Curaleaf Holdings Inc
TSX:CURA
Earnings Call Analysis
Q4-2023 Analysis
Curaleaf Holdings Inc
Looking ahead to the next 4 to 6 quarters, the company is enthusiastic about upcoming catalysts while remaining aware of the various factors that could influence the course of the year. Expected annual sales growth is in the mid-single digits, with adjusted EBITDA margins anticipated at mid-20%. These figures align with the current market consensus.
The domestic wholesale business experienced a notable 15% sequential growth in Q4, particularly across the East and Central regions. This surge is attributed to an increase in store counts in strategic states such as New Jersey, New York, and Illinois. Geographically, the company commands the #1 market share in New Jersey, Arizona, and New York, with exceptional performance in wholesaling driving robust revenue increases. Significantly, New Jersey saw a 24% sequential wholesale growth, Arizona showcased a strong market share dominance, and Pennsylvania delivered an 11% sequential state growth.
The retail business had a strong year, crossing the $1 billion revenue mark, complemented by the addition of 9 new stores. The fourth quarter saw a 1% sequential growth from Q3 and a 9% growth year-over-year. Despite seasonal promotional activities in Q4, the company managed to control price compression compared to the previous year. This price normalization strategy aims to increase customer traffic, pulling consumers away from the illicit market and alternative products such as alcohol.
Dedicated to developing superior products and a robust brand portfolio, the company saw increased market share in key segments during the fourth quarter. They credit this growth to 26% of revenues being generated from new product launches. The focus remains on expanding the premium segments, with Grassroots featured in 12 markets and Select maintaining its position as the top vape brand. Innovations like Briq hardware and Liquid Diamond vapes showcase the company's commitment to product excellence and market expansion.
Internationally, revenue grew an impressive 63% year-over-year, with significant contributions from the U.K., Germany, and Poland. The company is well-positioned to capitalize on the potential liberalization of cannabis laws in Germany, which could exponentially grow patient counts. A strategic expansion of product portfolios in these regions is underway, with a mid-tier flower offering being introduced in Germany. The company's first-mover advantage in Europe and its substantial lead time in the establishment of an EU GMP-certified supply chain fortifies its robust position in anticipation of market expansions.
The fourth quarter concluded with a record $345 million in total revenue, marking a 4% sequential growth and a 1.5% increase year-over-year. This achievement is indicative of the strong position the company holds in the market and its capability to build upon this foundation for future success.
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Hello, and welcome to the Curaleaf Holdings, Inc. Fourth Quarter and Fiscal Year-End 2023 Earnings Conference Call. [Operator Instructions] I would now like to hand the call over to Camilo Lyon, Chief Investment Officer. Please go ahead.
Good afternoon, everyone, and welcome to Curaleaf Holdings' Fourth Quarter and Full Year 2023 Conference Call. Today, we are joined by Executive Chairman, Boris Jordan; Chief Executive Officer, Matt Darin; and Chief Financial Officer, Ed Kremer. Before we begin, I'd like to remind everyone that the comments on today's call will include forward-looking statements within the meaning of Canadian and United States securities laws, which, by their nature, involve estimates, projections, plans, goals, forecasts and assumptions, including the successful integration of acquisitions and are subject to risks and uncertainties that could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements on certain material factors or assumptions that were applied in drawing a conclusion or making a forecast in such statements. These forward-looking statements speak only as of the date of this conference call and should not be relied upon as predictions of future events. We undertake no obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise, except as required by applicable law. Additional information about the material factors and assumptions forming the basis of the forward-looking statements and risk factors can be found in the company's filings and press releases on SEDAR and the Toronto Stock Exchange. During today's conference call, in order to greater transparency regarding Curaleaf's operating performance, we will refer to certain non-GAAP financial measures and non-GAAP financial ratios that involve adjustments to GAAP results. Such non-GAAP measures and ratios do not have a standardized meaning under U.S. GAAP. Any non-GAAP financial measures presented should not be considered to be an alternative to financial measures required by U.S. GAAP, should not be considered measures of Curaleaf's liquidity and are unlikely to be comparable to non-GAAP financial measures provided by other companies. Any non-GAAP financial measures referenced on this call are reconciled to the most directly comparable U.S. GAAP financial measure under the heading reconciliation of non-GAAP financial measures in our earnings press release issued today and available on our Investor Relations website at ir.curaleaf.com. With that, I'll turn the call over to Executive Chairman, Boris Jordan. Boris?
