Curaleaf Holdings, Inc. (CURA) Earnings Call Transcript & Summary

Good afternoon, and welcome to the Curaleaf Second Quarter 2021 Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Carlos Madrazo, Head of Investor Relations. Please go ahead.

Good afternoon, everyone, and welcome to Curaleaf Holdings' Second Quarter 2021 Conference Call. Today, we're joined by Boris Jordan, Executive Chairman; Joe Lusardi, Executive Vice Chairman; Joe Bayern, Chief Executive Officer; Neil Davidson, Chief Operating Officer; and Ranjan Kalia, Chief Financial Officer. Before we begin, I would like to remind you that the comments on today's call will include forward-looking statements within the meaning of Canadian and United States' securities laws which, by their nature, involve estimates, projections, plans, goals, forecasts and assumptions, including the successful integration of acquisitions, and are subject to risks and uncertainties that could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements, uncertain material factors or assumptions that were applied in drawing a conclusion or making a forecast in such statements. These forward-looking statements speak only as of the date of this conference call and should not be relied upon as predictions of future events. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law. Additional information about the material factors and assumptions forming the basis of the forward-looking statements and risk factors can be found in the company's filings and press releases on SEDAR on the Canadian Securities Exchange. During today's conference call, Curaleaf will refer to non-IFRS measures that do not have any standardized meaning prescribed by IFRS, such as adjusted EBITDA, the definitions of which may be found in our earnings press release. Please note that all financial information is provided in U.S. dollars, unless otherwise indicated. With that, I'd like now to turn the call over to Executive Chairman, Boris Jordan.

