Curaleaf Holdings, Inc.

Good afternoon and welcome to the Cure Relief Holdings, Inc., second quarter 2025 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 remarks, 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 that this event is being recorded. I would now like to turn the conference over to Camila Lyon, the Chief Investment Officer. Please go ahead.

Good afternoon, everyone, and welcome to Curiously Folding's second quarter 2025 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 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 risk and uncertainties that could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements on a certain material factors or assumptions that were applied in drawing the 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 the 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 Curiously'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 pure 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 Issue today and available on our investor relations website at ir.curely.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 second quarter 2025 results. Over the past 10 years, we've strategically built Pureleaf into a global cannabis leader, now operating in 17 U.S. states plus 15 countries worldwide. With our infrastructure in place and our asset base established, we're sharpening our focus on product quality, customer service, and supply chain excellence. to ensure every customer receives the best possible experience every time in every store. From the outset, rapidly growing the business has been central to my vision, recognizing that scale would be essential to navigating the inevitable volatility of the cannabis industry. While current pricing pressures are affecting the entire sector, subscale operators are bearing the brunt, exiting markets and shedding assets at an accelerating pace. This ongoing industry rationalization strengthens our long-term position as we continue investing in growth initiatives and capitalize on emerging opportunities. In the second quarter, we generated revenue of $315 million, up 1.5% compared to the first quarter, consistent with our guidance for low single-digit growth. Price compression across most of our markets kept domestic sales roughly flat compared to the first quarter, while our international segment continued to impress with another solid quarter of 17% sequential growth. Adjusted gross margin of 49% decreased 130 basis points from the first quarter due to higher levels of promotional activity, particularly around 420 holiday compared to the first quarter. We generated $66 million in adjusted EBITDA, resulting in a 21% A EBITDA margin, with international and health accounting for 260 basis points of margin drag. For now, we've made the strategic decision to keep those two businesses consolidated as momentum around federal reform and potential 280 relief from rescheduling continues to build heading into year end. That said, if meaningful reform fails to materialize, we are prepared to pursue alternative paths such as spinning out these businesses to unlock significant value that we believe is not currently reflected in our valuation as neither of these businesses are subject to 280E. We ended the second quarter with cash of $102 million after paying $47 million in interest and principal debt payments and generated $9 million in operating cash flow from continuing operation. In the U.S., our primary focus for the past few quarters has been to manage pricing headwinds and stabilize the domestic business through an unrelenting pursuit of producing consistent, high-quality flour, improving customer service levels, enhancing our marketing and branding, and optimizing our supply chain. In the second quarter, we achieved stabilization as sales were essentially flat compared to the first quarter. Sequential growth in Massachusetts, Ohio, Florida, Pennsylvania, and New Jersey was offset by pressure in the balance of our network. Continued gains in our cultivation facilities were offset by an underwhelming and promotional 420 holiday that landed on Easter impacting the results. That said, we made meaningful advancements in our product portfolio. April was a pivotal month for Cureleaf Innovation Engine, marked by the launch of several strategically developed products aimed at enhancing our competitive position and fueling long-term growth. In New York, we introduced ACE, our proprietary aqueous cannabis extraction oil, which has received exceptional early feedback. Unlike traditional distillate oils, ACE is the next evolution of oil that delivers an ultra-clear, ultra-pure product with minimal plant material, offering a smoother, more refined consumer experience. We view this as a disruptive advancement in the cannabis oil category, and we expect strong consumer adoption as awareness and trial increase. In parallel, we rolled out Anthem, our new cylindrical-style pre-roll line, across six major markets, New York, New Jersey, Florida, Arizona, Massachusetts, and Illinois. Anthem is already outperforming expectations, and we are accelerating production to meet surging demand while scaling to add additional