Q3 2023 Curaleaf Holdings Inc Earnings Call
[music].
Good afternoon, and welcome to the <unk> Holdings, Inc. Third quarter 2023 earnings Conference call.
All participants will be in listen only mode.
Should you need assistance. Please signal conference specialist by pressing the star key followed by zero.
After todays presentation, there will be an opportunity to ask questions.
Can I ask a question you May press Star then one of your telephone keypad.
To withdraw your question. Please press Star then two.
Please note this event is being recorded.
I would now like to turn the conference Camilo Lyon Chief Investment Officer. Please go ahead.
Good afternoon, everyone and welcome to <unk> Holdings third quarter 2023 conference call. Today, we are joined by Executive Chairman, Boris Jordan, Chief Executive Officer, Matt, Darren and Chief Financial Officer before.
Before we begin I'd like to remind everyone that the comments on today's call will include forward looking statements within the meaning of Canadian and United States Securities laws, which by their nature involve estimates projections plans goals forecast and assumptions, including the successful integration of acquisitions and are subject to risks and uncertainties that could cause actual results.
Our 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 on the forward looking statements and risk factors can be found in the company's filings and press release on SEDAR.
And the Canadian Securities Exchange during todays conference call in order to provide greater transparency regarding <unk> operating performance, we will refer to certain non-GAAP financial measures and non-GAAP financial ratios that involve adjustments to GAAP results.
Such non-GAAP measures and ratios do not have standardized on a U S GAAP and non-GAAP financial measures presented should not be considered an alternative to financial measures required by U S. GAAP should.
It should not be considered measures, Australia, <unk> liquidity and are unlikely to be comparable to non-GAAP financial measures provided by other companies.
The non-GAAP financial measures referenced on this call are reconciled to the most directly comparable U S. GAAP financial measures under the heading reconciliation of non-GAAP financial measures in our earnings press release issued today and available on our Investor Relations website at IR, Dr. Chili's Dot com with that I'll turn the call over to executive.
Chairman Boris Jordan worse.
Thank you Tim Good afternoon, everyone and thank you for joining us to discuss our third quarter 2023 results.
Alright, and the last four years, we completed 14 acquisitions and those transactions have been central to helping us achieve our stated goal of establishing purely for the world's leading countless companies throughout 2023. The company has been focused on improving the efficiency metrics and dialing in operations to maximize its existing asset base, we have taken significant steps to.
Eliminate redundancies strategically reduce head count exit unprofitable markets. Most of these actions occurred in the first half of the year and in the third quarter. We took the final steps in our asset optimization plan.
Specifically, we have reduced duplicative facilities in Nevada from three growth bikes to one facility, we have exited low margin low growth operations in Michigan, and Vermont, We have shuttered, our legacy, Kentucky research facility and consolidated R&D operations to Massachusetts, and the UK.
These were difficult decisions, but I'm confident that they will better position purely for strong consistent financial results going forward. In total. These actions resulted in a 22 million noncash impairment charge year to date, we have eliminated an additional 100 basis points of margin drag from rationalizing non core markets and assets more.
Rover, we have reduced total headcount by 18% in the last 12 months, while automating manufacturing processes and our tier one facilities. These initiatives are yielding $90 million of annualized expense savings while the impact of these actions is not yet fully flowed through our P&L there are already bearing fruit as evidenced by our 24%.
Domestic EBITDA margin and I expect continued improvements throughout year end and into 2024, I'm confident that our current 17 state exposure. It gives us the right domestic footprint and a presence in key markets that we expect will drive outsized growth over the next several years, we are now positioned to achieve our profitable.
And I do not foresee any further state.
With that let's discuss our third quarter results, we reported revenue of $333 million, which excludes $3 5 million from operations with discontinued in the third quarter on a comparable basis quarterly revenues were up 2% versus last year $326 million sequentially revenue was down less than 1%.
