Release Date: August 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Curaleaf Holdings Inc (CURLF, Financial) reported a 2% year-over-year increase in second-quarter revenue, reaching $342 million.
- The company achieved a significant improvement in gross margins, exiting June with a 50% gross margin and continuing this trend into July.
- Curaleaf's international segment experienced robust growth, with a 78% year-over-year increase, driven by markets such as the UK, Germany, and Poland.
- The company successfully launched its hemp-derived THC products, expanding its market reach to 25 states through direct-to-consumer channels and partnerships like DoorDash.
- Curaleaf Holdings Inc (CURLF) maintained a strong cash position with $89 million in cash and generated $30 million in operating cash flow from continuing operations in the second quarter.
Negative Points
- The company faced continued price compression in key markets such as Arizona and Florida, impacting overall margins.
- Curaleaf's retail revenue declined by 4% year-over-year, reflecting a shift from retail to wholesale and increased competition.
- The company incurred significant start-up costs and integration expenses related to its new hemp business and the Northern Green acquisition, affecting short-term margins.
- Despite the positive growth in international markets, Curaleaf acknowledged bottlenecks in supply chains and regulatory challenges, particularly in Germany.
- The company anticipates continued macroeconomic pressures on consumers, including high inflation and interest rates, which could impact disposable income and spending on cannabis products.
Q & A Highlights
Q: Can you provide more details on the distribution opportunities for your hemp business?
A: We launched direct-to-consumer through TheHempCompany.com, distributing to 25 states, including major markets like Florida and Texas. We also launched with DoorDash, currently available in four states, with plans to expand to 13 states. We will soon announce partnerships with brick-and-mortar distributors and retailers.
Q: How should we think about SG&A expenses and their impact on margins going forward?
A: We exited Q2 with a 50% gross margin, and July numbers are slightly higher. The hits we took in Q2 were one-time costs related to the hemp business and the NGC transaction. We expect margins to continue improving as we move forward.
Q: Can you discuss the opportunity in the Australian market?
A: Australia is a growing market with significant competition, while New Zealand is smaller with higher margins. Currently, we are importing Curaleaf products through local distributors. We are reviewing whether to enter these markets domestically.
Q: What progress has been made in addressing bottlenecks in the German market?
A: The market is growing faster than anticipated, and we are seeing strong growth in Q3, particularly in Germany and the UK. While bottlenecks exist, they are giving us time to get supply chains in order. We expect continued strong growth in the coming quarters.
Q: Can you provide more color on your strategy in the Florida market ahead of potential adult-use legalization?
A: We are phasing our CapEx investments based on the November vote. If adult-use is approved, we will expand our facilities to be ready by May-June. If not, the expanded facilities will still benefit our medical business by improving product quality.
Q: What is your strategy for the Ohio market following the recent opening of adult-use sales?
A: We had outsized results from our stores that opened for adult-use. We plan to open six more stores by Q1 2025 and see a significant wholesale opportunity. Our Ohio facility is our best-performing in terms of yields.
Q: Why did gross margins dip earlier in the quarter, and how do you plan to sustain them at around 50%?
A: The dip was due to excessive discounting around 420. We are moving away from discounting strategies and focusing on product quality and margin targets. We expect margins to continue improving.
Q: How has promotional activity changed across your footprint, especially given economic headwinds?
A: While there is pressure on consumers, high-quality products sell without discounts. We are seeing less need for discounting as product quality improves. However, price compression remains in key states like Florida and Arizona.
Q: What are your thoughts on the potential for rescheduling cannabis and its impact on the industry?
A: If rescheduling is used as a campaign issue, it will likely be announced closer to the election. The hemp market is significantly impacting regulated cannabis, and we believe the industry should work together to create a unified regulatory framework.
Q: How do you expect wholesale gross margins to impact company-wide margins as wholesale becomes a larger mix?
A: Our target is a 50% gross margin on wholesale business, though this varies by market. Eastern and Midwestern states generally achieve this target, while Western states face more price compression.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
