Curaleaf Holdings, Inc.

Good day and welcome to the Kira Leaf Holdings first quarter 2024 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 touch-tone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would like now to turn the conference over to Camillo Lyon, Chief Investment Officer. Please go ahead.

Good afternoon, everyone, and welcome to CureLeaf Holdings' first quarter 2024 conference call. Today, I'm 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 the 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 can 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 to 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, further 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 EDGAR. During today's conference call, in order to provide greater transparency regarding QRLACE 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 QRLACE 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 investor relations website at ir.curaleaf.com. With that, I'll turn the call over to Executive Chairman Boris Short. Boris?

Thank you, Camilo. Good afternoon, everyone, and thank you for joining us to discuss our first quarter results. The decision last week by the DEA to reschedule cannabis to Schedule 3 is one of the game-changing catalysts we have been eagerly anticipating for nearly 10 years. I believe this long overdue change will create a seismic shift for us and the industry, and we're grateful to the Biden administration for moving it forward. Important medical research of the plant can finally proceed unencumbered, a crucial development for consumers seeking alternatives to opiates and other pharmaceuticals. Most immediately for us, of course, it means an end to the punitive 280E tax, which as the largest beneficiary could save us over $150 million in 2024 taxes. But there is more work to be done to put cannabis on the same plane as other consumer products. The industry still lacks proper access to banks and credit cards, seasoned service providers, and established stable technology stacks. All of this can be remedied if leadership in Congress moves to pass the safer banking bill. The process continues to move forward, albeit more slowly than we would like. However, the rescheduling news strengthens the case for expediting safer. On the issue of tax, Curleaf has further reviewed with legal counsel the basis for filing federal tax returns on grounds that Section 280E of the tax code does not apply to its business. Subject to completing that review, Curly anticipates it will file as a normal taxpayer for 2023 and 2024. We also anticipate amending certain prior year returns to claim refunds of excess federal income tax that was paid based upon application of Section 280E. I'd like to provide an update on custody solutions. We recently added another global custodian, EuroClear, to our list of financial institutions that will custody our shares. Euroclear is the custodian of the international investment community. With BNY Mellon, State Street, and now Euroclear, we have three of the top four largest custodians in the world able to hold our shares. This, in concert with our TSX listing, makes SecureLeap eligible for index inclusion, specifically the MSCI Small Cap Canada, S&P TSX Small Cap, and the FTSE Canada Indices. Based on the parameters set by these indices, we believe we meet the necessary criteria for inclusion. This leads me to our first quarter highlights. We started the year off on a good note. Consistent with our expectations, first quarter revenue grew 2% to $339 million, compared to last year's first quarter revenue of $333 million. With our facilities fully operational, our first quarter gross margin improved by 120 basis points from the fourth quarter. We're making solid strides in our objective of achieving our stated 2024 gross margin target of 50%. Adjusted EBITDA margin was 23%, representing year-over-year margin expansion of 40 basis points. We ended the first quarter with $105 million of cash on the balance sheet and generated operating cash from continuing operations of $46 million and free cash flow of $33 million. We're deploying some of this cash into reducing leverage on our balance sheet, and we'll discuss our efforts in greater detail. Through the team's execution of my strategic vision, Curaleaf has evolved from an MSO to an MCO, a multi-country operator. As the lone US MCO, this descriptor more accurately represents our global vision and business that today spans over 15 countries across the world. Our ambition is to leverage the expanding global platform we have created with the distribution of our brand portfolio. With each ensuing quarter, we will create further separation from our peers as a result of the global strategic lens through which we operate, and we expect our European growth catalyst to emerge more fully in the second half of the year and into 2025. These strategic investments that have been made over the past few years are beginning to pay off. In the first quarter, our international business grew 59% year-over-year and 12% sequentially, and remains on track to hit $100 million in revenue this year. We are seeing solid gains in our key markets of the UK, Germany, and Poland. In the UK, we are benefiting from strong patient reception of our recently introduced edibles and vapes. In Poland, we acquired Canfermed, a highly regarded pharmaceutical distributor. With a population of 38 million people, Poland is proving to be a strong market for us, much like Germany, as demand for our indoor flour continues to outstrip supply. On April 1st, Germany enacted its Pillar 1 legislation, which decriminalized cannabis by removing it from the narcotics list, the benefit of which is far greater access to medical cannabis for all its citizens. In the first month since the law took effect, we have seen a substantial increase in patient counts entering the marketplace. These increases have surpassed expectations, and while still early, the signs are very promising for what this market will ultimately contribute to curaleaf. To further bolster our position in Europe, in late March we announced the acquisition of Northern Green Canada, a EU GMP certified producer of high-quality indoor flower. Not only is NGC transaction accretive to our international gross margins, but it also ensures the stability of our supply chain into Europe. An added benefit from this transaction is the ability to study two other high-growth medical cannabis markets NGC currently sells into, Australia and New Zealand. This acquisition represents another key pillar in the development of our global brand strategy. We welcome NGC to the Curalee family. Returning stateside, I was encouraged to see the Florida Supreme Court decide in favor of putting the recreational cannabis measure on the November ballot. As active contributors to the Smart and Safe campaign, we are deeply committed to helping Amendment 3 pass the 60% threshold. And acting as a united industry coalition, we believe there is ample support for it. In fact, we are moving forward with our capacity expansion and new store build-out plan to meet the expected surge in demand that could increase the market two to three times to $5 to $6 billion. At the expected time of adult use launch in 2025, Curilif will have the necessary cultivation capacity and retail footprint in place to compete for the leadership position in Florida. In Ohio, we are actively preparing for adult use conversion that could come in the next few months. The Ohio adult use market shows great growth potential as it is the seventh largest state in the U.S. by population with an underpenetrated medical market. We are excited for Ohio and the potential $2 billion market opportunity that will come after adult use sales commence. Our long-term strategic success rests on expanding our brands into as many points of distribution as possible. We have spent a good deal of time exploring the hemp categories, and we feel it is important to enter the hemp-derived THC market with safe, tested products, which by some estimate is as big as the regulated cannabis market. As such, we will begin shipping a fully compliant line of hemp-derived THC beverages and edibles under our select brand in the second half of the year. Like our foray into Europe, this is another long-term growth driver that will unfold and develop over the coming quarters and years. Taken together, all of the investments we have made domestically and internationally set the foundation for accelerated growth and market share gains in 25 and 26 and beyond. Lastly, on our outlook, we are reiterating our full-year guidance. We continue to expect revenue to grow in the mid-single digits and adjusted EBITDA margin to be in the mid-20%. I'd like to end my remarks by thanking all the members of our team around the world that contribute to making Curaleaf the global leader in cannabis. We are very encouraged by the recent catalysts that are providing an important inflection point to our industry and our company. Our success in the future potential would not be possible without our entire team who believe in the mission and bring it to life every day. With that, I'll turn the call over to our CEO, Matt Darren. Matt.