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

Good day, and welcome to the Curaleaf Holdings, Inc. Second Quarter 2026 Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Camilo Lyon, Chief Investment Officer. Please go ahead.

Good afternoon, everyone, and welcome to Curaleaf Holdings Second Quarter 2026 Conference Call. Today, I'm joined by Chairman and Chief Executive Officer, Boris Jordan; President, Rahul Pinto; and Chief Financial Officer, Ed Kremer. Before we begin, I'd like to remind everyone 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 on certain 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 release on SEDAR and EDGAR. During today's conference call, in order to provide greater transparency regarding Curaleaf's operating performance, we will refer to certain non-GAAP financial measures and non-GAAP financial ratios that involve adjustments to GAAP results. Such non-GAAP measures and ratios do not have a standardized meaning under U.S. GAAP. Any non-GAAP financial measures presented should not be considered to be an alternative to financial measures required by U.S. GAAP, should not be considered measures of Curaleaf's liquidity and are unlikely to be comparable to non-GAAP financial measures provided by other companies. Any non-GAAP financial measures referenced on this call are reconciled to the most directly comparable U.S. GAAP financial measures under the heading Reconciliation of Non-GAAP Financial Measures in our earnings press release issued today and available on our Investor Relations website at ir.curaleaf.com. With that, I'll turn the call over to Chairman and CEO, Boris Jordan. Boris?

