Earnings Transcript for CURA.CN - Q3 Fiscal Year 2024

Operator: Good day, and welcome to the Curaleaf Holdings Third Quarter of 2024 Earnings Conference Call. All participants will be in a listen-only mode for the duration of the call. [Operator Instructions] After today’s presentation there will be an opportunity to ask questions. [Operator Instructions] Also, please be aware that today’s call is being recorded. I would now like to turn the call over to Camilo Lyon, Chief Investment Officer. Please go ahead.

Camilo Lyon: Good afternoon, everyone, and welcome to Curaleaf Holdings’ third quarter 2024 conference call. Today, I’m joined by Chairman and Chief Executive Officer, Boris Jordan; and Chief Financial Officer, Ed Kremer. Before we begin, I’d like to remind everyone that the comments on today’s call will include forward-looking statements within the meaning of Canadian and United States securities laws, which by their nature involve estimates, projections, plans, goals, forecasts and assumptions, including the successful integration of acquisitions and are subject to risks and uncertainties that could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements, uncertain material factors or assumptions that were applied in drawing a conclusion or making a forecast in such statements. These forward-looking statements speak only as of the date of this conference call and should not be relied upon as prediction of future events. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law. Additional information about the material factors and assumptions forming the basis of the forward-looking statements and risk factors can be found in the Company’s filings and press releases on SEDAR and EDGAR. During today’s conference call, in order to provide greater transparency regarding Curaleaf’s operating performance, we will refer to certain non-GAAP financial measures and non-GAAP financial ratios that involve adjustments to GAAP results. Such non-GAAP measures and ratios do not have a standardized meaning under U.S. GAAP. Any non-GAAP financial measures presented should not be considered to be an alternative to financial measures required by U.S. GAAP, should not be considered measures of Curaleaf’s liquidity, and are unlikely to be comparable to non-GAAP financial measures provided by other companies. Any non-GAAP financial measures referenced on this call are reconciled to the most directly comparable U.S. GAAP financial measures under the heading Reconciliation of Non-GAAP Financial Measures in our earnings release issued today and available on our Investor Relations website at ir.curaleaf.com. With that, I’ll turn the call over to Chairman and Chief Executive Officer, Boris Jordan. Boris?

