EXCLUSIVE: Trulieve's Kim Rivers On 'Optimizing Portfolio And Efficiencies Across A Combined Platform' Following Q1 Earnings Report

"Trulieve's scale and service, operational flexibility, and strong balance sheet are essential for success in the current environment. With increasing adoption and expanding state-level access to cannabis, the industry is well beyond the tipping point. Tremendous opportunities lie ahead for companies that can successfully adapt within evolving landscapes," said Kim Rivers, CEO of Trulieve Cannabis Corp TCNNF, in a recent interview with Benzinga Cannabis following the company's Q1 2023 earnings announcement.

Navigating Financial Challenges

Despite posting a disappointing decline in revenue, which came in at $289 million, or 9% lower compared to Q1 2022, Trulieve highlighted record 4/20 results.

Rivers mentioned an increase in traffic, customers served and units sold by 10%, 11%, and 9% respectively, year-over-year. The company has demonstrated its commitment to financial efficiency, noting an impressive reduction in selling, general and administrative (SG&A) expenses by $24 million, she added. This strategic move, however, has necessitated layoffs.

“I think optimizing portfolio and optimizing efficiencies across a combined platform… it's important to note that we had seven acquisitions last year. And so, there will be natural alignment that has to occur across a combined portfolio of assets, and which are going to include, in some cases, exiting markets, which we've done, which of course resulted in labor rationalization there along with bringing more efficient facilities online and mothballing or taking offline certain legacy capacity,” Rivers explained when prompted on the issue. “Now, I will say the positive there is that, when those trends change, which we believe they will… we have not taken those facilities completely offline or terminated or sold those facilities. We literally are keeping them waiting in the wings with the hope that we'll be able to ramp those back up as demand accelerates with the onset of adult-use [cannabis in Florida].”

And she added, “We're a public company and have investors and shareholders and fiduciary responsibilities. So we do need to make sure that we're ramping to demand across the portfolio, which we have been doing. But again, in hopes that we'll be ready to accelerate that back again as soon as demand right sizes, which we think will be coming here in the near term.”

Improving Margins And Overcoming Overproduction

As the interview progressed, Rivers proudly shared the company's significant achievement in improving its gross margin by 2% to an industry-leading 52%.

"We were able to actually bring down inventory. However, the inventory number was flat because we had overproduction in our brand new 750,000 square foot facility in Florida," she elaborated. This overproduction, rather than being a negative indicator is a testament to the company's efficiency and effective optimization efforts. "The yields are higher. The actual THC and quality of flower that's coming out of that facility is higher than anticipated," Rivers explained.

Tackling Revenue Decrease and Shifting Consumer Behavior

Rivers addressed the factors contributing to the decrease in revenue, citing normal seasonality and price compression in the cannabis market. "We've seen in recent cannabis-specific data, double-digit price compression across the US, and we're certainly seeing some of that as well," she said. Recession fears and "pressure on wallets," as Rivers described, also play a role as customers continue to purchase though with less disposable income.

Despite these challenges, Trulieve saw a record-breaking 4/20, which seems contradictory to the overall reduction in demand.

"We're not necessarily seeing a huge retraction in consumer numbers, but we are seeing changes in consumer patterns and behavior in terms of how much they're spending and what they're purchasing at the register," Rivers explained.

Strategic Realignment and Expansion

Following seven acquisitions last year, Trulieve had to align its combined portfolio of assets. This process involved exiting certain markets, bringing more efficient facilities online, and mothballing or taking offline some legacy capacity. However, these facilities are not completely abandoned. They remain on standby, ready to ramp back up as demand accelerates, especially in Florida where the prospect of adult use is on the horizon.

The company, currently operating over 180 dispensaries, plans to open 15 to 20 more this year. It also intends to reposition up to six dispensaries to better align with customer demand profiles. Moreover, Trulieve closely monitors the potential legalization of adult use in Florida by 2024, a move that could significantly boost its market position.

Leveraging Digital Marketing

Seizing the opportunity to advertise on Twitter after the platform announced it would accept cannabis ads in the U.S., Trulieve has seen promising results and expanded its marketing efforts to include additional markets.

Though the company remains focused on the U.S. market, it's also keeping an eye on international markets, with particular interest in Germany. However, much work remains to be done domestically.

Trulieve also recognizes its strong presence in Latino-heavy states such as Florida and Arizona. The company has made concerted efforts to ensure all employees feel included and valued. It also plans to use personalized marketing strategies to reach out to various consumer groups, including the Latino community.

Preparing for the Future

As Trulieve navigates the complexities of the current economy, the company remains optimistic and proactive about the future.

"Our team is laser-focused on cash preservation and generation as we set the stage for the next phase of accelerated growth," Rivers said in a press release about Trulieve’s earnings report. As the industry continues to evolve, can Trulieve's dedication to efficiency and customer retention position it for success?

Share your thoughts on Twitter, tagging @BZCannabis.