What These Leading Cannabis Companies Revealed on Their Conference Calls

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Two of the largest MSOs kicked off earnings season this week, with GTI meeting Q4 revenue expectations (it always has) but missing on adjusted EBITDA and Curaleaf following up Thursday with a slight miss on revenue but better than expected adjusted EBITDA. As we have said before, investors would most likely be interested in the forward guidance, and Curaleaf offered an outlook that was far below prior expectations. The company had been expected to generate 2022 revenue of nearly $1.6 billion, but it anticipates that it will produce revenue of $1.4-1.5 billion. It also suggested that it expects adjusted EBITDA to be 28% of revenue, which is slightly less than the expected margin, but this is not bad considering it is off of a lower base of revenue.

Press releases offer a lot of information, of course, but we always suggest reading the filings too. Additionally, the conference calls can provide information that isn’t included in either the press releases or the filings. In the case of Curaleaf, the call is where the guidance and the context behind it were provided. For GTI, the call provided the company with the opportunity to discuss the sudden decline in its gross margin in Q4 from 55.4% to 52.8%.

Curaleaf’s Call

On its Q3 call, after the company experienced a 5% revenue miss but fell short more substantially of the adjusted EBITDA expectations, Executive Chairman Boris Jordan had pointed to a flood of illicit market product hurting its business in New York and New Jersey. This quarter’s revenue miss was by less than 2%, with the company reporting $320 million. Adjusted EBITDA of nearly $80 million was $2 million better than expected despite the revenue short-fall. Jordan pointed to the challenging economic environment as well as the “croptober” impact (illicit market product from California) as weighing on the revenue.

One major point of differentiation for this call was that the company characterized its adjusted EBITDA margin as being burdened by 7% due to investments in developing markets, like Europe, which alone weighed on overall margins by 1%. CEO Joseph Bayern pointed to its operations in California, Colorado, Michigan and Oregon as depressing its overall margins. The company suggested that its full year adjusted EBITDA margin would have been 32% rather than 25% had it not been in Europe or these more mature or competitive American markets.

In terms of its outlook, Jordan discussed several factors causing it to temper its outlook, including the delay in New Jersey and a more challenging consumer environment. Jordan shared his expectation that New Jersey will launch adult-use on May 1st, but he anticipates that the roll out will be slow due to there being so few stores open in the state. In terms of the consumer, he pointed to shrinking discretionary income related to the end of stimulus checks and high inflation. The mid-point of Curaleaf’s guidance would represent 20% growth in revenue and 36% growth in adjusted EBITDA.

Analysts questioned management regarding pricing in Pennsylvania and Florida. Jordan suggested that Curaleaf hasn’t seen the pricing pressure other companies have mentioned in Pennsylvania, but he didn’t really answer the question about Florida. Instead, he pointed to their operational improvements. An interesting point that Jordan mentioned in the Q&A was that after a tough January, business began to pick up in mid-February and into March, something that we have seen in the data as well. Finally, elaborating on the drag on margins from certain states, Jordan suggested that 20-25% margins are probably the best investors can expect in those more competitive states compared to over 40% in the Eastern states.

Green Thumb Industries’ Call

GTI doesn’t provide guidance, and Chairman and CEO Ben Kovler plays his cards close to the chest. He continued to guide to a long-term adjusted EBITDA margin of 30% (31% in Q4) as he criticized Illinois for failing to issue the social equity licenses and expand the number of stores. CFO Anthony Georgiadis suggested that the decline in gross margin was due to pricing pressure in wholesale and retail. While the company has a target adjusted EBITDA margin, Kovler during Q&A made it clear that GTI actually doesn’t run the business to hit this target. The most important metric to the company is free cash flow over long time-frames. He pointed to GTI making up-front investments in key markets that have not yet gone live.

Analysts were most interested in better understanding the margin decline. CFO Georgiadis suggested that the pressure on pricing was greatest in Pennsylvania and Nevada, noting that flower in the low to mid-range of quality is where it has been most intense. The company hasn’t seen a change in the competitive dynamics so far in 2022. Regarding the timing of New Jersey’s launch of adult-use sales, Kovler stated that they don’t know in contrast to Jordan’s specific date.

Looking Ahead

Most of the Q4 earnings calls for the largest American cannabis companies have already been scheduled. Next week, Ascend reports. In the following week, Ayr Wellness, Columbia Care, Jushi and TerrAscend report. Trulieve has scheduled its call near the end of March. Cresco Labs hasn’t yet picked a date, but it is due to report in March. Finally, Verano Holdings hasn’t scheduled a date and is due to report by the end of April.

We expect Trulieve and Verano to share 2022 guidance, while we aren’t sure that Cresco Labs will do so. 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.

As we suggested two weeks ago, we believe that investors should be and likely are prepared for soft guidance. It’s always challenging to tell what’s priced in, but given the heavy sell-off into the Curaleaf report followed by a modest decline in its stock afterwards, it seems like investors are indeed factoring in diminished outlooks.

Body and Mind has expanded within its existing footprint of Nevada, California, Arkansas and Ohio and has recently commenced operations in Michigan. Its social equity partner has also won two dispensary licenses in Chicago, Illinois. Developing new licenses and creating innovative products that strive to create The Perfect Balance™ continue to drive growth for the company, which is profitable and well-funded.

Get up to speed by visiting the Body and Mind Investor Dashboard that we maintain on their behalf as a client of New Cannabis Ventures. Click the blue Follow Company button in order to stay up to date with their progress.

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Alan & Joel

Exclusive article by Alan Brochstein, CFA
Alan Brochstein, CFA
Based in Houston, Alan leverages his experience as founder of online community 420 Investor, the first and still largest due diligence platform focused on the publicly-traded stocks in the cannabis industry. With his extensive network in the cannabis community, Alan continues to find new ways to connect the industry and facilitate its sustainable growth. At New Cannabis Ventures, he is responsible for content development and strategic alliances. Before shifting his focus to the cannabis industry in early 2013, Alan, who began his career on Wall Street in 1986, worked as an independent research analyst following over two decades in research and portfolio management. A prolific writer, with over 650 articles published since 2007 at Seeking Alpha, where he has 70,000 followers, Alan is a frequent speaker at industry conferences and a frequent source to the media, including the NY Times, the Wall Street Journal, Fox Business, and Bloomberg TV. Contact Alan: Twitter | Facebook | LinkedIn | Email

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