This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk03: Good afternoon, and welcome to the Cure Relief Holdings, Inc. Third Quarter 2023 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal conference specialists by pressing the star key, followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then run your telephone keypad. To withdraw your question, please press star, then two. Please note, this event is being recorded. I would now like to turn the conference over to Camilo Lyons Chief Investment Officer. Please go ahead.
spk12: Good afternoon, everyone, and welcome to CareLeak Holdings' third quarter 2023 conference call. Today, we're joined by Executive Chairman Boris Jordan, Chief Executive Officer Matt Darin, and Chief Financial Officer Ed Kremer. Before we begin, I'd like to remind everyone that the comments on today's call will include forward-looking statements within the meaning of Canadian and United States security law. which by their nature involve estimates, projections, plans, goals, forecasts, and assumptions, including the successful integration of acquisitions and are subject to risk and uncertainties that could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements on certain material factors or assumptions that were applied in drawing a conclusion or making a forecast in such statements. These forward-looking statements speak only as of the date of this conference call and should not be relied upon as predictions of future events. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by applicable law. Additional information about the material factors and assumptions forming the basis on the forward-looking statements and risk factors can be found in the company's filings and press release on CDAR and the Canadian Securities Exchange. During today's conference call, in order to provide greater transparency regarding Curelease operating performance, we will refer to certain non-GAAP financial measures and non-GAAP financial ratios that involve adjustments to GAAP results. Such non-GAAP measures and ratios do not have a standardized meaning under U.S. GAAP. Any non-GAAP financial measures presented should not be considered to be an alternative to financial measures required by U.S. GAAP, should not be considered measures of cure lease liquidity, and are unlikely to be comparable to non-GAAP financial measures provided by other companies. Any non-GAAP financial measures referenced on this call are reconciled to the most directly comparable U.S. GAAP financial measures under the heading Reconciliation of Non-GAAP Financial Measures in our earnings press release issued today and available on our Investors Relations website at ir.curaleaf.com. With that, I'll turn the call over to Executive Chairman Boris Jordan. Boris?
spk06: Thank you, Camilo. Good afternoon, everyone, and thank you for joining us to discuss our third quarter 2023 results. During the last four years, we completed 14 acquisitions, and those transactions have been central to helping us achieve our stated goal of establishing Curaleaf as the world's leading cannabis company. Throughout 2023, the company has been focused on improving efficiency metrics and dialing in operations to maximize its existing asset base. We have taken significant steps to eliminate redundancies, strategically reduce headcount, exit unprofitable markets. Most of these actions occurred in the first half of the year, and in the third quarter, we took the final steps in our asset optimization plan. Specifically, we have reduced duplicative facilities in Nevada from three growth sites to one facility. We have exited low-margin, low-growth operations in Michigan and Vermont. We have shuttered our legacy Kentucky research facility and consolidated R&D operations to Massachusetts and the UK. These were difficult decisions, but I'm confident that they will better position Curaleaf for strong, consistent financial results going forward. In total, these actions resulted in a $22 million non-cash impairment charge. Year to date, we have eliminated an additional 100 basis points of margin drag from rationalizing non-core markets and assets. Moreover, we have reduced total headcount by 18% in the last 12 months, while automating manufacturing processes in our Tier 1 facilities. These initiatives are yielding $90 million in annualized expense savings. While the impact of these actions has not yet fully flowed through our P&L, they are already bearing fruit as evidenced by our 24% domestic EBITDA margin, and I expect continued improvements throughout year end and into 2024. I'm confident that our current 17-state exposure gives us the right domestic footprint and a presence in key markets that we expect will drive outsized growth over the next several years. We are now positioned to achieve our profit goals, and I do not foresee any further state exits. With that, let's discuss our third quarter results. We reported revenue of $333 million, which excludes 3.5 million from operations we discontinued in the third quarter. On a comparable basis, quarter three revenues were up 2% versus last year, $326 million. Sequentially, revenue was down less than 1% due to the deliberate actions we took to rationalize lower profit SKUs and reduce overall promotional activity, while emphasizing first-party product to reduce inventory. While this effort, which began in quarter two and carried over into quarter three, tempered our top line, it was necessary to set the business on a better course for growth and profitability going forward. With these changes behind us, we expect to see a resumption of sales growth in quarter four and into 2024. Adjusted gross margin was 46% up from 45% in the second quarter. Margins benefited from lower discounts and more profitable mix of SKUs, but were also negatively impacted by our decision early in the year to idle growth capacity in some states to better balance our inventory with demand. This underutilization hurt our margins by 400 basis points in