Q3 2024 Curaleaf Holdings Inc Earnings Call

Speaker Change: Good day and welcome to Curly Holdings 3rd Quarter of 2024 earnings conference call. All participants will be in a listen only mode for the duration of the call. Introduce any assistance today, please signally conference specialist by pressing the star key followed by zero.

Speaker Change: After today's presentation there will be an opportunity to ask questions to ask a question you may press star than one on your telephone keypad. And to withdraw a question please press star than two. During Q&A we ask that you please limit yourself to only one question. Also please be aware that today's call is being recorded.

Speaker Change: I would now let you turn the call over to Camilo Lyon, Chief Investment Officer. Please go ahead.

Camilo Lyon: Good afternoon everyone and welcome to Curly Folding's third quarter 2021 Comforts call. Today I'm joined by Chairman and Chief Executive Officer Boris Jordan and Chief Financial Officer Ed Kremer.

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 Canadian and United States securities laws.

Camilo Lyon: We'd invite a nature involved estimates, projections, plans, goals, forecasts.

Camilo Lyon: and assumptions including the successful integration of acquisitions and are subject to risks and uncertainty.

Camilo Lyon: That could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements on certain material factors or assumptions that were applied in drawing the conclusion or making a forecast in such statements.

Camilo Lyon: These forward-looking statements speak only as of the date of this conference call and should not be relied upon as prediction of future events.

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.

Camilo Lyon: 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.

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.

Camilo Lyon: 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 procure lease 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.

Camilo Lyon: With that, I'll turn the call over to Chairman and Chief Executive Officer Boris Jordan. Boris?

Boris Jordan: Thank you, Camilo. Good afternoon, everyone, and thank you for joining us to discuss our third quarter results. Before diving in, I would like to acknowledge the results of yesterday's presidential election. First and foremost, congratulations to President-elect Donald Trump on his electoral win.

Boris Jordan: If you have been following CureLeaf's election coverage, our Tote the Vote marketing campaign accurately predicted this outcome with our Donald O.G. flower strain narrowly defeating our Kamala Kush strain in the four states where we ran the poll.

Boris Jordan: For the first time ever, both presidential candidates publicly touted pro-cannabis stances on the campaign trail. With President-elect Trump in office, we are hopeful that real federal reform, including rescheduling and safer banking, can pass.

Boris Jordan: Trump closed his speech last night by saying promises made, promises kept. We've already been in touch with his transition team to ensure that the new administration falls through on its commitments made to the industry.

Speaker Change: In our expertise, historically, President Trump has put an effort to deliver on his campaign promises, and we see no reason why this time would be different.

Camilo Lyon: On the flip side, last night's Florida election results were disappointing, to say the least.

Camilo Lyon: As Amendment 3 failed to meet the 60% threshold it needed to pass. However, we cannot ignore that 56% majority of Floridians voted in favor, the same margin as Trump's victory reflecting the bipartisan nature of the issue.

Camilo Lyon: As we mentioned in our previous earnings call,

Camilo Lyon: We have staged our investment in Florida to safeguard against this outcome and now we'll progress accordingly

Camilo Lyon: In fact, we remain bullish on Florida and still see tremendous opportunity to expand our market share by upgrading our production capabilities to produce high-quality indoor flour and by adding additional stores to our footprint to fill in the gaps in our state map.

Camilo Lyon: We have six markets that generate nine figures in annual sales. Florida is one of them, and our international platform is on track to be another one this year. Moreover, Florida represents a low teens percent of our total revenue.

Camilo Lyon: By design, our global presence offers a diversification of revenue streams that mitigates any concentration of risk, and our international platform gives us exposure to exceptional growth that is unique to Curaleaf.

Camilo Lyon: I firmly believe that companies that have a diversified asset base, that are generating cash with access to capital, and have a solid long-term shareholder base will prevail. To this point, we will analyze every asset in our portfolio for its profitability and cash return profile.

Camilo Lyon: The upside is this environment will lead to a much-needed consolidation in the industry, not just for the sake of top-line growth, but for profitable cash-generating growth.

Camilo Lyon: Needless to say, we are at an inflection point in the industry and at cure-leave.

Camilo Lyon: PureLeaf has always been the largest player in the cannabis sector and we need to get back to being the leading player.

Camilo Lyon: As chairman of the company, my focus was on strategic vision and investing in growth, and we've succeeded in building significant scale and an international footprint. However, as CEO and founder of the company, my focus is now on delivering value to all shareholders through discipline, execution of fundamental operating principles.

