Q4 2019 Trulieve Cannabis Corp Earnings Call

Apr 9, 2020 (Thomson StreetEvents) -- Edited Transcript of Trulieve Cannabis Corp earnings conference call or presentation Wednesday, April 8, 2020 at 12:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Kimberly Rivers

Trulieve Cannabis Corp. - CEO & Chairman

* Lynn Ricci

Trulieve Cannabis Corp. - Director of IR & Corporate Communications

* Mohan Srinivasan

Trulieve Cannabis Corp. - CFO

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Conference Call Participants

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* Andrew Semple

Echelon Wealth Partners Inc., Research Division - Special Situations Associate

* Derek Dley

Canaccord Genuity Corp., Research Division - MD & Consumer Products Analyst

* Jason Zandberg

PI Financial Corp., Research Division - Special Situations Analyst

* Matthew Robert McGinley

Needham & Company, LLC, Research Division - Research Analyst

* Pablo Ernesto Zuanic

Cantor Fitzgerald & Co., Research Division - Research Analyst

* Robert Fagan

Stifel Nicolaus Canada Inc., Research Division - Equity Research Analyst of Healthcare

* Russell Stanley

Beacon Securities Limited, Research Division - MD & Research Analyst

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and welcome to the Trulieve Cannabis Corporation Fourth Quarter 2019 Results Conference Call. My name is Marcella, 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, Ms. Lynn Ricci, Director of Investor Relations for Trulieve. You may begin.

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Lynn Ricci, Trulieve Cannabis Corp. - Director of IR & Corporate Communications [2]

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Thanks, Marcella. Good morning, ladies and gentlemen, and thank you for joining us today to discuss financial results and corporate highlights for Trulieve Cannabis Corporation's fourth quarter and year-end 2019. With me today are Kim Rivers, Chief Executive Officer; and Mohan Srinivasan, Chief Financial Officer. Following our prepared remarks, we will open the call to questions.

Before we get started, I would like to note that today's call is being recorded for the benefit of investors, individual shareholders, the media and other interested parties. Please remember that our discussions today may include forward-looking statements that involve a number of risks, uncertainties and other factors that could cause actual results to differ materially from those forward-looking statements. Certain material factors and assumptions were considered and applied in making forward-looking statements. These risk factors are included in our MD&A for the quarter ended December 31, 2019, and in the earnings press release that we furnished in connection with today's call. Statements made on this call speak only as of today, and we assume no obligation to update any of this forward-looking information.

Also, our prepared remarks this morning reference non-IFRS financial measures in order to provide greater transparency regarding Trulieve. Any non-IFRS financial measures presented should not be considered an alternative to financial measures required by IFRS and are unlikely to be comparable to non-IFRS financial measures provided by other companies. Any non-IFRS financial measures referenced on this call are reconciled to the most directly comparable IFRS measures in the company's MD&A for the quarter ended December 31, 2019, as well as in the table at the end of our earnings press release. We believe that our profitability and performance is further demonstrated using non-IFRS metrics. Please note that all dollar references are to U.S. dollars.

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This morning, we reported for the fourth quarter and year-end 2019. A copy of our news release, financial statements and MD&A may be accessed through the Investor Relations section of our website, trulieve.com, and were also filed on SEDAR. In addition, a webcast of today's conference call will be available on our website.

Now I will turn the call over to our CEO, Kim Rivers.

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Kimberly Rivers, Trulieve Cannabis Corp. - CEO & Chairman [3]

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Thanks, Lynn, and good morning, everyone. Thank you for joining us. We are speaking with you all today in a distributed manner as we all practice social distancing. I want to wish everyone listening on the phone and online well and hope everyone is staying healthy during this time. Before I cover our year-end results and provide a business update, I would like to share with you how Trulieve is dealing with COVID-19. We were heartened to have medical marijuana gain essential status as markets we operate in issued stay-at-home orders. States deemed cannabis essential across our country, and those actions speak to shifting perceptions and the important acceptance we are gaining in the U.S. We are, in some ways, fortunate to be in an industry deemed essential and, therefore, not as directly impacted by the COVID-19 crisis. However, we are being affected in different ways. From the way we go to market to the incredible investment and man-hours spent by our teams to address an uncertain and very fluid landscape. And although we have seen some short term benefit, the enormity of this situation is not lost on us. The COVID-19 crisis is causing a severe impact to other industries, our country, our health care system as well as the way it's affecting our patients, communities, employees and their families. As a company with properties at risk during hurricanes, we have an established preparedness team that we quickly convened for coronavirus planning in early March. Changes were immediately implemented throughout our facilities and in our Trulieve dispensaries to maintain safe, healthy environments to work and transact business.

Let me outline some of the more significant changes for you. Our first acts were to protect our patients by ensuring our retail dispensaries were safe, clean and healthy. We contracted with a licensed remediation contractor to conduct deep cleaning events across our facilities and implemented new cleaning procedures, dispensary limits and chair spacing in our lobbies to encourage social distancing. In addition, special store hours are set aside for our immune-compromised patients to address the special needs of that patient segment. Probably most noticeable is that we took a fresh look at how we could best approach Truliever interactions during this time. We launched new offerings and pilot programs such as mobile hubs, curbside pickup, stores dedicated to pick-up only and making better use of technology for scheduling and delivery alerts.

Internally, we've been busy as well. We moved quickly to protect our employees and facilities, updating policies to provide additional resources to our employees and added procedures to keep our workplaces safe, such as implementing temperature checks for all employees entering our facilities beginning in early March. Our teams focused on workforce balancing in anticipation of potential employee absences. We've also accelerated our hiring to meet these expected needs as well as known increases in deliveries and in call center and online chat volume. We made immediate changes to our production and sourcing. We're taking advantage of our oil inventory by increasing production to ensure we have 8 weeks of finished goods inventory available for our stores. We also have good insights and partnerships with suppliers and have sourced secondary suppliers if needed. As a vertically integrated cannabis company, our supply chain visibility control provides shelter from supplier risk.

And finally, we made investments, such as increasing our leased fleet by over 80 delivery vehicles to prepare for increased delivery needs in the state. These actions were completed while our business experienced an increase in demand from patients as COVID-19 started to take hold in the U.S. This behavior followed similar patterns that we have seen before hurricanes hit. Analyzing the pre- versus post-COVID environment starting week ended March 13, Florida's weekly average demand increased by approximately 17% in oil and 37% in flower compared to the weekly average leading up to COVID.

