Q2 2024 Curaleaf Holdings Inc Earnings Call
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Operator: Good afternoon, and welcome to the Curaleaf Holdings second quarter 2024 conference call. All participants will be in a listen-only mode. Should you need any assistance, please signal a conference specialist by pressing the star key, followed by zero. After today's presentation, there will be an opportunity to ask questions. Shall I ask a question?
Good afternoon, and welcome to procure at least holding second quarter 2024 conference call.
Speaker Change: All participants will be in unless you are in the marriage.
Should you need any assistance please signal a conference specialist by pressing the stocky followed by Gerard.
After today's presentation there'll be an opportunity to ask questions.
Operator: You may press star, then 1, on your touchtone phone. To withdraw your question, please press star, then 2. Please note, this event is being recorded. I would now like to turn the conference over to Camilo Lyon. Please go ahead.
So that's a good question Christa and one on your Touchtone fine.
Joe Joel Your question. Please press Star then two.
Speaker Change: Please note this event is being recorded.
Terry Miller: I would now like to turn the conference over Terry Miller One. Please go ahead.
Yeah.
Yeah.
Speaker Change: [music].
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Speaker Change: Okay.
Camilo Lyon: Good afternoon, everyone, and welcome to Curaleaf's Second Quarter 2024 conference call today, and apologies for those technical difficulties at the start. Today I am joined by Executive Chairman Boris Jordan, Chief Executive Officer Matt Darin, and Chief Financial Officer Ed Kremer.
Speaker Change: Good afternoon, everyone and welcome to Chili's.
Speaker Change: Second quarter 2024 conference call today, and apologies for this technical difficulties at the start.
Speaker Change: I'm joined by Executive Chairman, Boris Jordan, Chief Executive Officer, Matt, Darren and Chief Financial Officer before we begin I'd.
Camilo Lyon: 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 the Canadian and U.S. securities laws, which by their nature involve estimates, projections, plans, goals, forecasts, and assumptions, including the successful integration of acquisitions, and are subject to risk and uncertainties that could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements on certain material factors or assumptions 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.
Speaker Change: I'd like to remind everyone that the comments on today's call will include forward looking statements within the meaning of the Canadian and U S Securities laws, which by their nature involve estimates projections plans goals forecasts and assumptions, including the successful integration of acquisitions and are subject to risks and uncertainties that could cause actual results or outcomes to.
Camilo Lyon: We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by applicable law. Additional information about the material factors and assumptions forming the basis of the forward-looking statements and risk factors can be found in the company's filings and press releases on CDAR and EDGAR.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: 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 release on SEDAR and Edgar.
Camilo Lyon: During today's conference call, in order to provide greater transparency regarding Curaleaf's operating performance, we will refer to certain non-GAAP financial measures and non-GAAP financial ratios that involve adjustments to GAAP results. Such non-GAAP measures and ratios do not have a standardized meaning under U.S. GAAP. Any non-GAAP financial measures presented should not be considered to be an alternative to financial measures required by U.S. GAAP, should not be considered measures of Curaleaf's liquidity, and are unlikely to be comparable to non-GAAP financial measures provided by other companies.
Speaker Change: During today's conference call in order to provide greater transparency regarding <unk> operating performance, we'll refer to certain non-GAAP financial measures and non-GAAP financial ratios that involve adjustments to GAAP results, such non-GAAP measures and ratios do not have a standardized meaning under U S. GAAP.
Speaker Change: Any non-GAAP financial measures presented should not be considered to be an alternative to financial measures required by U S. GAAP should not be considered measures of purely liquidity and are unlikely to be comparable to non-GAAP financial measures provided by other companies.
Camilo Lyon: Any 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 release issued today and available on our investor relations website at ir.curaleaf.com. With that, I'll turn the call over to Chief Executive Officer Matt Jones.
Speaker Change: Any non-GAAP financial measures referenced on this call are reconciled to the most directly comparable U S. GAAP financial measures under the head any reconciliation of non-GAAP financial measures in our earnings release issued today and available on our Investor Relations website at IR <unk> com.
Speaker Change: With that I'll turn the call over to Chief Executive Officer, Matt Yeah, Yeah.
Matt: Thank you Camilo good afternoon, everyone.
Matt Darin: Before we get into the details of the call, I'd like to address our investors, the financial community, and all Curaleaf employees listening to the call. After much reflection, I have decided to retire from my post as CEO to focus on more time with my family. When I embarked on my cannabis journey 11 years ago, I could not have envisioned where it would take me. My cannabis career began behind a dispensary counter serving medical patients in the first days of the Illinois market. This experience opened my eyes to the power of cannabis plants and inspired me to dedicate my life to this amazing industry.
Matt: Before we get into the details of the call I'd like to address our investors the financial community and all <unk> employees listening to the call.
Speaker Change: After much reflection I have decided to retire from my post as CEO to focus on more time with my family.
Speaker Change: When I embarked on my cannabis journey 11 years ago, I could not have envisioned where it would take me.
Speaker Change: Canada's career began behind the dispensary counter serving medical patients in the first days of the Illinois market.
Speaker Change: This experience opened my eyes to the power of the cannabis plant and inspired me to dedicate my life to this amazing industry.
Speaker Change: My partners and I worked hard to grow the grassroots business rapidly and had to get fortunate to sell it securely in 2020.
Speaker Change: I was thrilled to have been part of this transformative transaction that help create the largest cannabis company in the world.
Matt Darin: My partners and I worked hard to grow the grassroots business rapidly and had the good fortune to sell it to Curaleaf in 2020. I was thrilled to have been part of this transformative transaction that helped create the largest cannabis company in the world. After various leadership positions at Curaleaf, I became CEO in May 2022. And in those two plus years, I've had the honor to work alongside and develop relationships with truly exceptional people whom I will miss.
Speaker Change: After various leadership positions accurately I became CEO in May 2022, and in those two plus years I've had the honor to work alongside and develop relationships with truly exceptional people who myeloma.
Matt Darin: I'm grateful to Boris for giving me the opportunity to lead the best cannabis company in the world. I will stay on as a special advisor to the CEO until year end to ensure there is an orderly transition as Boris steps in to lead Curaleaf into the future. I am proud of all that we have accomplished and look forward to watching the company execute its vision of being a global leader in Canada.
Speaker Change: I'm grateful to Boris for giving me the opportunity believes the best cannabis company in the World.
Boris: I will stay on as a special advisor to the CEO until year end to ensure there is an orderly transition as Boris steps in Philly cheerlead into the future.
Speaker Change: I am proud of all that we've accomplished and look forward to watching the company execute its vision of being the global leader in Kansas.
Matt Darin: We are at a pivotal time for our industry on the cusp of federal reform, and the future is very bright. I leave knowing the business is foundationally stronger today than when I found it, and, more importantly, that Curaleaf's best days are yet to come.
Speaker Change: We are at a pivotal time for our industry on the cost of federal reform and the future is very bright.
Speaker Change: I leave knowing the business is foundational is stronger today than when I found it and more importantly, securely best days are yet to come.
Speaker Change: Boris.
Boris Jordan: Thank you, Matt, for your leadership, your contributions to the business, and your endless dedication to Curaleaf. It's been a pleasure working with you, and along with the entire company, I wish you a great time with your family, and I'm grateful that you're staying on as a special advisor to me in this transition. With Curaleaf's deep bench of talent, I have every confidence this will be a smooth
Speaker Change: Thank you Matt for your leadership your contributions to the business and your endless dedication that clearly it's been a pleasure working with you and along with the entire company I wish you a great time with your family and I'm grateful that you're staying on as a special adviser to me in this transition.
Speaker Change: With purely a deep bench of talent I have every confidence this will be a smooth transition well have remained close to the business as executive Chairman and my expanded role as CEO I'll be able to better effectuate further streamlining of the organization speed up decision, making accelerate growth initiatives and drive margin expansion and doing this pure leaf will return to.
Boris Jordan: While I have remained close to the business as Executive Chairman, in my expanded role as CEO, I will be able to better effectuate further streamlining of the organization, speed up decision-making, accelerate growth initiatives, and drive margin expansion. In doing this, Curaleaf will return to its entrepreneurial roots, which were grounded in a more streamlined and leaner organization. I have always operated under this mindset to successfully create numerous multi-billion dollar global businesses across financial services, technology, and energy industries, and cannabis will be no different.
Speaker Change: It's entrepreneurial roots, which were grounded in a more streamlined and leaner organization I've always operated under this mindset to successfully create numerous multibillion dollar global businesses across financial services technology and energy industry in Canada will be no different.
Boris Jordan: Since co-founding Curaleaf 10 years ago, my team and I have been involved in 26 acquisitions in the U.S. and Europe to build Curaleaf into the global cannabis business it is today. During the last 18 months, we started an aggressive streamlining campaign, which led to the shutdown of operations in efficient markets, significant expense reductions of over $90 million, and a return to a regionalized management structure, which has brought us closer to our customers and our market.
Speaker Change: Since co founding purely 10 years ago, My team and I have been involved in 'twenty six acquisitions in the U S and Europe, the bulk purely some of the global cannabis business.
Speaker Change: During the last 18 months, we start an aggressive streamlining campaign, which led to a shutdown of operations inefficient markets significant expense reduction of over $90 million and returned to a regionalized management structure, which has brought us closer to our customer in our markets. This work positions us to reap the benefits of the platform that we've created.
Boris Jordan: This work positions us to reap the benefits of the platform that we've created with revenue growth, expanding margins, and cash flow generation. More recently, we embarked on a profit growth action plan aimed at driving greater efficiencies across all of our cultivation processing facilities. Driving these changes is our new EVP of operations, who recently came to us from one of the top tier competitors. His impact on the team and the overall business has already been felt.
Speaker Change: With revenue growth expanding margins and cash flow generation.
Speaker Change: More recently, we've embarked on a profit growth action plan aimed at driving greater efficiencies across all of our cultivation processing facilities driving these changes as our new EVP of operations, who recently came to us from one of the top tier competitors is impact on the team and the overall business has already been felt processes and standards have improved dramatically which is <unk>.
Boris Jordan: Processes and standards have improved dramatically, which is contributing to higher quality and more consistent flower. These initiatives will build on an already strong market share position Curaleaf enjoys across the country, with Select as the number one VE brand and Grassroots and Find holding two of the top four positions in flower. Our focus on yield management and cost containment is also starting to bear fruit and will combine to drive tangible margin improvement over the next two to three quarters.
Speaker Change: <unk> to higher quality and more consistent flower. These initiatives will build on an already strong market share position purely enjoys across the country with select as the number one brand in grassroots and find holding two of the top four positions and flower or focus on yield management and cost containment is also starting to bear fruit and will.
Speaker Change: Combined to drive tangible margin improvement over the next two to three quarters.
Boris Jordan: In fact, we exited the second quarter on a high note with a June gross margin of 50%, and that trajectory has improved in July. Today we are in a much more focused and leaner organization than we were two years ago, but I see many opportunities for the company to go further in its efforts. We have a concrete strategy centered on building a platform for our brands that will power our financial model and drive growth globally.
Speaker Change: We exited the second quarter on a high note with a June gross margin of 50% and that trajectory has improved in July.
Speaker Change: Today, we are in a much more focused and leaner organization award two years ago, but I see many opportunities for the company to go further in a separate we have a concrete strategy centered on building a platform for our brands that will power, our financial model and drive growth globally.
Boris Jordan: To that end, I have always had a great vision of making Curaleaf the dominant global consumer products manufacturer and distributor of cannabis products, and while there has been great progress made in the face of turbulent markets, there is much more for us to achieve. I will work tirelessly for our customers, our shareholders, and our employees to ensure the company reaches its fullest potential, particularly as the industry embarks on its next significant evolution once rescheduling is finalized. Moving on, to our second quarter review.
Speaker Change: And I've always had a great vision of making <unk>, the dominant global consumer products manufacturer and distributor of cannabis products and while there has been great progress made in the face lips turbulent markets theres much more for us to achieve I will work tirelessly for our customers and our shareholders and our employees to ensure the company reaches its full potential particularly in the <unk>.
Speaker Change: At the industry embarks on its next significant evolution once we're scheduling it is finalized.
Boris Jordan: Second quarter revenue of $342 million was up 2% compared to last year's second quarter revenue of $336 million. Adjusted gross margins of 48% were up 250 basis points compared to last year. As previously mentioned, our gross margin showed successive improvement each month, with June exiting the quarter at 50%. I'm encouraged by this progress and expect back half margins to also trend in the 50 plus percent range. Adjusted EBITDA was $73 million, or 21.3 percent, compared to $72 million, or 21.5 percent, last year.
Speaker Change: Moving onto our second quarter review second quarter revenue of $342 million up 2% compared to last year's second quarter revenue of $336 million adjusted gross margins of 48% was up 250 basis points compared to last year. As previously mentioned our gross margin showed successive improvement each month with June exiting the quarter at 50.
Speaker Change: I'm encouraged by this progress and expect back half margins to also trend in the 50 plus percent range adjusted EBITDA was $73 million or 21, 3% compared to $72 million or 21, 5% last year continued investments in our rapidly growing international segment, coupled with new startup investments in the hemp.
Boris Jordan: Continued investments in our rapidly growing international segment, coupled with new startup investments in the hemp company, weighed on our margins by a combined 180 base points. These investments are critical to supporting the current and future revenue streams from these newer segments that complement our domestic regulated business. In addition, we also made $58 million in tax, acquisition, and debt-related payments during the quarter to further reduce leverage on our balance sheet while also investing $25 million in capital projects.
Speaker Change: Company weighed on our margins by combined 180 basis points. These investments are critical to supporting the current and future revenue streams from these newer segments that complement our domestic regulated business. In addition, we're also made $58 million in tax acquisition and debt related payments during the quarter to further reduce leverage on our balance sheet while all.
Speaker Change: So investing $25 million in capital projects despite.
Boris Jordan: Despite these investments and debt payments, Curaleaf ended the quarter with $89 million of cash on the balance sheet and generated operating cash flow from 10-year operations of $30 million and $6 million in free cash. Thus far in 2024, unfolding as a, and 2020 is unfolding as we guided with growth back end weighted. Specifically, we entered the year with a view that growth would be subdued in the first half due to continued price compression, the shift from retail to wholesale, and increased competition from the hemp market before picking up in the second half as state and country catalysts come online.
Speaker Change: Despite these investments and that payment is purely by ended the quarter with $89 million of cash on the balance sheet and generated operating cash flow and send your operations of $30 million and 6 million in free cash flow.
Speaker Change: Thus far in 2024 on holding.
Speaker Change: Yeah.
Speaker Change: One five is unfolding as we guided with growth backend weighted specifically, we entered the year with a view that growth would be subdued in the first half due to continued price compression the shift from retail to wholesale and increased competition from the hemp market before accelerating in the second half as state and country catalysts come online, let's delve into these.