Boris Jordan: Thank you, Camilo. Good afternoon, everyone, and thank you for joining us to discuss our third quarter results. Before diving in, I would like to acknowledge the results of yesterday’s presidential election. First and foremost, congratulations to President-Elect Donald Trump on his electoral win. If you have been following Curaleaf’s election coverage, our ‘Toke the Vote’ marketing campaign accurately predicted this outcome with our Donald OG flower strain narrowly defeating our Kamala Kush strain in the four states where we ran the poll. For the first time ever, both presidential candidates publicly touted pro cannabis stances on the campaign trail. With President-Elect Trump in office, we are hopeful that real federal reform, including rescheduling and safer banking, can pass. Trump closed his speech last night by saying promises made, promises kept. We’ve already been in touch with his transition team to ensure that the new administration follows through on its commitments made to the industry. In our expertise, historically, President Trump has put an effort to deliver on his campaign promises, and we see no reason why this time would be different. On the flip side, last night’s Florida election results were disappointing to say the least as Amendment 3 failed to meet the 60% threshold it needed to pass. However, we cannot ignore that 56% majority of Floridians voted in favor, the same margin as Trump’s victory reflecting the bipartisan nature of the issue. As we mentioned in our previous earnings call, we have staged our investment in Florida to safeguard against this outcome, and now we’ll progress accordingly. That said, as the second largest operator in the state, the store footprint and capacity expansion we have already begun will serve to improve our competitive position in today’s medical market. In fact, we remain bullish on Florida and still see tremendous opportunity to expand our market share by upgrading our production capabilities to produce high-quality indoor flower and by adding additional stores to our footprint to fill in the gaps in our state map. We have six markets that generate nine figures in annual sales. Florida is one of them and our international platform is on track to be another one this year. Moreover, Florida represents a low-teens percent of our total revenue. By design, our global presence offers a diversification of revenue streams that mitigates any concentration of risk and our international platform gives us exposure to exceptional growth that is unique to Curaleaf. I firmly believe the companies that have diversified asset base that are generating cash with access to capital and have a solid long-term shareholder base will prevail. To this point, we will analyze every asset in our portfolio for its profitability and cash return profile. The upside is this environment will lead to a much needed consolidation in the industry, not just for the sake of top line growth, but for profitable cash generating growth. Needless to say, we are in an inflection point in the industry and at Curaleaf. Curaleaf has always been the largest player in the cannabis sector and we need to get back to being the leading player. As Chairman of the Company, my focus was on strategic vision and investing in growth and we succeeded in building significant scale and an international footprint. However, as CEO and Founder of the Company, my focus is now on delivering value to all shareholders through disciplined execution of fundamental operating principles. Leveraging our entrepreneurial heritage, we are reorienting the Company to focus on a program we are calling ‘Return to our Roots’, refining margins, organic growth, optimizing cash flow, tightening the balance sheet and strategic expansion. Although it is still early days in my tenure, this new focus is reflected in our third quarter results. We announced a revenue of $331 million which is slightly down 1% compared to last year. Meanwhile, our focus on profitability resulted in adjusted gross margins of 49%, up 310 basis points year-over-year with all reasons showing an increase. Overall adjusted EBITDA margins also improved to 23% as gross margin gains and cost savings initiatives were offset by expense deleverage on more modest sales. We ended the quarter with $90 million of cash on the balance sheet and generated $42 million of operating cash flow from continuing operations. After substantial investments in CapEx this quarter, we generated $14 million of free cash flow from continuing operations. The industry has experienced the pressures of regulatory overhang, increased competition, unprecedented weather conditions and irrational pricing strategies. For Curaleaf, the top line headwinds can be broken down by the dynamics of the specific states we operate in and we have acknowledged and addressed them head on. In Arizona, we saw pricing collapse due to an extended summer with record breaking temperatures resulting in market decline of 19% year-over-year. The seasonality has now subsided and traffic has stabilized, yet through it all we were able to grow our market share by 100 basis points. In Pennsylvania, our competition moved to an aggressive pricing strategy. We actively chose to manage and actually expand our margins instead of chasing sales. We have since re-assorted our stores to effectively compete and are seeing healthy profitable growth. In Illinois, we continue to see pressure for more store openings. However, the challenges of the market were exasperated by supply disruption due to a failed harvest in our Illinois Grow. The Grow is now fully harvesting and for the first time since the acquisition of Grassroots, we are utilizing a 100% of our capacity in Illinois and product quality is the best it’s ever been. In Florida, we experienced a longer summer than usual delaying the return of the seasonal patient population and reducing traffic. Additionally, Hurricane Helene impacted the final days of the quarter as we had to close 15 stores. The impact from Hurricane Milton in early October was more pronounced with 46 store closures. Thankfully, we didn’t sustain any damage to our stores or facilities and most importantly, none of our employees were injured. I am very grateful to our team who worked tirelessly in those critical days to get us back online and minimize business disruption. And finally, in New Jersey, we have been and continue to be the largest player in that state, so we have been disproportionately impacted by the surge of store openings around us. For context, our Bellmawr store has had 23 independent stores open within a 20-minute drive in the last 12 months. New openings are beginning to slow down, but the market is saturated. We are driving our