Boris Jordan, chairman of Curaleaf Holdings CURLF, participated in a fireside chat with Pablo Zuanic, senior analyst to discuss Curaleaf's strategic initiatives in Europe and the hemp derivatives market.
European Market Leadership
Jordan noted that Curaleaf anticipated European market's potential three years ago and strategically capitalized on its growth, especially in Germany.
"Germany is running ahead of our expectations for the first quarter. We are now about 40% above our internal targets for the second quarter. We're on a run rate of between $100 and $120 million for the year,” Jordan stated, predicting substantial growth in the coming quarters.
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Jordan noted Curaleaf's strategy to balance supply by maintaining 50% of their product and sourcing the remaining 50% from other suppliers.
This approach helps manage price fluctuations and ensures a diverse product range, from Portugal and Canada.
"Most operators in Germany and Europe, including other wholesalers, operate at single-digit gross margins. Curaleaf, however, achieves close to a 40% gross margin due to our vertical integration, full supply chain control, and strong ground-level relationships," Jordan said.
Four 20 Pharma And NGC Integration
In 2022, Curaleaf acquired a 55% stake in Four 20 Pharma GmbH, a fully EU-GMP & GDP licensed German producer and distributor of medical cannabis. Curaleaf plans to develop the remaining shares by the end of next year.
Jordan praised the entrepreneurial skills of Four 20 Pharma's founders and the synergy between the companies.
The acquisition of NGC also strategically boosted Curaleaf's margins by eliminating intermediary costs.
“420 Pharma was buying almost 100% of their capacity through NGC. Most of the NGC capacity was going to Germany through Four 20 Pharma. When we bought Four 20 Pharma, we realized we were paying NGC a 25 to 30% margin for buying, repackaging, and reselling their product under our European brand. We questioned why we were financing this company and paying that margin, so we decided to buy them,” Jordan explained.
“This mutual agreement allowed us to increase our margins dramatically. We now control a fully GMP-certified indoor facility that can export to Europe, acquired at a discounted price. The timing and price were very good, and it made strategic sense to do it."
Hemp Derivatives Market Entry
Jordan revealed that Curaleaf had considered the hemp derivatives market three years ago but faced internal resistance and high supply chain costs. Recent developments allowed them to compete effectively, leading to the launch of seltzers and gummies.
"If you look at existing markets, growth is reasonably flat because the regulated market serves long-time users. Hemp has opened new markets with broader product distribution, pressuring the regulated market. We must be in this market as it's a major hedge and brand expansion," Jordan said.
"We decided to build our brands ourselves since we have the infrastructure and no barriers to entry. Select is one of the most recognized brands, and distributors prefer a regulated brand with a good safety reputation. We're also considering low-dose products like hemp cigarettes and microdose products."
U.S. Market Expansion
Jordan also discussed Curaleaf's plans in Ohio, Pennsylvania and Florida. In Florida, Curaleaf aims to have 85 stores operational by the time adult-use legislation potentially passes, with significant cultivation capacity ready to meet demand.
In Ohio, Curaleaf plans to open eight stores within a year, leveraging its strong wholesale business. In Pennsylvania, they are prepared for substantial growth with existing and expandable cultivation facilities.
“In Pennsylvania, we have more than enough capacity to meet the demand. It's one of our best markets, it is one state where we could expand further on the retail side," Jordan told Zuanic.
He also touched on the bigger picture: rescheduling cannabis.
"We'll see what happens in the U.S. with rescheduling and make decisions based on that. We have a call option on our local partner, and over the next six months, we aim to consolidate to 100% ownership in our European business. If we don't get Schedule III, we can spin out the European business and list it on a major exchange or bring in a partner. Europe is just turning cash flow positive, which is very exciting, and we're focused on that."