Florida-based cannabis company Trulieve reported an uptick in retail revenue and a drop in wholesale revenue in its second-quarter earnings report on Wednesday. CEO Kim Rivers said that she is “cautiously optimistic” about the possibility of federal reform before the close of 2022, even as the company announced it will exit the Nevada market and close certain California locations as part of an ongoing strategy compounded by macroeconomic pressures on consumers.
"That work has begun,” Rivers said on a call with analysts. “With the macro environment on top, it provides perhaps greater visibility, and it becomes more clear.”
For the second quarter, ending June 30, Trulieve reported revenue of $320.3 million, a jump of 49 percent year-over-year and 1 percent sequentially. The pot producer also reported $22.5 million in net losses, or $1.1 million in adjusted net losses, excluding charges related to the acquisition of Harvest Health & Recreation and other things. The company grew its adjusted EBITDA, a popular metric for assessing financial performance in the cannabis industry, 17 percent year over year to $111 million. Executives also reduced guidance for the second half of the year, anticipating headwinds like increasing inflation.
Like some of its peers in the U.S. cannabis industry, Trulieve noted a decline in wholesale cannabis sales. Wholesale, licensing, and other revenue fell 22 percent sequentially to $21.7 million, while retail sales climbed 3 percent. To address the decline in wholesale, Rivers said on the call that the company is reallocating products to retail and “further refining our product mix.” The company also announced a decision to leave the Nevada market, where it has wholesale operations, and to close select California retail locations.
“[Nevada] was a very small wholesale market. Really, we had a decision to make in terms of whether or not we were going to scale around it or exit. It just wasn't scaled enough to be contributive in the way that we would like for it to be to keep into our portfolio,” Rivers told Cheddar News. “Also, we announced that we are closing select California retail assets similarly, so we're going to continue that evaluation process through the end of this year.”
Even as Trulieve looks to exit Nevada, executives have their eyes on other upcoming markets including Georgia, West Virginia, Connecticut, and Maryland.
The company also noted an increased appetite among consumers for value, or more affordable, cannabis products in certain core markets like Pennsylvania and Arizona. In the company’s home market of Florida, Rivers said that consumers still want premium products. Sales of premium products are typically considered more desirable, as they often represent higher margins. But Rivers said it depends on the product.
“I also think that it's a misconception to believe that margin degrades with segment. That's not true. So when we say value-branded product, that in some cases could actually mean that our margin improved with that particular product, depending on what it is,” she said.
Trulieve is the dominant cannabis company in Florida, where medical marijuana has been legal since 2016. The state has a robust medical program with close to 800,000 patients, but efforts to legalize adult-use cannabis have floundered in recent years. Most recently, the state Supreme Court struck down two measures that would have placed adult-use legalization on the 2022 ballot over “misleading” language, according to MJBiz. But Trulieve is pinning its hopes on 2024. 
The company, in partnership with country music duo the Bellamy Brothers, pledged $5 million in support of an effort to land cannabis on the ballot in 2024, according to News Service of Florida. Rivers said she felt this effort would be different from past, failed efforts because it takes pains to navigate around two common pitfalls for ballot initiatives: containing misleading language and tackling more than a single subject.
“Looking at those opinions as it relates to previous initiatives is instructive and has been instructive in drafting this new language, which is extremely narrowly tailored, and absolutely is single-subject,” she said.
“I feel more confident in terms of the ability to pass Supreme Court review. I can also say the polling has never been stronger,” she later added.
Still, the initiative faces a difficult road ahead, requiring 900,000 petition signatures even to make it on the ballot.
As for bills in Congress that seek to federally reform cannabis policy like the Cannabis Administration and Opportunity (CAO) Act and Secure and Fair Enforcement (SAFE) Banking Act, Rivers said she’s supportive of “whichever one can get passed.” But she also echoed some of the same criticisms of the comprehensive CAO Act as other cannabis executives.
The bill, introduced in July by Democratic senators, seeks to impose an up to 25 percent excise tax rate for large cannabis companies and gives some regulatory powers to the Food and Drug Administration, among many other things.
“There are of course concerns about adding additional regulation to industries that are already heavily regulated and additional costs to industries that already have been dealing with … higher cost structures, and how sustainable that is if the goal, really, is to create a robust and diverse ecosystem,” she told Cheddar News.
Rivers also said she was “encouraged” by the news that Booker had expressed support for the banking reform bill SAFE Banking, so long as it contains certain equity and financial provisions.
“I am encouraged by Senator Booker's recent remarks and his apparent shift to wanting action and wanting to actually accomplish something meaningful prior to year-end,” she said.
In advance of federal legalization, the company is still focusing on its strategy of establishing hubs in the Southeast, Northeast, and Southwest U.S. in the event of federal legalization and a possible relaxing of prohibitions on interstate commerce. In spite of the company’s Nevada exit, the company has continued to invest in Arizona, where Trulieve is continuing efforts to rebrand dispensaries there following the acquisition of Harvest Health & Recreation in 2021.
Trulieve trades over the counter in the U.S. and on the Canadian Securities Exchange in Canada. AdvisorShares Pure US Cannabis ETF, which tracks major U.S. cannabis companies, has lost close to 68 percent year-to-date.