Sometimes the biggest opportunities are hiding in plain sight. For Curaleaf Holdings (TSX: CURA) (OTCQX: CURLF), that meant discovering it had completely missed the premium flower market in two of its largest territories.
During this week’s fourth-quarter earnings call, chairman and CEO Boris Jordan shared the revelation from his review after stepping into the CEO role last August.
“In two of our largest markets – $200 plus million revenue markets- we were largely absent in that category,” Jordan told analysts. “That was a miss in the previous team.”
The premium segment offers the best profit margins in cannabis retail, Jordan said, adding that those high-end products should account for “around 20% to 25%” of revenue in major markets, with new premium offerings planned for early April.
“Upgrading our flower offering with new and proprietary strains will spark far-reaching benefits to all aspects of our business,” Jordan said. “This is where I see the greatest opportunity to drive profitable growth in the face of pricing headwinds.”
Jordan noted that Curaleaf has been successful with value flower brands like “Find,” now a top-four brand in their portfolio. But this focus on lower-priced options created “an imbalance” that left the company without adequate representation in the premium category.
The company already upgraded most of its growing facilities with new lighting, automation and humidity control systems during 2024. The investments helped increase average yields per square foot by 19% while enhancing “potency, bud structure, and density,” according to Jordan.
Aside from traditional cannabis, Curaleaf sees lots of promise in hemp-derived THC beverages. Its drinks are already available in more than100 Total Wine locations across nine states, including Florida, Texas and the Carolinas. The company has also partnered with Austin City Limits music festival as an exclusive THC beverage provider.
Jordan described hemp-derived beverages as “the fastest growing segment in beverage” that has “even overtaken non-alc(oholic)” alternatives. The company plans to launch “Formula X,” a caffeinated THC drink aimed at festival goers, sports fans and gamers, within the next two weeks.
Despite his enthusiasm, Jordan remained wary about the hemp market’s regulatory future when the Farm Bill extension expires this year.
“We are taking a cautiously optimistic view right now,” he said. “We don’t know how this will end up. It’s a political process and we have to see how the political process plays out.”
Jordan predicted beverages would likely remain permitted while other hemp products might face stricter rules, particularly those using synthetic cannabinoids. He noted that distributors have reported hemp products now account for “5% to 10% of their business.”
The company is focusing on organic growth in hemp beverages rather than acquisitions until regulations become clearer. It’s a similar path other peers are walking.
“Committing capital in an environment where we don’t have a final farm bill is probably not the smartest thing for us to do right now,” Jordan explained.
Either way, management hopes to overcome industry-wide price pressures that have affected cannabis companies across the country. Jordan cited “an industry-wide average price compression of 14%” during 2024, with pressure “most pronounced in our larger markets of Pennsylvania, Illinois, and New Jersey.“
Executives detailed plans to boost margins through higher-end products it had previously overlooked before Boris Jordan took over in August. Read More
