Curaleaf Holdings, Inc.

Good day and welcome to the Cura Leaf Holdings fourth quarter and fiscal year end 2024 earnings conference call. All participants will be in a 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 a touch tone phone. And to withdraw your question, please press star and then two. Please note that this event is being recorded. 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' fourth quarter and year-end 2024 conference call. Today, I'm joined by Chairman and Chief Executive Officer Boris Jordan 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 U.S. 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 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 Curly'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-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 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 Chairman and CEO Boris Jordan. Boris?

Thank you, Camillo. Good afternoon, everyone, and thank you for joining us to discuss our fourth quarter and full year results. 2024 was a pivotal yield for Cureleaf, marked by decisive actions to reset our business and strengthen our foundation for long-term growth. Despite an industry-wide average price compression of 14%, our diversified geographic footprint helped stabilize revenue versus 2023, demonstrating the resilience of our strategy. In 2024, revenue was $1.34 billion flat to last year. Adjusted gross margin increased by 160 basis points to 48%, driven by successful initiatives to improve the efficiency and productivity in our operations. Adjusted EBITDA for the year was $301 million, also flat to last year. In the fourth quarter, we generated a revenue of $331 million, up slightly sequentially and down 4% over last year. Price compression was most pronounced in our larger markets of Pennsylvania, Illinois, and New Jersey, which had an outsized impact on revenue. That said, we remain focused on enhancing our profitability, as was evident in our fourth quarter adjusted gross margin of 48%, marking a 150 basis point increase over prior year. Fourth quarter adjusted EBITDA was $76 million, resulting in a 23% EBITDA margin. We ended the year with $107 million in cash on the balance sheet and generated operating and free cash flow from continuing operations of 163 million and 70 million, respectively. Cannabis demand remains healthy as seen by the rapid expansion of the hemp market and the persistence of the illicit market. Hemp's legal status has made cannabis more accessible and affordable, operating free from heavy burdens of regulations and taxation experienced in the regulated market. Meanwhile, excessive federal regulations and stalled legislative efforts have stifled the natural growth of the regulated industry. However, with a new administration in place, there is renewed optimism for meaningful reform that could unlock the regulated industry's full potential. In stepping into the CEO role last August, I have taken a deep dive into every facet of the company and see tremendous opportunities ahead. While the road to excellence takes time, I am confident that with the right team in place, Cureleaf is firmly on the path to expanding its leadership position. My first priority was to amplify our strengths diagnose the challenges, and stabilize the business, a goal we have successfully achieved. Now we are focused on executing the core elements of the Return to Our Roots program introduced last quarter, which is already taking shape and will be a key driver of our performance in 2025. The Roots Initiative is designed to reignite organic growth, enhance margin and cash flow generation, and strengthen our balance sheet by reducing leverage. I want to underscore that the foundation of this program is my team's unwavering focus on improving our flower quality. Upgrading our flower offering with new and proprietary strains will spark far-reaching benefits to all aspects of our business, and this is where I see the greatest opportunity to drive profitable growth in the face of pricing headwinds. During the last two years, we effectively strengthened our value flower offerings to meet consumer demand for lower-priced options, as FIND is a top-four brand now. However, this led to an imbalance in our portfolio as we lacked a strong presence in the premium flower category, particularly in two of our largest markets. Beginning in the second quarter, we will reestablish balance by significantly expanding our premium flower offerings. Let's dive into the three pillars of our roots initiative. Organic growth. Our strongest growth engines in 2024, international New York and Ohio, are poised to lead our growth efforts in 2025. The investments we've made over the past three years in our international segment began paying dividends last year as