Curaleaf Earnings + Call Notes

Global cannabis leader reports Q224 results.

Curaleaf Earnings

$342.3M Revs; est. $344.7M
$73M AEBITDA; est. $79.9M
$160.5M GP; est. $165.8M
46.8% GM; est. 48.1%
($0.06) EPS; est. ($0.07)

Board Appoints Executive Chairman Boris Jordan as Chairman and CEO.
Outgoing CEO Matt Darin to Retire but Stay on as Special Advisor Through Year-End

"Second quarter revenue was $342M, +2% and adj. gross margin of 48% was up 253 bps compared to last year. Our gross margin showed successive improvement each month during the quarter with June exiting at 50%. Adj. EBITDA was $73M or 21.3%.

Thus far, 1H24 has unfolded as guided. We are starting to see the benefits of the work we initiated 18 mo ago to streamline the business, drive efficiencies in our cultivation facilities, and leverage both domestic and international growth opportunities.

Looking to 2H24, these actions will drive an acceleration in both our revenue and margins as state and country catalysts develop further, including NY, OH + Germ.

Furthermore, in June Curaleaf launched The Hemp Company to expand the Select brand to consumers we’re not reaching today with responsibly sourced, safe and tested hemp derived THC edibles and beverages to a strong reception.

Our global strategic vision is playing out on multiple fronts, yet there is much more for us to accomplish." Boris Jordan, Executive Chairman Chairman and CEO

Call Notes

Matt retiring to focus on family.

Grew Grassroots business, sold to CURLF in ’20.

Involved in 26 acquisitions since starting CURLF.

Over last 18mo, aggressive streamlining campaign.

^ reduced costs by over $90m, increased regional management structure.

Profit growth action plan to drive efficiencies.

Higher quality, more consistent flower.

Select as #1 vape brand.

Grassroots / Find owning 2 of top 4 positions in flower.

Will drive tangible margin improvement over next 2-3 quarters.

June GM of 50%.

Trajectory improved into July.

Goal for CURLF as dominant international leader for cannabis.

Much more to achieve.

Q2 revs up 2% YoY; aGM of 48% up 250bps YoY.

GM showed improvement each month in Q2, with June exiting at 50%.

Expect 2H margins to trend in 50% range.

$73m aEBITDA, 21.3%.

International + hemp business growth dragging ebitda by 150bps.

$58m tax / acquisition payments during the quarter.

Invested $25m CAPEX.

$89m cash.

OPCF of $30m, $6m FCF.

Growth back end weighted for the year.

Catalysts driving growth: NY OH INTL FL Hemp.

NY showing signs of a strong / healthy market.

Over 1,000 illicit operators shutting down, directly benefitting legal market.

NY on path to become a $5b market opportunity.

Recently opened new medical store in Rochester.

Also converted 2 medical stores to A/U stores.

Opening new/independent accounts every week.

151 A/U locations in NY, selling into 50%, solid increase QoQ.

NY is about maximizing wholesale.

Allocating resources / sales staff to capture doors.

153% wholesale growth in NY vs. YoY period.

OH A/U sales started yesterday.

2nd A/U store opened at 8am today.

OH retail team moving as quickly as possible to open next 6 stores.

Expect to be open by early ’25.

FL A/U ballot looking promising.

Investing in tripling indoor cultivation capacity + increasing store count to approx.

85 by A/U conversion next May ’25.

Expect 2 more stores to open next week, with opening pace to accelerate thereafter.

FL to consume lions share of capex budget in ’24.

FL a high margin market due to verticalized structure.

FL the top state for revenue / margin for CURLF.

Intl business showing 78% YoY growth.

Driven by GRMY POL + NGC acquisition.

76% QoQ in GRMY during the quarter.

26% market share in GRMY.

Launched Curaleaf branded flower at a middle price point in Germany.

^ Four20 addressing premium.

Early stages of growth in Germany.

Total patients at 200-300k today out of 84m population, 0.4% penetration.

UK showing robust growth; expanding share position.

UK clinic received clinic of the year, at awards in June.

April 22nd closed NGC acquisition.

Shipped into AUS + NZ partners, marking entry into the region.

Distributing into 15 countries.

Intl GM improved meaningful this quarter.

Will begin seeing full quarter benefit of NGC in Q3 / Q4.

^ will contribute to margins further.

Believe intl segment could look similar to US growth.

Entered hemp THC market w/ edibles + seltzers.

Shipping into 25 states + DC.

Also secured a relationship for a large D2C company in the US.

Believe consumer will not distinguish between 2 hemp + canna channels as long as product delivers its promise.

Hemp category poised to be a more meaningful contributor in the coming years.

Expect category to grow rapidly as expand distro partners + products (beverages).

Price compression prevalent in AZ + FL, where have #1 + #2 share, respectively.

Natural mix shift from retail to wholesale is evolving quickly in IL NJ NY as independent doors open.

Expansion of wholesale market is healthy for the industry.

Wholesale distro has always been the long term vision.

Consistent w outlook, business will accelerate in 2H in revs / margin.

Expect revs to grow at mid single digit, at low end of range.

Expect aEBITDA margins to be in mid-20% range, low end of range.

See many opportunities to compete in Intl + Hemp.

$342m revenue, up 2% YoY.

Driven by MD NY OH + intl segments.

Domestic segment of 93% of revenue, intl at 7% of revenue (150bps increase QoQ).

$265m retail channel, down 4% YoY as shift to wholesale began in Q1.