Thank you, Camilo. Good afternoon, everyone, and thank you for joining us to discuss our fourth quarter and full year results. 2023 had a share of challenges to overcome, but through our focus on controlling the controllables. Our operations have improved significantly, and we ended the year on a strong note. In the fourth quarter, we generated record revenue of $345 million, up 4% sequentially, beating expectations, as wholesale sales accelerated 14%. Adjusted gross margin of 46.5% improved by 80 basis points versus last quarter, and adjusted EBITDA was $83 million or 24% of sales, a sequential improvement of 140 basis points. Domestic EBITDA margins improved 80 basis points to 25% versus quarter 3, and our International segment turned [ 8 ] EBITDA positive for the first time. This segment will -- still represents a 130 basis point headwind to consolidated margins but as the business scales and the cannabis industry matures, we anticipate robust growth and margin expansion. For the year, revenue totaled $1.35 billion, a 6% improvement from 2022, while adjusted gross margin and EBITDA margins were 46% and 23%, respectively. Margins were impacted by price compression and our decision to manage inventory by idling excess capacity in several of our facilities. That said, I expect full recovery of our margins now that we have replanted grow rooms to meet accelerating demand. Despite the industry challenges, 2023 was a pivotal year in Curaleaf's evolution. We took actions to optimize our asset base while aggressively scrutinizing every aspect of our cost structure. These initiatives position the company for consistent term revenue growth, profit expansion and cash generation. With that work behind us, we are prepared and energized to capitalize on the industry catalysts. Curaleaf is uniquely positioned to leverage including new or forthcoming adult-use states such as New York, Ohio, Florida and Pennsylvania and key European countries like Germany, the U.K. and Poland. 2024 is poised to be Curaleaf's catalyst year. I'm confident in the future and expect a strong growth trajectory as we have yet to see what unconstrained demand looks like. Let's discuss these talents in greater detail. Domestically, we are thrilled New York finally opened its adult-use market to the incumbent operators in late December. And weeks later, Curaleaf opened its first adult-use store in Newburgh in January. We are encouraged with the initial sales ramp at this location, which continues to increase weekly. While we look forward to opening more adult-use stores in the future, the price of New York's $5 billion to $6 billion cannabis opportunity is clearly wholesale. We enter the adult-use market with the benefit of having a 40% share of the medical market and a strong brand awareness and product offering we can leverage. The pace of new dispensary openings has increased steadily, reaching a total of 78 thus far, and we have made great progress in adding new wholesale accounts by leading with our premium brands, Select and Grassroots. However, the OCM needs to do more to support the legal market with greater enforcement of illicit operators, which is paramount to creating the robust and safe marketplace we all want in this state. I have no doubt New York will be a top adult-use market for Curaleaf just like the medical market has been. With Ohio's population of 12 million people and an underpenetrated medical patient rate of just 1.5%, we could see a meaningful three- to four-fold increase of the existing $500 million medical market after adult-use launches. We are a vertical operator intend to open the maximum 5 stores allowed, plus the additional 3 we'll be granted with adult-use. We have a robust pipeline of stores we're in active discussions on to complement our existing 2 locations and look forward to what should be a robust marketplace with above-average growth. Florida, a top 3 revenue and margin state is another significant catalyst for Curaleaf. The state Supreme Court is due to provide a final summary judgment by April 1 on whether the adult-use initiative will be on the north -- November ballot. We believe there's a high probability it will. Conservatively speaking, we estimate this $2 billion market could double in its first full year of adult-use sales. Interestingly, this does not include any incremental benefit from tourism, which last year brought 135 million visitors to the state. At the expected time of the adult-use launch, Curaleaf will have the necessary cultivation capacity and stores in place to compete for the leadership position in Florida. Pennsylvania could also surprise and embrace adult-use in 2025. I have been encouraged by the governor's recent comments urging the state legislature to legalize cannabis. This is a $1.3 billion market in which we have 18 stores, 2 cultivation facilities and a robust wholesale presence that supports a top 3 market share position. With a population of 13 million and a patient penetration rate of nearly 4%, we could see Pennsylvania increase 2 to 3x upon adult-use conversion. On the European front, Curaleaf International grew 63% year-over-year in the fourth quarter driven by strength in the U.K., Germany and Poland. Despite smaller markets, we are also building brand awareness in Switzerland and Sweden. And 2 weeks ago, Germany's Bundestag voted to liberalize cannabis by removing it from the narcotics list. The significance of this vote cannot be overstated. In my view, this is akin to de-scheduling cannabis altogether. It is a massive move forward for the industry, the country and the continent. I firmly believe that when this legislation is enacted, other nations such as France, Spain, Italy and Czech Republic will follow quickly now that Germany has paved the path. In fact, just last month, Ukraine legalized medical cannabis. To put this opportunity into context, the total addressable market and population in Europe is double that of the United States. There is no one better positioned than Curaleaf to fully leverage these opportunities in Europe. It has taken us 3 years to assemble the platform we have today, and there are no existing companies with nearly the scale and breadth of operations that we possess. Our established cultivation and processing infrastructure in Portugal, coupled with our leading patient platform and complete brand portfolio, including Four 20, Select and Curaleaf, ensures we are ready to capitalize on this massive opportunity. In aggregate, the state and country catalysts could add $500 million to $750 million of incremental revenue for us in the next several years. In mid-December, we uplisted to the Toronto Stock Exchange, which, among other benefits, opened the doors to U.S. and international custody solutions. Specifically, we have been cleared for custody at BNY Mellon and State Street, 2 of the largest global custodians. These custodians now provide the necessary clearing solutions for global investors to invest in Curaleaf without issue. In addition, we'll be eligible for the inclusion in 3 indices, the TSX, the MSCI Small Cap and the FTSE Small Cap, with no custody concern with our shares. This is just one example of how we are finding ways to increase shareholder access and value, something that drives our strategic operational and financial discussions every day.