Trulieve outperformed the competition by achieving 21% growth in oil and 62% growth in flower during the same period. We were able to meet this heightened demand due to the on-hand oil and flower inventory readily available to us via our robust supply chain. This has yielded us approximately 50% oil share and 58% flower share during this last 4-week period. Our ability to easily ramp up production, leverage our purchasing power for supply chain requirements and our large trained workforce of approximately 3,000 employees that can shift as needed set us in an advantageous position to quickly address changes in market dynamics. The changes in our patient interactions and ramifications on how we conduct business will be felt for some time to come. I am confident, however, that the holistic and strategic thinking about our business during this crisis, along with investments we're making, will help us gain critical analytics to increase efficiencies across our business. There continues to be uncertainty with COVID-19, but we are navigating this turbulent time and leveraging the strong foundation we've built. Our organization rising up as a team committed to serving our patients has been truly inspiring. They have done some amazing work preparing and adapting our business for COVID, and that ingenuity positions us to emerge from this situation stronger than ever.

Now turning to our results. Trulieve experienced a strong fourth quarter and exceptional year-end both financially as well as operationally. Our revenues were $79.7 million for the fourth quarter, which represents a sequential quarter-over-quarter increase of 13% and 122% increase over the same quarter last year. On a full year basis, we achieved revenues of $252.8 million, exceeding our expectations as well as The Street's consensus. We are happy to end the year on a high note and deliver another record revenue quarter. Trulieve's adjusted EBITDA in the fourth quarter was $45 million or 56% compared to $36.9 million or 52% in the third quarter. On a full year basis, our EBITDA performance was $132.5 million or a consistent 52%, completing a second full year of profitability for Trulieve.

Our leading profitability continues to set us apart in the industry and remains an important differentiator for Trulieve. 2019 was an important year for our business. Results were driven by the introduction of smokable flower in Florida last spring. For those of you who have followed us over the last year, you'll remember Florida ramped up extremely fast, remaining in the 50% range of our product mix for the balance of the year. Operational efficiencies also contributed to our success. These efficiencies were achieved by implementing automation, investing in technology platforms and introducing new programs. We also added to our bench strength both within the executive team and our Board of Directors, which brought new ideas, best practices and procedures into the mix. And we continued to build our brand by bringing high-quality innovative products to our Trulievers and delivering authentic customer experiences. This all serves to increase customer loyalty and maintain our leadership position.

2019 was also shaping up to be a very important year across our industry. With profitability in sight for many of our peers, the U.S. MSOs decoupling from the Canadian market and the proposed SAFE Banking Act is making progress. Then the fall brought a shift in capital markets. Lack of access to capital caused many companies to reevaluate their expansion strategies. We anticipate that Trulieve's disciplined approach to our M&A strategy and our patients as we watch the capital markets decline will present us with many attractive expansion opportunities in the coming months.

We began the year in 2020 excited about our future, and we still are. Despite the capital market upset in the back half of 2019 and competitors pulling out of our rich and robust Florida market to invest in other areas, we were in good financial shape and kept our foot on the gas, opening 7 stores in Q4, ending the year at 42 dispensaries here in Florida. At year-end, our Florida employee count stood at 2,866 or 18.5% of all Florida cannabis-related jobs according to the Leafly year-end report. We are not only the largest cannabis employer in the state and Gadsden County, Florida's largest employer in general, but with our current head count of over 3,000 employees in the U.S. as of the end of Q1, we believe that makes us the largest MSO employer in the country. And our team continues to outperform as Trulieve is currently enjoying a solid market share, with 19% of the Florida dispensaries generating approximately 50% of the market share. It's a market we understand and has what we believe to be incredible growth ahead.

Florida is our backyard, and we intend to dominate this market. In 2020, we will plan to continually open stores in strategic locations where we can either service a high rate of deliveries, answer the call of patient requests and populations or secure solid locations ahead of the expected recreational market in 2022.

Let me give you a quick update on the other states with the Trulieve presence. In Massachusetts, we are close to completing the Phase I cultivation build-out and nearing completion of our first dispensary build-out in Northampton. However, we currently have reduced visibility with regard to executing on our plans. Due to the COVID-19 crisis, Massachusetts had limited construction activity and has postponed CCC inspections. We will reassess our time line once inspections resume.

In Connecticut, we just recently rebranded our Bristol dispensary to a Trulieve location. We waited to complete this branding to assure a seamless transition and that patients understood that the customer experience they relied on was not changing with the acquisition amid a number of new dispensaries also opening in the state. Despite dispensaries in Connecticut growing from 9 to 14 at year-end, we were happy with our performance in being able to maintain an outsized market share. We believe this is based on the great customer-focused team in place. We are watching for the recreational market to open up, which will be an important catalyst for the state.

In our Palm Springs, California location, we are also in the process of rebranding the store, and we'll be moving to a new store footprint within the same plaza. The California dispensary has been treated as experimental like an R&D store where we tested products based on time of year, festivals, et cetera. We curated the product assortment, reducing the number of products as more of a hybrid model of the West Coast's add everything under the sun to your shelves and the East Coast's more medical feel, and we had success. The revenue performance has increased, which we believe is based on the improved presentation of less SKUs and our employees' knowledge of products.

Let me now talk a little bit more about our retail dispensary performance. I believe we are dominating the market in many ways, which can be seen in our retail metrics. A year-end call is a good time to offer a little more detail, and these metrics are too good not to share in order for you to think about our business beyond cannabis and in a pure retail light. I'll walk you through our metrics for payback per store, customer retention, same-store sales and revenue per square foot.

In Florida, we achieved a payback period for each new store in just under 2 years. This includes store build-out, inventory, CapEx for indoor growth to support the store and assumptions for cash margin. Doing business in Florida is less expensive in part by our scale advantages. So this payback period may not be the same as operations in other states.

A metric that is traditionally used in retail to reveal customer loyalty is our customer retention rate. In comparing the third quarter with the fourth quarter of 2019, we had a customer retention rate of 72%. We've previously tracked customer loyalty using a Boomerang report which required analysis of patients' actions through various stages of the life cycle, tracking shopping patterns for a combined scoring methodology, but we will start instead reporting on this industry-standard customer retention metric going forward.

