Q1 2022 Curaleaf Holdings Inc Earnings Call
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Good afternoon, and welcome to the <unk> Holdings first quarter 2022 conference call.
All participants will be in listen only mode.
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After today's presentation there'll be an opportunity to ask questions.
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Please note this event is being recorded.
Now like to turn the conference over to Jacob Feinstein manager of Investor Relations. Please go ahead.
Afternoon, everyone and welcome to securely Holdings first quarter 2022 conference call today, we're joined by Boris Jordan Executive Chairman, Joe Lusardi Executive Vice Chairman, Joe Barron, Chief Executive Officer, Neil Davidson Interim Chief Financial Officer, and Matt Darren President of purely for US 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 envelope estimates projections plans goals forecasts and assumptions, including the successful integration of acquisitions and are subject to risks and uncertainties that could cause.
Actual results or outcomes to differ materially from those expressed in the forward looking statements on certain material factors or assumptions that were applied in drawing a conclusion or making a forecast in such statements.
These forward looking statements speak only as of the date of this conference call and should not be relied upon as predictions of future events.
We undertake no obligation to update or revise any forward looking statements, whether as a result of new information future events or otherwise, except as required by applicable law additional information about the material factors and assumptions forming the basis of the forward looking statements and risk factors can be found in the company's filings and press releases.
On SEDAR and the Canadian Securities Exchange.
During today's conference call purely cool bird to non <unk> measures that do not have any standardized meaning prescribed by EIOPA.
Adjusted EBITDA definitions of which may be found in our earnings press release. Please note that all financial information is provided in U S dollars unless otherwise indicated with that I'd like to now turn the call over to executive Chairman Boris Jordan.
Good afternoon, everyone and thank you for joining us for our first quarter 2022 earnings call I am pleased to report the purely had a strong first quarter with year over year revenue growth of 20% to 313 million and year over year, adjusted EBITDA growth of 16% to seven.
$3 billion generating strong operating cash flow of $57 million.
This is good news comes from three quarters of operating the challenging macroeconomic environment with the various disrupt the cycles of the pandemic and reductions in discretionary spending factors affecting everyone not just our industry. It's no secret that the first quarter was tough for the entire sector with BD SA noted industry.
The growth of just 1% year over year, yet purely growth far outpaced that way.
Despite the challenging environment and lack of COVID-19 stimulus checks and the usual first quarter seasonality candidates purely once again outperformed the broader market a trend, we foresaw and why do we attempt to maintain.
After a difficult start to the year by March things were already looking Brian we have posted a robust recovery in March and April total revenues growing 22% over January and February .
Going into the second and third quarters, we have additional catalyst teed up to keep the momentum going and Illinois, We completed the first harvest from our Litchfield facility with products being rolled out this month and then New Jersey. We now have adult use sales in del Mar a store, which is approaching an annual run rate of nearly a $100 million and our other.
<unk> stores will begin adult use sales later this quarter.
And that's one of the largest suppliers in the state favorable wholesale prices in New Jersey have enabled us to take full advantage of the adult use market.
In Florida, where we continue to steadily gained share we have five new store openings in the second quarter in Pennsylvania, we are substantially increasing our talented square footage, which will start to deliver product. Later. This year. These investments are consistent with our strategy to drive revenue growth and high margins.
Given those powerful catalyst fueling the next several quarters and the strength of our expansive footprint in total we continue to expect sequential quarterly revenue growth to resume in the second quarter and four our adjusted EBITDA margins to expand throughout the rest of the year.
We are very confident about our current position. The recent wave of consolidation of investment are only validating securely singular strategy of going wide early as we now have the footprint. Our peers are trying to meet we spent wisely, yet responsibly and to build scale and infrastructure and we are now better.
And from those early investments.
These were long term decision businesses are not built on quarterly strategies.
Unlike our competition the task before US now is simply to further scale our operations rather than establish them, we stuck to our strategic plan. We are now ahead of the game and setting the pace.
Looking at California, Colorado and Florida.
Although they have added a tough start to the year with serious investment markets is vital to our long term growth and brand building strategies since they represent $7 billion of market opportunity.
Stark contrast to many of our peers.
We positioned to take a long term view and withstand the market volatility and pricing pressure in these markets.
With that we remain confident in our guidance of one four to $1 5 billion in full year 'twenty, two revenue and expect adjusted EBITDA margins of around 28%.
On the Legislative front, we are still cautiously optimistic that a version of state banking will pass during this legislative session with a higher likelihood coming in the lame duck session.
I do want to say that it is a tragedy that has taken the shooting depth of several young people working in dispensaries for the urgency of this build to be recognized. Additionally, it is also critical to past based banking top social equity substantially owners gain access to capital. So they can secure loans without the predatory interest rates.
It is no secret that change will be incremental but we continue to push aggressively for reform and remind Washington, The American voters have made clear repeatedly that they favorite cannabis legislative change.
Along these lines launch of adult use sales in New Jersey, it's incredibly exciting and came before our may 1st projection.
We had lines around the block and hundreds of very happy consumers and this trend continues to grow as we launched edibles and more new products, We believe new Jersey as a catalyst for other northeast states to accelerate their efforts towards adult use, especially as they begin to witness the tax revenue new Jersey's got ready.
In particular in New York, and Connecticut are right to implement our previously passed adult use programs, which we believe will happen in the near future. We expect to be the biggest operator in these markets and important markets and just as we demonstrated with our early preparation and New Jersey. We are rigorously planning ahead, we are.