the third quarter. That said, with most of this inventory right-sizing now behind us, new revenue catalysts emerging and pricing stabilizing, we are selectively adding capacity to meet accelerating demand in several markets and thus expect to recover this loss margin over the coming quarters and are targeting our normalized gross margin to exceed 50%. Adjusted EBITDA margins of 23% up 100 basis points versus quarter two, despite 150 basis point drag from our international operations. Overall, we reduced inventory by another $18 million and ended the quarter with $118 million in cash while generating $33 million in free cash flow from continuing operations. I am pleased with how we have been able to transform and improve our operations, but we are striving for more. To propel our growth and margin expansion initiatives, we have implemented a decentralized regional reporting structure with the goal of empowering our team members on the ground with greater control over their markets. This organizational realignment, which comprises four domestic regions plus international, has already resulted in improved communication among the key functional groups. It has also sped up our decision-making such that we are better able to respond to dynamic local market changes while staying closely attuned to the needs of our customers. We have already begun to see the benefits of this realignment, including an improved retail product assortment, enhanced third-party buying, and increased wholesale profitability. This was evident in September, which was our strongest month of the quarter, and we remain encouraged as quarter four is off to a solid start as well. Thinking globally and acting locally, this is the mantra we have embraced, and this is how we will win now in the long term domestically and internationally. Federal legislative progress continues to grind forward on multiple fronts. We remain optimistic that the DA will support the HHS recommendation to move cannabis to Schedule III. This would eliminate the onerous 280E tax provision and ProcureLeaf would result in cash tax savings of at least $150 million this year. We also continue to believe that there is a path forward for the passage of the Safe Banking Act. But these last few weeks have only confirmed how difficult it can be to predict the timing of an outcome in D.C. particularly during this current period of heightened geopolitical tensions. Our international business continues to be robust, and in the third quarter, revenue grew 120% versus last year, driven by strength in both Germany and the UK. We continue to expect the Bundestag to finalize the proposed Pillar 1 expansion on the German medical market over the next few weeks and expect implementations in early 2024. With its population of 84 million people, Germany is poised to be a significant growth catalyst for CureLeaf years to come the nascent uk market continues to perform well for us and we are increasingly leveraging our number one share position to educate consumers on the benefits of cannabis more recently poland with its population of 41 million people is becoming a burgeoning medical cannabis market in which we are leveraging our scale and leading presence to be a major supplier in that market domestically we are optimistic that new york cannabis program will start moving forward again and that we will enter the wholesale market this quarter and be permitted to open our first adult use dispensary by UN. New York is our home state, and I believe will be a $5 to $7 billion opportunity over time. CureLeaf is a dominant market share in the current medical market, and we will build off our existing presence to be a major player in the adult use market as well. Also, Ohio shows great promise for us after its citizens made it the 24th state to end cannabis prohibition by voting to legalize adult use cannabis. As a reminder, we already have two Ohio stores and four more in the pipeline. We will be prepared for when the $4 billion state market opportunity transitions to adult use. We remain focused on expanding our investor base by improving access to our shares. To this end, last month, we formally applied to list on the Toronto Stock Exchange after completing the required equity offering, which we raised 16 million Canadian dollars. Our legal team is working throughout the final stages of the approval process, and we remain on track to uplift this quarter. Listing on a major exchange as TSX will help with custody issues, allowing for broader institutional involvement. It should also help improve trading volume, and this increased liquidity should help to lower the volatility in our stock, which will benefit all of our stakeholders. Finally, on guidance, as I mentioned earlier, trends improve throughout the quarter, with September being the strongest month. The fourth quarter has also gotten off to a solid start. That said, we continue to take a prudently measured stance on global geopolitical risks and pressures on the consumer have become more elevated. For quarter four, we expect revenue to be up slightly from the third quarter. For the year, we expect revenue growth of approximately 5% versus comparable 2022 revenue of 1.275 billion, the upper end of our guidance range of low to mid single-digit growth. We continue to expect full year A bid down margin to come in around 23%, consistent with our prior guidance of low end of mid 20s%. In closing, I would like to thank all of our hardworking Pureleaf employees. It is the effort and dedication of our thousands of team members that gives our customers a great experience in our stores and allows us to offer the widest selection of innovative, safe, and high quality products. The heavy lifting is behind us and with growth catalysts of New York, Germany, Ohio, and wholesale coupled with margin expansion from improved capacity utilization and a cleaner inventory position, we will enter 2024 from a position of strength. With that, I'll turn the call over to CEO Matt Downer.