Finally with respect to guidance, we are excited about the many catalysts coming to us over the next 4 to 6 quarters, but we are also cognizant of the many variables that could change the art of how the year unfolds. Based on what we know today, we expect annual sales to grow mid-single digits and adjusted EBITDA margins of mid-20%, both consistent with current consensus. Also now that we have fully planted our grow rooms to meet increasing demand, we expect to see a meaningful improvement in our gross margins with quarter 1 margins approaching 50% a quarter earlier than we had originally planned. I'd like to thank our global team members that came together to make these results possible. I personally have seen the energy and passion our team comes to work with every day to help our customers find safe solutions for their needs and then what inspires me to push Curaleaf forward on its path to a global brand adoption. With that, I'd like to turn the call over to CEO Matt Darin. Matt?
Thanks, Boris. On our last call, I said we were back on offense, and our fourth quarter results are a solid reflection of just that. The highlight in Q4 was our domestic wholesale business, which grew 15% sequentially. This growth was broad based with the East and Central regions seeing robust gains driven by increasing store counts in New Jersey, New York and Illinois. We are focused on growing this revenue channel, and investments we've made in an expanded product portfolio, new sales leadership and trade marketing investments are paying off. Now that we are back to operating at full capacity, we expect to build on this momentum and serve the growing number of independent dispensaries. By state, we held the #1 market share position in New Jersey, Arizona and New York according to BDSA. Touching on the first 2. In New Jersey, we grew wholesale 24% sequentially as our team was highly successful in getting our brands into new independent accounts that opened in the quarter. With 9 dispensaries open as of year-end and more opening each month, we anticipate continued strength in this channel. Arizona, a highly competitive market, has been a bright star for the past few quarters, steadily increasing share despite overall market declines. In fact, our #1 share position is nearly twice that of our next closest competitor. The team on the ground has done an excellent job servicing both retail and wholesale, which combined to deliver 4% sequential growth in the quarter. Lastly, in Pennsylvania, we are capitalizing on the great reputation we've established for high-quality, consistent flower since the inception of the medical market and the recent introduction of troches helped the state growth 11% sequentially, again, with superb results from wholesale, complemented by strong retail performance. Our success in the medical market positions us well for a hopeful launch of adult-use in 2025. I attribute much of the improvement to early benefits we are seeing from the regionalized management structure we implemented last quarter. By empowering our regional teams with greater autonomy and control, we are winning on the ground by executing locally every day. I'm inspired by the commitment and energy I see in our team members across our stores and manufacturing facilities, and without question, that is showing up in our numbers. 2023 was a highly productive year for our retail business as we eclipsed the $1 billion mark for the first time, bolstered by 9 new store openings during the year. In the fourth quarter, our U.S. retail business grew 1% sequentially from Q3 and 9% for the year. As has been the case all year, traffic was strong in our dispensaries as transactions grew 2% sequentially and 23% year-over-year. Both UPT and AUR were relatively stable with AOV down about 1%. Our vertical mix was steady at 62%. In 2023, we sold $680 million of our branded products through our retail stores. While Q4 is a more seasonally promotional quarter than Q3, the overall rate of price compression has lessened. That said, we think the base case for 2024 is continued price but compression but at moderating rates compared to 2023. The upside from normalizing pricing is increased traffic as we believe we are winning customers from both the illicit market and from substitute categories like alcohol. We are relentlessly focused on developing a best-in-class product and brand portfolio with leading market share across all major product categories. This focus is paying off as we grew market share in the fourth quarter with broad-based gains across our diverse footprint, including New Jersey, Arizona, Florida, Illinois and Pennsylvania. Similarly, our