Camilo Lyon: Leveraging our entrepreneurial heritage, we are reorienting the company to focus on a program we are calling Return to Our Roots.

Camilo Lyon: Refining margins, organic growth, optimizing cash flow, tightening the balance sheet, and strategic expansion.

Camilo Lyon: Although it is still early days in my tenure, this new focus is reflected in our third-quarter results. We announced a revenue of $331 million, which is slightly down 1% compared to last year.

Camilo Lyon: Meanwhile, our focus on profitability resulted in adjusted gross margins of 49% up 310 basis points.

Camilo Lyon: year-over-year, with all reasons showing an increase. Overall adjusted EBITDA margins also improved to 23% as gross margin gains and cost savings initiatives were offset by expense deleverage on more modest sales.

Camilo Lyon: We ended the quarter with $90 million of cash on the balance sheet and generated $42 million of operating cash flow from continuing operations. After substantial investments in CapEx this quarter, we generated $14 million of free cash flow from continuing operations.

Camilo Lyon: The industry has experienced the pressures of regulatory overhang, increased competition, unprecedented weather conditions, and irrational pricing strategies.

Camilo Lyon: Procuraleaf, the top line headwoods can be broken down by the dynamics of the specific states we operate in and we have acknowledged and addressed them head-on

Camilo Lyon: In Arizona, we saw a pricing collapse due to an extended summer with record-breaking temperatures resulting in market decline of 19% year-over-year. The seasonality has now subsided and traffic has stabilized, yet through it all, we were able to grow our market share by 100 basis points.

Camilo Lyon: our competition moved to an aggressive pricing strategy.

Camilo Lyon: We actually chose to manage and actually expand our margins instead of chasing sales.

Camilo Lyon: We have since reassorted our stores to effectively compete and are seeing healthy profitable growth.

Camilo Lyon: In Illinois, we continue to see pressure for more store openings, however, the challenges of the market were exasperated by supply disruption due to a failed harvest in our Illinois grow.

Camilo Lyon: The GROW is now fully harvesting, and for the first time since the acquisition of grass roots, we are utilizing 100% of our capacity in Illinois, and product quality is the best it's ever been.

Camilo Lyon: In Florida, we experienced a longer summer than usual, delaying the return of the seasonal patient population and reducing traffic.

Camilo Lyon: Additionally, Hurricane Helene impacted the final days of the quarter as we had to close 15 stores. The impact from Hurricane Milton in early October was more pronounced with 46 store closures.

Camilo Lyon: Thankfully, we didn't sustain any damage to our stores or facilities, and most importantly, none of our employees were injured. I am very grateful to our team who worked tirelessly in those critical days to get us back online and minimize business disruption.

Camilo Lyon: and finally in New Jersey we have been and continue to be the largest player in that state so we have been disproportionately impacted by the surge of store openings around us.

Camilo Lyon: For context, our Belmar store has had 23 independent stores open within a 20-minute drive in the last 12 months. New openings are beginning to slow down, but the market is saturated. We are driving our wholesale business to capitalize on the new doors and offset the increased retail competition.

Camilo Lyon: Outside of New Jersey, the above factors were specific to the third quarter, and we are seeing stabilization early in the fourth quarter.

Camilo Lyon: Taking a step back from our business specifically, the cannabis sector in the U.S. has continued to see significant price compression this year. According to BDSA, pricing was down 11% in the third quarter, with some states down as much as 19%.

Camilo Lyon: We know that the Delta 9 market has played a considerable role in this trend, and we believe it is cannibalizing share and driving increased competition.

Camilo Lyon: The cannabis sector took 10 years to grow to a $30 billion market. Meanwhile, hemp only took 2 years to grow into what is estimated now to be a $20-25 billion market. It is impossible to ignore the outsized impact that these new market entrants have had on the regulated cannabis business.

Camilo Lyon: With half the country now having access to adult-use cannabis, and despite the fragmented nature of the industry, national trends are becoming more evident and more important.

Camilo Lyon: Pricing continues to taper off to levels much lower than anyone anticipated. This macro environment is one of the key drivers of our shift towards focusing on sustainable and profitable organic growth by maintaining share in challenged markets and growing share where we see strategic opportunity.

Camilo Lyon: Speaking of strategic opportunities, I would like to provide an update on our actionable growth drivers.

Camilo Lyon: The International Segment, the Adult Use Markets in New York, and Ohio, and our hemp business.

Camilo Lyon: Our international business was a bright spot again, growing 82% year-over-year and 17% quarter-over-quarter to 30 million U.S. dollars.