Thank you, Camilo. Good morning, everyone, and thank you for joining us to discuss our second quarter results. This earnings call marks my 2-year anniversary as CEO, making it an appropriate moment to reflect on the progress we have made. When I stepped into the role, our priorities were clear: stabilize the business, improve margins and cash flow, sharpen execution and rebuild the foundation for durable growth. Simply put, I wanted excellence to become our operating standard across Curaleaf. That was the purpose of our Return to Our Roots strategy. Over the first 18 months, that work has delivered meaningful results: stronger cultivation economics, improved flower quality and consistency, tighter merchandising discipline, greater operational efficiency and a more focused organization. With that foundation substantially reset, we have moved from stabilization to acceleration. In March, we introduced Built for Growth, a disciplined framework focused on customer centricity, brand building, operational excellence, sustainable organic growth, international expansion and value-accretive opportunities as industry conditions improve. Our second quarter results reinforce that this strategy is gaining traction across the business. We have a strong cohesive team aligned around one common goal: making Curaleaf the global leader in cannabis. While there is still work ahead and significant opportunity to capture, we are firmly on the right path with the team, strategy and operating discipline to lead the next phase of cannabis. Last quarter, I spoke to our operational -- I spoke of our operational execution enhanced by tailwinds, specifically regulatory progress and an improving macro backdrop that's driving a market reset. This was the case in the second quarter as the team's disciplined execution drove revenue of $340 million, organic growth of 10% compared to last year, once again surpassing our guidance and internal projections. Our domestic and international segments grew 7% and 26% year-over-year respectively, as we continue to leverage the operational improvements made over the last 24 months. Gross margin was 50% and adjusted EBITDA was $70 million, representing a 21% margin despite a 140 basis point drag from international, consistent with an emerging business and a nascent growth curve. Net income from continuing operations was $12.5 million compared to a net loss of $48 million last year. We ended the quarter with $107 million on the balance sheet. Overall, I'm encouraged by the momentum we are seeing across our markets and our business, and I believe we are well positioned for the second half. Our U.S. business was clearly -- has clearly regained momentum. This was our second consecutive quarter of year-over-year growth followed -- following a period of sales compression, an important proof point that our reset is taking hold in a durable way. We achieved this while also expanding gross margin. The foundational work we have done on our largest and most profitable geography is now visible across the business: higher quality flower averaging 31% potency, improving cultivation yields, tighter in-store assortment and stronger execution at the market level. With those building blocks in place, we are now focused on the next phase of our Built for Growth strategy: customer centricity, operational excellence and brand building, all supported by an efficiency mindset. Rahul will speak to each of these priorities in greater detail, but the key point is that our U.S. platform is no longer just stabilizing. It is beginning to scale with greater consistency and discipline. In addition to the organic growth we are generating across the existing footprint that should be boosted by the hemp loophole closing, we continue to evaluate new state opportunities that can provide another leg of domestic growth, including Georgia, Texas and Virginia. I'm also encouraged by the potential for South Carolina and Wisconsin to advance the medical cannabis programs in their next legislative sessions in early 2027. When we combine the momentum we are seeing in the core business with the potential for selective acquisitions and new market expansion, the domestic growth outlook is increasingly compelling. Curaleaf International delivered another strong quarter with revenue growing 26% year-over-year, led by the U.K., Germany and Poland despite ongoing third-party supply volatility. In the U.K., growth was driven by continued expansion in clinic patient counts and strong wholesale demand for Curaleaf flower and non-flower form factors, including oils, vapes and pastilles. We also successfully launched our Huala value brand in both flower and vape formats, expanding access for patients while reinforcing our ability to serve multiple price points in the medical market. In Germany, sales growth was supported by strong demand for our QMID inhalation device as well as our Huala and Curaleaf branded flower strains. QMID has gained meaningful early traction since its launch last year, and we are evaluating opportunities to expand the platform into live resin and rosin formats. At the same time, we are closely monitoring price compression in Germany, particularly at the lower end of the pricing spectrum, and we remain disciplined in protecting margin rather than chasing volume at uneconomic price points. In April, we also completed the buyout of the remaining 45% minority interest in Four 20 Pharma, bringing Curaleaf International to 100% ownership. This gives us full strategic and economic control of the platform at a time when Europe is becoming an increasingly important growth vector for the company. On the regulatory front, we are encouraged by early signs that German regulators are beginning to a take more proactive stance on enforcement against non-EU GMP product. Too much lower quality or noncompliant product has entered Europe through channels that circumvent regulations designed to protect patients. Stronger enforcement protects patient interest and should help create a healthier, more compliant market structure, one