Due to deliberate actions, we took to rationalize lower profit skus and reduce overall promotional activity, while emphasizing first party products to reduce inventory.
While this effort, which began in quarter, two and carried over into quarter three tempered our top line. It was necessary to set the business on a better course for growth and profitability going forward with these changes behind us we expect to see a resumption of sales growth in quarter four and into 2024.
Adjusted gross margin was 46% up from 45% in the second quarter margins benefited from lower discounts and more profitable mix of Skus, but were also negatively impacted by our decision early in the year to idle growth capacity in some states to better balance our inventory with demand. This underutilization hurt our <unk>.
Margins by 400 basis points in the third quarter that said with most of this inventory right sizing now behind us new revenue catalyst emerging at pricing stabilizing we are selectively adding capacity to meet the accelerated demand in several markets and thus expect to recover this lost margin over the coming quarters and are targeting.
Normalized gross margin to exceed 50%.
Adjusted EBITDA margins of 23% up 100 basis points versus quarter, two despite a 150 basis point drag from our international operations overall, we reduced inventory by another $18 million and ended the quarter with $118 million of cash, while generating 33 billion and free cash flow from continuing.
Operations.
I am pleased with how we are unable to transform and improve our operations, but we are striving for more.
To propel our growth and margin expansion initiatives, we have implemented a decentralized regional reporting structure with that.
The goal of empowering our team members on the ground with greater control over their markets. This organizational realignment, which comprises four domestic regions plus international has already resulted in improved communication among the key functional groups.
There's also sped up our decision, making such that we are better able to respond to dynamic local market changes, while staying closely attuned to the needs of our customers. We have already begun to see the benefits of this realignment, including an improved retail product Assortments enhanced third party buying and increased wholesale profitability. This was.
In September which was our strongest month of the quarter and we remain encouraged as quarter four is off to a solid start as well thinking globally and acting locally. This is the mantra we have embraced and this is how we will win out in the long term domestically and international.
General Legislative progress continues to grind forward on multiple fronts, we remain optimistic that the da will support the HHS recommendation to move candidates the schedule for this little eliminate the onerous 280, <unk> tax provision procure always would result in cash tax savings of at least $150 million a share. We also continue to believe that they are.
The path forward for the passengers Safe Banking Act, but these last few weeks have only confirm how difficult it can be to predict the timing of an outcome in D. C. Particularly during this current period of heightened geopolitical tensions our international business continues to be robust and in the third quarter revenue grew 120% versus last year.
Driven by strength in both Germany, and UK, we continue to expect the bundesbank to finalize the proposed pillar one expansion on the German medical market over the next few weeks and expect implementation in early 2024 with a population of 84 million people, Germany is poised to be a significant growth catalyst materially for years to top the nascent.
UK market continues to perform well for us and we are increasingly leveraging our number one share position to educate consumers on the benefits of cannabis more recently, Poland. When its population of 41 nine people is becoming a Virginia medical cannabis market in which we are leveraging our scale and leading presence to be a major supplier in that market.
Domestically, we are optimistic that New York cannabis program will start moving forward again and that we will enter the wholesale market this quarter and be permitted to open our first adult use dispensary by you at New York is our home state and I believe will be a $5 billion to $7 billion opportunity overtime.
<unk> has a dominant market share in the current medical market and we will build off our existing presence to be a major player in the adult use market as well.
Also Ohio shows great promise for us after its citizens may 24th state end to end cannabis prohibition by Boeing to legalize adult use tests as a reminder, we already have two Ohio stores four more in the pipeline, we will be prepared for when the $4 billion state market opportunity transitions to adult use.
We remain focused on expanding our investor base by improving access for shifts to this end last month, we formally applied to listed on the Toronto stock exchange after completing the required equity offering, which we raised $16 million Canadian dollars are.
Our legal team is working throughout the final stages of the approval process and we remain on track to uplift this quarter listing on a major exchange with tier flex will help with subsidy issues, allowing for broader institutional involved. It should also help improve trading volume and increase liquidity should help to lower the volatility in our stock which will benefit.
