address the growing divide between federal and state laws. While the industry awaits federal reform, state markets continue to expand through medical and adult-use programs, spurring greater adoption and mainstream acceptance of tested and regulated cannabis products. In Pennsylvania, we remain optimistic that adult-use could be enacted through legislation in the next 24 to 36 months. Governor Shapiro remains a steadfast supporter of adult-use cannabis. With almost 13 million residents, we believe adult-use could increase the Pennsylvania market to over $4 billion in annual sales. Given Trulieve's production capacity, branded product portfolio, and leading retail network, we expect to increase market share when adult-use is adopted. In Florida, Trulieve is the largest supporter of the adult-use ballot initiative. The campaign has gathered over 1 million validated signatures, representing 7.5% of registered voters and surpassing the required threshold. The final hurdle for inclusion on the November 2024 ballot is an affirmative ruling by the Florida Supreme Court. Yesterday, the court conducted a hearing of oral arguments from the Smart and Safe Florida Campaign and the Attorney General regarding the citizen's initiative. We believe that the campaign's lawyers properly conveyed their case to the court and remain hopeful that the justices will ignore the political rhetoric, stick to the law, and give Floridians the opportunity to vote on this important initiative. As a reminder, the court can issue an opinion anytime between now and April 2024. Once on the ballot, the initiative passes with 60% voter approval. With 22 million residents and 138 million annual tourist visits, we believe Florida will be the best cannabis market in the world, reaching $6 billion in annual sales. Trulieve maintains outsized market share in Florida, selling 130% more products than the state average, eclipsing all competitors. Given our scale, competitive production costs, and ability to quickly flex up production with minimal investment, we are prepared to expand our market-leading position with this opportunity. This year, we successfully implemented meaningful changes to bolster our business resilience, just as we said we would do. By taking proactive steps to strengthen our balance sheet, streamline operations, and reduce inventory, we will exit 2023 as a leaner organization. With strong cash generation and a clearly-defined strategy, Trulieve is best positioned for the coming wave of meaningful growth catalysts. I've said it before and it remains true today, I wouldn't trade positions with anyone in Cannabis. Thank you for joining us today, and as I always say, onward. At this time, Kim Rivers and Ryan Blust will be available to answer any questions. Operator, please open up the call for questions.

[Operator Instructions] The first question comes from Luke Hannan of Canaccord Genuity.

Congratulations on the strong results. Kim, I want to pick your brain, if I can, on just how you're thinking about the balance sheet and capital allocation here. A quick math shows even with the repurchases of the 2024 notes and the chunk of the 2026s that you did in Q3, you should still finish the year in a fairly attractive cash balance position. Just curious to think about how we should be thinking about that going forward.

Yes. So we are absolutely incredibly excited about the position and the work that the team has done this quarter and continues through the end of the year as we execute against our initiatives. As we stated, at the beginning of this year, really one of our primary goals was to focus on cash this year, and the team continues to do that, which provides, of course, significant optionality in the business. That's particularly important today given the catalysts that are in front of us. So, as I mentioned, we had an incredible day yesterday with the Florida Supreme Court hearing, and the oral arguments and the posture of that court definitely leaned positive as it relates to the possibility that the court would rule in favor of allowing the adult-use amendment on the ballot. That, of course, is the single biggest catalyst for Trulieve and I would argue for the industry, if in fact we are able to get that measure on the ballot and then approved in November. With that, of course, we're going to continue to invest in Florida and, of course, as a leading retailer, we feel very comfortable continuing to invest in retail in many of our markets. In addition, though, and I don't think that this can be understated, it's also really important that we continue to have an eye on the future in a more normalized, integrated commerce environment. As I mentioned during our prepared remarks, we're going to continue to invest on what we deem to be foundational, customer-facing initiatives throughout next year. We mentioned the website, we mentioned the loyalty program, we're also looking at optimization efforts in our retail platform, across all of our markets. And again, just looking for any opportunity to reduce friction with the consumer because, of course, we've got the state catalysts, but then broader federal reform, we believe, is on the horizon as well.