Camilo Lyon: The business is on pace to exit the year above our projected $100 million target. Also, gross margin continued to improve, expanding 400 basis points from the second quarter. Both Germany and the United Kingdom are leading this growth.

Camilo Lyon: In Germany, we believe the patient population has roughly tripled to 600,000 since the April 1st enactment of the newly expanded cannabis medical law. Based on market data that we have aggregated, we believe our 420 brand is among the top two brands in the market.

Camilo Lyon: In the UK, we continue to grow our share by offering customers greater value and superior customer service. Last month we instituted a subscription program in our clinic, which should improve retention rates and lower upfront costs for our patients.

Camilo Lyon: Going into 2025, the international business will start to drive meaningful contribution to Curaleaf. Without doubt, there is a lot of opportunity that we are aggressively going after, and we continue to evaluate additional geographies for strategic expansion.

Camilo Lyon: In New York, we continued to penetrate the new wholesale doors at a rapid clip, reaching 57% penetration of doors in the market to date, which contributed to over a hundred percent growth in wholesale revenue versus last year.

Camilo Lyon: Our indoor flower quality has never been better, and we are reaping the benefits of the team's dedicated focus, which led to the state enjoying 52% year-over-year growth. The market in New York is improving, and I believe will continue to accelerate next year.

Camilo Lyon: In Ohio, we launched adult use sales in early August and have seen our business nearly double compared to last year and 40% sequentially.

Camilo Lyon: Our two stores are performing well even though marketing to adult use customers are not allowed thus far, which we believe has hampered overall consumer awareness.

Camilo Lyon: We are making solid progress on our next two stores, which we plan to have open in early 2025, with the remaining four slated to open in the following months.

Camilo Lyon: At The Hemp Company, our initial launch of our small line of test SKUs in select edibles and zero proof seltzers are gaining traction in both our DTC and wholesale channels.

Camilo Lyon: We are now refining our manufacturing process for mass production, and in parallel we are working with distributors and strategic partners.

Camilo Lyon: In 2025, early 2025, we will launch an expanded assortment of products that will cater to the hemp consumer, which I'll share more about in our fourth quarter poll.

Camilo Lyon: We are excited by the momentum we are seeing across these vectors, and we are confident they will support the profitable organic growth and strategic expansion that we are prioritizing.

Speaker Change: In my first month as CEO, my core actions have focused on refining margins, optimizing cash flow. To achieve these objectives, I have challenged the management team to execute against the following six focus areas.

Camilo Lyon: new leadership, we are

Camilo Lyon: We have and will continue to upgrade our management team in key regions and functional areas and have revamped our broader organizational structure to better execute on our strategic priorities.

Camilo Lyon: On product quality, we have upgraded our practices across our cultivation and manufacturing facilities. The result has been a dramatic gain in flower yield and quality. I am relentless in Curely's commitment to excellent quality and high safety standards and will not accept anything short of that.

Camilo Lyon: Portfolio Rationalization. We conducted a deep dive into portfolio review to evaluate our leading brands and to rationalize our SKUs. We are eliminating 20% of our underperforming SKUs that do not meet growth or profitability hurdles.

Camilo Lyon: On cost reduction, since July, we have identified hundreds of margin initiatives throughout the organizations that we have or are in the process of implementing.

Camilo Lyon: In addition, over the last two months as CEO, we have identified an incremental $25 million of annualized savings, with the majority coming from reduced labor, marketing, and IT expenses.

Camilo Lyon: In Operating Efficients, we've invested in facility upgrades, streamlined our supply chain, and reduced labor and overhead in order to continue to minimize our costs.

Camilo Lyon: On inventory management, we are committed to reducing the inventory on our balance sheet, and we are targeting best-in-class inventory turns to drive product velocity and cash conversion.

Camilo Lyon: I am pleased to report that the team is making great headway against all of these objectives.

Camilo Lyon: To summarize, we have done an immense amount of work in the last 90 days, but we are just getting started. Refocusing the business while navigating the volatility of this industry will take time.

Camilo Lyon: But we will bring the entrepreneurial spirit and winning culture back to Cura Leaf. We may see slower growth before re-accelerating as the many investment initiatives we have underway will take time to fully come to fruition and flow through the P&L.

Camilo Lyon: We are hyper-focused on returning to our roots, driving durable improvements in our margin profile and cash generation, while also prudently investing in the future.

Camilo Lyon: With that, I'll turn the call over to CFO Ed Kremer to go over the financials in greater detail.

Ed Kremer: Thanks Boris. Total revenue for the third quarter was 331 million dollars representing a slight year-over-year decrease of 1%.