Notable in NJ IL NY.

Belmawr NJ store had outsized impact on retail decline.

Wholesale revs to $77m vs. $58m in YoY period.

Strength driven by NJ IL PA NY + intl.

Transactions flattish vs. YoY.

Units per transaction down 7% YoY.

AUR up 3% YoY.

$160m GP, 47% GM.

aGM of 48%.

Q2 GM remained steady up 100bps.

^ vertical mix and increased utilization, offset by price compression.

$110m SG&A, up $1m YoY.

Core SG&A at $106m.

38% SG&A margins, down 40bps YoY.

aEBITDA of $73m vs. $72m YoY, up 1%.

aEBITDA margin of 21.3% vs. 21.5% YoY.

$89m cash/equivs.

Inventory decreased $9m/4% YoY, while net sales grew 2%.

$25m capex.

Expect ’24 capex of approx.

$70m, at higher end of range, driven by FL initiatives.

If FL amendment 3 passes, could pull additional capex forward from ’25.

YTD CFFO of $76m, $36m FCF.

Completed tax analysis.

Taking position of 280e does not apply to CURLF operations.

Plan to file amended tax refund claims for ’22, protected claims for ’20 + ’21.

Will file as a normal corporate filer going forward.

Moved significant amount of taxes from current to LT liabilities.

Reiterating mid-single digit rev growth, lower end of range.

aEBITDA margins expected to land at lower end of mid-20%s range

^ given investment in FL + intl + hemp.

Launched D2C through (owned website) TheHempCompany.com w/ full assortment of hemp beverages / gummies.

Launched in DoorDash for hemp.

Will have 13 states in the coming months as ship products into states.

Some partnerships in brick/mortar for hemp, distributors into diff’t markets/ retailers.

Cant share specifics right now.

Exited Q2 at 50% GM, first time hit that since change over to GAAP from IFRS.

Will continue, saw July numbers higher than that.

Expect to continue to see improvements in GM.

Tremendous amount of work in ’23/’24 in improving financial metrics of the company.

Currently focused on COGS aspect of the business (facilities + efficiencies).

Brought in head of ops from best in class MSO in the sector.

^ seeing marketable improvements in facility side, yields, flower, efficiencies.

Q2 margin hits were 1 time on hemp business start up costs.

All intl markets, given nascent state, is growing/expanding.

AUS expanding but quite a bit of competition.

NZ smaller but less competition and higher margins.

Doing thorough review on whether want to get domestically into AUS + NZ markets.

In most markets, CURLF tends to go vertical / want to own distro.

Own distro in EU markets operating in.

International market growing faster than anticipated.

Seeing strong growth in Q3, in particularly GRMY + also UK.

Loosening rules on being able to get GRMY prescriptions.

Could become a very large market very quickly.

Don’t think the world is ready to supply the market.

Already funded a portion of FL commitments in Q1.

In discussions w/ FL group in making a 2nd funding to help A/U get over the line.

Polling well but don’t want to take it for granted.

Built out shell + infrastructure for FL expanded growth.

Once realized it would be on ballot, started 2nd wave of capex to reach 85 dispensary level + expand grow facility.

Invested in these grow facilities to get them to a significant position for November.

^ planting late October to have some flower ready, then will wait on November vote.

If Nov vote positive, will have third wave of FL capex to have it planted + ready for May/June ’25 launch.

If don’t get A/U those facilities will benefit medical business, as short flower there.

^ also high quality indoor flower.

Strong results for OH AU on first day.

Well above initial projections.

Have best performing yield grow operation out of entire portfolio, in OH.

Over next 6-12mo, expect wholesale to provide similar opportunity to retail.

^ lack of supply/ high nascent mkt pricing / lack of price compression during period.

Too much discounting around 4/20 impacted early Q2 margins.

Will look at that as a strategy going forward.

Instead of discounting on 4/20 day, was a month long process.

April was low margin vs. May/June, June recovered completely.

Already walking away from a lot of discount strategy, especially w/ recent product improvement + potency strength.

Think you will see stronger margin into July + August.

Macro in US a high inflationary environment.

^ will probably enter rate reduction cycle but wont get to consumer for 12mo.

Will see continued near-term pressure.

Cannabis high quality product sells and you don’t have to discount.

As quality improves across facilities, have to discount much less / have pricing power.

Competitors in marketplace w/ B/S pressures that are discounting more dramatically

^ FL + AZ, own $200m+ businesses there.

Expect S3 late Sept/Oct.

Believe hemp market is causing the most impact for the legal cannabis industry.

Legal cannabis is “OG market” for those who have been using it for a long time.

Hemp channel is opening up a brand new customer, particularly on beverage side.

Believe beverages will be 2nd largest segment behind flower in a short period of time.

^ only place you can do that is the hemp market.

Think cannabis industry needs to work w/ hemp industry instead of fighting it.

Farmers have stronger lobby, ear of Republicans (actions in FL + other states).

Trying to lead that conversation.

Working w large hemp farmers in particular, who have political power.

Trying to join together w/ them.

Farm bill wont be voted on until next year, want to work on them w/ rescheduling + hemp to allow a regulatory framework.

^ not on product, but on THC input.

Internal target is 50%+ margin on wholesale business.

Retail business typically higher than that.

Some markets like AZ a 50% GM on wholesale side is harder to achieve.

In eastern + midwestern states able to achieve that, in western states not so much.

^ due to larger price compression.

five-year weekly chart

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CB1 has a position and nothing contained herein should be considered advice.