On track to complete the expansion of our New York facility Tripling, our canopy square footage and setting up setting us up perfectly for the new adult use market. We are ready for this critical transition in the northeast.
Going abroad, Europe continues to show exciting progress revenue across all markets with the United Kingdom at the forefront increased 70% year over year in the United Kingdom, we saw 42% quarter over quarter revenue growth. We completed the acquisition of Sapphire clinic, the country's first private clinic.
Specializing in Canada by.
By 2020 for the United Kingdom is expected to have a $1 3 billion medical market with nearly 340000 patients according to statistics.
With a population of 70 million people in the United Kingdom room for growth in medical and beyond.
And we are the leading player.
In Germany, the health Minister recently expressed support for it stepped up schedule for adult use cannabis legislation pushing for the summer legislative agenda, rather than this fall. We believe Europe is the next frontier of cannabis, which we estimate has a 229 billion Tam and purely because the only MSR with a meaningful presence.
Well other operators will be scrambling for years to acquire licenses and paying elevated prices to enter the market shortly will already be operating throughout the continent and strengthening our platform. Our early investment in Europe as evidenced again of our long term strategy paying off.
Overall I'd like to reiterate that the future is indeed bright and the best is yet to come we are still in the early innings and we remain bullish on the future of cannabis and its potential to become a 320 billion plus global industry, you've all heard me say size matters.
Never been sure.
At this moment and are still emerging industry with.
With purely innovative products, the broadest distribution platform and strong brands. There is no other operator more prepared to seize this moment, we have planned for it and we are right, where we want to be.
Finally today, we announced that Matt Darren currently president of purely U S will be assuming the role of CEO of purely effective today.
As Joe Bear to head up a new division for purely for his experience as a brand builder and CPG leader will be instrumental for a major new initiatives.
This move positions us well on several fronts, we will benefit from that Don's leadership and experience in running day to day operations commercialization and driving execution efficiencies and we will tap Joe Beyers considerable expertise driving CPG strategy to launch our new division.
I have the utmost confidence that this change is the logical next step in <unk> journey as the leading global cannabis company, serving both adult use and health and wellness markets. In fact, we have never been more confident about our future with that let me turn the call over to Joe <unk>.
Thanks, Boris we had another exciting quarter to start the year for <unk>. In fact, this quarter marks the 17th consecutive quarter of retail revenue growth and our 12 consecutive quarter of positive adjusted EBITDA.
Turning to some business highlights and updates beginning at the state level.
As Boris mentioned in Illinois, We had our first harvest on April 13th from our expanded Litchfield campus, which more than doubled our canopy square footage.
This increased capacity will enable us to continue to maximize our vertical mix of chili products in our own stores as well as grow wholesale operations as we continue to ramp this new capacity.
Even prior to the Litchfield expansion clearly gained market share quarter over quarter, and we expect that to continue.
Overall, Illinois as a top market for us and we will have a step function in growth once the state's award the 185 licenses, resulting in more points of sale.
In Pennsylvania, we have seen four consecutive quarters of market share gains as a result of increased production from our manufacturing facilities and several new store openings with two more on the horizon in 2022.
In addition, we have significant cultivation capacity coming on throughout the rest of the year.
Because of the strength of our vertical platform and the quality of our products, we will continue to drive scale.
With a population of $13 million of 40% greater addressable Tam than new Jersey, the opportunity in Pennsylvania is massive.
And with adult use legislation on the horizon, we could not be more excited about our position in the state.
In Florida, we have continued to execute successfully on our business plan.
Scaling our operations and becoming a solid number two player.
We are best in class in terms of volume per store and have consistently increased our market share.
At the end of Q1, 2021, clearly you've had 9% market share for both flower and oil products.
At the end of Q1, 2022, clearly you've had 14% market share for flower and 13% market share for oil.
To further put this into perspective flower sales have increased 129% year over year and oil sales have increased 102% year over year being done with only eight new store openings.
Our increased product variety and the recent launch of live rosin, Vapes and concentrates select X bytes, and Bluetooth Kudu chocolates has led to further output through our dispensaries with milligrams dispensed per store growing 68% from March of 2021 to March of <unk>.
Thousand 22.
The capital spent on expanding capacity during the height of the pandemic and last year are seeing strong returns and operating efficiencies are increasing by the day.
I would also like to note that this was done without a full quarter of skus from our eighth extraction system, a proprietary technology that produces a first solvent less products and the cleanest oil on the market.
Overall, Florida as a model of how prudent capital allocation and operational diligence, which have led to strong share gains in a battleground market.
Regarding research and development in the first quarter, 17% of our revenue came from products launched within the last 12 months.
For reference for the full year of 2021 that statistic was 11%.
We are confident we invest more than anyone else in R&D in the industry.
And the fact that nearly one fifth of our revenue came from recently launched products is a good indicator as to the return from those investments.
On top of this our new products are bringing customers back to the stores.
According to Shopify, a good repeat purchase rate is 27%.
With that in mind click has a repeat purchase rate of 53% select essentials has a rate of 47% and our classic bikes to pointed out has a rate of 44%.
We believe highly formulated products backed by science or where the true value is and our customers are trusting Kelly for those choices.
Turning to retail we saw January and February slowdown, but March turned out to be a record months securely with transactions up 18% from February .
At the same time, despite the macro environment and increased retail competition, our average order value remained steady quarter over quarter.
April also showed strong results, which included a record $4 20, with a net revenue increase of 45% year over year.
Encouragingly, we have seen retail revenue increased monthly from the beginning of the year and we see continued strong momentum heading into the rest of the year.