states. According to Hoodie sell-through data, Anthem is the fastest-growing pre-roll brand in New York. Building on the strong brand momentum, We are expanding Anthem into a full-scale pre-roll line with a clear goal of establishing it as a national market share leader. As part of this expansion, we will launch Anthem Bold, our new line of infused pre-rolls, in late September across key markets including New York, New Jersey, Illinois, and Arizona. Our innovation pipeline is backed by industry-leading R&D and continues to reinforce our brand leadership. Select remained the number one vape brand in the U.S. during quarter two. while Grassroots, our premium flower offering, was a top three flower brand, according to BDSA. These gains reflect ongoing improvements in our cultivation practices supported by our genetics program. Specifically, over the past 15 months, we have overhauled our genetics library to deliver high-quality, consistent flower across our state footprint. The acquisition of Dark Heart Nursery, a highly regarded West Coast genetics lab, we completed a couple of years ago is bearing significant fruit in our gardens. In quarter two, we saw overwhelming success in the markets where we first began harvesting these genetics, states such as New York, Florida, Arizona, and Utah. As these strains continue to roll out across additional markets in quarter three, we see strong momentum building ahead. Flower remains the cornerstone of the cannabis category, and we are laser-focused on ensuring Curaleaf delivers the best-in-class quality, consistency, and assortment. Our progress to date gives us confidence in our ability to win in this critical product segment, and we're just getting started. Operating as a fully legal medical business, Cureleaf International functions much like a pharmaceutical company, giving us greater flexibility to capitalize on the strategic investments we've made over the past four years. This structure continues to deliver scale advantages and brand momentum, as clearly demonstrated by robust second quarter results in which the segment generated $41 million in revenue and a 17% sequential increase, a 62% year-over-year growth driven by robust demand in Germany and the U.K. In Germany, we continue to see healthy patient growth one year after the government passed the Kenji Cannabis Act, removing cannabis as a narcotic and streamlining patient access. Official data from the German regulator shows that 43 tons of dry flour was imported into Germany in quarter two 2025, a four-fold increase over quarter two of 2024. While pricing pressures become more prevalent in the market, the team has navigated these dynamics well by leading with our premium 420 flour brand, complemented by our mid-tier and value offerings. Last year's introduction of Koala, our value flour brand, is performing above expectations, and in the second quarter was boosted by addition of new strain options. In the U.K., the team did a fantastic job of adding new patients to our platform through our CureLeaf clinic, where we focus on delivering high levels of service and product quality to our patients. In addition, the U.K. business benefited from the new wholesale partnerships and ensuing orders. Cureleaf International achieved three significant milestones this quarter that further solidify our global leadership position. First, we completed the buyout of our minority partner and now own 100% of Cureleaf International. This move simplifies our structure, increases operational flexibility, and reinforces our long-term commitment to global expansion. We thank our partner for their collaboration and continued support of Cureleaf's vision. Second, we are pleased to announce we have received a license to enter Turkey. providing us a first-mover advantage in the country's nascent medical market. Turkey, with a population of 87 million people, represents a large and underpenetrated opportunity. Subject to the finalization scope of the secondary regulations, we aim to commercialize our brand portfolio in the market within 2026. We will provide more detail as rules and timelines become clear. Third, we achieved EU medical device registration certification for our world's first medically certified liquid cannabis inhalation device. This is a significant regulatory breakthrough that establishes a new standard for inhaled cannabis medicines in Europe. Designed to deliver consistent metered doses, the device is currently the only handheld solution legally permitted under EU medical device regulations. We're launching the device in the UK this month with plans to expand into key European and Australian markets as regulations evolve. This innovation positions Cureleaf at the forefront of a differentiated pharma-grade delivery platform that addresses growing global demand for precision cannabis therapies. Our international strategy continues to deliver results driven by disciplined execution and a focus on scalable high-growth markets. Recent milestones, including new market entries, product launches, and regulatory wins, are not just symbolic. They translate directly into near and long-term revenue