Good afternoon, everyone, and thank you for joining us today for our second quarter earnings results call. Before I begin, I want to welcome Ranjan Kalia, our new Chief Financial Officer, having held multiple financial positions at CPG and technology companies. Ranjan brings a breadth of experience to the team, and we are very happy to have him join the company. I also would like to thank Michael Carlotti, our former CFO, for all of his contributions. We wish him a prompt and speedy recovery. Our record second quarter results reflect the continued success of Curaleaf's strategy of unrivaled reach, scale and strategic positioning in the U.S. cannabis market, as we once again delivered all-time high levels of sales and adjusted EBITDA profitability. We also acquired an unmatched presence in Europe, which provides us another major long-term growth lever for our business and establishes Curaleaf as the global pure-play cannabis market leader by revenue and geographic reach. During the second quarter, we delivered on our guidance with total revenue rising to $312 million, equivalent to sequential growth of 20% and year-on-year growth of 166%. Excluding our new Curaleaf International business, which we started consolidating for the first time this quarter, our revenue increased to $307 million. In terms of driving profitability, we posted record results here as well. Our group adjusted EBITDA margin reached 27%, increasing approximately 300 basis points sequentially. In our core U.S. business, our adjusted EBITDA margin expanded to 28%, up 400 basis points sequentially, as we benefited from our leading scale and captured operating efficiencies. Not only are we delivering impressive margin gains, but we remain focused on growth and the major opportunities that lie ahead. Executing on our national strategy, we have built a deep operational capability on the ground in all the key U.S. state cannabis markets, and we are early entrants into many more that will become relevant contributors to revenue and profitability over time. Today, we operate in 5 states that contribute at least $100 million in annualized revenue and 2 more will be joining this group in the next several months. The other 16 states are markets with tremendous potential, where we have established a solid presence and where medical and adult-use cannabis programs continue to evolve. To further strengthen our U.S. business, in May, we agreed to acquire Los Sueños, a 66-acre outdoor grow operation in Colorado, to help us better serve the $2 billion-plus annual medical and adult-use cannabis market in Colorado, the second largest market in the U.S. today. Upon closing this transaction, we'll significantly expand our cultivation capacity, boost our profitability in the state as well as integrate vertically and position us as a leading low-cost producer in the U.S. We expect this transaction to close soon. At the federal level, last month, Senator Schumer introduced the long-awaited comprehensive federal cannabis bill. Curaleaf has led industry efforts to push for sector reform, including expanded access to banking, stock exchange uplisting, sensible taxation and regulation and social equity initiatives. There is unprecedented support for cannabis reform across the political spectrum and by multiple industry and minority groups. This should provide strong motivation for Democrats and Republicans to negotiate and agree to a final version of the bill. We expect plenty of debate around the details in the coming months and believe some level of reform, which will minimally include banking and investor safeguards, will be passed before the midterm elections. The wide scope of the bill underlines the importance of having a long-term flexible strategy in place, taking into account the various potential outcomes. Our long-term strategy and multiple planning horizons have very much taken this into consideration. For example, our investment in Los Sueños' cultivation facility provides us with very low cost, efficient, high-quality supply of biomass for both our needs and those of wholesale customers in the state today, but it's ultimately capable of supplying biomass on a regional scale in the event of full interstate commerce. Also at the federal level last month, Congress approved the removal of road blocks to scientific research into cannabis, noting the potential therapeutic effects of the plant, and maintained an existing provision that shield state and medical marijuana laws from intervention by the Justice Department. Just as importantly, for near-term growth, state-level regulatory liberalization trends are accelerating. In New Jersey, we anticipate that adult-use sales will begin in late 2021 and to fully ramp up into early 2022. We look forward to seeing the draft regulations for adult-use sales this month and have been preparing to address this market with a full suite of products. Our new cultivation and processing facility is harvesting regularly, and we intend to maintain our leadership position in the state. We also look forward to opening our third dispensary in Bordentown, just south of Trenton, this month. In Connecticut, we anticipate adult-use sales will begin in the second quarter of 2022. We have commissioned a significant expansion of our cultivation manufacturing facilities, are in process to secure additional retail sites in advance of the adult-use program commencement. We look forward to addressing a new customer set and maintaining our leading position. In New York, we expect adult-use sales to begin by early 2023. We are waiting for the Senate to confirm appointees to begin working on the regulations. Whole flower, long demanded by New York patients and expected by future consumers, is on the governor's desk awaiting approval. It's codified into law, so it's not a matter of if, but when. We have commissioned another 110,000 square feet to our cultivation complex and will ramp up additional capacity as we get a clear view on the regulations and timing. The combined Tri-state region, where we have a leading market presence, has a population of 32 million, receives hundreds of millions of tourists every year and has a potential estimated annual market opportunity of around $8 billion. Given our robust capacity, retail network and strong brand identity, we are uniquely positioned to address this combined market. The potential in the Northeast also extends beyond these 3 states by 2023 as it's estimated that Pennsylvania and Maryland, where Curaleaf has a strong presence, will likely be among the next major states in the region to approve adult-use cannabis. With a combined population of around 19 million, once these additional states become adult-use, they are estimated to represent another incremental $3 billion annual market opportunity. In the 6 largest Northeast markets, according to forecast data from BDSA, Curaleaf has today the #1 market share, and will be one of the main beneficiaries of these markets' ramp-up. Looking beyond our market-leading U.S. presence, another major milestone during the second quarter was Curaleaf's entry into the global cannabis market with the successful completion in April of our acquisition of EMMAC, the largest vertically integrated independent cannabis company in Europe, which has now been rebranded and consolidated as Curaleaf International. We remain very positive on developments in Europe and its growth potential. Overall, we have never been more optimistic on the near- and long-term outlooks for the business. Based on the trends we see today, we are on track to hit the midpoint of our full year IFRS revenue guidance of $1.2 billion to $1.3 billion for our U.S. operations. Overall, Curaleaf is still in the early innings of an industry that has tremendous potential for growth, and we have high confidence that our national strategy and solid execution will seize the opportunity and create significant value for shareholders. With that, let me turn the call over to our CEO, Joe Bayern.

