Falling prices for legal weed in the U.S. hung over third-quarter results of cannabis producers Curaleaf Holdings Inc. and Acreage Holdings Inc. on Monday, with both reporting a drag on financials in one way or another.
Curaleaf CURLF, -3.43% executives, during the company’s earnings call Monday, said they were cutting hours in stores and cutting spending elsewhere. And they said that while customers were still visiting Curaleaf dispensaries, they were starting to seek ways to get more out of their budgets, as inflation and recession anxieties increasingly dictate spending.
“Trade-down among our mid-tier products is happening, while our premium-end offerings are holding steady,” Chief Executive Matt Darin said on the call. However, he said a “pricing bottom” could be near.
Still, executives forecast fourth-quarter sales of $353 million to $355 million, below FactSet forecasts for $369 million.
Curaleaf reported a net loss of $54.7 million, or 7 cents a share, compared with a loss of $56.9 million, or 8 cents a share, in the same quarter last year. Sales came in at $340 million, compared with $317 million in the prior-year quarter. Sales grew just 1% from the previous quarter.
Analysts polled by FactSet expected a loss of 3 cents a share on revenue of $337 million. Shares closed 3.4% lower on Monday.
Executive Chairman Boris Jordan, in Curaleaf’s earnings release, noted “unexpected revenue impacts in Florida and New Jersey.” During the call, he specified regulatory hang-ups in New Jersey and the effects of Hurricane Ian in Florida.
Curaleaf — one of the largest U.S. cannabis producers, with dozens of dispensaries and some degree of operations in 22 states — has opened new stores in states like Arizona, Florida and Pennsylvania in recent weeks. But the legal U.S. cannabis industry has faced a drop in weed prices, as legal producers grow aggressively and as the illicit market maintains its hold on cheaper product, while consumers appear to be rethinking their shopping habits in a universe of rising prices for basics like groceries and gasoline.
Acreage Holdings ACRG, -0.19% also noted as much in its earnings release Monday. Sales jumped 28% year over year to $61.4 million in the third quarter, but that figure was roughly the same as the prior quarter.
The company lost 20 cents per share, compared with a per-share loss of 12 cents in the same quarter a year ago. Gross margin was 35% during the quarter, compared with 49% a year ago.
“Cost increases due to inflation and price declines due to competition negatively impacted gross margin during the quarter,” Acreage Holdings executives said in their earnings release.
Ben Kovler, CEO of Curaleaf rival Green Thumb Industries Inc. GTBIF, -3.84%, citing data from BDSA, also recently told MarketWatch that U.S. cannabis sales were up 3%, while unit sales had jumped 22%. The gap between revenue and the amount of goods sold — which indicate lower prices — has made it more difficult for multistate operators to manage their own costs.
Ahead of Curaleaf’s earnings, other analysts also said that rising prices elsewhere posed a danger to the legal-weed market.
“Per our review of state-level sales data in the U.S., it appears that in Q3/22, end-user sales at the retail level increased, on average, by ~1.2%. However, many of the markets with a higher concentration of MSO participation were flat to slightly down in a number of cases,” Canaccord analyst Matt Bottomley said in a note last month.
“As was a key theme in Q2, we believe inflationary pressures on consumer spending will continue to weigh on growth as the cost of food, transportation and other nondiscretionary staples rise and demand a higher proportion of wallet share from consumers,” he continued.
Curaleaf reported as voters in five states prepare to vote on Tuesday on marijuana-reform measures. Voters in Maryland and Arkansas will decide whether to legalize recreational use. In Missouri, they’ll vote on a measure that would lift state restrictions on personal use. North Dakota and South Dakota will also vote on legalization measures.
Nineteen states allow recreational cannabis sales. A majority of states have now legalized marijuana for medicinal or recreational use.
Curaleaf stock has slid 38% through this year. By comparison, the S&P 500 index SPX, +0.96% has declined 20.9%.