opportunities. In fact, Curaleaf International's current total addressable market, including the U.K., Germany, Poland, Australia, New Zealand, and now Turkey, rivals that of the U.S. While these are primarily medical markets that are earlier in their development curve, the long-term growth potential is significant. To support the momentum we're seeing today, we're expanding cultivation capacity through a more asset-light model than in the U.S., prioritizing leased infrastructure over owned assets to maintain flexibility and maximize returns on invested capital. Curaleaf International is now on pace to be one of our top three revenue contributors by year end. We expect this segment to play a significant and growing role in our long-term value creation strategy. Our hemp business continues to gain momentum driven by a clear strategy focused on expanding distribution and increasing access to low-dose, sessionable products that resonate with both core consumers and new entrants to the category. This quarter, we successfully launched Formula X in brick and mortar retail and made it available on DoorDash, further broadening our omnichannel reach. In addition to Total Wine and DoorDash, we deepened our distribution footprint across key markets, including Connecticut, Indiana, Kentucky, New Jersey, Georgia, Ohio, and Illinois. We're also optimizing our supply chain by bringing beverage fulfillment in-house at our Kentucky facility, an initiative that enhances production control and expected to drive stronger margin capture moving forward. I'd like to provide an update on our upcoming debt refinancing. Over the past several months, we've engaged with a broad range of investors, including public and private credit funds, as well as regional banks. The initial response has been highly encouraging with strong indicative interest and constructive dialogue. We remain focused on securing the most favorable outcome for Curaleaf, aligned with our long-term capital strategy. We are on track to complete the refinancing by year-end and are confident it will enhance our financial flexibility and support our growth priorities. This earnings call marks my one-year anniversary as CEO, and I'm proud of the meaningful progress we've made through our Return to Our Roots program. Over the past 12 months, we've laid critical groundwork to strengthen the business, resetting garden yields, elevating flower quality across our network, expanding gross margins, reducing costs, and fueling growth in key areas, including international New York, Ohio, and our hemp business. While price compression remains a headwind in many of our markets, driven in large part by the rapid expansion of the loosely regulated hemp sector, which benefits from interstate commerce, low operating costs, and freedom from the 280 tax burden, we remain confident in the long-term trajectory of the cannabis industry. That's why... we continue to invest in the five core pillars of sustainable success. People, product quality, R&D, distribution, and customer experience. Domestically, we've upgraded cultivation facilities, improved our flower quality, implemented automation, and made meaningful progress on our retail buildups. Internationally, we've expanded production capacity, entered new markets, and broadened our brand portfolio. To support this next phase of growth, we've also made key additions to our leadership team at the corporate level. Recently, we welcomed four senior executives who bring deep experience from best-in-class consumer and retail organizations. Rahul Pinto joins us as president in our newly created role overseeing revenue, innovation, and brand, critical drivers of top-line growth. He brings a strong background from Albertsons, PepsiCo, and Bacardi. Scott Crawford, our new head of merchandising, comes to us from Valder Foods, Fresh Direct, and Whole Foods, offering deep expertise in category management. Justin Miller, now leading brand marketing, brings brand building experience from Diageo and William Grant & Sons. And Helen Chen, our new head of digital, joins us from Pernod Picard USA, PepsiCo, and McKinsey with a mandate to enhance consumer engagement and drive our digital transformation. These hires reflect Our discipline focused on leadership excellence and positioned us to execute with great precision, drive margin expansion, and unlock long-term shareholder value. Global consumer demand for cannabis is not only robust, it's accelerating. With the right team, strategy, and infrastructure in place, Pureleaf is uniquely positioned to lead and capture the next wave of industry growth. With meaningful momentum building around federal reform and the potential for rescheduling, combined with many strategic initiatives underway at CureLeaf, I have never been more confident in our future as we enter the next phase with a stronger foundation made possible by the relentless dedication of our 5,000 global employees. To our entire team, thank you. With your continued focus and execution, I believe CureLeaf is exceptionally well positioned to lead the next era of chemists. With that, I'll turn the call over to our CFO, Ed Kremer. Ed?