evidenced by impressive 73% growth, surpassing the $100 million revenue milestone. Our dominant position in Germany positioned us to leverage the country's expanded medical program, which launched last April. By optimizing the strong awareness of our high-end brand, 420, we fully capitalized on the accelerating demand for medical cannabis. Last fall, we added to our portfolio with the introduction of our mid-priced and value flower brands, Curaleaf and Huala, which have been met with enthusiastic consumer response. In the UK, we further solidified our number one market share position by expanding our offering of high-quality, safe, and tested brands with the introduction of grassroots and fine flower. Our proprietary technology allowed us to provide unmatched customer service helping to expand our patient base significantly. Our UK clinical research team had an exceptionally impactful year, publishing 15 internationally peer-reviewed studies that harness real-world clinical data and winning three awards. Our lab-based research program aimed at improving the efficacy of the medicines we offer our patients has progressed to an internal clinical study designed to be equivalent to a phase one trial. Our research covering critical topics like neuropathic pain in 80 billion market globally is advancing scientific understanding and increasing awareness of the therapeutic benefits of cannabis on a global scale. The acquisition of NGC, a premier Canadian indoor flower supplier, granted us access to three new markets, Australia, New Zealand, and Canada, furthering our international reach. We have high aspirations for our international business in 2025 and beyond. In New York and Ohio, our teams executed a well-orchestrated plan to capitalize on the adult-use conversion in both markets. The New York team managed the adult-use conversion well through our retail and wholesale channels. We opened two adult-use stores and two medical stores, but maintained our focus on expanding our wholesale penetration, which at year-end stood at 50%. The team's dedication and effort drove an impressive 50% growth in the state for the year, led by strong triple-digit growth in wholesales. We expect the market will continue to develop at a solid pace in 2025, and we will be sure to build on our leadership position in our home state. Ohio's adult use cannabis sales commenced last August, and our team was fully prepared to welcome new customers. As a result, the Ohio team delivered an impressive 96% growth in the second half of 2024 compared to the previous year. This achievement is even more notable given the challenges posed by the overly restrictive and outdated regulations that prohibit marketing. Looking forward, we expect to see continued solid growth this year in the Buckeye State, fueled by the addition of three new stores in the first half of 2025, followed by another three in the second half. I'm excited to share a glimpse into our product and innovation pipeline leading into 420. First is our new cylindrical-style pre-roll brand, Anthem. Anthem is the pre-roll that connects cannabis to the classic American lifestyle. Thus far, we have not played in the pre-roll category to a meaningful degree. However, Anthem will be the vehicle with which we intend to dominate the category. From high-quality curated flower blends to impeccable packaging design, no detail has been overlooked. In fact, we have been sampling the product in New York and New Jersey ahead of our formal launch in April, and the early reception has been superb. To quote a retail partner, Anthem is a game changer. For the last few years, we have been refining our groundbreaking ACE oil processing technology, an advanced aqueous extraction method designed to deliver the cleanest, clearest, and smoothest oil on the market. For the next two weeks, we'll be launching ACE across multiple markets with deployments in New York, New Jersey, Massachusetts, and Florida, and more on the horizon. With ACE's revolutionary technology, we are poised to set a new industry standard in the vape category by redefining quality and purity in oil production. We believe ACE will be a disruptive technology in the distillate market. Last year, we successfully launched our hemp-derived THC line of seltzers and gummies, marking another major milestone for our business. We were the first to partner with DoorDash, and we recently secured placement in over 100 total wine locations across nine states, including Florida, Texas, North Carolina, South Carolina, Arizona, New Jersey, with even more states expected to follow in the coming months. We have also partnered with Austin City Limits as the exclusive provider of THC beverages, serving consumers looking to enjoy live music acts without a hangover. The feedback on our