Boris Jordan: Let's delve into these catalysts that will drive accelerated growth and include New York, Ohio, Florida, international, and hemp. After a rocky start to its adult use program, New York is showing signs of becoming a strong and healthy market for us. Actions taken by the governor's office to support law enforcement have resulted in over a thousand illicit operators shutting down, at last count, to the direct benefit of the legal market.
Speaker Change: Catalysts that will drive accelerated growth and include New York, Ohio, Florida International and health.
Speaker Change: After a rocky start towards the adult use program in New York is showing signs of becoming a strong and healthy market for us actions taken by the Governor's office to support law enforcement has resulted in over 1000 illicit operators shutting down at last count to the direct benefit of the legal market. Assuming this trend of enforcement continuous New York is on a solid path to becoming a $5 billion.
Boris Jordan: Assuming this trend of enforcement continues, New York is on a solid path to becoming the $5 billion market opportunity we always envisioned it would be. To extend our leadership position in the state, we recently opened a new medical store in Rochester and converted two of our medical stores to co-located medical and adult use. With respect to wholesale, which is the market we are eyeing, we have been successful in opening new independent accounts every week. To date, there are approximately 151 adult-use dispensaries in New York, and we are selling into roughly 50% of them, a solid increase from last quarter. Without question, New York is about maximizing wholesale.
Speaker Change: Market opportunity, we always envisioned it would be to extend our leadership position in the state. We recently opened a new medical store in Rochester, and converted two of our medical stores co located medical and adult use stores with respect to wholesale which is the price. We are we have been successful in opening new independent accounts every week to date there are approximately.
Speaker Change: 151 adult use dispensaries in New York, and we're selling it to roughly 50% of them a solid increase from last quarter without question. New York is about maximizing wholesale we are hyper focused on our series, a and the necessary resources and upgrading our sales down to ensure we are best positioned in all partner doors in the second quarter. These efforts translate into.
Boris Jordan: We are hyper-focused on allocating the necessary resources and upgrading our sales down to ensure we are best positioned at all partner doors. In the second quarter, these efforts translated into 153% wholesale growth compared to last year. We are thrilled to have been a part of the first group of dispensaries to open Ohio Institute, our brand portfolio across the state as adult use sales formally began yesterday. We had a fantastic reception by the local community at our first approved adult use dispensary in Newark, Ohio, with lines out the door, and our second adult use store in Chahoga Falls opened at 8am today.
Speaker Change: 153% wholesale growth compared to last year, we are thrilled to have been a part of the first group of dispensaries to open.
Speaker Change: And to our brand portfolio across the state as adult use sales formally commenced yesterday, we got a fantastic reception by <unk>.
Speaker Change: Our local community our first approved adult use dispensaries, Newark, Ohio store with lines out the door and our second adult new store Joe Hogan.
Speaker Change: <unk> opened at eight a M. Today.
Boris Jordan: Given its low medical penetration rate, Ohio is a market we see reaching two billion over the next few years. To capture as much share as possible, our retail team is moving quickly to open our next six stores, which we expect will be complete by early 2025. Our Johnstown facility is one of our most productive in our fleet, and we are looking forward to introducing Oloheins to the broader wholesale market for our full assortment of top-tier brands and products, with Amendment 3 consistently polling in the mid-60s.
Speaker Change: Given its low medical penetration rate, Ohio is the market, we see reaching 2 billion over the next few years to capture as much share as possible. Our retail team is moving quickly to open our next six stores, which we expect will be completed by early 2025, our Johnstown facility is one of our most productive in our fleet and we're looking forward to introducing all hands to the broader wholesale.
Speaker Change: For a full assortment of top tier brands and products.
Speaker Change: With amendment three consistently polling in the mid sixties.
Boris Jordan: The Cannabis Adult Use Ballot Initiative in Florida is looking promising. To this end, we are investing in tripling our indoor cultivation capacity and expanding our total store counts to approximately 85 in the state by the time adult use likely begins next May. We opened one new store during quarter two, and we expect two stores to open next week, with the opening pace set to accelerate thereafter. Not surprisingly, Florida is consuming the lion's share of our CapEx budget this year.
Speaker Change: The cannabis for adult use ballot initiative in Florida is looking promising.
Speaker Change: And we are investing and tripling, our indoor cultivation capacity and expanding our total store count to approximately 85 in the state by the time adult use likely begins next Matt we opened one new store during quarter two expect to to open stores to open next week with opening pace set to accelerate thereafter not surprising.
Speaker Change: Florida is consuming the lion's share of our Capex budget. This year, however, given the opportunity for the market to tripled to $6 billion at high margins due to its retail only structure, we are not slowing down Florida already as the top state by revenue and margin for us and the potential conversion to adult use market will have a significantly.
Boris Jordan: However, given the opportunity for the market to triple to $6 billion at high margins due to its retail-only structure, we are not slowing down. Florida already is the top state by revenue and margin for us, and the potential conversion to an adult use market will have a significantly positive impact on our business. Our international business experienced superb 78% year-over-year growth led by the UK, Germany, Poland, and contributions from Northern Green Acquisition. Following the enactment of Germany's expanded Pillar 1 medical program on April 1st, the number of new cannabis patients entering the program has seen a significant surge, resulting in a remarkable 76% sequential growth for Curaleaf in the quarter.
Speaker Change: Positive impact on our business.
Speaker Change: Our international business experienced <unk>, 78% year over year growth led by the UK, Germany, Poland and contributions from Northern Greene acquisition.
Speaker Change: Following the enactment of Germany's expanded pillar one medical program on April 1st the number of new cannabis patients entered the program has seen a significant search resulting in a remarkable 76% sequential growth for purely in the quarter.
Boris Jordan: Our 420 brand, known for its premium positioning, continues to enjoy an estimated 20% market share. In addition, today we introduced our Curaleaf branded flower at more accessible price points to accommodate the growing number of cost-conscious patients looking for product quality and consistency at affordable prices, further helping to solidify and extend our market share position. These initial numbers out of Germany are impressive and underscore our view that cannabis demand by Germans is robust.
Speaker Change: Our $4 20 brand known for its premium positioning continues to enjoy an estimated 20% market share. In addition, today, we introduced our <unk> branded flower at more accessible price points to accommodate the growing number of cost conscious patients looking for product quality and consistency at affordable prices further helping to solidify and extend our market share.
Speaker Change: Position.
Speaker Change: These initial numbers out of Germany are impressive and underscore our view that cannabis demand by Germans as robust. However, we are still in the early stages of growth in the vastly underpenetrated market total patients today are estimated to be between 200 200 to 300000 out of a population of $84 million, implying just a <unk> 4%.
Boris Jordan: However, we are still in the early stages of growth in this vastly underpenetrated market. Total patients today are estimated to be between 200,000 and 300,000 out of a population of 84 million, implying just 0.4% penetration.
Boris Jordan: I am highly optimistic about Germany's cannabis future and its influence on the rest of the EU nations, thus putting Curaleaf in an enviable position to win across the continent. The United Kingdom also showed robust growth, and we are extending our shared position. Our UK clinic was awarded Cannabis Clinic of the Year at the Cannabis Business Awards in June, amongst other awards recognizing the Curaleaf team as an international industry leader. On April 22nd, we closed the Northern Green acquisition, marking another milestone in our strategic vision to create a truly global supply chain through which we can distribute our portfolio of brands in 15 countries. To that end, we shipped our first wholesale orders to Australian and New Zealand partners, marking Curaleaf's entry into the Asian region.
Speaker Change: Sure.
Speaker Change: I'm highly optimistic on Germany's cannabis future and its influence on the rest of the EU nations, thus, putting pure leaf in an enviable position to win across the continent.
Speaker Change: And I did kingdom also showed robust growth and we are extending our share position. Our UK clinic was awarded candidates clinical year at the candidates business Awards in June amongst other awards recognizing the pure leaf team international industry leaders on April 20, <unk>, we closed the northern Greene acquisition, marking another milestone in our strategic vision.
Speaker Change: To create a truly global supply chain through which we can distribute our portfolio of brands in 15 countries to that end, we shipped our first wholesale orders to Australia, and New Zealand partners Martin <unk> entry into the Asian region.
Speaker Change: Yeah.
Boris Jordan: NGC is an integral part of our international strategy as well as our margin enhancement plan. To this point, I am pleased to report that international gross margins improved meaningfully this quarter, with NGC partially contributing to the gains. We will begin seeing the full quarter benefits of the acquisition in the third and fourth quarters.
Speaker Change: And we see as an integral part of our international strategy as well as our.
Speaker Change: As well as our margin enhancement plan to this point I am pleased to report that international gross margins improved meaningfully this quarter with NBC, partially contributing to the gains we will begin seeing the full quarter benefit of the acquisition in the third and fourth quarters and we see his contribution to our margins will increase.
Boris Jordan: NGC's contribution to our margins will increase. As we complete the integration of NVC and begin to scale production in our Portuguese cultivation facility with purely branded flour, we expect to realize continued international gross margin improvements through year-end, thus narrowing the gap with our domestic gross margin. When assessing the nascent market signals in Europe, it is impossible to dismiss the striking similarities between Curaleaf's U.S. business in 2018 and Curaleaf's international business today. In 2018, our domestic revenue was $77 million, and over five years, we grew it to $1.3 billion.
Speaker Change: As we complete the integration of MDC and begin to scale production in our Portuguese cultivation facility with purely branded flower, we expect to realize continued international gross margin improvements so you're at thus narrowing the gap with our domestic gross margins.
Speaker Change: When assessing the nascent market signals in Europe. It is impossible to dismiss the striking similarities between purely U S business in 2018 and purely international business today in 2018, our domestic revenue was $77 million in over five years, we grew to $1 3 billion in Europe, which is twice the population of the U S.
Boris Jordan: In Europe, which is twice the population of the U.S., we are the largest operator, and yet it remains early days in the development of the European cannabis market. Given the tremendous opportunity ahead, I believe the growth rates in our international segment over the next five years could look similar to what we've experienced in the U.S. In June, we announced our entry into the hemp-derived THC market with two product lines, Select Edibles and Select Zero-proof Seltzer.
Speaker Change: We arent largest operator and yet it remains early days in the development of the European candidates industry, given the tremendous opportunity ahead I believe the growth rates in our international segment over the next five years could look similar to what we experienced in the U S.
Speaker Change: In June we announced our entry into the hemp derived THC market with two product lines select edible select zero Celsius, our decision to enter the home category. It was based on two factors first to expand the select brand in a capital light manner to consumers, we're not reaching today with responsibly sourced and tested products.
Boris Jordan: Our decision to enter the Hemp category was based on two factors. First, to expand the select brand in a capital-like manner to consumers we are not reaching today with responsibly sourced, safe, and tested products. And second, to use it as a hedge against our regulated business.
Speaker Change: And second to use it as a hedge against our regulated business leveraging distribution channels not available on a regulated business, we launched our direct to consumer websites. The hemp company Dot com that currently ships the twenty-five states plus D. C. We also entered into the groundbreaking partnership with a large direct to consumer distribution partner in the U S.
Boris Jordan: Leveraging distribution channels not available in our regulated business, we launched our direct-to-consumer website, thehempcompany.com, that currently ships to 25 states plus D.C. We also entered into a groundbreaking partnership with a large direct-to-consumer distribution partner in the U.S. There's no question that the regulated cannabis and hemp worlds are converging rapidly. Ultimately, we believe the consumer will not distinguish between the two channels as long as the trust in our products and brands remains uniform.
Unknown Attendee: All participants will be in a listen-only mode. Should you need any assistance please signal a conference specialist by pressing the star key followed by zero.
Unknown Attendee: After today's presentation there will be an opportunity to ask questions. To ask a question you may press staff then one on your touch-tone phone. To withdraw your question please press staff then two.
Speaker Change: There is no question that the regulated cannabis and hemp world are converging rapidly ultimately we believe the consumer will not distinguish between the two channels as long as the trust in our products and brands remains uniform.
Unknown Attendee: Please note this event has been reported.
Camilo Lyon: I would now like to turn a conference over to Camilo Lyon. Please go ahead, and everyone. And welcome to Curaleaf's second quarter, 2024, conference call today. An apologies for the technical difficulties at the start.
Boris Jordan: While it's still early days, we're pleased with the positive reception our hemp line of select products is getting from customers, distributors, and retailers, as this category is poised to become a more meaningful contributor to Curaleaf in the coming year. As such, we expect to grow the hemp business rapidly through increased breadth of distribution partners and expanded product line assortment in beverages. We believe the combination of our select hemp and select cannabis lines will further extend the select brand's number one position in the U.S. All that said, I'm cognizant of the choppy environment the industry is contending with. Price compression is still present in important states like Arizona and Florida, where we have a number one and number two share position, respectively.
Speaker Change: While we while still early days, we're pleased with the positive reception to our hemp line of select products, we are seeing from customers distributors and retailers as this category is poised to become a more meaningful contributor securely in the coming years.
Speaker Change: As such we expect to grow the hemp business rapidly through increased breadth of distribution partners and expanded product line assortment in beverages. We believe the combination of our select select candidates lines will further extend the select brands number one position in the U S.
Speaker Change: All that said I am cognizant of the choppy environment. The industry is contending with price compression is still present and important states like Arizona, and Florida, where we have a number one and number two share position, respectively, and the natural shift mix shift from retail sales to wholesale is evolving quickly in states, such as Illinois, New Jersey and.
Boris Jordan: And the natural shift, mixed shift from retail sales to wholesale is evolving quickly in states such as Illinois, New Jersey, and New York as independent doors open. Ultimately, the expansion of the wholesale market is healthy for the industry and the growth of our brand portfolio. Wholesale distribution of our brands has always been our long-term vision, and we will continue to scale the business in a manner that leverages the benefits of both channels of distribution.
Speaker Change: New York is independent doors open ultimately the expansion of the wholesale market as a whole is healthy for the industry and the growth of our brand portfolio.
Speaker Change: Wholesale distribution of our brands has always been our long term vision and we will continue to scale the business in a manner that leverages the benefits of both channels of distribution.
Boris Jordan: Turning to our outlook, we remain consistent in our view that the business will accelerate in the back half of the year, both in revenue and margin. We continue to expect full-year revenue growth at a mid-single-digit rate, albeit at the lower end of the range, consistent with our current consensus of $1.4 billion. As previously discussed, we see many exciting growth opportunities to compete for, not the least of which are international and the hemp company.
Speaker Change: Turning to our outlook, we remain consistent in our view that the business will accelerate in the back half of the year. Both in revenue and margin. We continue to expect full year revenue will grow at a mid single digit rate, albeit at the lower end of the range consistent with our current consensus of $1 4 billion as previously discussed we see many exciting growth opportunities to compete.
