Q4 2019 Earnings Call
Thursday Thursday
Good afternoon, and welcome to June 2019 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 wage today's presentation. There will be an opportunity to ask questions to ask a question. You may press * then 1 on your touchtone phone to withdraw your question, please press * then two months. Please note. This event is being recorded. I would now like to turn the conference over to Vice President of Finance and I are Daniel Foley, please go ahead.
Thank you. Good afternoon everyone and welcome to curaleaf Holdings fourth quarter and year-end 2019 conference call today. I am joined by Boris Jordan executive chairman, Joe Lessard and chief executive officer and president and Chief Operating Officer in Michael carlotti Chief Financial Officer earlier today. We issued a press release announcing our results for the fiscal quarter and year ended December 31st, June 2019, as well as our acquisition of three Arrow Alternative Care dispensaries in Connecticut in an operational update on coronavirus. These press releases are available on our website under the investor relations section and filed was here.
Before we begin I would like to remind you 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 involved estimates projections plans Thursday forecast in assumptions, including the successful completion of announced Acquisitions and coronavirus response updates and are subject to risks and uncertainties that could cause actual results or outcomes to differ material which early 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 I change 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 known 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 Cedar and the Canadian Security wage.
During today's conference calls people refer to non-ifrs measures did not have any standardized meaning prescribed by IFRS such as adjusted ebitda manage revenue and pro forma Revenue definitions of which may be found in our earnings, press release. Please note that all financial information is provided in US Dollars unless otherwise indicated would that I'd now like to turn the call over to Executive chairman Boris Jordan.
Thank you, Dan. Thank you all for joining our call during this challenging time for our country in the world before we begin with our prepared remarks. I would like to recognize and thank them more than 2,200 securely across the country for their hard work.
15 has come together to an hour mission of improving the lives of our customers and maintain access to our products over the past several weeks. The entire management team has been fact I'm taking all the necessary steps to adapt our business in this fast-moving and challenging environment later in the call. Joe will go into more detail including the range of new Prestige has policies and the Technologies we have implemented in direct response to the coronavirus the health and well-being of our employees and our customers is our number one priority.
Given the vertically integrated nature of our business coupled with the overwhelming demand for cannabis believe purely as well positioned to manage through the curtain the current uncertain environment. We have not experienced any significant interruptions it out supply chain. Most importantly States understand that cannabis is essential to the health and well-being of millions of Americans in fact dispensaries an hour ago, cuz I don't get Florida, Maryland New Jersey New York, Nevada, Massachusetts and California have been allowed to stay open to customers and we have seen a significant uptick wage and I can't emphasize enough how significant this is state governments are explicitly recognizing the vital role that cannabis played in the health and well-being of their citizens and as a significant economic driver to the account. Therefore we have been deemed essential service in almost every state in which we operate you see this as an enormous validation and legitimization of the industry wage.
This continues to be come in.
Recently named string. I'd like to take this opportunity to thank the governors and the hard-working staff for their leadership and commitment to help ensure that our customers can access the Cannabis products. They have come to rely on without interruption during this difficult time. We will continue to take a leadership role and behalf of generally and the Cannabis industry working closely with The Regulators in all the states were both operate over the last five years. We have developed close relationships with our customers by listening to their needs and delivering products and fundamentally changed their lives for the better the large part of our customer base remains medical cannabis patients, which continues to grow during this difficult time. We have seen increased demand for cannabis creating a need for Innovative and Creative Solutions from cannabis dispensary to adapt to the new restrictions that are in place related to the coronavirus situation. We are doing everything in our power to ensure the continued to receive the highest quality products with a dog.
Amount of risk possible. We would like to thank our patients and customers for their continued support and loyal patronage. Lastly. I'm confident that we have the resources and Leadership the exactly navigate that near-term challenges presented by coronavirus emerging even stronger and better positions. Our company has differentiated Itself by embracing a discipline vertical integration strategy, executing an aggressive yet focused acquisition plan and delivering operational excellence accurately. We are deeply committed to Quality and transparency home continue to create Innovative new products for our customers.
Well, the coronavirus is created concern and disruption in our daily lives and put significant pressure on the capital markets and Chip prices the state of our business and underlying business fundamentals remain strong. Our focus in the immediate term is to ensure that we can continue to operate anyway that mitigates and minimizes the risk to our employees and our patients and customers all over the long-term. We will continue to focus on execution and we remain confident that we are building a company that will deliver strong words returns for our shareholders. Now, I would like to address our balance sheet pure leaf is the strongest and most well-capitalized business in the US industry. Thanks to our timeline on diluted that deal. We have more than sufficient cash and execute on all our growth plans and Acquisitions and 20 20. In addition. We have one of the strongest shareholder basis in the industry this group which includes me will always support phone number.
Purely and it's necessary to provide additional Capital to participate in any attractive opportunities that emerge in the marketplace pure leaf has grown rapidly to become the largest cannabis provider in the United States because we have committed Keisha we have committed key shareholders recognize the enormous opportunity that lays ahead as a group. We stand committed to providing up to a hundred million of additional liquidity wage should high-return Acquisitions or projects present themselves, the transactions we announce this month in Colorado and Connecticut are examples of our continued commitment to finding growth assets that augment our existing portfolio bluekudu a producer premium cannabis chocolates and gummies gives us any manufacturer platform to further build the select brand and Colorado arrow is the largest dispensary training Connecticut locations in Hartford Milford and Stanford. We are excited to introduce select to the mature.
But robust Colorado market and we have already seen it strong reception from the Southern Colorado consumers coming vertical in Connecticut Market, lets us reach customers directly with our product offerings.
And helps us achieve maximum operating leverage and a leadership position in another medical State clearly has consistently been acquiring and developing an unmatched collection of assets and in calendar June 2019 alone. We deployed over ninety six million of capital into the maintenance and expansion of our operations. These Investments have been critical to our organic growth strategy and now he's assets are poised for growth and significant cash flow generation this year since our public offering in October 2018. We have successfully closed on an integrated 11 business days, including select which collectively represents sixteen dispensaries, six cultivation sites and fifteen processing sites these Acquisitions and meaningfully expanded our home and made us more vertically integrated in key states such as Arizona, California, Oregon, Maryland and Nevada as we demonstrate The Leverage inherent in the business.
Reflecting upon 2019. I am pleased with the progress of the company made during a challenging year which included The Vape crisis and if your regulatory delays as we work done expanding access in New Jersey as well as existing markets, we have thoughtfully expanded further and faster than almost any cannabis company in the world more importantly we have begun to realize the food for Investments. Most of our markets are now generating operating cash flow and we have four states already achieving fifty million plus and annualized revenue run rates. We are at on a market-leading position in nine states and it is our goal to be number one in each of our state's of operation overtime securely. If we have a national footprint a strong leadership position with a significant scale in most of our markets this growth was directly reflected in the near tripling of managed revenues 251 million in 2019 and marking her first full year of birth.