Camilo Lyon: The decrease was due to New Jersey, Arizona, and Illinois partially offset by growth in our international segment, New York, Ohio, and Utah.

Camilo Lyon: In a quarter with heightened seasonality, given our exposure to Arizona and Florida, September was the softest month as pricing in a few of our larger states took a noticeable step down from August.

Camilo Lyon: Our domestic segment accounted for 91% of total revenue, while our international segment expended to 9%. 160 basis points higher than the second quarter.

Camilo Lyon: International segment performance was significant as the region grew 82% versus last year, or 17% sequentially, and was driven by Germany, the UK, Australia, and New Zealand.

Camilo Lyon: By channel, retail revenue was $253 million compared to $273 million in the third quarter of 2023, down 7% year-over-year as the shift from retail to wholesale that has been present all year continued into the third quarter.

Camilo Lyon: Most notably in states like New Jersey and Illinois, where the largest number of independent retailers have opened this year.

Camilo Lyon: Wholesale revenue increased 29% to 76 million compared to last year's 59 million and represented 23% total revenue.

Camilo Lyon: The strength of our wholesale revenue was driven by New York, Ohio, and our international segment.

Camilo Lyon: Shifting to our retail consumer metrics, transactions were down 4% in the third quarter compared to last year. Average order value decreased by 5% and both UPTs and AUR declined low single digits, highlighting the pricing pressure experienced during the quarter, albeit

Camilo Lyon: to a far lesser extent than the market's 11% contraction according to BDSA.

Camilo Lyon: Our third quarter gross profit and adjusted gross profit was $161 million, resulting in a 49% gross margin.

Camilo Lyon: Gross Margin and Adjusted Gross Margin increased 350 and 310 basis points compared to last year respectively.

Camilo Lyon: The main drivers of the margin expansion included lower costs of flour and vape production stemming from our cost savings initiatives, an increase in our vertical mix which rose 200 basis points to 66%, and higher utilization rates in our facilities.

Camilo Lyon: These gains were partially offset by price compression and higher discounts in certain states.

Camilo Lyon: SG&A expenses were $106 million in the third quarter, an increase of $9 million from a year ago period. Core SG&A was $102 million, an increase of $10 million from the same period.

Camilo Lyon: The year-over-year increase in our core SG&A primarily reflects higher payroll related to acquisitions.

Camilo Lyon: international investments, and new store openings in Florida and New York.

Camilo Lyon: Total SG&A and Core SG&A was 32% and 31% of revenue in the third quarter, an increase of 300 and 340 basis points respectively, compared to the year-ago period.

Camilo Lyon: Third quarter net loss from continuing operations was 44 million and net loss per share from continuing ops was seven cents.

Camilo Lyon: Adjusted EBITDA in the third quarter with 75 million dollars flat to last year and increased 3% to 73 million dollars sequentially.

Camilo Lyon: Third quarter, just the EBITDA margin was up 20 basis points to 23% versus last year and up 150 basis points sequentially.

Camilo Lyon: Our international segment profitability continued to improve as the 180 basis point drag on EBITDA margins in Q1 lessened to 120 basis points in Q3.

Camilo Lyon: Now turning to our balance sheet and cash flow.

Camilo Lyon: We ended the quarter with cash and cash equivalents of $90 million. Inventory increased $7 million or 3% compared to last year's third quarter due to growth of our international business, the launch of adult use in New York, and our hemp division.

Camilo Lyon: Net capital expenditures in the third quarter were $28 million, bringing the total spend through the third quarter to $66 million.

Camilo Lyon: Despite the disappointing outcome of yesterday's Amendment 3 vote in Florida, Stage 1 of our cultivation expansion project is substantially complete and it will serve to increase our indoor cultivation capacity while optimizing our cost structure. We now will defer proceeding with our Stage 2 build-out.

Camilo Lyon: We hold the number two share position in the state. We see ample opportunity to compete for more, and these investments will allow us to do just that.

Camilo Lyon: Separately, we have seen meaningful improvements in product yields and flower quality across many of our facilities by modernizing our equipment and infrastructure.

Camilo Lyon: Based on these results, we have taken the steps to accelerate these investments throughout the enterprise, and as such, we are increasing our 2024 capital expenditures to approximately $90 million from the $70 million guidance previously.

Camilo Lyon: Here today, and in the third quarter, we generated operating cash flow from continuing operations of $119 million and $42 million respectively.

Camilo Lyon: Similarly, free cash flow from continuing operations was $53 million and $14 million respectively.