brand portfolio is winning with customers as evidenced by 26% of our revenues driven by new product introductions. Flower remains the largest and most important category, and we are heavily investing in curating a proprietary strain offering. We have taken a rigorous database approach to our strain menus such that consistency, average potencies and quality metrics are all improving across the country. On the premium end, Grassroots is now in 12 markets. We have seen success with our Grassroots diamond-infused flower and pre-rolls in many key markets, including Arizona, New Jersey, Maryland and Illinois. Our fine value brand is resonating with consumers in 11 states, and we are expanding the offering with more flavor-forward terpene-rich flower and pre-rolls this year. Select is the #1 vape brand in our markets. Briq, our proprietary 2-gram hardware, is our most successful product launch [ to date ] with more expansion to come. Liquid Diamond vapes using our proprietary [ ACE ] extraction technology has been perfected in the Florida market and is now launched in Massachusetts with additional markets launching later this year. Liquid Diamonds are the clearest, smoothest vape on the market and a platform we will build on in 2024. These innovations are extending Select's top market share position in the regulated market. As Boris mentioned, our International segment generated impressive year-over-year growth of 63%, driven by continued strength in the U.K. and Germany and Poland of late. In the U.K., our rebranded Curaleaf clinics are becoming known as the destination for high-quality medical cannabis as seen in our healthy market-leading patient share metrics. In Germany, where groundbreaking legislation to liberalize cannabis is nearing an enactment, we have estimated that it could conservatively unlock a 3 to 5x increase in patient count, which we estimate is 200,000 to 300,000 patients today. However, recent reports have suggested the increase could be 10 to 15x, which would put the patient penetration rate on par with Florida, a good medical market analog. While it took 5 years for Florida to reach 4% patient penetration as sales growth was directly tied to dispensary growth, we think the ramp in Germany should be quicker due to the already installed distribution network of 18,000 pharmacies through which cannabis will be distributed. All this is to say we are anticipating a significant increase in demand over time as awareness builds. As such, we are expanding our portfolio to include a mid-tier flower offering under the Curaleaf brand to complement Four 20 Pharma's premium positioning. We expect to begin selling this flower into the German market over the coming months from our facility in Portugal. Undoubtedly, Germany is poised to become a robust, healthy cannabis market, and we have a fantastic market position. In Poland, a market that also resembles Germany's pharmacy distribution structure, demand for our premium flower is far outstripping our available supply, underscoring the tremendous opportunity we have in this nascent cannabis market of 40 million people. Registering strains in Poland takes 18 months, thus, extending our time moat against new entrants. We will use that time to build brand awareness and cement Curaleaf as the top cannabis brand in the country. Overall, we have a first-mover advantage across Europe and are deploying the learnings from the U.S. to continue extending our leading market position. Given the 2 years it takes to stand up an EU GMP-certified supply chain, plus the 12 to 18 months it takes to register strains, we have a distinct 3- to 4-year head start on potential future entrants. Our domestic and international footprint positions us in front of the largest catalysts of New York, Ohio, Florida, Pennsylvania and Germany, which gives us confidence in our long-term growth prospects. These catalysts combined could contribute $500 million to $750 million of revenue to our business over the next several years. We have leaned out the business, become more efficient and more automated. We are seeing the benefits of our scale come through, and they will continue to emerge as 2024 progresses. We're encouraged by the momentum we continue seeing in our business and are poised for a solid 2024. In closing, I would like to thank our entire team across the U.S. and Europe that make these results possible. Without the effort and hard work of each and every one of you, we could not accomplish all that we have thus far. We are continually striving for more, and we have the right team in place to achieve our goals. With that, I'll turn the call over to our CFO, Ed Kremer. Ed?
