Trulieve Cannabis Corp.
Q2 2021 Earnings Call Transcript

Published: 12 Aug 2021

[Operator:]

Good morning, ladies and gentlemen, and welcome to the Trulieve Cannabis Corporation Second Quarter 2021 financial results conference call. My name is Sarah, and I will be your conference operator today. As a reminder, this conference call is being recorded. And I'd like to introduce your host for today's conference Ms. Lynn Ricci, Director of Investor Relations for Trulieve. You may begin.

[Lynn Ricci:]

Thanks, Sarah. Good morning, ladies and gentlemen. And thank you for joining us. On the call with me, today are Kim Rivers, Chief Executive Officer, and Alex D'Amico, Chief Financial Officer. Following our prepared remarks, we will open the call for questions, but will we get started? I would like to note that today's call is being recorded for the benefit of investors, individuals

[Kim Rivers:]

Thanks, Lynn. And good morning, everyone. It is an exciting time here at Trulieve. Achieving a number of first and records for the Company with 14 consecutive quarters of profitability, crossing the half-million mark in customers served, becoming the first medical cannabis operator to start planting in West Virginia, and positioning the Company to enter its 7th State with a win in Georgia, we exceeded consensus, achieving revenues of approximately 215 million and adjusted EBITDA of approximately 95 million representing an EBITDA margin of 44%. On the back of our one results, which represented a 15% quarter-over-quarter increase, our Q2 revenue reflects an increase of 11% and demonstrates continued strong growth. Yesterday, Harvest shareholders voted to support the transaction, and we are now fully focused on the next step towards regulatory reviews and approvals. The closing of the Harvest acquisition will be a transformational event for Trulieve. Harvest's strong Q2 performance, as reported on August 10th, demonstrates the potential of the combined Company. On a combined basis, second-quarter revenues would have been 317.6 million, and on an adjusted EBITDA basis, Trulieve and Harvest would have generated 122.9 million in the quarter. These combined results for Q2 will be the strongest performance of any public reporting U.S. Cannabis Company. In addition, today, Trulieve and Harvest together would stand at 140 stores, which represents almost 30% more stores in our closest competitor, with 40 of those stores located outside of Florida. In order to support that footprint on a combined basis, we would have over 3 million square feet of cultivation, over a million square feet more than our closest competitor, exceeding their cultivation footprint by 50%. This capacity solidifies our position as a leading operator with true scale in the U.S. The Harvest deal will be the next step in the evolution of our organization as we execute on our regional hubs strategy. The transaction will transform our southwest hub in a very real and exciting way. Most notably, with substantial expansion into Arizona, additions to our Northeast hub with Maryland, and an increased market presence in Pennsylvania, as well as supplementing our Southeast hub in Florida. Neither Company has slowed down since the May announcement. We continue to open stores in some of our strongest respective markets, complete tuck-in deals, and win applications. Since the time of our May announcement, the store footprint outlined for the deal has increased by 14 stores, including Harvest opening at the 16th store in Mesa, Arizona. Congratulations to Harvest on the excellent quarter. We look forward to their continued strong performance in the back half of the year as they remain focused on operational efficiency and delivering profitability. The second quarter was also meaningful for Trulieve, celebrating the five-year anniversary of our first Sales on July 26th, 2016. We've accomplished more than just incredible revenue and a profitable growth trajectory during those five years. To name just a few, we had grown from approximately 50 employees when we opened our first dispensary to approximately 7,000 employees today, expanded cultivation from our original 20,000 square feet in Quincy, Florida to over 2.2 million square feet across the country, grown our patient base from under 800 to over 575,000, thousand. And increased our store footprint from our first store here in Tallahassee to 96 stores across the country. In addition, when looking at sales during our first 6 months of operations compared to the first six months of 2021, we were selling 2.4 milligrams of oil, 2.4 million milligrams of oil in 2016 compared to 2.2 billion with a B, milligrams or approximately 900 times more in 2021. For flower, we sold 72 ounces of flower as vaporize our cuts in 2016 compared to 781 thousand ounces or approximately 11 thousand times more in 2021. We have a generational opportunity in front of us. And we believe this next chapter will be an exciting one, bringing us an ability to leverage our national scale and diversify across our combined platform to accelerate our growth trajectory and enter into additional adult-use recreational markets more to come. And speaking of more to come, this morning, I have Georgia on my mind. As we recently announced, the State of Georgia notified us of its intent to award Trulieve one of only two Class 1 production licenses available in the State. As the 8th most populated State in the nation, Georgia is an ideal location in addition to our Southeast hub. This license with allow us to grow and manufacture cannabis oil products, and we will also be authorized to open five dispensaries across the State. The registry is quickly growing, with over 18,000 patients in the State already. It was a highly competitive licensing process, with around 70 competing applicants, so truly a success speaks volumes. We are thrilled to be positioned to enter our neighboring State to the north and are prepared to break ground and rapidly provide much-needed relief to patients in Georgia. Much like in other states, Trulieve thoughtfully selected a majority of minority communities, the city of Adel, as the site for our production operation. Working closely with the city, workforce development partners, and other stakeholders, we'll bring hundreds of promising new jobs and meaningful community investments to Adel and the rounding South Georgia community. We also have established beneficial partnerships with higher education institutions like more Health School of Medicine, organizations like the Greater Georgia Black Chamber of Commerce, and the Georgia Minority Supplier Development Council and Workforce Development Centers like the Wiregrass Technical Institute, as well as dozens of small and diverse businesses. Given our close proximity here in the panhandle, we already employ a number of Georgia residents, and we look forward to broadening our job creation in the State. Our ability to act quickly, to build our operations in Georgia has been demonstrated by our execution in our home state of Florida. In Florida, we continue to add dispensaries and aggressively add into our cultivation capacity each month to stay ahead of the continued patient growth expected in the space. That patient growth has been explosive. With over 134,000 new patients in Florida so far this year. Our commitment to serving the needs of every patient is evidenced by our dispensary additions. We currently have 87 dispensaries in Florida, which represents approximately 24% of the dispensaries across the State, while providing, on average, over 45% of the medicine our patients need. We have maintained our market share in the face of tight labor markets due to COVID factors, increased waiting periods for construction permitting, and nationwide shortages of building materials. We have been very fortunate over the years to build a Company in Florida. Our dedication to the production of safe, quality products, coupled with the authentic connections with patients we've nurtured in the State, has earned us the strong customer retention rates and store outperformance numbers we continue to experience. We look forward to continuing the strong performance in our northeast hub, where there has been a flurry of activity. Expanding to the metropolitan Philadelphia area, commencing operations in West Virginia, welcoming Connecticut to adult use, and opening our doors in Massachusetts, let me briefly touch on each of those markets. And Pennsylvania, I would like to highlight the strong performance of our PurePenn and Solevo operations. Purepenn wholesaled to 100% of the Pennsylvania market and was the number 4 wholesale operator during Q2 achieving this with flower only making up 5% of sales. Our McKeesport Pennsylvania Cultivation and Processing facility continues to grow and has recently more than doubled its capacity to 80 thousand square feet. We are bringing more high-quality flowers to the State, positioning us for increased market share. As in Florida, our goal is always to be number one. We also closed on the previously announced acquisition of Keystone Shops in early July. Keystone Shops immediately adds three dispensaries in the Greater Philadelphia area to the Trulieve family. Pennsylvania is a state we remain excited about and is a key piece of our national expansion. In West Virginia, we executed a rapid cultivation build-out and were first to get plants in the ground in the State. We are ramping now, building out our teams, and moving forward with our 1st dispensary sites. Patients in the State continue to grow, and we look forward to opening our first dispensary and providing access to medical cannabis before year-end. As many of you are aware, Connecticut signed a bill and June to legalize adult use. Our store in Bristol has given us great insight into the patients and brands in the State, and our existing operations will allow us to take advantage of the grandfathering provisions of the new legislation. Not only will we be able to begin adult EES (ph) sales when it launches in the State sometime in 2022, but we will also pursue cultivation and production opportunities. We began our dispensaries operations in Massachusetts in June with the ribbon-cutting in our North Hanson store. And we look forward to opening our brand new Wister (ph) dispensary this Saturday with a block party. We will be closing the street for the majority of the day, and we'll have music, food trucks, and partner tables as a way to meet the community and start to quickly build relationships with consumers in the area. Worcester is the second-largest city in Massachusetts, and we're looking forward to branching into these new communities. We're also looking forward to opening our store in Framingham, which will be our largest store in the base state, and in launching wholesale operations. We are quickly scaling up to wholesale with the goal of matching our outperformance in Pennsylvania. Our wholesale strategy will allow us to spread the Trulieve brands in Massachusetts. Speaking of brands, we've recently introduced new product lines. Momentum for wellness, lease for creativity, Sweet Talk, which is our edible line of chocolate and gummies, and a pan favorite from Florida, our cultivar flexion, which is premium ham term flower released in unique small-batch strains. With the Canada carriers to the Canaccord store in mind, these brands offer a variety of options to serve a spectrum of consumer motivation in these states. Trulieve brands center around the opportunity for customers to unlocked our own potential through cannabis to live their best life. With that, let me turn the call over to Alex for more details on our Second Quarter results.

