Thread by @Sayshu_MM

$TCNNF 2Q21 Earnings - My Takeaways:

1. Revs/AEBITDA of $215.1m/$94.9m vs est. of $205m/$92m. Solid beats. 44% AEBITDA margins
2. Real story around gross margin. GMs compressed 300bps from 70% in 1Q21 to 67% in 2Q21
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3. Company cited 2 main factors in FL: a) price discounts in response to competitors aggressive actions and b) tighter labor markets. CFO said without these two factors, GMs would've been 71%. Glad they quantified it, but I'd take the 71% with a grain of salt...

...given it feels like some of these pricing dynamics could linger for a while. Kim mentioned the discounting started in back-half of 2Q, then eased, and has now picked back up. She also said its not always the same player(s) discounting. Seems to be rolling behavior...

...with different folks testing strategies to gain share. Not surprising given the suddenly crowded and well-capitalized field in FL. They are all fighting to separate from each other, and all are trying to catch $TCNNF...

...Kim said on $TCNNF's part, they took a thoughtful approach to discounting in response to competitor actions. I'd call them a reluctant participant, trying to find that balance between keeping customers/growing topline without tarnishing brand and maintaining margin...

...Interestingly, mix btwn value and premium remained roughly the same QoQ. Anecdotally, it sounds like most of the discounting is happening on the value side, so if $TCNNF can maintain/grow that premium positioning, margins shouldn't get hit as hard as headlines might imply
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...Also, trends other than pricing seem to be firm (solid traffic, flat basket size, growth in units, mix, etc)
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...How bearish is this for $TCNNF? Hard to say. Competition was inevitable in FL; so was seeing a hit to the stellar margins Company was enjoying. 67% GMs are still excellent, and while I thought/think margins will continue to see some pressure, I anticipate they will...

...continue to enjoy a premium margin profile. Just maybe not as premium as in the past. Also important to note that as the Company integrates Harvest and grows outside FL, the consolidated margin will naturally mix lower. In a way, this could be a bit of a boon for them...

...It gives $TCNNF an opp to rack margins lower but with a true MSO story, and then offset FL weakness with improvements and scale in other states. Despite the margin pressure, FL will remain a crown jewel asset for $TCNNF and should continue to kick-off meaningful cash flow
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3. Speaking of $TCNNF's MSO story, Harvest deal approved yest. Companies working hard on closing now. Still some wrinkles to work through. I didn't hear an update on closing timing - did I miss it?
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4. PF $TCNNF/$HRVSF would've been the largest MSO in 2Q21. We know Boris wants to be #1. Could be an interesting dynamic every qtr to see which of the two come out on top revenue-wise
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5. $TCNNF continues to expand its footprint outside FL, with in-roads and growth in PA, CT, and MA. In addition, Company fast-tracked planting first seeds in WV and anticipate first retail store open by YE. And in GA, $TCNNF got one of 2 coveted Tier 1 cult licenses
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6. Company talked about its investments in brands. Echoed comments made by other MSOs that it is challenging to build national brands in cannabis, but $TCNNF is trying and investing behind this initiative. I said it earlier this week, but the game for the top MSOs...

...is evolving rapidly from just a "grow weed, sell weed" mentality to creating differentiated product/brand that engenders customer loyalty and will provide legs for wholesale growth. The flywheel for the big, well- capitalized MSOs is spinning very quickly
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7. Kim commented that they are watching CA and believes the state's operating envt is improving significantly. She was more bullish than I expected, although rubber will meet the road if/when $TCNNF makes a meaningful push into the state
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8. 2Q OCF was negative driven in-part by an $80m tax payment. 280e smh
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Overall, another strong qtr of execution out of $TCNNF. My big question coming into the qtr was around FL dynamics and that continues to be top of mind. Time will tell. In the meantime, Company has a growing opp outside of FL. Narrative will matter.

End.