Sometimes, the best opportunities can be hidden in plain view. Curaleaf Holdings’ (TSX:CURA) and (OTCQX CURLF) biggest markets were completely overlooked by the company.
Boris Jordan, the chairman and CEO of the company who took over the role as CEO last August, shared his findings from his evaluation during this week’s earnings call.
“In two of our largest markets – $200 plus million revenue markets- we were largely absent in that category,” Jordan told analysts. It was an oversight by the previous team.
Jordan stated that the premium segment has the highest profit margins for cannabis retail. He added that these high-end products are expected to account for between 20% and 25% of revenues in major markets. New premium offerings will be available in early April.
Jordan explained that upgrading our flower offerings with proprietary and new strains would have far-reaching effects on our entire business. This is the area where I believe there are the most opportunities to grow our business profitably in spite of the price headwinds.
Jordan said that Curaleaf had been successful in its value-flower brands, such as “Find,” which is now the fourth most popular brand within their portfolio. The focus on low-priced products created “an unbalance” and left the company with inadequate representation in the high-end category.
In 2024, the company upgraded its most important growing areas with lighting systems, automated humidity controls and automation. Jordan said that these investments increased average yields of cannabis per square feet by 19%, while also improving potency, density, and bud structures.
Curaleaf is excited about hemp-derived THC beverage alternatives to cannabis. More than 100 Total wine locations in nine different states already sell its drinks, including Florida and Texas. As an exclusive THC drink provider, the company is also in partnership with Austin City Limits Music Festival.
Jordan said hemp-derived drinks were “the fastest-growing segment of beverage”, which has “even surpassed non-alcoholic” alternatives. In the coming two weeks, Formula X will be released, a THC-caffeinated drink aimed primarily at sports enthusiasts, gamers and festival goers.
Jordan, despite his enthusiasm for hemp markets, remained cautious about their regulatory future after the Farm Bill Extension expires in this year.
He stated, “We have a cautiously optimist view of the situation right now.” We don’t yet know what will happen. We have to wait and see what happens in the political process.
Jordan predicts that while hemp beverages may continue to be permitted, other hemp products, such as those with synthetic cannabinoids might not. He said that hemp products account for between 5% and 10% of distributors’ business.
The company has decided to focus more on organic growth for hemp-based beverages than it does on acquisitions, at least until the regulations are clearer. This is a path that other companies are also taking.
Jordan said that “committing capital at a time when we do not have a farm bill finalized is probably the worst thing to do.”
In either case, the management hopes to combat industry-wide pressures on prices that have affected companies in cannabis across the nation. Jordan stated that “advertising prices will be compressed by an average of 14 percent across the industry” in 2024. The pressure is “most noticeable in Pennsylvania, Illinois and New Jersey, our largest markets.”