Debra Borchardt
Despite the challenges of COVID-19 in Massachusetts and Nevada, Curaleaf (OTC:CURLF) reported an impressive quarter and gave an even sunnier forecast. CEO Joe Lusardi said on the company’s earnings call that it took a $25 million hit to revenue in the quarter as a result of the pandemic. The tourist traffic in Nevada disappeared and the adult-use stores were closed in Massachusetts for weeks. Lusardi also pointed out that unlike Massachusetts’ quick recovery, Nevada’s recovery is painfully slow.
Earnings Recap
To recap, Curaleaf reported earnings after the close of the trading on Monday. The company delivered managed revenue of $121.4 million, which grew 120% year-over-year and 16% sequentially. Total revenue was $117.5 million, which grew 142% year-over-year and 22% sequentially. The net loss for the second quarter of 2020 was $2.0 million, compared to a net loss of $24.5 million in the second quarter of 2019. The company attributed the increase to a $19.2 million increase in the fair value of biological assets and a $1.1 million decrease in one-time charges.
“These benefits were partially offset by a $9.5 million increase in depreciation and amortization and a $0.3 million increase in share-based compensation, both of which are non-cash, a $5.3 million increase in income tax expense, and a $7.0 million increase in net interest expense.”
Guidance
Chief Financial Officer Mike Carlotti said on the call, “Based on current trends in our business and the ongoing recovery in Massachusetts and somewhat challenged recovery in Nevada due to COVID-19, pro forma Q3 revenue is expected to be approximately $205 million to $215 million. We expect to generate Q3 managed revenue of approximately $190 million to $200 million, which includes the partial Q3 benefit of the recently acquired Grassroots assets from the period of July 23 to September 30.”
“We expect to generate approximately $150 million to $160 million of managed revenues from core Curaleaf’s Select operations. We estimate Grassroots to contribute approximately $40 million in reported net revenue. Had Grassroots closed on July 1, it would have contributed approximately $55 million of revenue in the third quarter, net of assets now being held for sale in Maryland and Ohio to meet maximum license requirements. As Joe noted in his remarks during the quarter, we converted one of our main assets, Remedy to a for-profit, which was included in our Q2 financials.”
Political Landscape
The Curaleaf executives also had quite a few comments to make about the political landscape and the future of states like Connecticut and New Jersey.
Executive Chairman Boris Jordan said, “If you get a Biden administration, I suspect that most of the East Coast will be adult-use. And so I just don’t understand how they are going to deal with the fact that almost 80% of the population will have access to adult-use, about 85% will have access to medical. My view is that they will move reasonably quickly to some kind of either SAFE Act or something short of full legalization and maybe they will make some kind of special dispensation for medical.”
He added that New Jersey had not given any sort of timetable for adult-use, but surmised it could be quick as the state looks to relief in its budget as a result of the pandemic. He felt the New Jersey was no doubt watching the tax revenues enjoyed by Massachusetts. “If New Jersey goes adult-use, it is almost certain that Pennsylvania, New York and Connecticut will do it as well. And I think if we are talking again this time next year, on our second-quarter earnings call, I suspect that most of the East Coast will be.” (except perhaps Florida)
Banking
Carlotti said that Curaleaf accepts debit cards in eight states and will add three more by the fall. “What we have noticed is that typical transaction is about 20% higher than the average cash transaction and we have not seen any changes in visitation patterns as well. So, people are using the debit cards, they are spending more with those debit cards than they would otherwise if they just had cash.”
Lusardi said with regards to the SAFE Act, “A very major banking association, now including Visa, MasterCard is lobbying for the passage of this bill, because it makes sense its good public policy. So, we are hopeful that we will get a passage at some point and that will unlock credit card transactions in much bigger basket sizes that you would expect from like traditional retail.”