All of our stakeholders.
Finally on guidance as I mentioned earlier trends improved throughout the quarter with September being the strongest month. The fourth quarter has also gotten off to a solid start that said, we continue to take a prudently measured stance on global geopolitical risk and pressures on the consumer has become more element.
For quarter, four we expect revenue to be up slightly from the third quarter for the year, we expect revenue growth of approximately 5% versus comparable 2022 revenue of one point to seven 5 billion at the upper end of our guidance range of low to mid single digit growth.
We continue to expect full year EBITDA margin to come in around 23% consistent with our prior guidance of low end of mid Twenty's percent.
In closing I would like to thank all of our hardworking purely for employees. It is the effort and dedication of our thousands of team members that gives our customers a great experience in our stores and allows us to offer the widest selection of innovative safe and high quality products. The heavy lifting is behind us and with growth catalyst of New York.
Germany, Ohio, and wholesale coupled with margin expansion from improved capacity utilization and a cleaner inventory position. We will enter 2024 from a position of strength with that I'll turn the call over to CEO, Matt Matt.
Thanks, Boris for the past year, we have been focused on optimizing our asset base, along with significant reductions to our expense structure. We scaled back production. These past two quarters to accelerate the right sizing of our inventory to align with demand.
Given the progress we've made on both these fronts, coupled with new wholesale growth opportunities in New Jersey, Illinois, Arizona, and our forthcoming entry into new York's adult use market.
Turning an idled capacity and are back on Opex.
This will benefit both our sales and gross margin as we increase our utilization metrics.
In the third quarter, our U S retail business was down 1% sequentially from the second quarter.
Digging into our consumer metrics demand remained solid as transactions were up 2% sequentially and AUR was up 4% helped by reduced promotional activity as we anticipated our SKU rationalization efforts and lower discounts offset our pricing gains, but drove improved retail gross margin expanded 70 basis points.
Price compression has been a key topic. This year last quarter, we began seeing green shoots in those green shoots continue to emerge in the third quarter.
In fact pricing in our retail stores was up in 10 of our states compared to four last quarter. While there continue to be reasons to be cautious both geopolitically and industry specific we are optimistic that price declines appear to have bottomed last quarter boding well for the fourth quarter. Similarly in wholesale revenue was flat from Q2.
However, our gross margin improved by 400 basis points as we eliminated low margin products and markets. We bolstered our wholesale team with new sales leadership, while also adding field marketing resources to expand the reach of our brand portfolio. We are investing across all aspects of this important revenue channel, including improved flower diversity.
The quality and new product launches.
Our wholesale business is well positioned to grow this quarter. The standout states in the third quarter were Maryland, and Florida are met.
<unk> team had a highly successful adult use conversion driven by flawless execution on opening weekend everyone.
Everyone from planning to cultivation of marketing to our retail and wholesale teams came together to welcome the communities around us into our stores in house of brands.
As a result, we saw robust triple digit growth out of the gate on July one strength that continued throughout the quarter.
After a soft Q2 in Florida, we stabilize the business and return it to growth in the third quarter, new product launches coupled with reduced promotions contributed to a mid single digit increase in both transaction and AUR.
Consumers responded well to an improved product assortment in all three major categories of flower Vapes and edibles.
In fact, our focus on flower quality and diversity of strains on our menus is been getting positive attention amongst the Florida patient community.
Overall, we were pleased to see the business Reaccelerate and expect further share gains to come in the fourth quarter. Despite the typical seasonal deceleration in the third quarter, our Arizona business is rapidly gaining share and extending our lead in that competitive market.
According to BDSI, we gained 270 basis points of market share and we see many opportunities to extend our top position with our suite of new product offerings in New York. We are optimistic that we will enter the wholesale market this quarter and opened our first adult use store by the end of December while strict enforcement of the illicit market will be <unk>.