Adjusted ebitda reaching over $26 million as such we expect 2020.
To be yet, another year of growth for purely. In fact quarter. One of 2020 is shaping up to be a record quarter. We have set in place. He organic growth initiatives as well as of recently announced Acquisitions for 2020 that said while demanding quarter one was increasing increased notably as we look on two twenty20. We will be monitoring this family environment closely as well as the overall economic health of the US consumer 2820 strategic plans are supported by an outstanding management team to help achieve our business goals home key is continuing to provide customers with outstanding service quality products as well as his Superior customer dispensary experienced. This is a truly unique and dynamic sector wage demand far outstrip Supply and almost every Market in which we operate we continue to work on the closing of the Grassroots transaction having cleared HSR we have submitted documents.
With the various State Regulators for review and are working to secure final approvals while coronavirus service market conditions have created some timing uncertainty based on availability of Reagan of time both purely and Grassroots remain committed to closing the transaction. We are also working on converting the non for profit entities in Maine and New Jersey too long to for profit and have submitted necessary documentation with the state Regulators for review and are working to secure final approvals. The resulting change of ownership will allow for the consolidation of like a New Jersey in our financials. Thereby eliminating the need to report manage revenue and simplifying financial reporting estimating. The timing of approvals has recently become more challenging with a staffing levels at the various state agencies and Regulators as their short-term priorities shipped to the coronavirus concerns as such we believe the best way to view our business and then you your term is dead.
Revenue basis this one
Food results from pure leaf and select from when it was officially quiet on February first meal will discuss our forward Outlook in more detail in his section. I want our investors. May I continue to be heavily involved in truly giving my large a long-term investment time Horizon. I the board and the management remained firmly focused on and committed to a gym and shareholder value. We are focused on maintaining a disciplined Capital allocation strategy, which limited Capital Investments to only high potential return projects, which are additive to are already dead position in the US cannabis Market as part of our long-term commitment to shareholder value in January. We insure the certain key shareholders representing 326 million shares a game ended and extended lock up this new lock up allows for a more orderly unlock of no more than 5% or an average of approximately 17.2 million shares per quarter beginning wage.
March 31st 2020 critically, I and several other key shareholders representing 71% of these lectures have no intention of selling a single share during this important phase of high growth development. I have one. I'll turn the call over to Joe Lessard.
Thanks for us in the comments on Boris. I would like to recognize our employees for their unwavering commitment to our mission as well. As our management team for their leadership navigating and adapting to the bank revolving environment during these extraordinary times. I'm reminded how essential our business is to the lives of our customers and we are dedicated to meeting their needs. I would also like to thank our customers across the country for their continued support of relief. Our leadership team is monitoring and flexibly managing through coronavirus related actions on a daily basis. We are impact new procedures and practices in coordination with Regulators so that we can achieve our mission to fulfill the needs of our customers.
Given the nature of our business. We already have a strong culture of strict sanitation protocols and all our facilities. We have further enhanced our sanitation protocol frequency with standards that go well beyond wage regulations, including more frequent sanitation and enhanced use of protective equipment including gloves and masks as this Chris Crisis evolved. We are adjusting with it so we can make sure continuity of Supply as well as service for our customers.
We are confident. We will continue to manage our company effectively to the duration of this crisis with the support of regulators State leadership and are dedicated employee base.
His boss mentioned we have been deemed essential service in almost every state we operate and we have taken steps to protect our company during this crisis. We will continue to work in close collaboration with the regulator as well as state and local governments to fulfill our mission of improving the lives of our customers. We are implementing additional expedited hiring is need on our facilities. We are continuing with our construction projects to help us meet higher demand. Our supply chain is strong. We have equipment packaging and Grow Supplies for a 90-day period and continue to collaborate with supplies editors on Creative Solutions for future months.
We are adjusting.
No dispensary schedule to accommodate increased demand and prioritizing medical customers most vulnerable to coronavirus including dedicated senior hours.
We are enforcing social distancing increasing sanitation and hygiene measures and utilizing technology to minimize contact. Additionally. We are helping to protect the health and well-being of our customers and employees by working to employ curbside delivery mobile pre-ordering Express pickup and a new waitlist ordering technology app. It is important to note that many of the unique and describe our knowledge. He's will become a permanent part of our business are banking operations and cash pick-up have been uninterrupted.
Leadership during times of adversity is a true test of a company strength and I am proud to say that our management teams across the country are stepping up to the challenge. We took steps to enhance our bench strength and it's paying off recent additions include Joubert president of currently holding who joined in December on February 1st. We announced as part of the closing of that track actually enhance the management team with the addition of Cameron Forney as president of Select and Jason White and the newly-created role of Chief marketing officer at that time. He'll Davidson was promoted to Chief Operating Officer and Michael carlotti receiving Financial executive joined his care release new CFO.
Last week Mark Russ joined a senior Vice President of Sales to oversee national sales of all curly friends.
Our expanded management team has brought an unmatched level of depth and experience within the Cannabis industry that unique skills are being leveraged on a daily basis to manage through this crisis all while developing the business off the ground.
2019 was a banner year for currently. We announced to transfer of transactions and select and Grassroots. We we acquired additional operating assets and licenses that more than dead and grow our customer base by 366%
We open our first adult use dispensary in Massachusetts and continue to prudently invest in our capital and key markets.
The fourth quarter was a record quarter for the company as we delivered solid sequential growth achieved record management total revenues as well as the highest adjusted even in company history.
We continue to focus on developing operations and key markets and have already begun to integrate select. I am highly encouraged by the continued growth of our business which continues to scale each quarter.
For fiscal year 2019 we generated over $26 of adjusted ebitda demonstrating the operating leverage that exist in our business.
We were pleased with the progress. We made a 2019 and we believe the earnings power of our operational asset-based is just beginning to show its potential.
We were awarded new licenses and important limited license medical markets and Utah. We are provisionally awarded a retail and processing license and in Pennsylvania. We were recently awarded one of the first seven practical registrant licenses that will allow us to grow process and distribute medical cannabis through six stores. We look forward to working with the state of Utah and the state of Pennsylvania as well as a practical part is in Pennsylvania to provide the highest quality care to customers.
Together We Believe currently is the best position company they take advantage of the fast growing cannabis opportunity in the United States as our operations continue to scale these states and not self-supporting and generating increasing amount of operating cash flow as such we remained friendly focus on operational excellence to drive both top and bottom line results in 2020.
Turning to a recap of fourth-quarter operation. I would now like to review our sitting of your progress in key States.