That's great. And then for my follow-up here, you did mention the revamped loyalty program. I'm curious to know if you can share with us what the difference is I guess from a consumer's perspective but then also from your perspective the new capabilities that that will give you and then eventually how that will show up to the consumer, the new loyalty program.

Yes. We're really excited about it. One, just in terms of ease of use and the ability for consumers to have more transparency in terms of how the loyalty program actually functions, it's going to seem more intuitive and in line with many other leading retail loyalty programs that we're used to interacting with on a regular basis. Again, our goal is, as we think about cannabis through the lens of integrated commerce, how do we make it less clunky and just more user friendly. So there are a lot of features that, again, we're really excited to preview with our customers that you all will, of course, get a first look at as well. But I would say that the main thing is for it to just be a more normalized, trackable, intuitive program for consumers across and also, of course, for it to be able to be integrated across all of our markets. That's all. Another goal here is for us to look beyond the 4 walls of each state and to be able to offer a platform that is portable across markets because ultimately we think that's at some point anyway where this is headed.

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

So first question for me. Just wanted clarification on your tax payment strategy going forward. I know you filed for the refund for some of the historical years, but want to get clarification on whether you mentioned the intention to not make some of those 280E payments going forward. So just clarification on your tax payment strategy on a go-forward basis, particularly as it relates to 280E as you await the refund from the IRS potential rescheduling.

Sure. So there's a lot going on as it relates to taxes. So let's break that down just so we're very, very clear, because I know it can be a little -- again, it's just a lot of puts and takes. So in this quarter we had -- because of the hurricane, I think we should just maybe call Q3 for Trulieve maybe our hurricane quarter because that seems to be the last 2 years. So we have a deferral that's granted automatically. And so Q3 and Q4 taxes are not due currently. They will be due in February. We plan to continue to pay taxes. So just to be clear, we are not, not paying taxes. We will be paying taxes, but we plan to pay taxes under a normalized corporate tax regime. And in absence of those 280E payments moving forward as we await the IRS response on our refund claim. So again, no tax payment due for us until February of next year due to the deferral. And then moving forward, we are taking the position that we will continue to pay taxes, so taxes again will be paid when due, but they will be paid as a "normal corporate filer."

And then secondly, just on the hearing yesterday, I heard you say, you mentioned that leaning positive in terms of how you think the justice heard the arguments. Anything that you saw that was maybe unexpected or from the other side or was everything pretty much in line in terms of some things they were arguing via the allow single subject or otherwise. And then secondly, in terms of investment in the state, you talked about Florida still being a priority there. So just want to know in terms of expanded stores, do you think just within the medical market there's enough there to continue to add stores as we look towards 2024, or would you want to wait until you saw whether or not adult-use might be coming up on the ballot or even passing in 2024 before you really start to add additional stores in the state?

Yes. Well, as per our past cadence, we're going to be releasing guidance which will likely include store counts at the end of the year. So stay tuned for that. And that'll provide some additional color as it relates to projected retail expansion into 2024. That being said, as I mentioned, we do absolutely remain very bullish on Florida and on the opportunity set here with our, again, capacity on the supply chain side, we are again in a unique position that we're able to fill new doors, and the return on investment for those new doors remains strong. And we also believe that there remains strategic opportunities as it relates to locations in the state. So we certainly will be building additional retail locations in Florida. Again, quantities, I would say, stay tuned for that as we look to give additional color on that next quarter. As it relates to the court, as I said, no surprises in terms of arguments. It was based on the previously-filed briefs by the Attorney General's office. I think maybe what was a little bit surprising, and I think it's reflected in the news coverage that came out as well, and that we'll probably see continue today, was just the external posture of a number of the justices in terms of really being supportive of the language as written. The sponsors of the initiative did work very diligently to track previous Supreme Court guidance, and I think that the court understands that altering or shying away from or rewriting that guidance has broad implications, not just for this particular amendment, but for the entire citizens ballot initiative process in the state of Florida. And so that's not something that they would do lightly. And it was really encouraging to see that several of the justices saw that and appeared to understand that this wasn't something that just affects a particular policy which they may or may not agree with, but it has potential broad sweeping impact on the entire posture of citizens ballot initiatives in the state of Florida. So good to hear and very encouraging. I would say, often in those types of hearings, you don't get that type of external feedback from as many justices.

