Curaleaf Holdings, Inc.

Good day, and welcome to the Curaleaf Second Quarter 2023 Earnings Conference Call. All participants will be in a listen-only mode, and should you need any assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note that this event is being recorded today. I would now like to turn the conference over to Camilo Lyon, Chief Investment Officer. Please go ahead.

Good afternoon, everyone, and welcome to Curaleaf Holdings' second quarter 2023 conference call. Today we're joined by Executive Chairman Boris Jordan, Chief Executive Officer Matt Darin, and Chief Financial Officer Ed Kramer. 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 securities laws, which by their very nature involve estimates, projections, plans, goals, forecasts, and assumptions, including the successful integration of acquisitions and are subject to risks 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 material factors and assumptions forming the basis of 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 Curaleaf's operating performance, 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-release 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 Issue Today and available on our Investor Relations website at ir.curaleaf.com. With that, I'll turn the call over to Executive Chairman Boris Jordan. Boris?

Thanks, Camilo. Good afternoon, everyone, and thank you for joining us to discuss our second quarter 2023 results. In the second quarter, we delivered revenue of $339 million. That's up 4% compared to last year's revenue of $327 million. Adjusted gross margin was 44%, which was negatively impacted by intentional inventory reduction efforts, pricing pressure in Florida and New York, and 80 basis points of additional expenses we reclassified into COGS from SG&A. Adjusted EBITDA margin was 21%. We ended the second quarter with $85 million in cash in the balance sheet, and generated $8 million in free cash flow from continuing operations. That's after making tax, interest, and acquisition-related payments that totaled $77 million. My vision has always been to build Curaleaf for long-term global growth by ensuring the company was positioned to capture the significant demand the cannabis industry was poised to garner. Over the past four years, this strategy drove our rapid expansion in infrastructure investments across the country and into Europe in anticipation of forthcoming growth catalysts that would unlock healthy demand, many of which materialized, and some of which have been delayed due to politically motivated regulatory bodies disinterested in the development of the free market. In response to these delays, we have taken steps to aggressively reduce inventory, idle excess capacity, and close older facilities, actions that at the moment are weighing on our margins but are necessary in today's normalizing growth environment. That said, some of our current capacity is levered to the markets in which we anticipate significant catalysts will yield step function growth. Florida, New York, Pennsylvania, Germany. I am confident we will scale into our footprint in these states and Europe as the conversions to adult use or expanded medical consumption unfolds over the next several quarters. We are also cognizant of the need to balance investment and cash generation. With the majority of our US cultivation investments largely completed, we took actions in the quarter to reduce our inventory in idle excess capacity. To this point, the story in quarter two was one of controlling the controllables. We successfully prioritized our brand portfolio in our dispensaries as evidenced by our 65% vertical mix. We also reduced our inventory by 6% from quarter one as we intentionally focused on cash generation at the expense of near-term margins. A step up in the promotional landscape in key states like Florida and New York also had an impact on our margins. Despite this price compression, we continue to manage our expenses tightly, reining in costs and generating 300 basis points of year-over-year expense leverage. Rest assured, we are scrutinizing all aspects of our business and making the necessary improvements to create a global platform that will deliver significant operational leverage when, not if, the many growth catalysts we see turn on. Thus far in 2023, we have eliminated 80 million of annualized expenses, double our initial 40 million goal while reducing inventory by 17 million from Q1. And we are adopting COGS reducing automation in our tier one facilities. That said, price compression has been the only reliable mechanism for clearing excess supply this year. I'm encouraged by the amount of excess inventory the industry has worked down and supply that has exited the market. However, we are likely to see price compression remain a recurring theme through the end of the year, despite modest green shoots we see forming in select markets. Our international segment continued to produce impressive growth as evidenced by the 93% year-over-year increase in quarter two revenue. Europe is growing quickly, but still represents a continued 150 basis point drag on our AE bid-down margins. International was once again driven by our two key markets, the UK and Germany. The UK experienced robust growth of 76% despite a patient acquisition process that remains lengthy and cumbersome. Curaleaf has a dominant share position in the UK, and we are well positioned to continue organically growing the market through education, innovation, and technology. With a population of 67 million people and modest penetration, The UK promises to be a significant contributor to our business over the coming years. In Germany, we are leading with our 420 brand. We are preparing for the country's medical market expansion under the Pillar 1 proposal. All indications from the German health minister point to the expanded program commencing in early 2024. In fact, yesterday we got more positive news out of Germany that stated that the proposed legislation will be presented to the cabinet on August 16th. with the final vote in the Bundestag slated for the fall. Pillar 1 would significantly expand patient access to medical cannabis by removing it from the narcotics list and allowing telemedicine prescriptions. Simply put, the hurdles that exist today in the patient journey would effectively be removed, and we are there and ready to capitalize on this liberalization of demand. Recall Germany's population is equivalent to four times that of Florida. with the current patient count roughly at just 200,000 people. Under Pillar 1, we estimate the patient count would conservatively quintuple to a million patients, although historical medical market adoption rates suggest total patients could be closer to 3 million or 4% of the 84 million person population. There seems to be some confusion around the impact of social clubs will have on the German market. In our view, social clubs do not present a risk to the medical market as they will be nonprofit, have highly restrictive zoning laws, and have a limited number of members allowed to join. Also, their cultivation and overall operating costs would be too prohibited, thus making them economically unviable. Most cannabis consumers will use the established network of 20,000 plus pharmacies to access their cannabis prescriptions or rely on delivery, something social clubs cannot do. Among the many growth levers we're anticipating in the US, Germany could very well be the single largest growth driver in our business for the next three to five years, one that is exclusive to Curaleaf among the US MSOs. While the opportunity in the UK and Germany is massive, given the combined populations of 150 million people, what's more exciting is the expectation that other EU nations will follow Germany's lead, putting cannabis on a globally accepted trajectory. In fact, we've already made our first wholesale shipment into Poland, a country with a population of 40 million people. Federally in the U.S., we continue to work hard and devote resources to getting safe over the finish line. It is encouraging to hear Senator Schumer call it a priority, and I expect positive movement to resume in September when Congress returns to session. On rescheduling, we see an encouraging path for cannabis to get to Schedule 3. even despite hurdles that remain with getting the DEA on board. The next 9 to 12 months could be very exciting for the cannabis industry. However, we are not running our business on the assumption that anything will change. We continue to evaluate a potential TSX uplisting and have had constructive conversations with the Canadian regulators to this effect, while in parallel taking the necessary steps to prepare for this potential move. We have been studying the benefits of such a move and are encouraged by the recent actions taken by several U.S. financial institutions to open up custody solutions and trading for other TSX-listed cannabis operators. We believe a move from a venture exchange like the CSC to a major exchange like the TSX would benefit Curaleaf shareholders by broadening our shareholder base to global institutional investors that require greater liquidity, thus providing increased stability and less volatility in our share price. We will have more updates on this topic over the coming months. Finally, regarding our outlook, we are reiterating our low to mid single-digit revenue growth outlook, an annual A.E. Bidda margin of mid-20s. However, given the heightened level of promotions in a few markets, we now expect to come in towards the lower end of the A.E. Bidda range. With that, I'll turn the call over to CEO Matt Darin. Matt?