[Alex D'Amico:]

Thank you, Kim. And good morning, everyone. Our focus in the first half of the year has centered on execution, expansion, and integration; and will continue to do so throughout the remainder of the year and into 2022. This span across our external strategic initiatives, as well as internal priorities such as our continued preparation for Sarbanes-Oxley Readiness. We are excited about launching in Massachusetts, expanding our footprint in Pennsylvania, and ramping our operations in West Virginia, and of course, Georgia. As we enter the second half of the year, we remain highly focused on ensuring the successful integration s of our recently closed acquisitions and supporting the strategic vision for and the anticipated major integration of Harvest. We believe the Harvest acquisition will be transformational for both companies and the industry. We look forward to leveraging the combined capabilities of both organizations and setting the stage for an exciting year ahead. As Kim covered at the top of the call, we had a record revenue of $215.1 million, an increase of 11% sequentially over the $193.8 million of revenue achieved in the first quarter. Our quarterly revenue was $94.4 million higher than Q2 2020, an impressive 78% growth year-over-year. The Company achieved a gross profit of $144.4 million or a gross margin of 67% in the quarter compared to $135.3 3 million, or 70% in the first quarter of 2021. Absent macroeconomic events related to the pricing and tight labor markets, the gross margin would have been approximately 71%. Our margins in our core operations are in line with our plans in the first half of the year. As we have shared in the past, our gross margin in all markets can fluctuate a few basis points in either direction from quarter to quarter, depending on inventory flow-through and product mix. In this regard, we benefited in Q1 by finishing the quarter with the largest volume of finished goods on hand that we ever had at the end of a quarter. During Q2, we capitalize on our leverage and scale to set market prices. And maintain customer bases in our core markets. The leveraging of our ability to strategically increased discounts when necessary led to an approximate 2% reduction in margins in the quarter. As a result, we moved through finished goods at a faster rate than in Q1, ending the quarter with a higher amount of product and work in process, which carried a lower cost in finished goods. The timing of inventory flow-through impacted margins by approximately 3% in the quarter. Contributing to this dynamic was the impact of tight labor markets, with demand outstripping available candidates, which we experienced primarily in our processing centers. As you know, this is not specific to Trulieve, spending a number of companies and industries. We have responded and adjusted our hiring initiatives accordingly and look forward to improvement in the back half of Q3. These reductions were offset by an approximate 2% pickup in our new markets as cultivation and production ramped in the quarter. As a reminder, in general, and not specific to a quarter or time period, there is downward pressure on gross margin as we enter new markets without full vertical integration, as we have in Pennsylvania through the earn-out period in 2021. Similar to the Massachusetts process, we are now ramping our infrastructure in West Virginia, incurring expenses in advance of revenue. I will now turn to expenses. SG&A expenses in the Second Quarter, excluding deprecation and amortization, were $61.5 million or 29% of revenue compared to $57.3 million or 30% in the First Quarter of 2021. We expect increases in the back half of the year as we ramp integration efforts in Pennsylvania and are prepared to welcome Harvest. As a reminder, we typically add back transaction and integration costs in calculating adjusted EBITDA. Our operating income for the quarter was $76.3 million, an increase over the $72.6 million earned in the first quarter. Net income was $40.9 million for the quarter, compared to $30.1 million for the first quarter. We generated earnings per share of $0.31 on a fully diluted basis. Keep in mind that go-forward net income and EPS will be impacted by transaction and integration costs. The increased deprecation on our aggressive CapEx ramps increases, in share-based compensation, to fair value flow-through of inventory from acquisitions and the amortization of intangibles from acquisitions. While these get added back to adjusted EBITDA, there is a downward impact on EPS. Turning now to adjusted EBITDA. We believe Adjusted EBITDA, a non-GAAP measure, provides valuable insight into our performance. Adjusted EBITDA excludes from net income as reported interest, tax, depreciation, amortization, non-cash expenses, COVID-related expenses, share-based compensation, acquisition and transaction costs, fair value step-up of inventory from acquisitions, and other income. We report it adjusted EBITDA to help investors assess the operating performance of our business. For the second quarter of 2021, adjusted EBITDA was $94.9 million, or 44%, compared to $90.8 million, or 47%, for the first quarter of 2021, where we exceeded the plan. This is reflective of the margin dynamics discussed earlier but is in line with first-half expectations and guidance. Absent the macroeconomic margin impacts, and adjusted EBITDA would have been approximately 48% for the quarter. We ended the quarter with a cash balance of $289.2 million, bolstered by our cash flow from operations through the first half of the year. In the quarter, we paid approximately $80 million in federal taxes. As a reminder, cash flow from operations in the second quarter is typically impacted by double tax payments. As such, we invested a few cash flows from operations on a year-to-date basis, where we generated $49.2 million through the end of the second quarter. Our strong cash position allows us to quickly leverage the foundation we have built to capitalize on expansion opportunities, organic growth and to go deeper in the states where we operate. At the end of the second quarter, we had a total of $112.6 million in inventory. This compares to $103.9 million of inventory at the end of Q1 2021. Company-wide CapEx spends for the quarter averaged just over $22 million per month, inclusive of all markets, and was in line with the plan. We continue to build out stores and cultivation facilities and invest in new markets. We planted to our initial cultivation in West Virginia, and we'll be building out our facility there throughout the year. And in Georgia, we expect that we will be breaking ground and ramping up investments in that market. CapEx investments will continue to ramp throughout 2021 and 2022 to support our expansion efforts and add depth in the Southeast and Northeast hubs as we capitalize on the positive patient trends we're experiencing and prepare for future tailwinds. In closing, I would like to note that I'm proud of the flexibility we have shown across all functions of the organization over the past year, allowing us to quickly adapt to changing market conditions and capitalize on opportunities. We see a lot of the same strength in the teams at Harvest and look forward to closing the acquisition and continuing our integration efforts and our national expansion as a combined organization. I would also like to recognize and welcome Marcum as our new auditors, as previously announced in July. We thank our previous auditors, MNP (ph), and want to note that our move to Marcum reflects their substantial audit experience with U.S. reporting companies. MNP served us well, and Marcum is ready to take on our accelerated growth profile, particularly in anticipation of the Harvest acquisition. With that, I will turn the call back over to Kim.