The next question comes from Russell Stanley of Beacon Securities.

Maybe on Georgia. This is now a unique market opportunity with the pharmacies carrying products. Early days, but given the uniqueness of this as a channel, it hasn't really been done before. I guess, how quickly do you envision the patient count expanding? In the past, you've drawn parallels between Georgia and Florida's early days, but this channel is so different. I'm wondering how you're thinking about this market now.

Yes, it is a really unique channel, and I think it's an incredible opportunity for us to test and learn and for us to build on our capabilities as it relates to this type of distribution, again, with a third-party partner and really a true restock service model. Access and improved access close to patients in a convenient fashion typically will, of course, result in increased demand. I think a little too early to tell full impact yet. As I mentioned, we're actually working and are excited to launch sales with a fifth pharmacy today. But I think that the next step here, and this all will likely happen simultaneously, will be some changes in the legislature as it relates to conditions or products that would, of course, also lead to market expansion. I think one of the real benefits of having pharmacies online will be we now have another advocacy partner at the legislature to be able to speak firsthand as to the importance of access for patients that they see come into their particular pharmacies and to speak with that medical authority as we go to the legislature to ask for and advocate for expansion over the next little while. So excited about, of course, the direct but also maybe some longer-term impacts of having that channel open for us in Georgia.

Great. Thanks for that. And maybe if I could switch to Ohio, with your first store opening there and the voting results earlier this week. How you're thinking about this market? Is this an area where you can and might step on the gas in terms of adding retail and expanding into this given the pending adult-use legalization?

Yes, we were very excited, of course, to open our store in Columbus, and that store is ramping really, really nicely. Our team there has done a great job in terms of connecting with community and really building that customer base ahead of adult-use. In Ohio, as mentioned in Ryan's remark, we currently have a VIE situation and are in current pending litigation with that relationship. That was an inherited relationship with the Harvest acquisition. The portfolio in question includes 3 retail locations, production, and cultivation. So I would say stay tuned as it results -- to the resulting outcome in Ohio.

The next question comes from [ Frederico Smith ] of ATB Capital.

First question is, just given your guidance for cash flows for the year and I guess for next quarter as well, so can you provide some color on the working capital items? Did you expect [ to impact ] cash flows next quarter? Do you expect how much in terms of further reduction in inventory? And if you could expand on some of the other items as well impacting that guidance.

Yes, so as we mentioned, of course, there's a lot of moving parts. And fourth quarter is an interesting one because, of course, we're against the backdrop of the most promotional quarter of the year. So as it relates to product mix and ins and outs, it is a very dynamic quarter. What I will tell you is that as it relates to our inventory winddown effort, specifically, as mentioned in the prepared remarks, Florida has come to -- we basically have landed that initiative, with the exception of some additional movement in oil. But in all, I would say, material effects that has come to an end. The team has done a great job there. And we're now ramping back capacity to feather in and really even out or smooth out the product availability to demand mix, if you will, in Florida. That being said, we still have inventory winddown efforts underway in other markets. And so those efforts as a company will continue through Q4 into next year. And the teams are, again, making a lot of progress against those initiatives. I think -- because I'm pretty sure this will probably be a follow up -- so as it relates to Florida, in particular, what is interesting, it's very difficult and challenging to land these things perfectly. We did have a little bit of bumpiness as it relates to certain products and again, capacity, and whatnot. So that's being smoothed out now. You saw some of that towards the end of Q3 and coming into Q4 that's rightsizing at this point in time. What we are able to do now in Florida is really take those lessons that we've learned, and we're looking at this as really a test, again, as we land some of these other inventory winddown initiatives across other states, to look at consumer demand and our mix as it relates to particularly margin and cost, again, taking advantage of efficiencies out of Jeffco now and transitioning customers into higher margin, quite frankly, in some cases higher-quality products that are at a lower-cost basis for us with the consumer cost impact being the same or in some cases even better. So really looking for those opportunities to learn from our inventory winddown initiative and make pivots in the business and in the portfolio that improve both the customer experience and also the financial results, which, again, we'll continue to optimize in the quarters ahead.