seltzers has been fantastic. While the hemp category is still in its infancy, The momentum is undeniable. The robust demand signals from both customers and distributor partners reinforce our confidence in its long-term potential. We are actively expanding our distribution network with carefully selected partners and will announce new collaborations as they unfold. Beyond expanding our distribution footprint, we are also testing innovative category extensions in our beverage line. To complement our seltzers, we are launching our next line of drinks called Formula X, within the next two weeks. A fast-acting, flavor-filled, 10-milligram THC experience with the added boost of caffeine for the daytime festival goer or extreme sports fan to the nighttime e-gamer. Though the current revenue contribution is modest, we have ambitious expectations for the role our hemp line will play in driving future growth. The hemp market is rapidly evolving, offering significant opportunities without the regulatory constraints of the traditional cannabis industry. Stay tuned. We will have more to share in the coming quarters. Optimizing margins and cash flow generation. At our core, we understand that long-term success requires becoming the lowest cost producer while delivering the highest quality products at scale. Over the past year, we've made significant strides in achieving this balance by honing our operational efficiency. As a result, our average yields per square foot increased by an impressive 19%, all while enhancing potency, budge structure, and density. These gains are driven by a comprehensive overhaul of our SOPs across all cultivation facilities, ensuring that the highest quality standards are consistently maintained. In addition, we implemented packaging automation and upgraded lighting across multiple locations, both of which have contributed to lower COGS. The impacts of these efforts are just starting, and we anticipate greater efficiencies and cost reductions throughout 2025. On the retail front, we commenced a skew rationalization program to streamline our product offering, simplifying the buying process, and driving higher sales velocity while reducing slow moving inventory. Beyond inventory optimization, we see substantial opportunities to refine our merchandising, pricing, and promotional strategies within our dispensaries, further strengthening margins and cash flow generation. While we are still in the early stages of these initiatives, the results so far are encouraging. These strategies are essential levers to counteract ongoing price compression and industry challenge that shows no sign of easing. By staying proactive and data-driven, we are positioning ourselves for sustained profitability and growth. Reducing inventory remains a top priority, not only to enhance margins, but also to accelerate our cash conversion cycle. While our domestic inventory remained flat year over year, We are committed to making significant process and streamlining our stock levels and operating with greater efficiency. This year, our focus is on driving meaningful reductions, ensuring a leaner, more agile inventory approach that supports both profitability and financial flexibility. Delivering the balance sheet. As I stated before, we remain laser focused on driving cash generation and strategically deploying excess cash flow to reduce our balance sheet debt. Last year, we strengthened our balance sheet by reducing outstanding notes and acquisition-related debt by $60 million. Our approach remains disciplined and opportunistic. We will continue to capitalize on favorable opportunities to deliver the balance sheet in advance of our refinancing, which we expect to complete in the second half of the year. Strengthening our financial position remains a top priority as we drive towards long-term stability and growth. Lastly, we took the opportunity to upgrade leadership where needed, ensuring that we have the right team in place to drive the business forward. With every new hire, we are strengthening our organization and enhancing our ability to execute at the highest level. Collectively, these changes have helped rebase the business, positioning us for sustained growth and long-term success. I want to express my deepest gratitude to our exceptional global team for their unwavering dedication in achieving these outstanding results. The complexity of our business demands nothing less than full commitment, and each of you have risen to the challenge. The success is a true testament to our collective effort, and I deeply appreciate your relentless drive, competitive spirit, and hard work. Together, we are not just building a company, we are shaping Curaleaf into the global leader in cannabis. With that, I'll turn it over to our CFO, Ed Kremer. Ed.

