Q1 2022 Curaleaf Holdings Inc Earnings Call
Good afternoon, and welcome to the pure leaf Holdings' first quarter 2022 conference call.
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I would now like to turn the conference over to Jacob Feinstein manager of Investor Relations. Please go ahead.
Good afternoon, everyone and welcome to securely Holdings first quarter 2022 conference calls today, we are joined by Boris Jordan Executive Chairman, Joe Lusardi Executive Vice Chairman, Joe Barron, Chief Executive Officer, Neil Davidson interim Chief Financial Officer, and Matt There President of purely view 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 involves estimates projections plans goals forecasts and assumptions, including the successful integration of acquisitions and are subject to risks.
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 take 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.
Cedar and the Canadian Securities Exchange.
During today's conference call clearly will refer to non <unk> measures that do not have any standardized meaning prescribed by EIOPA rep, such as 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 that clearly 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 73.
$3 million generating strong operating cash flow of $57 million.
This good news comes from three quarters of operating in a challenging macroeconomic environment with the various disruptive cycles of the pandemic and reductions in discretionary spending factors affecting everyone not just our industry.
No secret that the first quarter was tough for the entire sector with BDSI and headset noted industry growth of just 1% year over year, yet purely growth far outpaced that way with.
Despite a challenging environment and lack of COVID-19 stimulus checks and the usual first quarter seasonality of candidates purely once again outperformed the broader market a trend, we foresaw and one we intend to maintain.
After a difficult start to the year by March things were already looking Brian we have posted a robust recovery March and April total revenues growing 22% over January and February heading into the second and third quarters, we have additional catalyst teed up to keep the momentum going and Illinois we.
<unk> the first harvest from our Litchfield facility with products being rolled out this month and in 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 two 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.
And 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 margin state 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 and the recent wave of consolidation is definitely industry are only validating securely singular strategy of going wide early as we now have the footprint. Our peers are trying to mirror, we've spent wisely, yet responsibly to build scale and infrastructure and we have not been.
Operating from those early investments. These were long term decisions 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 and we are now ahead of the game and setting the pace.
Looking at California, Colorado and Oregon.
Although they've had 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.
<unk> 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 safe 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 and it has taken the shooting depth of several young people working in dispensaries for the urgency of this bill to be recognized. Additionally, it is also critical to pass state banking TUP social equity to essentially owners gained 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 candidates 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 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 its 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 candidates, which we estimate has a 229 billion Tam and purely because the only MSR with a meaningful presence while other operators will be scrambling for years to acquire licenses and paying elevated prices to enter the market currently 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.
<unk> heard me say size matters, that's never been sure.
But at this moment and are still emerging industry.
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.
Joe back to head up a new division procure LIBOR at his experience as a brand builder and CPG leader will be instrumental for a major new initiative.
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 of efficiencies and we won't cap 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 Bayer.
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 <unk> 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 award to 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.
A 40% greater addressable Tam than new Jersey, the opportunity in Pennsylvania is massive.
With adult use legislation on the horizon, we could not be more excited about our position in this state.
In Florida, we have continued to execute successfully on our business plan.
Mailing, 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.
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.
Unlike the 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 2022.
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 our 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.
Waiting 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 clearly 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 foreign Arizona, Foreign Pennsylvania, and three in Florida to end the quarter with 128.
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, but 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 am 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 in Michigan, with 51% year over year growth.
Michigan stands out given it's one of our investment markets and with BDSI projecting a state to be nearly $3 billion.
$3 billion 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.
Revenue for the quarter was $313 million 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.
Sequentially 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.
Impact of annual Merit increases and higher travel costs, just revenue facing travel reserves.
SG&A as a percentage of revenue was 32% compared with 31% in both the prior quarter and in the year ago period.
Our first quarter SG&A included approximately six 5 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 5 million related to store openings in Pennsylvania, and Florida as well as the acquisition of Blue.
Our investment markets, including Europe impacted 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.
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 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.
And wholesale accounts.
Closing a try.
And the performance of our recently closed acquisitions of looks duenas and boom.
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.
Our first question will come from Camilo Lyon with <unk>.
You May now go ahead.
Thanks, and good afternoon, everyone.