Speaker Change: For not the least of which are international and the health company. We continue to expect adjusted EBITDA margins to be in the mid 'twenty, albeit at the lower end of the range due to these anticipated investments.
Boris Jordan: We continue to expect adjusted EBITDA margins to be in the mid-20s, albeit at the lower end of the range due to these anticipated investments. In closing, I step into the CEO role with my eyes wide open about the complexities of operating a global cannabis enterprise, but I'm also excited about the opportunities in front of Curaleaf to forge new paths. We will be mindful to remain focused on executing the basics with precision every day.
Speaker Change: In closing I step into the CEO roles with my eyes wide open about the complexities of operating a global cannabis enterprise, but I also excited about the opportunities in front of purely to forge new paths, we will be mindful to remain focused on executing the basics with precision every day with the strength of support from our 5000 plus.
Boris Jordan: With the strength and support from our 5,000-plus global team members, whom I want to thank for their daily effort and hard work, Curaleafs has never been in a better position to lead the global cannabis market. With that, I'll turn the call over to our CFO, Ed Kremer.
Speaker Change: Abel team members, whom I want to thank for their daily effort and hard work releases have never been in a better position to lead the global cannabis market with that I'll turn the call over to our CFO Ed <unk>.
Ed: Thank you Boris total revenue for the second quarter was $342 million, representing a year over year increase of 2% growth was driven by strength in Maryland, New York, Utah in Ohio, as well as 78% growth in our international segment.
Ed Kremer: Total revenue for the second quarter was $342 million, representing a year-over-year increase of 2%. Growth was driven by strength in Maryland, New York, Utah, and Ohio, as well as 78% growth in our international business. Our domestic segment represented 93% of total revenue, and our international segment expanded 7% of total revenue, 150 basis points higher than in the first quarter. As previously mentioned, international growth was driven by the UK, Germany's pillar one medical market expansion, and the addition of NGC.
Ed: Our domestic segment represented 93% of total revenue in our international segment expanded 7% total revenue of 150 basis points higher than in the first quarter.
Speaker Change: As previously mentioned international growth was driven by the U K, Germany pillar, one medical market expansion and the addition of <unk>.
Ed Kremer: By channel, retail revenue was $265 million compared to $277 million in the second quarter of 2023, down 4% year-over-year as the shift from retail to wholesale that began in earnest last quarter continued in Q2, most notably in New Jersey, Illinois, and New York, where the largest number of independent retailers have opened this year. Specifically, a Belmar, New Jersey, store had an outsized impact on the year-over-year retail decline due to increased store openings in the immediate area.
Speaker Change: By channel retail revenue was $265 million compared to $277 million in the second quarter of 2023 down 4% year over year as the shift from retail to wholesale that began in earnest last quarter continued in Q2, most notably in New Jersey, Illinois, and New York, where the largest number of independent retailers have opened this year.
Speaker Change: Specifically I'll Belmar, New Jersey store had an outsized impact on the year over year retail declined due to increased store openings in the immediate area.
Ed Kremer: Wholesale revenue increased 31% to $77 million compared to last year's $58 million and represented 22% of total revenue. The strength of our wholesale revenue was driven by New Jersey, Illinois, New York, Pennsylvania, and our international segment. We delivered our first wholesale shipments to Australia and New Zealand in the second quarter.
Speaker Change: Wholesale revenue increased 31% to $77 million compared to last year's $58 million and represented 22% of total revenue.
Speaker Change: The strength of our wholesale revenue was driven by New Jersey, Illinois, and New York, Pennsylvania, and our International segment, we delivered our first wholesale shipments to Australia, and New Zealand in the second quarter.
Ed Kremer: Moving into retail consumer metrics, transactions were flattish in the second quarter compared to last year. Second quarter basket trends were consistent with the first quarter, as year over year units per transaction were down 7%, partially offset by an AUR increase of 3% compared to last year. We believe the lower income consumer continues to opt for our value offerings as pressure on disposable income from inflation and high interest rates has not abated. That said, innovation and newness are inspiring increased trial rates on products like liquid diamonds and fruit.
Speaker Change: Moving into retail consumer metrics transactions were flattish in the second quarter compared to last year second quarter basket trends were consistent with the first quarter as year over year units per transaction were down 7%, partially offset by AUR increase of 3% compared to last year.
Speaker Change: We believe the lower income consumer continues to opt for our value offerings as pressure on disposable income from inflation and high interest rates has not abated that said innovation and newness are inspiring increased trial rates on products like liquid diamonds and fruit stick.
Ed Kremer: Our second quarter gross profit was $160 million, resulting in a 47% gross margin. Adjusted gross profit was $163 million, or 48%. Sequentially, Q2 adjusted gross margin remained steady as a 100 basis point increase in our vertical mix and higher utilization were offset by price compression.
Speaker Change: Our second quarter gross profit was $160 million, resulting in a 47% gross margin.
Speaker Change: Adjusted gross profit was $163 million or 48%.
Speaker Change: Sequentially Q2, adjusted gross margin remained steady at 100 port.
Speaker Change: 100 basis point increase in our vertical mix and higher utilization were offset by price compression.
Ed Kremer: Year-over-year Q2 adjusted gross margin increased 250 basis points due to stronger wholesale margin and higher utilization rates in our facility. SG&A expenses were $110 million in the second quarter and increased $1 million from the year-ago period. Core SG&A was $106 million, an increase of $12 million from the prior year. The year-over-year increase in our core SG&A primarily reflects investments in international operations, including the acquisition of NGC, new star openings in Florida, and our new hemp line.
Speaker Change: Year over year Q2, adjusted gross margin increased 250 basis points due to stronger wholesale margin and higher utilization rates in our facilities.
Speaker Change: SG&A expenses were $110 million in the second quarter and.
Speaker Change: And increased $1 million from the year ago period.
Camilo Lyon: Today I am joined by executive chairman Boris Jordan, chief executive officer, Matt Darin, and chief financial officer Ed Kremer. Before we begin, I'd like to remind everyone that the comments on today's call will include forward looking savings within the meaning of the Canadian and US securities laws, which by their nature involve estimates, projections, plans, goals, forecasts, and assumptions, including the successful integration of acquisitions, and are subject to risk and uncertainties that could cause actual results or outcomes to differ materially from those expressed in the forward looking savings. On certain material factors or assumptions that were applied in drawing a conclusion or making a forecast in such statements.
Speaker Change: Core SG&A was $106 million, an increase of $12 million from prior year.
Speaker Change: The year over year increase in our core SG&A, primarily reflects investments in the international including the acquisition of NGC, New store openings in Florida, and our new hemp line.
Camilo Lyon: These forward looking savings speak only as of the date of this conference call. It should not be relied upon as predictions of future events. We undertake no obligation to update or revise any forward looking savings, whether as a result of new information, future events, or otherwise, except as required by applicable law. Digital information about the material factors and assumptions forming the basis of the forward looking savings and risk factors can be found in the company's filings and press release on Sudar and Edgar.
Ed Kremer: SG&A was 32% of revenue in the second quarter, and a decrease of 40 basis points compared to the year-ago period. Our second quarter core SG&A rate was 31%, an increase of 280 basis points. Second quarter net loss from continuing operations was $49 million. Net loss per share from continuing operations was $0.06.
Speaker Change: SG&A was 32% of revenue in the second quarter, and a decrease of 40 basis points compared to the year ago period.
Speaker Change: Second quarter core SG&A rate was 31% an increase of 200 and 280 basis points.
Speaker Change: Second quarter net loss from continuing operations was $49 million net loss per share from continuing operations was <unk>.
Ed Kremer: Adjusted EBITDA in the second quarter was $73 million compared to $72 million in the prior year period, a 1% increase. The second quarter adjusted EBITDA margin was $21.3 compared to $21.5 in the prior year. Turning to our balance sheet and cash flow, we ended the quarter with cash and cash equivalents of $89 million. Inventory decreased $9 million, or 4%, compared to last year's second quarter, while net sales grew 2%.
Speaker Change: Adjusted EBITDA in the second quarter was $73 million compared to $72 million in the prior year period, a 1% increase second quarter adjusted EBITDA margin was $21 three compared to 21 five in the prior year.
Speaker Change: Turning to our balance sheet and cash flow.
Speaker Change: We ended the quarter with cash and cash equivalents of $89 million inventory decreased $9 million or 4% compared to last year's second quarter, while net sales grew 2%.
Ed Kremer: Net capital expenditures in the second quarter were $25 million. Given the amendments we discussed earlier, we expect 2024 CapEx spending to be approximately $70 million, the higher end of our range, largely due to our Florida expansion initiative. And should Florida's Amendment 3 pass in November, we could opt to pull forward additional investments from 2025 into the fourth quarter.
Speaker Change: Net capital expenditures in the second quarter were $25 million given the investments we discussed earlier, we expect 'twenty 'twenty four capex spending to be approximately $70 million the higher end of our range largely due to our Florida expansion initiatives and should Florida's Amendment three pass in November we could opt to pull forward additional investments from 2020.
Camilo Lyon: During today's conference call, in order to provide greater transparency regarding careless operating performance, we will refer to certain non-gap financial measures and non-gap financial ratios that involve adjustments to gap results. Such non-gap measures and ratios do not have a standardized meaning under US gap. Any non-gap financial measures presented should not be considered to be an alternative to financial measures required by US gap. Should not be considered measures of careless liquidity and are unlikely to be comparable to non-gap financial measures provided by other companies.
Speaker Change: Into the fourth quarter, we will provide more color on our next earnings call.
Ed Kremer: We will provide more color on our next earnings call. To date, and in the second quarter, we generated operating cash flow from continuing operations of $76 million and $30 million, respectively. Similarly, free cash flow from continuing operations was $39.6 million. Our outstanding debt was $563 million net unamortized debt discounts and deferred financing fees, of which 82% is not due until December 2026. As we continue taking actions to reduce leverage on our balance sheet, during the quarter, we repurchased $15 million of our December 2026 bonds at a 7.75% discount, which combined with our interest savings will save the company approximately $4 million that would have been paid through maturity.
Speaker Change: Year to date and in the second quarter, we generated operating cash flow from continuing operations of $76 million and $30 million, respectively. Similarly free cash flow from continuing operations was $39 $6 million respectively.
Matt Darin: Any non-gap financial measures referenced on this call are reconciled to the most directly comparable US gap financial measures under the heading reconciliation of non-gap financial measures in our earnings release issued today and available on our investor relations website at ir.curly.com With that, I'll turn the call over to Chief Executive Officer, Matt Jerry. Now, thank you Camilo. Good afternoon everyone.
Speaker Change: Our outstanding debt was 563 million net of unamortized debt discount and deferred financing fees of which 82% is not due until December 2026.
Speaker Change: As we continue taking actions to reduce leverage on our balance sheet during the quarter, we repurchased $15 million of our December 2026 bonds at a 775% discount which combined with our interest savings will save the company approximately $4 million that would have been paid to maturity.
Matt Darin: Before we get into the details of the call, I'd like to address our investors, the financial community, and all Caroleaf employees listening to the call.
Ed Kremer: We will continue to be opportunistic with future bond purchases in the second quarter. In the second quarter, we made a total of $58 million in payments for taxes, interest, and acquisition-related payments. I'd like to provide an update on our tax position. After completing our analysis and based on a review of the relevant provision and scheduling history, we are taking the position that Section 280E of the Internal Revenue Code does not apply to Curaleaf's operations.
Speaker Change: We will continue to be opportunistic with future bond purchases in the second quarter.
Speaker Change: In the second quarter, we made a total of $58 million in payments for taxes interest and acquisition related payments.
Matt Darin: After much reflection, I have decided to retire from my post as CEO to focus on more time with my family. When I embarked on my cannabis journey 11 years ago, I could not have envisioned where it would take me. My cannabis career began behind a dispensary counter serving medical patients in the first days of the Illinois market. This experience opened my eyes to the power of the cannabis plants and inspired me to dedicate my life to this amazing industry.
Ed Kremer: As such, we intend to file amended federal and state income tax returns with refund claims for 2022 and protected claims for the fiscal years 2020 and 2021. For 2023 and beyond, Curaleaf will file as a normal corporate file. This position is reflected in our Q2 financial statements, moving a substantial portion of our taxes from current to long-term liability. We're halfway through the year, and while there's macro uncertainty around us, we're optimistic about the growth catalysts we have articulated.
Speaker Change: I'd like to provide an update on our tax position after completing our analysis and based on review of the relevant provision and scheduling history. We are taking the position that the application of section 280 <unk> of the internal revenue code does not apply to cure lease operations as such we intend to file amended federal and state income tax returns with refund claims for 2022.
Speaker Change: And protect the claims for the fiscal year 2020 in 2021 for.
Matt Darin: My partners and I worked hard to grow the grassroots business rapidly and have the good fortune to sell it to Curaleaf in 2020. I was thrilled to have been part of this transformative transaction that helped create the largest cannabis company in the world. After various leadership positions at Curaleaf, I became a CEO in May 2022. And in those two plus years, I've had the honor to work alongside and develop relationships with truly accepting professional people whom I will miss.
Speaker Change: For 2023 and beyond purely full file as a normal corporate filings.
Speaker Change: Disposition as reflected in our Q2 financial statements moving a substantial portion of our taxes from current to long term liabilities.
Speaker Change: We're halfway through the year and while there is macro uncertainty around us we are optimistic about the growth catalysts. We have articulated we are reiterating our fiscal 2024 guidance to mid single digit revenue growth, albeit at the lower end of the range. Similarly with respect to adjusted EBITDA margins, we expect to land at the lower end of our <unk>.
Ed Kremer: We are reiterating our fiscal 2024 guidance to mid-single-digit revenue growth, albeit at the lower end of the range. Similarly, with respect to adjusted even dollar margins, we expect to land at the lower end of our mid-20s range as we invest in Florida, international, and the hemp industry. With that, I'll turn the call back to the operator to open the line.
Matt Darin: I'm grateful to Boris for giving me the opportunity to lead the best cannabis company in the world. I will stay on as a special advisor to the CEO until year end to ensure there is an orderly transition as Boris steps in to lead Curaleaf into the future. I am proud of all the way that accomplished and looked forward to watching the company execute its vision of being the global leader in campus.
Speaker Change: Mid twenties range as we invest in Florida International and the hemp company.
Speaker Change: With that I'll turn the call back to the operator to open the line for questions.
Operator: Thank you. We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touch-tone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then 2. The first question comes from Aaron Grey with Alliance Global Partners.
Speaker Change: Thank you we will now begin the question and agitation to ask a question you May Press Star then one on your touch time fine.