Thanks, Boris. Total revenue for the fourth quarter was $331 million. representing slight growth over the third quarter and a 4% decrease compared to the same period last year. Strength in the international, New York and Ohio, was offset by pressure in Arizona, New Jersey, and Connecticut. International revenue grew by 70% year-over-year during primarily by Germany and the UK, coupled with our entry into other international markets. By channel, retail revenue was 247 million compared to 277 million in the fourth quarter of 2023. a decline of 11% year-over-year, partially offset by strength in wholesale, which increased 23% year-over-year to $82 million, representing 25% of total revenue. The surge in wholesale was driven by robust door expansion coupled with strong sell-through and reorders in New York and Ohio, market share gains in Cureleaf International, and increased quality and product availability of our brands. For 2024, total revenue was $1.34 billion, flat the prior year. Retail revenue of $1 billion decreased 6%, while wholesale revenue of $304 million increased 25%. We opened a total of seven stores, including five in Florida, two in New York, and relocated one in Arizona. Touching our market share, Celeb continues to be the number one vape brand in the market according to BDSA as we continue to offer innovation to our customers. And overall, our brand portfolio enjoys the number two market share position, but we are not satisfied. By prioritizing a greater mix of premium flour in our assortment, we will drive significant benefits across our entire business, strengthening our market share and overall competitive position. While we continue to experience price compression in many of our states, the work we have done to improve efficiencies in our cultivation facilities more than offset that margin pressure. To this point, our fourth quarter adjusted gross profit was $159 million, resulting in a 48% adjusted gross margin and increase of 150 basis points compared to the prior year period. In addition to strong cultivation productivity and efficiency gains, an increase in vertical mix and disciplined labor expense controls were the primary drivers of the margin expansion. These gains were partially offset by price compression in certain states. For the year, our adjusted gross profit was $644 million, resulting in a 48% adjusted gross margin an increase of 160 basis points compared to the prior year. SG&A expenses were $101 million in the fourth quarter, an increase of $3 million from the year-ago period. Core SG&A was $96 million, an increase of $5 million from the prior year. The year-over-year increase in our Core SG&A primarily reflects international expansion, the launch of our hemp division, and new store openings in Florida and New York. Core SG&A was 29% of revenue in the fourth quarter. a 280 basis point increase compared to the prior year due to the aforementioned investments, coupled with lower revenue. For the year, SG&A and Core SG&A was $422 million and $405 million, respectively. As a percent of sales, Core SG&A was 30%. Fourth quarter net loss from continuing operations was $72 million, or a loss of $0.11 per share, excluding one-time non-cash impairments of $80 million related to certain lease, and facility impairments, adjusted net income from continuing operations was $12 million or a gain of $0.02 per share. For 2024, net loss from continuing operations is $216 million or a loss of $0.31 per share. Excluding one-time non-cash impairments, adjusted net loss from continuing operations was $117 million or a loss of $0.16 per share. In the fourth quarter, adjusted EBITDA was $76 million, a decrease of 9% compared to last year. and an increase of 1% sequentially. Fourth quarter adjusted EBITDA margin was 23%, a decrease of 110 basis points versus last year, and an increase of 10 basis points sequentially. Our international segment profitability is improving. However, margins remain below the corporate average and thus weighed on fourth quarter EBITDA by 130 basis points. In addition, our hemp business weighed on EBITDA margins by 50 basis points. For the year, adjusted EBITDA was 301 million and adjusted EBITDA margin was 22.4, a decrease of 20 basis points compared to the prior year. Now turning to our balance sheet and cash flow. We ended the quarter with cash and cash equivalents of 107 million. Inventory increased 5 million or 2% compared to last year's fourth quarter due to growth in our international segment. Our domestic inventory was down slightly compared to last year. Capital expenditures in the fourth quarter were 28 million bringing the total spend for the year to $93 million. The incremental expenditures were driven by investments in LED lighting, automation to support the rollout of our new pre-roll brand Anthem, and facility upgrades primarily in Florida, a market where we have significantly underrepresented in premium flower segment. These investments will support our growth initiatives around our flower program in the Sunshine State, as well as the deployment of our ACE technology. Some of these investments have already begun yielding improvements across our facilities and are a key driver to the enhanced margins we're just beginning to realize. For 2025, we expect capital expenditures to be roughly half of 24 levels. The primary buckets of investments include international, automation, relocation and renovation of existing stores, coupled with new dispensary openings and select locations, and IT infrastructure. For the full year, of 2024, we generated operating and free cash flow from continuing operations of $163 million and $70 million respectively. Our outstanding debt was $569 million. During the year, we reduced our acquisition debt by $45 million and repurchased $15 million of our bonds. We intend to further reduce various components of our debt by a similar amount of approximately $60 million this year while maintaining ample liquidity to support our operations and growth objectives. In the first quarter, due to normal seasonality, we expect that revenue to be down mid-single digits sequentially from the fourth quarter. And with that, I'll turn the call back over to the operator to open the line for questions.