We added 11, new stores during the quarter, four in Arizona, Florida, and Pennsylvania, and three in Florida to end the quarter with 128 the.
The four stores in Arizona come from the first quarter closing of Bloom.
As of today, we have opened three stores to 131 and there are more to come as the year progresses.
Looking at wholesale we ended the quarter with over 2200 independent wholesale accounts across the country and increase of 10% over year over year.
We saw good momentum with our wholesale business heading into the new year.
Because of the macro environment experienced in January and February Reorders were substantially down leading to a decline in wholesale over the fourth quarter.
Despite that I'm encouraged by the strong year over year growth in some of our key markets.
This includes Pennsylvania, where we had 127% year over year growth.
Maryland, with 126% year over year growth, and Michigan with 51% year over year growth.
Michigan stands out given it's one of our investment markets and with Bds, a projecting a state to be nearly $3 billion 3 billion dollar market. In 2026, we are pleased to see the proliferation of our wholesale operations there.
We also expect tremendous growth in our wholesale business in New Jersey for the next several years as the adult use market develops.
Between our geographic reach our own retail footprint and access to 'twenty 200, independent dispensaries across the country, our distribution footprint remains unmatched and will continue to invest in it to build competitive advantage.
With that I'll turn the call over to Neil to discuss our financial results in more detail Neil.
Thank you Joe now let me provide some details on our first quarter 2022 results.
Total revenue for the quarter was 313 billion representing year over year growth of 20%.
Retail revenue was $226 million compared with 188 million in the first quarter of 2021, representing 21% year over year growth.
Retail revenue came to 72% of total revenue in line with the 2021 period.
Wholesale revenue grew 19% year over year to $86 million, representing 27% of total revenue.
Sequentially retail revenues were up slightly while wholesale revenues declined 9%.
The decline in our wholesale revenues resulted from the low Reorders, we experienced in January and February as Joe discussed in pricing discipline, we continue to observe in both California, and Colorado, resulting in lower overall sales for the quarter.
Our gross profit on candidate sales was 154 million for the first quarter, an increase of 20% year over year from $128 million.
Gross profit margin was 49, 3% the same as the first quarter of 2021.
Essentially gross profit margins declined 40 basis points due largely to the state mix of revenue during the quarter.
SG&A expense was $100 million in the first quarter compared with $100 million in the prior quarter and $80 million in the year ago period.
The year over year increase in SG&A, primarily reflects increased headcount in support of new store openings and the impact of annual merit increases and higher travel costs, just revenue facing travel resumes.
SG&A as a percentage of revenue was 32% compared with 31% in both the prior quarter and in a year ago period.
Our first quarter SG&A included approximately six and a half million of adjusted EBITDA add backs versus $9 5 million in the prior quarter.
Excluding the add backs our SG&A represented 30% of total revenue in the first quarter and 28% in the prior quarter.
Adjusted EBITDA for the first quarter was 73 million, a 16% year over year increase.
Sequentially, adjusted EBITDA declined $6 7 million or 8%.
The decline over the prior quarter was attributable to the 40 basis point decline in gross profit margins as discussed.
And approximately $3 5 million and margin dollars related to the decline in wholesale revenue.
Additionally, SG&A, excluding add backs increased by $2 5 million, resulting from approximately $1 million related to annual wage increases.
And approximately one and a half million dollars related to store openings in Pennsylvania, and Florida as well as the acquisition of Blue.
Our investment markets, including Europe .
And our consolidated adjusted EBITDA margins by approximately 570 basis points versus 770 basis points in the fourth quarter.
Now turning to our balance sheet and cash flow.
Our balance sheet remains strong with cash and cash equivalents of $243 million as of March 31 2022.
At the end of the first quarter, our outstanding debt was $584 million net of unamortized debt discount and debt issuance costs.
As mentioned on our last call in preparation for the upcoming growth in several markets. In 2022, we are building up our inventory.
In Q1, our inventory increased 43 million sequentially inclusive of $24 million of biological asset adjustments.
Therefore, our business inventory grew by $19 million, primarily due to inventory buildup from our new Jersey facilities in preparation for adult use and increase in Arizona related to the acquisition of Bloom.
And increases in Illinois, and Pennsylvania, as we increased production capacity.
We see this decreasing as the new Jersey adult use market ramps.
Our wholesale increases in the second quarter and beyond and we open additional stores.
Net capital expenditures during the quarter were $30 million.
Our investments continue to be focused on expanding cultivation and processing capacity as well as strategically increasing our retail presence.
First quarter cash flow from operations was $57 million.
We continue to expect to generate positive operating cash flow for the full year 2022.
Most importantly, we believe our current cash position as well as the operating cash generation. This year is sufficient to fund our operation in Capex plans.
As a reminder, we will be approximately $150 million for the full year 2022.
Finally to recap our 2022 guidance.
We remain confident in full year revenue of $1 4 billion to $1 5 billion.
With where we fall in this range being largely dependent on the macroeconomic environment.
And the timing of regulatory approvals.
Our growth in 2022 will be driven by the expansion of our retail footprint in Florida, Pennsylvania and Arizona.
The expansion of wholesale accounts.
The closing of try.
And the performance of our recently closed acquisitions of looks duenas and blue.
We continue to expect adjusted EBITDA margins of around 28% with margins expanding sequentially in the remaining quarters of 2022, as we leverage our SG&A further and drive revenue growth through our vertically integrated markets like Florida, Illinois, New Jersey.
Pennsylvania.
With that I'll turn the call back to the operator to open the line for questions.
We will now begin the question answer session.
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At this time, we will pause momentarily to assemble our roster.