that benefits operators like Curaleaf that have invested in quality, consistency and regulatory discipline. Looking ahead, we believe Spain, France and Turkey represent 3 of the most important new medical cannabis opportunities in Europe and the broader international market. These countries are advancing toward their respective medical program launches and together represent more than 200 million people, roughly equivalent to the population of 10 Floridas. In Spain, a market of 48 million people, Curaleaf became the first company to receive approvals for 2 cannabis medicines last month. We have already received order indication from Spanish pharmacies and expect to begin shipping imminently. In France, a market of 69 million people, we are working to establish a partnership with a leading pharmaceutical company for distribution. Similar to Spain, the French market is expected to begin with approved oil-based medicines sold through hospital pharmacies. In Turkey, a market of 87 million people, final program rules are expected by the end of the summer with the program anticipated to launch in 2027. Taken together, these developments reinforce our conviction that Curaleaf International is one of the most compelling growth platforms in global cannabis and our most distinct competitive differentiator. We are building a scaled compliant and medically focused business across large markets that remain in the early innings of adoption. And while we believe the coming years represent a significant growth opportunity for our international segment. Turning to the regulatory tailwind. April marked a defining moment for U.S. cannabis industry as the Department of Justice moved state-regulated medical cannabis and FDA-approved cannabis products to Schedule III under the Controlled Substances Act. This was the most consequential shift in federal cannabis policy in more than 5 decades and an important federal acknowledgment that medical cannabis has a legitimate and enduring role within the U.S. healthcare system. Last month, the second phase of the rescheduling addressing adult-use cannabis began with the ALJ process, which concluded on July 15. Thus far, the process has proceeded according to a fast-paced schedule. While there remain procedural steps before a final rule is issued, our view that adult-use cannabis could be rescheduled by year-end and possibly before the midterm is unchanged. Rescheduling would set off a new chain of events, including a potential uplisting to a major exchange. We have been in close and constant communication with the U.S. exchanges, and we are prepared to uplist the entire company rather than deconsolidate adult-use once cannabis rescheduling is made effective. In addition, we expect greater clarity on the retroactive treatment of 280E taxes as well as guidance from FinCEN that we believe will direct financial service providers to treat legal cannabis operators like all other Schedule III businesses. That should improve access to traditional financial services such as credit cards in our dispensaries. Longer term, we are also assessing a world in which exports and interstate commerce are permitted. We believe exports could begin within 12 to 18 months, reflecting the time required to stand up the EU GMP-ready facilities domestically. That would allow us to leverage the infrastructure we have built in the U.S. and Europe to create a meaningful advantage as we optimize our established value chain from seed to patient. Interstate commerce could also materialize once the proper infrastructure is instituted by the DEA. However, the time line to materialize will likely be longer than exports. Despite efforts by many to extend the hemp loophole permanently, based on our discussions with numerous legislators, we believe that inhalables and edibles will be removed from the market when the pending hemp shutdown takes effect later this year. This should be a significant macro tailwind for the regulated cannabis industry when the roughly $25 billion unregulated competitor is expected to be forced offline. We believe the regulated industry is already beginning to see early traffic benefits as states move ahead of the federal change, prompting hemp consumers to migrate back to the dispensary channel. As more consumers turn to licensed dispensaries to replace hemp-derived products, we see a credible path towards pricing stabilization in 2027 that could yield a return to double-digit industry growth. Taking a step further, if demand shifts faster than supply can respond, the regulated market could enter a period of tighter supply, creating an even stronger 2027 growth algorithm driven by both traffic gains and positive pricing growth. Equally encouraging, we are seeing stronger enforcement activity by federal agencies against illicit operators in key markets such as Oklahoma, California and Maine, 3 states that are hotbeds for illicit cannabis activity impacting the entire U.S. market. Removing illicit supply from the market should further support demand in the regulated channel and reinforce our view that 2027 is setting up to be a resurgent year for legal cannabis. For Curaleaf, these tailwinds bolster the strategy we have pursued for years: investing in quality, consistency, regulatory discipline and a national platform capable of serving both medical and adult-use consumers as the market continues to evolve. We believe that combination positions Curaleaf to lead as the industry becomes more regulated, more competitive and more global. Before I close, I want to thank every Curaleaf team member for the focus, resilience and execution that made this quarter possible. Over the past 2 years, we have asked a great deal of this organization and our people have responded with discipline, urgency, and a shared commitment to building Curaleaf into the global leader in cannabis. I'm grateful for their hard work, proud of our progress and excited about the opportunities ahead. With that, I'll turn the call over to our President, Rahul Pinto, to discuss our domestic highlights. Rahul?