Camilo Lyon: Our outstanding debt was $557 million, of which 83% is not due until December 2026.

Camilo Lyon: Today we also announced the closing of a 40 million dollar evolving credit facility with Needham Bank that matures December 15, 2026 at an interest rate of 7.99 percent.

Camilo Lyon: This revolving credit line, previously not available to the cannabis industry, is a milestone event and provides us with flexibility to continue growing Cureleaf as the leader of the global cannabis industry during what continues to be a difficult capital-raising environment.

Camilo Lyon: We intend to use this credit facility to support working capital as needed.

Camilo Lyon: With respect to guidance, given the uncertain pricing dynamics in some of our larger markets coupled with macro pressures on our consumer, we expect fourth quarter revenue will be flat to up one percent relative to Q3 and similarly expect adjusted EBITDA margin to be consistent with our Q3 margin.

Camilo Lyon: Despite the aforementioned headwinds, we have generated strong operating cash flow thus far, and as such we anticipate ending the full year north of $135 million.

Camilo Lyon: And with that, I'll turn the call back over to the operator to open the line for questions.

Speaker Change: Thank you for watching!

Speaker Change: We will now begin the question and answer session. To ask a question you may press star then one on your telephone keypad and if you're using a speakerphone please pick up your handset before pressing the keys.

Camilo Lyon: To withdraw a question, you may press star then two. Again, we ask that you please limit yourself to only one question.

Camilo Lyon: At this time, we will pause just momentarily to assemble the roster.

Speaker Change: And our first question here will come from Aaron Gray with Alliance Global Partners. Please go ahead.

Aaron Gray: Hi, good evening and thank you for the question.

Aaron Gray: Boris, you know in terms of some of the irrational pricing that you called out with Coloropera on some of the specific markets

Camilo Lyon: Walken, appreciate it's certainly state by state. Do you see this more so as transitory, or do you believe that it's gonna, environment's going to persist and potentially, you know, worse in near term as operators continue to face the challenged environment?

Camilo Lyon: Thank you.

Speaker Change: Listen, I think that if you look at the broader states, I won't go individual states, but you had, so I'll give you two examples. One is Arizona, you had unseasonably warm temperatures, 173 days in a row you had temperatures north of 130 degrees.

Camilo Lyon: And so you had an evacuation of Phoenix and as everyone knows the bulk of our stores are in Phoenix And we're the largest retail player there And so that just traffic fell and what happened was everybody was competing

Camilo Lyon: for the traffic that was in Arizona. And so you saw a 20% decline year over year in pricing and price compression in Arizona.

Camilo Lyon: Now, the interesting thing that we're seeing in the fourth quarter is we're seeing a stabilization and a slight recovery in pricing, but not anywhere near the damage that was done in the third quarter.

Camilo Lyon: So, that's the kind of thing that we've happened. The other thing is we saw in Pennsylvania, one of the MSOs decided to substantially drop pricing in July. That was followed by almost all the MSOs in August.

Camilo Lyon: We decided not to do the same thing. We decided to see whether we can hold share, which we did. We were able to hold share, but we obviously saw significant price compression. So what we did instead of reducing pricing, we decided to reassort the stores.

Camilo Lyon: with different products to adjust to what the consumer's needs are in the current environment.

Camilo Lyon: So that's the kind of thing that we're seeing in the marketplace right now across the board. So it's very difficult for me to tell whether this is something that's going to go on for long term or whether this is something that's, and every market is different. For instance, in New Jersey, you have a situation where, you know, we have 20 stores open around our Belmar store. Our Belmar store is probably the highest producing store in the country. At least it was last year. It may still be this year.

Camilo Lyon: But, you know, we saw a substantial amount, 20-some-odd stores open up around our Belmont store, so our revenues were definitely down in the back of that, right? So there's not much you can do. And we called all of our customers, we do callbacks.

Camilo Lyon: And the first thing we heard is, yes, you have the best assortment, you have the largest and nicest store, but it's convenient for us to drive three minutes rather than drive 20 minutes to your store.

Camilo Lyon: So that's the kind of things that we're starting to see and when you have a very high share like we did, almost 40% in New Jersey, that is naturally going to come in a little bit. But we're picking up quite a bit on the wholesale side.

Camilo Lyon: But we've seen a flattening in New Jersey. As a matter of fact, September would probably be the first month.

Camilo Lyon: We saw a reduction of sales year-over-year in New Jersey. Most of the year we saw flat sales in New Jersey, and in September was the first time we saw a reduction of sales.

