Trulieve CEO Kim Rivers joins Yahoo Finance Live to discuss company earnings, weed legalization, criminal justice relief, and the outlook for growth in the cannabis space as the demand for cannabis continues to surge.
BRIAN SOZZI: Cannabis player Trulieve is out with earnings, delivering an 81% sales increase for the fourth quarter. The company is looking for more than a billion dollars in sales this year, as it expands the number of dispensaries. Joining us now is Trulieve CEO Kim Rivers. Kim, good to see you here this morning. 81% sales increase, very strong in a very competitive market. How did you drive that gain? KIM RIVERS: Yeah, so I mean, it's really our whole strategy is driven on increasing fundamentals and staying true to our strategy that we announced in 2020, which is expansion through a regional hub strategy. We increased both via organic growth and via acquisition. We completed the largest acquisition in cannabis history in October. And so really proud of the team and our ability to execute on the fundamentals. We increased both on the dispensary count and on our supply chain, up around 100%. And so really phenomenal year, and kudos again to our entire organization. JULIE HYMAN: Hey, Kim, it's Julie here. So you saw that big growth. I'm curious about margins and profitability. You guys are posting positive EBITDA, but still net losses. How are you working to improve those levers on growing the margins? KIM RIVERS: Yeah, so this was actually our first quarter post of a net loss. And really, that was 100% attributable to the acquisition. If not for the acquisition, we would have had another strong quarter of net income. So look for us, again, as those one-time or nonrecurring charges flow through the financials, which should be cleaned up in Q1. We will be right back on track where we have been in terms of profitability both in the net income line, as well as in the adjusted EBITDAR, EBITDA line. So, you know, again, just some rightsizing as we absorb and digest, again, that very large transaction that we completed at the end of the third quarter. BRIAN SOZZI: Kim, just staying on that, what Julie mentioned on margins, your gross margins were down to 43.4% versus 71.2% last year. Are you seeing any inflation in your supply chain? What explains that beyond, I guess, the acquisitions? KIM RIVERS: Yeah, so if you adjust out for the acquisition, which we shared on this morning's call, we actually end with approximately-- it's about 59% adjusted gross margin. So it's really a 10% swing when we look at it on a quarter over quarter basis, again, with that big acquisition coming in. And so the acquisition diversified our platform into additional markets, some of which are not optimized from an efficiency perspective. We will be adding supply chain in those markets throughout the rest of the year. And we do expect those margins to increase throughout the year. We did give longer term guidance, about two to three years, with margin profile that we expect to hit at 60% minimum on a normalized basis, along with 40% minimum EBITDA, which we believe is very achievable. To answer your question specifically about inflation, again, it's very different from market to market. Keep in mind that, of course, cannabis still has-- is illegal federally. So our ability to have distribution continuity across the US is nonexistent. And so we do have, again, differences from market to market. What we're seeing is not necessarily an impact, in particular, basket sizes per se, but what we are seeing is consumption in general has softened a bit, coming off of the highest consumption time frame that we've seen as an industry during COVID-19. Makes sense rationally-- folks are stuck inside their house and have more time during the day, whereas now, again, that's normalized. You add in inflation, you add in choices that consumers are having to make with expendable dollars and the fact that our industry is primarily a cash business, certainly, we have seen a little bit of softness as it relates to consumption. But again, not on a per transaction basis, just less consumers entering our slower growth period. JULIE HYMAN: You mentioned, of course, the fact that it's not legal on a federal basis. And we've been talking about this issue a little bit this week because the House is voting on the MORE Act, which would decriminalize marijuana. From what we've been hearing, pretty standard view that we're not going to see federal legalization this year. If we did have something like Safe Banking pass, which prospects for that perhaps a little bit better, what does that do for your business? KIM RIVERS: Yeah, so the banking, as we just mentioned, it's an all cash business currently. So having banking relief would do a number of things. First, it would hopefully allow us to expand payment options for consumers, providing greater access to cannabis across the country. It also would lower our cost of capital by allowing our access to typical lending rates. We have been subject to higher rates due to the fact that we are limited in terms of our banking partners currently. So having a more diverse network of banking options would certainly improve cost of capital. What we would love to see is we would love to see some relief from a tax rate perspective, along with Safe Banking. Currently under 280e, just to give you a number around that, last year, we paid a significant amount in taxes. I believe it was over-- there was over about $75, $100 million in taxes that we would not have had to pay had we been not taxed under 280e. So significant changes to our financial profile would come with the passage of Safe Banking, along with some additional federal reform. I would like to note, though, that I do believe that it's incredibly important for us to not only focus on Safe Banking, but certainly, there, I believe, needs to be some form of criminal justice relief with letting out and expunging records. There should not be anyone behind bars for cannabis distribution or sales, given the fact that here, I'm sitting with you on Yahoo Finance and in this seat, selling cannabis in legal markets in the state structure today. BRIAN SOZZI: Kim, I have 10 seconds left. If it does-- if cannabis does become legal, a lot of new entrants would come into this marketplace. How do they start? Do they start with cannabis? Do they start with edibles? Do they start with buds? How should they start bringing this into their life? KIM RIVERS: Yeah, it's going to depend on the individual. We certainly see, and I would say that inhalation products are a fantastic way to understand what your particular tolerance level and your response to cannabis is because it actually stays in your system a lower time period, about two hours or so, or fast-acting edibles. And I can't stress that enough because edibles do digest through your system in a different way. And so the effects of those are going to stay with you between four to six hours. So I would say start with-- start low, go slow. Lots of different form factors out there and lots of different options for you to begin your cannabis journey.