Okay.
Okay.
Our first question will come from Camilo Lyon with <unk> you May now go ahead.
Thanks, and good afternoon, everyone.
Good to hear about the.
The acceleration that you saw in March continuing into April .
So maybe I maybe for you I was hoping to get some more color on New Jersey, and specifically I think last call you talked about an expectation for the wholesale market for your business in particular to turn on in the back half of the year, but given how strong and sales have been I'm wondering if there's an updated outlook on.
On the wholesale opportunities in New Jersey.
That's that's very true.
Yes, we thought that with the buildup of inventory.
There'll be enough inventory to handle the you know the 12 to 13 stores that are opened up now or will be opened up between now and the end of the quarter.
However, what we've seen is demand that's been very very strong.
Hasn't been the inventory, we originally anticipated in the marketplace. So purely just definitely a port of call for most of the operators looking for inventory. However, we've had to be very careful in managing that because just our Belmont stores I indicated in my talk earlier, it's running at 100 million dollar run rate at this point in time, but we're about two <unk>.
Edgewater important town over the next.
A few weeks and so with those opening up we are wholesaling, but we're also being very careful to make sure that our stores are fully stocked as we capture the full margin up the chain by selling through our stores, but we are used we are selling in the wholesale market and I think you'll see purely product and almost all stores around the state at this point in time.
And can you talk about the slow of your products.
Flying into the stores I know that there's been some choppiness with getting everything ready on day, one so for everybody for all the operators. So maybe just help us understand when you think that was 100 run rate is that is that just because of what youre seeing today.
In addition to the.
Added products that you'll also have coming on or is he is he added SKU count Goodnight potentially increase that how do we think about that that was I think the first thing we all need to recognize is that new Jersey is massively underserved in terms of product. So demand is going to outstrip supply dramatically for the foreseeable future. It's probably one of the few states that.
I've seen the mine eight or nine years in the sector that is so skewed towards not having enough product to them. So I don't think the existing players are really going to have an issue with selling their product. So almost anything you put on the shelves at the moment is going to sell but youre exactly right. One of the problems is the launch happened so fast, but a lot of the products were not approved yet.
Or whatnot, we werent able to package, yet or we werent able to kept the right packaging for them because the state was making changes up until the last minute and so there was a slower start in rolling out for instance, edibles or in the case of purely squeeze quickly sold out. So now we're starting to ramp up there I think our edibles lines or are starting to reach or getting close to starting to reach the <unk>.
So I think we're going to get much more edibles out and that's the one that's really in demand right. Now I think also squeezes coming back on the market and then we'll start to see more and more skus I mean, the biggest issue in New Jersey is testing obviously there's.
There's only a few testing labs that are available and demand is very high and so we have to get the testing protocols, New Jersey change, where now you have to get everything tested worse under the medical program you didn't.
So that's the one worry at the moment, we're not seeing a huge problem there, but that's time goes on and more operators have more product available to them. I think you could start seeing a little bit of a backlog because of the testing labs. We also hope more types of labs are open, but I think you're going to see a lot more skus a lot more products offerings coming out of both pure leaf and our.
Our competitors into the market place, but again. This is one of those unique situations, where we can sell everything we can produce and then some.
Our next question will come from Vivien <unk> with Cowen you May now go ahead.
Hi, This is Harris and leave us on for Vivien. Thanks, So much for taking the questions.
So just on international can you provide maybe specifically what international sales were in the quarter.
And how that business is trending in terms of profitability and then just stepping back a bit.
You talked about Germany, as health Minister I'm announcing plans to accelerate legalization. So can you just frame up the opportunity you see in Germany, specifically and maybe offer some color around your competitive positioning in the market today, thanks very much.
Yeah, Yeah, so actually a while.
After we recorded our our a call that today the Justice Minister in Germany came out and said he wants to push it even earlier. So we now have two different ministers coming out and trying to push the adult use legislation. He wants it in 'twenty three.
As we anticipated that would come out in 'twenty four again, we still think it's probably more like 24 program, but there seems to be a tremendous amount of pressure in the German market to launch adult yourselves.
The medical market in Germany is still very small.
You know it was the 100000 patients it's a small market, we together with about five or six other players are participating in that marketplace right now.
Even the U K right now.
The U K market seems to be growing even faster than the German medical market, but the German market overall is expected to be.
Just listen to our presentation today, approximately a 12 billion euro market, it's bigger than California, and and and and.
Canada put together those two markets right now are running around $14 billion.
Our U S dollars and so we anticipate that that's going to be a very very big player. That's coming right down the pipeline and you really have to be there in advance you have to register your products were going through all that now you have to register your Skus, it's a much more difficult process than in the U S to get into that marketplace and so we feel very good about the decision to be there Germany is gonna be.
An absolute game changer, I actually think Germany will be adult use legal federal adult use before the United States.
Great Super helpful. And then I guess, just just doubling back on the profitability I think you've talked about international operating at a gross margin kind of inline with the company average, but can you talk about about.
The operating EBIT profitability trends.
In the international business.
It's a very small business today, so it doesn't mean, it's the.
The impacts are our numbers by about 1% negative.
The effect on the EBITDA line, so that's sort of 100 basis points of the EBITDA.
EBITDAR or we're running at around $8 million first quarter.
Revenue run rate. So it's still a very small business compared to where we expect it to be in a 24 well.
The whole purpose of this exercise was to build up our business growing into 'twenty four 'twenty five however, the the surprise to US there were two surprises the fast rate of growth in the U K, where we're growing at 45% quarter over quarter and and the medical market and there's a lot of it does.