Cold for social equity participants hemp farmers and all other operators to fully realize the potential of this market. We are encouraged by the prospects of offering all citizens in New York High quality safe and tested candidate products in Michigan, We decided to discontinue our subscale physical operations in the state given our view that market pricing.
Pressures would continue to dilute overall margins.
We are evaluating multiple opportunities to shift to a licensing model that would immediately result in improved economics and boost our EBITDA margins, while keeping our brands on shelves for our customers to continue enjoying the standup product champion during the quarter was the highly successful launch of our latest innovation bricks are proprietary to granby.
With mounting pressure on disposable income Rick offers tremendous value to our customers Rick.
Rick was born out of consumer research and backed by data a process. We have been implementing in all launches to ensure commercial success. Rick has been rolled out to 11 states with two more on tap and we are building on this platform complementing the British brick launch was the introduction of our first liquid Diamond Vape and Florida, This premium products, which use.
Our proprietary water based extraction technology is meant for the canvas paas sewer and has also been very well received we.
We are ramping production to meet demand for both of these products as quickly as possible I recently returned from visiting with our European team and I'm more excited than ever about the opportunity in front of us in the U K. Our focus has been on reducing the friction in the patient journey, which can totaled 45 days or more with the recent enhancements to our technology platform, we have cut them.
Patient journey to less than 10 days, which we expect will have a direct benefit on customer loyalty retention and lifetime value in October we started seeing the benefits of these process enhancements threat acceleration in patient adds not seen before in addition, we were the first to launch edibles in the market on August one and about strong customer research.
<unk> says our marketing efforts are building awareness not only procure lead but also for the entire industry. We are growing our share while also growing the market in early July we began wholesaling into Poland and demand for our for 'twenty product has been insatiable.
The strict regulations that require a 15 month lead time to register strains. We made significant first mover advantage with our high potency for 'twenty pharma flower that we plan to leverage while European cannabis is still in the early days of development No competitor has our distribution platform scale cultivation facilities wheat of branded products.
Also europes medical orientation towards cannabis fits well with careless routes.
And Alex that we are tapping into to create further distance between us and our competition. What's more we continue building out the full breadth of our European supply chain to meet increasing demand for higher quality products in both large markets like the UK, Germany, and Poland as well as smaller markets like Switzerland.
For instance, we bought the EU GMP processing assets from clever leaves in Portugal, we're investing in indoor grow capacity, we built our kitchens for edibles production and are investing in channels of distribution, where it makes sense unequivocally Europe is a multiyear growth story for us overall I'm encouraged to see that.
The hard work all our dedicated team members are putting into the business is yielding improving results like Boris said, the heavy lifting is behind us and we've turned the corner, but there are always opportunities for us to be better and do more.
With the growth tailwind of Germany, New York, Ohio, and potentially Florida and Pennsylvania.
<unk> is incredibly well positioned for years of robust growth and market share gains.
With that I'll turn the call over to our CFO Ed Kraemer, Ed. Thank you, Matt today I'll review, our third quarter 2023 results.
Revenue for the third quarter, continuing operations was $333 million, representing a year over year increase of 2% the.
The increase in revenue was primarily driven by strength in Maryland, Connecticut, New Jersey, and the contribution from <unk> acquisition as well as the 120% growth in our international segment, partially offset by modest contraction in Florida by channel retail revenue was $273 million compared to $258 million in the third.
Third quarter of 2022 up 6% year over year wholesale revenue decreased 12% year over year to 59 million and represented 18% of total revenue.
This decrease was in line with our expectations as we continue rationalizing our SKU portfolio and working down our inventory position, our consumer metrics remain healthy in the third quarter as transactions were up 200 basis points sequentially from Q2, partially offset by 140 basis point decline in average order value our third quarter gross profit.
Was $150 million, resulting in a 45% gross margin.
Adjusted gross profit was $152 million or <unk>, 46%.