It's great to hear about the.
The acceleration that you saw in March.
Phil.
So maybe I maybe for you I was hoping to get some more color on New Jersey.
I think last call you talked about an expectation.
Wholesale markets in your business in particular to turn on and.
In the back half of the year, but given how strong sales have been I'm wondering if there's an updated outlook.
Wholesale opportunity.
Sure.
That's very true.
Yes, we started with the buildup of inventory there.
It would 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 thats been very very strong.
Isn't been inventory, we originally anticipated in the marketplace. So clearly because 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 as I indicated in my talk earlier it was running at a $100 million run rate at this point in time, where we're about to open.
Edgewater Onboarding town over the next 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 of the train.
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 snow of your products.
Pipeline 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 about 100 million run rate is that is that just because.
What youre seeing today.
In addition to the added products that Youll also have coming on or is he is he added SKU count Goodnight.
Is that how do we think about that.
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 this sector, so skewed towards not having enough product and so I don't think the existing players.
You're 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 we're not we weren't 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.
Starting 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 are starting to reach or getting close to starting to reach the capacity. So I think we're going to get much more edibles and that's the one that's really in demand right. Now I think also squeeze is 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, but there's only a few testing labs that are available.
Demand is very high and so we have to get the testing protocols.
Change, where now you have to get everything tested worst under the medical program you didn't.
And 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.
The testing labs, we also hope more testing labs are open, but I think youre going to see a lot more skewed a lot more product offerings coming out of both pure leaf and 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 not know that.
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.
And how that business is trending in terms of profitability.
And then just stepping back a bit.
Chris you talked about Germany as health Minister.
That was from transit 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.
Yes, yes, so actually a while.
After we recorded our our call.
Call it today the <unk>.
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.
The German market to launch don't yourselves.
The medical market in Germany is still very small.
Hum.
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 market right now.
The UK 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 12 billion euro market.
It's bigger than California.
And Canada put together those two markets right now running around $14 billion.
In 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 going to 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 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.
That could be EBITDA 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 'twenty four.
The whole purpose of this exercise was to build up our business going into 'twenty four 'twenty five however, the the surprise to US there were two surprises as the fast rate of growth in the U K, where we're growing at 45% quarter over quarter and in the medical market and that's why it.
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 $1 4 billion.
Dollar market.
In 2324, so that's going to be tremendous growth for for for them clearly and.
Obviously, then on the back to that German adult 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 can 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 would that be driven more by a single state drivers like New Jersey with the adult use opening there.
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 do you think that that will persist throughout the remainder of the year.
So thanks, Matt So 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.
Two our overall number.
And those 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 are now I believe the number one brand.
For oil sales in the wholesale market that will.
We will start to bring bring up our gross margin as we said to you 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% EBITDA margin in Florida.
For the first quarter at 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.
We continue to probably see pressure and maybe additional pressure there, but we will definitely see increased gross margin.
Across the U S platform scales here over the next several quarters.
Boris I would all say.
The benefits of our vertically integrated markets and we've mentioned capacity coming online in Illinois, I also mentioned in 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.
Great and my second question is probably for you Neil your income taxes payable balance within our historical peak in the first quarter. What do you expect the cash tax payments to be into the into the second quarter.
Yes.
$180 million I think you were talking about that obviously has both our full year and.
Q1 accrual in it.
Our tax payment will be.
A little bit north of $100 million.
Got it.
Okay.
Our next question will come from Alon Bennett with Jefferies. You May now go ahead.
<unk> well end todays question I was just hoping you could please just give me some more color on the UCP key innovation well it will be looking to achieve exactly and how you think it may differ yourselves.
Thanks.
We're not going to be able to do that at this stage. It's still progress. However, we will be making announcements probably around July .
First week of July on that division and what it will be doing.
As we finish up.
The the legal work as well as some board.
Approvals at the company level establish.
Establishment 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.
That.
That announcement.
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.
The April and then asked to Colorado.
In California, I was just wondering did you might have to hit those timelines.
Kind of any early feedback.
So if you are running slightly behind behind what 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 in Florida and is performing very well, so it's actually better than we expected.
