Trulieve CEO discusses 'the largest cannabis transaction to date'

Trulieve CEO Kim Rivers joins Yahoo Finance Live to discuss the cannabis company's Q1 earnings, how safe-banking legislation would impact the industry, marijuana regulation and business taxes, and the outlook in the legal cannabis market.

Video Transcript

[MUSIC PLAYING]

- Cannabis momentum continues across the country with 18 states now legal recreationally, the latest being New Jersey, and 38 states allowing medical sales. Kim Rivers is the CEO of Trulieve Cannabis, which operates in eight states currently and just out with earnings today. Kim, nice to see you, and congratulations on the record revenue. Your reaction?

KIM RIVERS: Yeah, it was a fantastic, fantastic quarter. I have to make one slight correction. We're in 11 states now. I know it was hard to keep up. But yeah, we had a fantastic quarter, up sequentially 65% year over year, 4% for the quarter, strong top line growth, but I think even more importantly, strong cash flow generation from operations, $45 million there, and really just, again, optimizing assets across the platform and really, really proud of the team.

- Record revenue, but lost $32 million in the quarter. How close is Trulieve to being profitable?

KIM RIVERS: Yeah, so we are absorbing and digesting a very large transaction that we closed in October, October 1. It was actually the largest cannabis transaction to date. So we had 55% improvement quarter over quarter on that loss number. And the loss was attributable to one-time and non-recurring charges, including some synergies with the disposition of inefficient cultivation assets as well as the disposal of a duplicative location.

So you know, that's going to clear through throughout the year, and we'll get back. And really, I think what's amazing is that we were able to generate $45 million even given that net loss for the quarter. Without that net loss, we would have been at about $78 million cash flow from operations. If you take the first three quarters of 2021, we were at $75 million combined. So really again, really couldn't be happier in terms of our positioning for future growth.

- Shares got a nice pop today, about 3% at the moment but still down 47% year to date and 64% now in the last 12 months. Where, to you, is the disconnect?

KIM RIVERS: Yeah, I mean, I think that there was some market exuberance early on when the Democrats took control of both the House and the Senate and the White House. And we all anticipated that there would be some cannabis reform quicker at the federal level. Obviously, our expectations are down a little bit on that, although I do think that there is still room for incremental positive policy change here in DC.

Certainly, we saw a strong indicator today with Senators actually coming out with a letter to leadership in the House and the Senate encouraging them to leave Safe Banking in the COMPETES Act as that goes to conference today. So we'll see where that ends up. But I think that there is right now, a disconnect between fundamentals of the sector along with the markets were traded on a relatively inefficient exchange, the Canadian Securities Exchange. So in that, there's an opportunity for folks to get in ahead of institutional investors. But there are some headwinds for sure just in terms of the mechanics of the stock where we sit today.

But I think improvement ahead, and again, our job and my job is to focus on the fundamentals, focus on execution, which we'll continue to do and to be best in class so that we're more able to uplist and we're able to take advantage of a tailwinds that we believe are coming that we're, again, best positioned in the sector.

- It is indeed industry-wide. MJ, the alternative harvest ETF down 36% and 63% in the last year. So yes, certainly not just yourselves. You mentioned the optimism that was had in the entire industry. Congress will Congress, Kim. But how disappointed are you in the administration and their stance?

KIM RIVERS: Yeah, I mean, I think it is disappointing when you also have a disconnect not just with the markets, but really what we're seeing in terms of what people want and expect from leadership. You know, leadership, I think, at least in my civics class, was here to do the will of the people, right? And when you have cannabis that is legalized and accepted in large part across the country, as you mentioned in your opening remarks, to have a Congress so out a touch on simple, fundamental things such as banking to give protection so that we don't have to hold large amounts of cash in our dispensaries--

We've seen unfortunate shooting after shooting and death, primarily of young people, in dispensaries. And it's really nonsensical at this point. And you know, again, I would hope that our representative leadership would step up and at least, at the very least put in place some incremental policy change here.

- Yeah, there's been a rash of shootings specifically up in Washington State. Talk about Safe Banking, which has passed Congress six times, the House, and just can't seem to get through the Senate. How does it impact the cost of doing business, the effective tax rate that you pay?

KIM RIVERS: Yeah, so I mean, to give you some real numbers around that, last year, we would have paid $125 million less in taxes had 280E not been applicable to our business. So while we employ-- currently, we employ over 9,000 employees across the country. We pay taxes the same as if we were dealing cocaine or heroin, even though our business is absolutely legal in the states in which we operate. So again, you want to talk about some disconnection points, that would be a big one.

In terms of Safe Banking specifically, to have normalized banking solutions, to be able to take advantage of normalized banking rates-- right now, we have this cannabis tax on all capital raises that we do. We just completed a two tranches of debt at 8%. And that was considered-- that was the best rate in the industry. Many companies are forced into deals with convertible aspects, high levels of warrants, et cetera, just because of the limitation of folks being able to fund cannabis, again, through traditional channels.

- I mentioned the 18 states recreational, 38 medical, and you're now in 11. Do you view-- what's the next important market that you think should or could legalize? And where do you think you'll expand next? I think 70% of your business currently in Florida.

KIM RIVERS: Yeah, that's right. In terms of our-- we have a market leading retail platform, 165 stores across the country with 70% of those stores in Florida, 30% of course, in other markets. Diversification has been a strategy for us over the near term with the closing of that deal I mentioned. We have three regional hubs, the southeast, northeast, and southwest. We certainly would expect to get to five hubs over time.

I can tell you the northeast, of course, is exciting right now. We see great promise in Pennsylvania, poised really and pressure mounting to go recreational there. We have the industry leading footprint in Pennsylvania and would expect to see great increases there if and when it does go adult use. Maryland is set to vote. We have a presence in Maryland as well, just expanded in Maryland ahead of that catalyst coming. And it'll be on the ballot in November.

Certainly though, the southeast, we're very, very bullish on. Georgia's program will be opening here soon. We are one of two operators that have a tier I license in Georgia. That program looks very similar to Florida in its early days. Alabama's working through program regulations, also expansion for us going on in West Virginia. So really all up and down the East Coast, we think is really poised for significant growth over the next 12 to 24 months.

- Beyond our borders, interesting, yesterday that Sadiq Khan, the mayor of London, visited a facility out in Los Angeles as he considers decriminalization in London. How optimistic are you about the global environment?

KIM RIVERS: Yeah, I mean, look, I mean, I think the news out of Europe is very encouraging. And I think that cannabis normalization in any form is certainly helpful for the sector and helpful for our industry. Certainly, we have seen great promise in Germany and in some other markets, so certainly keeping an eye on the European transition here over the next coming months.

That being said, look, I mean, US is going to continue to be the pacesetter as it relates to cannabis, certainly as it relates to the market size, adoption, and brand building. So we're happy in terms of our market leading position here.