Camilo Lyon: in New Jersey because of this traffic and the amount of stores that's opening. Now, we are seeing a stabilization in the openings of these stores, and so we hope that that should bring some level of stabilization. But too early to tell at this point in time, for instance, in New Jersey. So every market is different for different reasons.

Camilo Lyon: some of which are seasonally like Florida and Arizona, some of which are market-driven like Pennsylvania and New Jersey.

Speaker Change: on Florida.

Camilo Lyon: moving to Florida. Listen, a lot's going to depend on how the top, the large three operators, i.e. Trulief, Curaleaf, and Verano decide to behave.

Camilo Lyon: If we continue to operate the way we have up until now, you know, fourth quarter seasonally is always a stronger quarter because you have a lot of people returning back to Florida. And so I expect the market to be, you know, very, to be a good market in the fourth quarter.

Camilo Lyon: However, it depends, right? We have, you know, you have people that have larger grows now, they're going to have to depreciate, amortize these growth facilities that they invested in, and they might go for revenue. And if they decide to go down that route, you might see some price compression in the Florida market.

Camilo Lyon: I also think that the Florida market tapered off in the third quarter because everybody expected AU to be voted on and people stopped renewing cards.

Camilo Lyon: And so now I think what we'll see over the next three or four months, I think we'll start to see a renewal of cards.

Camilo Lyon: in the Florida market, and a resumption of hopefully...

Camilo Lyon: more firm pricing in the Florida market. But again, we have to see how the market's going to behave over the next couple of months to see how that develops. But right now, we're definitely seeing a stabilization since the hurricanes. We're definitely seeing a stabilization in the Florida market.

Speaker Change: Okay, great. Thanks. I appreciate the call there, Boris. I'll jump back in the queue.

Speaker Change: And our next question will come from Matt Bottomley with Canaccord Genuity.

Speaker Change: Please go ahead.

Matt Bottomley: Good evening, everyone. Boris and company, I just wanted to get your views on in a sort of Republican administration now, trying to line up. This is what you know, the calls I've been having today, given, you know, the panic in the in the equity markets, and it's really trying to figure out how does rescheduling look.

Matt Bottomley: and even things like safe banking or other legislative matters in sort of a Republican environment. You know, clearly it's an administrative process and we all saw what Trump put on his social media platforms as part of the election, but there's just some back and forth whether that's...

Matt Bottomley: for political favor versus, you know, the practical, you know, considerations to get something done. So, in the rescheduling context, I'm just wondering if there's anything material to be worried about with respect to what might happen, whether it's a change at the top of the DEA or any other variables. And then from something like a safe banking perspective, is this something that might actually be easier to get done, considering we have a lined-up Senate and House, or is cannabis legislation, although maybe it's more streamlined under Republican legislators, is it less of a priority compared to what the Democrats had, well, lack of what they've done, but what they had said they were going to do over the last couple of years?

Speaker Change: Listen, I think that the difference between Republicans, historically, and Democrats is that Democrats

Speaker Change: Certainly under Biden promised a lot and did very little, although I have to give him credit for launching the rescheduling program. So they do have to get some credit for that, but not getting obviously getting it through the typical rescheduling program.

Speaker Change: can take up to three years. So far, we're in, I think, almost two years, just a little bit shy of two years in the rescheduling process. And we have now hearings that are scheduled. I believe that that process will go.

Matt Bottomley: Ford, irrespective of politics, right? It's a process that's already been launched.

Matt Bottomley: The Health and Human Services Department together with the FDA have recommended for rescheduling.

Matt Bottomley: We have heard that the DEA has notified members of Congress that they plan to move towards rescheduling, which I think is a very positive development. But we do have to wait for the ALJ hearings to happen. What's going to happen over here is, I think, the judge on December 2nd

Matt Bottomley: We're just going to announce who has standing, who doesn't have standing.

Matt Bottomley: and probably schedule hearings for late January, early February based on who has standing and who doesn't so they have time to prepare for arguments in that process.

Matt Bottomley: We all have to remember that in the 1980s, we had an ALJ hearing on cannabis, and the judge did recommend, and unfortunately, the head of the DA at the time, under Ronald Reagan, decided not to take the recommendation of the ALJ judge to reschedule and kept it scheduled.

Matt Bottomley: I personally, again this is my personal view, believe that this time would be different and I do think that the Trump administration will agree to it for two reasons. One is the President-elect has said that he would support it.

Matt Bottomley: and Trump tends to do that on policy issues, support what he's going to say and as I said in my prepared talks, he said yesterday, the last thing he said walking off the stage is that he will deliver on what he's promised to the people.

