Trulieve Cannabis
HEADQUARTERS: Quincy
CEO: Kim Rivers
EMPLOYEES: 5,800
2023 REVENUE: $1.1 B
RANK: No. 68 of public companies
Attendees were all abuzz in April at a marijuana investment conference in South Florida as Kim Rivers took the stage. The crowd recognized Rivers as the reason state voters in November could authorize a commercial, recreational weed industry here, a potential gold mine for the pot business.
Rivers sat for just 16 minutes at the Benzinga Capital Conference to host a dialogue with the Bellamy Brothers, septuagenarian pot advocates and a pop-and-country duo best known for their hit Let Your Love Flow.
Rivers chatted with the Bellamys about the coming campaign in Florida to legalize recreational pot and their favorite way to get high. Then she pivoted in her chair.
“Okay, so here’s the thing, guys,” she said to the audience. “We got to get our talking points down. ... All right, so all of our research shows a few things that are going to be critical in terms of messaging this thing.”
She hit the talking points she wanted the crowd to sell, then said, “All right, so y’all got it? There’s going to be a pop quiz later. So let’s just make sure that we’re holding hands, please, you guys.”
Come election night Nov. 5, no one watching the returns for the pot amendment will have more on the line than Rivers. The company Rivers leads, Trulieve, based in Quincy near Tallahassee, spent $50 million through April to write the proposed amendment and gather the 1 million signatures needed to place it on the ballot.
“We don’t always get along, but I give credit where credit’s due,” Brady Cobb, founder of Miami- based pot company Sunburn Cannabis, had earlier told the conference. “The reason we’re here today is, Kim Rivers put one hell of a bet down and put her money where her mouth is.”
If her $50-million bet pays off, Big Reefer eyes Florida, the nation’s third largest state, as a $6-billion market, making it not just the largest legal cannabis market in the nation but also the largest in the world. “I think it will be a historical moment, not only for Trulieve but for the movement, nationally and really globally,” Rivers says in an interview.
Bud Titan
Rivers, a north Florida native, earned her law degree at the University of Florida and moved to Atlanta where she worked in mergers, acquisitions and securities before returning to Florida as the state inched toward allowing medical marijuana.
Trulieve, with Rivers as chair, president and CEO, was founded in 2015. Florida voters in 2016 approved legalizing commercial medical marijuana in Florida, and Trulieve was in the first batch of five licenses granted — the first, Rivers likes to say. Gov. Ron DeSantis used to refer to the small group as “the cartel.”
The Legislature created a regulatory scheme with a limited number of players and high barriers to entry. Florida, in its rules for the industry, restricts growth in the number of medical marijuana licensees. And cannabis is not subject to the three-tier system that separates ownership of manufacturers, distributors and retailers in the liquor industry. Instead, for marijuana, the Legislature mandated “seed-to-sale” vertical integration — capital intensive but higher margin. “It’s one of the best markets in the country,” says Matt Darin, CEO of the New York-based marijuana company Curaleaf, which has 62 stores in Florida. “The ability to be fully vertical and have really built out a lot of scale is kind of unique to the industry and makes it really favorable.”
Operators had to be well capitalized to simultaneously fund cultivation, manufacturing and retail while covering compliance costs such as third-party lab certifications or posting with the state cash or a performance bond (now $2 million to $5 million). Regulations effectively disadvantaged mom-and-pop businesses in favor of larger commercial operators.
Nearly from the start, Trulieve dominated. It would be hard to find a better state. Florida became the nation’s largest medical marijuana market with 880,000 patient cardholders as of April. Its $2.5 billion in medical sales alone make Florida the third-largest market by revenue, behind California and Michigan, both of which have legalized adult use.
Today, 25 companies have Florida licenses with another 74 vying for the 22 licenses scheduled to be awarded next, says Jae Williams, the Department of Health press secretary. Those license holders would be grandfathered in if voters approve adult-use.