wholesale business to capitalize on the new doors and offset the increased retail competition. Outside of New Jersey, the above factors were specific to the third quarter and we are seeing stabilization early in the fourth quarter. Taking a step back from our business specifically, the cannabis sector in the U.S. has continued to see significant price compression this year. According to BDSA, pricing was down 11% in the third quarter with some states down as much as 19%. We know that the Delta-9 market has played a considerable role in this trend, and we believe it is cannibalizing share and driving increased competition. The cannabis sector took 10 years to grow to a $30 billion market. Meanwhile, Hemp only took two years to grow into what is estimated now to be $20 billion to $25 billion market. It is impossible to ignore the outsized impact that these new market entrants have had on the regulated cannabis business. With half the country now having access to adult use cannabis and despite the fragmented nature of the industry, national trends are becoming more evident and more important. Pricing continues to taper off to levels much lower than anyone anticipated. This macro environment is one of the key drivers of our shift towards focusing on sustainable and profitable organic growth by maintaining share in challenged markets and growing share while we see strategic opportunity. Speaking of strategic opportunities, I would like to provide an update on our actionable growth drivers. The International segment, the adult use markets in New York and Ohio and our Hemp business. Our international business was a bright spot again, growing 82% year-over-year and 17% quarter-over-quarter to US$30 million. The business is on pace to exit the year above our projected $100 million target. Also gross margin continued to improve expanding 400 basis points from the second quarter. Both Germany and United Kingdom are leading this growth. In Germany, we believe the patient population has roughly tripled to 600,000 since the April 1, enactment of the newly expanded cannabis medical law. Based on market data, that we have aggregated, we believe our 420 brand is among the top two brands in the market. In the U.K., we continue to grow our share by offering customers greater value and superior customer service. Last month, we instituted a subscription program in our clinic which should improve retention rates and lower upfront costs for our patients. Going into 2025, the international business will start to drive meaningful contribution to Curaleaf. Without doubt, there is a lot of opportunity that we are aggressively going after and we continue to evaluate additional geographies for strategic expansion. In New York, we continued to penetrate the new wholesale doors at a rapid clip reaching 57% penetration of doors in the market to-date, which contributed to over 100% growth in wholesale revenue versus last year. Our indoor flower quality has never been better and we are weeping the benefits of the team’s dedicated focus, which led to the state enjoying 52% year-over-year growth. The market in New York is improving and I believe will continue to accelerate next year. In Ohio, we launched adult use sales in early August and have seen our business nearly double compared to last year and 40% sequentially. Our two stores are performing well even though marketing to adult use customers are not allowed thus far, which we believe has hampered overall consumer awareness. We are making solid progress on our next two stores, which we plan to have open in early 2025 with the remaining four slated to open in the following months. At the Hemp Company, our initial launch of our small line of test SKUs in select edibles and Zero Proof seltzers are gaining traction in both our DTC and wholesale channels. We are now refining our manufacturing process for mass production and in parallel we are working with distributors and strategic partners. In early 2025, we will launch an expanded assortment of products that will cater to the Hemp consumer, which I’ll share more about in our fourth quarter call. We are excited by the momentum we are seeing across these vectors and we are confident they will support the profitable organic growth and strategic expansion that we are prioritizing. In my first month as CEO, my core actions have focused on refining margins, optimizing cash flow. To achieve these objectives, I have challenged the management team to execute against the following six focus areas. New leadership, we have and will continue to upgrade our management team in key regions and functional areas and have revamped our broader organizational structure to better execute on our strategic priorities. On product quality, we have upgraded our practices across our cultivation manufacturing facilities. The result has been a dramatic gain in flower yield and quality. I am relentless in Curaleaf’s commitment to excellent quality and high safety standards and will not accept anything short of that. Portfolio rationalization, we conducted a deep dive into portfolio review to evaluate our leading brands and to rationalize our SKUs. We are eliminating 20% of our underperforming SKUs that do not meet growth or profitability hurdles. On cost reductions since July, we have identified hundreds of margin initiatives throughout the organizations that we have or are in the process of implementing. In addition, over the last two months as CEO, we have identified an incremental $25 million of annualized savings with the majority coming from reduced labor, marketing and IT expenses. In operating efficiency, we’ve invested in facility upgrades, streamlined our supply chain and reduced labor and overhead in order to continue to minimize our COGS. On inventory management, we are committed to reducing the inventory in our balance sheet and we are targeting best-in-class inventory turns to drive product velocity and cash conversion. I am pleased to report that the team is making great headway against all of these objectives. To summarize, we have done an immense amount of work in the last 90 days, but we are just getting started. Refocusing the business while navigating the volatility of this industry will take time, but we will bring the entrepreneurial spirit and winning culture back to Curaleaf. We may see slower growth before reaccelerating as the many investment initiatives we have underway will take time to fully come to fruition and flow through the P&L. We are hyper focused on returning to our roots, driving durable improvements in our margin profile and cash generation, while also prudently investing in the future. With that, I’ll turn the call over to CFO, Ed Kremer, to go over the financials in greater detail. Ed?