Thank you, Boris, and good afternoon, everyone. What can I say? It was a great quarter for Curaleaf and the cannabis industry as a whole. We are extremely happy with our record results for the quarter as it is definitive proof that our strategy is working. I am also incredibly excited about the significant advances we are continuing to make in product commercialization and research and development. Our capabilities in these areas are unmatched in the industry and will continue to act as one of our pillars of long-term competitive advantage. I'll provide more detail on some of our most exciting initiatives later in the call. Let me start my walk-through at the retail level. We continue selectively expanding our market-leading U.S. footprint. As we move into our next phase of retail expansion, we continue to focus on quality over quantity and are only adding premium and flagship stores in the right locations. We opened 5 new dispensaries in the quarter, including 2 in Pennsylvania, 1 in Illinois, a second location in New Jersey and our first adult-use store in Maine, followed by another opening in Wells, Maine, on July 23, bringing our total U.S. dispensary count to 108 as of today. During the remainder of 2021, we expect to open an additional 8 new Curaleaf retail dispensaries across Arizona, Florida, New Jersey and Pennsylvania. We have steadily gained market share in Florida, and we plan to build on this with new store openings and expect to have a total of 60 dispensaries in the state by the end of 2022. As we've mentioned in the past, we are also in the process of rebranding all of our dispensaries to reflect a more contemporary, but welcoming look, which we believe is relevant to our legacy medical patients as well as adult-use consumers. We expect the rebranding to be complete by the end of September. Our operating and financial metrics on the retail side were very positive with second quarter retail revenue growing 18% sequentially. Including both adult use and medical use, total number of transactions was up 17% during the second quarter. On the medical side of the business, the total number of patients continue to grow, expanding during the month of June by 7% from March while maintaining average order value. At the wholesale level, we grew the number of U.S. wholesale accounts by 9% during the second quarter to surpass 2,000 active accounts, which helped drive sequential revenue growth of approximately 24%. Our wholesale distribution platform is another of our pillars of sustainable competitive advantage. As a CPG-focused company, we continue to believe in the power of brands, and we continue to invest in a portfolio that reaches the widest array of cannabis consumers. This quarter, we introduced the Rolling Stone Select partnership in Nevada, and we launched the B Noble brand in Massachusetts and Maryland, leveraging strategic partnerships and relationships to drive Select and Curaleaf visibility and preference to new demographics. In terms of cultivation capacity, we began harvesting from our new cultivation centers in Florida, Arizona, Pennsylvania, Maine and New Jersey. With these expansions, we have now brought online nearly 250,000 square feet of our expected annual expansion of 275,000 square feet of flower canopy during the first half of the year. We expect to commission an additional 40,000 square feet in the second half. This additional capacity will not only serve as a catalyst for accelerated growth, but will also help improve our operating margins in the second half of the year. We are also in the process of building additional capacity that will be commissioned in 2022 in a number of key states, including New York, New Jersey, Connecticut, Florida and Pennsylvania. We are excited about our prospects for the balance of the year. For example, in Florida, we expect to continue gaining market share driven by the continued expansion of our cultivation and new store openings in the second half of the year. In New Jersey, our third dispensary will open imminently and our new cultivation site will help ramp up our wholesale business in the state. In Massachusetts, we expect that our wholesale business will continue to drive growth, and in Maryland, we are in the process of moving our dispensaries to superior locations and should benefit from a full quarter of a larger cultivation and processing site in the state. Moving on to product commercialization and research and development. We have a number of exciting initiatives underway. As we said in previous calls to investors, we are in the final stages of pilot testing our proprietary new extraction technology, which should substantially bring down our cost of production, which we expect to roll out in early 2022. This quarter, we will launch our improved Classic Gummy and Nano Gummy, utilizing innovative technology to provide consumers the ultimate choice and control over the way they enjoy their experience. Also, we continue to bring fresh innovation to the squeeze line, including our latest proprietary nanotechnology, which is even faster-acting than our current nanotechnology, along with new flavors to add variety to the line. We have also been working on developing innovation formulations and unique delivery technologies and exploring the potential benefits of other cannabinoids such as CBN, THCV and CBG through multiple clinical studies. We expect to bring products to market that incorporate these cannabinoids in the second half of 2021. In addition, we are actively developing many innovative products within the vape, concentrate or oral, ready-to-drink beverage and topical categories that will be launched in 2022. When we think of innovation, we think of terms of little innovation and big innovation. We've launched over 187 new products over the past 18 months, the majority of which were "little I". "Little I" are products that fill out our portfolio assortment across our footprint, improving flavor, texture and so forth. Squeeze was our first example of a "big I", where we developed proprietary technology and packaging to bring a new product to the market. Now that we have ramped up our research and development capabilities, our innovation funnel is full of exciting new technologies and form factors that will provide a steady stream of new products over the next 18 months. Moving on to our European operation, Curaleaf International. While still a small contributor to revenue, it continues making important strides. In the United Kingdom, we launched our second strain of medical cannabis flower to meet the significant growth in patient demand. We have witnessed a 250% increase in patient numbers in the U.K. since the launch of our first medical cannabis flower product in March of this year. Also, as announced in June, we entered into a strategic partnership in Germany with a pharmaceutical company called Zambon, a leader in the treatment of Parkinson's disease. We launched Yuvigo, a co-branded medical cannabis product manufactured by Curaleaf International in Spain and distributed throughout Germany. The product was recently adopted by 3 specialized pain clinics. In Spain, our pharma lab Medalchemy received additional EU GMP certification for the processing of medical cannabis flower. It can now manufacture and distribute medical cannabis products for commercialization and investigational purposes. Beyond Europe, we exported 1.1 tons of medical cannabis flower to Israel, only the second company to do so under the new regulation. The product has been very well received and is on track to being sold out by the end of August. Israel has over 100,000 patients currently and is adding a further 3,000 each month. Finally, Portugal and Malta are moving forward with their respective political processes around possible legalization of adult-use cannabis. Spain is moving forward with the discussion on the medical cannabis program and the French Supreme Court gave a very important judgment establishing the legality of CBD wellness products in France. I'd like to close with some important updates on other things we're doing as the industry leader in matters of social responsibility. In our initiative to do business with cannabis brands, ancillary suppliers and advocacy organizations from underrepresented communities, we ended the quarter with 63 partners. In addition, we launched our B Noble pre-rolls in July in Massachusetts and Maryland with a portion of sales dedicated to funding local organizations dedicated to advancing social equity and providing opportunities to those directly impacted by the war on drugs. On the environmental front, I'm pleased to share that Curaleaf has hired Map-Collective, a female-funded green tech start-up to complete an audit of our carbon footprint, and we have assembled a task force to evaluate strategies for becoming carbon neutral. Now let me turn the call over to Ranjan.