Thank you, Boris. Total revenue for the second quarter was $315 million, a 1.5% sequential increase compared to the first quarter and an 8% decrease compared to the same period last year. Strength in our international segment, Ohio, Missouri, and Utah, was offset by pricing pressure in Pennsylvania, New Jersey, and Illinois. Our domestic retail metrics... showed signs of stabilization in the second quarter as transactions were flat and units per transaction increased 1%, while AUR decreased 3% compared to the first quarter. My channel retail revenue was $229 million compared to $264 million in the second quarter of 2024, a decline of 13% year-over-year. Partially offset, my strength in wholesale, which increased 8% year-over-year to $83 million. representing 26% of total revenue and driven by growth in international, Missouri, and Ohio. By geography, domestic revenue declined 14% compared to the same period last year, largely driven by price compression as both flower and bay pricing was down mid-teens. Conversely, international was again the standout performer as revenue grew by 62% year-over-year, driven primarily by Germany and the U.K., we continue to strategically leverage our cultivation facility in Portugal, which enables us to supply high-quality flour at scale across multiple markets. By introducing mid-tier and value-tier flour offerings in our portfolio, we have effectively managed to fend off price compression in our key markets while expanding our reach across patient segments. These results underscore the strength and resilience of our international platform, as well as our ability to scale profitably in diverse regulatory environments. Our second quarter adjusted gross profit was $154 million, resulting in a 49% adjusted gross margin, an increase of 120 basis points compared to the prior year period. The primary drivers of this expansion were continued cultivation productivity and efficiency gains and an increase in vertical mix, partially offset by price compression and higher promotions. Sequentially, adjusted gross margin contracted by 130 basis points primarily due to the Product mix dynamics from international has higher than anticipated demand for our value flour in Germany weighed on the segment's margins. We expect the segment's product mix and gross margin to normalize and increase in the fourth quarter as we return to selling a balanced assortment of high-end mid-tier and value flour. SG&A expenses were $105 million in the second quarter, a decrease of $4 million from the prior year ago period. Core SG&A was $102 million, also a $4 million decrease from the prior year. The year-over-year decrease in our core SG&A primarily reflects reductions in payroll and marketing expenses as we're laser focused on managing all elements of our cost structure. Core SG&A was 32.5% of revenue in the second quarter, a 160 basis point increase compared to the prior year due to the reduced sales base. Second quarter net loss from continuing operations was $51 million, or a loss of $0.07 per share. Adjusted net loss from continuing operations was $48 million, or a loss of $0.06 per share. Second quarter adjusted EBITDA was $66 million, a decrease of 10% compared to last year, while adjusted EBITDA margin was 21%, a decrease of 40 basis points versus last year. Our international segment was a 180 basis point drag on total EBITDA margins in the quarter, primarily due to the aforementioned product mix dynamics. As I previously mentioned, while international margins will fluctuate from quarter to quarter, we anticipate international margins to rebound in the back half of the year. Separately and as expected, our hemp business weighed on our total EBITDA margins by 80 basis points as we continue to invest in marketing, brand building, and product development. Turning to our balance sheet and cash flow. We ended the quarter with cash and cash equivalents of $102 million. Inventory decreased $2 million, or 1%, compared to the same period last year, comprised of a 6% reduction in domestic inventory, partially offset by 62% growth international inventory to support robust demand. Capital expenditures in the second quarter were $15 million. For 2025, we continue to expect capital expenditures to be approximately $50 million with investments focused on international facility expansion, IT infrastructure, and new store openings. In the second quarter, we generated operating cash from continuing operations of $9 million driven by changes in working capital as we saw an increase in wholesale sales in the last month of the quarter coupled with material reductions in our payables and accrued liabilities accounts. We expect a meaningful improvement in operating cash flow in the second half of the year in line with our historical pattern of stronger cash generation in the back half. Our outstanding debt was $561 million. After the quarter end period, we opportunistically repurchased $3.2 million of our 2026 notes at an 8.75% discount. During the quarter, we reduced our acquisition-related debt by $7 million. We will continue reducing various components of our debt throughout the year while maintaining ample liquidity to support our operations and growth objectives. The consumer is facing many macro headwinds, and while our demand for cannabis is strong, Pricing pressure have not abated. As such, for the third quarter, we expect total revenue to be flat to up low single digits sequentially from the second quarter. And with that, I'll turn the call back over to the operator to open the line for questions.

