Trulieve CEO on $2.1B Harvest Health acquisition

Kim Rivers, Trulieve CEO joins the Yahoo Finance Live panel to discuss their $2.1 billion dollar deal with the acquisition of Harvest Health.

Video transcript

ZACK GUZMAN: Welcome back to "Yahoo Finance Live." Some big news in the cannabis space. Investors still digesting a monster deal after it was announced from Florida-based multi-state operator, Trulieve, paying $2.1 billion in an all-stock deal to scoop up an Arizona leader out there in Harvests Health. The combined entity will expand its footprint from six states to 11, and create the most profitable US multi-state operator with a projected full year combined EBITDA at $461 million.

For more on the deal, happy to welcome back into the program Trulieve CEO Kim Rivers joining us once again. Kim, good to be chatting with you. It's a big deal. Maybe investors need a bit of time to digest exactly what's going on here. But talk to me about why this deal and why this push in Arizona.

KIM RIVERS: Yeah, thanks, Zack, so much for having me back on. And we're very excited about the transaction, of course, and as you mentioned, it's a large transaction in cannabis, in the cannabis industry, and will create the most profitable cannabis company in the world in the most important market in the world, which, of course, is the US. We've been very vocal, Trulieve has, about our commitment to building out our regional hubs.

This deal, as you mentioned, puts us in a very secure position in our new Southwest hub with the addition of Harvest, who is the undisputed market leader here in Arizona. They had a flawless launch transitioning from medical and including recreational in January, and had sales contribute to an incredible Q1 where they tripled their EBITDA and bringing their EBITDA margin to 30%, and have been very successful in driving not only top line growth, but also bottom line growth as well, which is something that Trulieve is consistently focused on.

So as you know, Zack, in this industry, it's important to not only ensure that you're in the right markets and that you have the right products at the right value proposition for customers, it's also important that you're driving that profitability because of the limitations that we have in this industry due to federal constraints. So Harvest brings us a bigger footprint. Building out our Northeast and Southwest hubs, and we're just thrilled to have the opportunity to bring their team on board into the Trulieve family.

ZACK GUZMAN: Yeah, it's interesting. Talk to me about the hub and spoke model that you guys are kind of famous for and picking and choosing exactly where you want to go for. Because it seems like it would be a move against the idea that federal changes would be coming quicker rather than later. Because obviously, it's key to play in these states.

It's different than maybe, we were chatting with Curaleaf earlier on in the show, who flooded the zone, if I can use the term, kind of quick expansion into a bunch of different states with the largest footprint there in the US. But why go this route and maybe picking and choosing the markets you wanted to go into as a different model to emphasize profitability?

KIM RIVERS: Sure. So Trulieve has always taken a differentiated approach. When our competitors specifically in 2019 and early '20 were going very shallow and very wide, we instead decided that strategically it was important for us to go deep in core markets. And that certainly has bode very well for us in our home state of Florida. Similarly in Arizona, Harvest has taken the same approach. And then of course, in our expansion in Pennsylvania, similar there as well.

And really, the rationale for that is twofold. One, you definitely get supply chain efficiencies and you're able to achieve scale. So with this transaction, we'll have a combined footprint of 126 active retail locations, which is the most of any operator. We'll also have 3.1 million square feet of cultivation, again, leading in that metric as well. And then as I mentioned, we'll be the undisputable leader and profitability literally in some cases by a factor of over 2 times some competitors.

So it's important both to be efficient for short-term, but also for long-term prospects. So I disagree with your comment a little bit in terms of it doesn't, it means that we think that federal change is coming at a slower pace. We do think that federal change will come, but we also believe that when federal change comes, it's really going to be key to have scale and distribution channels established in key markets. A lot of these products, right, with flower in particular, you're not going to be shipping flower across the US. So to have that hub and spoke model is important.

AKIKO FUJITA: Yeah. I guess the counterargument that you're pointing to here is that you want to position yourself for federal legalization. But when you talk specifically about the Southwest market or that region, you sort of rattle off the numbers of the footprint that's already there. What kind of value does that unlock for Trulieve? How much upside?

KIM RIVERS: Yeah, so when you look, yeah, I mean so when you look at the growth trajectory of Harvest in Arizona, they only had two months of recreational sales contribute to their Q1 numbers, which I mentioned were triple their EBITDA from Q4. So certainly additional runway there. In addition, there's definite opportunity to add to the cultivation footprint, the production footprint. Trulieve has very strong skill sets in both those areas and we look forward to working with Harvest to build out additional facilities in Arizona to get more of a vertical portfolio in the Arizona market. So a lot of growth to come in Arizona for sure.

And then of course, the surrounding states. So in addition, we'll be onboarding Nevada onto our platform, along with some additional assets in California. So really the Southwest hub for us is just beginning and we've got a great management team to be able to help us build that out here in this area of the country.

ZACK GUZMAN: Kim, as you point out, obviously state markets are still going to have those walls up in terms of operating across state lines. But when you think about what it can do for production tied to the future iteration of products that you might be rolling out, it's interesting to see the different strategies being formed around that when it comes to drinks or other things. How does this maybe improve efficiencies in what you could launch and maybe things that you are able to say now that Trulieve is willing to put their money behind in launching new form factors?

KIM RIVERS: Sure. Well, I mean Trulieve has been a market leader in innovation. That's something that we pride ourselves in. We're currently manufacturing over 600 SKUs out of our Florida facility. Certainly the ability to bring product to market in a scaled way is dependent, of course, on the resources that you have on the production side of the business. So it is going to be critical that we're able to replicate that success in other markets.

We're well underway in Pennsylvania. Certainly with the Harvest transaction, it increases our production capacity at a at a company basis and will allow us to bring both successful Harvest brands and Harvest form factors into Trulieve locations in the very near term, which will be important as we look to enter additional recreational states, and as medical states transition into recreational, which we think certainly is going to be a story that we hear on repeat moving into the remainder of this year or next.

ZACK GUZMAN: Last question for me, I mean, $2.1 billion is a lot of money. It was an all-stock deal. Trulieve shares down about 5% after the announcement of this deal. Obviously, a lot going on in the market, a lot to digest here. But when you look at maybe abilities or appetite among investors to keep growing and keep acquiring some new regions of the US that you might not be leading in right now, what is the appetite to grow that way look like to you and what are the plans there? Is Trulieve done? Are we expecting to see some more here in terms of expansion?

KIM RIVERS: Yeah. I mean, Trulieve is certainly not, Trulieve is certainly not done. There's a lot of growth ahead. One thing we haven't talked about is the incredible catalysts that we're going to be able to take advantage of in a more meaningful way given this transaction. So again, you've got core markets in Florida, core markets in Pennsylvania that again, I don't think it's a matter of if, it's just when recreational comes for those markets, which we're clearly going to be in a very dominant position to take advantage of.

In addition to, of course, federal catalysts that are coming as well. One thing we haven't talked about is both Trulieve and Harvest strength on the application front and our ability to tap into new markets. We're both very comfortable with organic growth and building platforms from the ground up. So there's a lot of markets, particularly in the Southeast and the Northeast that will be coming online here very soon that we hope to participate in. And of course, in addition and certainly and May is not off the table if it makes sense and it meets our specific investment criteria.

We're a company that's focused on ROI, we're a company that's focused on profitability. I think it's easy to go out and acquire top line, it's quite a different story when you're talking about converting that top line into bottom line value for shareholders over the long term.

AKIKO FUJITA: Kim Rivers, good to have you back on the show today. Trulieve CEO. Appreciate your time.