[Kim Rivers:]

Thanks, Alex. As a Company, we have experienced tremendous growth over the last five years. We've developed from a small startup. Sounded by a scene nurseryman and a recovering lawyer to the most profitable publicly traded multi-state operator in the U.S. Through hard work, strategic forethought, financial disciplined, and skilled execution, truly this addition is one of the leaders in our industry. But as I said earlier, our story is just beginning. We are in the midst of tremendous change. The recent political movement to decriminalize marijuana with the cannabis administration and opportunity at the draft and cry from business leaders and politicians to move forward with the SAFE Banking act signals the readiness in this country to create a clear and supportive path-forward for the Cannabis industry. The American people's voices are getting stronger. And regardless of what happens at the federal level, the states are not slowing down, and neither is Cannabis growth across this country. With this backdrop, the completion of the Harvest acquisition on the horizon, plus operating at an unmatched scale today, Trulieve is well-positioned and financially prepared to leverage and execute on the changes coming. Trulieve with a story about future growth, strategic vision, execution, and building shareholder value. Together, we're uniquely positioned to define the future of cannabis. Thank you so much for joining us today. And as I always say, onward.

[Lynn Ricci:]

Operator, we can now open it up to questions.

[Operator:]

Thank you. We will now begin the question-and-answer session . Our first question comes from Derek Dley with Canaccord Genuity. Please go ahead.

[Derek Dley:]

Yes. Hi. Good morning, everybody. Congrats on a strong quarter. Kim, I just wanted to follow up on a comment you made there just regarding pricing. I mean, It was pretty widely speculated that there were some aggressive pricing tactics by some of your competitors this quarter, more so than in previous quarters. Did this change the product mix, or skew it more towards the value side or the premium side, and was this aggressive pricing across all categories?

[Kim Rivers:]

Yeah, thanks, Derek. Certainly, we saw some increased -- very aggressive pricing from the competitors. I would say that, strategically, we are very thoughtful in terms of how we approach and how we approach our product portfolio, and how we think about brand and integrity of brand and over the short. And of course, long-term. And so, we certainly did not, nor would we want to match, for example, week-long 50% off and discounts, cetera. What we didn't view though, is that we did become, and I think this was a great exercise for us, we were able to look across our product portfolio, really analyze on a skew level where our products were that had one of course demand. and two, depth; and also of course good margin to really be more thoughtful in terms of how we were responding to these pressures. In terms of product mix, it's interesting -- we really did not see large swings from -- on a category basis, if you talk about from value to premium, we saw approximately the same from -- on a percentage basis. Sell-through in both premium and value that we saw in the -- sorry, in those categories in the previous quarter. So that's remained stable. We certainly are continuing to see the barbell effects that we've been talking about quarter-over-quarter. That remains true. We are seeing strength in both value and in premium categories that remains true. And what I would say is that I think that both the market share numbers and our strength speaks for themselves in terms of -- just last week, we had our strongest flower day ever right? And with about 53% of the market in flower, we also, over the quarter, had a record day in oil sales. So I think that our brands are maintaining -- strength are maintaining integrity. We did, as we mentioned, have a couple of points more on the discount front, but certainly nothing near what our competitors felt like they needed to do as they tried to, I think unsuccessfully, quite frankly, buy long-term market share in the state of Florida.

[Derek Dley:]

No, that makes sense. And actually just one more if I could just in terms of you mentioned that the truly brand and how strong it is, you called out cultivar in particular. But when we think about Massachusetts and Pennsylvania, 2 markets that have wholesale, obviously, I guess it's a two-part question. 1, are you still seeing a big undersupply in those markets where wholesale prices are quite robust? And 2, what is your target or what is your plan in terms of the mix, within your own stores, of truly-branded products versus third-party products?

[Kim Rivers:]

Yes. So it's interesting, and I think that other folks have commented on just really how it is absolutely challenging given the checkerboard or regulatory regimes across the country to achieve continuity of brand from market-to-market. I mean, that's certainly what we're all attempting to do on. But we know, where those challenges are of course, therein lies the opportunity, as we like to say. And so, with the launch and that recent press release of these core brands that we will be looking to launch across the country, that will of course also be true in Pennsylvania and in Massachusetts. It's interesting in Massachusetts, those brands have already launched. And so the cultivar collection, for example, is available in Massachusetts now. And we're really excited about having a full suite of those products available at our new grand opening this Saturday. We'll put a quick plug-in in Wister, if you're in the area, come join us. It's going to be a lot of fun big block party. And since they were able to launch full catalog of products in Massachusetts, of course, we're also having some shelf diversity with buying in other key brands in that market as well. In Pennsylvania, of course, a little bit of a different story, because we purchased a Company that already had really strong brand affinity and was successfully wholesaling products across the state. The opportunity there is that -- we've been very successful there in the oil category. great reputation for the higher-end or premium oil sales there. And now we're looking to layer in and really plus that up with the additional of additional flower. What you heard me mentioned on the call, I should note that we're not done growing. In Pennsylvania, we've got additional expansion projects underway there. And that we will see our market share increase, I believe, through the back-half of the year with the onboarding of additional capacity in that flower category and again, particularly focusing on that higher in Cultivar Collection in Pennsylvania, as well. And so, we do believe that it's very important to have expertise in both product segments and both branded derivative products in oil, as well as flower. We don't think that -- especially on the high-end, again, that cultivar collection premium flower -- we don't believe that that's going away anytime soon and that really is your quality calling card for customers and plan to have -- plan to have that calling card available in the states that we operate in where we can. We're excited about doing what we can to roll those brands out across the platform. And certainly, once we get Harvest integrated, we'll also be integrating some of their top brands into our portfolio so that our combined portfolio of products, I think really will be second to none.