Thank you. And ladies and gentlemen, we will now begin the question and answer session. To ask a question, you may press the star then 1 on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press the star then 2. We kindly ask that you please limit yourself to one question and one follow-up, and you may re-queue for additional questions. And at this time, we'll pause momentarily for the first question. And our first question will come from Aaron Gray with Alliance Global Partners. Please go ahead.

Hi, good evening, and thanks for the questions. So first question for me, I just want to touch on international, specifically in Germany. any color you could offer in terms of, you know, the growth you're seeing in that market. And also in terms of, you know, we're seeing in terms of the pricing tier, I believe you mentioned, you know, increase in terms of value products. You know, there has been some conversation around some pricing pressure, you know, starting to come in Germany. So any color around those dynamics. And also from the regulatory front, just any term, any side of, you know, risk you might see in terms of some proposals that have been made, restricting telemetry and otherwise from the market. Thank you.

Thanks, Aaron, for that question. Growth in Germany has been very, very strong. I think we outlined those growth rates in the call. We don't see them abating here in the third quarter, and we see them continuing into the fourth quarter as well. Obviously, Germany is still very underpenetrated at less than around 1%. We've seen medical markets like this easily go from to 4% to 8%, depending on the program and the structure of the program. So we anticipate continued growth over the next several years in the German market as the patient pool continues to expand. There have been proposals by the conservative government to rein in the telemedicine platforms. We don't believe that that will actually happen. We think there may be some limitations put on it, for instance, not being able to use European Union platforms but only being able to use German platforms. However, that could be a violation of EU rules, and so it'll be very difficult. It's too early to tell right now where we think Germany will end up. We'll know probably... somewhere in October or November, but that's not going to change the growth trajectory of the business. That may change even if there was a negative, a more negative response than we anticipate. All that would do is push out the growth a little bit longer because people have to go back to medical clinics to get their prescriptions rather than online. However, as I said earlier, everything we're seeing, we think that there will be very minor changes and that there won't be a major change to the trajectory. There have been, obviously, all the Canadian growers as well as African growers, South American growers are vying to get into this market. There's a lot of product that's entering the market, and so we've seen definitely some price compression in that market. I think it's been about 35% year-over-year price compression. However, Cure Elite being one of the largest operators, if not the largest, we have a very diversified portfolio where we're playing in the premium segment, and we're the largest player in the premium segment. We're also playing in the mid-segment and the lower segment in the market, so we're capturing all aspects of the market. And so far, our margins have held up reasonably well, and we continue to believe that those margins will actually expand into the second half of the year in Europe.

Okay, that's great, Peter. I really appreciate that commentary. Second question for me, just around hemp. Could you speak to some of the marketing initiatives that you have planned to help drive velocity, given that you have more marketing levers available for MTHC that aren't available for cannabis? Do you see the opportunities that were available this summer, potentially as key ops to increase marketing and drive growth, given the seasonality that we've seen in other categories that would probably be similar to hemp drinks?

Thank you. Yeah, we are on the cusp of signing some very interesting contracts. marketing transactions. We're also on the cusp of starting some interesting sponsorship deals. Marketing for hemp products and seltzers is almost the same for any other drinks that are out there. And so the options are very wide and very big. Obviously, they do cost quite a bit of money, so we want to be very careful to pick the right ones. But we are looking at some very, very interesting sponsorship and marketing cooperations here over the next several months. that we'll be coming out with. It's too early to announce anything now, but we feel very good. We can use all of, obviously, all of the social media channels, and we can use also, we're starting to talk to teams and other things. So we do think that this product will continue to get widely accepted. And as I said, my view, as I said many years ago, I think that beverage will be at least 50% of the cannabis segment, but it will take five to ten years to get there.

Okay, great. Thanks for that detail. I'll go ahead and jump back to the queue.