A second but closely aligned metric that reveals customer loyalty and plays into the customer lifetime value is growth in average patient spend year-over-year. Average active patient spend is tracked on a monthly basis using basket size and visits per month. As we look across our patient purchases year-over-year, we have seen a shift in purchasing pattern trends. At year-end 2018, active patients visited a Trulieve store on average 1.6 times per month with an average basket size of $145. These trends have shifted to smaller basket sizes but more frequent visits. As of year-end 2019, we had on average 2.7 visits per month by active patients with an average basket size of $121. So although basket size is smaller, it's a net positive with the overall revenue per patient. As of Q4 2018, our average active patient spend per year was approximately $2,800. That has grown to approximately $3,900 in Q4 2019 or an additional $1,100 or so per average active patients. What makes this such a great number to see is that the growth in patient spend is not due to price increases but customer demand and loyalty as we have not raised prices over the last year.

To track these loyal Trulievers at an individual store level, we used a traditional same-store sales metric. For the 13 locations that were opened in both 2018 and 2019 for the entire year, same-store sales increased by 44%. I'll note for this metric that as our business continues to mature, some of these stores will start to reach their peak in number of patients served. Our expectations are that there will be a growing number of stores in this comparison, which will start to reflect that feeling, offset by growth in average patient's spend.

And finally, the typical retail metric of revenue per square foot to track overall performance. In 2019, our 44 dispensaries across the U.S. generated approximately $2,300 per square foot. This is based on days open for our full year revenue and our total retail square footage as of the end of December 2019. Comparatively, this retail metric puts Trulieve in line with other world-class retailers.

We believe in the retail world, these metrics are impressive and are key performance indicators for growing our business successfully and profitably. Ultimately, what's driving our continued market share is a mix of our core values for safe quality products, innovation that resonates with our Trulievers and consistent delivery of authentic customer experiences. This approach helps us achieve the high level of customer satisfaction and loyalty that generates the positive word-of-mouth effect we're seeing within our Truliever community.

Building on these strong retail metrics and our success in Florida, we are planning to expand the Trulieve brand. Expansion for us is not a land grab. I'll remind you that we make calculated decisions based on our criteria to assure our investments will not only be financially successful but will promote the Trulieve brand that we have strategically curated and nurtured since the beginning. While we continually evaluate acquisition opportunities and we have implemented a strategic initiative for applications for licenses in new states, we also focus on organic growth. As Mohan will speak about, we strategically increased our indoor cultivation facilities in Florida to maintain pace with the demand for smokable flower. We convert dry cannabis that has not sold as flower into oil to preserve shelf life. We supplement our oil reserves with harvest from our greenhouses. The ability to reap large, scheduled harvest from our greenhouses is an important tool for us to manage production costs while maintaining scalability in our stable oil inventory. We can easily ramp up or down oil production to match customer demand, particularly when edibles become available for sale in Florida.

Before I turn the call over to Mohan to review the financial results, I want to offer the following: I am hopeful, as you all are, that a successful global effort will be made to eradicate COVID-19. In the meantime, we have a commitment to our Trulievers to provide access to the medicine they rely on, to our employees to provide safe, healthy workplaces where they can earn a living in this new economy and to our shareholders by continuing to execute against our strategy and create value.

Despite the uncertainty across the country, we remain excited about our business strategy, the growth of our teams and our new innovative plans and products on the horizon. As a road map for Trulieve in 2020, our focus is on these 4 actions: One, we will continue to invest and grow in Florida and fully intend to maintain our market dominance. We will continue to explore and look for smart, accretive acquisitions and participate in license application processes that will offer us expansion possibilities, new revenue streams and broadening our Trulieve brand into new markets. We will continue to invest in our innovative track, assuring we address our commitment to provide a wide variety of options and choice for our patients; and we will stay focused on building a sustainable business, meaning being financially disciplined to maintain profitability and deliver shareholder value. Lastly, although we had hoped to be in a position to update guidance on this call, the underlying assumptions, as I just outlined for all of you, have not changed or gained additional clarity and COVID-19 has added a layer of uncertainty. We do, however, feel comfortable reiterating the annual guidance range previously provided for 2020 at this time and will consider updating as things come into focus.

With that, I'll turn the call over to Mohan before I add my closing remarks and open the call to Q&A. Mohan?

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Mohan Srinivasan, Trulieve Cannabis Corp. - CFO [4]

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Thank you, Kim, and good morning, everybody. Let's move to the company's 2019 financials. Trulieve has been dedicated to building a business with a strong financial foundation. This has served us well as we enter 2020 and are faced with the coronavirus and the uncertainty this has caused across many sectors. There are cannabis companies, particularly those with exposure to the recreational marijuana market who lack access to capital markets and may not fare well in this global economic slowdown. As the most profitable public cannabis company in the U.S. and with cash on hand, Trulieve is well positioned to continue execution of our growth plan. As Kim covered, we had a strong end to 2019, exceeding our internal forecast as well as discrete estimates achieving a record quarterly revenue of $79.7 million, which, as Kim mentioned, represents a sequential quarter-over-quarter increase of 13% and a 122% increase over the same quarter last year. For the full year, we achieved diluted earnings per share of $1.54.

Before I move on to revenue less production expenses and cost of goods from third-party suppliers, let me highlight here for you an accounting process that continues to be a challenge for some investors here in the U.S. as the IFRS method in this respect is different to GAAP methodology. Under GAAP, expenses for grow cost for biological assets will be capitalized until they are sold. As per our accounting policy under IFRS, we expense grow cost. Because we expense these costs, we expect fluctuations from quarter-to-quarter. Grow costs typically include soil, nutrients and anything that is used as an input for growing plants including labor cost as well as direct and indirect overhead. So on a consolidated basis, production expenses in Florida and cost of goods from third-party suppliers in Connecticut and California totaled $28.1 million for the quarter. Revenue less production expenses and cost was $51 million -- $51.5 million for the quarter or 65% of revenue. This compares to $20.8 million or 58% in Q4 2018. On a full year basis, our revenue less production expenses and cost of goods from third-party suppliers was $163 million or 64% compared with $68.6 million or 67% of revenue in 2018. For comparison, on a full year basis, if we were to account for capitalization of grow costs as we've previously discussed under GAAP, we would have been at 76% for both 2019 and 2018.

As cultivation forms part of production costs, I will now turn to cultivation. There have been and will continue to be increases to our cultivation facilities as we continue our growth, allowing us to keep pace with market demand. At the end of the fourth quarter, we reached reportable cultivation of 544,408 square feet of indoor cultivation and 1.140 million square feet of greenhouse facilities. Combined, our cultivation footprint of 1.6844 million square feet had capacity of 63,190 kilograms annually. In the first quarter, we completed 72,000 square feet of indoor cultivation construction in Florida with an additional 24,000 square feet of indoor cultivation anticipated to be completed in the second quarter.

