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Earnings Call Transcripts·

Curaleaf Holdings, Inc. – Third Quarter 2026 Conference Call - Curaleaf Holdings, Inc.

CURLF

  • Financial Performance:

    • Q3 2026 revenue reached $353 million, an 11% year-over-year (YoY) increase and 4% sequential growth.
    • Adjusted gross margin was 49% (down 190 bps YoY), with domestic margins at 50% (down 170 bps) and international at 42% (down 160 bps), primarily due to higher facility costs, price compression in Germany/UK, and a one-time operational disruption in New Jersey.
    • Adjusted EBITDA was $78 million, up 8% YoY, representing a 22% margin.
    • Net loss from continuing operations narrowed to $37 million ($0.14/share), a $17 million improvement YoY, driven largely by changes to 280E tax treatment for medical sales.
    • Ended the quarter with $105 million in cash; operating cash flow was $22 million and free cash flow was $5 million.
    • Inventory increased 5% YoY, outpacing sales growth slightly in international markets but remaining flat domestically; inventory levels are being managed to align with demand.
    • Capital expenditures for the full year 2026 are expected to be approximately $80 million.

  • Guidance and Future Outlook:

    • Q4 2026 revenue guidance is 1% to 2% sequential growth, implying approximately $358 million at the midpoint.
    • Management expects Q4 adjusted gross margins to range between 48% and 49% and EBITDA to remain roughly flat with Q3, citing conservative assumptions regarding Germany's price compression and seasonality.
    • Full-year operating cash flow target remains approximately $150 million, with expectations of a significant increase in Q4 as timing differences on interest payments and working capital normalize.
    • Long-term outlook remains positive on federal cannabis rescheduling, with an expectation of an Administrative Law Judge decision soon, potentially unlocking significant tax benefits (280E) and balance sheet strength.
    • Anticipates the "hemp loophole" closure in December to support pricing and demand dynamics in the domestic market.

  • Business Segments and Product Lines:

    • Domestic: Revenue grew 8% YoY; retail grew 6% YoY and wholesale grew 14% YoY. Florida, Ohio, Maine, and Pennsylvania led retail growth; New York, Ohio, and New Jersey led wholesale.
    • International: Revenue grew 28% YoY to $59 million; UK and Germany drove performance, with Poland also growing.
    • Product Innovation: Anthem pre-roll brand grew 185% YoY; Select Live collection (live resin/melted diamonds) launched nationally; Select maintained #1 vape market share; Anthem Bold introduced six new limited edition flavors.
    • New Markets: In Spain, received third cannabis preparation registration in October, expecting sales fulfillment in November; in France, secured a distribution partnership with a major pharma company for a 2027 launch; in Turkey, regulatory framework expected by early 2027; in Australia/New Zealand, CUMVID inhalation device received regulatory approval.
    • Acquisitions: Maintained a bid for Aurora Cannabis; reviewing a competing bid from Organigram (OGI) which is approximately 10% higher. Curaleaf plans to improve its bid contingent on receiving access to Aurora's due diligence data.

  • Market and Competitive Landscape:

    • Price Compression: Significant price compression observed in Germany, where prices dropped from ~$3/gram to ~$0.90/gram in one quarter due to product dumping by Canadian competitors; expected to be transitory pending regulatory enforcement.
    • Regulatory Environment: Active collaboration with German regulators to address greenwashing and illegal market entry; UK precedent suggests similar enforcement could stabilize margins.
    • Domestic Competition: Florida market becoming saturated, leading to potential slowdown in store openings (targeting ~89-90 stores by year-end); new entrants face challenges due to vertical integration requirements and lack of wholesale infrastructure.
    • Market Position: Curaleaf maintains top market share positions in nearly every domestic market and holds the #1 position in the UK.
    • Institutional Ownership: Added to FTSE Russell All Cap Canada Index; significant positions held by BlackRock and Vanguard; JP Morgan appointed as custodian.

  • Risks and Challenges:

    • Price Compression: Severe margin pressure in Germany due to illegal product dumping and competitive pricing; domestic price compression in NY, NJ, and IL remains a headwind.
    • Operational Disruptions: Past temporary disruption at the New Jersey cultivation facility required third-party inventory supplementation; yields are recovering.
    • Macroeconomic Headwinds: Consumer pressure from rising energy costs and interest rates affecting discretionary spending.
    • Regulatory Uncertainty: Timing of enforcement actions in Germany and finalization of federal rescheduling and 280E tax treatment rules.
    • Capital Allocation: High cost of capital for vertical integration in new markets (e.g., Florida requires substantial CAPEX); potential dilution from the competing Organigram bid if accepted.

  • Management Commentary and Tone:

    • Tone was confident and resilient, emphasizing "disciplined execution" and "built-for-growth" strategy despite external pressures.
    • Management highlighted a "10% drag" from international margins but expressed strong conviction in the long-term scale and potential of the international platform.
    • CEO Boris Jordan emphasized the strategic importance of the Aurora acquisition for supply chain and product registrations, dismissing the Organigram bid as dilutive without further analysis.
    • CFO Ed Kremer and President Rahul Pinto provided detailed operational context on margin drivers and the efficiency mindset (SG&A reductions, AI deployment) driving profitability.

  • Analyst Questions and Answers:

    • Aurora Bid vs. Organigram: Management stated they will improve their bid if granted due diligence access to Aurora's financials and operations, noting the 10% price gap is bridgeable.
    • Germany Pricing: Confirmed prices fell from €35 to €9.5 per gram (approx. $3 to $0.90) in one quarter due to illegal dumping; working closely with regulators to enforce laws.
    • Supply Chain & Verticality: Confirmed EU GMP certification is secured in three markets but emphasized the need for reliable supply chains; open to contracts with third-party suppliers if pricing is right, but prefers assets for long-term stability.
    • Intoxicating Hemp: Confirmed marketing plans are in place to transition consumers from hemp to adult-use cannabis upon the December regulatory changes.
    • DEA Federal Registrations: Reported receiving over 80 federal registrations for medical dispensaries; not yet pursuing export rights, focusing on meeting domestic growth demand.
    • Florida Expansion: Noting strong same-store sales and startup returns, but anticipating slower growth in new store openings due to location saturation and the need for high-quality real estate.

  • Other Key Points:

    • Yield Improvement: Cultivation yields up 15% YoY, with some markets achieving >120 grams per foot, significantly boosting gross margins.
    • AI Integration: Deployed AI tools across pricing, merchandising, IT, legal, and finance to drive productivity; established an AI committee to oversee implementation.
    • Brand Differentiation: "Select Better Challenge" blind tests showed 90% preference for Select Brick 2 over a competitor and 70% preference for Anthem Bold pre-rolls.
    • Debt/Cash: Repurchased $1 million of shares (105,440) at an average price of $9.48 during the quarter.
    • Timeline: Next earnings call scheduled for early February 2027; Aurora tender date for shares is December 4th.