[Derek Dley:]

That's great. I appreciate the color. All the best.

[Kim Rivers:]

Thanks.

[Operator:]

Our next question comes from Russell Stanley with Beacon Securities. Please go ahead.

[Russell Stanley:]

Good morning and congrats on the quarter. First question, just around the Harvest transaction and obviously, great to see the shareholder approval yesterday. I think one of the recent filings service indicated an anticipated close about -- by February, end of February next year. Just wondering your thoughts as to whether that's a conservative timeline, might we see it get done earlier? And which approvals do you think that -- which approvals are likely to prove the most time consuming, especially in a COVID world.

[Kim Rivers:]

Yeah. Thanks, Russ. We certainly, as I mentioned on the call, are very focused. We're all very focused on getting that transaction closed. And of course, are very excited about the strength of the combined Company. It's definitely difficult to pin down exact timing. I can tell you that we absolutely have had successful communication with every single one of our regulators in each one of the markets that will be operating in. We don't see any major roadblocks in any of those markets however, we do have to go through each state's very exacting process to make sure that we have all, of course, all of the regulatory -- required regulatory approvals in place to get to closing. As many of you know, part of the transaction in Florida is the selling of a license in Florida that Harvest is and Harvest is quarterbacking that process. That's going through an auction process right now. So there is a couple more steps involved in the Florida transfer. Again, positive. Positive momentum on that front though. And they are just some markets that take longer than others. So -- and as you mentioned, with kind of this second wave of COVID, we are of course, not sure how that may or may not impact how we -- how quickly we're able to get those approvals to move forward. We're all focused on it. I can assure you of that. And we're working very diligently on it, and it's -- all of our intention is to get the deal closed as quickly as possible.

[Russell Stanley:]

That's great. Thanks for that. And maybe if I could just a crystal ball question. I know their favorites, but New Jersey obviously expected to open it's all-use market either late this year, early next, depending on who you ask. Just wondering with neighboring Pennsylvania legislature so far has been reluctant or opposed to even discuss it. Just wondering what your thoughts are on the potential for movement on that front? Obviously, there is some tax dollars at stake. So any thoughts on the possibilities there would be great. Thanks.

[Kim Rivers:]

Yeah. Your guess is probably as good as mine, Russ. I mean, certainly Pennsylvania, as I've mentioned, it's a key market for us. We are call it truly proper, if you will, is continuing to invest dollars there. We just opened another -- or closed on another 3 dispensaries in Philadelphia area. We are very bullish on Pennsylvania as a market, as it stands today. And we are looking forward to combining with Harvest also for really that footprint can be a significant footprint in our portfolio. And so, and like I said, we're going to continue to invest there. So we do believe that Pennsylvania has a lot of growth ahead and that we'll be working diligently to ensure that we are in a pole position to take advantage of that growth. and certainly, at sometime in the future, we believe it's a matter of if. It's not a matter of -- or it's a matter of when, not a matter of if. We'll be well poised to take advantage of a switchover to adult East when the time comes.

[Russell Stanley:]

That's great color. Thanks and congrats again.

[Kim Rivers:]

Thank you, Russ.

[Operator:]

Next question comes from Andrew Partheniou with Stifel GMP, please go ahead.

[Andrew Partheniou:]

Good morning. Thanks for taking my questions and congrats on the great quarter.

[Kim Rivers:]

Hey Andrew, thanks.

[Andrew Partheniou:]

Maybe starting off on Pennsylvania and continuing with previous question and some comments you had around that. You mentioned that your market share capture in the quarter in that state was mainly on extracts. It jives with our headset data. But you also had a pretty big expansion in that state. And just wondering, when could we see some movement on flower? Obviously, that's an attractive category for you that you guys haven't really tapped in yet. You also talked about some future expansion plans in that state. Should we be thinking about, this first expansion was mainly to bolster your offering around extract and then flower could come afterwards in the next expansion cycle, or should we still be expecting some incremental movement on flower with your doubling of capacity here recently?

[Kim Rivers:]

Yeah. The flower expansion is coming through now. So you should -- we should begin to see that come through in the numbers. I can tell you in reality, not as that is coming through now. So it has been very well received. And as you mentioned, there is, think a lot of demand around flower. And so we're gonna continue to push, to push more right through that channel. I think one thing we have to always be cognizant. And right there is a demand for both. So it's all about making strategic decisions in terms of what to put in what category. But we're seeing a lot of strength and which is -- look, it's a great it's a great problem to have, right? So -- but certainly, as I've said, and pretty consistently here for -- gosh, I don't know, six months. And that certainly has been a focus of ours, is to get more volume through that flower category. And that is beginning to happen.

[Andrew Partheniou:]

That's really a good incremental opportunity for you, given that you've grown so much just with extracts. Maybe switching gears and taken a step back, thinking about overall strategy. You guys have done a couple of tuck-ins. You've got the large Harvest transaction, which is obviously transformational. But you're still looking at organic license wins. Just thinking about beyond what you guys already have now, how do you think about what markets you want to be want to be targeting? Obviously, Georgia, kind of, looks like Florida at the beginning of its medical program. So just thoughts around that would be helpful.

[Kim Rivers:]

Yeah. I mean, we are really excited about Georgia. And it looks very, very familiar to us and very similar to Florida when it started. Actually, I think or maybe in a little bit of a better space. And in Georgia then Florida, many folks don't remember that Florida started as CBD only state and so when Trulieve was first awarded our license, it was as a CBD license and then it moved to a very, very limited end-of-life program and I'd like to try. And so it was -- in Georgia already, as I mentioned, has patients that have been building up. They have over 18,000 patients that are already registered in the Georgia program. program, and it's going to be a great -- a really strong market as it develops over time. We continue to be very focused on executing on our hubs strategy, And we evaluate markets based and through that strategic lens. And we look at synergies to other markets. We look at our ability to leverage expertise as it relates to other markets. And then, of course, we look at the licensing structure and the profile of an individual programs. Certainly, we remain very, very focused on continuing our dominance in the Southeast. And then our continued focus also of course, on the Northeast, as we think about how we can leverage that hub that we've been very focused on over the last year. And then of course, with Harvest, that's going to be a game-changer in terms of our ability to have an -- a true hub in the southeast, which we can then begin to build around and optimize as well. And so from us, again, there are a lot of factors when we think about expansion, but certainly we have particular criteria, and particular modeling that we do around , and as well as around our ability to execute and execute quickly. Because we do think that especially in an application environment, getting -- it's not just winning, right? It's winning, and then absolutely, immediately executing and doing what we've done successfully in the past through organic growth. But we think that there are -- there remains to be which I think some folks maybe lose sight of. There is a lot of wide space out there and a lot of opportunities that have yet to be realized that we plan to be. And certainly take a leadership position that markets as well.

[Andrew Partheniou:]

So much for that detailed answer. Congrats, again, and I'll get back in queue.

[Kim Rivers:]

Okay. Thanks.

[Operator:]

Our next question comes from Matt McGinley with Needham. please go ahead.

