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

Good morning, everyone, and welcome to the Trulieve Cannabis Corporation Third Quarter 2024 Financial Results Conference Call. My name is Tobin, and I will be the 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.

[indiscernible] Officer; and West Getman, Chief Financial Officer, will deliver prepared remarks on the financial performance and outlook for Trulieve. Following the prepared remarks, we will open the call to questions. This morning, we reported third quarter 2024 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 An archived version of today's conference call will be available on our website later today.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, 2023, as well as our other 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 today. We are pleased to report solid third quarter results. Kudos to the entire team for delivering outstanding gross margins and adjusted EBITDA during a seasonally slower quarter that was further impacted by Hurricane Helene. Turning now to today's election. Florida voters are poised to make history today with the approval of cannabis legalization for personal use. Polling indicates strong bipartisan support for cannabis legalization and likely passage of inventories. Broad endorsements, including high-profile figures such as David Portnoy and former President Trump, underscore the widespread support for this common sense of bridge to cannabis. Amendment 3 is about personal freedom and giving adults over the age of 21, the opportunity to purchase and consume limited quantities of cannabis without fear of arrest or adverse events from unregulated untested products all while generating hundreds of millions of dollars in tax revenue to be reinvested into our communities. We believe that Florida is ready to turn the page on prohibition and will vote yes on Amendment 3. I want to acknowledge everyone who has supported this campaign over the past 2 years, including elected officials, members of law enforcement, community leaders, physicians, grassroots organizations and volunteers. At Trulieve, we believe in leaving it all in the field, and we can confidently say that, that is the case with our supportive legalization in Florida. It's now up to the voters to decide. While Amendment 3 is top of mind for Trulieve, the presidential election has meaningful implications for the industry. Both presidential candidates can publicly express the port for federal reform, acknowledging the failed approach of the current policies. Federal rescheduling of cannabis is underway with the preliminary hearing set for December 2 and additional hearings in January or February to collect information on the proposed move to Schedule III. The next administration will oversee the completion of the rescheduling process. Based on the favorable public positions in both candidates, we are optimistic that rescheduling could be completed in 2025, representing a meaningful milestone for the industry. Rescheduling not only removed the punitive 280E tax burden from legal cannabis operators, but it also reduces Stigma and opens the door for research. Cannabis remains more popular than politicians and we believe widespread support and continued adoption at the state level adds pressure for broader federal reform. Before we dive into results, I would like to say a few words on the recent hurricanes. Our hearts go out to all of those who were affected by these storms. Thankfully, none of our employees were injured, although several had significant damage to homes and personal property. Trulieve has been helping recovery efforts to our employee assistance program and donations to state disaster relief funds. From an operational standpoint, none of our production facilities were damaged during either storm. For retail, 65 stores were closed during Helene and 108 stores were closed during Milton. Virtually all were able to resume normal operations within 2 days. Thank you to everyone on the team who worked around the clock to make sure that our customers have access to the products they rely on, especially those who were also personally impacted by the storms. Moving on to our third quarter results. Revenue was in line with our guidance, while gross margin continued to exceed expectations. Revenue of $284 million, up 3% from last year reflects solid performance despite headwinds from seasonality and Hurricane Helene. Gross margin improved to 61%, bolstered by efficiencies and low cultivation costs, SG&A increased in the third quarter with higher spending to support additional store openings and infrastructure to manage long-term growth alongside increased campaign support. Adjusted EBITDA of $96 million improved by 24% compared to last year. Adjusted EBITDA margin of 34% was driven by best-in-class gross margin, partly offset by increased investments. We ended the quarter with $319 million in cash and short-term investments. During the third quarter, retail results were influenced by seasonality in Arizona and Florida as well as temporary store closures related to Hurricane Helene. Traffic increased 10% year-over-year and 1% sequentially, while basket size declined 3% compared to last year and 6% versus the second quarter. Average basket size declined sequentially in all markets with seasonal pressure in Arizona and Florida. For the second year, seasonal impacts in Florida were influenced by new residents from Northern State to leave Florida during hot summer months. Data shows some customers trading down into mid- and value-tier products and higher visits per month, indicating wallet pressure is influencing customer behavior. We are closely monitoring the data to the cent that the trend is emerging or transient pressure has abated, spending patterns during the last 6 weeks of the year will be an important indication of consumer flexibility. Customers expect a clear value