Thank you. We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star and then two. In the interest of time, please limit yourself to one question.

We will now pause momentarily to assemble our roster. And your first question today will come from Aaron Gray with Alliance Global Partners.

Please go ahead. Good evening, and thank you for the question. So first question for me, or question for me, I want to touch on international. Boris, you mentioned high aspirations for 2025 and beyond. You're one of the leaders there today, but there's a number of potential changes that could come, including potential changes with the government in Germany. So it would be great if you could touch on the outlook for international, where you see the most opportunities, and then also if you're seeing increased competition within the environment as we're seeing more and more operators increasingly target those markets. Thank you.

Thank you, Aaron. So I'd like to start with Germany. At the moment, and obviously it's a political environment, so it's always very difficult to predict, but at the moment, from what we're seeing, there will be no change to the medical program. in Germany, and that's been mentioned by several of the politicians on both parties that are negotiating a government right now. So both the CDU and the Greens have both said that they want to maintain the current status quo in the medical program. anticipate any change of course again as I said it's a political environment and things can always move around but at the moment it looks as though we're not expecting any change in medical program they will however we believe probably have some changes to the adult use timetable in other words I think it'll be slowed down substantially from our perspective that's actually a positive we prefer the medical program as it stands now so from that perspective we're happy Overall, competition is rising in Europe. There's a tremendous amount of flour coming out of Canada that's being shipped over, so there's definitely price competition. However, we've actually expanded margin even in that situation in Europe quite substantially from earlier in 2023 and early 2024 to the end of 2024, and we expect margins to continue to expand in Europe in 2025. for several reasons. One is our product offerings are at the upper end, which is the higher margin product, and more importantly, our scale, right? So as our scale and revenues rise, obviously we're picking up some of the fixed costs that we have in the business. And so as this business continues to grow, we anticipate that the margins will continue to improve in Europe.

Okay, great. Thanks for that. I'll jump back in the queue.

And your next question today will come from Frederico Gomez with ATB Capital Markets. Please go ahead.

Hi, good evening. Thanks for taking my question. Question on the hemp-derived market. Seems like you're very bullish on that market. We're also seeing other MSOs, I guess, investing in that market. Do you believe that this trend of regulated cannabis companies investing in hemp capabilities and launching products is going to continue? And second, does it make sense to make any acquisitions in the HEM-derived space? Thanks.

I missed the second part of the question.

If it makes sense to make any acquisitions in the HEM-derived space, brands or capabilities.

So, one, our view is that there's still some risk in the hemp-derived market, given that the Farm Bill was only extended by one year. And so we know that there will be debate around the Farm Bill later this year. We anticipate that they will try to finalize a new farm bill, which will be a five-year law. It's reviewed every five years. And so we're taking a cautiously optimistic view right now, but cautiously. In other words, we don't know how this will end up. Again, it's a political process. And we have to see how the political process pays out. The good piece of news is I think that at the moment, the beverage side of the hemp bill looks as though it will likely be okay, largely because there's a tremendous amount of players. There's a lot of vested interests, a lot of lobbying on that side of it, including very large companies. I'm sure you saw some of the comments from the CEO of Boston Brewing and others about the hemp-derived market. comments by some of the distributors saying that it's now accounting for 5% to 10% of their business. And so it's a very substantial part of the market and it's growing. It's one of the fastest growing segments in beverage in the United States right now. As a matter of fact, I think it is the fastest growing segment in beverage. It's even overtaken non-alcoholic. So I think that beverage is likely to be okay in the Farm Bill. Now, however, some of the other products are where synthetics and other products are being used in that market like the vape market and others. Frankly, we think that there may be some rollback there and we would be supportive of that because we think some of these unregulated companies are using products or ingredients in some of these products that shouldn't be used and should be legislated or regulated out. And so we think that it'll be bifurcated. We think that on the one hand, we think beverage will make it. On the other hand, we think that some other products may be restricted out of the market. In terms of acquisitions, I think that at the moment, we think the market's wide open. A lot of the big distributors are looking forward to our products. and like our products because we're a large company. We can supply them on a regular basis. We're only using natural derived products, no synthetics in our products at all. We're age gating. And so they want to see players like us in the marketplace. And so we feel like organic growth right now is okay. We're launching new products. As we said, we're going to be launching Formula X and energy drink. We have some other products coming in the second quarter as well. And so we intend to have a full line of beverages launched across the across the marketplace. And so at this moment, we're not looking at any acquisitions. Also, committing capital in an environment where we don't have a final farm bill is probably not the smartest thing for us to do right now. And so we're doing this organically, and we're focusing on organic growth in this segment until we have more visibility into legislation around the farm bill.

Great.

Thank you very much for the call.