By store count, Trulieve is the largest legal marijuana company in the world with 200 stores in nine states, though Darin’s New York-based Curaleaf bests it in market value and sales. In Florida, Trulieve is truly outsized. As of May, Trulieve owned roughly a fifth — or 136 of the 638 marijuana stores in Florida. It had 61 more than its nearest competitor. The company accounted for 40% of the 6,789 pounds of smokable marijuana sold during a week in May in Florida and nearly a third of the 742 pounds of THC sold in edibles and other products.
“We made a decision at the very beginning not to chase Kim. She’s going to be Walmart or CVS on every corner,” said Sunburn founder Cobb, at the Benzinga conference, held at the Diplomat Resort in Hollywood. His company had 13 stores as of May. “I don’t think anybody who is going to try to catch her is going to be able to,” he says.
Green Rush
No nation gets high like America. There are 15,000 cannabis stores across the country and nearly three-fourths of Americans live in a state that’s legalized marijuana for recreational or medical use, according to Pew Research.
With marijuana illegal in much of the world — and despite being illegal under federal law — the United States accounts for the “lion’s share” of legal global demand, according to Washington, D.C.-based cannabis research firm New Frontier Data.
National polling shows a majority of Americans, up from just 12% in 1969, favor legalization. Drug use surveys show more people getting high. Rivers’ preferred way to consume cannabis: Smoking. For sleeping, she says she likes a Trulieve gummy.
Pot sales boomed in the pandemic. Companies raced into newly legalized state markets. Investors saw gross margins better than alcohol and tobacco. But the industry has challenges. “Even companies that are considered big in the cannabis world really aren’t that big when you look at multinationals,” says Amanda Reiman, New Frontier chief knowledge officer. “It’s still definitely a high-risk, high- reward environment.” (Trulieve’s market capitalization at the end of May was $1.8 billion, Curaleaf’s $3.4 billion.)
Investors had high hopes federal authorities would lessen the risk by taking steps that would make the industry more profitable. The industry’s illegality at the federal level hurts economies of scale — no moving product across state lines, for instance. Pot companies have limited access to regular banking services and financing. Marijuana companies can’t be listed on the major U.S. exchanges. (Trulieve is incorporated in Canada where it trades, as well as trading over the counter in the United States.) And the federal tax code forbids companies that deal in Schedule 1 drugs, like heroin and marijuana, from taking deductions open to most commercial concerns, rendering most pot companies unprofitable. It’s an “exorbitantly high” tax rate, Rivers says. In 2021, Trulieve’s income tax charge was $146 million, an 89% effective tax rate. That left it with a $17.4 million profit on $938.4 million in revenue.
Amid the euphoria from increasing sales and industry hopes for Biden administration support, a green rush ensued. In 2021, the industry saw $17 billion in M&A activity, according to New Frontier Data. A marijuana company exchange-traded fund, AdvisorShares Pure US Cannabis (NASDAQ: MSOS), hit $52 per share in early 2021, more than double the price just five months earlier. Trulieve’s stock hit $50.42 a share that March, more than doubling in six months.
The high didn’t last. Federal change came slow. (The federal Drug Enforcement Administration in May finally said it wanted to reclassify marijuana as a Schedule III drug, putting it in the same category with anabolic steroids and blends of acetaminophen and codeine. Under the change, which still faces hurdles, marijuana would require a prescription and remain illegal for recreational use.)
Banking challenges, inefficiencies and compliance costs continued. Stocks cratered. The AdvisorShares ETF has averaged a 23% decline annually. Trulieve in May traded at $11 per share.
Opportunity, and Uncertainty
Meanwhile, in Florida — Trulieve’s critical arena — the medical marijuana market moved toward maturity. In 2019, when smokable marijuana was legalized in Florida, the number of Floridians with medical marijuana cards increased 79%. But the growth in the number of people willing to make a doctor visit and pay $75 for a medical marijuana card slowed — to 20% growth in 2022 on its way to single digits recently, according to data from the state Office of Medical Marijuana Use. To keep sales growing, marijuana companies had to rely on stealing customers from competitors.