proposition for all products, seeking out reasonably priced products in value and mid-tier and truly differentiated quality for premium tier. As always, we are prepared to meet evolving customer preferences by leaning into value and mid-tier products while maintaining very high standards for premium offerings. In Q3, we expanded our industry-leading retail network to 215 locations company-wide with 14 new locations in Florida and one in Pennsylvania. Subsequent to quarter end in Florida, we were able to open 5 additional locations that were previously delayed due to the hurricanes. Our commitment to selling high-quality branded products through our branded retail locations is a core part of our strategy. This has been a key driver for reinforcing customer loyalty and building long-term brand equity. Trulieve has over 4 million square feet of production capacity company-wide, and the team continues to deliver very high-quality products while driving efficiencies and lower cost. In the third quarter, we sold over $11.5 million branded product units, in line with the second quarter. Low cultivation costs in Florida and improving margins in other markets contributed to gross margin this quarter. Wholesale revenue increased in Maryland, Pennsylvania and West Virginia, due in part to greater availability of products. Over the past year, we have made continuous adjustments in our retail operations, all designed to deliver best-in-class customer experiences. Our relentless push to drive customer retention and overall satisfaction through superior products, customer service and effective messaging continues to pay dividends. Third quarter customer retention was 65% company-wide and 74% in medical-only market comparable to the second quarter. Overall satisfaction and NPS scores increased in nearly all markets. Training, leadership engagement and financial incentives for employees collectively reinforce our customer-centric focus across our retail platform. During the first half of the year, we rolled out a new customer rewards program featuring fully stackable points that can be redeemed in all markets. Enrollment and our Refresh Loyalty Program has exceeded expectations, reaching over 450,000 rewards members, up from 325,000 at our last earnings call. On average, loyalty members spend approximately 123% more per month than non-loyalty members. In Ohio, Adult-use sales commenced at our 3 retail locations on August 6. Traffic per store increased by 60% and sales per store increased by 35% in the 5 weeks following the launch. Our team did a phenomenal job managing customer traffic while working to maintain high service standards. We are planning to expand our Westerville location by year-end and open additional Ohio retail locations in 2025. Upgrades at our partners grower processor facility in Ironton have been completed, and we are on track to have truly brands available in Ohio by year-end. Working together with partner brands allows Trulieve to offer greater product assortment and optionality for customers while providing specialty brands across access to our loyal customer base. We recently announced a partnership with Black Buddha, offering premium flower in Arizona and Pennsylvania, Black Buddha is a purpose-led women-owned cannabis brand that aligns with Trulieve's commitment to wellness, innovation and quality. To date, customer feedback has been overwhelmingly positive, and we are thrilled to be working with the brand. Trulieve continues to blaze new trail entering the first force partnership for a non-CBD cannabis company. In August, we announced partnerships with the Professional Pickleball association and Major League Pickleball. Trulieve sponsoring a dozen Pickleball events in Arizona, Florida and Georgia this year and next, allowing us to reach new audiences and foster sensitive community that accelerates cannabis acceptance. Turning now to Florida. Letters will decide today whether to legalize the built use cannabis. With 23 million residents and 140 million annual tourist visits, we estimate the Florida market can reach $6 billion in annual sales. Assuming passage of Amendment 3, adult-use sales would be allowed 6 months from today. Florida legislators have an opportunity before launch to further refine rules for adult use, such as prohibiting smoking in public and allowing home grow. Trulieve is incredibly well positioned for an adult as launch in May of 2025. We've made significant investments in production, retail and technology in preparation for catalysts such as this one. Today, we have over 3 million square feet of production capacity in Florida. Given the modular nature of our production site, idle capacity can be quickly ramped and further extension can occur as needed in short order. Across our retail network of 156 dispensaries in Florida, we have the ability to manage higher traffic and utilize additional points of sale. We recently conducted a series of retail pilot studies to improve the in-store experience, assuming higher traffic and we can readily implement adjustments in advance and recreational sales. Trulieve is committed to maintaining high service standards for all customers, especially our existing medical patients who rely on our products. Over the past several months, we completed the upgrade to our Web 2.0 platform a major upgrade for our SAP platform, expanding functionality and capability to facilitate higher transaction volumes. We will be fully prepared to welcome in each customer to our store next May with high-quality products and world-class customer service. In summary, the team continues to deliver outstanding results while preparing for upcoming catalysts. We have done everything that we can to drive home a win at the poles today, and Trulieve will be fully prepared for adult use in Florida when Amendment 3 passes. With that, I'd like to turn the call over to our CFO, Wes Getman, please go ahead.

