Curaleaf Leaders Discuss EMACC Acquisition, 2020 Financial Results

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Curaleaf founder Boris Jordan believes we’re in the midst of a “global paradigm shift” and that his company is at a key “inflection point.”

After establishing itself as one of the most dominant players in an emerging U.S. cannabis market — growing revenue 184% to a record-breaking $627 million in 2020 — Curaleaf now has its sights set on Europe.

The Massachusetts-headquartered company, already ranked as the largest in the world by revenue and reach, yesterday announced plans to acquire Europe’s largest independent cannabis company, EMMAC Life Sciences.

For his part, Jordan, who serves as Curaleaf’s executive chairman, has promised investors that the $286 million cash-and-stock investment will pay off over the long-term.

“If you bought into Curaleaf — which some people did at a $300 million market cap in 2017 — they're very happy with their investment today,” he said during a call with analysts and investors on Tuesday.

“EMMAC has twice the revenue of Curaleaf at that time, and has a larger addressable market than the U.S.,” he added.

According to Jordan, EMMAC gives Curaleaf access to 748 million people, more than twice the size of the U.S. population.

The current medical marijuana market in Europe is valued at about $1 billion, and Jordan referenced analyst estimates which suggest sales will eclipse $5 billion over the next three years.

“Over the long-term, based on consumption habits we have seen in the U.S., we believe Europe will grow to a more than $120 billion total addressable market opportunity,” he said.

By comparison, legal sales of cannabis in the U.S. reached $17.5 billion in 2020 and are projected to surpass $41 billon by 2026, according to market research firm BDSA.

“We remain committed to being the largest global player in the industry, and the EMMAC acquisition is our first step toward engaging world markets,” Jordan said.

Much like in the U.S., Curaleaf’s success in Europe hinges on broader adult-use legalization and increased consumer cannabis use.

A reported 90 million currently consume cannabis across Europe, and several countries are considering federal reform, Jordan said.

“The Netherlands and Switzerland are planning to launch recreational pilot projects by the end of the year,” he said. “Israel is also expected to legalize recreational use in early 2022, and Luxembourg in 2023.”

Lawmakers in Spain, Italy, Germany and France are also discussing possible reform, Jordan added.

Despite his bullishness, investors did not react favorably to the acquisition news. Shares of CURLF fell more than 4% to $15.70 on Wednesday, and some questioned whether the company was losing focus on a U.S. market that is still being developed.

“I want to stress that this acquisition will not detract from our U.S. strategy,” he said during the call. “The EMMAC management team will continue to lead the company, while Curaleaf executives continue to focus on our U.S. expansion strategy.”

Indeed, EMMAC chief Antonio Costanzo will continue to oversee the company’s European operations once the deal is finalized and become a senior member of the Curaleaf management team.

In the U.S., meanwhile, Curaleaf has demonstrated an impressive ability to acquire assets in key markets.

The company currently operates 101 dispensaries across 23 states, and has access to an additional 37 licenses, according to newly installed CEO Joe Bayern.

“In 2021, we anticipate opening an additional 23 dispensaries across our national footprint,” he said.

Curaleaf, which can reach 190 million Americans, is now serving almost 170,000 patients per month and boasts an average order value of $135.

The company’s flagship “Select” brand is now distributed in more than 1,700 retail dispensaries, up from 800 at the beginning of 2020, Bayern said.

“We expect wholesale distribution to surpass 2,000 locations in the second quarter,” he added. “We remain intensely focused on launching Select in all of our U.S. markets, and preparing for its launch into Europe, introducing new consumer preferred form factors and attracting new consumers to the cannabis segment."

Those new form factors include a THC beverage enhancer called “Select Squeeze” that will launch in April.

Bayern believes this offering will be “instrumental” in helping Curaleaf reach new consumers across new occasions as it strives to make cannabis more accessible in discreet, portable and fast-acting forms.

“We believe this product is a game-changer for accessibility to a wide variety of consumer segments, from the connoisseur to the cannabis curious,” he said.

To help support the launch of new and existing products, Curaleaf has already scaled its cultivation capacity by 450,000 sq. ft., to 1.8 million sq. ft.

“In 2021, we currently expect to bring online 275,000 sq. ft. of new flowering canopy, with key expansions in Arizona, Florida, Pennsylvania, Illinois, and New Jersey, among others,” Bayern added.

Those expansion efforts will help the company reduce costs and position it for success when federal legalization occurs.

However, company executives do not expect U.S. lawmakers to end federal cannabis prohibition or permit interstate commerce over the next two years.

“We think if the Democrats can gain a bigger majority in the Senate, then they’re likely to be able to get that legislation through,” Jordan said. “We think we get something addressing social equity issues and SAFE Banking over the next 12 months.”

“I don’t think, though, that we get full legalization in this period of time,” he added. “They just don’t have the votes. That’s what our lobbyists are telling us.”

However, if Democrats can maintain control of the Senate, and if more states move to legalize adult-use cannabis over the next 12-to-24 months, federal lawmakers will be “forced to address the issue in the second half of the Administration,” Jordan said.

“At that point in time, we think it would probably pass,” he said, adding that full legalization is “inevitable.”

In advance of that possible reality, Jordan said Curaleaf is working on “both joint venture initiatives as well as acquisitions” in order to continue reducing cultivation costs.

In the meantime, Bayern said the company expects New York, Pennsylvania, Connecticut and Maryland — markets where medical marijuana is already legal — to approve adult-use cannabis sales in the near-term.

“These states represent a projected $6 billion worth of new addressable market opportunities and Curaleaf is the only MSO with a leading retail and wholesale presence and all of them,” he said.


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