There's very few players that were by far the largest operator and as we said we expect that market to be around the one three to one 4 billion dollar market.
'twenty three 'twenty four so that's gonna be tremendous growth for for.
For purely.
And obviously that on the back to that German adult use. So those are really the two markets that we're focused on right now in terms of registering our products getting everything in place. So that we could take full advantage of them.
Our next question will come from Matt Mcginley with Needham you May now go ahead.
Thank you My first question is on the gross margin rate.
Do you expect that increase this year to mostly come from greater scale in all markets or will that be driven more by a single state drivers like New Jersey with the adult use opening there and how do you think about overall risk to the gross margin rate from pricing as the year progresses. Do you think that that is more of a more of a heavy factor on the gross margin earlier in the year or do you think that that will proceed.
Throughout the remainder of the year.
So thanks, Matt So I'm I think it's a combination of things, but first as you've seen we're starting to improve the profitability as Neil pointed out in our investment markets. So we've gone from 700 to 550 basis point.
Hit to our overall number.
States, So that's California, Oregon.
In Colorado, So as we integrate most windows.
As we convert the raw material to oil it starts to launch the select brand in that state like we did in Michigan, where we're at now I believe the number one brand.
For oil sales in the wholesale market.
Well, we will start to bring you know bring up our gross margin as we said too we expect to operate somewhere between 50 and 52% gross margin for the year.
We feel very comfortable in that number. So obviously, new Jersey will help because new Jersey is a very high margin market at the moment with where the pricing is coming so new Jersey will contribute but Florida, all things is running at a much higher level than we originally when we spoke last we were running at around 34% EBITA margin in Florida, we will.
Close the first quarter of close to 40%. So we're starting to see as our scale comes into place. We're starting to see improvements in Florida were starting to see improvements obviously in new Jersey.
In our investment markets and across the full footprint I think the one place we still probably won't see improvement its in Europe , because in Europe is very much in investment mode at the moment and we continue to probably see pressure and maybe additional pressure there, but we will definitely see increases in gross margin.
But across the U S platform our skills here over the next several quarters.
Boris I would also add.
The benefits of our vertically integrated markets and we've mentioned capacity coming online in Illinois, I also mentioned my prepared remarks, some capacity coming on in Pennsylvania. Later this year what are the benefits there.
Our in house brands, and our vertical market allow for higher margins. So even if there is some pricing pressure in those markets it impacts our margins less so.
Okay, Great and my second question is probably for you Neil your income taxes payable balances at a historical peak in the first quarter. What do you expect the cash tax payments to be into the into the second quarter.
Yes.
The $180 million I think you're talking about that obviously has both our full year and Q1 accrual in it.
Tax paid it'll be.
A little bit north of $100 million.
Okay.
Got it.
Okay.
Our next question will come from Alon Bennett with Jefferies. You May now go ahead.
Even Jan So Paulo, well end todays question I was just hoping you could please just give me some more color on the UCP key division well it will be looking to achieve exactly and how you think it may differ yourselves. Thanks.
Thanks.
We're not going to be able to do that at this stage. It's still in progress. However, we will be making announcements probably around July was the first week of July on that division and what it will be doing as we finish up on the.
The legal work as well as.
Board approvals at the company level.
So that position, but it's been something that's been a work in progress for some time, we're very excited about it we think it could become a major major part of clearly, but we do have to hold back until we get final approvals tool that can make that.
Uh huh.
Smoke.
Okay. Thanks, and then just to follow up on the Ace extraction. You mentioned at year end, you were hoping to and the Boenning stored inventory in Colorado in early April .
And then also Colorado and California, I was just wondering did you might have to hit those timelines and kind of any early feedback if that's the case or if you were running slightly behind behind well. So date can we expect that to be in Colorado, and California now.
Matt do you want to take that Joe.
Yeah. This is John I'm happy to do that.
Well the good news is we have it up and running and in Florida and is performing very well, so it's actually better than we expected.
In Colorado, we have that equipment all in place, but we've been having some permitting problems not with ace itself, but just closing on a transaction there to.
Get the permits that we need for the build out so we think we've gotten that squared away.
You know it's not the first time, we've came come across delays based on.
Regulatory delays and some bureaucratic issues that we're dealing with but we feel pretty confident we'll be able to get that up and running in roughly the next 60 days, if we get the permits.
All the work that's been done the equipment is there we just have to literally get the stamps and the California equipment is being delivered over the next four weeks and as soon as we finish for Colorado, We're Gonna go right to California.
Our next question will come from Aaron Grey with Alliance Global Partners. You May now go ahead.
Hi, good evening and thank you for the questions. So first one for me just wanted to touch on Pennsylvania. I believe you said two store openings also plans for more cultivation coming on later this year.
So just given some of the pricing pressure that we've seen in the market. Just how you think about the degree of cultivation that you looked to have them. Obviously, you have more stores come online and you've had a number of store openings, new I think you just alluded to essentially having more of your own brands sold to the Starwood, which could help us just in terms of how you're looking at the Pennsylvania market the degree of cultivation expansion.
The pricing pressure, but also further prospects potentially of adult use coming on board too. Thank you.
Joe you want to get that.
Yeah, I mean listen we've we.
We couldn't be happier with Pennsylvania, as we said in our statements.
We do have somewhat of a supply constraint in the marketplace that we're able to keep our pricing, but we also have a well known brand, especially the grassroots brand, which is performing really well. So we need to get you know more capacity in the marketplace at some point there'll be an oversupply, but at this point, we continue to grow share. We continue to build revenue. So we're going to continue to be.