[Matt McGinley:]

Thank you. You mentioned macro factors center around the pricing labors, headwinds to gross margin in the quarter. Can you expand on what you're seeing here? In the prepared remarks, it sounds like you thought that would improve in the back half. But if labor rates are structurally higher, why would that change later in this year? And is labor availability actually impacting your inventory position or is it just the cost of the inventory that's being impacted here?

[Alex D’Amico:]

Hey, Matt, we experienced the labor dynamics mainly in our processing centers, so it was really the movement from what the work in process state into finished goods.

[Matt McGinley:]

And why would that change in the back half?

[Alex D’Amico:]

We're just trying to bring in more folks. Right. So tight labor market. And then we're increasing hiring practices just to bring in more people.

[Kim Rivers:]

Yes, hey Matt, what we've seen, particularly in North,-- I can speak to North Florida, which I understand and appreciate that our dynamics around COVID may have been a bit different than the rest of the world. In some respects, what we saw as we thought -- I mean, we've got manufacturing and -- look, I think in a lot of industry, other industries right there, quite frankly, we're just fix that we're choosing to not work and take advantage of unemployment as well as federal benefits that they were -- that they've been receiving. And we definitely adjusted some of our approaches from a labor perspective and have seen improvements already in our ability to attract and also kind of reengage some of that workforce that previously decided to maybe not working and for a lot of reasons, right. I mean, that have children at home and I mean, it's not I don't wanna make it sound like there weren't justifiable reasons that who made this decisions. So we've already started to see improvement on that, Matt and but we definitely had pressure, particularly on with -- where our processing center was located in that particular area of our -- of the state. So and again, not, not unique to us, there were a lot of businesses that were in a similar geographic position and also in a similar wage position that faced the same issues. I can tell you that proactively, also, we've had -- we are opening another production facility in Tampa. In the Tampa area, which is a completely different labor market. And we think quite frankly, and improved labor market for some, for a number of reasons. That facility is coming online actually this month. So again, having some diversification as it relates as it relates to where we're pulling labor from. So there are absolute reasons why we believe; 1, we're already seeing it, and 2, we're going to have a diversity of a labor pool that's going to come through in Q3 and certainly going into Q4.

[Matt McGinley:]

Thank you. And on the debt refinance for Harvest, one of the big milestones required to advance that deals is to refine that debt. Do you have any thoughts on what -- if you would retire a portion of that debt or if it makes sense to refine the full amount to keep the cash balance of time, trying to think through what your cash structure look like. Whenever this deal closes.

[Kim Rivers:]

Yes. So that actually is not a milestone to the deal. And I think that what you're referring to is that there were some specific callouts in the documents around if Harvest chose to do and repositioned some of that Debt before closing, there would have been an impact to some of the ratios or the specifics in the deal which is true. But that's only, again, triggered on if Harvest took some action prior to closing. So those are, kind of, two different things, right? And I think that that speaks for itself in terms of the details as the deal documents reflect. I think that your second question is really around what are we going to do? And how is that going to be positioned as a combined Company? And what I can tell you is certainly what we believe and its true is that one of our strategic advantages in this transaction is that of course, the truly financial statements and our strength as a Company, we will be able to repositioned that debt on significantly better terms than what Harvest has. And then we also have the flexibility of course, if we choose to do a combination of pay downs and or refinances and -- refinancing or restructuring the debt. And so of course, our goal always is to make sure that we're maximizing the interest of both the Company, of course, and the shareholders, which we fully intend to do. You'll get more details on that as we have more visibility there. But obviously we think that there will be a positive outcome for everyone as it relates to the restructuring and repositioning of that dept.

[Matt McGinley:]

Thank you very much.

[Kim Rivers:]

Yup.

[Operator:]

Our next question comes from Aaron Grey with Alliance Global Partners. Please go ahead.

[Aaron Grey:]

Hi. Good morning. Thanks for the questions, and congrats on the quarter.

[Kim Rivers:]

Hey. Thanks.

[Aaron Grey:]

So first question for me, Kim, you always talked about loyalty program. Given some of the pricing competition that you're seeing there, you had mentioned in previous quarters, a revamp of the loyalty program, so would love to get some commentary on the progress of that potential timing. And maybe, amid this competition that you're seeing, maybe some tweaks that you're looking to bolster up some barriers to protect you guys on market share and brand. Thank you.

[Kim Rivers:]

Yes, sure. So we absolutely are -- and you guys -- there are some things that you're going to start to see externally from us here in the near term. And we've been working on an -- from a systems perspective, and being able to have additional transparency and visibility to segment more specifically, and make all of our programs, including our loyalty program, more personal, which I think is a really key strategic initiative for truly, again, on kind of on the backend, if you will, going into next year. So we certainly believe that the folks that are gonna win in cannabis and really in, I think, CBD in general, you have to get personal with your customer and we're certainly seeing that trend throughout other industries as well. And so we have been, as opposed to just putting together a, kind of, a got-together loyalty program that would be quite frankly pretty easy to do. We have taken a timeout and have really looked at and been working on implementing systems and back-end tech so that we are able to make it extremely personal in terms of our offerings and targeted to those consumers. I'm very, very excited about what we're developing there. And you can look for the beginning glimpses of that here very, very soon. The other thing that we've been focusing on is a complete website revamp. We're also going to be doing some upgrades into -- to our POS systems, which, again, really lead into that ability to capture at a more granular level the customer data that has then -- will then feed into that loyalty programs so that we can make it meaningful and impactful. So we are working on it, but we want to do it the right way, Aaron. And I think initially, we were focused on this tiered approach, which I think still has some validity. But within that tearing, we again think that it's critical for us to be personal and thoughtful. So that again, that's stickiness is also the barrier to entry for someone to replicate it. Is more of a barrier as opposed to just an off-the-shelf solution

[Aaron Grey:]

All right. Thanks for back. That's really helpful. Question from me. It's so nice you guys have Pennsylvania close racking up Massachusetts on the wholesale side. Just curious whether or not you could, maybe, provide some color in terms of how much wholesale you contributed to the quarter and maybe how you think about wholesale versus retail mix for the Company in the near term, excluding Harvest coming into the fold. Thank you.

[Kim Rivers:]

Yeah. Aaron. We don't -- as I know that Alex has mentioned, currently, we don't segment out. We don't report we don't report that way and we hear it, guys. We know that you all would like for us to segment out into report, wholesale versus retail. And so, what I can say is that we're going to be looking at how we report on those numbers, particularly as it becomes more meaningful. And particularly, as we look at, kind of, Trulieve 2.0 post-harvest. So what I would say is that, I mean, you can, you know, right? I mean, obviously in Florida, there's not -- there is no wholesaling allowed in Florida, so when you look at Florida compared to the rest of our current platform, Florida, of course, is a large part of that contribution. Compared to Pennsylvania -- Pennsylvania, obviously, if you look at that market as a whole, wholesale is large part of what we do. In Pennsylvania and would be a significant contributor. But as you know, and I know appreciate it varies market-by-market. And but as we have more of a balanced mix, again, post-Harvest we will absolutely be talking about and also talking about with our auditors in terms of how and when we begin to break that out.