spk11: Matt. Thanks, Forrest. For the past year, we have been focused on optimizing our asset base, along with significant reductions to our expense structure We scaled back production these past two quarters to accelerate the right sizing of our inventory to align with demand. Given the progress we've made on both these fronts, coupled with new wholesale growth opportunities in New Jersey, Illinois, Arizona, and our forthcoming entry into New York's adult use market, we are turning on idle capacity and are back on offense. This will benefit both our sales and gross margin as we increase our utilization metrics. In the third quarter, our U.S. retail business was down 1% sequentially from the second quarter. Digging into our consumer metrics, demand remained solid as transactions were up 2% sequentially and AUR was up 4%, helped by reduced promotional activity. As we anticipated, our skew rationalization efforts and lower discounts offset our pricing gains, but drove improved retail gross margins that expanded 70 basis points. Price compression has been a key topic this year. Last quarter, we began seeing green shoots, and those green shoots continued to emerge in the third quarter. In fact, pricing in our retail stores was up in 10 of our states compared to four last quarter. While there continue to be reasons to be cautious, both geopolitically and industry-specific, we are optimistic that price declines appear to have bottomed last quarter, voting well for the fourth quarter. Similarly in wholesale, revenue was flat from Q2, However, our gross margin improved by 400 basis points as we eliminated low margin products and markets. We bolstered our wholesale team with new sales leadership while also adding field marketing resources to expand the reach of our brand portfolio. We are investing across all aspects of this important revenue channel, including improved flower diversity, product quality, and new product launches. Our wholesale business is well positioned to grow this quarter. The standout states in the third quarter were Maryland and Florida. Our Maryland team had a highly successful adult use conversion driven by flawless execution on opening weekend. Everyone from planning to cultivation to marketing to our retail and wholesale teams came together to welcome the communities around us into our stores and house of brands. As a result, we saw robust triple digit growth out of the gate on July 1st, strength that continued throughout the quarter. After a soft Q2 in Florida, we stabilized the business and returned it to growth in the third quarter. New product launches, coupled with reduced promotions, contributed to a mid-single-digit increase in both transactions and AUR. Consumers responded well to an improved product assortment in all three major categories of flour, vapes, and edibles. In fact, our focus on flour quality and diversity of strains on our menus has been getting positive attention amongst the Florida patient community. Overall, we were pleased to see the business reaccelerate and expect further share gains to come in the fourth quarter. Despite the typical seasonal deceleration in the third quarter, our Arizona business is rapidly gaining share and extending our lead in that competitive market. According to BDSA, we gained 270 basis points of market share, and we see many opportunities to extend our top position with our suite of new product offerings. In New York, we are optimistic that we will enter the wholesale market this quarter and open our first adult-use store by the end of December. While strict enforcement of the illicit market will be critical for social equity participants, hemp farmers, and all other operators to fully realize the potential of this market, we are encouraged by the prospects of offering all citizens of New