Ed Kremer: Thanks, Boris. Total revenue for the third quarter was $331 million representing a slight year-over-year decrease of 1%. The decrease was due to New Jersey, Arizona and Illinois, partially offset by growth in our international segment, New York, Ohio and Utah. In the quarter with heightened seasonality given our exposure to Arizona and Florida, September was the softest month as pricing in a few of our largest states took a noticeable step down from August. Our domestic segment accounted for 91% of total revenue, while our international segment expanded to 9%, 160 basis points higher than the second quarter. International segment performance was significant as the region grew 82% versus last year or 17% sequentially and was driven by Germany, the U.K., Australia and New Zealand. By channel, retail revenue was $253 million compared to $273 million in the third quarter of 2023, down 7% year-over-year as the shift from retail to wholesale that has been present all year continued into the third quarter, most notably in states like New Jersey and Illinois, where the largest number of independent retailers have opened this year. Wholesale revenue increased 29% to $76 million compared to last year’s $59 million and represented 23% of total revenue. The strength of our wholesale revenue was driven by New York, Ohio and our international segment. Shifting to our retail consumer metrics. Transactions were down 4% in the third quarter compared to last year. Average order value decreased by 5% and both UPTs and AUR declined low-single-digits, highlighting the pricing pressure experienced during the quarter, albeit to a far lesser extent than the market’s 11% contraction according to BDSA. Our third quarter gross profit and adjusted gross profit was $161 million resulting in a 49% gross margin. Gross margin and adjusted gross margin increased 350 basis points and 310 basis points compared to last year respectively. The main drivers of the margin expansion included lower cost to flower and vape production stemming from our cost savings initiatives, an increase in our vertical mix, which rose 200 basis points to 66% and higher utilization rates in our facilities. These gains were partially offset by price compression and higher discounts in certain states. SG&A expenses were $106 million in the third quarter, an increase of $9 million from a year ago period. Core SG&A was $102 million an increase of $10 million from the same period. The year-over-year increase in our core SG&A primarily reflects higher payroll related to acquisitions, international investments and new store openings in Florida and New York. Total SG&A and core SG&A was 32% and 31% of revenue in the third quarter, an increase of 300 basis points and 340 basis points respectively compared to the year ago period. Third quarter net loss from continuing operations was $44 million and net loss per share from continuing ops was $0.07. Adjusted EBITDA in the third quarter was $75 million flat to last year and increased 3% to $73 million sequentially. Third quarter adjusted EBITDA margin was up 20 basis points to 23% versus last year and up 150 basis points sequentially. Our international segment profitability continued to improve as the 180 basis point drag on EBITDA margins in Q1 lessened to 120 basis points in Q3. Now, turning to our balance sheet and cash flow. We ended the quarter with cash and cash equivalents of $90 million. Inventory increased $7 million or 3% compared to last year’s third quarter due to growth of our international business, the launch of adult use in New York and our Hemp division. Net capital expenditures in the third quarter were $28 million bringing the total spend through the third quarter to $66 million. Despite the disappointing outcome of yesterday’s Amendment 3 vote in Florida, Stage 1 of our cultivation expansion project is substantially complete, and it will serve to increase our indoor cultivation capacity while optimizing our cost structure. We now will defer proceeding with our Stage 2 build out. We hold the Number 2 share position in the state. We see ample opportunity to compete for more, and these investments will allow us to do just that. Separately, we have seen meaningful improvements in product yields and flower quality across many of our facilities by modernizing our equipment and infrastructure. Based on these results, we have taken the steps to accelerate these investments throughout the enterprise. And as such, we are increasing our 2024 capital expenditures to approximately $90 million from the $70 million guidance previously. Year-to-date and in the third quarter, we generated operating cash flow from continuing operations of $119 million and $42 million respectively. Similarly, free cash flow from continuing operations was $53 million and $14 million respectively. Our outstanding debt was $557 million of which 83% is not due until December 2026. Today, we also announced the closing of a $40 million revolving credit facility with Needham Bank that matures December 15, 2026 at an interest rate of 7.99%. This revolving credit line previously not available to the cannabis industry is a milestone event and provides us with flexibility to continue growing Curaleaf as the leader of the global cannabis industry during what continues to be a difficult capital raising environment. We intend to use this credit facility to support working capital as needed. With respect to guidance, given the uncertain pricing dynamics in some of our larger markets coupled with macro pressures on our consumer, we expect fourth quarter revenue will be flat to up 1% relative to Q3 and similarly expect adjusted EBITDA margin to be consistent with our Q3 margin. Despite the aforementioned headwinds, we have generated strong operating cash flow thus far and as such we anticipate ending the full-year north of $135 million. And with that, I’ll turn the call back over to the operator to open the line for questions.