Thank you, Joe, and thank you, Boris, for a warm welcome, and good afternoon to everyone. As Boris and Joe mentioned, during the quarter, we achieved many financial milestones. Revenue reached a record $312 million, which represented sequential growth of 20% and year-over-year growth of 166%. We recorded retail revenue of $222 million, sequential growth of 18.4% and year-over-year growth of 235%. Retail revenue represented 71% of total revenue. Our strong sequential growth was primarily driven by new customer acquisition and increase in repeat customers. Additionally, we benefited from the opening of 5 new stores in selective locations and from increased e-commerce penetration. Wholesale revenue grew 23.7% sequentially and 168% year-over-year to $89 million and represented 29% of total revenue. This growth was driven by the addition of new accounts and an increase in sales productivity. Gross margin increased to approximately 50%, increasing 669 basis points year-on-year. On a sequential basis, gross margin increased 34 basis points. This was possible due to an increase in yields at the existing cultivation facilities and new state-of-art facilities coming online during the quarter. We expect to continue benefiting from these trends in the second half of the year. SG&A expense was $88 million or 28.2% of consolidated revenue, a 259 basis points reduction versus 30.8% in the first quarter. Looking solely at our U.S. business, SG&A was $81 million or 26.4% of revenue and even greater sequential reduction in SG&A of 435 basis points, as we work diligently to capture operating efficiencies across all business processes. Adjusted EBITDA reached $84.4 million, up 34.7% sequentially and 201% year-over-year, primarily driven by strong revenue growth and increased operating leverage. On a consolidated basis, adjusted EBITDA margin reached 27%, up 297 basis points sequentially. Our core U.S. business saw an even greater gain reaching an adjusted EBITDA margin of 28.1%, up 400 basis points sequentially. With regard to full year adjusted EBITDA margin for our U.S. business, we expect it to be in line with our prior guidance. In addition, Curaleaf International margins are expected to have slightly dilutive impact on consolidated margins, but we expect this impact to significantly decline in the fourth quarter. Provision for taxes in the second quarter was $42.6 million as compared to $30.7 million in the first quarter, primarily due to higher gross profit. Consolidated second quarter net loss allocated to Curaleaf was $7 million, which includes closing expenses and onetime charges related to the EMMAC transaction. The U.S. business second quarter net loss significantly decreased from $17 million in the first quarter to $1.8 million. We continue to maintain a strong balance sheet with cash and cash equivalents of $334 million, up from $315 million in the prior quarter. At the end of the second quarter, our outstanding debt net of unamortized debt discounts was $338 million. We plan to explore opportunities to refinance our debt facilities at the first opportunity in January '22, and we expect to bring down the cost of our debt. Net capital expenditures during the quarter were $41.9 million. Investments were focused on expanding cultivation and processing capacity as well as selectively increasing our retail presence in strategic markets. Capital expenditures for full year 2021 are expected to be approximately $140 million as we continue to invest in cultivation, processing and our retail footprint in order to prepare for continued strong revenue growth in '22 and beyond. In closing, we are pleased with our financial performance this quarter. On an organic basis, we delivered 18% sequential revenue growth and 400 basis points of adjusted EBITDA margin improvement. We expect this trend to continue in the coming quarters, which will help us drive operating cash flow in the second quarter of the year. Now let me turn the call back to Joe.

