Interview with Curaleaf President and CEO – Q3 Earnings Review

Capital 10X interviews Curaleaf CEO and President Joe Lusardi to discuss their most recent quarterly financials.

Lusardi discusses the results, including positive cash flow and adjusted EBITDA and provides guidance on revenue and EBITDA targets. He also outlines the Grassroots and Select acquisitions, possible sources of financing for the company and what legalization developments can do for the industry.

Transcript – Joe Lusardi, Curaleaf

Capital 10X: I’m here with Joe Lusardi, president and CEO of Curaleaf. Thanks for coming on the show today.

Joe Lusardi: It’s my pleasure.

Capital 10X: So just to give our viewers a bit of an overview Curaleaf, it’s a U.S. MSO, one of the biggest already, if not it’s going to be soon that the closing of a couple acquisitions. How many states are you guys operating in and how big is your retail footprint?

Joe Lusardi: Sure, so we operate in a dozen states under regulated cannabis. we also operate in Kentucky, our CBD business. When we close the Grassroots transaction in q1 of next year we’ll be in 19 states, the biggest presence in the country.

We currently operate 50 stores, we’ll open our 51st store this week in Florida. With Grass roots combined we’ll have 131 stores next year so we’re pretty excited about our retail presence and I think it’s important to note that we’re vertical in almost every state in which we operate. We think that’s really the critical piece of our success is controlling the whole supply chain unlike our peers in Canada that really can’t do that. In the US we can cultivate, manufacturer, retail, and control our own brands and so we think we’ve got a big strategic advantage with respect to the U.S. market and we think that’s a really important part of our investment thesis is to be vertical.

Capital 10X: Excellent, well that’s fantastic and you guys obviously just released quarterly results, pretty good I’d say everyone seemed very impressed. So congratulations there. I think 70%, that’s above 30% growth quarter-over-quarter what are some of the other big highlights from your perspective for this quarter that investors should be aware of.

Joe Lusardi: I think what’s important for our company is one we reported pro forma revenue of almost one hundred and thirty million dollars I think that’s the real metric to look at because we are going to close select on January 1st and we’re going to close Grassroots in the beginning of the year and so that’s really the best way to understand our business. That puts us at almost a 520 million dollar run rate today. We think we can do a billion dollars plus at revenue next year and importantly if you look at Curaleaf for the third quarter we reported the highest EBITDA in company history, our margins are improving quarter-over-quarter which demonstrates that our scale is starting to pay off and we’re generating cash and so you know those are all really incredible metrics. Every metric was improved over Q2 which is a demonstration of our continued execution.

Capital 10X: So obviously you know these are still challenging times and you’re still growing so but do you expect EBITDA, cash flow to stay positive quarter-over-quarter or will there be a bit of volatility in there just given the growth that has to happen as you expand to new states?

Joe Lusardi: No, I actually I think what’s important about Curaleaf is we’ve already made the investments right. We’ve been at this for three years, we’ve put a lot of money into the ground into our infrastructure now that’s really starting to pay dividends so I expect our margins to improve. I expect to see improved EBITDA quarter-over-quarter and we really have had an inflection point you know unlike a lot of other operators that are probably more immature in their development so I think we will not see volatility I think you’ll see the continued progression of improvement in our business.

Capital 10X: Excellent, you guys have an EBITDA margin that you’re targeting long term?

Joe Lusardi: Yeah and so we think next year we’ll we know we guided the market on a pro forma basis so if you included Grassroots and Select we think the combined companies would do between a billion to a billion two in revenue next year and we think it’ll be about a thirty percent plus a bit of margin so the business is starting to really hit on all cylinders.

Capital 10X: So within that range what sort of aspects are incorporated there was there legalization that’s required in certain states and what’s taken into account? I mean a $200 million dollar range, I mean maybe for you guys that’s not a whole lot, but for some companies that’s massive, so I’m just curious to hear your thinking on that?

Joe Lusardi: I mean to be honest the way we think about it is we don’t model laws that haven’t passed so we haven’t modeled in New York, New Jersey, potential adult use anywhere that hasn’t already happened. Again as I said if you look at the business today we’re already at a $520 million dollar run rate as you point out we’ve grown the top line 30% the last two quarters so you you don’t have to be a mathematician to figure out that you know those numbers are achievable. We just put our heads down and keep executing.

Capital 10X: So you touched on the acquisitions a couple of times here’s maybe look at each one. So Grassroots what’s the value that that brings to Curaleaf?

Joe Lusardi: I mean Grassroots has an incredible business built much like on the idea that vertical integration is critically important. They’ve got a very strong presence in the Midwest. They’re the number one retail operator in Pennsylvania, one of the fastest growing markets in the country and more importantly they’re headquartered in Illinois which is about to enact an adult use law January 1st. We are not going to see a market with a lopsided supply and demand like we’re going to see in Illinois. It’s going to be incredible and so Grassroots is positioned really well in the Midwest that was a hole and in our footprint that we’ll fill and I think as I said the combined companies will be the clear you know leader in the cannabis industry next year.