Thank you, Kim, and good morning, everyone. Third quarter revenue was $284 million, up 3% year-over-year, driven by new store openings and growth in the wholesale channel. Third quarter GAAP gross profit was $173 million, with 61% margin, up 1% from the second quarter. Gross margin will continue to fluctuate quarter-to-quarter depending on product and market mix, inventory sell-through, commercial activity and idle capacity costs. SG&A expenses in the third quarter were $149 million or 52% of revenue. Higher FDA include new store opening expenses, technology and infrastructure investments and additional support for the Smart and Safe Florida campaign. Third quarter net loss was $60 million compared to a net loss of $12 million in the second quarter. Third quarter loss per share was $0.33 compared to a loss of $0.05 in the second quarter, excluding $48 million in campaign support and other nonrecurring charges, third quarter net loss would have been $0.06 per share compared to breakeven results in the second quarter. Third quarter adjusted EBITDA of $96 million or 34% margin reflects strong gross margin, partly offset by investments in retail and infrastructure. Turning now to our balance sheet and tax strategy. We ended the quarter with $319 million in cash and short-term investments and $481 million in debt. As a reminder, Trulieve adopted a tax position challenging the applicability of 280 to our business last year following the many returns for tax years 2019 through 2021. To date, we have received refund checks totaling over $115 million. Final resolution to our approach may ultimately take years to conclude. In the interim, we continue to accrue an uncertain tax position on our balance sheet while realizing lower cash tax payments. Upon rescheduling of cannabis to Schedule III, the 280 tax burden will be removed, effectively capping the downside risk to our tax challenge. Notably, if the impact of 80 were removed, year-to-date results would show positive net income. Cash flow from operations totaled $30 million in the third quarter. Capital expenditures were $37 million with free cash flow outflows of $7 million. Absent the noted campaign contributions, cash flow from operations would have been $78 million and free cash flow would have been $41 million. Year-to-date cash flow from operations totaled $241 million, with free cash flow of $162 million. Turning now to our outlook. Based upon the visibility that we have today, we anticipate fourth quarter revenue will be up low single digits sequentially. Typically, fourth quarter results include higher holiday traffic and promotional activity. We anticipate fourth quarter gross margins will be consistent with margins year-to-date. We expect full year cash flow from operations will be at least $250 million with capital expenditures of $130 million. The increase in capital expenditures is due to investments in new retail locations, production upgrades and long-term infrastructure to support future growth. The team remains focused on executing to our plan. With that, I'll turn the call back over to Kim.

Thanks, Wes. Cannabis continues to gain momentum with the majority of Americans in favor of legalization and broad support across all demographics, proving that cannabis is not a part of an issue, it's a human one. Adoption from medicinal and recreational purposes is increasing as adults choose cannabis as a preferred alternative to prescription drugs and alcohol. This industry is far beyond the tipping point and eventually a reform will catch up to evolving attitudes. Opportunities for incremental reform in the near term are progressing at both federal and state levels. With rescheduling to Schedule III well underway, we remain optimistic that the process will be completed and ultimately lead to further federal reform. Next month, a preliminary hearing will be conducted, followed by a hearing in early 2025 to provide additional information on the record. We believe a final rule could be published in 2025, marking the first major federal reform in decades. With both presidential candidates in favor of cannabis reform, we believe additional progress such as state thinking could advance in the next administration. State efforts to support medical and adult-use cannabis markets continue to gain traction as cannabis becomes more mainstream. In Pennsylvania, bipartisan momentum continues to build as neighboring states adopt adult-use programs. We remain optimistic that adult-use legislation will pass in Pennsylvania in the next 1 to 2 years. Today's general election includes cannabis balance measures in 4 states. In Florida, we expect Amendment 3 to pass, leading to the largest adult-use conversion in the industry to date. With 156 stores in Florida, scaled production capacity and sufficient capital to support further investment, Trulieve is in the best position to fully prepare for the launch of recreational sales next spring. Trulieve has been out front pushing for expanded access to cannabis for years, and I am so proud to lead this team. As I've said before, I wouldn't trade hands with anyone in the industry. Thank you for joining us today. And as I always say, onward and Yes on 3. At this time, Tim Rivers and West Getman will be available to answer any questions. Operator, please open up the call for questions.