Thank you, Ranjan. In closing, I would like to thank the entire Curaleaf team for their continued focus on execution. We remain committed to growing our top line, expanding profitability, adding cultivation capacity and developing innovative new formulations and form factors backed by science and, as always, with a focus on creating shareholder value. With that, I'll turn the call back to the operator to open the line for questions.

[Operator Instructions] Our first question today comes from Pablo Zuanic with Cantor Fitzgerald.

Boris, I guess I have just one question first. You have spoken in the past of trying to get ready for interstate trade and you made that acquisition in Colorado. But at the same time, you are expanding capacity aggressively at the state level in the East. I think in the past, you've said that in the long term, cultivation east of the Mississippi may not be so economical in a market of interstate trade. So I'm just trying to put the 2 things together, right? You believe that by the midterms, we have a federal level reform, but I'm guessing you don't expect interstate trade there to happen, right? It could still be 4, 5 years out. So hence, you are expanding this. Can you just reconcile the 2 things?

Yes. I think, Pablo, you have it exactly right. We do anticipate to have significant reform by April of next year. However, we believe that's going to be more around safe banking, tax reform and social justice issues. We don't believe the federal government at this point in time is ready for full interstate commerce. I mean, it could happen. There's always a risk, but we don't believe that that's what's going to happen given that we're pretty close to the process and involved in it pretty intimately. That's where our thinking is at the moment. And given that we have incredible demand that's about to come up on the East Coast, I mean, New York, as we said in our report, New York, New Jersey, Connecticut, what we think will be soon, Pennsylvania and Maryland, all of whom represent about $11 million to $12 million -- $12 billion of potential market demand. We need to be prepared for that. So we are expanding in New Jersey. We've already expanded. We're expanding a bit more. We're expanding in New York. We're expanding in Connecticut. But the margins coming from those businesses are so great that we expect the payback on those growth facilities to be reasonably quickly. So we are preparing for those markets. We have to be able to supply those markets. We want to maintain our market share. And we also believe that the interstate commerce reform is unlikely to come in this next package.

And if I could just squeeze one quick one. Just an update in terms of the competitive landscape in Florida and Pennsylvania. In the case of Florida, we are hearing about some operators doing buy 1, get 1 free type of promotions for more than a week. In the case of Pennsylvania, some of the retailers there are telling me that they've been able to buy in mainstream and lower end of the flower market at lower prices, right, which means that there's some pressure there in terms of supply increasing faster than demand. Just quick color in terms of Florida and Pennsylvania competitive landscape.

