Curaleaf Holdings, Inc.

Hello and welcome to the Curaleaf Holdings, Inc. fourth quarter and fiscal year end 2023 earnings conference call. All participants will be in listen-only mode. Should you need 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. To ask a question, you may press star, then one on your telephone keypad. And to withdraw your question from the queue, you may press star, then two. I would now like to hand the call over to Camila Lyon, Chief Investment Officer. Please go ahead.

Good afternoon, everyone, and welcome to Cureleaf Holdings' fourth quarter and full year 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 securities laws, which by their 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 the 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 releases on CDAR and the Toronto Stock Exchange. During today's conference call, in order to provide greater transparency regarding Curalease's 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 measure under the heading reconciliation of non-GAAP financial measures in our earnings press release issued 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?

Thank you, Camilo. Good afternoon, everyone, and thank you for joining us to discuss our fourth quarter and full year results. 2023 had its share of challenges to overcome. But through our focus on controlling the controllables, our operations have improved significantly, and we ended the year on a strong note. In the fourth quarter, we generated record revenue of $345 million, up 4% sequentially, beating expectations as wholesale sales accelerated 14%. Adjusted gross margin of 46.5%, improved by 80 basis points versus last quarter, and adjusted EBITDA was $83 million, or at 24% of sales. a sequential improvement of 140 basis points. Domestic AED bid down margins improved 80 basis points to 25% versus quarter three, and our international segment turned 80 bid down positive for the first time. This segment still represents 130 basis point headwind to consolidated margins, but as the business scales and the EU cannabis industry matures, we anticipate robust growth and margin expansion. For the year, revenue totaled $1.35 billion, a 6% improvement from 2022, while adjusted gross margin and EBITDA margins were 46% and 23% respectively. Margins were impacted by price compression and our decision to manage inventory by idling excess capacity in several around facilities. That said, I expect full recovery of our margins now that we have replanted grow rooms to meet accelerating demand. Despite the industry challenges, 2023 was a pivotal year in Curaleaf's evolution. We took actions to optimize our asset base while aggressively scrutinizing every aspect of our cost structure. These initiatives position the company for consistent long-term revenue growth, profit expansion, and cash generation. With that work behind us, we are prepared and energized to capitalize on the industry catalyst Curaleaf is uniquely positioned to leverage, including new or forthcoming adult-use states such as New York, Ohio, Florida, and Pennsylvania, and key European countries like Germany, the UK, and Poland. 2024 is poised to be Curly's catalyst year. I'm confident in the future and expect a strong growth trajectory as we have yet to see what unconstrained demand looks like. Let's discuss these catalysts in greater detail. Domestically, we are thrilled New York finally opened its adult use market to the incumbent operators in late December. And weeks later, Curaleaf opened its first adult use store in Newburgh in January. We are encouraged with the initial sales ramp at this location, which continues to increase weekly. While we look forward to opening more adult use stores in the future, the prize of New York's $5 to $6 billion cannabis opportunity is clearly wholesale. We enter the adult use market with the benefit of having a 40% share of the medical market and a strong brand awareness and product offering we can leverage. The pace of new dispensary openings has increased steadily, reaching a total of 78 thus far, and we have made great progress in adding new wholesale accounts by leading with our premium brands, Select and Grassroots. However, the OCM needs to do more to support the legal market with greater enforcement of illicit operators, which is paramount to creating the robust and safe marketplace we all want in this state. I have no doubt New York will be a top adult use market for Curaleaf, just like the medical market has been. With Ohio's population of 12 million people and an under-penetrated medical patient rate of just 1.5%, we could see a meaningful three to four-fold increase of the existing $500 million medical market after adult use launches. We are a vertical operator and intend to open the maximum five stores allowed, plus the additional three will be granted with adult use. We have a robust pipeline of stores we're in active discussions on to complement our existing two locations and look forward to what should be a robust marketplace with above average growth. Florida, a top three revenue and margin state, is another significant catalyst for Curely. The state Supreme Court is due to provide a final summary judgment by April 1st on whether the adult use initiative will be on the November ballot. We believe there's a high probability it will. Conservatively speaking, we estimate this $2 billion market could double in its first full year of adult-use sales. Interestingly, this does not include any incremental benefit from tourism, which last year brought 135 million visitors to the state. At the expected time of the adult-use launch, Curalee will have the necessary cultivation capacity and stores in place to compete for the leadership position in Florida. Pennsylvania could also surprise and embrace adult use in 2025. I have been encouraged by the governor's recent comments urging state legislation to legalize cannabis. This is a $1.3 billion market in which we have 18 stores, two cultivation facilities, and a robust wholesale presence that supports a top three market share position. With a population of 13 million and a patient penetration rate of nearly 4%, we could see Pennsylvania increase two to three times upon adult use conversions. On the European front, Curaleaf International grew 63% year over year in the fourth quarter, driven by strength in the UK, Germany, and Poland. Despite smaller markets, we are also building brand awareness in Switzerland and Sweden. And two weeks ago, Germany's Bundestag voted to liberalize cannabis by removing it from the narcotics list. The significance of this vote cannot be overstated. In my view, this is akin to descheduling cannabis altogether. It is a massive move forward for the industry, the country, and the continent. I firmly believe that when this legislation is enacted, other nations such as France, Spain, Italy, and Czech Republic will follow quickly now that Germany has paved the path. In fact, just last month, Ukraine legalized medical cannabis. To put this opportunity into context, the total addressable market and population in Europe is double that of the United States. There is no one better position than Cureleaf to fully leverage these opportunities in Europe. It has taken us three years to assemble the platform we have today, and there are no existing companies with nearly the scale and breadth of operations that we possess. Our established cultivation and processing infrastructure in Portugal, coupled with our leading patient platform and complete brand portfolio, including 420 Select and Cureleaf, ensures we are ready to capitalize on this massive opportunity. In aggregate, The state and country catalysts could add $500 to $750 million in incremental revenue for us in the next several years. In mid-December, we uplisted to the Toronto Stock Exchange, which, among other benefits, opened the doors to U.S. and international custody solutions. Specifically, we have been cleared for custody at BNY Mellon and State Street, two of the largest global custodians. These custodians now provide the necessary clearing solutions for global investors to invest in Curly without issue. In addition, we believe we will be eligible for the inclusion in three indices, the TSX, the MSCI small cap, and the FTSE small cap, with no custody concerned with our shares. This is just one example of how we are finding ways to increase shareholder access and value, something that drives our strategic, operational, and financial discussions every day. Finding respect to guidance, we are excited about the many catalysts coming to us over the next four to six quarters. We are also cognizant of the many variables that could change the arc of how the year unfolds. Based on what we know today, we expect annual sales to grow mid-single digits and adjusted even down margins of mid-20%, both consistent with current consensus. Also, now that we have fully planted our grow rooms, to meet increasing demand, we expect to see a meaningful improvement in our gross margins, with quarter one margins approaching 50% a quarter earlier than we had originally planned. I'd like to thank our global team members that came together to make these results possible. I personally have seen the energy and passion our team comes to work with every day to help our customers find safe solutions for their needs, and that is what inspires me to push CuraLeaf forward on its path to a global brand adoption. With that, I'd like to turn the call over to CEO Matt Dyer. Matt.