Matt Darin: We are at pivotal time for our industry on the cost of federal reform and the future is very bright. I leave knowing the business is foundationally stronger today than when I found it and more importantly, that Curaleaf's best days are yet to come for us.
Speaker Change: If you're using a speakerphone please pick up your handset.
Speaker Change: Four question in case.
Speaker Change: Can you withdraw your question, please Chris Scott and Terry.
Speaker Change: The first question comes from Aaron Grey with Alliance Global partners.
Speaker Change: Please go ahead.
Boris Jordan: Thank you, Matt, for your leadership, your contributions to the business and your endless dedication to Curaleaf. It's been a pleasure working with you and along with the entire company, I wish you a great time with your family. And I'm grateful that you're staying on as a special advisor to me in this transition. With Curaleaf's deep bench of talent, I have every confidence this will be a smooth transition. While I have remained close to the business as executive chairman, in my expanded role as CEO, I will be able to better effectuate further streamlining of the organization, speed up decision making, accelerate growth and initiative and drive margin expansion.
Aaron Grey: Hi, good evening. Thank you for the question. And Matt, congratulations on all your time and good luck in your future endeavors.
Aaron Grey: Hi, Good evening, Thanks for the question and Matt Congratulations on all your time and good luck in your future endeavors.
Aaron Grey: First question for me, just regarding the hemp business that you guys have launched now. I wonder if you could speak further in terms of the distribution opportunities. You referenced 25 states, a direct consumer. I want to also ask about additional color in terms of the number of states that will be coming on in terms of brick and mortar. You mentioned a large distributor they have a partnership with. And then also, could you expand upon, I believe, the partnership you have with DoorDash and the number of states that will be available, how that's structured, if it's similar to the DTC states? So any color in terms of how you're planning the brick and mortar distribution for hemp would be helpful. Thank you.
Speaker Change: First question for me just regarding the hemp business that you guys have wash now I'm wondering if you could speak further in terms of the distribution opportunities you've referenced 25 states a direct to consumer one also ask about additional color in terms of the number of states that will be coming on in terms of brick and mortar you mentioned a large distributor didn't have a partnership with.
Speaker Change: And then also if you could expand upon I believe a partnership you have with door dash and the number of states that would be available how that structured if it's similar to the DTC states. So any color in terms of how youre planning the brick and mortar distribution, perhaps it would be helpful. Thank you.
Boris Jordan: And doing this, Curaleaf will return to its entrepreneurial roots which were grounded in a more streamlined and leaner organization. I have always operated under this mindset to successfully create numerous multi-billion dollar global businesses across financial services, technology and energy industries and cannabis will be no different. Since co founding Curaleaf 10 years ago, my team and I have been involved in 26 acquisitions in the US and Europe to build Curaleaf into the global cannabis business it is today.
Matt Darin: Aaron, thanks. This is Matt.
Speaker Change: Yeah Erin. Thanks. This is Matt so, yes, so we launched <unk>.
Speaker Change: During the quarter here direct to consumer through the hemp company Dot com.
Matt Darin: So yeah, so we launched, you know, during the quarter here, direct to consumer through the hempcompany.com with our full assortment of initial launch beverages and gummies. We're, as we said, distributing directly to people's homes in 25 states, kind of throughout the country, including some, you know, major markets, some of which we already operate in, like Florida, others that are new markets for us like Texas. So that's part of the exciting opportunity to get our brands in many large new states that, you know, we've not had our brands in previously.
Speaker Change: With our full assortment of initial launch of.
Speaker Change: Beverages and gummies.
Boris Jordan: During the last 18 months, we started an aggressive streamlining campaign which led to a shutdown of operations in efficient markets, significant expense reductions of over $90 million and return to a regionalized management structure which has brought us closer to our customer in our markets. This work positions us to reap the benefits of the platform that we've created with revenue growth, expanding margins and cash flow generation. More recently, we've embarked on a profit growth action plan aimed at driving greater efficiencies across all of our cultivation processing facilities.
Speaker Change: As we said.
Speaker Change: Distributing directly to People's homes in 25 states kind of throughout the country.
Speaker Change: Putting some major markets.
Speaker Change: Some of which we already operate in like Florida, others that are new markets for us like Texas. So that's part of the exciting opportunity is getting our brands in many large new states that.
Speaker Change: We've not at our brands and previously we also launched.
Matt Darin: We also launched with DoorDash. You know, today you can order delivery directly to your door on the DoorDash app in four states. And we have many more coming here. We're gonna have 13 states on DoorDash here in the coming months, you know, as products get shipped to all those states. You know, we're also going to be announcing here soon some partnerships on the brick and mortar side with distributors into a bunch of different markets, as well as, you know, with some retailers.
Speaker Change: With door dash.
Speaker Change: Today, you can order direct your door on the door Dash App in four states and.
Speaker Change: And we have many.
Boris Jordan: Driving these changes is our new EVP of operations who recently came to us from one of the top tier competitors. It's impact on the team and your role business has already been felt. Processes and standards have improved dramatically, which is contributing to higher quality and more consistent flour. These initiatives will build on an already strong market share position. Curaleaf enjoys across the country, with select as the number one vape brand and grassroots and find holding two of the top four positions in flour.
Speaker Change: Many more coming here, we're going to have 13 states on door that share.
Speaker Change: In the coming months.
Speaker Change: As products get shipped to all those and we're also going to be announcing here.
Speaker Change: Soon.
Speaker Change: Some partnerships on the brick and mortar side.
Speaker Change: With distributors into a bunch of different markets as well as.
Speaker Change: With some retailers so I can't share anything on that specifically right now, but we're pretty excited for the opportunity to get our brands not only direct to consumer but on shelves here and more to come on that in the near future.
Matt Darin: So I can't share anything on that specifically right now, but we're pretty excited for the opportunity to get our brands, not only direct to consumer, but on shelves here. And, you know, more to come on that in the near future.
Boris Jordan: Our focus on yield management and cost containment is also starting to bear fruit and will combine to drive tangible margin improvement over the next two to three quarters. In fact, we exited the second quarter in a high note with a June gross margin of 50% and that trajectory has improved in July. Today we are in a much more focused and leaner organization when we were two years ago, but I see many opportunities for the company to go further in a separate.
Aaron Grey: Okay, great. Thanks a lot for that comment, Matt.
Speaker Change: Okay, great. Thanks, a lot for that color, Matt second question for me just in terms of the.
Speaker Change: The SG&A and related to the margin guide so it sounds like some of the expenses with international and 180 basis points, so about $6 million.
Aaron Grey: Second question for me, just in terms of the SG&A and related to the margin guide. So, it sounds like some of the expenses with international and hemp were 180 basis points, so about $6 million. How do we think about that going forward? Was there some that was more, you know, one-time in nature that just needed to be done for the setup for Germany or hemp?
Speaker Change: How do we think about that going forward was there something that was more one time in nature that just needs to be done for the setup for Germany or where.
Boris Jordan: We have a concrete strategy centered on building a platform for our brands that will power our financial model and drive growth globally. To that end, I have always had a great vision of making Curaleaf the dominant global consumer products manufacturer and distributor of cannabis products. And while there has been great progress made in the face of the terminal markets, there's much more for us to achieve. I will work tirelessly for our customers and our shareholders and our employees to ensure the company reaches its fullest potential for taking particularly in the industry at the industry of barks on its next significant evolution once we're scheduling is finalized.
Aaron Grey: Or is a lot of that going to now be within the base and need to be leveraged via sales? So, just trying to help triangulate how we think about, you know, the sales growth, some of the helpful color you gave on the margins that have improved, and then how we think about that SG&A trend line going forward. Thank you.
Speaker Change: So there's a lot of that can now be within the base and need to meet beverage.
Speaker Change: So just trying to help triangulate, how we think about the sales growth. Some of it would be helpful. Color. You gave on the margins that improved and then how we think about that SG&A trend line going forward. Thank you.
Boris Jordan: So, thanks for the question. We will be, as we said, as I said in my story, we exited the second quarter at a 50% gross margin, which is the first time we've hit that since our changeover to GAAP from IFRS. And we will continue to, we saw July numbers fractionally higher than that, so we're already seeing an improvement going into the third quarter. And we expect to continue to see improvements in gross margins.
Speaker Change: So the so thanks for the question.
Speaker Change: We will be as we said as I said much growth, we exited the second quarter at a 50% gross margin.
Speaker Change: Which is the first time, we hit that since our changeover to GAAP from a high for us.
Matt Darin: Moving on to our second quarter review, second quarter revenue of $342 million of two percent compared to last year, second quarter revenue of $336 million, adjusted gross margins of 48% was up 250 basis points compared to last year. As previously mentioned, our gross margin shows success of improvement each month with June exiting the quarter at 50%. I'm encouraged by this progress and expect back half margins to also trend in the 50 plus percent range, adjusted even though was $73 million or 21.3% compared to 72 million or 21.5% last year.
Speaker Change: And we will continue to we saw July numbers fractionally higher than that so we're already seeing an improvement going into the third quarter and we expect to continue to see improvements in gross margin. There is a tremendous amount of work that's been done since last year end of this year on improving the financial metrics of the company.
Boris Jordan: There's a tremendous amount of work that's been done since last year and this year on improving the financial metrics of the company. Particularly right now, we're really focused on the COGS aspect of the business, specifically around our facilities and efficiencies coming out of them. Five months ago, we brought on a very experienced head of operations from probably the best in class operator in the sector.
Speaker Change: <unk>.
Speaker Change: Particularly right now we're really focused on the Cogs aspect of the business, specifically around our facilities and efficiencies coming out of facilities five months ago, we brought on a very experienced.
Boris Jordan: And we've already seen marketable improvements in our business, particularly on the facility side, in terms of yields, quality of flour, and efficiency. And so we continue to see improvement in those margins. We think they'll continue to expand, and those hits that we took in the second quarter were once again on the hemp business. Hemp business going forward, those were startup costs. And also, there were some fees and things associated with the NGC transaction integration of NGC into CureLeaf. But those were really one time, and we'll be moving on into the third quarter already with straight reporting on margins without those being affected by our bottom line. Okay, great.
Matt Darin: Continued investments are rapidly growing international segment coupled with new startup investments in the hemp company weighed on our margins by combined 180 basis points. These investments are critical to supporting the current future revenue streams from these newer segments that complement our domestic regulated business. In addition, we are also made $58 million in tax acquisition and debt related payments during the quarter to further reduce leverage in our balance sheet while also investing 25 million in capital projects.
Speaker Change: Head of operations from <unk>.
Speaker Change: The best in class operator in the sector.
Speaker Change: And we've already seen marketable improvements.
Speaker Change: And our business, particularly on the on the facility side in terms of yields quality of flower.
Speaker Change: And efficiencies and so we continue to see an improvement in those margins. We think they will continue to expand in those hits that we took in the second quarter were one time.
Matt Darin: Despite these investments and debt payments clearly meant as the quarter was 89 million of cash from the balance sheet and generated operating cash flow and continued operations of 30 million and 6 million and free cash flow. Thus far in 2024, unfolding as we guided with growth back and weighted. Specifically, we entered the year with a view that growth would be subdued in the first half due to continued price compression, the shift from retail to wholesale and increased competition from the hemp market.
Speaker Change: On the hemp business, our hemp business going forward those were startup costs and also there were some fees and things associated with the <unk> transaction and integration of LTC into pure leaf, but those were really one time and we will be moving on.
Speaker Change: The third quarter ready with straight reporting of margins without boats.
Speaker Change: Affected to our Bottomline.
Speaker Change: Yeah.
Operator: Okay, great. Thanks for the call. I'll jump back into the queue. The next question comes from Frederico Gomes with ATB Capital Markets. Please go ahead. All right, thanks for taking my call.
Speaker Change: Okay, great. Thanks for the color I'll jump back in the queue.
Matt Darin: Before accelerating the second half as state and country catalysts come online, let's delve into these catalysts that will drive accelerated growth and include New York Ohio Florida International and hemp. After a rocky start to its adult use program, New York is showing signs of becoming a strong and healthy market for us. Actions taken by the governor's office to support law enforcement has resulted in over a thousand illicit operators shutting down a last count to the direct benefit of the legal market.
Frederico Gomes: Your next question comes from Frederico Gomes with ATB Capital Markets. Please go ahead.
Speaker Change: Your next question comes from good rate cargo remains with Citibank capital markets. Please go ahead.
Speaker Change: Hi, Thanks for taking my questions.
Speaker Change: First question is just on the international side. So you mentioned.
Speaker Change: First shipments to tell Australia, and New Zealand.
Goodrate Cargo: Curious if you could talk about Australia, specifically.
Speaker Change: The opportunity that you see in that market in <unk>.
Matt Darin: Assuming this trend of enforcement continues, New York is on a solid path to becoming a $5 billion market opportunity. We always envision it would be. To extend our leadership position in the state, we recently opened a new medical store in Rochester and converted two of our medical stores to co-located medical and adult use stores. With respect to wholesale, which is the prize we are eyeing, we have been successful in opening new independent accounts every week.
Speaker Change: I believe that it's a market that is growing so.
Speaker Change: Any comments there.
Boris Jordan: All the markets, all the international markets, given their nation-state, are really growing and expanding. Australia is a large market and is expanding. However, there's quite a bit of competition in that marketplace. New Zealand is a smaller market with less competition and higher margins. So both are very interesting. They both have slightly different dynamics.
Speaker Change: This is all the markets all the international markets given their nascent state are really growing and expanding.
Speaker Change: Australia is a large market and is expanding however theirs.
Speaker Change: Quite a bit of competition in that marketplace in New Zealand is a smaller markets with less competition and higher margins. So both are very interesting they both have slightly different dynamics.
Matt Darin: Today, there are approximately 151 adult use dispensaries in New York and we are selling into roughly 50% of them, a solid increase from last quarter. Without question, New York is about maximizing wholesale. We are high for focus on allocating the necessary resources and upgrading our sales down to ensure we are a best position in all partner doors. In the second quarter, these efforts translated into 153% wholesale growth compared to last year.
Boris Jordan: And at the moment, we are doing a thorough review as to whether or not we wanna get into those markets domestically. So today we're just importing Curaleaf, white label, and Curaleaf branded products to introduce those to the markets, working with local distributors. In most markets, however, Curaleaf tends to go vertical and vertical in the sense that we tend to want to own the distribution ourselves. We have not made that commitment to either Australia and New Zealand at this point in time; we're working through third-party distributors.
Speaker Change: And at the moment, we are doing a thorough review as to whether or not we want to get into domestic into those markets. So today, we're just importing a purely a white label and purely branded products to introduce those to the market working with local distributors and most markets. However, purely tends to go vertical and a vertical in the sense that we've done.