And our next question will come from Bill Kirk with Rox Capital Partners. Please go ahead.

Hey, good afternoon, everybody. I wanted to ask about New York with the OCM saying some formerly approved sites are now noncompliant. And I guess while we're there, it looks like they paused the seed-to-sale implementation deadlines yesterday, I guess. So what's the status of that program? What's the status of some of these licenses and the products that's been coming from California?

Yeah, I think on the store front, you know, 60 stores are affected by this. The state has come under a tremendous amount of pressure. We believe the state will also be sued over this because it's obviously a mistake that the state made. and the $250,000 that they're offering these stores to relocate is way too low. I personally think that they will change the legislation to allow these stores to be located where they are. It's just going to take them a little bit of time. They have to get back into session to do it. I don't think it's a difficult lift, and I think the lawsuits will be such that they'll almost be forced to do it. I personally believe the state will move on the issue of the stores because it was a mistake that the state made and not the fault of any of the store owners. But it does represent 60 stores out of, you know, I think it's almost 450 stores that are open now in the state and more opening. On the seed to sale, you know, the state obviously under pressure over the issue of the stores. and the acquisition recently of Biotrack, which is the system that's being implemented in New York, and a lot of the smaller players not being ready. has made a decision to postpone the seed-to-sale program, the seed-to-sale tracking system. We're obviously very upset by that. It's something that we feel would take out the illicit product that's in the system right now. We will be making a statement on that shortly and probably taking legal action with the state on that issue in order to keep them to implementing the program. The original implementation was It's supposed to be finished by October, middle of October, which would have made the whole system and the whole tracking system working by, call it, early November, which would have probably removed most of the illicit products that are in the system now. Where they're going to come out on timing is unknown at the moment. and we're going to continue the pressure on the state in order to implement the system. We know the state's committed to doing it. Many of the smaller players in the state just weren't ready to do it, and they're using the excuse of the takeover of biotrack by metric to give people more time. We're going to keep their feet to the fire and make sure that they do what they promised they were going to do in the program.

Okay. Thank you for that. And then switching to Turkey, since it's obviously a potentially large market, could you give us a sense of how you see that market structure developing there? From what I understand, their program seems to be setting up a little bit more, I guess, nationalistic than other international markets. Is that a fair characterization? And what would that mean? Would you have to maybe produce there, or would they be accepting a product from other countries?

They haven't set up the final rules yet, but we've been involved from day one in that program. Curaleaf led the initiative there. It's obviously a massive opportunity, 87 million people. Just to put things into perspective, Germany is 84 million people. They're looking at this as purely a medical market. Yes, they are going to, at least in the early part of the development of the program, they are going to require to produce the products in Turkey. Turkey has a good climate. Turkey grows a tremendous amount of hemp today. They have a good climate for growing cannabis. and it'll be easy to formulate. You know, we're hoping that they'll allow us to buy hemp products to formulate our products, and we can bring in our technologies in order to do it. It's much more medical in structure than the U.S., as is most of the European market, but it will be, I believe, 16 licenses have been issued, and Curaleaf was one of the 16 licenses, and at the moment, I believe, the only foreign-issued license at the moment.

And our next question will come from Federico Gomez with ATB Capital Markets. Please go ahead.

Hi, good evening. Thanks for taking my questions. I just want to go back to a comment that you made on the prepared remarks here that you could spin out your international business or your hemp business to unlock some value if we don't see federal reform materializing soon. So could you talk more about that? You know, how long would you be willing here to wait for that regulatory change in the U.S. before you would make that decision? And how do you envision that happening and how much value could be unlocked here?

