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Trulieve CEO is 'cautiously optimistic' on states' upcoming cannabis legislation

Trulieve CEO Kim Rivers sits down with Yahoo Finance Live to discuss the cannabis company's latest earnings report and outlook ahead of cannabis regulation bills.

Video transcript

AKIKO FUJITA: Well, let's take a look at shares of Trulieve. We are seeing those down today. After missing earnings expectations and cutting revenue guidance, Trulieve CEO Kim Rivers is here to dig into the numbers. She joins us this afternoon. Kim, it's good to talk to you today. Let's start with that full year revenue guidance. You're guiding lower now. You mentioned a number of factors-- obviously, macro headwinds. Inflation, another big one.

KIM RIVERS: Right.

AKIKO FUJITA: Talk to me about how you're seeing that reflected in the cannabis market right now.

KIM RIVERS: Yeah, so, I mean, I think it's important to start with the fact that we did have growth in the first half of the year. We had 4% sequential growth in Q1, 1% sequential growth in Q2. We're 49% year over year revenue growth in this quarter. So we are still growing. And we did, however, think that it was the prudent thing to do, to go ahead and make the adjustment to low-end expectations by 5%, taking into account a couple of things.

One, strategically, we are repositioning and jettisoning lower quality earnings and assets that are accountable for those lower quality earnings. And we have announced that we are exiting Nevada, as well as shuttering retail facilities in California, as a result of just optimizing our portfolio through this uncertain macroeconomic time.

And then, as in line with a number of other retailers, as I'm sure you know, just some uncertainty in the back half of the year as we look forward to what looks to be just a very, kind of, interesting set-up going into the holiday season that could really go either way.

So we wanted to be cautious. We wanted to be prudent. We're a company that raised guidance, actually, during the pandemic. And likewise, we see some of those trends unwind. We felt that it was prudent to just adjust to reflect what we see right now in the macro environment.

RACHELLE AKUFFO: And, Kim, in terms of your strategy, how much of that is also based on some of the stalling policy that we're seeing in Congress? And how are you navigating that?

KIM RIVERS: Yeah. So, I mean, right now in Congress, there's just such an apparent and blatant disconnect between what we're seeing, as a result of polling that we're doing. Every time we do a poll, there's a stronger response from the American people in terms of their wanting to see action at the federal level on cannabis. At this point, I'm asked all the time, what policy changes do you want to see made? And my response is, whatever we can get passed. Because, really, the level of disconnect is just growing more and more ridiculous by the month.

That being said, we did and had some positive news with Senator Booker's comments recently about being amenable to a SAFE Banking, plus some other measures, which hopefully will include some social justice and other provisions. So we are cautiously optimistic, I'll say, that that could happen before end of the year.

For us, though, it's really about sticking to fundamentals. I mean, look, in our core markets, we've got significant catalysts ahead. A petition to pass adult use in Florida was just filed this week. That market could be upwards of $6 billion or a 50% market share leader in that state. And we have market growth in our core markets of Pennsylvania, Connecticut, Maryland. When those set up to go rec, those could double to a $4 billion market.

We're entering Georgia. There are a number of southeastern states that are passing, or in the process of passing, some form of either medical program or legalization. So there's a lot of growth ahead in this sector. But like, again, retail-led companies, which we are the leading retailer in cannabis in the US with 175 locations, we're feeling those macroeconomic changes just like others and, again, thought it was a prudent thing to do during this period of time.

AKIKO FUJITA: Yeah, Kim, I want to get back to some of those exits you mentioned, Nevada, one, California, another one.

KIM RIVERS: Yep.

AKIKO FUJITA: I mean, is this just a matter of oversaturation, competition in the market? And these are two pretty big markets in the cannabis space.

KIM RIVERS: Yeah, absolutely. So it's about depth and scale. You know, Trulieve is known for going deep and actually having a focus on profitability in markets that we operate in. We're a big believer of having optionality in markets, which requires a certain level of scale to achieve that level of acceptable return on investment.

And in Nevada, we completed a large-scale acquisition in October of last year. Nevada and California simply were not deep enough. And in terms of, again, opportunities of investment, we felt that there were other uses of capital as we're looking to, again, right size and focus on quality of earnings. We expect to be free cash flow positive next year. We're leaning into generating cash flow from operations through the back half of this year.

It is very, very important within the cannabis space that we are mindful, given the fact and the weight on the industry from 280E, which is a significantly higher tax rate than other normalized businesses and other factors and expenses that we have to absorb, that we are very, very disciplined. And it's part of our DNA and certainly something that we want to focus on as we look at our entire portfolio and what makes sense and what doesn't.