York high-quality, safe, and tested cannabis products. In Michigan, we decided to discontinue our subscale physical operations in the states given our view that market pricing pressures would continue to dilute overall margins. We are evaluating multiple opportunities to shift to a licensing model that would immediately result in improved economics and boost our A EBITDA margins while keeping our brands on shelves for our customers to continue enjoying. The standout product champion during the quarter was the highly successful launch of our latest innovation BRIC, a proprietary two gram vape. With mounting pressures on disposable income, Brick offers tremendous value to our customers. Brick was born out of consumer research and backed by data, a process we have been implementing in all launches to ensure commercial success. Brick has been rolled out to 11 states with two more on tap, and we are building on this platform. Complementing the Brick launch was the introduction of our first liquid diamond vape in Florida. This premium product, which uses our proprietary water-based extraction technology, is meant for the cannabis connoisseur and has also been very well received. We are ramping production to meet demand for both of these products as quickly as possible. I recently returned from visiting with our European team and I'm more excited than ever about the opportunity in front of us. In the UK, our focus has been on reducing the friction in the patient journey, which can total 45 days or more. With the recent enhancements to our technology platform, we have cut the patient journey to less than 10 days, we expect will have a direct benefit on customer loyalty, retention, and lifetime value. In October, we started seeing the benefits of these process enhancements through an acceleration in patient ads not seen before. In addition, we were the first to launch edibles in the market on August 1st and have had strong customer reception since. Our marketing efforts are building awareness not only for Curaleaf, but also for the entire industry. We are growing our share while also growing the markets. early july we began wholesaling into poland and demand for our 420 product has been insatiable with strict regulations that require a 15-month lead time to register strains we have a significant first mover advantage with our high potency 420 pharma flower that we plan to leverage while european cannabis is still in the early days of development no competitor has our distribution platform scaled cultivation facilities suite of branded products also Europe's medical orientation towards cannabis fits well with Curalee's roots, knowledge that we are tapping into to create further distance between us and our competition. What's more, we continue building out the full breadth of our European supply chain to meet increasing demand for higher quality products in both large markets like the UK, Germany, and Poland, as well as smaller markets like Switzerland. For instance, we bought the EU GMP processing assets from Cleverleaves in Portugal. We're investing in indoor grow capacity. We've built out kitchens for edibles production and are investing in channels of distribution where it makes sense. Unequivocally, Europe is a multi-year growth story for us. Overall, I'm encouraged to see that the hard work all our dedicated team members are putting into the business is yielding improving results. Like Boris said, the heavy lifting is behind us and we've turned the corner, but there are always opportunities for us to be better and do more. With the growth tailwinds of Germany, New York, Ohio, and potentially Florida and Pennsylvania, Pureleaf is incredibly well positioned for years of robust growth and market share gains. With that, I'll turn the call over to our CFO, Ed Kremer. Ed?