Operator: We will now begin the question-and-answer session. [Operator Instructions] And our first question here will come from Aaron Grey with Alliance Global Partners. Please go ahead.

Aaron Grey: Hi, good evening, and thank you for the question. Boris, in terms of some of the irrational pricing that you called out with color offer on some of the specific markets, well, I can appreciate it’s certainly state-by-state. Do you see this more so as transitory, or do you believe that it’s going to -a environment’s going to persist and potentially worse in near-term as operators continue to face a challenging environment, forcing that choice of change in profitability? And then specifically on Florida, any commentary you can offer in terms of how you anticipate the competitive environment evolving with medical only market going forward? You mentioned your own canopy, but also in terms of the broader market, if that could change the dynamics there? Thank you.

Boris Jordan: Yes. Listen, I think that if you look at the broader states, I won’t go individual states, but you had, so I’ll give you two examples. One is, Arizona, you had unseasonably warm temperatures, a 100 and for 73 days in a row, you had temperatures north of a 130 degrees. And so, you had an evacuation of Phoenix, and as everyone knows, the bulk of our stores are in Phoenix, and we’re the largest retail player there. And so, the just traffic fell, and what happened was everybody was competing for the traffic that was in Arizona, and so you saw a 20% decline year-over-year in pricing and price compression in Arizona. Now, the interesting thing that we’re seeing in the fourth quarter is we’re seeing a stabilization and a slight recovery in pricing, but not anywhere near the damage that was done in the third quarter. So, that’s the kind of thing that we’ve happened. The other thing is we saw in Pennsylvania, one of the MSOs, decided to substantially drop pricing in July. That was followed by almost all the MSOs in, August, and we decided not to do the same thing. We decided to see whether we can hold share, which we did. We were able to hold share, but we obviously saw significant price compression. So, what we did instead of reducing pricing, we decided to re-assort the stores with different products to adjust to what the consumers’ needs are in the current environment. So, that’s the kind of thing that we’re seeing in the marketplace right now, across the board. So, it’s very difficult for me to tell whether this is something that’s going to go on for long-term, whether this is something that’s, and that every market is different. For instance, in New Jersey, you have a situation where, we had 20 stores open around our Bellmawr store. Our Bellmawr store is probably the highest producing store in the country, at least it was last year. It may still be this year. But, we saw a substantial amount, 20 some odd stores are open up around our Bellmawr store. So, our revenues were definitely down on the back of that, right? So, there’s not much you can do. And, we called all of our customers. We do callbacks. And, the first thing we heard is, yes, you have the best assortment. You have the largest, the nicest store. But, it’s convenient for us to drive three minutes rather than drive 20 minutes to your store. So, that’s the kind of things that we’re starting to see. And, when you have a very high share like we did, almost 40% in New Jersey, that is naturally going to come in a little bit. But, we’re picking up quite a bit on the wholesale side, but we’ve seen a flattening in New Jersey. As a matter of fact, September would probably be the first month we saw a reduction of sales year-over-year in New Jersey. Up most of the year, we saw flat sales in New Jersey and in September was the first time we saw a reduction of sales, in New Jersey because of traffic and the amount of stores that’s opening. Now, we are seeing a stabilization in the openings of these stores, and so we hope that that should bring some level of stabilization. But, too early to tell at this point in time, for instance, New Jersey. So, every market is different for different reasons. Some of which are seasonally, like Florida and Arizona, some of which are market-driven like Pennsylvania and New Jersey. On Florida, you’re moving to Florida. Listen, a lot’s going to depend on how the top, the large three operators, i.e., Trulieve, Curaleaf, and Verano decide to behave. If we continue to operate the way we have to net, up until now, fourth quarter seasonably is always a stronger quarter because you have a lot of people returning back to Florida. And so, I expect the market to be a good market in the fourth quarter. However, it depends, right? You have people that have larger growth now. They’re going to have to depreciate, amortize these growth facilities that they invested in, and they might go for revenue. And, if they decide to go down that route, you might see some price compression in the Florida market. I also think that the Florida market tapered off in the third quarter because everybody expected AU, to be voted on and people start renewing cards. And so, now I think what we’ll see over the next three or four months, I think we’ll start to see a renewal of cards in the Florida market and a resumption of hopefully some more firm pricing in the Florida market. But again, we have to see how the market’s going to behave over the next couple of months to see how that develops. But right now, we are definitely seeing a stabilization since the hurricanes. We’re definitely seeing a stabilization in the Florida market.