[Aaron Grey:]

Fair enough. Thanks for color there and congrats again on the quarter. I'll jump back in the queue.

[Kim Rivers:]

Thanks, Aaron.

[Operator:]

Your next question comes from Vivien Azer with Cowen, please go ahead.

[Vivien Azer:]

Hi. Thank you. Good morning. Kim, I appreciated your commentary around the new COVID dynamics that currently exist in Florida today. I recognize that things are quite dynamic, but things really have changed over the last 5 to six weeks. So I was curious if you could comment at all on how that's impacting customer foot traffic through your stores, and any comment on any evolution in average basket because of the Delta outbreak.

[Kim Rivers:]

Sure. So I don't know that -- we haven't seen necessarily changes, Vivien, in an average basket, in Florida specifically, nor would I see that we've seen -- foot traffic has been kind of interesting, in general. And that it really has been constant since the beginning of the year, which is different from what we saw previously with COVID. Right? So that's something obviously that we've been monitoring and it's been about a 50-50 split between lock-ins and pickup and deliveries have declined. Not unusual, because people are not staying at home in Florida at all. Now, we'll be -- we'll continue to watch that, right? I mean, one of the 1st things that happen in coven in 2020 was that we saw that shift of between walk-ins, pickups, and delivery shift dramatically, right? Before COVID Round 1, we had about 70% to 80% of our business was walk-in and about, you know, call it 20% or so was pickup. And then the rest was. with delivery. COVID hit and literally almost overnight, deliveries increased to 20%. We had pickups increase to 60%. And all of a sudden, that 70% share of walk-in was down to 20%. So there was a really big shift in that walk-in business COVID Round 1. we've seen that pickup increase really stick so that business, which is great because I mean, in terms of efficiency and pressure on store and throughput, that's a great thing for us as it relates to how we can optimize our stores. But that pickup business really stuck. And we also implemented some technology solutions in terms of being able to check-in online and really make it a rapid pick-up scenario, so our goal is folks are in and out of the store and five minutes. So that's been optimized, but it will be interesting to see without walk-in, that walk-in percentage of the business, how or if or when that changes. Now we have over the last five weeks, what we have done, as we've come back in and re-upped COVID protocols for our employees. We've reimplemented masking. We've reimplemented every other registered and our dispensaries. We've reimplemented special distancing, sanitizing cleanings, an hour that we've spent a site for the meantime be compromised. And certainly, we'll continue to do those things as this round continues to heat back up. But hopeful, of course, as I know we all are, that this will start to see a flattening and then a decline. School starts this week in Florida. So and of course it is top of mind for everyone.

[Vivien Azer:]

Absolutely. Thank you so much for that detailed caller. Just following up then, with the stickiness, presumably at least in the near-term around tick up, does that change at all the way that you're thinking about like new store acquisitions? One of your competitors called out, heightened competitive landscape in terms of real estate acquisition costs. But if you're able to improve your throughput by maintaining a 50% mix of high-velocity pickup, does that change how you think about expanding your geographic footprint in Florida specifically? Thanks.

[Kim Rivers:]

Yeah. Look, we're constantly evaluating our retail footprint in all markets. And we have a very dynamic model that we look at very regularly. I can say that we feel very comfortable with that model and the results that it's given. We're still averaging $9 million a store, and we are still -- and that's consistent, right? So it's not like we're seeing massive cannibalization as it relates to new store openings, which is of course something that we look for as well very closely. So store productivity on a new store retail basis in Florida is very, very strong. It's remained strong. And we have a very robust pipeline that we've developed over a long period of time in Florida, which I would suspect puts us at a bit of a different position than maybe our competitors in terms of just the -- our systems and processes as well as just the fact that we've been in the market for a significant period of time. We're continuing to execute on that pipeline and continuing to add to that pipeline, but our pipeline is 9 months to a year out, so this is -- what you are seeing come to market today. Our properties that were identified in some cases back in 2020. So -- and that remained constant to us also over the last five years, that we haven't seen dramatic increases in lead times or any significant additional pressures in that area. Now what we have seen is certainly there have been like, for example, building materials, which that's going to really affect us more on the backend, right? I mean, a lot of our a lot of our stores,-- most of our stores, not all of our stores are renovations. They're not ground-up build. There have been in some cases, some longer lead times from on a permitting perspective just because of again staff availability and backups in those permitting offices that are still those bottlenecks still working through as it relates to COVID. We also all know that there has been a housing boom there. There's a lot of activity that has happened over the last year in that -- in those areas of the department served, so. And that's certainly true but again, nothing that stopping us for meeting our goals that we've set forth on the retail front.

[Vivien Azer:]

Understood. Thank you very much.

[Operator:]

Our next question comes from Camilo Lyon with BTIG. Please go ahead.

[Camilo Lyon:]

Thank you. Good morning, everyone. I wanted to ask first on Pennsylvania. and maybe if you could help us think about how that market's margin progression should unfold, given that you're now going to -- now, you're started selling flower, you've closed on these three Philly stores, Philadelphia area stores. And they're just going to be more vertical. I would assume that there should be a nice ramp on your north margin profile in that state, but just wanted to get some context if you could provide that.

[Kim Rivers:]

Yes. I think that Pennsylvania is going to continue to be a mixed market for us, right? And we're going to continue to have -- also, as I mentioned a little bit -- a little while ago, and hope to continue to have a very strong wholesale presence in Pennsylvania and that's going to continue too. So while certainly there quite frankly could be additional margin pick up as we move our existing Solevo And now Keystone Shops stores into more of a vertical position in 2022 and keep in mind that we also are going to be haven't -- we also will be expanding our cultivation and processing facilities there and want to continue to move our wholesale market share up as well. And so. of course, in a wholesale environment, you're not going to have quite the margin that you will on a vertical scenario. And also and I'll say, right, keep in mind that it's not going to be a 100% vertical in Pennsylvania. That's just not what the market dynamics are. And first and foremost, it's very important that we listen to the customers. So, yes, certainly there may be some improvement there, but again, you are going to also have new additional increase in our wholesale channel as well there. So again, all good. And I think, look just to level-set here, we're at 57% margin I'm pretty sure, last time I checked, we're doing okay as it relates to the industry. And we will continue, I believe, to be in a position to have industry-leading margins across the board as a whole.

[Camilo Lyon:]

Got it. And then just one final one if I could. On Harvest and any sort of learnings that you're gaining from Arizona market since you've announced the acquisition, I think they also talked about some competitive pressures and proportionality in there isn't a -- have you kind of unearthed different practices and how you would go-to-market? And just how you have to manage that upon closing.