Thank you, Boris. The pillars of our Built for Growth strategy that we introduced last quarter, customer centricity, brand building and operational excellence, are now clearly translating into domestic results. In the second quarter, our domestic business grew 7% year-over-year, representing an impressive 500 basis point sequential acceleration from the first quarter. Growth was broad-based with Ohio, Utah, New York, Florida and Maryland, each delivering double-digit growth. That breadth is important. It shows the progress we are making is not dependent on one market or one initiative, but rather reflects stronger execution across the platform. Even as retail price compression remains a factor, the rate of compression is beginning to moderate in several markets, and we are staying disciplined, improving mix, elevating product quality and growing without sacrificing margin. Let me unpack those 3 pillars with a few real-time examples. First is customer centricity. At retail, our teams continue to improve the customer experience, sharpen assortments and use data more effectively to match product, pricing and promotion to local market demand. One example this quarter was the launch of a Spanish language experience to our website, app and kiosks, recognizing that the Latino community has been historically underserved in many of our markets. Meeting customers where they are in language, product offering, price point and experience is essential to building trust, loyalty and enduring relationships. Second, our brand-building progress is also showing up in market share. According to Hoodie Analytics, our brand portfolio continues to hold a top market share position, underscoring the strength of our scale platform and the increasing relevance of our portfolio across key markets. Select continues to be the #1 vape brand across our markets, while Anthem-infused pre-rolls reached the #2 market share position in Illinois and #5 overall across its operating markets. These are important proof points that our focus on assortment, innovation and brand architecture is translating into stronger consumer relevance and competitive momentum. Product innovation remains a key driver of that brand-building strategy. We continue to build momentum behind our differentiated platforms, including Dark Heart and Briq 2, while expanding offerings that meet consumers across formats, occasions and price points. This is the type of disciplined innovation we want to scale, products that are relevant to consumers, supported by operational capabilities and accretive to the strength and consistency of the Curaleaf portfolio. Third, operational excellence was evident through Q2 as our retail team seamlessly serviced a 10% increase in transactions across the network, more than offsetting a 3.9% decline in average unit retail pricing, delivering 4% year-over-year revenue growth. That traffic growth was not coincidental. The states with the strongest transaction gains were also among our strongest overall performers, reinforcing the direct connection between local execution, customer engagement and revenue growth as we drive national scale with local nuance. We also continue to expand access and convenience for our customers, opening 2 new dispensaries in Florida during the quarter, bringing our Florida footprint to 73 stores and our nationwide footprint to 174 operated and managed locations. Wholesale was another standout contributor to the quarter, with branded sales growing 28% year-over-year, a clear indication that demand for our portfolio is strengthening beyond our own retail footprint. That performance reflects better cultivation output, more consistent flower quality, sharper commercial execution and a brand architecture that is resonating with both consumers and third-party partners. As we continue to raise product quality and bring more discipline to how we segment, price and support our brands, wholesale is becoming a more powerful channel for expanding share, increasing brand visibility and reinforcing Curaleaf's position as one of the most trusted scaled operators in cannabis. Underpinning each of these pillars is an efficiency mindset that allows us to invest behind growth while maintaining discipline across the cost structure. We are continuing to take costs out of the system, simplify how we operate and redeploy resources towards the highest return opportunities. The goal is not simply to be leaner. It is to build a more agile, scalable business that can drive sales, expand margin and produce greater operating leverage as revenue grows. Taken together, the second quarter demonstrated the power of our domestic platform when strong local execution is paired with a clearer operating model. We are driving traffic, improving assortment, strengthening brands and staying disciplined on margin. There is still work ahead, but the domestic business exited the quarter with better momentum, stronger execution and a more scalable foundation for growth in the second half of the year. With that, I'll turn the call over to our CFO, Ed Kremer. Ed?

