Curaleaf Holdings, Inc. (CSE: CURA) (OTCQX: CURLF) is finally exiting a trio of legacy western states in search for better profits. The stock was dropping over 5% in early trading on the news to lately sell at $3.61 not far from its 52-week low of $3.57.
The exodus will begin this month with the “proactive closure of the majority of its operations” including its production and cultivation facilities in California, Colorado, and Oregon, the company said on Thursday.
“Today’s announcement reflects a decision that we did not arrive at lightly, and one that makes sense for our business at this time,” CEO Matt Darin said in a statement.
10% of Employees Laid Off
“We have a fiduciary responsibility to our shareholders to improve margins and fortify our balance sheet by controlling what we can in our business. We believe these states will represent opportunities in the future, but the current price compression caused by a lack of meaningful enforcement of the illicit market prevent us from generating an acceptable return on our investments.”
At the same time, Curaleaf will also reduce its payroll by 10% “which, when coupled with other cost savings initiatives, it expects to realize $60 million in gross run-rate expense savings in 2023, exceeding its initial savings target by 50%.”
The MSO giant will also consolidate its Massachusetts cultivation and processing operations, with plans to record the actions as non-cash restructuring and impairment charges that it said it will detail on its March fourth quarter earnings call. The company said it will focus on generating cash flow in its core revenue-driving markets.
The news comes in a timely fashion, as Curaleaf has seen slowing growth amid a broader slowdown in the global economy and lulled efforts concerning U.S. federal legalization.
The company laid off around 220 of its employees ahead of the Thanksgiving holiday last year after its most recent earnings showed crimping margins and rising losses despite surviving revenue expectations.
In a Nov. 7 earnings call, founder and chairman Boris Jordan told investors that management is “acutely aware of the economic conditions our customers are navigating.”
“As such, we are taking appropriate actions to ensure we continue driving growth and margin expansion next year, irrespective of the economic climate,” Jordan said at the time.
Darin said during the call that the company is “comfortably transitioning from the asset accumulation phase to the asset optimization phase in our evolution. Importantly, we are at this juncture by choice, not market force.”
Illicit Market Cited
“These adjustments were necessary for the future success and profitability of the business and were made as a result of recent legislative decisions, price compression, and lack of enforcement of the illicit market,” the company wrote in the Thursday memo. “For context, these markets contributed less than $50 million in revenue to Curaleaf last year.”
Curaleaf expects the exits to be accretive to its adjusted EBITDA margins and positions the balance sheet for positive free cash flow generation “in excess of $125 million” in 2023.
“We are confident that these moves, made to improve our cashflow and margins, are the right ones to bolster the future success and profitability of Curaleaf,” Darin said on Thursday. “Optimizing the existing portfolio in this way allows us to enter 2023 in a position of strength and further enhances our visibility around continued margin expansion and highly profitable growth. We remain excited about our future growth prospects both domestically and internationally, and now can devote greater resources to tangible growth opportunities in emerging markets such as Europe.”
M J Barczak
January 26, 2023 at 8:27 pm
What are plans for Florida operations?