Aaron Grey: Great. Thanks. Appreciate the color, Boris. I’ll jump back in the queue.

Boris Jordan: Yes.

Operator: And our next question will come from Matt Bottomley with Canaccord Genuity. Please go ahead.

Matt Bottomley: Good evening, everyone. Boris and Company, just wanted to get your views on in a sort of Republican Administration now. Trying to line up, this is what all the calls I’ve been having today given the panic in the equity markets. And, it’s really trying to figure out how does rescheduling look and even things like safe banking or other legislative matters in sort of a republican environment. Clearly, it’s an administrative process and we all saw what Trump put on his social media platforms as part of the election, but there’s just some back and forth whether that’s for political favor versus the practical considerations to get something done. So, in the rescheduling context, I’m just wondering if there’s anything material to be worried about with respect to what might happen, whether it’s a change at the top of the DEA or any other variables? And then, from something like a safe banking perspective, is this something that might actually be easier to get done considering we have a lined up Senate and House, or is cannabis legislation, although maybe it’s more streamlined under Republican legislators. Is it less of a priority compared to what the Democrats had well, lack of what they’ve done, but what they had said they were going to do over the last couple of years?

Boris Jordan: Listen, I think that the difference between Republicans, historically and Democrats is the Democrats, certainly under Biden, promised a lot and did very little. Although I have to give them credit for launching the rescheduling program, so they do have to get some credit for that, but not getting obviously, getting it through. The typical rescheduling program can take up to three years. So far, we’re in, I think, almost two years, just a little bit shy of two years in the rescheduling process, and we have now, hearings that are scheduled. I believe that that process will go forward irrespective of politics, right? It’s a process that’s already been launched. The Health and Human Services Department together with the FDA have recommended for rescheduling. We have heard that the DEA has notified members of congress that they plan to move towards rescheduling, which I think is a very positive development. But, we do have to wait for the LJ hearings to happen. What’s going to happen over here is I think the judge on December 2, just is going to announce who has standing, who doesn’t have standing, and probably schedule hearings for late January, early February based on who has standing and who doesn’t, so they have time to prepare for arguments in that process. We all have to remember that in the 1980s that we had a LJ hearing on cannabis and, the judge did recommend, and, unfortunately, the head of the DEA at the time under Ronald Reagan, decided not to take the recommendation of the LJ judge to reschedule and kept it scheduled. I personally, again, this is my personal view, believe that this time would be different, and I do think that, that the Trump administration will agree to it for two reasons. One is the President-Elect has said that he would support it, and Trump tends to do that on policy issues, support what he’s going to say. And, as I said in my prepared talks, he said yesterday, the last thing he said walking off the stage is that he will deliver on what he’s promised to the people. So, I think that’s very important, and we’re already in touch with his people to that. The second thing is that, if he follows through on his commitment and he said it again yesterday on stage that he’s going to put RFK in charge of HSS and the FDA. He is an incredibly, he’s been incredibly positive on the rescheduling of cannabis. And so, I think that those two things bode well, assuming we get a positive recommendation out of the LJ hearings. Those two things bode well for rescheduling of cannabis, which as we all know is very positive for the sector from a tax perspective. On safer banking, listen. I think it’s almost a curse word these days. Safer banking, we have two shops at it, Willie. The first is whether, they want to take it up in the lame duck. I think it’s way too early. I’ll be in DC, not next week, but the week after, discussing with members, to see where we move on safer banking, whether we can get something done in the lame duck. But also there’s the Trump administration. And since again, I want to say that he is committed to it and he tends to be business-friendly and tends to understand these issues, I’m hopeful that he will instruct his administration to move forward, with Congress on pushing that. And, since it looks as though he’s going to have both houses, there’s no reason we can’t keep his feet to the fire on this issue given that he’s made a commitment to the industry. But, I do think some of these things will take some time, and so I think that we should be cognizant of that, not expect anything to happen until at best mid next year.