[Operator Instructions] Our first question comes from Luke Hannan with Canaccord Genuity.

Kim, it's been a long journey to get to where we are today when it comes to the prospects of their being an adult-use cannabis market in Florida. You mentioned in your prepared remarks that polling indicates likely passage of Amendment 3, but curious to know, are there any other learnings or insights that have come out of your efforts in getting out the boats that also underpin your conviction here along with the favorable polling data?

Yes. And I would tell you that it has been just so encouraging for us to have such a broad base of support and I think that our opportunity has been -- which I think we've taken full advantage of to talk to Floridians across different walks of life and different ideologies and different demographics about cannabis and really to lean into an education-first campaign that's stocks by data and science. And that's what we all do in this industry every day is to really, again, educate folks and fight back against the stigma. And so when sitting here today, the fact that we have, right, former President Trump, who is a Floridian, who has specifically endorsed Amendment 3 in no uncertain terms, the fact that we have another presidential candidate on the Democratic side, Kamala Harris, who just this week and expressed her support for cannabis reform. And I think maybe more importantly, just down -- as we've drilled down to local levels and have gotten folks on all sides of the issue -- all sides of the spectrum, really excited and enthusiastic about going to the polls and voting Yes on 3. And I talk to people every single day. The campaign talks to people every single day, hundreds and thousands of phone calls have been made over the last period. And then just, again, the response that we're getting is very encouraging.

Great to hear. And then for my follow-up here. I wanted to ask, if I heard you correctly in your prepared remarks, you mentioned that you've done a series of retail pilot studies to sort of figure out what happens with adult use sales in Florida, if we do get passage here, I'm curious to know, are there any KPIs or maybe other learnings you can share that came out of those studies that indicate how well positioned you are in the event that we do get passage?

Yes. I mean I think that this team -- and again, right, I mean we're running this company, and I'm very proud of our results this quarter and how the team has been able to really focus in on today and right, and making sure that we're continuing the service our medical patients here in the street of Florida while also, right, looking ahead and planning for all kinds of different scenarios, right? Because it's a 4 dimensional jigsaw puzzle right now because you also have, of course, 280E looming ahead as well. And so within that work, right, going in and doing a bunch of pilot studies in different scenario planning, workforce management planning. I mean, there's a lot that goes into thinking through or beginning to think through a conversion of this magnitude. And so what we found is that we're really well positioned with, again, the upgrades that we have been layering in into this organization over the last several years, right? This doesn't happen overnight. I mentioned in the remarks, our Web 2.0 upgrade, as an example, along with our SAP upgrade, and none of these things are flashy, right, or necessarily really exciting, but they provide the infrastructure to enable us to handle transactions in a faster manner to make sure that we've got the ability to have separate lines and dedicated registers and the flow within our retail locations from back of house to front of house. And again, along with our technology upgrades that will allow folks to minimize wait and transaction times on a conversion. So I do feel like we're well positioned. And candidly, those investments serve us kind of regardless, right? And as we look at our improved opportunity across the country, not only today but in the upcoming years.

The next question comes from Frederico Gomes with ATB Capital Markets.

First question on Ohio. Have sales in that market performed in line with your expectations? I think you mentioned sales per store increase of 35%. So is that sort of what you were expecting? And also, in terms of the supply-demand balance in Ohio pricing, et cetera, how has that evolved since July?

Yes. And so absolutely, Ohio is performing, and we're very proud of that team. As we mentioned, we have some limitations and have had some limitations in Ohio, just given our footprint along with some product availability that is, again, not unusual in a conversion. And that is improving. And when I mentioned that we're going to be doing some expansion there, that's really so that we can more effectively served through the transactions and the -- candidly, the customer base that we know that we've got in Ohio. So I feel like the team did a phenomenal job with what we have today. But again, that actual market and our kind of physical presence in that market, if you will, is improving and will continue to improve not only through the end of this year but also through next year. We're very excited to get our brands into that market and have been working very, very hard on that. And so that will be an important next milestone for us in Ohio as we get those into market by the end of the year.

