The cream always rises to the top when given time, and this is precisely what is happening in today’s increasingly global cannabis industry. Leading the way are strong management teams leveraging decades of collective experience to forge companies that are profitable, growing and shaping the future of the business. And with governments still on a lengthy quest to find the right balance of rules and regulations, opportunity exists no matter where one looks.
Topping a recent table of public cannabis company revenues is Curaleaf Holdings (Curaleaf Hldgs Inc. (CSE:CURA, OTCQX:CURLF)), which reported US$337.6 million in sales, representing sequential growth of 7.8%, for the quarter ended June 2022. While the cannabis sector is well off its valuation highs, Curaleaf, with a market capitalization of C$4.725 billion, has performed better than most.
In a recent discussion with Canadian Securities Exchange Magazine, newly minted Curaleaf Chief Executive Officer Matt Darin shared his thoughts on corporate culture, balancing revenue among multiple business lines and where he sees growth opportunities today and in the future.
Matt, you were named CEO in May of this year but have actually been with Curaleaf for over two years now, previously heading operations in some key regions for the company. What excites you about taking the top role, and what is your vision for Curaleaf?
Although I’ve been in the industry for over nine years, I wake up in the morning energized by the incredible opportunities and challenges of our unique industry. Cannabis legalization is spreading throughout the world, and I’m very bullish on the future of the industry in the US and abroad.
My vision for Curaleaf is to be the global industry leader focused on people and culture, operational excellence and delivering quality brands and products at scale. I am inspired by the passion, knowledge and commitment of our 6,000-plus team members – the opportunity to lead our amazing team excites and humbles me.
Curaleaf finished Q2 with a total of 135 retail locations and nearly 2,200 wholesale partner accounts. That’s a lot of business to keep up with. What are some of the lessons learned along the way in building the company to this scale?
The biggest lesson I’ve learned is the importance of people and culture, especially in the rapidly evolving cannabis industry. I have experienced the highs and lows of cannabis, and with the right leaders in place, all challenges can be overcome. Alternatively, without great functional leaders and a healthy culture, long-term sustained success is almost impossible. There is no playbook for scaling a global cannabis company, which makes the opportunity both exhilarating and challenging.
Retail revenue accounted for 75% of sales in Q2. What is the optimal balance among all of your revenue-generating activities, and why?
We expect our wholesale channel to grow as new markets transition to adult-use, new dispensary licences open in markets like Illinois and as we continue to invest in innovative products and brands. That said, the importance of vertical integration and a strong retail presence in key markets has never been clearer – our early efforts to build a robust national footprint were part of our long-term strategy, and we’ve seen that pay off. Our retail business will continue to be a growth driver as we open new locations in strategic markets and as markets mature. Having a diverse revenue mix is important to sustain the fluctuations in supply and demand.
Curaleaf’s most recent investor presentation mentions “several levers” to improve profitability and cash flow. What are those levers, and what can you get out of pulling them?
We are seeing significant gross margin expansion opportunities with our focus on a vertical mix across our 136 retail locations. In the second quarter, 65% of our retail revenue came from our own brands including Curaleaf, Select and Grassroots. This is a continued focus as our innovation pipeline develops new products in all key categories.
Additionally, we have implemented business optimization strategies to consolidate operations, improve supply chains and invest in automation to reduce operating expenses. Curaleaf’s long-term strategy has proven to be successful. We have leading market share in many key markets, and we continue to identify new opportunities to improve our operational efficiencies and profitability as we scale.
Tell us about international opportunities and Curaleaf’s strategy to take advantage of them. Outside the United States, you are in eight European countries and Israel. Do any of these markets make a particularly outstanding contribution?’
With a total addressable market in Europe estimated at US$230 billion, the international opportunity is accelerating, and Curaleaf is the only MSO with a meaningful presence. Germany is drafting adult-use legislation this year and will be the largest driver of growth in Europe. We recently closed on our acquisition of Four 20 Pharma, a leading cannabis operator in Germany.
Currently, the UK represents the largest contributor to our international business – we’ve had a 100% increase in active medical cannabis patients in the last six months. Although it’s a medical market still in its infancy, we have a market-leading position with year-over-year growth of 320%. The ability to import and export cannabis in Europe, along with the lack of 280E punitive taxes, makes Europe an extremely compelling growth opportunity for us in the coming years.
Where are the primary opportunities that remain in the United States? Some markets you must have done most of what you can in, whereas others still present lots of growth potential.
Although the legal cannabis industry has progressed to a $25 billion-plus industry in the US, an estimated 75% of cannabis sales remain in the unregulated market. We will continue to see massive growth in the regulated market as major states like Connecticut and New York implement adult-use, and as states like Florida, Pennsylvania, Maryland and Ohio place adult-use on the horizon. The rapidly growing South has untapped growth potential in states like Georgia, Texas, Alabama and the Carolinas for both medical and adult-use.
We will continue to see significant growth in existing adult-use markets, including Illinois and New Jersey, as new dispensaries open and as more products and brands become available. Finally, we expect to see stabilization on the West Coast where supply and demand will rebalance, and strong companies with great quality products and retail experiences will capture opportunities in key markets like California and Colorado.
It’s impressive that Curaleaf has 180 products in development on the R&D front, and 20% of Q2 revenue came from products that had been on the market for 12 months or fewer. Some people probably think a company in this industry simply grows cannabis, labels it and sends it off to market. Curaleaf is obviously thinking well beyond those boundaries.
Innovation and product development has been a top strategic focus for Curaleaf dating back to our roots in the health and wellness industry. We have a state-of-the-art R&D facility in Massachusetts with over 25 scientists. The future is innovation, and we have invested and prioritized developing unique products, technologies and brands.
A few recent highlights include our Plant Precision wellness line, X Bites gummies, proprietary Cliq vape pod system and Endless Coast Seltzer line. We see significant growth opportunities in these categories, while also continuing to focus on commercializing new products in the core categories of flowers, vapes, edibles and concentrates. We expect dispensary shelves to look a lot different five years from now and view this as one of the most exciting growth opportunities in the industry.