Since we're discussing cultivation, this may be a good segue to our inventory discussion. We had a total of $204 million as inventory, which includes significant amount of fair value. Just on a quantity basis, this will translate into 5 weeks of flower inventory and 22 weeks of oil inventory. Please note that inventory levels are influenced by harvest cycle. The recent harvest from our greenhouses have given us a supply of oil inventory that we can draw down upon and strategically schedule harvest from these greenhouses in the future as necessary.

Now turning to our expenses. I'll first cover sales and marketing expenses. These costs are largely dispensary-related costs and in the fourth quarter amounted to $18.1 million or 23% of revenue compared to $14.7 million or 21% of revenue in the third quarter. On a full year basis, sales and marketing expenses accounted for $53.9 million or 21%. The increase in cost in this expense category from Q3 to Q4 was primarily due to payroll costs related to 7 additional stores that were opened in the fourth quarter plus costs related to preparing for new store openings for the fourth quarter of -- for the first quarter of 2020.

G&A for the quarter was $5.3 million or 7% of revenue compared to $3.2 million or 5% of revenue for the prior quarter. This increase was primarily driven by expenses related to new market opportunities in the fourth quarter. On a year-over-year basis, G&A was $14.1 million in 2019 versus $19.2 million in 2018. The decrease in G&A expenses from prior year was primarily due to stock compensation expense related to $8.8 million previously disclosed warrants issued in conjunction with our going public in 2018 that we found to be understated. This understatement is currently an immaterial amount, and it is a noncash expense that has no impact for 2019 and did not require the company to refile or recertify its prior year financial statements.

Total expenses in 2019 were 30% compared to 44% in 2018. Overall, keeping a high degree of financial discipline around expenses is one of our keys to profitability. On a full year basis, operating income for the company was $285.9 million compared to $60.2 million in 2018. Net income was $178 million for the year, taking into account the net change in the fair value of biological assets required under IFRS accounting standards versus $27.9 million in 2018. This was a year-over-year increase of 538%. We believe adjusted EBITDA, a non-IFRS measure, provides valuable insight into our profitability and performance. Adjusted EBITDA excludes from net income as reported, interest, tax, depreciation, noncash expenses, RTO expenses, other income, growing costs related to the biological assets and unsold inventory and noncash effects of accounting for biological assets.

We report adjusted EBITDA to help investors assess the operating performance of our business. Our adjusted EBITDA in the fourth quarter of 2019 was $45 million or 56% of revenue compared to an adjusted EBITDA of $36.9 million or 52% of revenue in the previous quarter. On a sequential quarter-to-quarter basis, the adjusted EBITDA increased by 22%. Please note that capitalization of grow costs for biological assets and unsold inventory fluctuates as new facilities are brought online as selling and marketing costs varies depending on new dispensary openings and inventory levels. And as we enter new states like Massachusetts where the cost structure can vary, we believe our normalized adjusted EBITDA will be around 43%. On a full year basis, adjusted EBITDA was $132.5 million or an increase of 159% over 2018.

Now turning to taxes. As a percentage of gross profit, including the net change in the fair value of biological assets, our effective tax rate was 23% for this quarter. For the year 2019, it was 26% compared to 27% for fiscal 2018. As a reminder, we began explaining taxes in this manner, starting in the second quarter of 2019, based on our belief that this is a better and more stable measure of calculating effective tax rate than as a percentage of income before taxes based on discussions with our tax advisers.

Moving now to our balance sheet. As of the end of fourth quarter 2019, our cash balance was $92 million or an increase of $61 million from the end of Q3. This was primarily the result of completing financing activities during 2019. These transactions further strengthened our balance sheet by nearly $68 million. In addition, we met interest payments on all our debt and note obligations.

Finally, as Kim mentioned, we are reaffirming our 2020 guidance range of $380 million to $400 million for the year with anticipated adjusted EBITDA of approximately $140 million to $160 million or 37% to 40%. We will continue to exercise financial discipline while leveraging our scale.

In closing, 2019 was a successful year for us. We delivered top line growth, up 146% year-over-year, and we feel very good about the momentum in our business.

I'll now hand this over to Kim for closing remarks. Kim?

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Kimberly Rivers, Trulieve Cannabis Corp. - CEO & Chairman [5]

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Thanks, Mohan. Trulieve is gaining recognition for our financial discipline and strategic direction. We fully believe the strategy we have is the right one for us. We demonstrate our core values through the quality products we bring to market, the initiatives we put in place for the safety of our employees and patients and the financial discipline we maintain to deliver shareholder value. Medical cannabis is one of the few economic engines in this new economy, and we can be powerful contributors. We will continue to grow our business responsibly, sustainably and profitably. And I would be remiss if I didn't take this opportunity to personally thank our employees from the folks in our cultivation and production facilities that we heavily depend on daily to grow high-quality plants and produce industry-leading products for our shelves to the dispensary and retail employees who work so closely with our Trulievers to deliver the ultimate customer experience and be our brand ambassadors and, of course, the executive team and corporate employees who have implemented best practices and brought industry-leading approaches to our business. We appreciate how everyone has stepped up as we are all in this together, growing Trulieve one customer at a time and, as I always say, onward.

Thank you for joining us today. We look forward to updating you on our progress again next quarter.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from the line of Robert Fagan from Stifel GMP.

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Robert Fagan, Stifel Nicolaus Canada Inc., Research Division - Equity Research Analyst of Healthcare [2]

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Congrats on a fantastic quarter here.

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Operator [3]

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Okay. He has disconnected. So our next question will come from the line of Pablo Zuanic from Cantor Fitzgerald.

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Pablo Ernesto Zuanic, Cantor Fitzgerald & Co., Research Division - Research Analyst [4]

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Kim, 2 questions. I realize that you confirmed guidance for the full year, but can you comment about the first quarter? Would you characterize it as a quarter where you saw acceleration in terms of sequential growth versus a 13% growth you saw in the fourth quarter?

And the second question also related about 2020. The EBITDA margin implies about 38% for the year. You need 56% in the fourth quarter. Is the assumption that Massachusetts, California, Connecticut are going to be a large part of revenues and hence, margins will come down? Some color there would help.

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Kimberly Rivers, Trulieve Cannabis Corp. - CEO & Chairman [5]

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Thanks, Pablo. So to answer your first question, I would say that we certainly have seen -- and this is illustrated in the data that you all see from the Department of Health and the OMMU on a week-over-week basis. So we certainly have seen increased growth in Q1. So I can answer that question affirmatively.