Thanks, Rahul. Total revenue for the second quarter was $340 million, a 5% sequential increase compared to the first quarter and increased 10% organically compared to the same period last year. Strength in Ohio, Curaleaf International, Utah, New York and Florida was partially offset by declines in Arizona and Illinois. Our domestic segment grew 7% year-over-year, with retail growing 4%, complemented by 20% year-over-year growth in domestic wholesale. International revenue grew 26% year-over-year, driven primarily by Germany, the U.K. and Poland. Total retail revenue was $241 million, an increase of 5% compared to the second quarter of 2025, while strength in total wholesale increased 21% year-over-year to $96 million, representing 28% of total revenue. The growth in wholesale was driven by strong performance in New York, Ohio, Maryland and robust growth in Curaleaf International. Our second quarter gross profit was $170 million, resulting in a 50% gross margin, an increase of 170 basis points compared to the prior year period. The primary drivers of this expansion were continued cultivation efficiency gains and disciplined labor expense controls in our cultivation facilities, higher vertical mix and third-party margins, partially offset by faster growth of lower-margin international and slightly lower domestic wholesale margins. Our domestic gross margin was 51%, an increase of 170 basis points compared to the first quarter. As we saw last quarter, the rate of price compression continued to moderate in certain markets during the second quarter. At the same time, our operations team continued to raise the ceiling on cultivation productivity, quality and efficiency, creating a more durable foundation for margin expansion. Importantly, our pricing initiatives are still in the early stages, and we believe there remains meaningful runway to improve price realization, optimize mix and drive additional margin upside over time. International gross margin was 42%, a decrease of 20 basis points sequentially, driven by price compression in Germany and foreign currency translation, partially offset by stronger capacity utilization in Spain and an improved mix of value to premium. SG&A expenses were $132 million in the second quarter, an increase of $20 million from the year ago period. Core SG&A was $115 million, an increase of $15 million from the prior year. The year-over-year increase in our core SG&A primarily reflects higher bonus accruals due to operational outperformance, international expansion, additional headcount and new store openings in Florida and Ohio. Core SG&A was 34% of revenue in the second quarter, a 200 basis point increase compared to the prior year. For the remainder of 2026, we have instituted a series of cost initiatives that will drive expense leverage in the back half of the year. Second quarter adjusted EBITDA was $70 million, an increase of 3% compared to last year, while adjusted EBITDA margin was 21%, inclusive of a 140 basis point drag from international. Second quarter net income from continuing operations was $12.5 million, or $0.05 per share, compared to a net loss of $48 million or a loss of $0.24 per share in the prior year period. We recorded an income tax benefit of $38.8 million in the quarter. This reflects, among other items, the April 23rd reclassification of medical cannabis to Schedule III, as our medical business is federally legal and no longer subject to Section 280E, which reduces the cash taxes we pay, and a reassessment of our deferred tax assets and valuation allowances, which resulted in a noncash benefit. Going forward, 280E will only apply to our adult-use business. We repurchased and retired a total of 1.01 million shares during the 6 months ended June 30, 2026, for a total of $7.4 million. Now turning over to our balance sheet and cash flow. We ended the quarter with cash and cash equivalents of $107 million. Inventory increased $22 million or 10% compared to the second quarter of last year. This compares to 10% sales growth in the same period and is reflective of healthy inventory levels. Domestic inventory grew 4% year-over-year, while international inventory grew 50%, largely due to the lumpiness and timing of third-party deliveries. Capital expenditures in the second quarter were $16 million. And for 2026, we continue to expect capital expenditures to be approximately $80 million. We generated second quarter operating and free cash flow from continuing operations of $29 million and $13 million, respectively. We expect operating cash to continue building in the back half of the year, consistent with the cadence of our business. In June, we completed a 1-for-3 reverse split, an important step in advancing our preparedness for potential uplisting to a major U.S. exchange. We also received shareholder approval at our Annual General Meeting to redomicile the company from Canada to the United States. As a U.S. filer, now reporting in accordance with the SEC requirements, we have significantly streamlined the path to completing the redomicile and are positioned to move quickly when market conditions and other relevant factors make the timing appropriate. Now on to our outlook. We continue experiencing strong increase in traffic due to the many initiatives we have in place. However, we are mindful of the global macro volatility, higher energy costs and potential for rising interest rates that could impact the overall health of our consumer and trim demand. Taking these factors into account, coupled with seasonality of 2 of our biggest states, Florida and Arizona, we expect total revenue for the third quarter to increase low single digits sequentially from the second quarter, which at the midpoint implies approximately $347 million. And with that, I'll turn the call back over to the operator to open the line for questions.