Sequentially Q3, adjusted gross margin increased 60 basis points compared to the second quarter due to lower discounts, partially offset by an incremental 200 basis points from under utilization and select facilities due to our intentional actions to temporarily idle capacity and a slight decrease in vertical mix of <unk>.
64%.
As incremental revenue catalyst materializing in New York, New Jersey, and Illinois improved utilization of our facilities should result in a recovery of lost margin over the next few quarters SG&A expenses were $97 million in the third quarter and decreased $5 million from the year ago period chorus, G&A was $91 million a day.
Kris a $4 million from the prior year the year over year decrease in our Auras G&A reflects continued cost controls and head count reductions, partially offset by expenses associated with the addition of <unk> or 'twenty farmer, and new store openings SG&A as a percentage of revenue was 29% in the third quarter down 200 basis points.
The year ago period, our third quarter SG&A included approximately $6 million of add backs similar to last year of course G&A rate in Q3 was 27% a decrease of 200 basis points year over year due to a further acceleration of expense cuts. We began implementing at the start of the year third quarter net loss from continuing operations.
Was 71 million net loss per share from continuing operations was headsets adjusted EBITDA for the third quarter was $75 million or 23% of sales compared to $87 million or 27% of sales a 13% decrease compared to last year sequentially. Our adjusted EBITDA margin increased by one.
100 basis points from Q2 due to adjusted gross margin expansion and associated expense leverage international continued to be 150 basis point drag on our EBITDA margins. We expect this drag to significantly lessen as demand catalysts in Germany unfold over the coming months and we begin to leverage our cultivation and processing assets.
Turning to our balance sheet and cash flow, we ended the quarter with cash and cash equivalents of $118 million, our inventory balance at quarter end was $220 million compared to $238 million in Q2, a decrease of $18 million or 8%. We made significant progress on our inventory reduction efforts. This year and we will continue to match.
Our inventory balance to a six five to seven turns a year ago progressing toward our goal of reaching 50% of sales net capital expenditures in the quarter were $14 million. We continue to anticipate spending approximately $70 million in capital projects. This year are outstanding notes payable was $585 million net of.
Unamortized debt discounts of which 78% is not due until December 2026. We ended the third quarter was 725 million fully diluted shares outstanding we generated a total of $45 million of cash flow from operations in the third quarter, excluding a $2 million use of cash from our discontinued operations.
Cash flow from continuing operations was $47 million in the quarter and $94 million year to date free cash flow from continuing operations during the quarter was $33 million with respect to guidance.
We expect Q4 revenue to be up slightly resulting in full year revenue growth of approximately 5% compared to 1.2 dollars $75 billion in revenue last year, which excludes all discontinued operations. Previously mentioned this growth rate is the upper end of our low to mid single digit revenue growth guidance.
We still expect EBITDA margins to come in around 23% consistent with our prior outlook.
With respect to cash flow and discontinued operations, we have disposed of or sold many of the associated assets and states in which we ceased direct operations. However, some transactions have been held up by regulatory delays and we continue paying expenses on these assets, albeit at a declining levels.
We therefore believe a more representative view of our cash flow generation should center, our continuing operations in this context, we expect to generate operating cash flow from continuing operations of $100 million and positive free cash flow as a result with that I'll turn the call back over to the operator to open the line for questions.
We will now begin the question and answer session.
We ask you please limit yourself to one question.
To ask a question the crush Star then one of your telephone keypad.
If you're using a speakerphone please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
Our first question will come from Aaron Grey with Alliance Global partners.
You May now go ahead.
Okay.
Hi, good evening and thank you for the question.
So for me I wanted to turn to international So nice to see the continued growth there up 120% year over year.
It sounds like there's a couple you know growth opportunity to continue to have there, but on the margin side right still a drag now you've now got the EU GMP processing from Cleveleys in Portugal, and vertical integration more so in Europe. So can you speak more towards you know how we should think about the flow through on being vertical and the gross margin improvement and if we'll get the first apples that gross margins were about 30.