The second -- to answer your second question with respect to EBITDA for the year, I think that, that, as we repeatedly say, that number does tend to fluctuate based on a number of factors. With the heavy contribution from Florida, we would hope to be able to keep that EBITDA margin up. However, again, there are many, many factors that contribute to that EBITDA line.

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Pablo Ernesto Zuanic, Cantor Fitzgerald & Co., Research Division - Research Analyst [6]

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Okay. Can I ask just a quick follow-up regarding the fourth quarter, and I know that, that's a bit dated now, December. When I look at the OMMU data for the December quarter, flower for you up 43% in terms of volumes, the rest are broadly 57% and then you delivered 13% sequential growth after 20% sequential growth in the third quarter. I'm just trying to understand, in the fourth quarter, did anything decelerate? Why is there a disconnect apparently between your sequential revenue growth and the OMMU volume data? Was there more price competition in the market, a big change in mix? If you can give some color about that fourth quarter, it would help. That's it.

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Kimberly Rivers, Trulieve Cannabis Corp. - CEO & Chairman [7]

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Yes. No, Pablo. Thanks for the question. Keep in mind, and I think we've said this in the past, that Q4 does tend to be a little bit more promotional. You have a couple of activities that happen in Q4 every year. The first is going to be that Black Friday and leading up to that in November and then, of course, the holidays in December, which -- our typical philosophy is that we're not overly promotional. However, fourth quarter is, I would say, out of all of the quarters, the most promotional that you'll see from us. So it was likely that.

And then on flower, I'm not sure, again, kind of everyone's got a little bit of a different way of building up their own models, but on flower, keep in mind that we do have different price points and tiers and products that go into that flower number. So while it is the -- on -- by 8th, it's $33, $43, $53 shelves. We also have pre-rolls, and then we also have our mini product, which is priced a little bit lower. So that category within the flower category, there is different products that speak to different customer segments.

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Operator [8]

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Your next question comes from the line of Matt McGinley from Needham.

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Matthew Robert McGinley, Needham & Company, LLC, Research Division - Research Analyst [9]

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I think my first question is a follow-up on that promotion question. Does the promotional cadence change at all into the first quarter and into the present environment? Given that -- kind of what's going on in the world, but how philosophically should we think about how you approach discounts or loyalty going forward or in the present environment compared to what we saw in the fourth quarter and last year?

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Kimberly Rivers, Trulieve Cannabis Corp. - CEO & Chairman [10]

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Yes. Thanks, Matt. It will -- like I said, it will change going into Q1. We always -- and this is again typical for us and follows the same pattern that we followed last year. So going into Q1, we typically slow down on promotions, certainly in January, as we refocused on wellness and just coming off of year-end in a promotional-heavy environment of December. So I think that you can expect that moving into Q1 that those -- that promotional activity will have slowed. Keep in mind, we do have, of course, 4/20. It's going to be a very different 4/20 than any of us, I think, probably had planned. So there will be -- and we're still working through that a little bit as to how best to still keep a celebratory environment around 4/20, but of course, appropriately, coupled with our realities in not wanting to encourage large crowds at any of our locations. So we're working through that now. And it's a work in progress, I will tell you, with respect to the philosophical balancing. It's something that we debate internally quite a bit in terms of wanting to add a sense of normalcy, wanting to be sensitive to folks in this current environment that there are folks who are out of work and maybe a little bit more price conscious at this point but also making sure that we're still introducing high-quality products that have a premium value attached to them and, again, having that balance. So I think you'll see a more balanced or normalized approach to us in Q1, which is normal. But I do just want to highlight for you that we do have 4/20 coming up in Q2.

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Matthew Robert McGinley, Needham & Company, LLC, Research Division - Research Analyst [11]

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Right. And this is probably for Mohan. But on the inventory, how should we think about the composition of your inventory balances now compared to what we saw in the fourth quarter? I think you've said that you wanted to keep around 8 weeks of finished goods inventory in the stores. Does that, I guess, infer that your inventory balances will become a source of cash in 2020? Or should we expect continued investment there in working capital to fund the growth of the business?

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Mohan Srinivasan, Trulieve Cannabis Corp. - CFO [12]

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Thank you for that question. So if you look at our inventory, primarily our work in process inventory, has gone up. And we said that we have flower inventory of 8 weeks and probably 22 weeks of oil inventory. So we built this oil inventory in order to address what is needed for the marketplace. And also, we wanted to convert our biomass into oil reserves. So we basically believe that as we grow, we need the inventory for new stores, which are coming up, like we've opened 7 stores in December, and we are planning to open a lot more stores in 2020. So the inventory levels will fluctuate depending on the store openings and how much inventory is required and also anything else we anticipate if there is going to be any hiccup in the supply line. So that is how we manage our inventory.

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Kimberly Rivers, Trulieve Cannabis Corp. - CEO & Chairman [13]

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Matt, really quick on that. So just as a reminder, and we tried to touch on this in the script, but I think it's important to really highlight it again here, our greenhouse cultivation footprint, which is very large, we harvested over the back half of 2019 and just finished up in Q1. Now that we have completed that harvest, we have all of that oil inventory available to us as basically our supply to draw down from throughout the year, which then we'll be able to make a decision as to whether or not to replant all part, none of that footprint depending on how quickly we're drawing down on those -- on that oil inventory throughout the remainder of the year. So we wanted to, and we did, make the strategic decision to plant the full square footage so that we could have a baseline to understand what that yield was and how we would be able to utilize that yield throughout the course of 2020, which then, again, because of the low-cost basis for that product and that biomass comparative to an indoor footprint, it puts us in a strategic advantage, we believe, to then be able to optimize our indoor footprint for our high-quality flower as well as our high-quality concentrate product. So we can, at most, plant that greenhouse footprint twice a year. So we finished the one planting from last year. And then again, we'll be making that decision to replant as we move into the fall of this year.

Yes. And I mean, to be clear, right now, certainly, under COVID scenario, we're very, very thankful to have that available for us.

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Operator [14]

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Your next question comes from the line of Robert Fagan from Stifel GMP.

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Robert Fagan, Stifel Nicolaus Canada Inc., Research Division - Equity Research Analyst of Healthcare [15]

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I'm very sorry about that guys, technical difficulties, and I apologize if I've overlapped a question here with somebody else in the line, but maybe I'll go with one that's a little more obscure. Can you guys give us an idea about what the backlog of registered versus qualified patients is now? States stopped giving us that data, but I think it's a good growth indicator. Is there any update on that?