And then my second question is just on, I guess, looking back in Florida, from a customer behavior standpoint, have you seen any noticeable impact from the Florida campaign? I guess, just given that consumers probably have increased awareness, given the campaign that's going on there. So have you seen any sort of change in terms of consumer behavior, be it for better or worse?

I mean I would say the Florida business has been very consistent and in line, as I mentioned on the -- with the prepared remarks, right, with our seasonal trends. I think really what we're starting to see in Florida -- so to answer your question, no, there has not been any kind of dramatic change that would be tied and -- or that we would see tied to the campaign. There's a lot of enthusiastic stations and a lot of folks who are very excited to get out there and vote for the amendment for sure. And we see that enthusiasm at grand openings that we have and in our stores where we've had a lot of education and information for folks about the amendment and what adult use looks like in Florida. We have seen though, and I think this is an important point as it relates to Florida in this quarter specifically, is an increase, and we noted that last year, but I think it's important for folks to think about also as we go into next year that this third quarter seasonality in Florida is becoming more pronounced. Again, we've had massive population shifts in Florida with new residents coming in post-COVID, particularly from northern states, and those folks have a tendency to also be more snowbird type patterns in that third quarter time frame. In addition, with the hurricanes, and so while our stores were closed only 2 days, there still is impact, right, in those communities, particularly in certain areas like the Tampa St. Pete area, where we had massive evacuations, long-time power outages across a large part of those communities. And so it does take a bit because those communities stabilized and back to normal and the reestablishment of what we'll call normal customer behavior patterns in some of those areas. Also right, as we mentioned, our internal construction timelines were pushed for a number of stores, and that will continue to impact kind of some of those plans. We're trying to play catch up right now, but potentially through the end of the year. So those are really more of the patterns that we're seeing. And then the only other thing I would say in Florida is as it relates to customer behavior is that loyalty program, we did launch that in Florida and what we are seeing, not just in Florida but across the country where we launched that program, is that frequency is way up with folks who are utilizing that loyalty program, which makes sense, right, because we're able to push and communicate more real time to those customers. So they are coming in more often and that their average spend per month is significantly higher, right? The number is like over 120% higher than non-loyalty members, but then their basket per visit is lower. So again, their average spend per month higher, more frequent transactions, but average per visit is down. So it's changing kind of the buying patterns, if you will, a little bit within our stores. So we're monitoring that as well.

Congrats on the quarter and good luck on the vote today.

Next question from Aaron Grey with Alliance Global Partners.

Nice to see the continued efficiency improvements and regardless to the outcome. I appreciate the efforts that Trulieve has made regarding Amendment 3. So gross margin up nicely Q-over-Q despite the lower sales, which you attributed to efficiencies and lower cultivation costs. So would be interested in if this was due specifically to some more cost savings? Or was it higher yields regarding GEFCO that may have come above expectations previously. . And then bigger picture, as we move forward, particularly in adult-use scenario, it seems like there's a lot of opportunity for higher margins as you do get higher leverage on fixed costs in adult-use scenario. So how are you thinking about potentially reinvesting those cost savings to the benefit of the customer or letting it drop to the bottom line? And how that plays out into your thoughts as the competitive market increases ahead of adult use and when adult use start?

Yes. So there are quite a few notes in there, Aaron. So I'm going to try and take them. Just let me know if I leave anything out here that you'd like for the clarification on. So what I can tell you is that in this quarter specifically, we had continued great performance, of course, in Florida by GEFCO and just the team there continuing to really focus on efficiencies and productivity. However, I'll also mention, and we mentioned this as well on the call, that we also had margin improvements outside of the state of Florida. And we've been laser-focused on taking and continuing to take best practices wherever we can and applying those to other markets. And really, the teams in those other markets have done a great job and really, again, drilling down and focusing on improving margins across the platform, not just in Florida. We also mentioned that we've had a wholesale increase. And one of the things with wholesale, of course, is that there's some margin, of course, degradation between a wholesale platform and retail platform. But really, again, also in that wholesale channel, the team has done an amazing job of really focusing in on our product mix and the products that we're able to have great customer responses from that also are margin contributor. So I would say it's more than just a Florida story. It really is a company story. And I'm very proud of the team in getting those efficiencies and continuing to really deliver on our commitment to be best-in-class as it relates to margin. And because of that, and then going into your next question, that gives us the flexibility and optionality to lean in, in markets like Florida, where we have the ability to really leverage that incredible margin position and scale as we look forward to a large adult use conversion. And so certainly, even today, we have the ability to really make strategic decisions, to your point in terms of where we want to pass those savings on to customers where we want to be more competitive on pricing and where we can absolutely recognize outsized results because of our efficiencies.