Yes. So both of those markets are different in that -- well, they're similar in that they're both medical. They're different in that Florida has more cultivation capacity at this point and is more developed than Pennsylvania. We have not seen pricing pressures in Pennsylvania at this point in time. We feel that, that market continues to grow and continues to expand. However, even though Florida is growing, first of all, the summer months tend to be slower in Florida because a lot of people do leave the state, and they do come back in the fall. And we have seen some pricing pressures in Florida. However, we continue to see very robust EBITDA margins out of our Florida business. So it hasn't affected our margin at this point in time, but there's definitely competition for market share in Florida at this point in time. The 3 main operators, Trulieve, Curaleaf and AltMed and Surterra all seem to be competing for the top spot. So -- but I do think that, that isn't going to get out of hand in any way. And again, I want to reiterate the margins are still very strong.

Our next question comes from Vivien Azer with Cowen.

As you guys work on optimizing your cultivation and putting these new processes in place, can you just give us an update on how you're thinking about your gross margin progression from here? Obviously, very nice improvement in the gross margin in the quarter, but relative to some peers, there is an opportunity, and in particular, given kind of the novel approach to a more low-cost focused methodology. So any color over the medium term would be helpful.

Sure. Vivien, we are continuing to expand our gross margin. We anticipate meeting the targets that we outlined in the beginning of the year, which is a 30% EBITDA margin and about a 52% to 54% eventually gross margin. Right now, we're at just at 50%. One needs to remember that Curaleaf, unlike some of our competitors, has a much wider footprint. And now we have the European business. And so it's just taking us a little bit longer to get there, but the sheer size and growth of the business really compensates for that. And so in the end of the day, I've always stipulated that for me, growth is a priority. I believe that getting our brands out there on a both national and global basis is very important. But we are very, very comfortable that we will be operating at a 30-plus percent EBITDA margin next year throughout the year.

Understood. And Joe, my follow-up is for you, please. I believe I heard you say you're targeting 60 dispensaries in Florida by the end of 2022. You also commented on new door additions in the back half in 2021. Can you just offer any more color on kind of the phasing, the bridging gap. I believe you have 37 doors in Florida today.

Yes. I think, as I mentioned on my prerecorded comments, we've really started to focus on quality as well as quantity of new store openings in Florida. As we've already alluded to on this call, it's getting more competitive. And we want to make sure that we're preparing ourselves to compete as effectively as possible, and that includes higher-quality products, greater volume of product, but also our locations of our retail stores. So we expect to open somewhere between 4 and 6 new stores this year in Florida, and then the balance of those would be in 2022.

Next question comes from Camilo Lyon with BTIG.

So Boris, it's great to see the 20% quarter, very strong, indeed. You kept the full year revenue guidance intact. Anything you can help us -- any color you can give us to help us understand the cadence between Q3 and Q4, how that should unfold, and how your cultivation projects will come online to catalyze the differences between Q3 and Q4?

Yes. I mean, we anticipate continued strong growth into Q3 and Q4. I mean, historically, everybody knows that Q4 is Croptober. There's always pressure on the cannabis market, with illicit cannabis coming out of mainly California and Oregon. And so we're always a little bit careful to make sure that we don't overestimate what we can do. Also, there's 1 more factor, and that is the issue of New York. We just don't know when the whole flower's going to drop, whether it's going to drop in September, whether it's going to drop in the fourth quarter. We did think that it would get signed. We were told by New York authorities that it would get signed in early August, late July. It didn't. Obviously, I think, we all understand why. It's on the governor's desk but the governor has got other issues to deal with at the moment. So cannabis is probably not number one. But as we said on the call earlier, it's not a question of if, it's a question of when, because it is codified in law. So we will get whole flower. And whole flower obviously is going to be a big number for Curaleaf, given that we're the largest supplier of flower in New York on the wholesale market as well as to our own stores. So we're just trying to be a little bit careful on how the fourth quarter -- third and fourth quarters work out, but we're very confident in the organic growth, which is why we guided in the beginning of the year between $1.2 billion and $1.3 billion of revenue, and we're very comfortable to say that we believe that we will definitely meet the midpoint on our base U.S. business, obviously, with our European business being on top of that. And we're just trying to be conservative regarding where we come out on some of the factors that I raised. Otherwise, we still continue to see it. And in terms of cultivation, we've got a lot of new cultivation coming online, some of which is coming online, to be honest, in the third quarter, which really doesn't really start harvesting properly until December. And so there's a question about how much of that cultivation will actually hit the market in the fourth quarter versus first quarter of '22. Obviously, we've all recognized the fact that the supply chain has got some stress in it globally. And so some of the cultivation projects are obviously slightly held back, although I have to say the team at Curaleaf have done a great job and none of them are delayed more than sort of a month. But that 1 month does change the picture in terms of the amount of flower that would come out of those facilities this year versus January of next year. So that's why we guided in the middle of the range. We're just trying to be cautious to make sure that we understand that we definitely can meet the numbers that we're outlining. That's why we came in there.