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Kimberly Rivers, Trulieve Cannabis Corp. - CEO & Chairman [16]

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Yes, Rob, I don't have any data on that as well since the States stopped reporting on it. I can give you what we see in the marketplace, which is just that we do believe that the processing times have increased significantly from where we were, call it, a year or so ago. And we do know that folks are continuing to get their cards. In addition, I think it should also be noted that the State did pass an emergency order whereby folks who are renewing cards can do so via telemedicine. So there are many of the larger doctor practices in the state that are taking advantage of that and have been very efficient in getting folks renewed via that telemedicine available option.

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Robert Fagan, Stifel Nicolaus Canada Inc., Research Division - Equity Research Analyst of Healthcare [17]

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Okay. Great. Sounds good. And I -- forgive me, again, if someone's asked this already, but obviously, you guys aren't going to update the guidance now. But given where you've exited the year here on the highest margins of EBITDA to date, how do you reconcile that with your guidance calling for 38% kind of at the midpoint? I mean, is it reasonable to expect there could be some upside to your profitability margin and the guidance?

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Kimberly Rivers, Trulieve Cannabis Corp. - CEO & Chairman [18]

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Yes. Thanks, Rob. And we answered this a little -- I think while you were maybe dialing back in but happy to restate for you. We -- again, we certainly, as you know, we update guidance when we have changes to underlying assumptions that can be validated through some sort of data. If you'll recall, last year with smokable flower, right, there was a lot of asks for us to update guidance prior to that actually being implemented, which we declined. And -- but we did, of course, update guidance after we had a couple of months' worth of data and could provide some certainty or more certainty around that guidance. And so similarly, we would have loved to have been in a position to update guidance today. We hope to be able to do that as we move through the COVID environment, but we're not in that position today, but we do feel strongly that we can reaffirm.

With respect to the EBITDA margin question specifically, yes, we have, of course, had greater than 50% EBITDA margins in 2019. I think to Mohan's point that he definitely says repeatedly, is that EBITDA margins, of course, can fluctuate based on a lot of factors. And at this point, we're going to reaffirm. But we're always hopeful that we can beat guidance.

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Robert Fagan, Stifel Nicolaus Canada Inc., Research Division - Equity Research Analyst of Healthcare [19]

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Okay. Great. Just a quick one. I'm assuming with your very advanced delivery platform and experience in that area that could even likely help you either keep your market share or gain share given the COVID situation, what's your thoughts there?

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Kimberly Rivers, Trulieve Cannabis Corp. - CEO & Chairman [20]

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Well, as we reported in our -- and certainly, I know most of you on the phone follow us on the OMMU data pretty carefully. And as we reported in the pre- versus COVID environment, we certainly are seeing our ability to increase market share, at least in the short term. I think that it's a question as to what the broader market does. But we've added approximately 70 vehicles. We can add additional vehicles as needed. And so we certainly are leveraging our existing infrastructure and our existing logistics team to amplify that segment of the business as market demand dictates.

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Robert Fagan, Stifel Nicolaus Canada Inc., Research Division - Equity Research Analyst of Healthcare [21]

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Okay. Well, congrats on the quarter again.

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Kimberly Rivers, Trulieve Cannabis Corp. - CEO & Chairman [22]

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All right. Thanks, Rob.

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Mohan Srinivasan, Trulieve Cannabis Corp. - CFO [23]

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Thank you.

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Operator [24]

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Your next question comes from the line of Andrew Semple from Echelon.

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Andrew Semple, Echelon Wealth Partners Inc., Research Division - Special Situations Associate [25]

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Everyone, congrats on a great quarter.

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Kimberly Rivers, Trulieve Cannabis Corp. - CEO & Chairman [26]

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Thanks, Andrew.

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Mohan Srinivasan, Trulieve Cannabis Corp. - CFO [27]

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Thank you.

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Andrew Semple, Echelon Wealth Partners Inc., Research Division - Special Situations Associate [28]

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Just wanted to ask, Florida is one of the latter states to have implemented a stay-at-home order just on April 1. Just wondering if you've seen any noticeable tapering of demand since that order went into effect?

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Kimberly Rivers, Trulieve Cannabis Corp. - CEO & Chairman [29]

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Yes. No, I appreciate that. So just to kind of update, so Florida -- the governor, prior to April 1, was allowing mayors and local county governments to govern their particular areas individually. And so there was a bit of a patchwork. However, there were existing stay-at-home orders for the majority, I would say, of South Florida prior to that April 1. And actually, the April 1 incorporated the Miami-Dade order into that state-wide order. So that has been -- obviously, there's a large population down in South Florida. We have seen there's been some up and down, frankly. And with respect to demand, again, and I think this is all publicly available information on that OMMU website. So we saw kind of pre-hurricane spike, then we saw sort of a little bit of a lower week. I should mention that when I say lower, I do not mean lower as in back to 2018. I mean lower as in right before, which was trending up as it was, kind of, I'll call it, our normalized growth rate prior to any sort of stocking-up activity. So we saw it go back to sort of normalized growth. Then the stay-at-home order, we saw kind of another spike. And then we're sort of at normalized growth. So it's been, I guess, spikes along a growth curve is how I can best characterize it, but again, all that data being available on the OMMU website. But so far, we have not seen any sort of rapid decline in the market.

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Andrew Semple, Echelon Wealth Partners Inc., Research Division - Special Situations Associate [30]

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I appreciate your comments there. That's very helpful for my thinking on it. What would your outlook be on opening new dispensaries in this environment and receiving the regulatory approvals to do so?

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Kimberly Rivers, Trulieve Cannabis Corp. - CEO & Chairman [31]

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So the great news is, is that we have been in touch with our regulators. As you can imagine, they've been extremely helpful in all aspects of our business through -- since the COVID crisis began to take hold. We have been in talks with them about inspections. And as of right now, they are willing to continue to move forward with inspection. So we are looking to continue. There's basically no change from our previous plans with respect to store openings. So I think you'll -- you can expect some store opening announcements from us barring any changes there. We'll likely be opening a little differently.

For some of you who may have seen our store openings in the past, they're typically very large celebratory events. So we're going to have to approach that again a bit differently with respect to how we handle patient pickup orders and launch the delivery platform and do some things a little differently. But we do need those additional stores to be able to handle the demand that we're seeing. So we're going to continue down that path.

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Andrew Semple, Echelon Wealth Partners Inc., Research Division - Special Situations Associate [32]

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Great. Just a final one for me on the patient trends before I turn it over. First of all, very much appreciate those metrics, very impressive overall. Just wanted to ask, what were your thoughts on the large increase in the number of patients or the number of visits per patient per month? Do you have any insights as to why that jumped so sharply?