That's really helpful color. I appreciate that, Kim. And then a second quick one for me. Just in terms of stores and specifically in Florida, overall, you had 15 stores opened in the quarter for the company. It seems like the most we've had in a number of years for Trulieve. So just as we look forward, how are you thinking about source saturation in Florida, particularly in adult-use scenario? It sounds like you still have some more openings coming online as well as that got delayed. Just overall outlook for retail within Florida would be helpful.

Yes. I mean, so obviously, we've got a strategy as it relates to our store openings, and we're looking and we have, again, a pretty robust modeling that happens where we're looking at, again, traffic counts, what we anticipate demand will be in certain areas, registers. We've said we've done a whole bunch of modeling as it relates to retail efficiencies. So what you're seeing from us is somewhat of a result of that work that the team has put in. And so I think we feel very comfortable in terms of where we're headed as it relates to our retail footprint here in the state of Florida. And just remember, right, that these stores have come in over time. And so some of our earlier locations, we were very restricted in terms of where we could go. Store footprint there may not be as high as it relates to number of registers that we have in those locations or even storage areas or vault areas. And so we also look to augment and offset some of those limitations as well. So again, feel great. And to your point, we had a really busy quarter this quarter as it relates to store openings in the state of Florida and really proud of the team for the push.

The next question is from Russell Stanley with Beacon Securities.

Maybe if I could switch gears to Arizona. Just wondering if you can update us there. Is Q4 seeing a kind of a normal seasonal ramp up after the typically slow Q3. And I think as well as the state is now allowing home delivery for adult use. Just wondering if that's something you'd be looking at, if that's a worthy opportunity, how much of an opportunity there is for you there?

Yes. Russ, so Arizona, again, very proud of the team there. We've been making great progress in terms of, again, increasing efficiencies and really focusing on margin improvement in that state. And the team, again, is continuing to really improve also on our customer metrics there as it relates to our customer satisfaction, NPS had an amazing and very successful of our loyalty program in Arizona as well. So Q3 is always tough in Arizona. And I think we're very transparent about that. Per usual, right, Q4 is starting to come back. And I think that we're going to have kind of a normal-ish and seasonal trend. But just like we said on the call, a lot of that is going to depend on how holiday does, right? Q4 is always somewhat dependent on how we see customers behave in November and December during the holiday period. But I feel good that the Arizona team is focused on the right things. And we'll see, right? And I think it's -- we're just going to have to see how delivery plays out. Delivery has had varying successes in different markets. And so again, in Arizona, we're hopeful that it will be additive for sure. And -- but we'll have to see how t shakes out there.

And maybe for my follow-up, I'd love to hear your latest view around acquisitions? I know you've highlighted in the last call, the important staying focused, but given you're closing in on the end of the campaign aspect of adult use in Florida, I'm wondering what your appetite is now.

Russ, why don't we talk about that maybe next quarter? Let's get through the vote today, and then we can have that conversation.

The next question is from Eric De Lauriers with Craig Hallum Capital Group.

First one, I guess a bit of a follow-up on sort of the seasonality seen in Q4 to date. So it sounds like in Florida, some of the sort of consumer down trading trends are looking -- are continuing into Q4 so far. Overall, are you seeing any kind of change in foot traffic? Are you seeing any of the snowbirds sort of coming back to Florida and Arizona, just kind of any additional insights on the seasonality in Arizona and Florida, and I guess the hurricane impact as well.