5% for the international segment, so how to think about the improvement in gross margins and some of those that flowing through along with the sales leverage as well. Thank you.
I'll start and Ed if you can address on the margin profile so and.
And in Europe are our two main markets as we said are the U K and Germany, We've just added Poland, Poland is ramping up very very quickly. So we do expect to see further growth in the fourth quarter and the first quarter to 41 million person market.
We expect margins to start to first of all we expect the business to turn EBITDA positive most likely in the fourth quarter. We also anticipate that with.
Additional sales that we.
Believe what will.
It will happen in the first quarter with the <unk>.
Pillar one.
German approval, which means basically the candidates is being taken off the narcotics list and therefore, we expect demand to increase substantially we think somewhere around two to three times. Our current sales rate for next year on the back of that with that obviously as we start to lever our assets in Europe, specifically our growth.
And processing facilities in Portugal, and Spain, we do anticipate that margins will improve throughout the year as revenue starts to accelerate in Europe.
Yeah, and just to add onto our board set Erin I think we've spent quite a bit of Bud resources and investing in our capex infrastructure internationally, that's still come into fruition those grow rooms that we own in that facility are going to continue to expand and get populated. So it's a bit of a mix of a supply flow that were.
Currently getting a portion of that from our external the external suppliers. So as that mix changes in those facilities that come online that Boris mentioned, our margin profile is going to expand substantially, but that's probably not going to happen until sometime in middle of next year or so.
Yeah.
Our next question will come from Fred Rico grow management ATB capital markets you.
You May now go ahead.
Hi, Thank you for taking my question. So you mentioned you were turning some of your idle capacity on it.
So can you provide some color on which markets you know you're turning that capacity on.
And how fast you think that can be covered at.
400 basis points hit to margins that you mentioned.
But we are we are currently turning on Pennsylvania, we've turned on New Jersey.
We have obviously with the adult use we are turning on New York.
We have added a few rooms in Pennsylvania, and Arizona. So most of our facilities are some of them are being turned off a 100% of some of them are being turned on 70% to 80%. However, one needs to understand that that planting took place at the beginning of the fourth quarter. So we don't anticipate.
They accepted Pennsylvania to see any harvest coming out of those facilities until the first quarter. So most of the margin pick up will take place as we start to harvest those rooms and in the first and second quarter of next year, we'll see a little bit of pickup in Pennsylvania, because those were you plant it a little bit earlier.
But for the most part we are starting to fully populate all of our growth facilities that were idled at the beginning of this year.
Our next question will come from Scott Fortune with Roth and K M capital you.
You May now go ahead.
Yeah. Good afternoon. Thanks for the question kind of follow on question on that kind of looking at the wholesale market for you are you I assume you are turning on these facilities in the wholesale market, we're seeing new social likely license being added in New Jersey coming on board, a little bit in Illinois, and such but just kind of tepid to wholesale mark.
It's 18% of your overall revenues and the potential kind of pick up.
In growth there as you look out going forward here.
So we anticipate more growth in wholesale I think in the ensuing months than we do on retail.
Obviously with the additional product that's coming out of our facilities.
And a renewed effort, which I'll, let Matt address and second renewed effort on hiring and building up the the wholesale business, we hope to bring in the wholesale business eventually back to around 30%, but I do think that that will probably take a few quarters to get it there, but we've already seen substantial gains in the fourth quarter on the wholesale side.
I think we'll continue to see it to the first and second quarter back to my auto addressable, but what we're doing on the wholesale side.
Sure. His Scott Yeah. So look we're heavily prioritizing a build in the wholesale channel and in the next quarter and as we lead into next year. You know 2023 of the last few quarters, we really prioritized moving through our inventory heavily through our vertical channels as we've talked about on prior calls.
And you know now with us increasing our capacity again, continuing to launch products and really investing heavily in sales and marketing we brought on a new head of sales for the country and are really investing heavily in marketing resources within each of the markets. We're seeing a lot of opportunities and as you're seeing a lot more.