<unk> not only for our vertical integration, but we you know we have a very robust wholesale business that we can't supply 100% of the demand today. So.
Where we're excited about Pennsylvania will continue to expand there I think as we look at rolling out our new products.
Products, which haven't hit the market yet and.
Hopefully the market will become a little bit more receptive to different product formats over time, and we'll get some of our new technologies in there, but as you said, we believe that adult use on the horizon in Pennsylvania. So we're going to continue to ramp up and be ready because when that happens.
As we said in our script, we think that Pennsylvania could be even larger than new Jersey, and if that's the case, it's gonna be under supplied for you know for years and so I think it's a good time to invest in Pennsylvania.
Yeah, and I'd, just like that that we haven't seen as we said in the last quarter, we haven't seen the pricing pressure at purely I know that sounds strange given that almost everybody else, who said they have but we have not seen pricing pressure, particularly in Pennsylvania at this point.
Yeah.
Yeah.
Alright, great. Thanks, so much that color.
Question for me just on overall consumer trends I believe you said ticket roughly flat.
Given the broader consumer backdrop have you seen kind of differences maybe in trade down.
Or maybe consumer activity and then maybe if there's a difference between the medical and adult use markets in terms of overall consumer trends amid inflation and rising gas prices. Thank you.
You know when you take that because I'm happy to do that yeah, I mean, I think listen it's it's it's not a surprise that we're seeing.
Some pressure on the consumer front anything you just have less disposable income and there are a lot of economic headwinds that we're facing and where we're seeing that in our store I think broadly speaking it's to your point, it's more consistent on the medical side as far as spending because they they have a routine and a regimen of how they consume our products and they they don't.
Want to deviate from that I think medical is a little I mean, I don't use it as a little bit more discretionary so we've seen a little bit more fluctuation there, but we believe that we continue to get foot traffic through the door.
Increasing the number of transactions.
And as we bring new consumers into the into the canvas.
Category, we think we're going to continue to see growth. So we're very bullish on the back half of the year is as far as said in his prepared remarks.
We think it's gonna be a strong back half in a recovery. So we want to be prepared we want to make sure. We have enough supply we want to make sure that we're moving people through our our retail operations with the right experience and.
Helping people make the right choices around products, which is part of the hallmark of what we do well and we're excited about the back half of 2022.
Our next question will come from Spencer Hanus with Wolfe Research you May now go ahead.
Great. Thank you.
Can you talk about how much of a benefit M&A wise.
The sequential sales performance in the quarter and then what do you think about pricing standpoint in <unk> and heading into Q2 and for the industry.
Bill you want to take that.
Yes, I can answer the first question. The first question Bloom, which closed January 18.
Contributed about $10 9 million in revenue.
Yeah.
Great and what are you seeing from a pricing standpoint, as you look from <unk>.
Just curious seeing any stabilization or any seasonality in the pricing.
Over the last few months.
I can take that listen I think we are as we said.
But again, we're going to continue to see some pricing pressure for sure, but what we've been doing as we always do to counteract that is to try to increase the quality of our products and increased differentiation and that's what we've been doing.
A good example of that is in Florida, where we launched live rosin, which isn't being sold as it sounds because discount because of the unique product in the marketplace X fights coming into the market, which drive premium pricing. So like always we're trying to focus on the quality of our products that differentiate the differentiation of our products to be able to.
Mitigate any kind of pricing pressure, we feel but at the same time, we're driving scale and I think that's the important part is even as we see pricing pressure, we're getting an expanded margins because we're continuing to drive scale across our business and that's something I think that you know uniquely.
And uniquely positions us in the category or in our industry is that we will continue to drive top line, but will also going to get margin expansion and we're going to get that because we're growing scale based on investments. We've made over the last two or three years and now we're seeing the benefits of that and that's why you know.
Again, I think I sound repetitive, but I'm very excited about the back half of 2022, because I see a lot of the investment we've made a lot of the programs. We've put in place are now started starting to reap the benefits.
And we could see that pipeline and that's that's what's driving our enthusiasm.
Our next question will come from Matt Bottomley with Canaccord Genuity.
You May now go ahead.
Good evening, everyone hope, you're all well I just wanted to go back to New Jersey, Boris You had mentioned in the last earnings call that you were expecting that ramp I don't have to use the word modest, but just sort of tapered expectations given the limited infrastructure. So can you give any any color or maybe orders of magnitude as to how the hundred close to $100 million run rate of your store is in adult use.
Relative to what it was doing in medical and maybe what we should expect in terms of the lift in Q2 now that adult use it.
Yeah listen I think that we.
We're running.
I'm just trying to remember who were probably running at about a little bit less than half that as a medical now that was our best store in our system for a long time and the medical program and.
And so we were running at a little bit less than half of that number but that number keeps picking up every single day as we introduce more products.
It does command builds in education around the state as well as Pennsylvania.
Which is 10 minutes away from that score gets edgy.
And the fact that that stores opened adult users open. So we anticipate continued growth not a stabilization would actually contribute growth without store moving forward and I fully expect that that store will reach that hundred million dollar run rate or you know how the other stores do.
And our other stores.
This is still just the question, but I think our board and Tom store, which is our largest store in the system I think it's over 12000 square feet.
30 registers that one will hopefully open up in June .
And that was closer to <unk>, so that will be addressing a different.
A group of our customers and we hope that the just the size and the the.
The fact that we have a lot more product than anybody else will attract a lot of people to that store as well and then Edgewater. We think you know maybe a couple of weeks hopefully we'll be open.