Yes. So we are. I mean we are seeing, again, kind of the traffic and purchasing patterns begin to show up in line, right, with what we've seen in the past. And I think that, again, last year, we were a little bit uncertain still as to sort of the seasonality impact in Florida, and we called that out a year ago. And so I think now we're saying, yes, right, that is absolutely more of a, we'll call it predictive trend now with it, also though, of course, starting to come back into Q4. . And again, I mean, I just want to make sure everybody heard me, right, on the loyalty program, right, that is also, I think, potentially shifting some of our consumer behavior in that we're seeing increased frequency increased total spend per month, but a decrease on average order per ton, which makes sense, right? If you're coming in, if you -- before you only came in maybe 2x a month, and now you're coming in 4x a month, right? Your overall spend is actually increasing but you're not going to spend the same amount that you spend 2x, 4x. And so we are seeing some of those adjustments as well, and that may continue to -- so we're -- again, we're in early days of the loyalty program, so we need that to settle a bit before we can -- so I'd just say that because we're talking about these "trends" on consumers, but there is an added layer here that some of it may have an outsized influence because of again, one, you have seasonality. So you've got folks that typically may spend more that are out of the system for a bit of time because they're traveling over that period. Plus you have right, with customers who are remaining in system, you have, again, this loyalty impact, which is kind of, again, triangulating around us being able to say, is this a true underlying wallet pressure issue? Or are we actually driving some of this behavior because of the loyalty construct?

That makes sense. And actually segues nicely into my follow-up question here. So on the loyalty program, certainly very encouraging metrics that you shared in the prepared remarks. Can you maybe talk about any differences that you've seen in customer adoption or sort of anything else worth calling out between adult-use markets and medical markets and then the sort of obvious implication of sort of any insights into how you potentially look to capture a strong share of adult-use consumers into the loyalty program in Florida if we do get a successful vote here.

Yes. I mean I think that it was really great for us to be able -- to be in position to be able to launch this loyalty program this year, right, ahead of Florida adult use because we were able to launch it in Arizona, which had really no loyalty program and is heavy on the adult-use side. And so -- and had super strong adoption. And so I think there's a lot of learnings from that Arizona market that we can bring into a market like Florida and/or Pennsylvania when it ultimately converts. And so I would say that the strength in our adoption has been, again, very, very encouraging and not just the strength in the adoption rate, but also the utilization of the program once adopted. And so again, I think that speaks to just the way that the loyalty program was constructed that it is connecting and resonating with our customers as we're seeing, again, with the -- as I mentioned, with the increased frequency and increased overall spend numbers.

Very helpful. Congrats on the great quarter and good luck tonight.

We have the next question from Mike Regan with Excelsior.

A quick question on the change in the frequency versus the -- basically coming to store more often and buying less when they come in each trip. Are you seeing a shift in actually the package size? And basically, would that impact the gross margin and the pricing sort of a reverse bulk order? You pay less per gram when you buy more and pay more program when you buy less.

Yes. No, we're not seeing that, Mike.

That's great to hear. And then just looking just on the gross margin, it just seems like it's at sort of the higher plateau level. So if you have any thoughts on how your gross margins might be inherently different under adult use, ignoring any choice to reinvest in margin more just from a mix standpoint or a product standpoint, anything like that?

Yes. I mean I think that we would anticipate margin being relatively -- I mean we're going to stay, right, until we know different that it would be relatively in line because, right, I mean, again, our underlying cost profile, we're continuing to focus on it. But also at the same time, right, we're -- we've got -- our efficiencies are where they're at, which we are very happy with and proud of. I don't anticipate in adult use in Florida, and we've had a lot of conversation about this internally as well. It's very important that we have pricing that is attractive. Listen, the whole goal here is to get folks off of the street and out of the black market and into a regulated environment, right? It's still yet to be determined as it relates to the tax rate. Although I am encouraged and believe that the legislature will make it reasonable. But that being said, right, we need to make sure as an organization and we have the flexibility, which I'm very happy that we have the flexibility to ensure that pricing is reasonable, so that we are able to attract a strong customer base. And look, that's one of the things that Trulieve was known for. I mean, candidly, when we opened Florida, and we were first off the gate in Florida, there were a lot of markets across the country that we're launching medical programs, New York and Pennsylvania come to mind, where pricing was ridiculously high, in my opinion. And we made the strategic decision from the beginning to look at other markets, more mature markets, like in Arizona, like Colorado and even California to make sure that the products that we were selling to Florida medical patients were reasonable as it relates to price. And I think that, that has really served us well as an organization because it's focused us in on efficiency and ensuring that we are very laser-focused on cost control and have been as an organization from day 1 as opposed to some companies who started at a very, very high price point and then have had to reconfigure their business as a normalized pricing has come in, and I'll use Pennsylvania as an example, right? When we went to Pennsylvania, we purposely came in at what we consider more normalized pricing. And it's one of the reasons that we've been so successful in Pennsylvania to have such a loyal customer base there today. So from our lens, we believe that it's very important that we come in, again, with normal, I'll call it, strategic pricing in Florida. We have a shot to really make this market work from a conversion standpoint and again, get those folks off the street into a regulated retail environment.