That's perfect. And then going back to the question I had asked earlier around your margins. I think last quarter, you kind of gave high-level margins progression for your more established markets and the more nascent markets. Has anything changed on the established market grouping in terms of those margins that you're seeing? It seems like it's the younger, more nascent markets are the ones that are starting to catch up. I just wanted to make sure that there wasn't anything that we were missing.

No, we haven't seen any kind of pressure in our more established markets. We still can see robust growth. As a matter of fact, we had margin expansion in states like New York and New Jersey, which are markets that we've had for some time. And the smaller markets -- as we bring on the cultivation, we just brought on a major cultivation facility in Arizona. That's going to obviously expand our margin as we start to sell our own flower through our stores rather than keystoning in flower from other growers. And so that's going to help margins as well. And as I think Joe said, we just brought on a large facility, 2 facilities this year, 2 50,000 square foot canopy facilities in Florida, one that's already harvesting now and one that will be harvesting in the late fourth quarter. So all of those things will continue to add to margin. We have a new facility coming online in Pennsylvania. And in Illinois, also in the third quarter, that we'll be harvesting sometime in the fourth quarter. So all of these facilities should add to margin expansion into late fourth quarter, early first quarter of '22.

Our next question comes from Andrew Partheniou with Stifel GMP.

Congrats on the great quarter. You guys have a pretty unique footprint, being the only one with a real national presence in so many different states. And one of the advantages is some interesting insights on the consumer level. I'm wondering, with COVID coming back or rather restrictions easing and life coming back to normal, could you talk a little bit about what you're seeing in terms of consumer behavior, whether it's consumption or purchasing behavior? Any high-level comments could be useful to kind of understand the trends -- going into COVID, there was increased consumption and people were devoting more of their wallet share to cannabis, and kind of looking forward, what do you expect?

Listen, I think that COVID was obviously very good for cannabis. It widened the customer base, both on the wellness side as well as in the adult-use side. You definitely had some increased demand during the peak of the original COVID flare-up that we had in 2020. We definitely saw -- and I think the BDS Analytics shows that we definitely saw 10 top states that BDS covers have a slowdown between -- from -- in May and June. If you look at the most recent numbers that have come out, you'll see that 10 of their states showed a slight decrease in sales. We don't think that that's a demand issue, a long-term demand trend. We think that, that -- or too much competition. We think that was a share of wallet. People were cooped up in their homes for over a year, and they started to venture out. They were going on vacations, they were traveling abroad. And so people are moving around between states, so they couldn't use their cards on vacations. And so we definitely saw a little bit of a change in habit, but nothing dramatic, just a little bit of softness. And we think we've seen some green shoots in July. Illinois reported early numbers that showed a substantial increase in July. We'd like to see some of the other numbers before we can make a definitive view. But Curaleaf's view is that going into September and the fourth quarter, we should, as people start to come back home and go back to work, assuming the delta variant doesn't flare up beyond sort of what happened in Europe, we think that demand should start to pick up again for cannabis products and normalize into late third, into the fourth quarter. Obviously, if we get hit by a substantial COVID or, God forbid, another lockdown, that potentially could actually reflect very, very positively because we could get the same kind of reaction that we got in 2020. So overall, we remain very positive. Back in May when I mentioned publicly that we saw a slowdown, we just felt that it's important to be transparent with the market, and we were proved to be right because the official statistics did show a slowdown in demand in all the key states around the country, and Curaleaf being the only operator that can actually reflect and see 23 states across the country was an early barometer of what then BDS was able to confirm. But as you can see, it did not reflect in our numbers. We were still able to meet our guidance in the second quarter, and we continue to feel that we're going to meet our guidance for the year.