Curaleaf 3Q22 Earnings Report.
Organic growth in 2023 will be MSD.
All told, revenue beat street estimates while they missed on earnings. The stock was down on the earnings report, which it should have been. Based on the industry's headwinds, we do not expect this to be the worst report we see out of the cannabis industry this earnings season.
Curaleaf reported 3Q22 results earlier in the week and put up total revenue of $340M, which is a 7% YoY increase. The Company's year-over-year revenue growth primarily reflects continued growth driven by new retail store openings (up 16% YoY increase and is now 76% of all revenue) 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. Wholesale revenue decreased 14% to $79 million during the third quarter of 2022, compared to $92 million in the third quarter of 2021, representing 23% of total revenue. Contraction in wholesale revenue during the quarter was largely due to continued rationalization of the Company's wholesale business in lower margin states. Gross profit margin, excluding the impact of biological assets, reached 48.5%, compared to 45.7% last year, largely resulting from the increase in vertically integrated products sold in our dispensaries and the mix of revenue from higher margin states. Adjusted EBITDA was $84M for the third quarter of 2022, compared to $71 million last year. The year-over-year increase in Adjusted EBITDA margin reflects an increase in the gross margin before the impact of biological assets due to a higher mix of sales from higher margin retail sales and SG&A leverage on the higher sales base. The company reported net loss of $51M in the quarter. The company currently has $198M in cash while having $599M in debt.
As it currently stands, consensus estimates for 2023 are that Curaleaf will grow sales 18.9% YoY and that the company is expecting the cannabis market to grow in the low teens, "While the US economy is projected to see virtually no GDP growth next year, the US cannabis industry is projected to grow 13% in 2023." Curaleaf has also spoken about their desire to grow internationally, and via acquisitions, "we announced our entry into the German market via the acquisition of a majority stake in Four 20 Pharma, one of Germany's largest cannabis operators." Their continued desire to expand into the international market as well as making strategic acquisitions in their core business, like the acquisition of Tryke in early 4Q22, means that we expect organic growth in their core business to be below the 13% industry market number in 2023 and will most likely continue the growth projection that they are currently seeing in the mid-high single digits.
CIRCLE K EXPANDS MORE INTO CANNABIS.
Fire & Flower announced today a strategic relationship with Alimentation Couche-Tard Inc., owner of Circle K, through license agreements to use the Hifyre digital retail platform and Spark Perks member program, each proprietary to Fire & Flower's subsidiary, Hifyre Inc., at four additional cannabis stores co-located with Circle K and the proposed acquisition of two cannabis retail stores in Kingston, Ontario. If you recall, earlier this month, Circle K came to terms with Green Thumb to allow them to sell cannabis at their locations in Florida. "We continue to demonstrate major progress on the expansion of our strategic relationship with couches-Tard through the licensing of Hifyre's proprietary platform and Spark PerksTM member program at four additional co-located cannabis stores and the proposed acquisition of two cannabis stores. Additionally, Couche-Tard has recently committed its financial support through the previously announced $11 million loan and $5 million private placement, subject to the receipt of shareholder approval. Having access to Circle K's valued real estate through these co-located stores demonstrates the differentiating value of the strategic relationship with our partner, AlimentationCouche-Tard" shared Stéphane Trudel, Chief Executive Officer of Fire & Flower. "We continue to enhance a fast and convenient cannabis shopping experience with the HifyreTM technology platform and recently began the delivery of other complementary products, including snack foods through the firebird DeliveryTM platform."
HEALTH & WELLNESS.
A recent research study by John Hopkins in relation to NYU, which was published in the PLoS One journal earlier this month, analyzed the prevalence of marijuana vaping, cases of e-cigarette or vaping product-use-associated lung injury (EVALI), and cannabis laws in 13 states. According to the study, more people reported vaping marijuana in states that have legalized medical or recreational cannabis use, but that prevalence didn’t translate into a greater percentage of EVALI case burdens compared to non-legal states. “Although cannabis vaping prevalence was low in states with prohibitive cannabis laws, individuals from such states may more likely obtain cannabis from illegal sources, increasing their risk of using contaminated products and hence the higher prevalence of EVALI cases in such states,” it said. You're telling me you have more health risks of using a black market substance than a regulated one? No way didn't see that coming. So many health benefits would come from the U.S. ending their prohibition, not just from the benefits as a medical substance, but also to ensure that best practices are in place for distributors and users.