Matt Bottomley: So, I think that's very important, and we're already in touch with his people to do that. The second thing is...

Matt Bottomley: that if he follows through on his commitment, and he said it again yesterday on stage, that he's going to put RFK in charge of HSS and the FDA, he is incredibly positive on the rescheduling of cannabis.

Matt Bottomley: Thank you very much.

Speaker Change: Oh, I'm safe for banking. Listen, I think...

Matt Bottomley: It's almost a curse word these days.

Matt Bottomley: Safer banking, you know, we have two shots at it really, the first is whether they want to take it up in the lame duck, I think it's way too early, I'll be in D.C.

Matt Bottomley: Not next week, but the week after.

Matt Bottomley: are discussing with members to see where we move on Safer Banking, whether we can get something done in the lame duck.

Matt Bottomley: But also there's the Trump administration and since again, I want to say that he is committed to it And he tends to be business friendly and tends to understand these issues

Matt Bottomley: I'm hopeful that he will instruct his administration to move forward with Congress on pushing that. And since it looks as though he's going to have both houses, there's no reason we can't keep his feet to the fire on this issue, given that he's made a commitment to the industry.

Speaker Change: Thank you.

Speaker Change: And our next question here will come from Russell Stanley with Beacon Securities. Please go ahead.

Russell Stanley: Good afternoon and thank you for taking my question Boris. I think during your prepared remarks you talked about

Russell Stanley: expecting renewed consolidation in the industry. And I just love to hear what your own appetite is for transactions at this point, whether it be European or U.S. focused and what your criteria are, given the new election results and the results in Florida. I'd love to hear where your latest views are there. Thanks.

Speaker Change: So our focus is going to be very different in Europe than it is in the United States. Our focus in Europe continues to be growth and expansion.

Speaker Change: because we see numerous opportunities so whether it's going vertical in a place like Germany or continuing to expand in Asia through Australia and New Zealand we're seeing very strong growth

Speaker Change: Fourth quarter

Speaker Change: started out very, very healthy again.

Speaker Change: And as I said, going into next year, this is going to start to contribute meaningful dollars to Curaleaf on the top line and bottom line on the international business.

Speaker Change: We are looking for opportunities, one, new markets, and two, going more vertical.

Speaker Change: and continuing to invest in our supply chain. So that's our European business.

Speaker Change: In the U.S. right now, really, I'm looking at efficiency.

Speaker Change: said, this is a momentous event.

Speaker Change: an unhealthy atmosphere where you have so many multi-state operators and what is...

Speaker Change: a tough market given the hemp situation.

Speaker Change: and I believe that these companies should be coming together and reaping efficiencies or seeking efficiencies through their operations, both on the cost side and on the efficiency side. So I do think that there is multiple opportunities. The question is going to be whether or not people are too greedy and whether or not there are egos involved, but I do believe there needs to be consolidation.

Speaker Change: in the U.S. part of the business to make these businesses more scaled and more efficient from a cost perspective.

Speaker Change: And our next question here will come from Nick Anderson with Roth MKM. Please go ahead.

Nick Anderson: Yeah, good afternoon. Thanks for taking the questions. First one for me on New York, we've seen significant market growth there, and you've called out the gains made there by your team. Just wanted to get your sense of the supply situation and the competitive landscape there as one of the key suppliers to the wholesale market. And just how much more ground do you think there is to cover kind of in terms of cracking down on the illicit market there? Thanks for the call.

Nick Anderson: enter the New York market.

Speaker Change: And there's a lot of store openings. And the difference in New York is you have a very large population, and that population is looking for quality product, product that's not sold in the illicit stores, but rather in the legal stores. And there is a marketable difference in product quality between the illicit market and so we're still in that what I would call Goldilocks scenario where we're seeing healthy growth.

Speaker Change: both in terms of footsteps, we're seeing healthy growth in terms of revenue, and we're seeing healthy growth in terms of margin. So all of those things in New York are still very, very healthy. I think we could probably count on the fact that the bulk of next year will continue to be that way, and then after that I think we'll start to taper off a little bit like we've seen in other markets.

Speaker Change: But New York is a special market. It's a five billion dollar market, and we're just scratching the surface of the New York market

Speaker Change: On the illicit side, New York has done a lot to clamp down on the illicit market.

Speaker Change: and continue. Now there has been recently a lawsuit in that area and New York has appealed that lawsuit.

Speaker Change: on the crackdown of illicit stores. I believe that they will prevail. And so we are, we seem to be, I think at the moment, in a pretty good spot in New York in terms of the crackdown on the illicit market and the growth prospects of the regulated market.