Speaker Change: Want to want to own the distribution ourselves, we have not made that commitment to either Australia and New Zealand at this point in time, we are working through third party distributors, but for instance in Europe in all the markets that we operate we also control the end distributors in the local countries that we operate in and that allows us to control the quality product and the distribution build relation.
Matt Darin: We are thrilled to have been a part of the first group of dispensaries to open our brand portfolio across the state as adult use sales formally commenced yesterday. We had a fantastic reception by a local community, our first approved adult use dispensary, New York Ohio store with lines out the door. And our second adult use store, Chavoga Falls opened at 8 a.m, today. Given its low medical penetration rate, Ohio is the market we see reaching 2 billion over the next few years.
Boris Jordan: But for instance, in Europe, in all the markets that we operate in, we also control the end distributors in the local countries that we operate in. And that allows us to control the quality of the product and the distribution build relationships with the end consumers, as well as on the B2B side with the pharmacies that distribute our products. And so we are reviewing Australia and New Zealand from that perspective. We have not yet made a decision as to whether or not we want to get into those markets, but it's still early. Your next question comes from Russell Stanley with Beacon Securities. Please go ahead. Oh, good afternoon. Thanks for taking my question.
Speaker Change: Chips with the end consumers as well as on.
Speaker Change: The <unk> side with the pharmacy that distribute our products and so we are reviewing Australia and New Zealand from that perspective, we have not yet made a decision as to whether or not we want to get into those markets, but it's still early days.
Matt Darin: The capture as much shares possible, our retail team is moving quickly to open our next six stores, which we expect will be complete by early 2025. Our Jonstown facility is one of our most productive in our fleet and we are looking forward to introducing all kinds to the broader wholesale market to our full assortment of top tier brands and products. With the amendment three consistently polling in the mid-60s, the cannabis adult use ballot initiative in Florida is looking promising.
Russell Stanley: Your next question comes from Russell Stanley with Beacon Securities. Please go ahead.
Boris Jordan: To be honest, Russell, we actually are welcoming some of these bottlenecks because if we didn't have them, I think that the business would, you know, getting our supply chains and everything in order in order to supply the market is giving us. These bottlenecks are giving us some time to do that because the market is actually growing a bit faster than we originally anticipated. We're seeing very, very strong growth in the third quarter, again with, you know, outsized performance, and particularly in Germany, but also in the UK.
Speaker Change: Your next question comes from Russell Stanley with Beacon Securities. Please go ahead.
Russell Stanley: Good afternoon, Thanks for taking my question.
Russell Stanley: Apologies if I missed this earlier, but you've identified bottlenecks to growth in Germany.
Speaker Change: On our May call.
Speaker Change: Signing telemedicine platforms getting doctors trained.
Matt Darin: To this end, we are investing in tripling our indoor cultivation capacity and expanding our total store accounts for approximately 85 in the state by the time adult use likely begins next May. We open to one new store during quarter to expect to store us to open next week with opening page set to accelerate thereafter. Not surprisingly, Florida is consuming the line share of our capex budgets this year. Whoever given the opportunity for the market to triple to 6 billion at high margins due to its retail only structure, we are not slowing down.
Speaker Change: Packaging and pharmacies, I'm wondering where you have seen some progress and where you think there still.
Speaker Change: Still more work to do on on those fronts.
Speaker Change: Yeah honest.
Speaker Change: We actually are welcoming some of these bottlenecks because if we didn't have them I think that.
Speaker Change: The business would.
Speaker Change: Getting our supply chain and everything in order in order to supply the market is giving us.
Speaker Change: Bob Thanks for giving us some time to do that because the market is actually growing.
Bob: A bit faster than we originally anticipated.
Matt Darin: Florida already is the top state by revenue and margin for us and the potential conversion to adult use market will have a significantly positive impact on our business. Our international business experience superb 78% year-over-year growth led by the UK, Germany, Poland and contributions from northern green acquisition. Following the enactment of Germany's expanded pillar one medical program on April 1st, the number of new cannabis patients entered the program has seen a significant surge resulting in a remarkable 76% sequential growth for currently in the quarter.
Speaker Change: Seeing very very strong growth in the third quarter again.
Speaker Change: With outsized performance and particularly in Germany, but also the U K.
Speaker Change: In many ways.
Boris Jordan: So, in many ways, some of the bottlenecks are kind of welcome, I think, not only to Curaleaf, but to everybody else, as we're trying to get all the supply chains in order in order to supply. Don't forget, as I said in my script, it's an 84 million person market. So, if that market penetrates at the level, for instance, of where Florida is on a medical basis, and there's been recently a further lessening of the rules in terms of getting your prescriptions, things like that, then, you know, this could be a very, very large market very, very quickly, and I don't believe the industry is fully ready to supply that market, which is a high class problem short term, but it is nonetheless an issue for the whole market.
Speaker Change: Some of the bottlenecks or kind of welcome I think not only to <unk>, but to everybody else as we're trying to get all the supply chains in order in order to supply don't forget it but as I said in my script, it's an 84 million person market. So if that market penetrates at the level of for instance of where Florida is on the medical basis and there's been recently a further lessen the loosening of the rules in terms of getting your prescriptions.
Speaker Change: Things like that but.
Speaker Change: This could be a very very large market very very quickly and I don't believe the industry is fully ready to supply that market, which is a high class problem short term, but it is nonetheless, an issue for the whole market. So overall, we're very pleased with the growth rates were where everyone is working through the various distributors everybody's working through the various bottlenecks and I fully.
Matt Darin: Our 420 brand known for its premium positioning continues to enjoy an estimated 20% market share. In addition today, we introduced our purely branded flower at more accessible price points to accommodate the growing number of cost-conscious patients looking for product quality and consistency at affordable prices, further helping to solidify and extend our market share position. These initial numbers out of Germany are impressive and underscore review the cannabis demand by Germans is robust However, we are still in the early stages of growth in its vastly under penetrated market total patients today are estimated to be between 200, 200, 300,000 out of a population of 84 million implying just a 0.4% penetration I'm highly optimistic on Germany's cannabis future and its influence on the rest of the EU nation that's putting Curaleaf in an enviable position to win across the continent United Kingdom also showed robust growth and we are extending our share position our UK clinic was awarded cannabis clinic of the year at the cannabis business awards in June amongst other awards recognizing the Curaleaf team as international industry leaders on April 22nd we close the northern green acquisition marking another milestone in our strategic vision to create a truly global supply chain through which we can distribute our portfolio brands in 15 countries to that end we shift our first wholesale orders to Australian New Zealand partners marking Curaleaf's entry into the age and region NGC is an integral part of our international strategy as well as our margins enhancement plan to this point I am pleased to report that international growth margins improved meaningfully this quarter with NGC partially contributing to the game we will begin seeing the full quarter benefits of the acquisition in the third and fourth quarters NGC's contribution to our margins will increase as we completely the integration of NGC and begin to scale production in our Portuguese cultivation facility with purely branded flower we expect to realize continued international growth margin improvements through year end thus narrowing the gap with our domestic growth margins when assessing the nascent market signals in Europe it is impossible to dismiss the striking similarities between Curaleaf's US business in 2018 and Curaleaf's international business today in 2018 our domestic revenue was 77 million and over five years we grew it to 1.3 billion in Europe which is twice the population of the US we are the largest operator and yet it remains early days in the development of the European cannabis industry given a tremendous opportunity ahead I believe the growth rates in our international segment over the next five years could look similar to what we experienced in the US in June we announced our entry into the hemp derived THC market with two product lines select animals and select zero proof sellers our decision to enter the hemp category was based on two factors first to expand the select brand in a capitalite manner to consumers we are not reaching today with responsibly sourced safe and tested products and second to use it as a hedge against our regulated business leveraging distribution channels not available in our regulated business we launched our director consumer website the hemp company dot com that currently ships the 25 states plus DC we also entered into the groundbreaking partnership with a large director consumer distribution partner in the US there's no question that the regulated cannabis and hemp worlds are converging rapidly ultimately we believe the consumer will not distinguish between the two channels as long as the trust in our products and brands remains uniform while we while still early days were pleased with the positive reception to our hemp line of select products we are seeing from customers, distributors and retailers as this category is poised to becoming more meaningful contributor to Curaleaf in the coming years as such we expect to grow the hemp business rapidly through increased breadth of distribution partners and expanded product line assortment in beverages we believe the combination of our select hemp and select cannabis lines will further extend the select brand number one position in the US All that said, I'm cognizant of the choppy environment the industry is contending with.
Boris Jordan: So, overall, we're very pleased with the growth rates, where everyone is working through the various distributors, everybody's working through the various bottlenecks, and I fully expect that we're going to see outsized growth both in the third and the fourth quarter coming out of
Speaker Change: But we're going to see outsized growth both in the third and the fourth quarter coming out of that market.
Scott Fortune: Your next question comes from Scott Fortune with Roth Capital Partners. Please go ahead.
Speaker Change: Your next question comes from Scott Fortune Roth Capital Partners. Please go ahead.
Scott Fortune: Yeah, good afternoon. Thanks for the questions here.
Speaker Change: Yes, good afternoon, thanks for the questions here.
Scott Fortune: A little more color on the Florida market and your positioning I know you're putting premed.
Boris Jordan: Just a little bit more color on the Florida market and your positioning. I know you're putting pretty much a fair amount of CapEx in there from a production standpoint and kind of the store base ahead of potential adult use. Just a sense of building out that state ahead of adult use and your expectations of potentially continuing to fund or help the campaign for a positive vote approval there in November. Just a little more color on Florida would be great. So,
Speaker Change: A fair amount of Capex in there from a production standpoint, and the store base ahead of potential adult use.
Speaker Change: Just a sense of building out that state ahead of adult use and your expectations on.
Speaker Change: Potentially continuing to find our help the campaign full for a positive vote approval. There in November just little more color on Florida would be great.
Boris Jordan: Yes, so we already funded a portion of some of the commitments in the first quarter, as you know, together with some of the other players. We are in discussions right now as a group about making a second funding round in order to help get this over the line. It is polling well, but nonetheless, we're not taking anything for granted, and I think everybody wants to join together and try to make this thing work.
Speaker Change: Yes, so we already funded a portion of some of the commitments in the first quarter as you know together with some of the other players. We are in discussions right now as a group of making a second funding in order to to help get this over the line. It is pulling well, but nonetheless, we're not taking anything for granted and I think every.
Speaker Change: Who wants to join together to try to make this thing work.
Boris Jordan: Most of the burden has obviously fallen on the largest operator, TruLeaf, but then the next two largest players have picked up the difference, and some of the other players have contributed not much at all to the process.
Speaker Change: Most of the burden has obviously fallen off the largest operator true LIFO, but then.
Speaker Change: The second two largest players have picked up the difference and some of the other players have contributed.
Boris Jordan: But we're all trying to rally the troops to get as much money committed so that we can fight the naysayers in that process. In terms of the Florida market, we have always taken a cautious approach to the staging of our CapEx. Originally, because of timing, we built out the shell and all the infrastructure, electricity, and things like that for the expanded growth.
Speaker Change: Much at all to the process, but we're all trying to rally the troops to get as much money committed so that we can fight the naysayers.
Speaker Change: In that process in terms of the Florida market, we have always.
Speaker Change: <unk> taken a cautious approach to the staging of our Capex.
Speaker Change: Originally.
Speaker Change: Because of timing, we built out the shell and all the infrastructure electricity and things like that for the expanded gross but then we bought the rest of it waiting for to see whether this is going to get on the ballot once.
Boris Jordan: But then we mothballed the rest of it, waiting to see whether this was going to get on the ballot. Once we realized in March and April that this was going to get on the ballot, we started the second wave of our CapEx, which was signing leases and getting stores in place to get to that 85 level, as well as starting to expand the growth facilities. We've made a decision to invest to get these growth facilities into a significant position by November.
Speaker Change: Realized in March and April that this was getting on the ballot. We started the second wave of our Capex, which was signing leases and getting stores in place to get to that 85 level as well as starting to expand the grow facilities.
Speaker Change: We've made a decision to invest.
Speaker Change: To get these grow facilities into a significant position by November we're actually going to be planting late October into some of that capacity. So that we have available flower ready with that I'm going to wait for the November vote. If the November boat is positive we're going to have a third wave of Capex, which will finish the facilities, which will then be the rest of the facility.
Boris Jordan: We're actually going to be planting late October into some of that capacity so that we have available flowers ready. We're then going to wait for the November vote. If the November vote is positive, we're going to have the third wave of CapEx, which will finish the facilities, and the rest of the facilities will be finished and planted by early, late March and early April, so that we can be ready for a May and June launch.
Speaker Change: It will be finished and planted by.
Speaker Change: Early or late March early April so that we can be ready for May and June launch. So we have a phasing of all of our capex depending on what the results are going to be like we're also in a position where.
Boris Jordan: So we have a phased approach to all of our CapEx, depending on what the results are going to be like. We're also in a position where, if by chance, we don't think this will happen, but if, by chance, we don't get adult use, those facilities are going to be very, very helpful in our medical business, because we have had some shortages of product and flower on the medical side, and certainly of quality, because we're building high-quality indoor facilities, and, as you also know, they have both outdoor and greenhouse, So all in all, we have planned this in such a way to mitigate any risk if, by chance, we don't get adult use, but we don't expect that to happen.
Speaker Change: If we if.
Speaker Change: By chance, we don't think this will happen, but if by chance we don't get adult use those facilities are all going to be very very helpful. In our in our medical business. Because we have had some shortage of product in flower on the medical side and certainly a quality because we are building high quality indoor and purely as you also know has both outdoor and greenhouse.
Speaker Change: So we could.
Speaker Change: Stopped growing and some of the outdoor and greenhouse just growing.
Speaker Change: Indoor facilities, which will raise the quality of flour for the medical market. So all in all we are planning this in such a way to mitigate any risk if by chance, we don't get adult use but we don't expect that to be the case.
Matt Bottomley: Your next question comes from Matt Bottomley with the Canacor Junior Team. Please go ahead.
Speaker Change: Your next question comes from Matt Bottomley with Canaccord Genuity. Please go ahead.
Matt Bottomley: Yeah, good evening. Thanks for the questions. Boris, you mentioned, I think, a few markets, New York, Ohio, or Germany, which together represent a near-term growth catalyst for the company. Specifically, on Ohio, I'm just wondering, you know, relative to your current retail footprint and the near-term opportunity here, is there a specific strategy for getting to that sort of eight-store cap, or do you have sufficient capacity or maybe, you know, competing capacity with respect to service Just what's your strategy on the ability to get, you know, on the ground running here in a market that I guess just opened up for the first time this week? Yeah, so we had
Matt Bottomley: Yeah. Good evening. Thanks for thanks for the questions Boris you'd mentioned I think a few market, New York, Ohio or Germany.