And your next question today will come from Russell Stanley with Beacon Securities. Please go ahead.

Good afternoon. Thanks for taking my question. Maybe shifting to New York, congrats on the growth there. I'm wondering if you could talk about how the wholesale margins are performing and how they're trending, given the need to be price competitive. Well, I think your competition as far as large scale indoor flower capacity is quite limited. I'd love to hear how you're handling that at this point. Thanks.

That's a great question, Russell, because, in fact, it's a very moving target at the moment. So I would say that for most of 2023, sorry, 2024, the market had fairly strong margins and large demand. And so we saw pretty good penetration and growth in our wholesale business in New York. even against some headwinds focused on the fact that, you know, we were the ones that sued the state to get us into the program. And so there was some of the card licensees were disappointed with the MSOs coming into that marketplace. But we've gotten over that, and we're working with all of them and working very, very cooperatively with all of them. And so I'm bullish on the New York market. I think the New York market will continue to expand. The state has announced that they will move to a seed-to-sale model sometime in the third quarter. That will obviously change the picture because what we saw in February was a massive dump of 30,000 pounds of fully packaged California flour into the regulated market in New York. As a matter of fact, we expect a study to be issued where we finance the study together with some of the other companies about this illegal trade, about what's going on, where California product is arriving into New York, getting stamped by New York wholesalers and allowed to be entered into the program. which obviously hurts the regulated program because this is non-regulated cannabis coming out of California and other parts of the country, Oklahoma and California, and being sold in the regulated program because of a lack of seed-to-sale regulation. Now, once that seed-to-sale regulation is enacted in the third quarter, we anticipate it'll be more difficult for them or virtually impossible for that kind of flower to enter the marketplace. However, we're not waiting for the third quarter and we're moving on this now. We're making the regulator aware of this And we're certainly televising this widely to anyone that would listen that you've got this illicit product that's entering the regulated market in New York. But otherwise, the New York market is very healthy and continuing to expand.

Your next question today will come from Matt Bottomley with Canaccord Genuity. Please go ahead.

Good evening, everyone. Just wanted to touch on you know, the potential for, you know, whether it's an administrative catalyst or things that, you know, might impact sector sentiment. Just given that, you know, since, you know, Trump appointees came in, I think it's largely been disappointing to some investors' expectations. And, you know, obviously he was pretty pro-cannabis running for, you know, for president this year. So I'm just curious if you think, you know, with the new DEA head and sort of these delayed hearings, now potentially the spring or after, if there's sort of anything for investors to maybe keep track of that might be underappreciated and how that might impact at all your timing of a refinancing, just depending on where overall sentiment is at that point.

My position on this hasn't changed. I don't want to speculate. My position is very simple, right? President Trump now, during his campaign, indicated the three things that he would support. That was adult use, Florida that was banking and and rescheduling and I believe that President Trump will support and all those three things now obviously with Florida that passed us now but with the other two I my personal belief is that he will support it that he will his administration will push it forward and and obviously we're all working with the administration. We're not planning our business around it, but I do certainly believe that he will follow through on his commitments so far. It seems as though he's following through on most of his commitments, and I believe he'll follow through on this one, the timing of which is very difficult to tell because these things take time. His cabinet members have literally, especially the ones in cannabis have just been seeded within the last week, maybe 10 days. So I think it will take some time for them to get to this issue given all the other issues that they have.

Thanks, Boris. And your next question today will come from Bill Kirk with Ross Capital Partners.

Please go ahead.

Good evening, everybody. Boris, could you talk about the competitive marketplace in Florida, particularly in You know, how it's been after the failed initiative. You know, what have you seen from folks who maybe put some capital in the ground in hopes of a better ballot result? And then on the political side in Florida, there's already been a number of changes. Governor's seat coming up. What do you see as maybe the next steps for the state to continue toward adult use?