[Kim Rivers:]

Yeah. Well, I think that everyone who is familiar with the Arizona market understands that there is some seasonality as it relates to Arizona, particularly when you're talking about a recreational market, and you're talking about tourists, and you're talking about folks that are consuming. It's extremely hot there right now, and you're talking about someone who was born and raised in Florida. There is some seasonality to Arizona, so I don't know that that's completely unexpected. I think that you do see a bit of -- a bit Q/Q there normal. I also would say that, and we've been pretty transparent about this, that we do believe there's opportunities in Arizona, specifically. And we think that there is absolutely opportunities for investment in both the cultivation and the processing side of the business and to expand their capacity there and to get not only again, additional products through owned retail, first and foremost, which, of course, would lean-to, as we just talked about, margin expansion that we think -- there's some pretty low-hanging fruit there. But also to create a position as a wholesaler and have meaningful brands in Arizona, Across the broader platform, say, we definitely think that there's opportunity in Arizona. I think all the teams are aligned. That opportunity exists and are looking forward to begin executing on that post-closing.

[Camilo Lyon:]

Thanks so much. Good luck.

[Kim Rivers:]

Thanks.

[Operator:]

Our next question comes from Eric DesLauriers with Craig-Hallum Capital Group. Please go ahead.

[Eric DesLauriers:]

Great. Thanks for taking my questions. So I'd like to focus on some of your integration with Harvest. So integration obviously both highly important and highly difficult in this industry. You and Harvest have both developed strong brands, strong consumer loyalty. Trulieve, I know you guys have made big investments and your ERP systems, for example. with Moxie (ph), you have strong hydrocarbon extraction SOP now. So I'm wondering, beyond Harvest, attractive footprint and brands, can you maybe provide some color on great strengths are there as you're looking to adopt from maybe a systems or SOP perspective. And then which of your systems or SOPs you're looking to implement in their facilities. Just any additional color on the integration plans and maybe how long those might take would be great. Thanks.

[Kim Rivers:]

Sure. I mean, I don't know that you ever, ever finish optimizing, so I'll maybe start with that. I think that -- one thing I'll say, and you just all have to forgive me. But I can't help it, but I am a recovering lawyer. It's just one of those things that you never quite shake. So I can't -- until we close the deal I'm really am not able to go into specific details around specific plans that we may have integration -- from an integration standpoint. I can tell you is that we plan to absolutely adopt best-in-class SOPs. This is not a -- an area where, because we've been doing it at Trulieve, that's the way it's going to go. And absolutely, this is being looked at through a new lens. It's being looked at who has got the best systems, who has got the best protocols, who has got the best ways of working, and that, absolutely, is what we will be looking to adopt on a go-forward basis. And in some cases, it's that -- both companies sit down and share, and then it actually is a new methodology that has a combined methodology that comes out of that and that will be applied going forward. So it's really been a -- and will continue to be I think a very energizing and instructive exercise. as we really dive into the details. And is creating, I think meaningful opportunity on a number of fronts that we're looking forward to taking advantage of again, post-closing. but I'll have a lot more to offer you on that question if you want to maybe keep it in the -- in your pocket for -- until the call that we have after our closing announcement. I'll have a lot more details that I'll be able to share with you then.

[Eric DesLauriers:]

Great, We'll do. I'll try, kind of, one more on this integration here. I'm not sure if I may have missed this. But in Pennsylvania, you guys would be over the limit for dispensaries. I'm not sure how the regulators are looking at both production facilities either. To the extent that you guys have received some color or you do have some idea of what that post-acquisition footprint will look like. You just kind of comment on what you expect your dispensary count and production facility count to be on that acquisition closes. Thanks.

[Kim Rivers:]

Yeah. Absolutely. I'm not going to comment on that. And what I can tell you, as I said before, we've had very favorable conversations with all of our regulators in every market that we're in. And we expect fantastic results from each of those conversations. And we do not anticipate any material roadblocks to being able to combine our companies and move forward with the closing as we've outlined in the deal.

[Eric DesLauriers:]

All right. Fair enough. Thank you.

[Kim Rivers:]

All right.

[Operator:]

Our next question comes from Pablo Nunez (ph) with Cantor Fitzgerald. Please go.

[Pablo Nunez:]

Yeah, 2 quick questions. I know it's late already. Kim, can you comment on the slowdown inpatient growth in Florida? Just context or perspective. I think we're running below three cells in a week being added compared to 5,000 to 6,000 two weeks ago. Just some color on that because we are getting to 3% of population penetration, right? The reason I was for -- I gave Oklahoma 7%, but it has slowed down significantly. Thanks.

[Kim Rivers:]

Yeah, Pablo, it's interesting. We look at that, and obviously we're looking at the trends on a very regular basis. And so I think what we saw just as a reminder in Q4, we were at about 2700 patients a week of 2020. That's where we are now. So there's been a bit of a -- there was -- quite frankly, we slowed down in 2020, at the height of COVID when doctor's offices were shut down and what not. So not sure and obviously this is all speculation because we don't have anything other than the numbers that they print every week. But I think that -- a couple of things. 1, I think folks, certainly there was some pent-up demand as it related to COVID coming into 2021. 2, of course, we had continued availability of telemedicine under an executive order -- that was an emergency order that has now expired. And so I think that the other thing that you have to look out and you have to look at the throughput on the doctor's offices. And telemedicine, I believe, did allow physicians to be significantly more efficient with their time as they were able to get more patients through the court, office, right? During that telemedicine period. So we've normalized back to where we were before, so I don't know that it's -- I don't know that I would call it any sort of reason for complete alarm, right? I think that, again, you have some pretty reasonable reasons for that happening. Obviously, we're going to continue to monitor it though to your point, and certainly want to see that number continue to grow. I mean, 2700 patients a week though is still extremely strong growth for a market, particularly on market that is now in its 5th year of existence. So I don't think that's something that necessarily downplay. But yes, we had exceptionally high growth, which I think was your point in Q1 and Q2.

[Pablo Nunez:]

That's good. Thank you. And then one last one, maybe I missed here, but in the use of Connecticut, you said that once the market goes Reg, you'd also be able to start production. I thought you only have a retail license there and there's no grand -- the grandfathering is only for the retail license. Can you elaborate on that? Thanks.

[Kim Rivers:]

Yeah. Thanks, Pablo. It is our understanding that there will be grandfathering allowed for folks that have retail licenses. 1 of the requirements before recreational will be officially released, if you will, is for there to be adequate production and cultivation. And one of the ways that can be achieved is through allowing the same retail operators to also have cultivation and production. So while the final regulations are not out and we are certainly in touch, very much so with regulators there and expect regulations to becoming through any -- at any moment, drafts have been released, etc. I feel very comfortable that -- and of course, that we will be able to participate on the cultivation and production side of things there. We've got some sites identified, and once we are able to do that, we will be participating in that market.

[Pablo Nunez:]

That's good. Thank you.

[Operator:]

Our next question comes from Kenric Tyghe with ATB Capital Markets. Please go ahead.

[Kenric Tyghe:]

Thank you. And good morning. Kim, on the promotion activity, and gross margin discussion. Typically, when competitors make those sort of price investments and then they don't gain the traction that they expect, they end up wearing those investments in subsequent quarters, given potential collateral damage to brand or positioning. With that context, would it be reasonable to be looking at Florida business and the lack of potentially poised for a little bit of a snapback there in terms of margin profile because you did a good job as you did defending against that promotional activity or more rational and incoming irrational pricing. If it works great, but if it doesn't, the people participating and not possible aware. How should we think about that evolution if just a better handicap, the range of outcomes on gross margin through the second half.