Thanks. We can't discuss the numbers and the value. I can only say that the, you know, we've met with bankers and the value in our European business is as a basically a biotech or a pharma business would be substantial. and it's definitely not recognized in any way today in the valuation of Cureleaf. When we make that decision, I really think will depend on what we get here during this calendar year on reform. If the U.S. moves ahead with the reform, and obviously we're pretty close to that process and feel good about it, then we would keep it consolidated at this point in time. If we don't get reform in the United States, those businesses, both the hemp business and the medical business in Europe, would obviously be probably better off spun out from under CureLeaf because of the value that's attributed to those businesses and the growth profile of those businesses and the fact that none of those businesses are subject to ADE. One of our competitors has already done that in spinning out the hemp business that they have. We, at the moment, have decided to keep it consolidated. We think the company is better together. especially if we get the critical reform that we're looking for. However, if it's not there, then we would, you know, work with advisors and bankers on looking at the best option for shareholders and spinning out those businesses as separate entities.

Perfect. Thanks for that. Second question, just on Australia, I know that you launched some new products there recently. Could you talk about that market? How are those products performing and what sort of growth you're seeing in Australia? Yeah.

I mean, we just launched our product portfolio in Australia. It's too early to speak about the individual countries there. And we've just broken out the overall European revenues, you know, so we're not going to talk about individual countries. I can say, though, that we see a huge opportunity. It's an over a billion dollar market right now. and we see a lot of opportunity in Australia and are eager to continue the expansion. We are going vertical, not in the sense that we're growing, but we are, you know, integrating. We're buying a wholesaler. We're looking at becoming a local distributor of our products in that marketplace. We're currently looking at licensing and other things, so not only distributing through third parties, but also distributing ourselves and controlling our own brand. and that's something that we're looking at and on the cusp of executing on that shortly.

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

Good afternoon. Thanks for taking the questions. Maybe coming back to Turkey and understanding, I think you said the secondary market regulations are still being finalized, but wondering if you can compare what patient access is likely to look like today compared to, for example, Germany, and secondly, I guess, when you think or what the timeline might be to first revenue there?

We think that, again, it's a little bit early to tell. I would say somewhere in the – we would hope that the program would get launched somewhere around the third quarter. Obviously, we've got to build our facilities there, which we'll start doing very shortly. in order to build our processing facilities and our facilities to make products. Listen, 87 million people, I think it's probably, you know, as all these medical markets start out slow, there's an education process. You have to educate doctors, and then doctors have to work with patients. But it's a big, and cannabis is a widely used product in Turkey. Okay. And so we are pretty optimistic about it. And as I said in my prepared comments, you know, with Turkey coming online, we now have an international TAM in markets that rivals out the United States. So, you know, obviously, early stage, I wouldn't want to, you know, make any dramatic predictions on it. But if you remember, you know, Germany took a while to get to 150,000 patients, and then all of a sudden with some reforms, You know, it's now, you know, over 1% of, and I think it's over a million patients now, 1.2 million patients in Germany as of this quarter. And so, you know, we've gone in one year from 150,000 to, you know, 1.2 million with a small degree of reform. Turkey, I think, will start out like Germany and like the U.K., slow as we go through the education process, and then it will accelerate over time. But it's 87 million people, limited licenses. We're pretty excited about it.

Thanks for that. And maybe coming back to Germany, apologies if I missed it, but can you elaborate on what transpired there with respect to the sales mix in Q2, and I guess more importantly, I guess what drives the rebalance later this year? Thank you.

I think that the only thing that happened to Curaleaf in the sales mix was that, you know, because of permitting and moving products, don't forget we do grow and we also buy products in Canada. We move it to Germany. We also are growing products in Portugal and moving it. So sometimes when you have, you know, export holdups, I think some of the Canadian companies mentioned it, more of our mid- and lower-tier product got permits to go into Germany versus our higher-tier product. And so, you know, we weren't able to get as much of our higher margin products into Germany. However, we did get those permits on the last day of the quarter. So this quarter we have all that product now in market. And overall, though, as I said, that there's been a lot of mid- and lower-tier product that's entered the German market recently, and so there's been quite a bit of price pressure at that level. However, the premium product continues to hold very well, and we're the largest operator in the premium segment in Germany. So we're pretty good about where we are.

And our next question will come from Jesse Peitlak with Cormark Securities. Please go ahead.