And that store is about 20 minutes away from all of them are so we're still open to see how that behaves versus you know does it cannibalize belmar or does it actually adds we suspect it'll add because the lines around bellmarc still quite long.
And I think we're the only store that still have substantial lines around it and so we think that that will take a little bit away from it'll take it'll help us out a little bit managing the amount of patient flow going into belmar and obviously when their lives around stores that terms patients and customers away. So we're trying to get away from the line. So that we can process more of those to a customer.
And obviously on the wholesale side, it's what I said earlier on the wholesale side.
A lot of the other Oh.
Those stores are starting to ration product.
And so we feel quite a bit of demand on the wholesale side and pricing as you know at the top level. You know I mean pricing is at the $4500 a pound to $5000 a barrel bubble, which is what we saw in Massachusetts for instance, well not staple converted from a from a.
Medical to adult use we saw that in Illinois, and many other states, but this particular state. The problem here is that it's just going to take years to build the infrastructure in order to be able to start supplying them in.
I think there was five or 10 times the amount of stores or at least five because that was the amount of stores in Illinois when that when that market got launched and certainly that was at least five times, if not sometimes the cultivation capacity no what we're saying, but we have new Jersey. So we think that this.
This market.
It will be supply constrained for some time going forward.
Great I appreciate all that and then just my other question has to do with just the wholesale segment, so you'd mentioned reordering patterns and a little bit of pricing in.
Some of the Western States I think California, Colorado can you give any color on what the sort of the split is between what what contributed more to the decline and then any color, particularly on the eastern markets. Our northeastern markets. I know you mentioned, Pennsylvania seems to be holding in well on the pricing, but just any sort of trends that we could see in some of the more robust markets in the northeast.
Yeah.
Yeah listen I think that you know, Massachusetts is definitely starting to see some some some issues with the with demand our margins are still okay, but but we're definitely starting to see some pricing pressures in Massachusetts, Obviously, California is going through a massive massive decline.
A massive pricing pressures at the moment, so that's that's a market where.
We are definitely not expanding.
Our sales at the moment, but keeping them trying to keep her trying to keep a nice position in the marketplace, but not expand that business at all Colorado.
It's a market that went through some pricing pressures as well this year, we anticipate we're starting to see some firming up until the end of the year, we hope that that will help going into next year as well. So we hope that that will be a better market than that sure. So and obviously, Nevada is now we don't have a very large wholesale business in Nevada.
But definitely we've seen watching the market that theres been some pricing pressures in Nevada, as well you know, Arizona staying very very good Pennsylvania is very good for US, Illinois, It's just a great market for US, Florida is just going from strength to strength. Obviously, we're now adding new Jersey, Maryland is very good for us. So we have plenty of states.
We're still feeling very very good and and and the obvious.
The adult use concept and caught in Connecticut, New York and potentially in parallel over the next 12 to 18 months. We think it's just going to add to that so we're very excited about New York, Connecticut coming online at the end of this year early next year and then obviously, we think Pennsylvania, Maryland, maybe coming on within 12 months as well so there's a lot of.
Activity on the East Coast, which we think will just the outdoor business.
Yes.
Our next question will come from Eric.
Eric There Laurie with Craig Hallum Capital Group you May now go ahead.
Great. Thanks for taking my questions.
I was wondering first if you could just.
Expand on what kind of inflation expectations you guys have built into your margin guide. Thanks.
Neil do you want to.
Okay.
Yes, I mean, I would say we have some elevated discounting built in but when we're looking at so going into Q2.
The biggest drivers there really are adult use in new Jersey and continued market share in Florida.
Looking in the back half you have the macroeconomic because a piece of it but also.
Regulatory timing.
Yeah, and I'd, just add to that I think maybe part of the question was.
Relating to our raw.
Cereals, but the we've talked about the fact that even though we're seeing some pricing pressure inflation pressure on raw materials were actually.
Buying at a consistent price and getting scale. So the scale is offsetting any kind of inflation, we're seeing on our packaged goods are raw materials. So we you know we continue to.
See the benefit of scale and we continue to see the benefit going into the back half of 2022. So we don't think there's going to be a major impact for us on Cogs, because it's being offset by better utilization and leverage in each of the different states.
Okay, Great I appreciate that color and then maybe just kind of tagging onto the previous question that was asked.
On your wholesale accounts. So I guess, just kind of focused on accounts versus pricing here could you just expand a bit more on.
Where you saw some of that quarter over quarter decrease in wholesale accounts and then maybe how we should think about that number trending throughout 'twenty two across your different markets. Thank you.
Yeah, I'll take that if you don't mind.
Well you know, we've always said that building out the strongest distribution platform in the cannabis industry is one of our key pillars of competitive advantage and we continue to invest in that so we will see expansion we believe throughout the rest of 2022.
We did make a choice.
To reduce the number of accounts in Oklahoma, So that bought our number down but we quickly made that up in other states. So I think we're a little over 2200 today and it will continue to build out in key markets.
As we said in Illinois, when they when they launched the 185 new licenses.
We want to get our fair share of those those accounts, who want to build accounts in existing markets, we really haven't tapped into the Colorado market. Yet. So I think that was a big growth area for us on a wholesale basis and that's obviously key to our plan for 2022.
And then obviously in New Jersey, you know as that market ramps up.
I think we're gonna be aggressively expanding our wholesale footprint in new Jersey. So.
We can't give an exact number but you know we're going to continue to build out distribution. Because we think that is one of the keys to long term success in the industry.
Yeah, and I would not forget I would not.