spk10: Thank you, Matt. Today, I'll review our third quarter 2023 results. Total revenue for the third quarter from continuing operations was $333 million, representing a year-over-year increase of 2%. The increase in revenue was primarily driven by strength in Maryland, Connecticut, New Jersey, and the contribution from trike acquisition, as well as 120% growth in our international segment, partially offset by modest contraction in Florida. By channel, retail revenue was $273 million compared to $258 million in the third quarter of 2022, up 6% year-over-year. Wholesale revenue decreased 12%, year over year to $59 million and represented 18% of total revenue. This decrease was in line with our expectations as we continued rationalizing our SKU portfolio and working down our inventory position. Our consumer metrics remained healthy in the third quarter as transactions were up 200 basis points sequentially from Q2, partially offset by a 140 basis point decline in average order value. Our third quarter gross profit was $150 million, resulting in a 45% gross margin. Adjusted gross profit was $152 million, or 46%. Sequentially, Q3 adjusted gross margin increased 60 basis points compared to the second quarter due to lower discounts, partially offset by an incremental 200 basis points from underutilization in select facilities due to our intentional actions to temporarily idle capacity and a slight decrease in vertical mix of 64%. As incremental revenue catalysts materialize in New York, New Jersey, and Illinois, improved utilization of our facilities should result in a recovery of lost margin over the next few quarters. SG&A expenses were $97 million in the third quarter and decreased $5 million from the year-ago period. Core SG&A was $91 million, a decrease of $4 million from the prior year. The year-over-year decrease in our core SG&A reflects continued cost controls and headcount reductions partially offset by expenses associated with the addition of trike, 420 farmer, and new store openings. SG&A as a percentage of revenue was 29% in the third quarter, down 200 basis points compared to the year-ago period. Our third quarter SG&A included approximately 6 million of ad backs similar to last year. Our core SG&A rate in Q3 was 27%, a decrease of 200 basis points year over year due to a further acceleration of expense cuts we began implementing at the start of the year. Third quarter net loss from continuing operations was $71 million. Net loss per share from continuing operations was $0.10. Adjusted EBITDA for the third quarter was $75 million, or 23% of sales compared to $87 million, or 27% of sales, a 13% decrease compared to last year. Sequentially, our adjusted EBITDA margin increased by 100 basis points from Q2 due to adjusted gross margin expansion and associated expense leverage. International continued to be 150 basis point drag on our 80 EBITDA margins, but we expect this drag to significantly lessen as demand catalysts in Germany unfold over the coming months and we begin to leverage our cultivation and processing assets. Turning to our balance sheet and cash flow, we ended the quarter with cash and cash equivalents of $118 million. Our inventory balance at quarter end was 220 million compared to 238 million in Q2, a decrease of 18 million or 8%. We made significant progress in our inventory reduction efforts this year, and we will continue to manage our inventory balance to a six and a half to seven turn per year goal, progressing toward our goal of reaching 50% of sales. Net capital expenditures in the quarter were 14 million. We continue to anticipate spending approximately 70 million capital projects this year our outstanding notes payable was 585 million net unamortized debt discounts of which 78 is not due until december 2026. we ended the third quarter with 725 million fully diluted shares outstanding we generated a total of 45 million dollars of cash flow from operations in the third quarter excluding a two million dollar use of cash from our discontinued operations Cash flow from continuing operations was $47 million in the quarter and $94 million year-to-date. Free cash flow from continuing operations during the quarter was $33 million. With respect to guidance, we expect Q4 revenue to be up slightly, resulting in full-year revenue growth of approximately 5% compared to $1.275 billion in revenue last year, which excludes all discontinued operations previously mentioned. This growth rate is the upper end of our low to mid single digit revenue growth guidance. We still expect EBITDA margins to come in around 23% consistent with our prior outlook. With respect to cash flow and discontinued operations, we have disposed of or sold many of the associated assets in states in which we cease direct operations. However, some transactions have been held up by regulatory delays and we continue paying expenses on these assets, albeit at declining levels. We therefore believe a more representative view of our cash flow generation should center on continuing operations. In this context, we expect to generate operating cash flow from continuing operations of $100 million and positive free cash flow as a result. With that, I'll turn the call back over to the operator to open the line for questions.
spk03: We will now begin the question and answer session. We ask that you please only limit yourself to one question. To ask a question, we press star then one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time, we'll pause momentarily to assemble our roster.
spk05: Our first question will come from Aaron Gray with Alliance Global Partners.
spk03: You may now go ahead.
spk08: Hi, good evening, and thank you for the question. So for me, I wanted to turn to international. So I see the continued, you know, growth there up 120% year over year. It sounds like there's a couple, you know, growth opportunities you continue to have there, but on the margin side, right, still a drag now. You've now got the EU GMP processing from Cleverleaf in Portugal. and vertical integration more so in Europe. So can you speak more towards how we should think about the flow through on being vertical and the gross margin improvement? If we'll get the first half, it looks like gross margins were about 35% for the international segment. So I had to think about the improvement in gross margins and some of that flowing through along with the sales leverage as well. Thank you.
