Like many others in the Cannabis Industry, The CEO of Curaleaf Holdings, Inc. (CSE: CURA) (OTCBB: CURLF), Joe Lusardi, was a reluctant cannabis pioneer. That is hard to imagine now that Curaleaf currently operates 34 dispensaries, 12 cultivation sites and 10 processing sites and focuses on highly populated, limited license states including Florida, Massachusetts, New Jersey and New York.
After graduating from The Catholic University with a degree in finance back in 1996, the native New Englander spent a couple of years in Washington DC at the Department of Defense before working at Wachovia Bank and pursuing his MBA at Boston College. He worked at a variety of financial institutions in a number of roles with increasing responsibilities at blue-chip firms like Liberty Mutual, Fidelity Investments and Affiliated Managers Group before catching the regulated marijuana industry opportunity bug while at his strategic finance private equity fund company, Massapoag Advisors. He and a good friend, botanist Bill Goodfriend, decided to pursue a vertically integrated medical license after Maine had passed their Medical Marijuana (MMJ) bill back in 2009. Goodfriend and Lusardi wrote a business plan and application and were awarded one if the first of 8 MMJ licenses in the state, and opened Maine Organic Remedies for business in 2010.
In 2012, Lusardi began working on licensing in Massachusetts and opened the state’s first medical dispensary, Massachusetts Organic Therapy, now branded as Curaleaf, in Hanover, MA in 2012.
In 2015, Lusardi, armed with the marijuana assets he had built in ME and MA and joined forces, under the Pallia Tech holding company he had formed, with investor and now Curaleaf Chairman, Boris Jordan, Founder of The Sputnik Group, who also owned one of 6 New Jersey MMJ vertically integrated operations. The two shared the vision and goal of becoming the largest cannabis retailer in the US and began the expanding to do just that. As a result of their public offering this past October and with a market cap of $4 billion CN after listing on the Canadian Stock Exchange, they now have access to the capital resources required to take the Curaleaf brand into every high population, limited license markets (LLMs) to accumulate customers and revenues in the lucrative US cannabis market.
Jordan and Lusardi are proud of the management team they have attracted and the diverse professional experiences they have brought with them including Stuart Wilcox, COO, Jonathan Faucher, EVP of Finance and Chris Melillo, Senior Vice President of Retail Operations as well as several other leaders running state and local operations.
Curaleaf is currently operational in 10 states, (they have applied and are awaiting California permits), and for the most part are vertically integrated either owning operations outright (97% of asset earnings currently go to Curaleaf) or are in the process of converting minority stakes to fully owned Curaleaf holdings. Current operational markets/states served include Arizona, Connecticut (currently grow and process but not allowed to retail currently), Florida, Maine, Maryland (Processing and Retail only currently), Massachusetts, Nevada, New Jersey, New York, and Oregon, which currently house 34 retail locations and counting. They are currently in the process of secuing licenses in California.
When CBE interviewed Lusardi a few weeks ago, he told CBE they would be opening a store a week through year-end bringing the 2018 total of retail stores to 40. In Florida, Curaleaf has opened 18 retail locations to date and will have their first harvest this month at the company’s new 250,000 square foot greenhouse grow this month. Florida alone has been adding 12,000 new patients a month and Curaleaf’s vertically integrated approach in the state and country-wide is a huge advantage.
The company has focused on patient advocacy and education coupled with customer relationship building and feedback which allows them to create a market driven portfolio of products and services and the supply required to meet demand.
The consolidation to one brand has come quickly through licensing wins and acquisition, Lusardi estimates that their growth has been split evenly, 50/50, between both processes. That said, he sees the consolidation opportunity getting harder as the company scales and looks to enter new LLMs. CBE has heard from other industry leaders that prices for existing entities in LLM’s is getting ridiculous and don’t justify the multiples companies are looking for and the time to acclimate cultures at acquisitions poses its own set of challenges. Curaleaf is focused full stop on the United States for its current and future expansion strategy. As Lusardi points out, with a projected US market size of $75 billion, its fertile ground.
As industry entrepreneurs, Lusardi acknowledges that Curaleaf has made its share of mistakes but confidently told CBE that he wishes they could clone themselves. The company is extremely proud of the 100,000 plus and growing unique medical patients served and, like his competitors at Columbia Care, thinks they are more of a wellness than adult-use play. Once again, they will and have/are transitioning to adult-use as markets like MA, ME, CA, and NJ open-up (NV, OR are already active) offering tremendous revenue growth opportunities for the company with other states sure to follow.