In Colorado, we haven't equipment all in place, but we've been having some permitting problems not with ace itself, but just closing on a transaction there too.
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 come across delays based on rent.
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. 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.
Aaron Grey with Alliance Global Partners you May now go ahead.
Hi, good evening and thank you for the questions. So first one from me just wanted to touch on Pennsylvania. I believe you said two store openings also plans for more cultivation coming on later this year.
Just given some of the pricing question that we've seen in the market. Just how you think about the degree of cultivation that you look to have obviously you have more stores come online and <unk> had a number of store openings, new I think you just alluded to potentially having more of hillenbrand solta destroyed, which could help us just in terms of how youre looking at the Pennsylvania market. The degree of cultivation expansion I made it.
Pricing pressure, but also further prospects potentially of adult use coming onboard too. Thank you.
Joe you want to get that.
Yeah, I mean listen.
We couldn't be happier with Pennsylvania, as we said in our statements.
We do have somewhat of a supply constraint in the marketplace, we're able to keep our pricing, but we also have.
Well known brand, especially the grassroots brand, which is performing really well so we need to get 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 build not only for our vertical integration, but we have a very robust wholesale business that we can't supply 100% of the demand today. So.
We're excited about Pennsylvania will continue to expand there I think as we look at rolling out our new.
Products, which haven't hit the market yet.
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 I think.
It's a good time to invest in Pennsylvania.
Yeah, and I'd, just like to add 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.
Alright, great. Thanks, so much of that color.
And then second question for me just on overall consumer trends I believe you said ticket roughly flat just given the broader consumer.
Backdrop have you seen any 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.
I want to take that I'm happy to do that yes, I think listen it's it's not a surprise that we're seeing.
Some pressure on the consumer front unless they just have less disposable income 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 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, we're 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 as far as said in his prepared remarks.
We think it's going to 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.
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.
You talk about how much of a benefit M&A wise.
The sequential sales performance in the quarter and then what do you think from a pricing standpoint in <unk> and heading into Q3 industry.
Bill do 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.
Great and then what are you seeing from a pricing standpoint, as you look from one community 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 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.
An 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 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 expanded margins because we're continuing to drive scale across our business.
That's something I think that you know.
<unk> positions us.
And the category or in our industry is that we will continue to drive top line, but we're also going to get margin expansion, we're going to get that because we're growing scale based on investments we've made over the last two or three years now.
Now, we're seeing the benefits of that and that's why.
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 starting to reap the benefits.
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.
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're expecting the ramp I don't have used 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 100 close to $100 million run rate of your store is in adult use realm.
<unk> 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 were running.
I'm just trying to remember who were probably running at about a.
A little bit less than half that.
As a medical amount that was our best store in our system for a long time and the medical program.
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 demand builds and education around the state as well as Pennsylvania.
Which is 10 minutes away from that score.
And the fact that that stores opened adult users open. So we anticipate continued growth not a stabilization would actually continued growth in that store moving forward and I fully expect that that store will reach that $100 million run rate.
How the other stores do.
And our other stores.
It's still it's still a 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 customers and we hope that the just the size of 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 maybe a couple of weeks hopefully we'll be open.
And that store is about 20 minutes away from Belmar. So we're still open to see how that behaves.
Versus does it cannibalize belmar, where 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 lines around stores that turns patients and customers away. So we're trying to get away from the line. So that we can process more of those customers and obviously on the wholesale side, it's what I said earlier on the wholesale side.
A lot of the other.
Those stores are starting to ration product.
And so we see quite a bit of demand on the wholesale side and pricing as you know at the top level. You know I mean pricing is $4500 a pound to $5 a barrel bubble, which is what we saw in Massachusetts for instance, when that state converted from from.
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.
I think there was five or 10 times the amount of stores or at least five tremendous 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 and what we're seeing.
Jersey, So we think that the.
This market.
<unk> 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.
Some of the Western States I think California, Colorado can you give any color on what 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.
Sure.
Yeah listen I think that 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.
Massive pricing pressures at the moment, so that's that's a market where.
We are definitely not expanding.
Our sales at the moment.
I'm trying to keep 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 that we're starting to see some firming into 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 I'm not 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 some pricing pressures in Nevada as well.