Dispensaries finally open up in New Jersey, and Illinois, and some of the other markets are you know these are brand new customers that are in need of a wholesale product that we're building some really strong partnerships with and that's becoming I think a really growing segment of our wholesale business as some of these independent operators that.
Our coming new to the markets and so that's a big focus of ours. So I think we're really bullish on what we see on the wholesale side and you know and seeing some pricing improvements as well given some of the oversupply that's kind of worked through the market at this point.
And I would just add one more thing that obviously, we anticipate new York being quite robust we've already started marketing products here in advance of the wholesale launch and we're seeing very very robust demand for.
Port purely from select and grassroots products and the New York market, we anticipate many hundreds of stores opening up over the next 12 months.
That would be very very strong materially from our position.
Our next question will come from Russell Stanley with Beacon Securities.
You May now go ahead.
Okay.
Yes, Hello, and thank you for taking my question just following up on the pricing environment Youre seeing I think you said.
10 market showed nice improvement this quarter.
Up from four prior quarter, I'm, just wondering which markets.
Have you yet to see that turn I suspect Michigan's on my wife's getting your decision there, but any color on which markets here, you're still waiting to see a firm up and what kind of line of say you have as to as to why that might happen. Thank you, Matt you want to take that.
So as you mentioned like we've seen some encouraging.
Rising trends in a in a number of markets. We mentioned 10, there were up quarter over quarter.
The others that did not that were down it was really more flat to barely down.
A couple that I would mention would be Nevada, being one we've not seen pricing improvements happen there just yet but that it was just slightly down and Pennsylvania as well, Pennsylvania again nominally down, but we had not seen.
Some of the growth that we've seen starting to take place and some of these other markets.
So I think but overall, it's an encouraging story that we're seeing in general across the country on the pricing side compared to earlier in the year.
Okay.
You May now go ahead.
No sorry was on mute there.
Hey, everyone. Thanks for taking the questions I'm just wondering if we can get your view on what happened in Ohio, and it seems like.
That's sort of a weird dynamic where you have the actual local politicians.
And the governor Theyre not overly supportive of the initiatives is there any sort of.
Benchmark or any sort of expectation of what we should be looking forward Max to get an idea of if theyre going to actually start regulating this or is this something that you'll sort of believe it when you see it obviously very positive headline, but getting a lot of inbounds on the actual prospects of Ohio Rolling out anytime soon.
So I think that we have to take a look and see if it was a very strong showing at 57% it's going to be very difficult in my opinion to the governor and the legislature to try and roll that back to Nate. They also have some time limits. According to the legislation that they have to so they have to start issued.
Licenses I believe nine months for adult use.
Listen they can try to hope they can try to slow it down that can try to put all sorts of stickiness books, but I think in the end of the day. The voters in Ohio have supported this wholeheartedly with a 57, a very robust votes about the same as the abortion boat.
And I don't think youre going to see them rolling back on the abortion pill, and so I think that going into <unk>.
A national election year like next year cannabis is becoming a bigger issue.
Think the by the administration and the Democrats at all.
The the moderate Republicans, including short Brown, who is running for reelection and Ohio have seen that cabinet. This is actually a popular subject. If you took a look at looked at the demographics that voted for Canada. It's the fastest growing demographic in the country, which is the young population.
All the way through the population in their fifties all voted for for.
The legalization of cannabis so I think it would be almost suicide for the Republicans to try and stop the program I think they can get literally and violated in the national elections and Oh.
In 2024, so listen I don't expect that absolutely smooth none of these regulators who've ever been completely smooth and launching these programs, but I do think that the program will get washed up within the next year.
Our next question will come from Pablo <unk> with <unk> associates.
You May now go ahead.
Thank you.
I wanted to ask a question regarding.
Oh, Youll see rescheduling playing out so.