That's great to hear. And good luck with the vote today. Hopefully, it goes yes.

Thanks so much. And listen just a shout out anybody who's listening on this call. I know that you all know people in Florida or you live here. And so this takes a village. So I will just say, I ask everybody on this call, I know you all normally ask me questions, I'm going to ask you to do something this time. Go through your phone, find 5 to 10 folks, text or call them and ask them if they've voted and ask for them to vote Yes on 3 because it really is a team effort, and I have always been taught that you lose every vote you don't ask for. So if you guys can do that for me today, that would be great.

We have the next question from Andrew Semple with Venton Financial.

Congrats on the Q3 results. First question here would just be on the full year CapEx guidance at $130 million. If that excludes software costs, that would seem to imply $50 million for Q4. Just correct me if I'm wrong there. It's also probably safe to assume the bulk of that in Florida. Maybe help us understand what sort of process improvements or capacity additions you might be looking to make in the states? And how much of that budget might be sensitive on the vote tonight.

Andrew, this is Wes. Appreciate the question. Yes, I mean, look, as Kim said in the prepared remarks, obviously, this is potentially the big conversion that we possibly have. So there's a lot of things with store footprint, redesign, all the things noted that are important in building in the optionality to be -- to scale production as needed. We want to be ready on May 5. Obviously, today is a big day. It's going to drive some decisions in the next 24 hours as far as how we're looking at it. But we have a huge store footprint. We want to be in position to try and supply those stores as best we can when we go live, hopefully, that first week of May. So it's systems, as Kim mentioned, the SAP upgrade, the Web 2.0, working on things to help our customers order better, faster, slicker, quicker, keeping in the ecosystem. Those are all the sorts of things that we're focused on to build that loyalty. Again, the questions earlier in the queue were around how you think about May fit 5 loyalty, and that's a big part of how we're thinking about where to spend. We want to get those first rec customers in the door, and we want to stay within our ecosystem.

Great. That's helpful. And then maybe just my follow-up here, given the significant improvements in margins and efficiencies achieved over the past few quarters, just want to maybe clarify, you spoke to cost efficiencies continuing to be a big driver behind the margin profile here. Is that still largely coming from the GEFCO facility? Or are you also seeing efficiencies across your cultivation network more broadly across the country?

Yes. And as I mentioned before, effort, right? And certainly, GEFCO and Florida continues to be an amazing asset for us. And the team there continues to really focus and drive efficiencies at that facility. But again, across the country, we're taking those best practices to the extent we are able to and also adding tweaks and adding upgrades to our sites across the country to also have margin improvement in other markets. And so again, it's a company-wide effort. And I can assure you that GEFCO alone, while it's important, it's contributive, is one piece of the puzzle and it really is a culture across Trulieve that we are focused absolutely every day on incremental improvement in all aspects of the business. That being said, right, I just want to be clear here, right? We are very proud of our current margins. And so there will be margin fluctuation in the future, right, depending on the puts and takes of a particular quarter. So again, happy with where we are today, but -- and feel like we're -- obviously, we've made major strides this year on margin, but I don't want folks to get too do ahead of themselves, moving forward, again, feel like we're firing pretty well in that 60% range in terms of where we are today.

Yes. And Andrew, I'd be remiss if I didn't also mention on the CapEx question that we are making investments in our other states as well on our -- particularly kind of our processing in West Virginia, Pennsylvania, Arizona, we are making significant investments in those markets as well just to be better at what we do. So that is also a piece of that CapEx.

Great. That's helpful. And Kim, I'll certainly go through my phone to see what snowbirds I can find. Best of luck on the vote tonight.

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 appreciate your support of Yes on 3 and your efforts to help turn out the vote today. We look forward to sharing additional updates during our next earnings call. Thanks again, and have a great day.

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