Next question is just going back to your, I guess, your tax strategy going forward. Can you give some color, I guess, in terms of the impact to cash flows expected from that, I guess not paying the liabilities associated with 280E, how much of that in 2024 maybe you expect to get a benefit from?

Sure. So I would refer you to our K, of course, which isn't filed yet, but in our K, each year we have a note that breaks out and talks specifically about our 280E tax liability. We don't do that on a quarterly basis, but I would just point you to the K that, of course, will be filed along with yearend.

The next question comes from Sonny Randhawa from Seaport.

I guess just, obviously, the Supreme Court hearing was, it seemed net positive. I guess if you could just talk generically about what you think the margins and competitive landscape would look like in Florida, if it is on the ballot versus it not being on the ballot. I know you've commented previously that if it's not on the ballot in '24, you'd probably wait till '28 to get it back on the ballot. So just generically thinking about if it is on the ballot, how the competitive landscape would change versus it not being on the ballot and what you would expect going into mid-2025 when adult-use starts.

Yes. I think that it's important to remember that Florida is a bit of a different market than others in that it is a forced vertical, right? So it's different in the sense that you can't just lean into retail without having the supply chain capacity across form factors and across depth of product to service that retail. The supply chain, of course, takes the longest and is more expensive generally for most companies than retail expansion. So I don't know that we would see any -- in other words, if someone were to make a decision, right, that they wanted to expand Florida footprint, it would take until more than likely almost the end of the year for that capacity to be built, approved by the state, planted, production ramped up, and products coming through and into retail locations. So there is a bit of a difference in Florida versus other markets as it relates to full supply chain buildout when you're talking about expansion. That's one of the reasons why, again, we really like our position in Florida because we have made multiyear investments into the state, not only just for capacity but for really efficient capacity that generates a significant high-quality product portfolio that then, of course, is distributed through our market leading retail network of currently 127 stores across the state. So I don't know that we would necessarily see as opposed to any differential in terms of what folks currently have planned versus what folks would then plan in 2024. I think that may come into play more in 2025. But again, I think that as far as we're concerned, we have the ability, again, to continue to meet demand while also making investments to really optimize and get additional torque out of existing facilities and retail locations into and through 2024, so again, in a very different apples and oranges position as it relates to folks who need to build new capacity in order to have an increased competitive position. As it relates to what I see this next year, I think that as far as we're concerned, as far as Trulieve is concerned, this is all according to plan, right? We believe very strongly that Florida, as I said and I'll say it again, will be the best cannabis market in the world. We believe that the legislature, when they go to implement the amendment, will certainly continue to be focused on ensuring safety and traceability. I don't know that I see a situation where there's a complete decoupling away from vertical, at least from a holistic approach. And I think that we'll continue to be able to operate our business as we have been operating, and that's really when our scale will really show and we'll be able to fully lean in and bring everything that we've been working on to bear in the market against the backdrop of significantly increased consumer demand. So really excited about that possibility and can't wait to be able to show everyone what we've got.

Just turning to Georgia. Obviously, we don't have a lot of data on Georgia yet. You guys are 1 of 2 players in that market. Can you just give us some insight on just what the current size of the market is and what you're seeing in terms of patient count today and what the growth rate you anticipate?

Yes. Georgia, look, Georgia is a medical-only market. It's starting out fairly conservative. Again, very similar to what we saw in Florida. The patient ramp is approximately, I'll call it, 14,000 or so patients today. Again, that data, we're trying to get into a better cadence of really, again, having accurate data a little bit more regularly. And we're working with the regulators there who have been great partners with us. But as you ramp a program and as you bring a program online, some of that information, it's just a little difficult to get into a regular, I'll call it, reportable format. And it was the same thing with Florida in early days. So contrary to popular belief, we didn't always have Friday OMMU reports. We actually had to do information requests, which we did every week. And then I think they got tired of having to respond to Trulieve's information requests, and so they started just publishing it on a regular basis because I think all of the analysts also started making information requests. So it'll happen in Georgia. It's just going to take a little bit of time. And again, similar to Florida, we're seeing similar patient profiles as it relates to early adopters, and then that'll again continue to expand over time. So I would say more to come, but not surprising to us, and again, as planned, that Georgia is ramping at the rate that it is.