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Kimberly Rivers, Trulieve Cannabis Corp. - CEO & Chairman [33]

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Yes. I think that -- so I think that there's a couple of things. One, I think that, that's in line with a market shifting from oil to having flower in the mix. So I think that the product mix in and of itself lends itself to more frequent visits with smaller basket sizes per visit. So I think that if I had to point to any one driver there, I would say that the on-boarding of smokable flower last year was probably the primary driver for that shift. We find that folks who are making those purchases of flower or are primarily flower buyers do tend to come back more frequently as we have new strains that are coming because, obviously, those are tied directly to harvest and what we have available. We've added to our portfolio of strains. We're also adding to the rotation of strains that we have available for patients, so more frequent new strains as well as greater availability of strains across all of the various formats and price categories.

In addition, we also, of course, have continued to innovate on the other products front. We've added a number of new products to our shelves, and it's one of our goals, quite frankly, as a company, to maintain that pace of innovation. And so those new products also drive customer behavior to come back to our stores to pick up those new products. So I would say those would be the 2 potential drivers there.

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Operator [34]

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Your next question comes from the line of Jason Zandberg from PI Financial.

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Jason Zandberg, PI Financial Corp., Research Division - Special Situations Analyst [35]

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Congrats on a strong fourth quarter. A number of my questions have been answered. Maybe I could just get some more detail on your delivery fleet. You mentioned that you've increased your fleet by 70 vehicles. Could -- what is the total fleet size? And if you can share the percentage of sales or sort of whether you've seen a significant increase before and after this COVID outbreak.

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Kimberly Rivers, Trulieve Cannabis Corp. - CEO & Chairman [36]

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Sure. So we have increased our fleet. We're at that -- right now, we sit at just under 200 vehicles across Florida. And our delivery orders have increased by 485%. So it's just a little bit.

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Jason Zandberg, PI Financial Corp., Research Division - Special Situations Analyst [37]

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Okay. And then as well you'd mentioned some stats, some great stats in terms of number of visits and basket size. I believe that was for the fourth quarter. Any insights into, again, this -- after this COVID outbreak in terms of what the basket size has increased to, even if it's just sort of in round terms?

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Kimberly Rivers, Trulieve Cannabis Corp. - CEO & Chairman [38]

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Yes. We track that metric pretty carefully. And so for, we'll call it, over the last 30 days, I can tell you that our visits are -- have decreased slightly, which I think can be expected, so -- but just literally like 0.5 point, so down from like 2.7 to 2.65. And then our basket sizes have increased, though, again, I think, to be expected. And so from $121 to $127 on average. And then again, that's a 30-day number.

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Operator [39]

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Your next question comes from the line of Russell Stanley from Beacon Securities.

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Russell Stanley, Beacon Securities Limited, Research Division - MD & Research Analyst [40]

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Congratulations on the quarter.

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Mohan Srinivasan, Trulieve Cannabis Corp. - CFO [41]

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Thank you.

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Kimberly Rivers, Trulieve Cannabis Corp. - CEO & Chairman [42]

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Impressed, were you?

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Russell Stanley, Beacon Securities Limited, Research Division - MD & Research Analyst [43]

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Yes. Just maybe a question around pricing. Just wondering if you can comment on any pricing trends you're seeing from peers and how people are responding to COVID-19, especially given a tight product supply for a number of products.

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Kimberly Rivers, Trulieve Cannabis Corp. - CEO & Chairman [44]

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Yes. Thanks, Russ. We really have not seen any major price adjustments from our peer group, really at all. I can say that pricing has been relatively -- has remained relatively stable. We are -- again, I think the market itself, of course, has gone through a market increase in a couple of weeks. There were a couple of weeks that had more significant increases over the last 30 days. I do know that there appears to be some other folks who are maybe having a bit of a harder time maintaining and keeping up with demand. And so again, I think that, that lend itself right to no price decreases when you're trying to ensure that shelves are adequately stocked. Again, I think that, that just highlights the fact that our oil -- available oil reserves, coupled with the investment that we've made in our smokable flower, indoor cultivation are really coming to fruition and giving us the ability to introduce Trulieve to some patients that aren't finding what they would prefer to use on other shelves. So it's been an interesting time for us to recruit new Trulievers to our stores.

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Russell Stanley, Beacon Securities Limited, Research Division - MD & Research Analyst [45]

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Great. And just my last question is around dispensary additions and understanding your comments with respect to reiterating guidance for now. But with the recent expiry of the cap on dispensaries, what are your latest thoughts around how many you might add in 2020? And any commentary around how many locations you have locked down at this point?

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Kimberly Rivers, Trulieve Cannabis Corp. - CEO & Chairman [46]

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Yes. So we were very excited, of course, to see the expiration of the dispensary cap. It's something that I think that we had expected, and we're -- but we're glad to see that finalized. We have a number of locations, both under construction in LOI and/or working their way through various processes. And so we expect to exit 2020 -- our goal would be 68 dispensaries. I, of course, would love to see 70 for a nice round number, but my team is giving me a -- if they could kick me now virtually, they would. So I would say that we're targeting that 68 number.

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Russell Stanley, Beacon Securities Limited, Research Division - MD & Research Analyst [47]

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Excellent. That's great color. Congrats again.

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Kimberly Rivers, Trulieve Cannabis Corp. - CEO & Chairman [48]

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Thanks, Russ.

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Mohan Srinivasan, Trulieve Cannabis Corp. - CFO [49]

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Thank you.

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Operator [50]

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(Operator Instructions) Your next question comes from the line of Derek Dley from Canaccord.

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Derek Dley, Canaccord Genuity Corp., Research Division - MD & Consumer Products Analyst [51]

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Yes. I'd also like to echo congratulations on a really strong quarter. I wanted to follow up just on a couple of questions that have been asked. So Kim, you mentioned your commentary just on some of your newer products. Can you talk about how these newer products have fared since their introduction, things like minis and Flower and Blue River? And then maybe even at a high level, just some of the ideas or product forms that you may have coming down the pipe for new products for 2020.

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Kimberly Rivers, Trulieve Cannabis Corp. - CEO & Chairman [52]

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Sure. Absolutely. So we've recently launched a number of products, as I mentioned. One of the products that we're really excited to bring to market, for a number of reasons, is TruPowder. So TruPowder is a nano-encapsulated cannabinoid product that's water soluble. So it basically dissolves in any liquid. And that onset time of it is similar to a vape and that it's got a more rapid onset. However, of course, it's ingested orally. And so that product has been very well received. We're actually working on additional formulations to potentially add. Right now, it's flavorless. And so to potentially add some flavor options to that product.