In Florida, we have been designated as an essential service to continue to serve patients who are free Statewide delivery service at our stores.
Each store we offer Express pick up where patients can order online receive notification when the order is ready then pick up their order at the store won't be once. It's ready for a quick and seamless experience. We also offer drive-through service at multiple locations and I prioritize senior citizen hour during the first hour of operations each day.
Our two production facilities continue to operate on schedule and we've been able to secure approval for over 40 temporary workers to ensure we will continue to regularly Harvest and manufacturing jobs run patient.
We continue to see growth in our business in the fourth quarter, but remain product constrained as we work to catch up our supply chain to the robust flower demand that exists in the market recently our cultivation a series have been able to consistently increase power supply driving what we expect to be a record month for our Florida business in March by this summer. We expect our supply chain will be able to support a larger store, We have 11:00 new stores in various stages of development and expect to finish the year with a total of 40 stores open.
With this increased cultivation capacity and new wave of stores directly forever presence and every major population centers, throughout, Florida.
With over 320,000 active registered patients in this state and over 10,000 patients a month registering for the program remains one of the fastest growing medical cannabis markets in the country having nearly double the 2019.
We are anxiously awaiting the regulations on Edibles and look forward to bringing you a whole new class of products in the market in 2020 and soon as I've shown a strong demand for different form factors in different products and off accordingly. We were happy to see the legislation to limit THC concentrations recently defeated.
In Massachusetts medical cannabis has it been designated as an essential service and we continue to serve patients that are two medical stores and hand over and Oxford where we also offer Express pick up and they prioritize senior citizen hour each day while we are disappointed that Massachusetts is now the first and only state that designates license adult use dispensaries is non-essential took us to pause adult you sales for two weeks. They continue to fight for an essential Services designation for don't use. Meanwhile, our Webster production facility is operating on schedule with regular service.
parts
The current change an adult use in January. We had opened our second adult use dispensary and the first and Cape Cod and Provincetown and in March open a third adult you suspensory and we're featuring a new enhanced or design offering a more elevated retail experience.
Coupled with our dispensary in Oxford the initial results from Massachusetts adult use locations was promising we expect these new location or position us. Well for when these short-term virus remaining the East restrictions are lifted, we still expect the overall Market to grow dramatically this year and we continue to build out another fifty thousand square feet of capacity of Massachusetts to fully read maximum potential of our business.
We continue to work with Regulators to close our transaction with alternative therapies Group, which for now has been included in manage Revenue, but ultimately will move to wholesale Revenue once we closed on the acquisition of a wage cultivation and processing assets. Needless to say, we remain optimistic about the overall prospects of the adult youth Market in 2020.
In New Jersey are dispensary. The largest on the East Coast has been designated as an essential service and we continue to serve patients at our 12,000 square-foot store in Belmar where we offer a prioritize senior citizen our at the beginning of each day.
At the store. We have also implemented it reservation management app. So patients can order online drive to the store and receive a text message when they say turn to come in and Shop ensuring a one-on-one interaction and eliminating line by allowing patients to see if we wait for their orders in the confines of their cars do this end. We quickly work with local officials to secure over 50 Edition nearby parking spots to better service The increased demand.
New Jersey once again produced record quarterly results during the quarter we continue to wholesale product and we Remain the largest provided by revenue and market share of the state.
The team also continue to operate on schedule and even secured final state and local approval late last week to begin cultivation activities and a 7200 square-foot supplemental office building on the Delmar campus the New Jersey Department of Health also recently approved expedited highly regulations, which gives us confidence. We will be able to staff our facility as needed for the receiver future so we can continue to meet the needs of our patients.
We continue to monitor the progress of potential adult use legislation, which is on the 2020 ballot and given recent polling seems to have strong support in addition the state continues to improve policies around medical cannabis to benefit residents of the state.
And anticipation of increased demand. We have secured a property in central, New Jersey with an existing one hundred thousand square foot Warehouse + 68 acres of land which we expected divorce later this year.
We're also working hard to secure approvals necessary to open additional dispensaries and to capture the growing demand of the New Jersey Market lastly. We are actively working through the process of converting our operation to a for-profit entity and we were working closely with the state of New Jersey to complete that process.
Moving out to New York we have been designated as an essential service and continue to serve patients.
Barely for means one of only ten licensed operators in the state with four stores where we offer a prioritized senior hour at the beginning of each day.
We've also implemented a reservation management app and curbside pickup. So patients can order ahead received confirmation that the order is ready then pick up their order from a dispensary associate at the door off or curb side of the story. Once it's ready. We also offer delivery services at certain locations. Additionally. We are offering virtual patient consultations, and we continue to operate on schedule a Ravina production facility.
In the fourth quarter our Ford location, which you have 22% market share double their fair share according to state tax data. We look forward to continuing to build momentum as the program factors expand. In fact are introducing a flower pot to the market beginning of September that you strong double-digit growth. Well in excess of market growth during the fourth quarter back in February, we launched in the market the first chewable gel product in the state of New York.
But legislative debate around adult use has been kick-started once again in the new year with the governor indicated. He's supportive of introducing legislation related to adult used cannabis. Whether drug use comes to fruition or not. We remain well-positioned to service the needs of our medical patients and this date and adult use custom or should legislation be enacted.
In Maryland, we continue to serve patients at our stores and have launched a reservation management app and express pick up at each location with curbside pickup available as well. We also offer a prioritize senior citizens out at the beginning of each day and our operating on schedule at our production facility in Frederick Regulators in Maryland recently approved expedited hiring regulations, which gives us confidence. We will be able to post office as needed.
As one of the only growers in the state operating for dispensaries, we continue to optimize our business as we were up up. We believe our ability to drive increased and reliable repeat traffic to our dispensary will allow us to continue to achieve higher wallet share than our peers.
Construction on our new processing and Manufacturing operation in Frederick was completed and we continue to work with Regulators on incorporating Edibles production, Maryland is a terrific Market. We are optimistic vertical platform an additional cultivation capacity plan to bring online will drive significant grow helping meet the man should have don't use come to Maryland.
Moving on to Connecticut. We have been designated as an essential service and continued to operate on schedule out of our Simsbury production facility work has also been completed on our page fifty thousand square foot cultivation facility this dovetails with our recently announced acquisition of Arrow Alternative Care, which will complete our vertical integration in the state office will be immediately accretive to our margins in the state as we integrate our large cultivation and processing operations with arrows outstanding dispensary footprint on the legislative front wage. I believe that we will see growing bipartisan support for adult use legislation mirroring the public sentiment. We are optimistic that adults use cannabis will be a reality in Connecticut within the next 24 months.
Inmate we have a designated as an essential service and continue to operate our to dispense.