Against that backdrop, Trulieve in 2022 wrote its first check to get recreational, commercial marijuana on the ballot. Under the proposed amendment, adults 21 and older can possess up to three ounces of marijuana and five grams of marijuana concentrate. The amendment grandfathers in existing medical marijuana players such as Trulieve but allows the Legislature to license newcomers. Legalization would occur May 5. Once the state Supreme Court in April cleared the amendment language to go forward, other industry players joined Trulieve to bankroll the campaign for November, contributing $5.64 million as of May.
Curaleaf CEO Darin says he wants to add 20 stores to his existing 62 by summer 2025, employing an additional 500, plus more jobs in cultivation and processing.
The industry eyes the state’s 17 million people 21 and older, an ever-growing population, 140.6 million tourists and cross-border buyers from Georgia and Alabama. Andrew Livingston, director of economics and research with Denver-based national cannabis law firm Vincente, estimates that adding adult use in Florida will take the industry here to $4 billion, rivaling California. Rivers and speakers at the Benzinga conference in April tout $6 billion for the Florida market. The Florida Legislature’s Office of Economic and Demographic Research estimates the recreational market at $2.7 billion to $6.1 billion on top of the medical market.
Nationally, marijuana proposals nearly always succeed. Medical marijuana passed in 2016 in Florida with 11 percentage points to spare. The industry expects to outspend opponents.
“We’re routinely outspent,” agrees Luke Niforatos, executive vice president of the national anti-legalization group Smart Approaches to Marijuana. He and the opposition have their own reasons for confidence. Gov. Ron DeSantis isn’t a fan of approval. Adult-use commercialization hasn’t been tested with voters in the more culturally conservative Southeast Sunbelt states. Most importantly, no pot measure elsewhere has had to hurdle the 60% voter approval threshold Florida requires for constitutional amendments.
If it passes, the contours of the new commercial adult market will depend on what the Legislature — lobbied by the industry and opponents — creates in time for the May 5 legalization deadline. Rivers, to allay concerns, stresses that the amendment was written so that the Legislature, as it does with alcohol and cigarettes, can regulate time, place and manner of use.
The state would have an abundance of regulatory schemes to study from the 24 states that have legalized recreational marijuana. (Another 14, including Florida, have medical marijuana.)
Will Florida continue to restrict the number of operators, or will it let the market choose from all comers? Will it limit the amount of THC in products? How about daily purchase limits? The state requires smokable marijuana to have a label warning of carcinogens. Does it add cautions about other health risks associated with marijuana? Does it jettison mandated vertical integration? Does it allow people to grow plants at home? Will adult-use pot be subject to the sales tax? (Medical marijuana isn’t.) The state government’s Financial Estimating Impact Conference projects at least $195.6 million in state and local sales tax revenue from adult-use marijuana. The state also could impose an additional excise tax, as it does with tobacco and alcohol.
Taxation — and industry profit margins — affect how much marijuana business shifts from the black market to the more expensive legal market. Price is the primary driver of which market consumers patronize, according to the state Financial Estimating Impact Conference. Based on other states’ experience, it says, about half of consumers will continue to buy on the illicit market after legalization.
Other changes coming to a post-legalization Florida can be predicted. While Rivers says safeguarding access to medical marijuana for patients is important to her, the medical market in states with recreational pot typically shrinks. Meanwhile, pricing power falls rather fast in newly legal markets, putting weaker operators under pressure. Look for capital raising and acquisitions as companies race for market share. Curaleaf says, “At the expected time of adult use launch in mid-2025, Curaleaf will have the necessary cultivation capacity and retail footprint in place to compete for the leadership position in Florida.”
Trulieve blamed increased competition in part for the 7% drop in revenue to $1.1 billion it saw in 2023 and a 15% drop in gross profit.
Trulieve has $327 million in cash to help fund the Florida pro-pot campaign and to be ready to take advantage of legalization. Rivers in May told investors Trulieve is well positioned. “I wouldn’t trade hands with anyone in the industry,” Rivers says. “We intend to remain out front in Florida.”
And she says she has no doubt about her $50-million wager. “So I will tell you that I feel very optimistic,” she says.