If I could just squeeze one more in. I know one of your competitors just recently provided state-level data and basically took some of the opaqueness out of the models. I don't know if you've had a chance to look at it, but in terms of just revenues per store, were you surprised at the success they've had on the retail side?

You're asking me to comment on another competitor's retail per store sales?

No, I'm trying to think about just, we know volume growth is -- or in terms of volume, you guys obviously do a lot better. In terms of revenue, I'm just trying to glean if there's some additional insight related to that on your overall revenue per store in Florida.

Yes, I would tell you that we make more per store in Florida than I think any of our competitors. You can extrapolate out any metric that you would like on that. And again, the number that was given, as it relates to averages, is that we sell 130% more than the average on the state. Again, OMMU data comes out every week and pricing is available online, so feel very comfortable as it relates to our store metric productivity versus competitors in the state.

The next question comes from Matt McGinley of Needham.

So my first question is on the cash flow as it relates to taxes. You had a change in the other long term liability line in your cash flow. That was a $49 million benefit in the third quarter. Was that related to the amended tax return you filed or was that $49 million related to the Hurricane Idalia deferrals? And is that benefit baked into the $100 million target for operating cash flow, or is that more like $150 if you include that for the full year?

Yes. So as we mentioned in the target, we are targeting more than $100 million in operating cash flow for the full year, Matt.

I guess, what is that benefit that you saw in $49 million in the third quarter? That was a pretty substantial number. Is that a result of the reversal of the 280E that you're expecting to see, or is that, I guess, the accounting treatment that's different from what we've seen before? I'm not sure what we're looking at with that big benefit you had in the quarter. It was about half of your overall operating cash flow.

Matt, I think we might be talking apples to oranges here, and we're happy to have a more detailed follow up with you. But not to get too technical, but that's the uncertain tax position. So that's going to be our UTP. And again, happy to take that offline with you if you'd like. And just to clarify, there's no refund contemplated in any of our financials at all. So I don't want there to be confusion there as well. We tried to make it clear again in the notes and whatnot, but maybe we need to have a further conversation around that.

Sure, sounds good. And then on the G&A, how much opportunity do you see in reducing your core G&A dollars given the store growth? If your top line continues to see a little bit of pressure on price compression, but you're still putting up stores, does that become a bigger drain on your profitability, or do you feel like you have efficiencies that could offset some of those impacts that you're seeing from store growth.

Yes, look, it's going to ebb and flow, right? I think there are still, and we obviously have a close line of sight and are monitoring it and responding accordingly as it relates to that efficiency balance vis-a-vis store growth. Of course, when you have stores that you're opening, you have some expense that may not net out specifically depending on timing on a quarter-over-quarter basis. And certainly we've experienced that in the past. I think, again, we've tried to be pretty communicative about that, and we'll continue to do so, Matt. But I don't see a continued drag necessarily or specifically on G&A there. I think there's enough puts and takes, if you will, left. Of course, asterisks there, will depend on timing.

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

I appreciate the color that you've given on the Jeffco facility there. It's nice to hear yields and potencies are outperforming expectations. Could you comment on how costs are tracking either relative to expectations or relative to some of your earlier production facilities?

Yes. As we mentioned, very, very excited about the productivity of the Jeffco facility. And again, costs are in line with our projections. We actually may have a little bit of continued work to do there as it relates to bringing those completely in line. You want to be careful, of course, on how you manage that as you're continuing to ramp and so may still have a little tweaking there to do. But very pleased with all aspects, really, of that facility and are going to be again sharing additional information with you all, as we discussed, going into next year.