Operator: And, our next question here will come from Russell Stanley with Beacon Securities. Please go ahead.

Russell Stanley: Good afternoon, and thank you for taking my question. Boris, I think during your prepared remarks, you talked about expecting renewed consolidation in the industry. And, I’d just love to hear what your own appetite is for transactions at this point, whether it be European or U.S. focused and what your criteria are given the new, the election results and the results in Florida. I’d love to hear what your latest views are there? Thanks.

Boris Jordan: So, our focus is going to be very different in Europe than it is in United States. Our focus in Europe continues to be growth and expansion, because we see numerous opportunities. So, whether it’s going vertical in a place like Germany, or continuing to expand in Asia through Australia and New Zealand, we’re seeing very strong growth. Fourth quarters started out very, very healthy again. And as I said, going into next year, this is going to start to contribute meaningful dollars to Curaleaf on the top line and bottom line, on the international business. And so there, we are looking for opportunities

Operator: And, our next question here will come from Nick Anderson with Roth MKM. Please go ahead.

Nick Anderson: Yes, good afternoon. Thanks for taking the questions. First one for me on New York. We’ve seen significant market growth there and you called out gains made there by your team. Just wanted to get your sense of the supply situation and the competitive landscape there as one of the key suppliers to the wholesale market. And, just how much more ground do you think there is to cover kind of in terms of cracking down on the illicit market there? Thanks for the color.

Boris Jordan: So, I continue to see very strong growth in New York. We are just scratching the surface of penetration. If you look at some of the more mature markets, we’re penetrated at, call it, 80% to 90%. New York, we’re still at 57% because we’re only three quarters into the New York market, and there’s a lot of store openings. And the difference in New York is you have a very large population, and that population is looking for quality product, product that’s not sold in the illicit stores, but rather in the legal stores. And, there is a marketable difference in product quality between the illicit market and so we’re still in that, what I would call, the Goldilocks scenario, where we’re seeing healthy growth, both in terms of footsteps, we’re seeing healthy growth in terms of revenue, and we’re seeing healthy growth in terms of margin. So, all those things in New York are still very, very healthy. I think we could probably, count on the fact that the bulk of next year will continue to be that way. And then after that, I think we’ll start to taper off a little bit like we’ve seen in other markets. But, New York is a special market. It’s a $5 billion market, and we’re just scratching the surface of New York market. On the illicit side, the New York has done a lot to clamp down on the illicit market, and continue. Now, there has been recently a lawsuit in that area, and New York has appealed that lawsuit, on the crackdown of illicit stores. I believe that they will prevail. And so, we seem to be, I think at the moment in a pretty good spot in New York in terms of the crackdown on the illicit market and the growth prospects of the regulated market.

Nick Anderson: Thanks. I appreciate color.

Operator: [Operator Instructions] Our next question will come from Pablo Zuanic with Zuanic and Associates. Please go ahead.

