By Steve Gelsi
Curaleaf CEO says some customers are spending less per visit but coming into stores more frequently amid inflation and potential recession.
Curaleaf Holdings Inc. Chief Executive Matt Darin said inflation impacted some of the cannabis company's customers, but it still managed to beat its revenue target despite a wider quarterly loss.
The reality of higher gas and grocery prices caused cannabis consumers to spend less per trip, but they often increased the number of dispensary visits per month during the second quarter, Darin said.
"Most consumers that maybe would have visited twice a month are coming three times a month but spending a little less each time," Darin told MarketWatch. "They're coming in after payday and spending less sometimes by trading down to a lower priced item."
Meanwhile, purchases of premium cannabis products remain strong, he said.
"This is the first recession we've lived through with adult use cannabis spread around the country," Darin said. "There's not a track record on how this has played out. What we're seeing is encouraging -- that people do invest and spend but they're doing it in a slightly different way."
Curaleaf also plans to continue acquiring businesses to grow Curaleaf, but it's being selective, he said.
After the closing bell on Monday, Curaleaf said its second-quarter loss increased to $28.33 million, or 4 cents a share, from a loss of $4.85 million, or a penny a share, in the year-ago quarter.
Revenue increased by 8% to $338 million as Curaleaf opened new stores in Arizona, Florida, Maine, Pennsylvania and New Jersey in the past year.
Curaleaf matched the analyst target for a loss of 4 cents a share and beat the revenue estimate of $333.8 million, according to FactSet data.
Retail revenue increased by 13% to $252 million, but wholesale revenue decreased 6% to $84 million amid price pressure, as the company refocuses its business in California and Colorado.
Shares of Curaleaf fell 2.5% in midday trading. The stock is now down 38.3% for the year, compared with a drop of 54.9% by the AdvisorShares Pure U.S. Cannabis ETF (MSOS) and a loss of 20.2% by the Nasdaq .
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Cowen analyst Vivien Azer reiterated her outperform rating on Curaleaf and trimmed her 2023 revenue estimate to $1.64 billion from $1.65 billion based on the impact of the cannabis company's lower margin wholesale business.
Curaleaf's 8% growth in sales over the previous quarter beat Cowen's forecast of 2%.
Gross margin was 250 basis points (2.50 percentage points) above Cowen's projection of 52% and adjusted earnings before interest, taxes, depreciation and amortization (Ebitda) of 25.5% beat Cowen's estimate by 220 basis points.
CEO Darin said the company is seeing plenty of merger and acquisition (M&A) opportunities given that it's become harder for smaller cannabis businesses to get loans and raise capital in the wake of higher interest rates.
On Tuesday, Curaleaf said it agreed to pay an undisclosed sum for a 55% stake in Four 20 Pharma GmbH, a licensed German producer and distributor of medical cannabis with its own line of products.
"Curaleaf was born on M&A and that'll be a continued opportunity," Darin said. "We are being very selective. Given capital markets distress and a lack of financing in the industry, we're seeing opportunities to be strategic."
Curaleaf on Monday named Ed Kremer as chief financial officer and said Camilo Lyon would be its first chief investment officer. The company also named Mitch Hara as chief strategy officer, a new role at the company.
Kremer previously worked as CFO of Jushi Holdings Inc. and Lyon most recently worked as managing director at BTIG LLC; Hara was most recently head of M&A and business development at Clever Leaves International.
Darin has been CEO of Curaleaf since February.
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(END) Dow Jones Newswires
August 09, 2022 12:05 ET (16:05 GMT)
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