Curaleaf Holdings Inc. (CSE: CURA) (OTCQX: CURLF) is selling weed in America at an annual rate at over a US$1 billion dollars, and executives expect that to keep growing into 2022 as key states like New Jersey and New York open up legal markets.
Late Monday, the Massachusetts-based company said it made a record US$260 million for the first quarter ended March 31, an increase of 13 per cent over the previous quarter.
With the prospect of the U.S. federal government legalizing weed, a rush of new legal markets opening at the state level and soaring demand since the onset of the pandemic, American pot stocks have roughly tripled over the last year.
Curaleaf is one of the biggest U.S. cannabis operators with 106 stores across 23 states, as well as 53 growing and processing facilities.
The company’s revenue from its retail operations grew to $187.7 million in the first quarter from US$164.9 million in the fourth quarter. Meanwhile, wholesale revenue from the firm’s Select brand of cannabis product grew to $72.2 million from US$64.4 million.
Only Trulieve Cannabis Corp. (CSE: TRUL) (OTC: TCNNF) is set to have a larger presence in the nation’s booming cannabis market. The Florida-based firm said Monday it’s buying Arizona-based Harvest Health & Recreation Inc. (CSE: HARV) (OTCQX: HRVSF) in a US$2.1 billion all-stock deal that will create a U.S. pot powerhouse with 126 stores, alongside 22 cultivation and processing sites in 11 states.
In contrast with Trulieve, however, Curaleaf has been aggressively expanding into legal state markets over the past three years, which has led to higher losses on its balance sheet.
The firm reported a net loss of US$17.2 million in the first quarter, which improved from a net loss of US$35.3 million in the prior three months.
But CEO Joe Bayern says his company’s growth strategy is paying off.
“With our revenue projected to increase to US$305 million to US$315 million in the second quarter, we also expect to generate significant improvements in terms of achieving positive net income and positive operating cash flows in the back half of 2021,” he said in a statement.
Curaleaf reported US$62.6 million in adjusted earnings before interest, taxes, depreciation, and amortization for the first quarter, which improved sequentially from an adjusted EBITDA of US$53.8 million.
Post-Soviet style cannabis business execution
Company president Boris Jordan, a Russian billionaire who made a fortune as a banker capitalizing on his nation’s post-communist chaos, says he’s very excited about Curaleaf’s platform, which he’s helped build across the U.S.
On a Monday evening conference call with analysts, Jordan said Curaleaf is looking to expand further in new U.S. markets as they continue to develop.
He says his experience navigating Russia’s new financial regulations in the 1990s has helped Curaleaf develop a disciplined approach when entering new states with complex cannabis regulatory frameworks.
In the 10 states where Curaleaf has had a presence in for at least two years, Jordan noted the company generated 71 per cent of its total revenue and a gross margin of 54 per cent in 2020.
In the other 12 states that were newer for the firm, it had a gross margin of just 32 per cent.
“But they’re the ones that present us with the biggest opportunity for margin expansion in the next one or two years as they develop sufficient scale, and as we integrate vertically,” he said.
Jordan notes that Curaleaf ended the quarter with a strong cash position of US$315 million to fund its expansion drive.
In January, the company hurried to open eight stores in Arizona’s new adult-use market, which opened just two months after voters approved legalization in November’s federal election.
Curaleaf eyes expansion in New York and Europe
To the Northeast, Curaleaf says its growth prospects have never been stronger with recent approvals of adult-use cannabis in New Jersey and New York.
Curaleaf notes it already leads both states’ existing medical markets.
Jordan says the company has been investing heavily ahead of New Jersey’s anticipated fourth-quarter recreational market launch.
In the coming weeks, Curaleaf will open a third medical dispensary and double its growing capacity in the Garden State. The company projects an eventual US$2.1 billion market opportunity in New Jersey.
In New York, recreational sales are expected to start next year, and Curaleaf says it plans to lead the state’s projected US$5 billion market when it matures.
With a population of 20 million and 244 million annual tourists before Covid, “New York is not only important in terms of revenue generation, but also brand building,” Jordan says.
New York City in particular is one of the most influential cities in the world for brand visibility, he adds.
But Alliance Global Partners analyst Aaron Grey asked executives how they plan to dominate New York’s market, considering proposed rules will limit vertical integration in favour of social equity licensing.
“And New York is expected to have canopy limits. So, then how are you guys thinking about potentially adding cultivation before those limits become clear?”
CEO Bayern responded that Curaleaf’s team is still discussing proposed rules with state regulators.
But the company expects it will be the first to launch medical flower sales in the coming weeks, and will have millions of dollars worth of wholesale product to distribute to large and small retailers as soon as recreational sales open.
Additionally, the firm plans to open a four new adult-use stores when permitted, which will bring its total to eight — the maximum allowed. Curaleaf will also have first-mover advantage to co-locate three of the new stores alongside existing medical shops.
“I think the overarching premise with New York is they want to rollout a balanced, but a robust marketplace,” Bayern said.
The company is also eying international markets after buying Europe’s largest medical cannabis company, Emmac, in March.
On Tuesday, Curaleaf said its new European division made its first shipment of cannabis oil into Germany. The company expects Germany to lead Europe’s small but growing medical market, with total sales of US$2.1 billion by 2025.
Shares of Curaleaf rose 3 per cent Tuesday to $17.90 on the Canadian Securities Exchange.
Top image via Curaleaf