Speaker Change: Great, I appreciate the call.

Speaker Change: As a reminder, you may ask a question by pressing star then 1.

Speaker Change: Our next question will come from Pablo Zuanich with Zuanich and Associates. Please go ahead.

Pablo Zuanich: Thank you, Boris. My question is around hemp. So I guess part A would be, based on your comments about looking at expanding and international, is hemp an opportunity? You talked about it at the beginning, but that's more organically, right? But are there opportunities there to acquire brands and acquire assets and get bigger there? And so how are you thinking about that? And then part B regarding hemp, you know, what's your prediction in terms of what happens with the Farm Bill and how hemp derivatives may get regulated at the federal level, especially now with Republicans being in control of the Senate and potentially even the House? Thanks.

Speaker Change: Yeah, so I think that's a very good question and I think that

Speaker Change: There's some level of uncertainty around hemp, which is why we're taking a very cautiously...

Speaker Change: approach to our expansion in that market.

Speaker Change: We are focused literally on two products, and that's the beverage market and the edible market.

Speaker Change: and the reason we are focused on that is because those are additions to

Speaker Change: a segment of the cannabis consumer goods market and so that's why we're focused on that and and it's very difficult to distribute beverages in the regulated market due to the nature of the beverage market and the scalability of its manufacturing and so we're really really focused on beverages and secondary on edibles.

Speaker Change: I think that it's too early to tell. We don't know what the Trump administration's position is on hemp. We know the Farm Bill is going to come to discussion probably early next year. We do know that Republicans tend to be more conservative, but Republicans also tend to support farmers.

Speaker Change: And so we don't have a view yet of where they're going to be. We intend to be very active. It's one of the reasons I'm going to D.C. in two weeks, is to start having those conversations with members and seeing where the Republican Party, the new administration, is going to go with their hemp initiative.

Speaker Change: And so we are, in the meantime, continuing to roll out beverages, continuing to roll out products.

Speaker Change: But at the same time, we are not doing it in such a way, whereas if they decide to scale back this industry, that we would be hit with any kind of losses in the back of it. So, we're taking a very cautious approach.

Speaker Change: to make sure that this business is paying for itself rather than investing in it. It's one of the reasons we're not buying anyone. The second reason is that we already have very strong brand awareness.

Speaker Change: Many of the distributors in this industry actually have come to us.

Speaker Change: asking for us to sell our products through their distribution network because of the strong brand awareness of, for instance, select brand in the regulated cannabis industry. So we have not had to buy brands at this point in time because our brands, even though we haven't been in the industry, in the hemp side, have more brand recognition than those that are in the industry.

Speaker Change: And our next question here will come from Federico Gomez with ATB Capital Markets. Please go ahead.

Speaker Change: Hi, this is Brennan with Puerto Rico. Nice growth in the international segments that are both quarter-to-quarter and year-over-year. So just given the expansion and traction internationally, could you provide some additional color on the potential pace and cadence of growth moving forward?

Speaker Change: No, we, we, we, in Europe?

Speaker Change: Well, Europe specifically, but just internationally in general as well. Yeah, I mean, listen, I think the international market is in its infancy stages at this point in time where we were, call it 2015-2016.

Speaker Change: And so, you know, but like the United States, it's it's not linear. It's going to be step function, right? So as you get new markets like Germany, like UK, like Poland that open up or like Australia, New Zealand You will start to see growth in those markets

Speaker Change: But the TAM, you know, internationally is very, very large, much bigger than the United States in and of itself, but we have to wait for for these markets to to open up. As an example, we just applied for a license in Turkey.

Speaker Change: It's a new market that's opening up. We've applied for the first cultivation license in Turkey. We'll see how that market develops. It's 82 million people, but again

Speaker Change: You can apply for a cultivation license, but by the time you start selling any product, it could be a year, it could be more out.

Speaker Change: You have to be there, you have to have the platform, and you have to be early.

Speaker Change: You have to invest in these markets, and then they eventually come to fruition. And that's what we saw with the UK, then we saw it with Germany, then we saw it with Poland, Australia, New Zealand, now we're seeing it in places like Turkey.

Speaker Change: So these things take some time, and so I do think that there'll be substantial growth, but putting a pin in it right now is very, very difficult, and I think I've already indicated what the growth profile is in our existing business, and I think it will continue to expand at that level, certainly into next year.

Speaker Change: And this concludes our question and answer session. I'd like to turn the conference back over to Camilo Lyon for any closing remarks.