Matt Bottomley: And buying representing near term growth catalysts for the company is typically on Ohio, I'm just wondering.
Matt Darin: Price compression is still present in important states like Arizona and Florida, where we have a number one and number two share position, respectively. And the natural shift makes shift from retail sales to wholesale is evolving quickly in states such as Illinois, New Jersey and New York as independent doors open. Ultimately, the expansion of the wholesale market is healthy for the industry and the growth of our brand portfolio, wholesale distribution of our brands has always been our long-term vision and we will continue to scale the business in a manner that leverages the benefit of both channels of distribution.
Speaker Change: Relative to your current retail footprint and the near term opportunity here.
Speaker Change: Is there a specific strategy into getting to that sort of eight four cap or do you have sufficient capacity or maybe competing capacity with respect to serve as the wholesale market. There just what's your strategy on the ability to get on.
Speaker Change: On the ground running here in a market that I guess just opened up for the first time this week.
Boris Jordan: So we had really outsized results from the store that opened yesterday; we had another store that opened today for adult use. We were surprised it was well above our internal projections on what we expected in that business.
Speaker Change: So we had really outsized results out of the store that opened yesterday, we have another store that opened today for adult use we were surprised it was well above our internal projections on.
Matt Darin: Turning to our outlook, we remain consistent in our view that the business will accelerate in the back half of the year both in revenue and margin. We continue to expect full year revenue will grow in a mid single digit rate albeit at the lower end of the range consistent with our current consensus of 1.4 billion. As previously discussed, we see many exciting growth opportunities to compete for, not the least of which are international and the hemp company. We continue to expect adjusted EBITDA margins to be in the mid 20s. I'll be at the lower end of the range due to these anticipated investments.
Speaker Change: On the.
Boris Jordan: So that's a pleasant surprise in a difficult market. We also have our best performing grow operation in terms of yields in Ohio. So we fully expect and already have started to supply the wholesale market there, with very significant demand coming into us on a wholesale product basis. And we expect pricing in the early parts of that process over the next 6 to 12 months to be almost at the level of retail pricing because of the lack of supply.
Speaker Change: What we expected in that business, that's a pleasant surprise in a difficult market we.
Speaker Change: I also have our best performing.
Speaker Change: In terms of yields grow operation in Ohio. So we fully expect and are already have started to supply the wholesale market there.
Speaker Change: With very significant demand coming into us on a wholesale power product basis, and we expect pricing in the early parts of that of that process over the next six to 12 months to be almost at the level of retail pricing because of the lack of supply. This was a very under supplied market and the growth rates are going to be quite substantial because.
Boris Jordan: This is a very undersupplied market, and the growth rates are going to be quite substantial because regulation didn't allow us to build grows that were bigger than the Tier 1 grows that we have already. However, as we are allowed to, we will be expanding those growth facilities according to regulation. So we also anticipate opening the 6 stores that we are allowed to have now by the first quarter of next year.
Matt Darin: In closing, I step into the CEO roles with my eyes wide open about the complexities of operating a global cannabis enterprise. But I also excited about the opportunities in front of Pureleaf to forge new paths. We will be mindful to remain focused on executing the basics with precision every day, with the strength and support from our 5,000 plus global team members who might want to thank for their daily effort and hard work. Pureleafs have never been in a better position to lead the global cannabis market.
Speaker Change: <unk> didn't allow us to build a growth that were bigger than the tier one growth that we have already. So however, we as we as we are allowed to we will be expanding those growth facilities. According to regulation. So we also anticipate to open six stores that we are allowed us that we have now by the first quarter of next year that will be opening up.
Boris Jordan: We will be opening up at different times, but between now and the end of the first quarter, we anticipate to have our full fleet of 8 stores open in the Ohio market. But we also see a big wholesale opportunity. And as I said, this is our best performing facility in terms of yield and manufacturing facility in the country. The next question comes from Matt McGinley with Needham. Please go ahead. Thank you. You indicated that gross margin improved throughout the quarter and that you hit 50% in...
Speaker Change: At different times, but between now and the end of the first quarter. We just supposed to have our full fleet of eight stores opened in the Ohio market, but we also see the big wholesale opportunity.
Ed Kremer: With that, I'll turn the call over to our CFO Ed Kremmer. Ed. Thank you, boys.
Ed Kremer: Total revenue for the second quarter was $342 million representing a year-over-year increase of 2%. Growth was driven by strength in Maryland, New York, Utah, and Ohio, as well as 78% growth in our international segment. Our domestic segment represented 93% of total revenue in our international segment expanded 7% of total revenue. 150 basis points higher than in the first quarter. As previously mentioned, international growth was driven by the UK, Germany's pillar 1 medical market expansion and the addition of NGC.
Speaker Change: As I said this was our best performing in terms of yield.
Speaker Change: Manufacturing facility in the country.
Matt Mcginley: The next question comes from Matt McGinley with Needham. Please go ahead. Thank you.
Speaker Change: Our next question comes from Matt Mcginley with Nathan. Please go ahead.
Matt Mcginley: Thank you you indicated that gross margin improved throughout the quarter and you hit 50% in June and July that overall gross margin was pretty similar to what you had in the first quarter at around 48% at the end of the 50% you were.
Ed Kremer: By channel of retail revenue was $265 million compared to $277 million in the second quarter of 2023, down 4% year-over-year, as the ship from retail to wholesale that began an earnest last quarter continued in Q2, both notably New Jersey, Illinois, and New York, where the largest number of independent retailers have opened this year. Specifically, our Belmar New Jersey store have an outsized impact on the year-over-year retail decline due to increased store openings in the immediate area, wholesale revenue increased 31% to $77 million compared to last year's 58 million and represented 22% of total revenue.
Speaker Change: Well below that to start why did that gross margin dip early in the quarter and what's different about the inventory position or mix or production that gives you. The conviction that you can sustain that gross margin at around 50% for the remainder of the year to be honest.
Boris Jordan: Matt, to be honest, too much discounting around Fortune. And probably something we're going to look at as a strategy going forward, and I don't think you're going to see that, but it has been historically a process that everybody has participated in, and instead of discounting just on the day of 420 or a couple of days before, it's been a month-long process. And so April was extraordinarily low compared to May and June, and June recovered fully.
Speaker Change: Too much discounting around 400 clients.
Speaker Change: And.
Speaker Change: Probably something that we're going to look at is the strategy going forward and I don't think youre going to see that but it has been historically a a process that everybody has participated in and instead of discounting just on the day of 420 or a couple years before us a month long process and so April was extraordinarily low compared to May and June and June recover.
Boris Jordan: And as a whole, you're going to see Curaleaf changing its strategy, and we're already walking away from a lot of the discounting strategies, especially with product improvements that we've seen and potency and product assortment. We've had a huge reception for brick and stick, our fruit stick product, and so we're moving away from a discounting strategy and much more towards a pricing strategy that is closer to our margin targets And so that's why you're seeing a very, very strong July, and I think into August you're going to even see a stronger July.
Ed Kremer: The strength of our wholesale revenue was driven by New Jersey, Illinois, New York, Pennsylvania, and our international segment. We delivered our first wholesale shipments to Australia and New Zealand in the second quarter. Moving into retail consumer metrics, transactions were flatish in the second quarter compared to last year. Second quarter basket trends were consistent with the first quarter. As year-over-year units for transaction were down 7%, partially offset by AUR increase of 3% compared to last year.
Speaker Change: Fully and.
Speaker Change: As a whole you're going to see purely what changing our strategy and we're already walking away from a lot of the discounting strategies, especially with product improvements that we've seen and potency.
Speaker Change: And product assortment, we've had a huge reception to brick and stick our fruit snack products.
Speaker Change: We are.
Speaker Change: Moving away from a discounting strategy and much more prop up our pricing too to our to our to our margin targets and so thats why youre seeing very very strong July and I think in the August youre going to even see stronger expansion of margin.
Ed Kremer: We believe the lower income consumer continues to opt for our value offerings as pressure on disposable income from inflation and high interest rates has not abated. That said, innovation and units are inspiring increased trial rates on products like liquid diamonds and fruit stick.
Ty Collin: The next question comes from Ty Collin with H Capital. Please go ahead. Hey, good afternoon. Thanks for the question. I'm just wondering if you could discuss the level of
Ty Collin: The next question comes from Ty Collin with H Capital. Please go ahead.
Speaker Change: Next question comes from Todd Cohen with <unk> capital. Please go ahead.
Ed Kremer: Our second quarter gross profit was 160 million resulting in a 47% gross margin. Adjusted gross profit was 163 million or 48%. Sequentially, Q2 adjusted gross margin remains steady as 100 as a 100 basis point increase in our vertical mix and higher utilization were offset by price compression. Year over year Q2 adjusted gross margin increased 250 basis points due to stronger wholesale margin and higher utilization rates in our facilities. SGNA expenses were 110 million in the second quarter and and increased 1 million from the year ago period.
Speaker Change: Hey, good afternoon. Thanks for the question I'm, just wondering if you could discuss the level of promotional activity you're seeing across your footprint.
Speaker Change: And how that's changed over the last months and quarters articulate maybe as youre starting to test.
Speaker Change: See some weakness emerge in the job market.
Speaker Change: Consumers continue to face.
Speaker Change: <unk> headwinds just wondering if you could discuss any changes you've observed there. Thanks.
Boris Jordan: Thanks. So I'll start with macro. You know, obviously, you can't avoid the macro situation in the country, right? You've got a high inflationary environment, and even though we're probably going into a rate reduction cycle, that's not going to filter through to the consumer for a good 12 months. So I still think that the peak period of pressure on the consumer has yet to come in the United States, and I think we're going to see that going into the fourth quarter.
Speaker Change: I'll start with macro obviously, you can't avoid the macro situation in the country right, you've got a high inflationary environment, even though we'd probably going into a rate reduction cycle, that's not going to filter through to the consumer probably for a good 12 months.
Ed Kremer: Corus GNA was 106 million dollars and increase of 12 million from prior year. The year over year increase in our Corus GNA primarily reflects investments in international including the acquisition of NGC, new star openings in Florida and our new helpline. SGNA was 32% of revenue in the second quarter and a decrease of 40 basis points compared to the year ago period. Our second quarter, Corus GNA rate was 31% and increase of 280 basis points.
Speaker Change: I still think the dose the peak appeared a pressure on the consumer is yet to come in the United States and I think we're going to see that going into the fourth quarter to first quarter and so I think there'll be continued pressure. However, the one thing I have noticed and I think we've all noticed about cannabis is that if you have high quality product itself and you don't have to discount and so as pure leaf has improved its operating.
Boris Jordan: And so I think there'll be continued pressure. However, the one thing I have noticed, and I think we've all noticed about cannabis, is that if you have a high quality product, it sells, and you don't have to discount it. And so as Curaleaf has improved its operations across the footprint of all of our facilities, and our product quality has increased quite dramatically, we're finding that we have to discount much less, so that we can fight some of the price pressures that we've seen in the market today.
Speaker Change: <unk> across the footprint of all of our facilities and our product quality has increased quite dramatically. We're finding that we have.
Ed Kremer: Second quarter net loss from continuing operations was 49 million and that loss per share from continuing operations was 6 cents. Adjusted EBITDA in the second quarter was 73 million compared to 72 million in the prior year period, a 1% increase. Second quarter adjusted EBITDA margin was 21.3 compared to 21.5 in the prior year.
Speaker Change: This got much less and so that we can fight the the <unk>.
Boris Jordan: But we can't avoid the fact that there are also competitors in the marketplace whose maybe balance sheets or other pressures on them are a little bit significant. And so they are discounting dramatically. And we've seen that in two states in particular.
Speaker Change: Some of the price pressures that we've seen.
Speaker Change: In the market today.
Speaker Change: But we can avoid the fact that we are also competitors in the marketplace.
Speaker Change: Who is maybe balance sheet or other pressures on them are a little bit significant and so they are discounting dramatically and we've seen that in two states in particular, the issue and those that were big operators in both of those states, Florida and Arizona.
Boris Jordan: And the issue is that we're big operators in both those states, that is, Florida and Arizona, where we have had 200 plus million dollar businesses. And therefore, we can't escape the fact that there is that price compression in those states. But as we increase product quality, we're finding that we have to discount less, and more and more people are buying products. An example is in Germany, where our 420 product prices are probably a, you know, 300, 400 basis point difference from our competitors.
Ed Kremer: Turning to our balance sheet in cash flow. We ended the quarter with cash and cash equivalence of 89 million, inventory decreased 9 million or 4% compared to last year's second quarter while net sales grew 2%. Net capital expenditures in the second quarter were 25 million. Given the investments we discussed earlier, we expect 2024 cap X spending to be approximately 70 million, the higher end of our range, largely due to our Florida expansion initiatives. And should Florida's amendment 3 pass in November, we could pull forward additional investments from 2025 into the fourth quarter.
Speaker Change: 200, plus million dollars businesses and therefore.
Speaker Change: We can't escape the fact that there is.
Speaker Change: Price compression those states, but as we increase the product quality, we're finding that we have to discount less and more and more people are buying products. An example, also in Germany, where our for 'twenty product prices and probably a.
Speaker Change: Three 400 basis point difference to our competitors and the reason being it's a very very high quality product and one of the reasons. We have introduced a mid tier product securely branding is because there is a lot of price sensitive consumers. We havent played in that segment. We do play in that segment U S. We don't play in that segment in Europe, We're now with our approach.
Boris Jordan: And the reason being is that it's a very, very high quality product. And one of the reasons we have introduced a mid-tier product under the Curaleaf branding is because there are a lot of price-sensitive consumers. We haven't played in that segment; we do play in that segment, but we don't play in that segment in Europe. And now, with our Portuguese facility coming online fully, we're starting to export product from there, which will be played into that mid tier, therefore expanding our customer base at a better price.
Ed Kremer: We will provide more color on our next earnings call. Your to date and in the second quarter we generated operating cash flow from continuing operations of 76 million and 30 million respectively. Similarly free cash flow from continuing operations was 39 and 6 million dollars respectively. Our outstanding debt was 563 million net of unamortized debt discounts and deferred financing fees on which 82% does not do until December 20, 26. As we continue to take in actions to reduce leverage on our balance sheet during the quarter, we repurchase 15 million dollars of our December 20, 26 bonds at a 7.75% discount which combined with our interest savings will save the company approximately $4 million that would have been paid through maturity. We will continue to be opportunistic with future bond purchases in the second quarter. In the second quarter we made a total of $58 million in payments for taxes, interest and acquisition related payments.
Speaker Change: East facility coming online fully we're starting to.
Speaker Change: Export product from there, which will be played play into that mid tier therefore, expanding our customer base at a better pricing and the cost of that product is significantly lower than our indoor product because we're growing it and greenhouses.
