The protracted bear market in the cannabis sector is beginning to impact tier one operations, with Curaleaf Holdings (CSE: CURA) this morning formally announcing its exit from three separate markets. The closures come as the company looks to cut costs in an industry where it is increasingly difficult to access cost effective capital.
As the firm works to “streamline its business,” Curaleaf will be “proactively” closing the majority of its operations across California, Oregon, and Colorado, with those closures set to begin this month. Closures are said to impact all production and cultivation operations in the three states.
It wasn’t immediately clear if the company would be disposing of its one retail location in Oregon or its two locations in Colorado.
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In announcing the closures, the company referred to the “difficult operating environment in these investment states,” with the firm to instead focus its efforts on core markets going forward. The company also blamed the illicit markets, price compression, and legislative decisions in announcing its exit.
“We believe these states will represent opportunities in the future, but the current price compression caused by a lack of meaningful enforcement of the illicit market prevent us from generating an acceptable return on our investments,” commented CEO Matt Darin.
Closures are said to be “immediately accretive to its adjusted EBITDA margins,” while the company simultaneously stated it expects to generate free cash flow of $125 million in 2023, which the closures will assist in. The states on a combined basis were said to represent less than $50 million in revenue last year.
Payroll is said to have been reduced by 10% as a result of the closures, with expense savings across 2023, combined with other initiatives, expected to hit $60 million.
The company also said that it will be consolidating its cultivation operation in Massachusetts, where it will reduce its operation to a single facility. The Amesbury facility as a result is expected to be closed in the near term. Relatedly, the company is reportedly under investigation from Massachusetts state regulators in relation to hidden ties to Russian oligarch Roman Abramovich, among other issues.
Non-cash restructuring and impairment charge figures were not provided by the company, and are expected to be reported on the firms fourth quarter earnings call in March.
Curaleaf last traded at $4.85 on the CSE.
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