Please which offer a priority hour for senior citizens at the beginning of each day.
We are also offering the express pickup for patience while continuing to operate on schedule at our to production facilities.
We continue to provide Management Services to two of the eight existing license holders.
We are also working on the process of converting the two nonprofit entities to for-profit.
The governor signed legislation in June which are expected to begin this spring.
Paralegal use its position and name to be a leader in this new program remain strong support for adult cannabis and robust tourist Market bode well for growth in 2020.
We intend to open for don't use retail locations and have retail real estate and development and maximize our footprint early in the program.
In Ohio, we have been designated as an essential service and look forward to receiving final State approval for our recently completed Johnstown cultivation and processing facility.
The facility include the maximum allowable cultivation of twenty five thousand square feet plus processing square footage that will allow us to deliver nearly 12,000 pounds of flour bringing a full breadth of products from Ohio's medical cannabis industry is still very nascent and we're excited about this growth opportunity as Ohio is the nation's most popular state with nearly twelve million records.
In Pennsylvania, we were awarded one of the first seven clinical registrant licenses and the only one by a multi-state operator allowing us to open 6 new dispensaries and 50,000 square or cultivation capacity in the state.
This award coupled with our pending Grassroots acquisition. We make your lease a leader and one of the fastest growing medical markets in the nation.
In California, we have been designated as an essential service by the state as well as the local municipalities in which we operate allowing us to harvest on schedule at our cultivation facility in Salinas home and you know manufacturing targets at the select processing facility in Sacramento in general. This Market is one of the most challenged in the country with its robust Black Market unfavorable taxes and struggling dispensary operation. We are addressing this Market in a sober thoughtful manner that recognizes that unique challenges operational excellence discipline pricing and tight receivables management will be our priorities as we expand the select family of products to include gummies live resin and pictures.
In Nevada, we have been designated as an essential service though. The state has ordered the closure of all dispensaries and only delivery options are currently available at this point. We plan to launch delivery. This may well continue to operate on the plan that had our three production facilities in the state.
We closed on the acquisition of Acres cultivation in late 2019 and are working to increase the productivity of those assets allowing us to backward integrate select into our supply chain A Renewed emphasis on this whole sale market with the upcoming launch of new select products including gummies live. Resin and tinctures will allow us to achieve the full potential of the brand.
in Arizona
We have been designated as an essential service and continue to serve patients at our age stores where we continue to see strong Revenue growth. We now offer Express pick up at all locations and delivery service is Auto One location. We have also implemented a priority senior citizens and our beginning of each day and continue to operate on schedule and our production facilities.
During the fourth quarter. We doubled our canopy and our one hundred thousand square foot facility in Holbrook with a focus on improving gross margins and free cash flow through increase vertical integration Thursday on a continues to be one of the largest cannabis markets in the US with over two hundred twenty thousand registered patient a full 3% of the state's population, and we continue to believe State residents will vote to approve adult you suck.
Select is already reading big cartridge bad in Arizona. We plan to further integrate select in this market while replicating this profitable business model. In other region new products, including a live resin and tinctures will extend brown light up helping us excite customers with win-win additional market share.
in Oregon
Central Business and continue to operate on production facility and dispensary which offers a prioritized senior citizens our at the beginning of each day. We are focused on backward integrating select into our sales operations with 37,000 square feet of cultivation select Remains, the number one day brand with around 15% market share and are committed to Growing the brand profitability in a way that continues to earn customer and patient trust and select home state in Colorado. We recently announced the acquisition of blue Kudo a producer of cannabis chocolates baked goods and got that utilize high quality ingredients upon closed currently for obtain an eight thousand five hundred square foot efficient processing facility that will support the company's plant expansion pack of recently acquired select brand and the, Colorado.
Select was successfully launched there in January and review this Market as an attractive opportunity to build brand identity and gain market share through a robust dispensary Market.
In summary, I am pleased with our progress on positioning as he moved through 2020 with the closing of Select and the pending Acquisitions of Grassroots. We are poised to deliver strong organic growth and artistic business as well as the required except we're executing on all fronts by prudently deploying capital and key markets. This is allowing us to grow our cultivation and processing sales and marketing and Innovative and proprietary to deliver products that resonate with both our patients and lifestyle customers. We saw the fruits of this investment pay off in several key States as we exited 2018 and firmly believe that our plan investments in 2020 many events will be completed in the second half of 2020 will yield strong growth both on the top and bottom line now, I'll turn the call over to them to review our financial.
Q Joe and good afternoon everyone. Once again, we posted record results for the quarter as we remain focused on driving strong top and bottom line growth that we believe will drive that long term value creation for our shareholders in the fourth quarter. We not only posted both record total and manage revenues, but also posted our third consecutive quarter of record positive adjusted ebitda. Our broad Geographic base and product diversity allowed us to deliver these results despite the negative news cycle around vaping juice and a ban on date sales in Massachusetts between September 24th and mid-December.
Fourth-quarter results were dreaded by strength in Arizona, Florida, Nevada, New Jersey and New York as we continue to see strong growth in retail operations wage these key States.
Vertical integration remains a key component to our strategy and we continue to increase cultivation capacity in each of the states of operation in those markets where we continue to see expansion of Med programs and or ongoing discussions around legalizing adult-use consumption such as Arizona, Florida, New Jersey and New York as mentioned in previous calls while we expect our gross margin from Cannabis sales to Trend upward it will continue to fluctuate quarter-to-quarter based on our investment cycle and processing and cultivation as we continue to expand and bring new facilities online.
Over time we expect this fluctuation to moderate especially in the second half of 2020 as our investment continue to ramp and the capital intensity of our investments begin to moderate.
as a reminder manage Revenue includes revenues associated with the not-for-profit entities in Maine and New Jersey and
as we convert the not-for-profit entities to for-profit entities in New Jersey in Maine and close on the transaction. This will ultimately negate the need to report managed Revenue as they will be included in total revenue in our IFRS financial statements.
This will simplify comparisons of our reported results to consensus results, which vary by Service as some tabulate total revenue instead of managed Revenue.
We closed out 2019 reporting managed revenue of 251 million for the year representing 186% growth over 2018 in the fourth quarter Revenue more than doubled over last year to record 82.1 million and was that 12% quarter-over-quarter?
Perform a revenues for the quarter totaled 131.3 million.
Form of growth was driven by top-line Revenue at curaleaf and Grassroots offset somewhat by select efforts to better manage customer accounts and new product introductions month. It will position the combined entity for long-term profitable Revenue growth.
Total revenue for the fourth quarter of 2019 was a record 75.5 million twenty 2% demonstrating the strong growth that exists in our Core Business.