Capital 10X: Excellent and then for Select what’s the value that that brings and even if you could just touch on I think you guys de-risked it is what you were saying, lastly the conference call in terms of you know for Curaleaf shareholders.

Joe Lusardi: If you look at Select you know it’s the number one adult use brand in the country built on the west coast, some of the most competitive markets in the world for cannabis. With our 19 state platform we’re gonna take that brand all across the country. Select will be the number one adult least brand in every major market in the country when we get done with it.

Select will be in Miami to Boston in New York to Philadelphia to Chicago and we have the chance to make it a really special brand and we’re very excited about that. There’s a huge amount of white space to carry that brand across the country.

Capital 10X: I appreciate the colour on those and then just looking in terms of closing the Grassroots acquisition, obviously right now in the entire market that may be being dragged down a little bit or a lot by the Canadian LPs liquidity can be a challenge for certain companies you guys are generating positive cash flow, I think it’s not 70 million plus on the balance sheet but are you guys looking at financing sometime in the near future and if so what would that look like for shareholders?

Joe Lusardi: We finished them q3 with approximately $90 million in cash in the balance sheet. We have a first I’ll say a very supportive equity base of shareholders including our executive chairman Boris Jordan and we also have a I would call it a very sophisticated capital markets team. We are always having conversations about how we can leverage up our balance sheet. I think we’re in very good position to attract capital at rates that make sense for our business and carry on with our you know our goals which is to be the biggest cannabis company in the world.

Capital 10X: I believe Boris was saying last night you’re not really looking at anything dilutive for shareholders at this time.

Joe Lusardi: Yep, we don’t intend to dilute our shareholders. I think we’re the only major MSO that hasn’t gone back to the equity market since we’ve done our public offering and we don’t have any plans to do so. I think we feel very good about where we stand today.

Capital 10X: Just again maybe touching on sort of future plans. Do you guys have any any other M&A; plans anything attractive in the pipeline. Might be some distress companies out there you can get some things really cheap is there anything that you guys are looking at that’s attractive to you?

Joe Lusardi: I think we said you know publicly we’re 19 of the 20 biggest cannabis markets in the country so we feel pretty good about our footprint. We’re definitely looking at Colorado but you know I think we see that as a market that is a good place to build brand Select and so I don’t know if we would do anything significant other than trying to build brand in Colorado and of course we’re always paying attention to opportunities to do creative deals. There for sure our acquisitions that our characterizes bolt-on that look very interesting and I think sellers have become very rational in their prices but no we don’t feel compelled to do anything significant given our footprint.

Capital 10X: Right you’re just looking more, I mean yeah with your footprint a great opportunity for organic growth as opposed to some of that M&A, which is excellent. In just sort of wrapping up let me hear your thoughts, obviously you’re really in touch with the U.S. legalization probably thinking about every single day. SAFE banking act going through there’s this new legislation coming to the house now you know how are you guys expectations internally?

Joe Lusardi: Yeah I think what’s highly encouraging is the SAFE Act passed you know Congress with massive bipartisan support now it moves over to the Senate where it’s being vigorously sort of reviewed and there’s a lot of people that support that because they recognize that Bank in this industry and cash makes no sense so that’s a really positive sign for the industry.

I think there’s going to be some movement and the MORE Act in the house, maybe as early as this week, which is a very comprehensive cannabis reform bill that includes some reparative to justice and some of the social justice issues we think are very important. So those all signal a willingness for the legislative bodies to take cannabis seriously and start thinking about certain reforms. We hope that that sets up 2020 for some pretty significant activity in DC it’s hard to predict what you know ever what happens down there but I think just the fact that cannabis bills are being debated in the house is really an incredible sign for the industry and should get people a lot of confidence that we’re moving in the right direction.

Capital 10X: Excellent, well thank you very much for your time I’m sure you’ve got a lot more phone calls and interviews to do today so I appreciate you taking the time to stop by.

Joe Lusardi: Yes, it’s my pleasure. Thanks, take care.

The opinions provided in this article are those of the author and do not constitute investment advice. Readers should assume that the author and/or employees of Capital 10X hold positions in the company or companies mentioned in the article. For more information, please see our Content Disclaimer.

Evan Veryard
Evan Veryard has a Bachelor's of Chemical Engineering from McGill University and a MaSc. of Chemical Engineering from RMC. He has over 6 years of research experience focusing on industrial materials. Address: 682 Indian Road, Toronto, Ontario, M6P 2C9. Phone: 416-721-8257.

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