Curaleaf Earnings
CURLF revenues slowed from 20% in 1Q22 to 8% in 2Q22. With the market maturing in big states like CA and CO, the Company is focusing its growth story in Europe. The CURLF land grab story is still alive; unfortunately, the capital to execute that story has gotten very expensive.
Total revenue increased by 8% to $338 million during the second quarter of 2022. The Company's year-over-year revenue growth primarily reflects continued growth driven by new retail store openings and commencement of adult-use in New Jersey, the acquisition of Bloom Dispensaries, the addition of new wholesale partner accounts, product launches, and the expansion of cultivation and production facilities. Retail revenue increased by 13% to $252 million during the second quarter of 2022, and wholesale revenue decreased 6% to $84 million. Contraction in wholesale revenue during the quarter was primarily due to the Company's continued assessment of the wholesale marketplace in California and Colorado (which we continue to speak on during our monthly Industry Call).
Gross profit on cannabis sales was $175 million for the second quarter of 2022. Gross profit margin reached 51.9%, compared to 49.6% in the second quarter of 2021, mainly resulting from the increase in vertically integrated products sold in its dispensaries and the mix of revenue from higher margin states. For the second quarter of 2022, the net loss attributable to Curaleaf Holdings, Inc. was $28 million. The increase in net loss was due to an unfavorable net change in the fair value of biological assets and the increase in operating expenses, which were partially offset by higher revenues. Adjusted EBITDA was $86 million, and the year-over-year increase in adjusted EBITDA was primarily driven by solid revenue growth combined with operating leverage. The year-over-year decrease in Adjusted EBITDA margin reflects more significant SG&A expenditures due to increased headcount in support of new store openings, higher expenses related to research and development activities, higher sales and marketing spend, and an increase in professional fees.
Management lowered guidance during their call and was focused on speaking about the opportunity in Europe while cutting costs in the U.S. We get it; Germany is going to legalize cannabis by the end of the year, but no one knows what that market will look like. More importantly, how much will it cost to enter the market, potentially putting off profitability? Is this the typical story where a company needs to find the next hot thing to talk about to support their stock price while the fundamentals they see in the core business are deteriorating...WE THINK SO.
Eventually, this Company will have to have a focused game plan and try and execute that plan, but that day isn't today as they go about and find the next growth story in the industry.
Colombia is battling the war on drugs.
Gustavo Petro, the first left-leaning President in Colombian history who had just taken office, often spoke about the damages that prohibition causes. "Of course, peace is possible if you change, for example, the politics against drugs, for example, seen as a war, for a policy of strong prevention of consumption in developed societies," he said, suggesting a public health approach to drug use that echoes arguments from advocates and experts around the world. "The war on drugs has led states to commit crimes and has evaporated the horizon of democracy. Are we going to expect another million Latin Americans to be murdered and that the number of deaths from overdoses in the United States will rise to 200,000 every year? Or rather, will we exchange failure for a success that allows Colombia and Latin America to live in peace?" These comments by the Colombian President obtained praise from House Rules Committee representative Jim McGovern. It seems like every week, we are getting news about another country looking to end the prohibition on cannabis, and it is clear that the winds are charging around the world on how cannabis is seen.
New Mexico sales.
New Mexico started selling adult-use cannabis in April, and it hasn't gone as smoothly as we think they have hoped. In April, the state saw $17M in medical cannabis sales and $22M in adult-use sales. Come June, the state did $16.5M in medical sales and $21M in adult-use sales. This represents a decline of 5% in medical use since April, which isn't a surprise because you will have medical patience opt for adult-use sales, but the bleak view is that adult-use sales have also declined 4% since April. You would've expected adult-use sales to have a tailwind as it takes share from medical sales, so the 4% decline is significant and shows a tough start for the state.
