Curaleaf Margins Suffer from Price Compression, but Hope Remains

Curaleaf Margins Suffer from Price Compression, but Hope Remains

Price pressure has been a common theme in this round of cannabis earnings, and Curaleaf Holdings Inc. (OTCPK: CURLF) is no exception. During a call with analysts to discuss the company’s results from the second quarter, CFO Ed Kremer noted that pricing has been a significant contributor to gross margin erosion.

That was especially true in Florida, the company’s largest market, where increased competition and promotional activities have created a challenging market. The state has seen several new entrants add to the state’s growing supply glut in advance of a pending adult-use legalization bid.

CEO Matt Darin chimed in to elaborate on Curaleaf’s pricing strategy and the overall industry trend.

“Florida has been a market that we have continued to see increased promotional activity as you’ve had more players come online, more supply into the market, and a lot more dispensaries that have opened up for that medical market in advance of adult use,” Darin said.

However, he remains optimistic, pointing out that prices in many markets have begun to stabilize. And once the recreational flood gates open, Florida is poised to become a $3 billion market.

Curaleaf executives also emphasized the benefits realized from the management’s investments in automation. These advancements have ranged from vape filling to edibles manufacturing and packaging.

“We’re seeing a lot of opportunity to continue to get more efficient and to bring down costs, increase efficiencies, and make automation investments where the ROI is in months, not years,” Darin added. “So, we view that as very good capital investments to make and we’re continuing to roll that out with a real focus on our higher volume states.”

On the international front, the conversation touched on Germany’s potential market growth due to new regulations.

“Germans tend to hold to their schedules,” Darin said. “We do think though that at least the preliminary ramp will probably take some time. We anticipate sort of a 12- to 18-month period to move the (German) market to what we think will be the $1 billion mark.”

Regarding capital strategy, chairman Boris Jordan told investors that the company has no intention or sees any reason “at the moment” to do any large capital raises.

“We feel the capital build in the second half of the year is more than adequate to pay our bills for the company,” he said. “However, we have constant offers for capital both from lenders and from obviously equity investors at these levels. But we have refrained from doing that.”

Jordan points out that the company still has a $50 million revolving credit facility available if needed.

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