The idea was that the industry, including yourselves, we're working in a very collaborative way with executive branch Jesus Bueno.
<unk>, we're hoping to get an answer from DDA and then supposedly Doj would not make the announcement you. The industry. We're also working with the Doj in terms of coming out with a new garden, a memo that would protect the state level programs right. So they don't all that sounded great. But now you have you know companies are apparently.
Are you, saying that went to stop paying its way to eat dogs would ask you to put refunds. Other companies you know initiating a lawsuit against the Doj.
What we would call assuming their subject.
Just wondering are there should we be scared of Openreach and Underquote backfire in industrial AR.
You know how the executive branch was thinking about what can we the industry.
Listen I think I can't speak for what my competitors are doing in terms of paying I can only say that clearly continues to pay the taxes and we will continue to pay our $2 80.
As we have not.
We're obviously looking at the the decisions made by some of our competitors not paying the taxes that were certainly talking to our advisors about that but at the moment purely does not changed that stance on the fact that we feel that we have to pay our taxes.
And in terms of cooperation with the state I I continue to be a strong believer that we're going to get.
Rescheduling sooner rather than later.
There is all sorts of incentives and reasons why.
Dubai The administration wants to do this and I think that we're going to see it pretty pretty soon so I'm continued to be quite positive on rescheduling of TUI. I also have to say that I'm reasonably positive on states, making it into one of the major builds that's going to get approved at the end of the year.
We've seen heightened activity in the last couple of days obviously, the last month has been a major disappointment largely driven by a.
Global geopolitical situations as well as the payoffs that took place in the house of Representatives, but now that we have a house speaker, we have schumer and I think the Ohio vote underscored the popularity of what we're seeing.
So I think that we're going to see we may even see safe banking. This year. So all in all I continue to be cautiously optimistic with positive of that.
We're going to get some major pieces of federal legislation, but again I want to reiterate we're not waiting for it in terms of managing our business.
Focused on making sure our business is well run and is well run within the current framework that we have and we are probably in the last year never felt better about the way we're going to enter into 2024.
Meaningly, we've we've put an enormous amount of cost we got rid of all of the businesses that were not contributing to the bottom line and I think that we're going to see fairly robust growth.
Given New York in Germany, and other markets, but also we're going to see I think some expansion of our margins going back as I said in my previous statements to the 50 plus percent gross margin and then subsequent expansion.
Of EBITDA margins as well so we feel very positive and if we can get federal legislation. That's just icing on the cake.
Again, if you have a question please press star one.
Our next question will come from.
Will come from Eric Laurie Laurie with Craig Hallum Capital Group.
No go ahead.
Thank you for taking my question.
Kind of a high level strategy one for me.
Hum.
Certainly think exiting some of those unprofitable states makes sense as you look to optimize.
Cash flow.
My question is should we expect.
M&A to remain at all part of the go forward strategy here.
If so sort of how how might that fit in.
Would that be sort of international I don't know you kind of just talking within certain states I guess, just an update on your thinking on M&A would be great. Thanks.
We're going to be very optimal opportunistic with M&A, we're looking at adding some stores in different places where we can.
Yes, we are looking at potentially adding a distributor in Poland.
So we can have our own distribution there, but these are small minor acquisitions nothing meaningful at this point given what the cost of capital too.
Where our stock is we don't want to take any dilution at this point in time that we really want to focus on optimizing and getting our margins back to where they were last year.
At the 50 plus percent gross margin closer to 30% on the EBITDA margin and that's that's really the focus is purely right now and I think that we're going to do that over the next couple of quarters going into next year and acquisitions will be incredibly focused and ones that are accretive and bring in RA.
Revenue almost immediately but we're not looking at doing anything major at this point in time.
Yeah.
This concludes our question and answer session I would now.
Like to turn the conference back over to Matt Barrett for any closing remarks.
Thanks, everyone for joining us for our call have a safe and happy holidays, and we'll look forward to speaking you next year.
Okay.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.