A key Focus for 2019 was delivering positive adjusted ebitda. We ended the year with approximately 26 million in adjusted ebitda, including 13.8 million in the same quarter alone compared to a loss of 1.4 million for the fourth quarter of 2018.
The increase year-over-year was primarily due to scaling of operations and higher gross margins across several States notably in Massachusetts in Florida offset somewhat by connect you to investments in key markets where we are expanding capacity to meet demand.
Our retail and wholesale Revenue more than doubled to fifty Seven point seven million during the quarter compared to twenty three point seven million in the fourth quarter of the previous year.
Management fee income more than doubled to 6.6 million in the quarter versus the copper bowl prior year.
The increase in retail and wholesale Revenue was primarily due to organic growth in Arizona and Florida additionally wholesale Revenue increased in Massachusetts as a result of a number of adults dispensaries increasing.
We grew our retail footprint 251 dispensaries as of December 31st, 2019 up from $36 in the year-ago. As of today, we operate fifty-four countries, which does not include additional dispensaries that are currently operated by pending Acquisitions awaiting regulatory approval.
STNA for the quarter was 36.2 million compared to twenty five point eight million in the prior year. And thirty three point five million in the prior quarter.
Adjusted for one-time charges sg&a for the quarter was 27.9 Million compared to twenty five point seven million in the sequential quarter an increase of 2.2 million months or 9%
As we continue to scale we expect our sg&a to decline as a percentage of total revenue resulting in significant operating Leverage.
During the quarter income tax expense was driven by a return to provision adjustment for the 2018 income tax returns and increased deferred tax expense associated with the increase in biological assets.
Yeah, I didn't come or net loss attributable to curaleaf Holdings for the fourth quarter of 2019 was 27.2 Million compared to net loss of 16.5 million in the fourth quarter of 2018.
given
The number of non-cash items in our reported net loss including 12.7 million of depreciation and amortization and 5.7 million of share-based compensation package along with the change in fair value of biological assets and 5.5 million, which total 23.9 million for the quarter including or as well as dead three million in one time charges primarily related to increased business development Acquisitions and financing related activities. We Believe adjusted either dies the best measure of performance. We have provided a Reconciliation of net loss to adjusted ebitda in our press release this afternoon adjusted ebitda for the fourth quarter 2019 again, a 13.8 million an increase of 32% over the third quarter.
Moving on to the balance sheet as of December 31st 2019. We had forty three point five million in cash which did not reflect the net proceeds from the senior staff or term loan debt of 185.7 million. We closed in January.
With the results announced today our third consecutive quarter of positive adjusted ebitda. We remain confident in our financial position and believe we have ample cash on hand to fund our own business for future growth.
Furthermore several of our state's continue to generate operating cash flow which paves the way towards generating significant organic cash flow.
Finally as Boris noted, we have liquidity on standby for Marquee shareholders to take advantage of current market conditions.
But we diluted shares outstanding at the end of the quarter or four hundred sixty eight point four million. Please note that we issued approximately 47.5 million shares to select share home upon the closing of the transaction in February 2020.
With respect to guidance first, we are all in Uncharted Territory as a result of the coronavirus outbreak thus far the Corona virus outbreak has not materially impact our business and we continue to maintain continuity of our operations with no disruptions and cultivation and processing as you heard from Joe given our retail operations or predominately medically focused. We have been designated as essential services in most of the states in which we operate.
in fact, we have seen a considerable uptick in the demand for our products demonstrating the durability of consumer use
given uncertainty around the timing of the close with respect to Grassroots. We will no longer guide the pro forma revenues in 2020 and believe managed Revenue which includes both curaleaf and select accurately reflects the current state of our business.
As such we expect to report another quarter of managed revenue for the first quarter of 2020 with revenues which will include two months a select to be at least $100 a month.
Given uncertainty around the longevity of the outbreak at this time. We think it would not be prudent for us to issue guidance for the remainder of 2020. We will revisit guidance Odd Future needs calls, including our first quarter 2020 results call in May when there is more visibility about any longer-term impacts that coronavirus may have on our business the economy in general and the consumer
In closing. I'd like to welcome the select team including Cameron and Jason and our new president Joe Barron to the relief team. I would also like to thank Morning Joe and the board for their confidence and moving me to the role of Chief Operating Officer and welcome our new Chief Financial Officer Mike carlotti.
I'm truly excited to be working with this incredible team 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 * then 1 on your touchtone phone. If you are using a speaker phone, please pick up your handset before pressing the keys to withdraw your question, please press star then to our first question today will come from Vivian azer with Calvin, please go ahead.
Hi, thank you. Good afternoon. So encouraging that somebody of your designated as a control to the communities and it seems like you guys have put some really really good protocols in place for markets where delivery had already been available. Can you guys talk a little bit about any kind of shift that you're seeing a terms of consumer purchasing Behavior? Like how how much of that revenue is moving to delivery in a way from what district we would have been on-premise Thanks. Hey Vivian, this is Joe. So in Florida and in New York, we offer delivery and we are definitely seeing increased demand for that service. And so we're looking to add more vehicles to take advantage of the opportunity, but I would still say the vast majority of our sales are happening at our stores. Although they may not be happening in our stores. We as you heard in the call where it really kind of re-imagining the retail experience and conjunction with Regulators, so that wage
Consumers can do a lot of things that they couldn't do before like order online and pick up at the curb and I think that you know, actually that's proving to be a pretty efficient system that consumers are showing a preference for that. So I thought maybe something that's part of our future protocols even after we get past the coronavirus but you know, this is a situation that's evolving rapidly. Um, you know, it's been like 2 weeks, but it feels like a lifetime so, you know will continue to evolve but you know where we can we're going to continue to allow people to get their products in any way that that's possible for example in Nevada. We're launching a delivery service this week as well and we'll start to tell a customer through delivery. So that's an example of how we're evolving to, you know, meet our customers whatever. However we can.
Yeah, that's great. You guys are clearly moving quickly in response.
So that's it's great to see I'll just ask one more and get back into the Q has there been any discussions with regulators and I'm thinking about Florida in particular here on relaxing some of the rules around whether wholesale is permissible or not. You know, it doesn't sound maybe I should ask the question that you guys have had any disruption in your supply chain from covid-19.
Anything is on the table The Regulators are shown in an amazing willingness to look at our business through a new lens and try to support the industry anywhere. They can you know at the moment there's no plans for sailing in Florida, but I would just say that the critical point is that we're operating were essential and The Regulators are working with us so that we can adapt our business and and you know meet the demand so that that general just bodes well for our company overall.
Understood. Thank you very much. Thank you Vivian.