spk06: I'll start, and Ed, if you can address the margin profile. So in Europe, our two main markets, as we said, are the UK and Germany. We've just added Poland. Poland is ramping up very, very quickly. So we do expect to see further growth in the fourth quarter and the first quarter. It's a 41 million person market. We expect margins to start to, first of all, we expect the business to turn even that positive, most likely in the fourth quarter. We also anticipate that with additional sales that we believe will happen in the first quarter with the pillar one German approval, which means basically that cannabis is being taken off the narcotics list and therefore we expect demand to increase substantially. We think somewhere around two to three times our current sales rate for next year on the back of that. With that, obviously, as we start to lever our assets in Europe, specifically our growth and processing facilities in Portugal and Spain, we do anticipate that margins will improve throughout the year as revenue starts to accelerate in Europe.
spk10: Yeah, and just to add on to what Boris said, Aaron, I think we've spent quite a bit of resources in investing in our CapEx infrastructure internationally. That's still coming to fruition. Those grow rooms that we own in that facility are are going to continue to expand and get populated. So it's a bit of a mix of a supply flow that we're currently getting, a portion of that from our external suppliers. So as that mix changes in those facilities that come online that Boris mentioned, our margin profile is going to expand substantially, but that's probably not going to happen until sometime in the middle of next year or so.
spk05: Our next question will come from Frederico Gomez with ATB Capital Markets.
spk03: You may now go ahead.
spk02: Hi, thank you for taking my question. So you mentioned you're turning some of your ETO capacity on and going off here. So can you provide some color on which markets, you know, you're turning that capacity on and how fast you think you can recover that, you know, 400 basis points hit the margins that you mentioned?
spk06: So we are currently turning on Pennsylvania. We've turned on New Jersey. We have obviously with the adult use, we are turning on New York. We have added a few rooms in Pennsylvania and Arizona. So most of our facilities are, some of them are being turned on 100%. Some of them are being turned on, you know, 70 to 80%. However, one needs to understand that that planting took place at the beginning of the fourth quarter. So we don't anticipate except in Pennsylvania to see any harvests coming out of those facilities until the first quarter. So most of the margin pickup will take place as we start to harvest those rooms into the first and second quarter of next year. We'll see a little bit of pickup in Pennsylvania because those we planted a little bit earlier. But for the most part, we are starting to fully populate all of our growth facilities that were idled at the beginning of this year.
spk03: Our next question will come from Scott Fortune with Roth MKM Capital. You may now go ahead.
spk14: Yeah, good afternoon. Thanks for the question. Kind of a follow-on question on that, kind of looking at the wholesale markets for you. I assume you're turning on these facilities in these wholesale markets. We're seeing new social equity licenses being added in New Jersey, coming on board a little bit in Illinois and such. But just kind of step us through wholesale markets, 18% of your overall revenues, and the potential kind of pickup in growth there as you look out going forward here.
spk06: We anticipate more growth in wholesale, I think, in the assuming months than we do on retail. Obviously, with the additional product that's coming out of our facilities and the renewed effort, which I'll add Matt's address in a second, renewed effort on hiring and building up the wholesale business, we hope to bring the wholesale business eventually back to around 30%. But I do think that that will probably take a few quarters.
spk11: get it there but we've already seen substantial gains in the fourth quarter on the wholesale side and i think we'll continue to see it into the first and second quarter matt you might want to address a little bit what we're doing on the wholesale side sure hey scott yeah so look we're heavily prioritizing uh building the wholesale channel uh you know in in the next quarter and uh as we lead into next year you know 2023 the last few quarters uh we really prioritized uh moving through our inventory heavily through our vertical channels as we've talked about on prior calls. And, you know, now with us increasing capacity again, continuing to launch products and really investing heavily in sales and marketing. We brought on a new head of sales for the country and are really investing heavily in marketing resources within each of the markets. We're seeing a lot of opportunities. And as you're seeing a lot more dispensaries finally open up in New Jersey and Illinois and some of the other markets you know these are brand new customers that are in need of wholesale product that we're building some really strong partnerships with and that's becoming I think a really growing segment of our wholesale business is some of these independent operators that are coming new to the markets and so that's a big focus of ours so I think we're really bullish on what we see and on the wholesale side and seeing some pricing improvements as well given some of the oversupply that's kind of worked through the market at this point.