<unk>, New York, New York is going to be a massive wholesale market right.
State of the sponsoring 200 licenses.
Then obviously all of the existing operators licenses. So you know New York could open up with almost 240 licenses on the on the on the retail side and obviously Carol It was the largest wholesale supplier product in New York State. So that's gonna be a very very big market procure leaf and you know the other operators.
If they actually do launch in early <unk>.
Our next year.
Virtually nobody that can catch up I mean, some of our competitors.
Okay.
Our next question will come.
Pardon me.
Our next question will come from Glenn Mattson with Ladenburg you May now go ahead.
Hi, Yeah. Thanks for taking the question I wanted to just hit on the Europe opportunity a little more is that.
Seems to be picking up steam quickly Boris maybe can you help us understand for those of us less familiar with the.
Legislative process.
You know if somebody gets introduced this summer just kind of how quickly that could turn on.
First of all and then second of all.
Your presence there is.
So kind of.
But are there other episodes, but small.
In real terms can you give us a sense of what kind of investment would be needed over what kind of timeframe and then just your competitive positioning versus some of the other people that are.
You know have gotten a decent presence in Europe , such as some of the Canadian players.
I'm not sure if we've lost bars, he got cut off on my on my.
And just came back so I'm, okay, let's say you are a part of life.
That's the question.
So go ahead.
Yes, Boris I'll repeat it sorry, just a question about the Europe opportunity.
You know the timing of how long you think it would take for a real changes that take place just for those of us that are less familiar with the legislative process in Europe number one.
Number two what kind of investment do you think is needed and over what kind of time period and third.
Could you just kind of flesh out more.
Our competitive position in relation to somebody other guys, who are bigger in Europe , such as the Canadian Lps.
Yes, so the Canadian LP is definitely have a head start on pure leaf, particularly.
Kill rate.
To be honest canopy, and Aurora largely are out I mean, Aurora is a bit of a business in Germany, a canopy basically left the region.
So it's really till right.
Or that are participating there. There's some other small players that are exporting to Europe as well, but it's largely white labeling they're not pushing their own brands. So our strategy is very different we have our own cultivation were fully vertical we ever own manufacturing. We're currently expanding both of those our cultivation and manufacturing to meet the demand for both.
Medical program in the U K as well as the adult use program in Germany as I said earlier in the call. The German government is trying to accelerate.
Approval of the adult use program it could come as early as 'twenty. Three we think it's going to be 24 early 'twenty four but just today other justice Minister came out and indicated that it may be it's early it's 23.
I mean, that's a very very large market just consider that to be California, and Canada put together in terms of the slides that the 83 billion people and it's a <unk>.
8%, 29% Canada's penetration used market. So we see that as a huge growth opportunity for us and it could be you know that that business over several years could be the size of our U S business. So.
The U K a medical market we enter.
So speed being about a 1.3 billion dollar market two years were the largest operator in that in that in that market today in the German market, where a little bit behind because we just answered it but we fully anticipate that by the time. The adult use program goes between some M&A that we have in the works as well as our organic build out will be one of the larger players in that marketplace.
That's our goal is to be within the top three players in Germany as the adult use market is gets launched.
Great that's great color, Thanks, and one quick one just on Michigan I think when the previous call you talked about Michigan has included included Michigan is one of the investment markets I don't think it was gonna today was there some change there.
No no no that's definitely one of our investment markets in terms of the fact that you know what.
We are expanding our wholesale business there its growing select I think.
Uh huh.
The largest they brand sold in the state of <unk>.
Last quarter.
And we are however, we are not vertical in that state yet we're still trying to make her mind up as to how we build our supply chain in order to improve our margin profile in the state and.
So that's something that's still under consideration was that purely for at the moment.
In Colorado, and California, we've made those decisions and we're starting to incorporate that.
And see improvements in margin, whereas in Michigan, we have not yet made up our decision as to whether we will be but we will make that decision shortly and maybe by the next earnings call, we'll be making some announcements.
Our next question will come from Pablo <unk> with Cantor Fitzgerald, you May now go ahead.
Hi, This is Matthew Baker on for Pablo. Thank you for taking our question given where stocks are right now would it make sense and would you consider taking.
Or is that bumping that up to Boston.
What do we consider doing what's taking the company private.
Yes.
No I don't think that we'd be computer taking the company private at this point in time, we think the capitals that are used in this growth market.
Businesses continued to expand the business continues to go to strength to strength, we anticipate a very strong year. This year are the fact that the equity markets haven't caught up yet it's just a matter of time, they will catch up I'm not at all worried about that.
And my job is to continue to build out the business and I think the capital is better used in building the business and not taking the company private at this point in time.
Alright, thank you for the color.
Yeah Jacob.
But I think we have to jump her cold right.
Yes, we do.
Yes.
Alright.
Most of the calls this week.
Unless we have to complete the call. Thank you.
This concludes our question and answer session I would like to turn the conference back over to Boris Jordan for any closing remarks.
I I think Boris signed out. So this is Joe I'd, just like to reiterate that.
Despite the headwinds we faced in the first quarter, we couldn't be more optimistic about where we are with the business with our business plan and what we're building as far as the strategic platform to be continually successful for the next few years, we have a lot in the pipeline going into the back half of the year, including New Jersey, which is certainly going to.
Be a tailwind for us I think our ace extraction technology as well you know early on as is already proving to be very effective for us and we continue to build out on a platform like nobody else in the marketplace. So we're very excited about where we are in the industry and we are looking forward to Oh.
Great back half of the year. Thank you.
Yeah.
Yeah.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.