I think that the current market is quite stable. As a matter of fact, we're seeing some growth in the Florida market at the moment, largely driven by the fact that with two factors. One is seasonality. So fourth quarter and first quarter are always strong in Florida due to snowbirds and a lot of activity in the Florida market from tourism this time of year. And so that does give a boost to the Florida market. Secondly, we have not seen the price increase competition as aggressive as we were planning for after the failed adult use. Everybody seems to be holding pricing reasonably well. There's some players, some of the smaller players, maybe they're discounting a little bit more. But overall, I would say that the Florida market is showing signs of health and low single-digit growth over the fourth quarter and going into the early part of the first quarter. So overall, Florida looks pretty good. In terms of what happens next, I think it's too early to tell. Certainly, Governor DeSantis is stepping down. We know that while Governor DeSantis is there, we're not expecting any favorable rulings of any kind on cannabis. There may be some negotiations around some aspects of medical, but the industry continues to want to get adult use through. And so there is an initiative to try to get adult use through in 2026, and we'll continue to work in that direction.

Thank you, Boris.

And your next question today will come from Eric DeLauriez with Craig Hallam Capital Group. Please go ahead.

Thank you for taking my question. For the push into premium flour, sounds like some nice improvements on yields thus far. Just wondering what else remains to be done for this push into premium here? It's just a matter of building up inventory at this point, or are there any more investments planned for 2025 on this front?

No, actually, we're going to be bringing down CapEx quite substantially. Really, most of the automation, most of the lighting, equipment, humidification systems have been upgraded during 2024. And as most of the genetics are now in the grow houses and are being grown, and so it's a matter of building up inventory to get into that market. And that's a very good question because literally in two of our largest markets, you know, 200 plus million dollar revenue markets, we were largely absent in that category. You know, that was a miss in the previous team. It's something that we discovered during our deep scrums in terms of where we were positioned. And that's the highest margin business. And so we believe that that will transform our business in those two states in particular. Some other states, we have good positioning in premiums. But overall, we are really, really focused on that premium segment and increasing it. And we think premiums should account for somewhere around 20% to 25% of our revenue in our largest states. And as I said, our two largest had zero premium offerings. And so now we'll be introducing those in early April.

Great. Thanks for the question.

And your next question today will come from Pablo Zuanek with Zuanek & Associates. Please go ahead.

Thank you. Look, if I may, I want to ask a two-part question. But first, in terms of international wholesale, that was down 5% sequentially. Imports in Germany were about 50% in the fourth quarter. If you can just give some context to that decline, where there are supply chain issues or just increased competition, that would help. And then separately, maybe for Ed, go ahead, Boris. Sorry.

It was purely FX.

Okay, purely FX. All right. Just for Ed, maybe Boris, I'm just looking at your debt, right? You've talked about refinancing. You have $100 million due in 2025, $416 million in 2026. I'm just wondering about how the banks or the potential lenders or those that will need to refinance for you how are they going to think about the tax debt? I know that most companies are following the same blueprint, right, delaying filing at the normal corporation, delaying not factoring to ADE, but that debt is still on the books, and I wonder if that's going to create problems when it comes down to refinancing the other debt. Thanks.

Hey, Pablo, good question. I'm going to defer the second part to Boris. He'll talk about the more macro refi that we've all been working on. But on the $101 million, a lot of that you're going to see in the Q1 numbers are going to be substantially lower. Some of the things that have been paid off, literally it's a cutoff at the end of the year, and some of these things have been done in January. So you're going to see that debt number be substantially lower on the current liabilities at the end of Q1.

Yeah, and we're going to continue to pay down acquisition debt. You know, we anticipate somewhere between $65 and $75 million that's going to be reduced going into the end of this year on the acquisition debt side. So we're continuing to deleverage, as we did last year, the balance sheet and getting rid of all of the acquisition debt that we've had back from the 2000, you know, 2020, 2021, 2022, 2023 period. On the overall refi, frankly, we're seeing very, very strong demand. We are not in the market yet because we have a call premium until June 30th. And so we really can't be in the market until July with that issue. But we have started to talk to investors. We've started to talk to banks. And at the moment, of course, subject to macro environment, the debt market is strong and we're seeing very, very strong support for refinancing on our debt.

Thank you.

We'll conclude our question and answer session. I would like to turn the conference back over to Camilo Lyon for any closing remarks.

Thanks everyone for dialing in. We will talk to you again in early May. Have a great night. The conference has now concluded.

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