Our next question will come from Chrysler with a capital please go ahead. Yeah. Hi, good afternoon. And thank you for taking my questions here. I just wanted to follow up with respect to you and we've seen a number of different reports of of record sales being set in the past couple of weeks and you mentioned that the the robustness of the customer so far. I was just wondering if she were any metrics or or further color you could provide on on how that's looked over the past couple of weeks here. I know you mentioned expecting at least manage Revenue about a hundred million dollars, but trying to get a grip Saint. Yeah that is that is is organic growth versus how much is coming in on the acquisition side? Thank you. Yeah. Thanks Grandma. The one thing I'll say is that I think it's true frankly across the industry that you know, we're seeing an uptick in demand for cannabis, you know, I'll point you that one specific data point which is Florida, you know, that publishes weekly data, so, you know, yep.
Speak in Florida. We we just spend you know, 13 million milligrams of oil and almost three thousand ounces, which was a record for curaleaf, and we've really ramped up our production, Florida to keep putting out that type of product. And so I think that you'll see you'll continue to see an increased demand from consumers as we go through the year.
And and Graham, let me let me be more specific on that for you on that answer. The fact is in a couple of weeks. We'll probably have better data because it's only been two weeks but there's no question that growth accelerated fairly dramatically across the board and all of our states and I would say that sales are probably up, you know, someone region of 20% above what we project expected and you know, the the issues though. However is we the reason we we're not guiding at the moment is because you know, every state is different certain states have limits. So if you've reached that limit obviously people are buying so they don't have to go out to the store regularly so that they try to make one visit so they're trying to buy more but there are limits so then they do have to come back we're working with the states and some states to leave those limits. So it's it's sort of ongoing and it's difficult to predict that but there's no question which has been a real surprise. I think to all of us that cannabis is is dead.
Very much a product in demand.
And people, you know flooded to the stores to get that product at the time that the crisis started and we'll see how it progresses over the year and that's why we decided not to guide at this point in time because we just don't know how the black one how the coronavirus will continue to develop over the next several months. We're hoping obviously that that it will Peak and start to come off and we've heard positive news from the president that he's thinking about happening the economy. So more after Easter, but you know, it's very difficult to tell at this point in time, but so far the sales have been robust.
Okay, I appreciate the color. And and thank you. I you know, I understand it's a it's a fluid and unprecedented situation. So that was helpful. If I could ask one more question here with respect to the Nevada Market. I know you guys adopted quickly. I'm going to be launching the delivery this week given the recent closing of the Acres transaction. I was wondering with respect to that market and and the closure of casinos and and cancellation of off various conferences and things like that. Do you have any color with respect to how much of the the customers in that state were based on tourism or or travel personal or or business or otherwise versus home or more in State Court customers by yeah Graham. It's it's quite interesting in Nevada. Our strategy has been maybe a little bit different than some some operators and that we rehearse Gear 2 operations towards the local market and I think that's proving to be a you know, a benefit as the tourism industry drives up in Nevada, you know, but we recognize the while ago was that, you know customer acquisition coughing.
Incredibly high and Nevada. And the reality is you might get that customer, you know once a year maybe less than that. So we have a very strong local presence in our stores. And so I think that that's our business in particular we should be able to you know, maintain a good trajectory, but there's no question over all the lack of Tourism and and the bottom of a an impact on the market. It's hard to predict the exact same without knowing the duration of time, but it should be you know, it's clearly going to be significant.
Understood. Okay. Thank you very much.
Our next question will come from that bottom line with canaccord, please go ahead. Hi everyone. Thanks for taking our questions. And I hope you and your families are all doing. Well. How may times congrats on a on a strong 2019 overall? I just have a couple questions on some of the nuances within the quarter. Do you had mentioned, you know strong growth in in sort of York or purely business as well as as Grassroots offset by select. It does seem that overall the pro forma bridge to that $131 million is down about five million quarter-over-quarter. So I'm assuming that's on a net net all because of Select so off-color you can give as to how that business line is tracking into twenty-twenty now given some of the the challenges last year was sleeping.
Yeah, I mean, I'll try to address that and Neil can chime in with other facts. You know, what I'll say about select is that it's pretty obvious that even though it's the the leading consumer brand new cannabis bought last year. It was a of a product right and and they they they ran into significant headwinds in California in particular and and and suddenly the markets with the big crisis. The good news is twofold walk past that and we're starting to see Vape sales. Take back up. The other thing we're doing is we're expanding the select family of products and the gummies pictures and other form factors. And so I think that the the the the the category and that brand in particular will be more immune to shocks like another big crisis. So I think generally we're feeling like will get select back on the upswing here in 20 20, and and I extend the brand with new product offerings.
Okay, great. And then within that sort of minimum of a hundred million you have for three or more revenues, obviously, there's going to be an extra additional.
Month of selecting there, but it is a a good proportion of that accelerated growth again coming from select or is it more disaggregated in that in your whole portfolio? Yeah, a lot of a lot of girls were seeing in this quarter is organic, you know, Carol Leaf growth. We're we're as Boris said we're seeing a a a big demand from consumers for our products and you know, we've made significant Investments wage 2019 that are really paying dividends even in q1 and we'll pay for the dividends this year. So, you know, we've done a lot of work in capex and building capacity that that's coming to fruition as I mentioned earlier. We're 6 to see if very significant flower Harvest coming out of Florida and so as we can we can bring more products to the market. We should see a lot of organic growth and and I on the selected to I just I just like to say that we've owned this business now for you know, a little bit over a month and and we are making a lot of changes in the business one. We're integrating it into the lease in for Thurs.
Canceled to bring down costs particularly on the cultivation side and the processing side. We're also bringing in a tremendous amount of discipline on pricing and on accounts receivable things that you know, maybe weren't that great at select before relief. And so you're going to start seeing acceleration and Carol in in select. I think the last week of March going to be a very big week. We've launched new products for select in California and they'll be coming in Nevada, Arizona and Colorado and Michigan and Maryland back in April. We've got a whole Suite of of new products launching in April 4th select as well. So we are really focusing. We've had the ground running very very fast. We we put new management in charge almost immediately with Mark Russ coming over to the company to help us in in managing the wholesale business before that. He ran, you know, um Red Bull so he's a guy who really knows how to wholesale so well,
Seen a lot of changes over select and we think that the company will do very very well. And I think we'll start to see accelerated growth in the second quarter of Select. I think as Joe said the first quarter is largely going to be organic up securely.
Great. I appreciate that. And if I could just slip one more quick question on covet and I know you talked about that in good death already. But up here in Canada. There. There's a bit of the federal government is put in place for a lot of employees that if you choose to stay at home and and and choose to self isolate you're protected from employment standpoint regardless, if you're in in in essential services or not, so there any states where you guys are concerned that as this issue progresses, you know, I understand there's a lot of unknown that it will be progressively harder to stop your cultivation production, or is that something in most of your material markets? That doesn't seem to be a off turn off the timer?