Arizona, staying very very good Pennsylvania is very good for us.
Illinois is just a great market for US, Florida is just going from strength to strength, but obviously, we're now adding new Jersey, Maryland is very good for us. So we have plenty of states, where we're still feeling very very good and.
Obviously the.
Adult use concept in Connecticut, New York and.
Potentially in Maryland 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 and Connecticut coming online at the end of this year early next year and then I'll.
Honestly, 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 to add to our business.
Our next question will come from.
Eric the learning 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 guidance. Thanks.
Do you want to.
Okay.
Yes.
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.
In the back half you have the macroeconomic is 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 materials, but the we've talked about the fact, even though we're seeing some pricing pressure inflation pressure on raw materials, we're actually buying.
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.
We continue.
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 leveraging each of them.
Okay, great I appreciate that color.
Then maybe just kind of tagging onto the previous question that was asked on.
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.
Kris and wholesale accounts and then maybe how we should think about that number trending throughout 'twenty two across your different markets. Thank you.
First I'll take that if you don't mind.
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 brought our numbers down, but we quickly made that up in other states.
I think.
A little over 2200 today.
And we will continue to build out in key markets.
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.
How does that market ramps up I think we're gonna be aggressively expanding our wholesale footprint in.
<unk>.
We can't give an exact number but 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.
Lose track of New York, New York is going to be a massive wholesale market stabilize.
The state of the sponsoring 200 licenses.
And 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 purely it was the largest wholesale supplier product in New York State. So that's going to be very very big market procure leaf and the other operators if they actually do launch in early.
Next year.
Virtually nobody that can catch up I mean, some of our competitors.
Our next question will.
Pardon me.
Our next question will come from Glenn Mattson with Ladenburg.
Go ahead.
Hi, yes, 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.
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.
The big other episodes, but small.
In real terms can you give us a sense of what kind of investment will 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 lost Boris he got cut off on Mike.
<unk> and just came back so I'm, okay, let's say Europe .
That's the question.
So go ahead.
Yes, Boris I'll repeat it sorry, just a question about the Europe opportunity.
The timing of how long you think it would take for 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 some of the other guys who are bigger in Europe , such as the Canadian Lps.
Yes, so the Canadian LP is definitely have a head start on purely particularly.
Kill rate.
To be honest canopy, and Aurora largely are out I mean.
Laura has 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. Our strategy is very different we have our own cultivation were fully vertical we ever own manufacturing. We're currently expanding both of those cultivation and manufacturing to meet the demand for both.
The medical program and 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 the justice Minister came out and indicated that it maybe as early as 'twenty three.
I mean, that's a very very large market just consider that to be California, and Canada put together in terms of size that the 83 billion people and it's a 28% 29% Canada's penetration used market. So we see that as a huge growth opportunity for us and it could be that.
Business over several years could be the size of our U S business. So.
The U K a medical market, we anticipate 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.
There will be one of the larger players in that market place. That's our goal is to be within the top three players in Germany as the adult use market 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.
We are expanding our wholesale business there it's growing.
But I think with.
Uh huh.
The largest.
They brand sold in the state us.
I think 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.
So that's something that's still under consideration within pure leaf at the moment.
In Colorado, and California, we've made those decisions and we're starting to incorporate that and we're starting to 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 probably 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 Bob Hello. Thank you for taking our question given where stocks are right now what it makes sense and when you consider taking.
Or is that bumping that up to Boston.
Thanks.
Would we consider doing lot of taking the company private.
Yes.
Yeah.
No I don't think that would be considered taking the company private at this point in time, we think the capitals that are used in this growth market.
The businesses continued to expand the business continues to go to strength to strength, we anticipate a very strong year this year.
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.
My job is to continue to build out the business and I think the capital is better used in building the business and taking the company private at this point in time.
Alright, thank you for the color.
Yes, Jacob I think we have to jump recall right.
Yes, we do.
Alright, thanks for taking the rest of the calls is going to be honest, 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 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 couldnt be more optimistic about where we are with the business with our business plan.
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 early on as is already proving to be very effective for us and we continue to build 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 a great back half of the year. Thank you.
Okay.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.