Pablo Zuanic: Thank you, Boris. My question is more around Hemp. So, I guess Part A would be based on your comments about looking at expanding on international. Is Hemp an opportunity? You talked about it at the beginning, but that’s more organically, right? But, are there opportunities there to acquire brands or acquire assets and get bigger there? And so, how are you thinking about that? And then Part B, regarding Hemp, what’s your prediction in terms of what happens with the Farm Bill and how Hemp derivatives may get regulated at the federal level, especially now with Republicans being in control of the Senate and potentially even the House? Thanks.

Boris Jordan: Yes. So, I think that’s a very good question. And, I think there’s some level of uncertainty around Hemp, which is why we’re taking a very cautiously, approach to our expansion in that market. We are focused literally on two products, and that’s the beverage market, and the edible market. And, the reason we are focused on that is because, those are additions to our existing product range, and we believe that beverage will eventually become the largest segment of the cannabis consumer goods market. And so, that’s why we’re focused on that, and it’s very difficult to distribute beverages in the regulated market due to the nature of the beverage market and the scalability of its manufacturing. And so, we’re really, really focused on beverages and secondary on edibles. I think that it’s too early to tell. We don’t know what the Trump administration’s position is on hemp. We know the Farm Bill is going to come to discussion probably early next year. We do know that Republicans tend to be more conservative, but Republicans also tend to support farmers. And so, we don’t have a view yet of where they’re going to be. We intend to be very active. It’s one of the reasons we’re going to DC in two weeks is to start having those conversations with members and seeing where the Republican part with the new administration is going to go with their hemp initiative. And so, we are, in the meantime, continuing to roll out beverages, continuing to roll out products, but at the same time, we are not doing it in such a way whereas if they decide to, for the scale back, that this industry that we would be hit with any kind of losses on the back of it. So, we’re taking a very cautious approach to make sure that this business is paying for itself rather than investing. It’s one of the reasons we’re not buying anyone. The second reason is that we already have very strong brand awareness. Many of the distributors in this industry actually have come to us asking for us to sell our products through their distribution network because of the strong brand awareness of, for instance, select brand in the regulated cannabis industry. So, we have not had to buy brands at this point in time because our brands, even though we haven’t been in the industry in the hemp side, have more brand recognition than those that are in the industry.

Operator: And our next question here will come from Frederico Gomes with ATB Capital Markets. Please go ahead.

Brenna Cunnington: Hi. This is Brenna on for Frederico. Nice growth in the international segments there both quarter-over-quarter and year-over-year. So, just given the expansion and traction internationally, could you provide some additional color on the potential piece and cadence of growth moving forward?

Boris Jordan: No. In Europe?

Brenna Cunnington: No, Europe specifically, but just internationally in general as well.

Boris Jordan: Yes. I mean, listen. I think the international market is at infancy stages at this point in time where we were, call it, 2015, 2016. And so, but like the United States, it’s not linear. It’s going to be step function, right? So, as you get new markets like Germany, like U.K., like Poland that open up or like Australia, New Zealand, you will start to see growth in those markets. But the TAM, internationally is very, very large, much bigger than the United States in and of itself. But we have to wait for these markets to open up. As an example, we just applied for license in Turkey. It’s a new market that’s opening up. We’ve applied for the first cultivation license in Turkey. We’ll see how that market develops, it’s 82 million people. But, again, you can apply for cultivation license, but by the time you start selling any product, could be a year, could be more out. So, you have to be there, you have to have the platform, and you have to be early. You have to invest in these markets, and then they eventually come to fruition. And that’s what we saw with the U.K., then we saw it with Germany, then we saw it with Poland, Australia, New Zealand. Now, we’re seeing it in places like Turkey. So, these things take some time. And, so I do think that there’ll be substantial growth, but putting a pin in it right now is very, very difficult. And, I think I’ve already indicated what the growth profile is in our existing business, and, I think it will continue to expand at that level certainly into next year.

Operator: And, this concludes our question-and-answer session. I’d like to turn the conference back over to Camilo Lyon for any closing remarks.

Camilo Lyon: Thank you everyone for joining us on today’s call. We look forward to talking to you again in 90 days. Have a great day.

Operator: The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect your lines.