Just last week, Curaleaf experienced a setback when Pennsylvania nixed all eight applicants for its medical marijuana research program. In a statement issued by Lusardi to the Central Penn Business Journal he said, “”We have been fully committed to this program for the last two years and we plan on using every possible remedy to get this critical program off the ground.”
The recent public offering was sorely needed to continue Curaleaf’s rapid expansion plans. Although the company was pleased with the outcome in a tough market for IPO’s, they are a bit frustrated with the valuation gap of Canadian companies that have gone public and where their shares are currently trading. As of Friday’s close at $6.55 a share, Curaleaf is trading at a severe discount versus Aurora, Canopy Growth, Cronos and Tilray and is in the same share price range range as Aphria which took a beating last week after the Hindenburg Report was released. Cresco Labs, with a growing US presence, listed last week on the Canadian Stock Exchange and was trading at $6.55 a share CN last Friday.
They expect volatility in the cannabis sector to continue and that US-based public companies on the Canadian exchanges will catch-up as the market recognizes how overheated the Canadian listed cannabis companies are currently. They are confident that the extreme difference in share prices will be recognized by the financial markets over time.
The company announced stock buyback program last week aimed at driving greater shareholder value. In the press release they stated “The Company is commencing the Bid because it believes that, from time to time, the market price of its Subordinated Voting Shares does not reflect the underlying value of the Company’s business and future prospects. The Company believes that, at such times, the repurchase of its Subordinated Voting Shares for cancellation would be in the best interests of its shareholders.”
Like many top executives that I have interviewed in the industry, Lusardi is confident that sticking to their strategy and executing upon that strategy will pay large dividends for consumers and shareholders alike. He believes that Curaleaf is the most accessible cannabis company in the tightly regulated US market and Curaleaf is willing advocate for a regulated and taxed cannabis industry. Ed Conklin, Curaleaf’s Senior Vice President Government and Public Relations, is a founding board member of the Cannabis Trade Federation (CTA) (which launched out of the New Federalism Fund) and is slotted to succeed US industry leader John Lord of Livwell Enlightened Health as CTA’s Chairman after his one year term is up.
CBE attended Curaleaf’s first quarterly earnings meeting as a publicly traded company last week for a snapshot of where the company stands currently. Strong retail and wholesale growth drove almost 300% growth in revenue to nearly $21.4 million in Q3 ($45.1M for the first 3 quarters of 2018) and $25M and $55M respectively you count the non-for-profit markets of ME and NJ which they expect to transition in the not too distant future to for- profit markets. Right now, they only count management fees generated from each state.
Curaleaf has pursued a strategy to date that allows it to control the supply chain and create products and services that meet the needs of a rapidly growing consumer buyer base, and already has a footprint or is about to have one in the country’s largest markets, California and the largest states on the east coast where it has a presence in most currently regulated markets and population centers. One could argue that their portfolio is currently lacking access to patients and consumers in CO, IL and WA and they are not pursuing MI currently basically because they don’t fit their limited license model or carry multiples that don’t make sense. Either way, Lusardi and his team have built a substantial footprint with the access to capital to allow them to pursue and realize the goal of being the largest cannabis retailer in the US.
Cannabis Business Executive Background Information
Company Name: Curaleaf
Year Founded: 2010
Ownership structure/operating entities: Curaleaf Holdings, Inc. (CSE: CURA)
Management Team: Boris Jordan, Executive Chairman of the Board; Joe Lusardi, President and CEO; Stuart Wilcox, COO, Jonathan Faucher, EVP of Finance, Ed Conklin, Senior Vice President Government and Public Relations and Chris Melillo, Senior Vice President of Retail Operations
Headquarters: Wakefield, MA
Industry Segment/Category: Producer, Processor, Retailer
Current Markets/States Served: 11 States, 10 operational (Arizona, California (in process), Connecticut, Florida, Maine, Maryland, Massachusetts, Nevada, New Jersey, New York, Oregon
Number of Locations: 34 Retail
Current Number of employees: 957
Market Strategy/Goal: To be leading retailer of cannabis in the United States
2016Revenues:$5 Million CAD
2017 Revenues: $25 Million CAD
2018 Projected Revenues: $66 Million CAD (CBE projection)
Expansion Plans: Focusing on limited license states
Financing Strategy: Went public on the CSE in November 2018, just instituted a stock buyback program.