Hey, good evening. Just staying on the international business, can you talk about the amount of headroom that you ultimately see in that business for driving margins even higher just as you further integrate your supply chain globally?

Yeah, listen, it's all about scale now for us. As we get to scale, obviously our margins get better. and, you know, we're expecting margin expansion the second half of the year. We think we're going to close out the year around a 45% gross margin. That's up, you know, from about 34% last year.

That's helpful. And then just as a follow-up, in your prepared remarks, you talked about some of the rationalization and distress that you're seeing in the U.S. market. Can you speak to how that landscape's evolved over the past six months?

Sorry, about U.S. pricing?

The U.S.-U.S. competitive environment, more with respect to distressed assets.

I've been saying this for some time. The price pressures in the United States have nothing to do with the regulated market. The price pressures in the United States have to do with two things. One is hemp, and two is the illicit market in which there's very little enforcement, where historically there's been very little enforcement. With the Trump administration, we've seen a lot more enforcement in the illicit market. We believe we'll continue to see that. So that will put pressure on the illicit grows and the illicit products that are sold in the market. And on the hemp side, listen, we're waiting for some guidance from the federal government where they're going to end up on there. But as a hedge, it's the reason we went into the hemp market, so that we can at least produce products that are federally compliant and be able to distribute them on a national basis. But hemp is the real cause of the problem, particularly the synthetic products that are coming through hemp are the real cause of what we're seeing as price compression in the regulated market. The regulated market has, you know, testing costs, you know, tax costs, regulatory costs, all the types of costs you do in the standard CPG business. You know, the hemp market has very, very different costs because it doesn't have you know, state-by-state manufacturing costs. It doesn't have state-by-state growing costs. It doesn't have any of the tax costs. It doesn't have any of the testing that we have to do in the regulated market. And so it's very difficult to compete against that product, and that product is permeating into almost every bodega and every store around the country, and that's what's been the real price pressure on the regulated cannabis sector. I don't believe myself that that will be allowed to continue. I do believe that there will be regulation in the hemp sector, and I do believe that will happen over the next 12 months. I don't believe they'll shut it down, which I think is the right thing, but I do think that there will be regulation of hemp products, particularly synthetic products, and particularly flower products that today people are claiming are compliant but really aren't compliant. And so I think that we will get regulation, and I do think we'll get federal reform in the regulated part of the business. And so I think things will hopefully start getting better in terms of price compression in the regulated market. In the meantime, it's forced all of us to get better at what we're doing, and we continue to get better at it.

And as a reminder, if you would like to ask a question, please press stars and one. Our next question comes from Pablo Zunich with Zunich & Associates. Please go ahead.

Good evening, everyone. This is Vish Muhammad on for Pablo. Going back to Germany, do you have an estimate of 420's market share in Germany? And can you remind us of your plans to buy the 45% stake that you do not own of 420?

We will be buying that stake. We have both a put and call option on that. So that stake will be bought as we bought the stake in our international business, which represented 31% earlier this year. We'll be buying the 420 stake as well in the first quarter of next year. And sorry, what was the other question on Germany? Oh, our market share. You know, it's very difficult to tell. It's not public information there, but we reckon our market share is somewhere between 50% and 20%.

Thank you. And my second question is about Florida. How confident are you that Florida will have a ballot on recreation of sales by November 2026?

Listen, I think that Kim and Trulieve are doing a gallant effort in – you know, getting the signatures. And we also know that midterm elections are better for cannabis reform. We had this very similar problem in Arizona where we failed on the first round, and we also had a 60% hurdle threshold, and we were able to get it passed in the midterm elections two years later. So given that, I'm cautiously optimistic we'll be able to get it done as long as we can get all the signatures and get it on the ballot. But I think Trulief and Kim Rivers are better to ask that question. She's on top of that issue and owns that issue completely.

And this will conclude our question and answer session. I'd like to turn the conference back over to Camilo Lyon for any closing remarks.

Thanks, everyone, for joining us today.

We will catch up again in 90 days. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect your lines at this time.