Science

Cannabis earnings show legal marijuana sales in the US are declining as prices fall

Falling U.S. legal weed prices impacted third-quarter results for cannabis growers Curaleaf Holdings Inc. and Acreage Holdings Inc. on Monday, with both companies somehow reporting a decline in finances.

Kurafei LOOP,
-3.43%
Executives during the company’s earnings call on Monday said they were cutting hours at stores and cutting costs elsewhere. And they said that while clients were still visiting Curaleaf dispensaries, they began looking for ways to make the most of their budget as inflation and recession concerns increasingly dictated costs.

“Trade between our mid-range products continues while our premium offerings continue,” CEO Matt Darin said during the call. However, he said that the “price bottom” could be close.

However, executives are forecasting fourth-quarter sales of $353 million to $355 million, below FactSet’s forecast of $369 million.

Curaleaf posted a net loss of $54.7 million, or 7 cents per share, compared to a loss of $56.9 million, or 8 cents per share, in the same quarter last year. Sales were $340 million compared to $317 million in the previous year’s quarter. Sales grew only 1% compared to the previous quarter.

Analysts polled by FactSet had expected a loss of 3 cents per share on revenue of $337 million. Shares closed up 3.4% on Monday.

Executive Chairman Boris Jordan, in Curaleaf’s earnings report, noted “the unexpected impact on earnings in Florida and New Jersey.” During the call, he detailed regulatory lockdowns in New Jersey and the impact of Hurricane Yan in Florida.

Curaleaf — one of the largest cannabis producers in the United States with dozens of dispensaries and some degree of activity in 22 states — has opened new stores in recent weeks in states including Arizona, Florida and Pennsylvania. But the legal cannabis industry in the United States is facing falling marijuana prices as legal growers expand aggressively and the illegal market maintains control over cheaper products, while consumers appear to be rethinking their buying habits in a world where prices of staples are rising. such as products. and gasoline.

Areas occupied by ACRG,
-0.19%
also noted this in the earnings report on Monday. Sales jumped 28% year on year to $61.4 million in the third quarter, but that figure was about the same as the previous quarter.

The company lost 20 cents per share compared to a loss of 12 cents per share in the same quarter a year ago. Gross margin was 35% in the quarter compared to 49% a year ago.

“Inflation-driven cost increases and competitive price cuts negatively impacted quarterly gross margins,” Acreage Holdings executives said in a press release.

Ben Kovler, CEO of Curaleaf rival Green Thumb Industries Inc. gtbif,
-3.84%,
Citing BDSA data, also recently told CNET that U.S. cannabis sales were up 3% and boxed sales jumped 22%. A discrepancy between revenue and the number of items sold, indicating lower prices, has made it difficult for multi-state operators to manage their own costs.

Read more: With high inflation, one thing is getting cheaper: cannabis

Ahead of the Curaleaf report, other analysts also said rising prices elsewhere pose a danger to the legal weed market.

“Based on our review of US state sales data, we find that in Q3/22, end-user sales at the retail level grew by an average of approximately 1.2%. However, many markets with a higher concentration of MSO participation have not changed or, in some cases, have slightly declined,” Canaccord analyst Matt Bottomley said in a note last month.

“As was the key theme in the second quarter, we believe that inflationary pressures on consumer spending will continue to weigh on growth as the cost of food, transportation and other non-discretionary staples rises and will require an increase in the share of the consumer wallet. he continued.

Curaleaf reported that voters in five states are gearing up to vote Tuesday on marijuana reform measures. Voters in Maryland and Arkansas will decide whether to legalize recreational use. In Missouri, they will vote on a measure that would lift the state’s restrictions on personal use. North Dakota and South Dakota will also vote on legalization measures.

Nineteen states allow the recreational sale of cannabis. Most states have now legalized marijuana for medical or recreational use.

Curaleaf shares are down 38% this year. For comparison, the S&P 500 SPX index,
+0.96%
fell by 20.9%.

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