spk06: I would just add one more thing that obviously we anticipate New York being quite robust. We've already started marketing products here in advance of the wholesale launch and we're seeing very, very robust demand. for Curaleaf and select and grassroots products in the New York market. And we anticipate many hundreds of stores opening up over the next 12 months.
spk04: We think that will be very, very strong for Curaleaf in our position in there.
spk05: Our next question will come from Russell Stampey with Beacon Securities.
spk03: You may now go ahead.
spk13: Hello, and thanks for taking my question. Just following up on the pricing environment you're seeing, I think you said 10 markets showed price improvement this quarter, up from four prior quarter. I'm just wondering which markets, you know, have you yet to see that turn? I suspect Michigan's on the list, given your decision there. But any color on which markets you're still waiting to see firm up and what kind of line of sight you have as to when that might happen? Thank you.
spk06: Matt, you want to take that?
spk11: Yeah, so as you mentioned, we've seen some encouraging pricing trends in a number of markets. We mentioned 10 that were up quarter over quarter. The others that were down, it was really more flat to barely down. A couple that I would mention would be Nevada being one. We've not seen pricing improvements happen there just yet, but it was just slightly down. And Pennsylvania as well. Pennsylvania, again, nominally down, but we had not seen, you know, some of the growth that we've seen starting to take place in some of these other markets. You know, so I think, but overall, it's an encouraging story that we're seeing in general across the country on the pricing side compared to earlier in the year.
spk05: You may now go ahead.
spk07: Good evening everyone, thanks for taking the questions. I'm just wondering if we can get your view on what happened in Ohio and it seems like it's a state that's sort of a weird dynamic where you have actual local politicians and the governor there not overly supportive of the initiative. Is there any sort of benchmark or any sort of expectation of what we should be looking forward next to get an idea of if they're going to actually start regulating this or is this something that you'll sort of believe it when you see it? Obviously a very positive headline. but getting a lot of inbounds on the actual prospects of Ohio rolling out anytime soon.
spk06: So I think that we have to take a look and see. It was a very strong showing at 57%. It's going to be very difficult, in my opinion, for the governor and the legislature to try and roll that back. They also have some time limits according to the legislation that they have to. So they have to start issuing licenses, I believe, in nine months for adult use. Now, Listen, they can try to slow it down. They can try to put all sorts of sticks in the spokes. But I think in the end of the day, the voters in Ohio have supported this wholeheartedly with a 57, a very robust vote, about the same as the abortion vote. And I don't think you're going to see them rolling back on the abortion side either. And so I think that going into a national election year, like next year, cannabis is becoming a bigger issue. And I think the Biden administration and the Democrats and a lot of the moderate Republicans, including Sherrod Brown, who's running for reelection in Ohio, have seen that cannabis is actually a popular subject. If you took a look at the demographics that voted for cannabis, it's the fastest growing demographic in the country, which is the young population. And, you know, all the way through the population in their 50s all voted for legalization of cannabis. So I think it would be almost suicide for the Republicans to try and stop the program. I think they would get literally annihilated in the national elections in 2024. So, listen, I don't expect an absolutely smooth. None of these regulators have ever been completely smooth in launching these programs.
spk04: But I do think that the program will get launched within next year.
spk05: Our next question will come from Pablo Zuanek with Zuanek and Associates.
spk03: You may now go ahead.