And then just a bit more on the decision to bring back some of that idle capacity. It sounds like Jeffco obviously has a bit more capacity and that quality has been impressive. Understand there was some bumpiness with the inventory winddowns. I'm wondering how this is all coming together here. Is it that you're able to ramp these other facilities faster than Jeffco? Is this almost like a bridge until Jeffco is fully ramped? Are these other facilities able to produce maybe certain products that Jeffco can't and that we should expect that idle capacity or these older facilities to remain online? Will they come back offline once Jeffco is fully ramped? If you can just give some more color on that decision, that'd be great.

Sure. As we said, we brought on some additional capacity. I should maybe quantify that. On a relative basis, it's small compared to the Jeffco output. So Jeffco remains our primary contributor to products in Florida today. And again, yes, it is continuing to ramp slightly, but we feel that we've got good line of sight at this point as it relates to output with respect to Jeffco. So we do have additional 24k-style buildings that we have brought back online. Again, by the way, those are pretty efficient models in and of themselves. So from a blended cost basis, feel incredibly strong as it relates to our position there. Those buildings will serve as flex capacity for us with again Jeffco being our workhorse, stable output facility, and then we're able to ramp up and/or down depending on what's needed in the market. Of course, as we stated, holiday typically has increased unit demand. So really happy that we have that capacity to flex into to service what is typically a holiday surge for the year.

The next question comes from Scott Fortune of ROTH MKM.

While the question has been asked, but real quick, just congratulations on the continuing cash flow generation and that optionality there. But just give a sense for your priorities. Looking at the ROI for cash generated, obviously, you're paying down debt, but how are you prioritizing any color around '24 CapEx to potentially grow some of these new adult-use markets and states for you, other options with the cash, stock buyback and such, just give a sense for prioritizing that cash going forward here.

Yes. I think that look, the 2024 notes were due next year, so for us that was always part of the plan. We're going to pay that debt when due. We were able to save some interest there, which we thought was the right decision moving into the end of the year. As I said at the top of the Q&A, investments in both additional expansion and retail, along with what we deem to be really core investments through the backdrop of a continued progression to an integrated commerce environment, will remain front and center in 2024. We'll give additional color on CapEx at the end of the year on our next call. Reminder that we're really coming out of a multiyear investment cycle as it relates to our supply chain and production capacity. So just, again, I think it bears repeating because it is a differentiator. We have approximately 4 million square feet of cultivation and production facility capacity. So again, very different position than many of our peers who have not made that type of investment up to now and are working to either catch up or build out in just-in-time fashion. We've got the luxury of, again, having made the investment, really being able to dial in on efficiencies, getting the right product mix and dialing up and down, while really being able to focus our efforts on the customer and our retail, again, market leading, world leading cannabis retail position in our market. So a little different than some of our peer set.

And just a follow up on this, Kim. Obviously, you're championing and Trulieve is championing adult-use in Florida. You've put a fair amount of money towards that. Let's say, we get past the Supreme Court, obviously, the Governor is not too favorable of it, you still need 60% of the voters to approve this. Kind of step us through or sum the strategy, not only just your lead in getting the adult-use vote passed here but the industry in general sense for the cash or what needs to move forward to get a favorable vote potentially next year if we get past the Supreme Court [ hearing ].

Yes. So I think a couple of points on that. #1, the medical initiative in Florida, that was also a ballot initiative, passed with the highest favorable rating of any ballot initiative in the history of the state of Florida, with over 73% of a passage rate. Currently, adult-use is polling at approximately 70% without any active campaigning or public-facing initiative. Secondly, the Governor doesn't have really -- his opinion, of course, is his opinion. He's remained relatively neutral on the topic. But just to be clear, there is no specific veto or any process intersection with the Governor as it relates to at least the Florida process. And finally, I would say that we would expect and anticipate that our peers, particularly those who I know in their earnings calls have been talking about how great a market Florida is and how excited they are about adult-use, would come to the table post Supreme Court approval to participate in the publicly-facing campaign efforts moving forward into 2024. So far, I have received, and certainly they know who they are, and robust conversation commitment to that will be the case, and certainly hope that we all hold them accountable as we share in the benefit of what an incredible adult-use market in Florida would be.

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

Thanks, everyone, for your time today. We look forward to sharing additional updates during our next earnings call. Thanks again and have a great day.