Boris Jordan: And the cost of that product is significantly lower than our indoor product because we're growing it in greenhouses in Portugal. So we're not going to be eroding our margin, but we are going to be playing in a much wider segment of the market by supplying the greenhouse-grown product to the German market.
Speaker Change: In Portugal, so what we're not going to be eroding our margin, but we are going to be playing in a much wider segment of the market by supplying.
Speaker Change: The greenhouse grown product into the German market.
Pablo Zuanic: The next question comes from Pablo Zuanic with Zuanic & Associates. Please go ahead.
Speaker Change: The next question comes from Pablo.
Speaker Change: Sorry, Nick and Associates. Please go ahead.
Pablo Zuanic: Thank you. Boris, you know, I want to ask you a crystal ball question, if you don't mind, but I guess the first one is, you know, your latest thoughts in terms of whether we get rescheduled before January 20th. You know, some of us expected this would happen by, you know, August 19th when we had the Democratic Convention, but just your latest thoughts on that. But number two, the bigger picture question, and I guess just hear me out here: I know there's a lot of uncertainty, right?
Speaker Change: Thank you.
Barry: Barry as you know when I ask you a crystal ball question, if you don't mind, but.
Ed Kremer: I'd like to provide an update on our tax position. After completing our analysis and based on review of the relevant provision and scheduling history, we're taking the position of the application of Section 280E of the Internal Revenue Code does not apply to Curaleaf's operations. As such, we intend to file amended federal and state income tax returns with refund claims for 2022 and protected claims for the fiscal year 2020 and 2021. For 2023 and beyond, Curaleaf will file as a normal corporate file. This position is reflected in our Q2 financial statements, moving a substantial portion of our taxes from current to long-term liabilities.
Pablo: I guess the first one is your latest thoughts in terms of whether we get rescheduling before January 20th.
Speaker Change: Some of US I expect that this would happen by August 19th when we heard the Democratic Convention, but just your latest thoughts on Dod, but number two the bigger picture question.
Speaker Change: Excuse me out here I know, there's been a lot of uncertainty right what happens with rescheduling what happens with the election.
Pablo Zuanic: What happens with rescheduling? What happens with the election? But let's say that we come to January 20th, Kamala Harris, Vice President Harris is the new president, Democrats control two chambers, right, and I know there are a lot of hypotheticals there, but we still don't have rescheduling. So, you know, what happens in that scenario? Based on her comments before, she may just want to de
Speaker Change: Let's say that we come to January 20th come out of her reasonably briskly and Harris is a new precedent Democrats control do chambers, right and I know, it's sort of hypotheticals, there, but we still don't have rescheduling.
Ed Kremer: We're halfway through the year and while there's macro uncertainty around us, we're optimistic about the growth catalysts we have articulated. We are reiterating our fiscal 2024 guidance to mid-single digit revenue growth, albeit at the lower end of the range. Similarly, with respect to adjusted EBITDA margins, we expect the land at the lower end of our mid-20 days range as we invest in Florida, International and the HEM company.
Speaker Change: What happens in that scenario based on your comments before to me just want to this schedule right.
Pablo Zuanic: And what I see here is an opportunity with the Farm Bill, right? The 2023 Farm Bill hasn't happened yet. It's supposed to happen in 2025. Do you believe that there's an opportunity for, you know, the blue, the Democrats, right, to push cannabis and then the red hemp with the Farm Bill, try to come together and do something so we see congressional action on cannabis, and we get the Farm Bill finally done? Sorry, I know it's a lot of hypotheticals there, but I'd love to hear your thoughts on that. Thank you. Um, I should
Speaker Change: And what I see here is an opportunity with the farm Bill right. The 'twenty to 'twenty two 'twenty three in front of me what hasn't happened. It's supposed to happen in 2025 do you believe that there's an opportunity for you know the blue the Democrats right to push kind of B and then the Reds Kim.
Unknown Attendee: With that, I'll turn a call back to the operator to open the line for questions. Thank you. We will now begin the question and answer session. To ask the question, you may press star, then one on your touch tone phone. If you're using a speaker phone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then two.
Speaker Change: With the farm Bill tried to come together and do some things, where we see congressional election in Kennedy's and we get the farm Bill finally done sorry, I noticed I don't know hypotheticals, there, but I'd love to hear your thoughts on that thank you.
Boris Jordan: I don't have a crystal ball, but let me try and briefly answer the question. So, do we think that rescheduling will happen, and when? You know, listen. We know as much as anybody else. We don't know any more than anybody else.
Speaker Change: I don't have a crystal ball, but let me try and briefly.
Speaker Change: After the question so do.
Speaker Change: Do we think that were scheduled to have happened in the west.
Aaron Gray: The first question comes from Aaron Gray with Alliance Global Partners. Please go ahead. Hi, good evening. Thanks for the questions and Matt.
Speaker Change: We know as much as anybody else, we don't know any more than anybody else.
Boris Jordan: My view has always been that if they're going to use this as a campaign issue, the closer you announce something during a campaign, the more people remember it, and the better it is. So I've made my position public that if the decision is to reschedule before the election, that decision will probably come late September or October rather than before the campaign. So that's my view. I hope I'm wrong and it comes before the convention, but in this particular situation, if they make a decision to reschedule before the election, that's when it would come.
Speaker Change: My view has always been.
Speaker Change: That.
Speaker Change: It's still going to use this.
Matt Darin: Congratulations on all your time and good luck in your future endeavors. First question for me, just regarding the hand business that you guys have watched now. I wonder if you could speak further in terms of the distribution opportunities. You've referenced 25 states, a direct consumer. One, also ask about additional color in terms of a number of states that will be coming on in terms of brick and mortar. You mentioned a large distributor they have a partnership with.
Speaker Change: As a campaign issue the closer you announce something to a campaign.
Speaker Change: People remember it and the better so I've made my position published that if the decision is to reschedule before the election, but that decision will probably most likely come late September or October rather than up before the before the convention.
Speaker Change: So that's my view I hope I'm wrong and it comes before the conversion, but in this particular situation if they make a decision to reschedule before the election, that's what it would cost so that's what I'm prepared to say on that issue.
Matt Darin: And then also if you could expand upon, I believe a partnership you have with DoorDash and a number of states that will be available, how that's structured, if it's similar to the DTC states. So any color in terms of how you're planning the brick and mortar distribution for HEM will be helpful. Thank you. Yeah, Aaron. Thanks. This is Matt. So yeah, so we launched during the quarter here, directed consumer through the HEM Company dot com with our full assortment of initial launch of beverages and gummies where, as we said, distributing directly to people's homes in 25 states, kind of throughout the country, including some major markets, some of which we already operate in like Florida.
Boris Jordan: So that's what I'm prepared to say on that. On the next question, listen, the way I'd like to deal with that is that there are a lot of hypotheticals there, so it's very difficult to address. So we can do that in a private conversation because it's a long answer.
Speaker Change: On the the.
Speaker Change: The next question please.
Speaker Change: The way I'd like to deal with that is that.
Speaker Change: There's a lot of hypotheticals there so it's very difficult to address what we can do that in a private conversation thats a long answer I just wanted to say one thing I believe that the health market is the one that's having the largest impact on the regulated cannabis.
Boris Jordan: I just want to say one thing. I believe that the hemp market is the one that's having the largest impact on the regulated. I don't care what anybody says; we're seeing it across the board, but more importantly, what I think it is, is that the mainstream cannabis industry, if I can say that, is the OG market. It's where people come that have been using cannabis for a long time and are very familiar with the product.
Speaker Change: Care, what anybody says we're seeing it across the board, but more importantly, what I think it is that the regulated cannabis industry. If I can say that as the <unk> market.
Speaker Change: Where people come that have been using cannabis for a long time and are very familiar with the product.
Matt Darin: So others that are new markets for us like Texas. So that's part of the exciting opportunity is getting our brands and many large new states that we've not had our brands in previously. We also launched with DoorDash. Today, you can order direct your door on the DoorDash app in four states. And we have many more coming here. We're going to have 13 states on DoorDash here in the coming months as products get shipped to all those.
Boris Jordan: The hemp market is opening up a brand new customer, the customer that doesn't want to come into a dispensary, the customer that does not want to be a senior associate that is trying these products, and then, particularly, the beverage side. I've always said that just like I said Europe would be a big market, and nobody believes that now it's becoming that, I've always said beverages are going to be a big market.
Speaker Change: The health market is opening up a brand new customer the customer that doesn't want to come into a into a dispensary. The customer does not want to be seen as associate that is trying these products.
Speaker Change: And particularly the beverage side I've always said that just like I said Europe would be a big market and nobody believes that now is becoming that.
Speaker Change: I've always said beverages are going to be a big market I think beverages are going to be the largest segment. After flower in the cannabis sector in a very short period of time and eventually will be the largest and the only place you can do that at scale is in the health market because of the economies.
Boris Jordan: I think beverages are going to be the largest segment after flour in the Canada sector in a very short period of time, and eventually will be the largest. And the only place you can do that at scale is in the hemp market because of the economies of bottling and then distributing nationally. And so I think that it's a very interesting market to operate in, we want to be a major player in the beverage market, we think there's a huge amount of upside in it, we're already seeing it in pre-orders, that it's a very, very interesting, and we'll be expanding our SKUs and expanding the flavors and different types of products that we'll be issuing through the beverage market here shortly, and we'll be making those announcements.
Matt Darin: We're also going to be announcing here. Well, soon some partnerships on the brick and mortar side with distributors into a bunch of different markets as well as with some retailers. So I can't share anything on that specifically right now, but we're pretty excited for the opportunity to get our brands not only direct a consumer, but on shelves here and mortar come on that. Thank you for your feature. Okay, great. Thanks for that column, Matt.
Speaker Change: <unk>.
Speaker Change: Bottling and then distributing nationally and so I think that it's a very interesting market to operate then we want to be a major player in the beverage market. We think there's a huge amount of upside in it and we're already seeing it in preorders.
Speaker Change: Very very interesting and will be expanding our skus and expanding the flavors of different types of products, we will be issuing through the beverage market here shortly and we'll be making those announcements I also think that the cannabis industry needs to work with the hemp industry instead of fighting the hemp industry I think we should be working together they have a very some farmers have a much stronger lobbies in the cannabis industry.
Matt Darin: Second question for me, just in terms of the SNA and related to the margin guide. So, it sounds like some of the expenses with international and hemp 180 basis points, so about $6 million. So, just trying to help triangulate how we think about, you know, the sales growth, some of the helpful calorie gave on the margins that improved, and then how we think about that SNA trendline going forward. Thank you. So, they, so, um, thanks for the question.
Boris Jordan: I also think that the cannabis industry needs to work with the hemp industry, instead of fighting the hemp industry, I think we should be working together, they have a very, farmers have a much stronger lobby than the cannabis industry, they seem to have the ear of the Republicans as well, with the actions we saw in both Florida and in other states as well, and so Cureleaf is trying to lead the way in that conversation, and we're working together today with large hemp farmers in particular, who have a lot more, it's not the hemp product producers, it's the hemp farmers, they're the ones that have the political power, and we're trying to join together with them in lobbying Washington, the Farm Bill is not going to get voted on this year, it's going to be pushed into next year, and that's where we want to work together between rescheduling and hemp, and creating a regulatory framework that would allow all these products based on, not the plant that's grown, but by the cannabinoids that are being used in it, we want equal regulation for THC across both the hemp and the regulated cannabis industry, as well as the other psychoactive cannabinoids. The next question comes from Eric Deslauriers with Craig Hallam Capital Group. Please go ahead. Great, thank you for taking my questions. Could you comment on wholesale gross market?
Eric Deslauriers: The next question comes from Eric Deslauriers with Craig Hallam Capital Group. Please go ahead.
Speaker Change: They seem to have the ear of the Republicans as well with the actions we saw it in both Florida and in other states as well and so surely for is trying to lead the way in that conversation and we're working together today with <unk>.
Speaker Change: March <unk>.
Speaker Change: Farmers in particular, who have a lot more thats not the.
Speaker Change: Product producers as the hemp farmers that are ones that have the political power and we're trying to join together with them and lobbying Washington, the farnell not going to get voted on this year, it's going to be pushed into next year, and that's where we want to work together between rescheduling and.
Matt Darin: We will be, as we said, as I said much, we exit the second quarter at a 50% growth margin, which is the first time we hit that since our change over the gap from I for us. Um, and we will continue to, we saw July numbers, uh, fractionally higher than that. So, we're already seeing an improvement going into the third quarter. And we expect to continue to see improvements in growth margin.
Speaker Change: And creating a a regulatory framework that would allow all these products based on not the plants, it's grown but by the cannabinoid sort of being Houston, we want equal regulation for THC across both the hemp and the regulated cannabis industry as well as the other cycle.
Speaker Change: Psychoactive cannabinoid.
Matt Darin: There's a tremendous amount of work that's been done since last year and this year on improving the financial metrics of the company. Um, is particularly right now we're really focused on the cause aspect of the business specifically around our facilities and efficiencies coming out of facilities. Five months ago, we brought on a very experienced, um, head of operations from, uh, probably the best class operator in the sector. And we've already seen marketable improvements in our business, particularly on the, on the facility side in terms of yields, quality of flower and, um, and efficiencies.
Speaker Change: Thank you.
Eric <unk>: The next question comes from Eric <unk> with Craig Hallum Capital Great. Please go ahead.
Eric: Great. Thank you for taking my questions.
Speaker Change: Could you comment on wholesale gross margins and how you expect those to impact companywide gross margins as wholesale continues to becoming a larger mix, especially with the new hire implementing these efficiencies across production and processing.
Speaker Change: How much margin have you seen I know, it's only I think he said, it's only been five months since that that employee joined in.
Speaker Change: Much more room.
Matt Darin: And so, we, we continue to see an improvement in those margins. We think they'll continue to expand and those hits that we took in the second quarter were one time on, on the, on the hemp business. Um, hemp business going forward. Um, those were startup costs and also there were some fees and things associated with the MGC transaction integration of MGC into purely, but those were really one time and we'll be moving on into the third quarter already with straight reporting on margins without those being affected affected to our bottom line. Okay, great. Thanks for the call. Now I'll jump back in the queue.
Speaker Change: Do you see.
Speaker Change: To go on wholesale gross margins. Thank you. So our internal targets is to target a 50% gross margin on our wholesale business, our retail business actually commence typically a higher margin than that.
Boris Jordan: Thank you. So our internal target is to achieve a 50% gross margin on our wholesale business. Our retail business actually commands a typically higher margin than that. Not in every market can we do that, though. There are certainly markets where prices are more compressed, like in Arizona, where achieving a 50% gross margin is very, very difficult on the wholesale side. But our internal target for our salespeople is to achieve a 50% gross margin in the wholesale business.