[Kim Rivers:]

Yeah Kenric. Great question. I think that we are -- we're still -- so really, the -- I will say that the significant increase in discounting really started to pick up in the back half of Q2. And I think that you're still -- you saw still a little bit of that. It's interesting, we've seen kind of a reprieve of it. And then now we're starting to see a pickup back again. So it's almost like they're going to there's like a pause to evaluate and then, then you're starting to see it a little bit again. And by the way, not necessarily always from the same folks. So it's been very interesting to watch and evaluate for sure. I say that because I don't know that you're going to see an instantaneous snapback. I do you think, though, as we move into, call it, back-office Q3 into Q4; I think that you should start to see some of those effects play themselves out. And I think you started to see them in in Q2. And if you really dig into some folks earnings, I think you'll notice that are there. But I think certainly it's something that we're watching and work on as it and, like I said, I think that our response is the right one, in that we're being very strategic and very surgical in terms of how we approach it. Maintaining competitiveness of course, but also maintaining the really intrinsic value of our brand, which -- look, that's more important to us than trying to force another -- a couple more points on a top-line for short-term gains. We want to, of course, grow on the top-line, but we want to do in a sustainable way.

[Kenric Tyghe:]

No, that's great Kim. And then just to close off in discussion in terms of my question. The other piece of it would be is typically the sort of activity will work well either in newly recreational markets, so thinking Arizona, or in markets where you have material, supply, supply and balance, or all the oversupply. But realistically across a number of your markets, the opposite is true where there is a tied to relatively high supply, which to my mind gives a pretty short tail to this level of promotional activity or to people's ability to continue to do it in your more established markets, recognizing it could be noisy in some of the newly recreational markets. Is that a fair characterization to your mind?

[Kim Rivers:]

Absolutely. I also think that it's really interesting that folks have this need to do such deep discounts when you are in a market that has the demand profiles that we have. And so, I think that the other component of this, which we haven't talked a lot about, is really one that speaks to quality. And it speaks to consumer preference, right? And the question that we ask is, it's the why question, right? Why is it something moving, why is there -- what's off as it relates to the value proposition? There are many components to a value proposition, right? And, of course, it's having the right product in the right -- at the right shelf and the right price. I mean, those are the 3 basic components, and again, quality is an important component there. And so -- and we think that the quality, and again, having that consistent and repeat customer who is -- bought into our value proposition is really the only way to win. Again, long term and so, I agree with you completely. I think that there's that's really again, I think very, very short-term way to think about the business. But to each their own. And we're just want to be thoughtful in terms of how we respond and ensure that we continue to produce the highest quality products available at the right value proposition to give our customers a good and repeatable experience.

[Kenric Tyghe:]

Just congrats, and I'll leave it there.

[Kim Rivers:]

Thank you.

[Operator:]

Our next question comes from Scott Fortune with Ross Capital Partners. Please go ahead.

[Nick Anderson:]

Hey, good morning. This is Nick (ph) stepping in for Scott. Congrats on another good quarter. My 1st question comes on the product innovation side. You guys launched edibles last September. You're looking to develop powders, waxes, and other skews. Just looking for some color on your upcoming 2.0 product launches, what you've seen so far on what's been rolled out and kind of what the competitive landscape on the 2.0 looks like in Florida. Thanks.

[Kim Rivers:]

Yeah, absolutely. We have a full line of edibles currently. We also have a whole line of concentrates which include all the products that you just mentioned. And we've had those products in our portfolio for at least the last six months. So there certainly strong categories. We are still waiting in Florida for hydrocarbon rules to come out and we're very excited about that being on the horizon. That extraction methodology has been approved in Florida law. We're just waiting for actual rulemaking to come out. We keep hearing that it's right on the cusp of being released. So we, of course, have full facilities that have been, just like we did with edibles, already inspected, approved, etc. We have a full product lineup that we're excited to launch. As another analyst mentioned earlier, we, of course, have high-end hydrocarbon extraction product line in Pennsylvania. Through our PurePenn partnership there that -- and that does extremely well in that market. And so we are anxious to bring that expertise here in Florida. In addition, of course, in Arizona hydrocarbon production is also allowable. So certainly what I would say is that on truly to point as you picked up on and will of course, have more robust catalog of concentrate products. And so we're looking for that to be a growth category for us. In addition, we continue to innovate across other concentrate products. We recently launched our refined cream product. We're actually waiting for approval on some other innovative products. And I should also mention that our product line-up with our brand partner Blue River, which is a solvent-less Company, who is a national brand partner for us, has continued to do extremely well. And we're continuing to do a lot of innovation on the solventless front, which we do believe is an important category that is a growth category for us moving forward. The final thing that I'll say on innovation, which again, I think sometimes gets overlooked, is on the genetic front. We continue to invest heavily into our genetics portfolio. And again, when people think genetics, I think folks think only the exotic strains, which certainly is true, as I mentioned with our Cultivar Collection. But also it's really important as we think about the landscape on a national level and how that might change or evolve with things like interstate commerce, for example, and which parts of the supply chain we may feel it's important to continue to be in control of, and one of those is genetic profiles for specific products, and sustainability of supply chain for genetic profiles for specific products. So what I mean by that is certain strains that have increased Terrapin Flavonoid, structure requirements that better feed into particular product lines that we have developed. And that are made specifically for those formulations. Again, as well as, high-end genetics from a flower perspective. So genetic focus is something that is important to us and that we will continue to work on as it relates to innovation, as well.

[Nick Anderson:]

Great. I really appreciate that color. And then one more from me, just kind of switching gears regarding your West Coast expansion, specifically California. You have your dispensary there and then the brand equity of Harvest in Arizona's to potentially leverage in that region. What do you think needs to change or happen in California for it to become a more compelling market opportunity? Thanks.

[Kim Rivers:]

Yeah, absolutely. Certainly we're watching California and I thought that what's going on with is interesting, and I think we're keeping -- we're certainly keeping an eye on what's happening in California as it relates to real scaled and meaningful production and supply chain there. I think that it's in a significantly improving state, I would say in California, as it relates to the ability to potentially anyway and get true scale, and get true distribution. I mean, that's what we're looking for really in any market, right? California is no different as the opportunity to have solid and stable supply chain, where we can have reliable distribution through a market that makes sense and that we're not overburdened from a tax or regulatory perspective so that we can run our business and we can, again, provide our customers with quality products. at a good value. in a repeatable way. So I think California looks better than it did. And we're keeping a close eye on it.

[Nick Anderson:]

Great. I appreciate color.

[Kim Rivers:]

Yeah.

[Operator:]

This concludes our question-and-answer session. I would like to turn the conference back over to Lynn Ricci for any closing remark.

[Lynn Ricci:]

Thank you for joining us today. We look forward to updating you again next quarter. Have a great day.

[Operator:]

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