No matter in fact, I mean as I said earlier, we're working very closely with regulators and and most markets. They've approved expedited hiring so, you know accelerated background checks and you know, what else this morning that we're hiring, you know across our supply chain. So I think that will be able to continue to find manpower to keep to keep everything moving along so far all of our production facilities are operating on schedule and we've got a really good supply chain. So, you know, I think at the moment we're feeling pretty good about business continuity.
Thank you for helpful. Thanks guys.
Our next question will come from Robert Fegan with GMP Securities, please go ahead.
Thanks for taking my questions guys and congrats on a on a great quarter there.
Some of the questions I have asked I wanted to ask were asked already. But you know, I thought maybe we could talk a little bit about you know, the trend of improving operating leverage that you guys have them delivered on the past few quarters and you know given meals comments around kind of like the Apex of caps capex spending likely going to occur somewhere mid-year. How should I actually think about your you know, your operating leverage benefits going forward into that topic cycle and also in light of some of the integration with select and and potentially Grassroots, you know middle of the year.
Yeah, I'd say a couple of things on that first and foremost. I think we've proven that we're pretty prudent in managing our sg&a and particularly expenses our sg&a quarter-on-quarter grew about 2 million dollars big. What are the things were obviously focused on is the one-time expenses. A lot of those were associated with the month deals we were doing so those should come down. We'll have some third-party integration costs. But but over time the the one time or should come down with respect to Thursday on the margin side, you know, we are building out capacity. So as you can imagine while we're building out capacity, we've got a higher we've got direct cost coming in off of that does have an impact on our our overall gross margins prior to commissioning facilities. For example, Ohio. We're working on our approval there but Thursday
That took a little bit of drag on margins California were building capacity, Florida. We're building capacity and picked up on my my comment exactly that we take toward the the second half of this year that that will moderate as well as our our capex bit.
And I'd like to I'd like to add to to your comments that this is a very different situation the Canadian situation are demand far exceeds the supply available in the market. I think you took that in Pennsylvania and Illinois in in New Jersey and New York. I mean across the board in the pumpkin Massachusetts, you know, a wholesale prices retail prices are exorbitantly high and so long, you know, the fact is that you know, unlike the Canadian Market the market did not over billed early on that may mean that there are supply shortages because of that but frankly, I don't see the exact same situation developing here anytime soon where capacity will will start to be greater than than the demand that is a matter of fact, you know, we we see we're being very prudent or calculating but we're building a large indoor facilities and and Florida we're building very large facilities and New Jersey to meet recreational demand and we only make those decisions at the such time where we are very highly confident that you know wage.
That will be regulatory change in those markets or that there will be uh, the buses increases increases in demand.
By loosening of existing regulation. And so that's the way we're approaching it. We're not going out and blankets building across the country where capacity will be cut, uh a burden on us rather than what we're measuring out in state by state where we need it and we're being very measured where we build and how much Capital we allocate to that market. But because of that that will be short-term pressure on on on Monday, but obviously that will that will change very very quickly. Once we reach the peak of our of our capex which and Neil said sometime mid-year.
Great, very helpful. Thank you and maybe just a quick follow-on on that and view of the you know, sizeable liquidity position. You guys have your life any chance you can give us like a proportion that may be devoted in future to to capex versus other. Let's say I'm an initiative or other growth projects.
Yeah, Robert, we're only used capital. I mean we've got we've got a we did a lot of capex work and 2000 2019. So our capex needs are actually not terribly huge 2020. So that that allows us some flexibility to how we deploy Capital but you know as far as several weeks trying to look at the point capitals of the highest possible return and so will continue to make those decisions. I think we do that as well as anybody in the industry. And so we'll continue to let those you know that those factors inform our view of how we allocate our capital.
Okay, excellent. Thanks. And one last Quick One on Massachusetts if I could. I know you mentioned about a two-week shutdown for the recreational dispensaries. What's your what's your view on on on kind of that being, you know a reasonable timeline. Do you think that can that can extend the quite a bit longer or you know, if you know the the covin risk has not completely diminished would they allow them to reopen in with you know certain protocols social distancing but not yeah. I mean it's hard to predict a bank robber. But but I suspect the governor is going to come under a lot of pressure that decision. I think you know one thing that's interesting is if you look at the city of Denver the mayor, you know shut down Cannabis stores and and they quickly reverse course cuz it was so unpopular. So, you know, we'll see what happens. I think that you're going to see a big outcry from people that use these products and it's important to highlight that even though they're adult you store is need to leave that yep.
About two-thirds of those consumers use the products for actual medical purposes. They just haven't gone through the process of getting a card. So I think they'll be a lot of pressure to to open up the stores here pretty quickly.
Okay, sounds great. Thanks again.
Our next question will come from Erin Gray with a lion's Global Partners, please go ahead. Hi. Thanks for the question. First nice to see the continued marja attention during the quarter. Is there any color you could provide on even and how that came out on a pro-forma basis, and then as acres and select coming to the reporter numbers in the first quarter, just now. How about think about the potential margin impact particularly as we look at select on the wholesale side. Thank you.
Yeah, so on on the pro forma Eva. We don't disclose that number. I will tell you looking forward we've always discussed. So life is as having lower margins than curaleaf just given that it was a wholesaler What attracted us to the select deal was the fact that we could integrate our cultivation and use a lot of our processing technology to further enhance their margins as well as bring their products across our retail network with that obviously takes some time to do so, you'll start seeing that margin enhancement in the the back at the 2020.
Okay, great. Thank you. And and then just one second small one for me, you know just with covet and you know, the fluid situation that we're still in right now and the potential impact on new store opens at 6 to say that you know as well run the situation even if you are, you know, getting the essential designation that we might not expect those new store openings kind of come in, you know the next couple of weeks or you know, maybe months until the situation countries out and that'll be more towards the back half of the year as well.
Yeah, I would say for at least you know, I'll talk from just a construction standpoint. We're we're on track with Joe Mitch and we've got eleven stores in Florida, which is the largest state we're looking to open facilities were were on track and very stages with those eleven facilities and you know, frankly given the demands and the the patient base in Florida. I woke up and see changing the timing of the opening of those stores right now.
Okay, great. So I would also have the Florida in some states construction companies have been told to stop their work in Florida that hasn't been the case and so all of our construction team operations in in Florida continue to be developed.
All right. Great. Thanks.
Our next question will come from Matt McGinley with Needham, please go ahead.