Speaker Change: Not in every market can we do that though there are certainly markets where prices are more compressed like in Arizona.
Speaker Change: Achieving a 50% gross margin is very very difficult on the wholesale side. So.
Speaker Change: But our internal target for our salespeople is to target a 50% gross margin in the wholesale.
Boris Jordan: And particularly in the eastern states and some of the midwestern states, we're able to achieve that. But in some of the western states, we're not able to achieve that due to the fact that they have more price compression than the eastern states. So that's our overall target.
Speaker Change: And particularly in the eastern states, but some of the Midwestern states, we're able to achieve that but in some of the western states were not able to achieve that due to the fact that they have.
Fred Raycoe: The next question comes from Fred Raycoe going with ITB capital markets. Please go ahead. Hi, I think for predicting my questions, um, first question is just on the international side. So you mentioned, uh, first shipments to Australia and New Zealand. Here's typically talk about Australia specifically, you know, the opportunity to see that market and I believe that it's a market that is growing so, you know, any comments there. All the markets, all the international markets given their nation state are really growing and expanding.
Speaker Change: A more complete price compression in the eastern states. So that's our overall target.
Operator: Thank you. This concludes our question and answer session. I would like to turn the conference back over to Camilo for any closing remarks. Thanks, everyone, for joining us. We will talk to you later
Speaker Change: Thank you. This concludes our question and answer session I would like to turn the conference back over to you for any closing remarks.
Operator: Thank you everyone for joining us. We will talk to you in 90 days. Thanks for watching!
Speaker Change: Thanks, everyone for joining we will talk to you in 90 days.
Speaker Change: Yeah.
Speaker Change: [music].
Fred Raycoe: Um, Australia is a large market and is expanding. However, there's quite a bit of competition in that marketplace and New Zealand is a smaller market with less competition and higher margins. So both are very interesting. They both have slightly different dynamics. Um, and at the moment, we are doing a thorough review as to whether or not we want to get into domestic into those markets. So today we're just importing a purely white label and purely branded products to introduce those to the market, working with local distributors.
Speaker Change: Okay.
Speaker Change: [music].
Fred Raycoe: In most markets, however, surely tends to go vertical and a vertical in the sense that we tend to want to want to own the distribution ourselves. We have not made that commitment to either Australia and New Zealand at this point in time, we're working through third party distributors. But for instance, in Europe and all the markets that we operate, we also control the end distributors in the local countries that we operate in. And that allows us to control the quality product and the distribution build relationships with the end consumers, as well as on the B2B side with the pharmacies that distribute our products.
Boris Jordan: And so we are reviewing Australia and New Zealand from that perspective, we have not yet made a decision as to whether or not we want to get into those markets, but it's still early. .
Speaker Change: Okay.
Speaker Change: [music].
unknown: Copyright © 2020 Mooji Media Ltd. All Rights Reserved. No part of this recording may be reproduced without Mooji Media Ltd.'s express consent. © BF-WATCH TV 2021 © BF-WATCH TV 2021 © BF-WATCH TV 2021 © BF-WATCH TV 2021 © BF-WATCH TV 2021 © BF-WATCH TV 2021 © BF-WATCH TV 2021 © BF-WATCH TV 2021 © BF-WATCH TV 2021, [music] © BF-WATCH TV 2021 © BF-WATCH TV 2021 © BF-WATCH TV 2021 © BF-WATCH TV 2021 © BF-WATCH TV 2021 © BF-WATCH TV 2021 © BF-WATCH TV 2021 © BF-WATCH TV 2021 [inaudible] © BF-WATCH TV 2021, Thanks for watching!
Speaker Change: Yeah.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: [music].
Speaker Change: Yeah.
Speaker Change: [music].
Boris Jordan: Good evening. Thanks for the questions. Boris, you mentioned a few markets in New York, Ohio, or Germany, combined representing near-term growth catalyst for the company. Specifically on Ohio, I'm just wondering relative to your current retail footprint and the near-term opportunity here, is there a specific strategy into getting to that sort of a for-cap or do you have sufficient capacity or maybe competing capacity with respect to service the wholesale market there? Just what's your strategy on the ability to get on the ground running here in a market that I guess just opened up for the first time this week?
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: [music].
Boris Jordan: So we had really outsized results out of the store that opened yesterday. We had another store that opened today for adult youth. We were surprised that it was well above our internal projections on what we expected in that business, so that's a pleasant surprise in a difficult market. We also have our best performing in terms of yields grow operation in Ohio, so we fully expect it and already have started to supply the wholesale market there with very significant demands coming into us on a wholesale product and we expect pricing in the early parts of that process over the next six to 12 months to be almost at the level of retail pricing because of the lack of supply.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: [music].
Boris Jordan: This is a very under-supplied market as the growth rates are going to be quite substantial because regulations didn't allow us to build growth that were bigger than the tier one growth that we have already. So however, as we are allowed to, we will be expanding those growth facilities according to regulation, so we also anticipate to open the six stores that we have now by the first quarter of next year. They will be opening up at different times, but between now and the end of the first quarter, we anticipate to have our full fleet of eight stores open in the Ohio market, but we also see the big wholesale opportunity. And as I said, this is our best performing in terms of yield and manufacturing facility in the country.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: Yes.
Speaker Change: [music].
Matt Darin: The next question comes from Matt, can you make with Nathan? Please go ahead. Thank you. You indicated that growth margin improved throughout the quarter and that you hit 50 percent in June and July, but overall your growth margin was pretty similar to what you had in the first quarter at around 48 percent. So if you ended at 50 percent, you were well below that to start. Why did that growth margin dip or leaving the quarter?
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Okay.
Matt Darin: And what's different about the inventory position or mix or production that gives you the conviction that you can sustain that growth margin at around 50 percent for the remainder of the year? Yeah, Matt, to be honest, too much discounting around 420. And probably something we're going to look at as a strategy going forward. And I don't think you're going to see that, but it has been historically a process that everybody's participated in.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: Uh huh.
Speaker Change: Yes.
Speaker Change: [music].
Speaker Change: Sure.
Speaker Change: [music].
Matt Darin: And instead of discounting just on the day of 420 or a couple days before, it's been a month-long process. And so April was an extraordinary low compared to May and June. And June recovered fully. And as a whole, you're going to see clearly changing its strategy. And we're already walking away from a lot of the discounting strategies, especially with product improvements that we've seen and potency and product assortment. We've had a huge reception to brick and stick our food stick product. And so we're moving away from a discounting strategy and much more pricing to our margin targets. And so that's why you're seeing very, very strong July.
Matt Darin: And I think into August, you're going to even see strongers.
Speaker Change: Okay.
Speaker Change: [music].
Matt Darin: Next question comes from Ty Collin with eight capital. Please go ahead. Good afternoon. Thanks for the question. I'm just wondering if you could discuss the level of promotional activity you're seeing across your footprint and how that's been changed over the last months and quarters, particularly as you're starting to see some weakness emerge in the job market. And consumers continue to face the number of headwinds. Just wondering if you could discuss any changes to observe their thanks.
Matt Darin: So I'll start with macro. You know, obviously you can't avoid the macro situation in the country, right? You've got a high inflationary environment, even though we're probably going into a rate reduction cycle, that's not going to filter through to the consumer probably for a good 12 months. So I still think that there's the peak appeared pressure on the consumer is yet to come in the United States, and I think we're going to see that going into fourth quarter in the first quarter.
Matt Darin: And so I think they'll be continued pressure. However, the one thing I have noticed and I think we've all noticed about cannabis is that if you have high quality product itself and you don't have to discount. And so as Curaleaf has improved its operations across the footprint of all of our facilities and our product quality has increased quite dramatically. We're finding that we have to discount much less and so that we can fight the the some of the price pressures that we've seen in the market today.
Speaker Change: Okay.
Speaker Change: Yeah.
Matt Darin: But we can't avoid the fact that we also there are also competitors in the marketplace, who's maybe balance sheet or other pressures on them are a little bit significant. And so they are discounting dramatically and we've seen that in two states in particular, and the issue in those is that we're big operators in both those states that splared in Arizona, where we've had 200 plus million dollar businesses. And therefore we can't escape the fact that there is that that price compression those states, but as we increase the product quality, we're finding that we have to discount less and more and more people are buying products.
Speaker Change: Yes.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: Yes.
Matt Darin: And example also is in Germany where our 420 products prices at probably a 300, 400 basis point difference to our competitors and the reason being it's a very, very high quality product. And one of the reasons we have introduced a mintier product on the Curaleaf brand is because there is a lot of price sensitive consumers. We haven't played in that segment. We do play in the segment US. We don't play in the segment Europe.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: Yeah.
Speaker Change: Yes.
Speaker Change: [music].
Matt Darin: And we're now with our Portuguese facility coming online fully. We're starting to export product from there, which will be played play into that mintier. Therefore, expanding our customer base at a better pricing and the cost of that product is significantly lower than our indoor product because we're growing it in greenhouses in Portugal. So we're not going to be eroding our margin, but we are going to be playing in a much wider segment of the market, but it's supplying the greenhouse growing product into the German market.
Pablo Zuanic: The next question comes from Pablo Zoneck with Zoneck in Associates. Please go ahead. Thank you.
Boris Jordan: Boris, you know, I want to ask you a crystal ball question, if you'll mind, but I guess the first one is, you know, your latest thoughts in terms of whether we get rescheduling before January 20th. You know, some of us expected this would happen by, you know, August 19th when we had the Democratic Convention, but just your latest thought on that. But number two, the bigger picture question, and I guess you hear me out here, I know there's a lot of uncertainty, right?
Boris Jordan: What happens with rescheduling? What happens with the election? But let's say that we come to January 20th, Kamala Harris, Vice President Harris is a new president, Democrats control, do chambers, right? And I know there's a lot of hypotheticals there, but we still don't have rescheduling. So, you know, what happens in that scenario, based on her comments before, she may just want to discard you, right? And what I see here is an opportunity with the Farm Bill, right?
Speaker Change: Okay.
Speaker Change: [music].
Boris Jordan: The 20th, 2020 Farm Bill hasn't happened. It's supposed to happen in 2025. Do you believe that there's an opportunity for, you know, the blue, the Democrats, right, to push cannabis and then the red hemp with the Farm Bill, try to come together and do something. So, we see congressional action in cannabis, and we get the Farm Bill finally done. Sorry, I know that's a lot of hypotheticals there, but I love to hear your thoughts on that. Thank you. Yeah.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: [music].
Boris Jordan: Um, I don't have a crystal ball, but let me try and briefly, uh, answer the question. So, do we think that reschedule has happened and went, um, you know, listen, we know as much as anybody else, we don't know any more than anybody else. Um, my view has always been that, um, if they're going to use this as a campaign issue, the closer you, you announce something to a campaign, the more people remember it and the better it is.
Speaker Change: Okay.
Boris Jordan: So I've made my position public that if the decision is to reschedule before the election, that that decision will probably most likely come late September or October, rather than before the, um, before the convention. Uh, so that's my view. I hope I'm wrong and it comes before the convention, but in this particular situation, if they make a decision to reschedule before the election, that's when it would come. So that's what I'm prepared to say on that issue.
Boris Jordan: Um, on the, on the, the next question is, listen, I, the way I'd like to deal with that is that there's a lot of hypotheticals there. So it's very difficult to address so we can do that in a private conversation because the long answer. I just want to say one thing. I believe that the hemp market is the one that's having the largest impact on the regulated cannabis. I don't like to care what anybody says we're seeing it across the board, but more importantly, what I think it is is that the regular cannabis industry, if I could say that is the OG market, it's where people come that have been using cannabis for a long time and are very familiar with the product.
Boris Jordan: The hemp market is opening up a brand new customer, the customer that doesn't want to come into a into a dispensary, the customer that does not want to be seen as associated that is trying these products. Uh, and then particularly the beverage side, I've always said, uh, that just just like I said, Europe wouldn't be a big market and nobody believes it now is becoming that. Uh, I've always said beverages are going to be a big market.
Boris Jordan: I think beverages are going to be the largest segment after flower in the cannabis sector in a very short period of time and eventually will be the largest and the only place you can do that at scale is in the health market because of the economy is of, of, of, of, you know, bottling and then distributing nationally. And so I think that it's a, it's a very interesting market to to operate it.
Boris Jordan: We want to be a major player in the beverage market. We think there's a huge amount of upside in it. We're already seeing it in pre-orders that it's a very very interesting will be expanding our skews and expanding the flavors and different types of products. You'll be issuing through the beverage market here shortly and we'll be making those announcements.
Boris Jordan: I also think that the cannabis industry needs to work with the hemp industry. Instead of fighting the hemp industry, I think we should be working together. They have a very, the farmers have a much stronger lobbies in the cannabis industry. They seem to have the year of the Republicans as well with the actions we saw in both Florida and in other states as well. And so purely for trying to lead the way in that conversation.
Boris Jordan: And we're working together today with large hemp farmers in particular who have a lot more, it's not this hemp, a product producer, this is the hemp farmers. There are ones that have the political power and we're trying to join together with them in lobbying Washington.
Boris Jordan: The farm does not going to get voted on this year. It's going to be pushed into next year and that's where we want to work together between rescheduling and hemp and creating a, a regulatory framework that would allow both all these products based on not the plants that's grown but by the cannabinoids that are being used and we want equal regulation for THC across both the hemp and the regulated cannabis industry as well as the other psychoactive cannabis. Thank you.
Eric Disloriers: The next question comes from Eric Disloriers, with Craig Hallum, Capital Group. Please go ahead. Great.
Boris Jordan: Thank you for taking my questions. Could you comment on wholesale gross margins and how you expect those to impact company-wide gross margins as wholesale continues becoming a larger mix, especially with the new hire implementing these efficiencies across production and processing. How much margin have you seen? I think you said it's only been five months since that employee joined, and how much more room do you see to go on wholesale gross margins? Thank you.
Boris Jordan: Our internal targets is to target a 50% gross margin on our wholesale business. Our retail business actually commands typically a higher margin than that.
Boris Jordan: Not in every market can we do that though. There are certainly markets where prices are more compressed like in Arizona. We're achieving a 50% gross margin is very, very difficult on the wholesale side, so it's but our internal target for our salespeople is to target a 50% gross margin in the wholesale business. And particularly in the eastern states and some of the Midwestern states were able to achieve that, but in some of the western states were not able to achieve that due to the fact that they have a more compressed compression than the eastern states.
Boris Jordan: So that's our overall target.
Unknown Attendee: Thank you.
Camilo Lyon: This concludes our question and answer session. I would like to turn the conference back over to Camilo for any closing remarks. Thanks everyone for joining.
Unknown Attendee: We will talk to you in 90 days.
Unknown Attendee: Thank you very much.
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