[Operator Instructions] The first question comes from Bill Kirk with ROTH Capital Partners.

Boris, you talked about third-party supply volatility when selling into international markets. So what can your relationship with Cannara Biotech do to help remove that volatility? Or what other ways can you improve sourcing? And what does international look like if you can remove those sourcing limitations?

Thank you, Bill, for the question. That's one of our biggest issues right now in our international business is supply chain. And I think it's not only for Curaleaf, it's for almost all operators, at least those operating in the regulated markets. And one of the problems is failed product and inconsistency of delivery of that product on time so that we can supply our customers and our pharmacies around the globe. And so we are looking at better ways to do it. We are working with -- first of all, diversifying the amount of people we work with. So we don't depend on any one flower provider. So today, we provide about 20% of our supply comes from our own facilities. We'd like to increase that to somewhere between 50% and 75%, and we intend to do that over the next 6 to 12 months. And for the balance, we're going to use people like Cannara, people like Village Farms and many other operators on the globe in order to supply those products. Now the most important thing is to make sure that they're supplied at the right price, the right quality and so that they're using generics that are attractive to our customers. And so several things will happen. One is by vertically integrating and getting our footprint to a 50% to 75% vertical, we will increase margins quite substantially in our European business because margins are much better. Secondly, we will bring down the amount of inventory we have to carry because today, because of a problem in supply chain, we have to carry more inventory than we would carry in normal situations. So our cash conversion will also come down from about 120 days to less than 60 days. So all of these things will dramatically improve the quality of our supply chain, and it's something that we're going to be working on and are working on intensely here between the next 6 to 12 months.

And if I could switch to the U.S. In the last few months, it seems like some of your larger MSO competitors got a little more aggressive on price in some of their top market share states. Now they're not always some of your largest states, but in their top market share states, some of the larger guys seem to have gotten more price competitive. Do you share this observation? And why do you think before some of these demand catalysts, the market share leaders would be the ones pushing price lower in some states?

Well, I think it's something to do with historical situation around inventory as well. A lot of the companies are rightsizing their inventories right now for aging inventory. As you know, there's an aging inventory barrier in all of these states from the regulators. And so people are trying to bring those things in below. So that's what we're seeing. Also, obviously, continued proliferation of hemp, continued proliferation of illicit product is definitely impacting the market. Also, a lot of our competitors run what we call an open growth sort of strategy where they plant fully. We tend to only plant to our demand plans. We have demand plans out 12 months. 9 months is very certain. And so we grow out to plan for that demand. So we should actually come up short. I'd rather come up a little bit short of product than end up being long product. I think a lot of our competitors are now rightsizing that and moving potentially to a similar model that we use, which is growing only to our specific demand plan.

The next question is from Aaron Grey with Alliance Global Partners.

First one is regarding the potential hemp lift. Given your broad footprint, can you speak to what markets you believe are best positioned to benefit from the pending intoxicating hemp ban? And are there some initiatives or on-the-ground marketing you can do as we approach November to better make consumers aware of the legal cannabis offerings to ensure you capture that demand?

Yes. So very good question. I think that the way to address it is, let's be completely honest, hemp is everywhere in every market. You can't go anywhere without bumping into hemp products across the whole country. Even in states that don't have regulated cannabis programs, you're going to have hemp. As a matter of fact, in some of those states, you have larger hemp markets than you do in regulated cannabis states. So it's going to have an impact across the board. I've been quite vocal on this for over a year, but I think that organic growth for the industry next year could be somewhere between 10% to 15% on the back of the inhalable hemp shutdown, which we anticipate will happen, even though there's been a lot of chatter, and I think it's one of the reasons the market is sold off today, about the fact that there's a risk of extension. We believe there's virtually 0 risk of that extension, extension beyond what I would say, the December 11th timetable. That still is not certain either. I'm not going to get into whether that happens or not. I think that's a small point, but I do think they're giving people time to get products off the shelf. I also think that what's happening is the alcohol industry is trying to get some level of approval for beverage to get across the Congress, and they would like to have some more time. So I think there's a lot of drivers. But I can tell you one thing, we do not anticipate that inhalable products, and we've received this -- I want to be firm -- from many, many senators that I've personally spoken to over the last several days, there will be no extension, particularly from the Republican side, beyond the December 11th timetable if such a thing happens at all. And we still have to wait and see.

Appreciate that color there. Second question for me. Just as we think about the EBITDA margin profile over maybe the medium term, I know during different parts over the years, you focused a little bit more on growth, more profitability. So how should we think about over the next year or 2, the evolution of the EBITDA margin profile as you look to focus and balance that growth and profitability?