Thank you. Mike questions on the internet comics in the present environment the commentary that you presented in the most people said have been for you know, universally positive demand over the past couple of weeks as a result of what's going on in the world. But as you stated, there's a lot of modifications to operating procedures that you've had to make to keep everyone safe. You alluded to record revenues in the first quarter, but you know curious if the flip side of that is that there could be a lot of costs that we didn't anticipate and so the flow-through will not will not be there. Just curious if my corneal have any perspective on what the incremental costs are to to operate in the in the present time.
Yeah, I would say right now. You know, we have a fixed cost in the dispensaries Joe Mitch and delivery. That's that's a fairly modest cost. I would say the one thing that that I would think about is in a lot of our dispensaries were starting to do curbside that takes a few more minutes to attend to patients but no additional cost given that we we already have the fixed cost of the dispensary.
a fairly high flow through them
Yes.
And and on the inventory, you know, we're looking at fourth quarter inventory position that the crank of the growth in the inventory in the fourth quarter was modest compared to the revenue growth, but that's three months old at this point. My question is do you have any in given the surgeon demand do you feel like you're going to have any depletion issues and and do the inventory balances? Look higher. Ugh where you said? I presently compared to what they had been in the 4th.
Yeah, I would say we're we're confident in our supply chain is it currently stands and and just by way of example in in March? We have more flour come tomorrow in in Florida than we ever have. So in in all of our markets were were highly confident in our supply chain and our vertical integration makes that rather young age.
Okay, great. Thank you. Thank you. Our next question will come from Russell Stanley Securities, please. Go ahead.
Good afternoon. Thanks for taking my questions. Congratulations on Pennsylvania and the clinical registering program. Just wondering what your your build-out plans there are and I guess how they how they how they relate to the the operations coming over with with Grassroots.
Yeah, thanks Russell, you know that that was a huge win for curaleaf and that that was been a long time in the making so we're very happy to get that award. We've we've control the 50,000 square-foot building and we have the plans ready to go. So we'll begin construction on that immediately. And we also have the ability to open up 6 stores, you know, we believe based on the current regulations that that will dovetail them a white cross streets already has they're making us one of the you know, the unquestioned leader in that market. So I think it's complimentary in that regard, you know, obviously Pennsylvania is a huge demand Market. It's one of the fastest growing markets in the country. So we're really excited about entering that market here hopefully later this year.
And if I could on New Jersey, I think you briefly spoke to a working towards approvals on on additional dispensaries. They're having your license for for for two more. Can you suck I guess any any time lines around when you might see those get opened up.
Well, we're we're actively working on to sites. We've been we've been doing that for quite a while, you know, local regulations are difficult to navigate in New Jersey, but we're hopeful that this year will be able to open those doors and reach customers in different parts of the state.
Right, and if I could add just one last question with respect to the transaction, Connecticut, you met you announced earlier today. I can provide any color on the on the purchase price and the structure in stock any detail you can help set with her.
Yeah.
Will be filing our our normal monthly report at which time we'll disclose that cuz I do too is a mix of cash and stock.
That's great. Thank you very much.
Thank you. Our next question will come from Palo Pablo with Cantor Fitzgerald, please go ahead. Thank you and good afternoon. Everyone. Look to two quick questions. Why don't I'm sorry to help again on Thursday. I mean, it's part of my mouth your run rate on select right now at 12:15 million per quarter, drowned rate compared to about 35 mm before continue. Correct me on that because I'm looking at $82 million manage Revenue in the fourth grade. You have some growth obviously organic into a first-quarter you have Acres coming in so you get at least night. So it's ten million for select, you know, two months. So 15 for the quarter if you can come in Thursday, I understand the exposure to California and pay but seems the revenues that are more than down the more than half and the second one is more related to Grassroots. I understand and certainty given covid-19 on the approval process has explained that but you know, how far does that stretch and and just remind us about how the share come would change be given what the share price is right now given that there's a part of the deal there.
That's probably about right as a share component that that's fixed and there's a part that that valuable. Thank you.
Yes, so on with respect to select I followed most of your mass. So as we mentioned in Q4 select was down quarter-over-quarter from Q3. So because of the the they crisis that was going on in in Q4 that was three months with respect to what will report for q1 that will actually be too much of actual so we have seen some picked up in the select business, but we're also in process as Joe mentioned of introducing some new products. In fact a few of those products particularly in California or watching this month and it's summer products will launch into April.
I think also I'd like to add that in the in the SEC and when we door release for the first quarter, we're going to break out retail and wholesale Revenue quite openly so you'll be able to see pure leaf and select wholesale revenues are going to be as one group and then retail revenues second group. So we will be adjusting our accounts to reflect that we have both the large wholesale business name and large retail business. And as I said, I think in the earlier call revenues will dramatically pick up on on the wholesale side over the next two quarters wage as we integrate select into the business, but there's no question that there has been a a reduction in Revenue in the fourth quarter and a little bit in the first quarter as we could integrate the business and we focus on its margins and on its receivable. So clearly has a tremendous amount of discipline on financial controls. And so we are focusing wage.
And California has been a as Joe said a difficult state from a from.
A a our perspective I either receivable curaleaf is is is is redoing the way we do business in California. We're also you know, we're negotiating with Distributors and and our stores and we're going to change the way the selected the business and therefore we're only do business with those people that can pay and pay on time. And as we spread select throughout the country off going into Colorado we're ready in Colorado were already in Michigan were already in Maryland. These are all new states that have been launched since clearly took over the select brand and so we will cause we're not going to have select a divided out as a separate business. It's part of pure leaf. However, we will divide out wholesale and Retail revenues. So the wholesale retail business lines will be took it out and our next accounting and as we do when we do the first quarter in May
Thank you. That's very helpful. And on the on the Grassroots. What do you mean? Maybe let me rephrase the question. But if you can just remind us about the mass there in terms of how they share come would change given that there's a fixed and variable component. But also if I'm back to that question and correct me if I'm wrong. I see an advantage that that transaction has been closed yet because you can do for example, Pennsylvania go to a state and apply for new license and get that business. But if you already own Grassroots, would you have been able to apply for that? I'm just trying to understand you know how that plays out in terms of the same thing with ATT, Massachusetts you have you have business there but then yep, is that does that make a difference? Thanks. So I'll I'll take the front into that question. There is a 6 share component of a hundred a hundred two point eight million shares and then there's variable share component. It's based on forty million dollars.
Yeah with respect that that the in the regulatory environment so, you know every state is unique and that it has its own set of rules and regulations and license caps. And I think it's important to say in all markets have to sit inside of those caps. And so, you know, whether we have Grassroots or not, we have to fit inside those caps in Pennsylvania. Specifically, we believe that it's complementary and and we can operate both business and that state
I've got it. Thank you.
This will conclude our question-and-answer session as well as today's conference. Thank you for attending today's presentation and you may now disconnect.
Thursday Thursday