Pricing Pressure, Illegal Cannabis Products – Curaleaf And GTI Explain Impacts On Their Earnings

Cannabis earnings season took off last week mostly to the delight of many marijuana-focused investors when reports from two large multi-state operators – Curaleaf CURLF and Green Thumb Industries GTBIF - provided a tad of optimism and some realistic explanation as to what is affecting their financials.

Green Thumb’s fourth-quarter revenue was in line with estimates, but the company missed on adjusted EBITDA while Curaleaf, on the other hand, had a small miss on revenue, but provided better than projected adjusted EBITDA, highlighted New Cannabis Venture’s Alan Brochstein.

What about the guidance? 

As for Curaleaf, the guidance was below previously offered projections of $1.6 billion in revenue for 2022. Now, the cannabis giant aims to record revenue in the range of $1.4-$1.5 billion, and projects adjusted EBITDA to be around 28% of revenue, which is also a bit lower than the anticipated margin, which according to Brochstein, “is not bad considering it is off of a lower base of revenue.”

What did the companies’ earnings conference calls reveal? 

Curaleaf Q4 Earnings Call Summary 

During the company’s earnings call, its executive chairman Boris Jordan, who recently made headlines for his Russian and Ukrainian descent, said that a flood of the illegal market product has negatively affected Curaleaf’s operations in New York and New Jersey. The combination of Croptober's (outdoor cannabis harvest) impact and the challenging economic environment affected the company’s revenue, he noted.

As for its adjusted EBITDA, Jordan explained it was burdened by investments in emerging markets like Europe. 

“To put this into context, for the full year of 2021, our investment market, including Europe, represented an approximately 700 basis point drag on our adjusted EBITDA margin, meaning that our EBITDA margin, excluding these states, would have been around 32% for that same time period.”

CEO Joseph Bayern also noted that Curaleaf’s operations in California, Colorado, Michigan and Oregon affected its overall margins.

Jordan further discussed the company’s guidance, highlighting several factors that made it modify the outlook, including the expected delay of New Jersey’s recreational market launch and a more challenging consumer environment. It looks like a mid-point of the company’s guidance would amount to a 20% improvement in revenue and 36% growth in adjusted EBITDA, Brochstein noted.

Jordan also pointed out to investors that the best they can hope for, as far as more competitive states are concerned, are 20-25% margins, versus more than 40% in the Eastern states. 

Cantor Fitzgerald’s Pablo Zuanic offered his analysis on Curaleaf post-earnings, advising investors to use the pullback as the stock has upside potential. The analyst kept an ‘Overweight’ rating and lowered its price target on the stock to $15.50 from $16.50.

To see Boris Jordan in person, there’s still time to sign up for the Benzinga Cannabis Capital Conference in Miami where Jordan is a keynote speaker among many other top names in the cannabis industry. Click here for more info.

Green Thumb Q4 Earnings Call Summary

The company’s CEO Ben Kovler guided to a long-term adjusted EBITDA margin of 30% (31% in Q4). He also condemned Illinois for failing to increase the number of stores and to issue social equity licenses, NCV reported. 

During the call, CFO Anthony Georgiadis explained that lower gross margins were caused by pricing pressure in wholesale and retail. The biggest pressure on pricing was felt in Pennsylvania and Nevada, according to Georgiadis. 

Kovler further noted that in spite of having a target adjusted EBITDA margin, GTI does not organize its operations around this target. He pointed out that its most important metric is free cash flow over long time-frames, adding that the company is investing in important markets that have not yet launched.

What’s Next? 

Other large companies in the cannabis space that will soon release their earnings reports include Ayr Wellness AYRWF, Columbia Care CCHWF, Jushi JUSHF, TerrAscend TRSSF, and Cresco Labs CRLBF.

Brochstein expects that Trulieve TCNNF and Verano VRNOF offer outlooks, but he's not so sure Cresco Labs will.

“Among the others, we expect Ascend, Ayr Wellness, Columbia Care and Jushi will provide initial or update prior guidance, but TerrAscend may wait until the timing of New Jersey’s adult-use launch is known and their acquisition in Michigan has closed,” Brochstein said.

Photo: Courtesy of Josh Appel on Unsplash