In addition, that technology, which we've worked on, by the way, for about 18 months, that technology will allow us to formulate a number of other products using that technology as a base ingredient. So it really is potentially a game-changer for us as we think about our edible suite of products that we were hoping to launch in 2020 once we get additional color from the department on edibles rules. And so again, being able to offer that rapid -- more rapid onset in an oral format, we think, is important, and that product has been very well received.

Another product that I'll just highlight quickly is the Blue River THCa product. So this is a solventless product. As a reminder, all Blue River products are solventless, meaning that they're -- it's a nonchemical-based process. So it uses heat and pressure primarily to separate the cannabinoids and to create concentrates. And so THCa is a inhalation product. And it's a very -- it's basically a pure THC product that you can add to a concentrate pen. It's also a powder, so not to be confused. We're very careful with the TruPowder I just mentioned. But again, that product -- Blue River really has a very loyal fan base, a very loyal customer base. It's very cult-like in terms of its following. And so that product, as expected, has done really well. We've got additional Blue River products in the works that we'll be announcing with them also here shortly, and those have been doing well as well.

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Derek Dley, Canaccord Genuity Corp., Research Division - MD & Consumer Products Analyst [53]

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And just on that, your comment there on edibles, has there been any regulatory movement on the eventual approval of edibles in the State?

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Kimberly Rivers, Trulieve Cannabis Corp. - CEO & Chairman [54]

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Derek, we were so close and then COVID. So unfortunately, the Department of Health, or fortunately, is very focused, obviously, on addressing all things related to COVID. Including, by the way, in our facilities, when we've needed approvals to changing processes and procedures, adding employees rapidly, adding delivery cards rapidly, they've been great in working with us. But that all is to say that any new rules and regulations have been put aside. We do know that they had moved forward with passing both packaging and testing rules at year-end, early 2019, which were precursors to and were required to be passed before edibles came online. So I've been told that there's a rule that's been drafted. I haven't seen it. That gives me hope that, again, assuming we can quickly get through the current environment that at some point in 2020, we'll have rules that we can act on.

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Derek Dley, Canaccord Genuity Corp., Research Division - MD & Consumer Products Analyst [55]

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That certainly sounds encouraging. Just a couple of more quick ones, if I can. Have you -- in the, I guess, the period since March 13 when we really started worrying more about COVID, have you seen any sort of notable changes in your product mix? Or on a transaction level, are you noticing, as you've typically seen with delivery, a higher basket size over the last couple of weeks with those transactions?

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Kimberly Rivers, Trulieve Cannabis Corp. - CEO & Chairman [56]

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Yes. So with respect to the product mix, what I can say is that -- which has been on trend for us. So it's a little bit difficult to have visibility as to whether or not this would have been with or without COVID. We've basically just seen an amplification of what previously existed. So I wouldn't say that there have been any major shifts necessarily. We've seen flower continue to increase, which again is reflected in those weekly numbers. Yes is the answer on basket size. Traditionally, right, we see delivery basket sizes are higher than a store -- in-store basket size, and that typically is around -- I think that's normal for most retailers. So yes, and again, just to reiterate what we had said previously across all -- across a total metric is that our basket over the last 30 days, size has increased from $121 to $127. And to your point, certainly, deliveries -- increases in deliveries is assisting in driving that metric.

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Derek Dley, Canaccord Genuity Corp., Research Division - MD & Consumer Products Analyst [57]

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Okay. And then last one, just on capital allocation here. I appreciate your update here in terms of how many stores you intend to add in 2020. So when we think about sort of CapEx, and maybe Mohan, this one's more for you. Can you give us an update on sort of what your CapEx expectations are for 2020?

And then secondarily, back to you, Kim, I suppose, is just on M&A. I mean, obviously, you guys are in a very, very fortuitous situation here with a healthy balance sheet, industry-leading profitability and free cash flow generation. So can you talk about what criteria or what would be attractive for you in terms of M&A from potential states that you're looking at?

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Mohan Srinivasan, Trulieve Cannabis Corp. - CFO [58]

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Sure. Thank you for your question. Kim, do you want to go ahead, or...

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Kimberly Rivers, Trulieve Cannabis Corp. - CEO & Chairman [59]

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No, no, no. It's okay. It's okay. Mohan, go ahead.

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Mohan Srinivasan, Trulieve Cannabis Corp. - CFO [60]

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Okay. So our average CapEx spend is roughly about $5 million per month. So we basically have taken into account all the dispensaries which were going to be opened in 2020 in that calculation. We are also -- don't forget that we have a sales/leaseback transaction for Holyoke, which will basically reimburses approximately $38 million still left on that line. So that will basically take care of that. So we believe that our plan -- we have a strong cash position and also, we have enough cash to manage our business. So we are continuing to spend on our CapEx. So that will be answer for my part.

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Kimberly Rivers, Trulieve Cannabis Corp. - CEO & Chairman [61]

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Yes. No, thanks, Mohan. With respect to M&A, Derek, our criteria that we've outlined a number of times remain the same in that M&A, of course, first needs to be accretive. I think I'll reiterate that it's not just about a land grab, and it's not just about being in a state for the sake of being in a state. We look individually at the opportunity. We run it through a number of metrics, including discounted. We do a discounted cash flow analysis. We do a synergies analysis. We're looking and we rebuild -- tear apart and rebuild models and because, quite frankly, as many of you can appreciate, valuations last year for the majority of the year, simply just did not pass through that model when we ran those opportunities through, although we did look at a number of opportunities. We are finding that in the existing environment that we believe that valuations will come more in line, number one.

Number two, it's also about the quality of the opportunity from a brand perspective and from a people perspective. So we do understand and certainly appreciate bandwidth constraints and want to make sure that as we think about new opportunities that we're also very focused on the strength of the team, the integration of that team with our existing business and the ability to really make a transaction that equates to 1 plus 1 equaling 3, 4 or 5. And that's something that's very important to us.

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Operator [62]

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There are no further questions at this time. I'll turn the call back over to Lynn Ricci for closing remarks.

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Lynn Ricci, Trulieve Cannabis Corp. - Director of IR & Corporate Communications [63]

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Thank you for joining us today. We look forward to updating you on our progress again next quarter. Have a great day, everyone.

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Operator [64]

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This concludes today's conference call. You may now disconnect.