spk00: Thank you. Boris, I want to ask a question regarding how you see rescheduling playing out. So initially, the idea was that the industry, including yourselves, were working in a very collaborative way with the executive branch. HHS made a recommendation. We're hoping to get an answer from the DEA. And then supposedly DOJ made an announcement, and you, the industry, were also working with DOJ in terms of, you know, coming out with a new Garland memo that would protect the state-level programs, right? So all that sounded great, but now you have, you know, companies apparently saying they're going to stop paying the 280E tax or asking for refunds. other companies initiating a lawsuit against the DOJ on what we would call a similar subject. I'm just wondering if there's a risk here of overreach and that could backfire in terms of how the executive branch was thinking about working with the industry.
spk06: Listen, I think I can't speak for what my competitors are doing in terms of paying. I can only say that, you know, Curaleaf continues to pay its taxes and we will continue to pay our 280E as we have not. We are obviously looking at the decisions made by some of our competitors and not paying the taxes. And we're certainly talking to our advisors about that. But at the moment, Curaleaf has not changed its stance on the fact that we feel that we have to pay our taxes. In terms of cooperation with the state, I continue to be a strong believer that we're going to get rescheduling sooner rather than later. There's all sorts of incentives and reasons why the Biden administration wants to do this, and I think that we're going to see it pretty, pretty soon. So I continue to be quite positive on rescheduling of 280E. I also have to say that I'm reasonably positive on SAFE making it into one of the major bills that's going to get approved at the end of the year. We've seen heightened activity in the last couple of days. Obviously, the last month has been a major disappointment, largely driven by a global geopolitical situation, as well as the chaos that took place in the House of Representatives. But now that we have a House Speaker and we have Schumer, and I think the Ohio vote underscored the popularity of what we're seeing. And so I think that we're going to see, we may even see safe banking this year. So all in all, I continue to be cautiously optimistic, but positive that we're going to get some major pieces of federal legislation. But again, I want to reiterate, we're not waiting for it in terms of managing our business. We're focused on making sure our business is well run and is well run within the current framework that we have. And we have probably in the last year never felt better about the way we're going to enter into 2024, you know, mean and lean. We've cut an enormous amount of costs. We've gotten rid of all of the businesses that were not contributing to the bottom line. And I think that we're going to see fairly robust growth and given, you know, New York and Germany and other markets. but also we're going to see, I think, some expansion of our margins going back, as I said in my previous statements, to the 50-plus percent gross margin and then subsequent expansion of EBITDA margins as well. So we feel very positive, and if we can get federal legislation, that's just icing on the cake.
spk05: Again, if you have a question, please press star 1.
spk03: Our next question will come from Eric Delaurier. with Craig Hallam Capital Group. You may now go ahead.
spk09: Thank you for taking my question. Kind of a high-level strategy one for me. So, you know, I certainly think exiting some of those unprofitable states makes sense as you look to optimize your cash flow. My question is, should we expect M&A to remain at all part of the Curaleaf go-forward strategy here? If so, sort of how might that fit in? Would that be sort of international only, kind of just talking within certain states? I guess just an update on your thinking on M&A would be great. Thanks.
spk06: Listen, we're going to be very opportunistic with M&A. You know, we're looking at adding some stores in different places where we can. Yes, we are looking at potentially adding a distributor in Poland. so we can have our own distribution there. But these are small, minor acquisitions, nothing meaningful at this point, given, one, the cost of capital, two, where our stock is. We don't want to take any dilution at this point in time, and we really want to focus on optimizing and getting our margins back to where they were last year. As I said, at the 50-plus percent of the gross margin and closer to 30 percent on the EBITDA margin. And that's That's really the focus of CuraLeaf right now. And I think that we're going to do that over the next couple of quarters going into next year. And acquisitions will be incredibly focused and ones that are creative and bring in, you know, revenue almost immediately. And so we're not looking at doing anything major at this point in time.
spk03: This concludes our question and answer session. I would like to turn the conference back over to Matt Derrick for any closing remarks.
spk11: Thanks everyone for joining for our call. Have a safe and happy holidays and we'll look forward to speaking to you next year.
spk05: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
Disclaimer