Thank you, Matt. Total revenue for the fourth quarter was a record $345 million, representing sequential growth of 4% and year-over-year increase of 1.5%. Growth was driven by the addition of 9 stores, Maryland and Connecticut adult-use and our International segment. By channel, the retail revenue was $277 million compared to $272 million in the fourth quarter of 2022, up 2% year-over-year. Sequentially, retail revenue was up 1%. Wholesale revenue increased 3% year-over-year to $67 million, representing 19% of total revenue. Sequentially, wholesale revenue increased 14%, driven by the strength of our brand portfolio, increased product availability and additional independent wholesale accounts. For 2023, total revenue was $1.35 billion, up 6% versus comparable prior year revenue of $1.28 billion. Retail revenue of $1.1 billion increased 10%, while wholesale revenue of $244 million decreased $9 million. Looking at our customer metrics. Transactions were up 2% sequentially in Q4 and up 30% in 2023. Despite inflationary pressures on the consumer, we benefited from a significant increase in traffic that more than offset pricing pressure. Average order value decreased 1% sequentially in Q4 and 15% for the year, largely due to the aforementioned pricing pressure. Our fourth quarter reported gross profit was $156 million, resulting in a gross margin of 45%. After adjusting for $4 million of add-backs related to closing 1 Nevada facility and associated inventory write-downs, our adjusted gross profit was $160 million, a sequential increase of 5% from $152 million. Our adjusted gross margin was 46.5% compared to 45.7% in the third quarter, a sequential increase of 80 basis points. The improvement was largely driven by lower drag from under absorption as we turned on idle capacity and benefits from automation partially offset by increased promotional activity during the holiday season. We're a brand-focused company building and distributing our portfolio of brands across the markets in which we sell. Vertical mix is an important metric but also one that is balanced with a strong third-party assortment. In Q4, our vertical mix was 62%, slightly lower than Q3 due to our intentional actions to bring in more third-party brands. For 2023, vertical mix was 63%. SG&A expenses remained relatively flat at $98 million in the fourth quarter compared with $97 million in the prior quarter and decreased $15 million from the year ago period. SG&A as a percentage of revenue was 28.5% in the fourth quarter, a decrease of 60 basis points compared with 29.1% in the prior quarter and decrease of 490 basis points compared to the year ago period. Our fourth quarter SG&A included approximately $6 million of add-backs. And net of those add-backs, our SG&A rate was 26.8% of total revenue in the fourth quarter compared to 27.3% in the prior quarter, primarily due to tight expense controls and leverage on higher revenue. For the year, we reduced our total expenses, both COGS and SG&A related, by $93 million as we exited unprofitable markets, and we're focused on driving greater productivity and efficiency gains. Our fourth quarter net loss and net loss per share were $63 million and $0.09, respectively. Adjusted net loss and adjusted net loss per share from continuing operations was $5 million and $0.01, respectively. Full year 2023 net loss was $281 million and net loss per share of $0.39. Adjusted net loss and adjusted net loss per share from continuing operations was $126 million and $0.17, respectively. Adjusted EBITDA for the fourth quarter was $83 million, a 10% increase sequentially. Adjusted EBITDA margin in the fourth quarter was 24% compared with 22.6% in the third quarter. Now turning to our balance sheet and cash flow. We ended the year with cash and cash equivalents of $92 million. While our cash balance decreased by $26 million quarter-over-quarter, it is important to note that we made acquisitions-related debt payments, tax payments and biannual interest payments in the aggregate exceeding $100 million in the fourth quarter alone. Net capital expenditures during the quarter were $16 million, bringing our full year total to $65 million, which came in below our $70 million projection. Our outstanding debt was $588 million, net of unamortized debt discounts, of which 81% is not due until December 2026. We ended the quarter with 734 million fully diluted shares outstanding. We made significant progress in improving the quality of our inventory last year. Inventory at year-end decreased $38 million from peak levels in the first quarter and now represents 16% of full year sales versus 19% at the start of the year. Our inventory is much healthier and have higher quality as we enter 2024. In 2023, we generated operating and free cash flow from continuing operations of $91 million and $26 million, respectively. Given recent developments, we continue to evaluate our stance on legal challenges to the application of 280E and more generally to the Controlled Substances Act as applied to state legal operators. We will share more details with you when we have them. I'd like to provide context on how we see our first quarter shaping up. We expect Q1 revenue to be flat to down slightly based on normal seasonality after a strong holiday fourth quarter. With respect to gross margin, as Boris mentioned, we initially expected to see a recovery of the under absorption margin drag by mid-Q2. However, we are returning to full production in our facilities and are tracking ahead of that plan. As such, we expect to see a meaningful improvement in our first quarter gross margins. For the year, we expect to generate operating cash flow in excess of $100 million in plan, our capital expenditures to be in the $50 million to $60 million range. Finally, I am proud of our team that has successfully remediated all of the company's material weaknesses in less than 1 year. This is a massive undertaking by all involved, and we are a better company for it. And with that, I'll turn the call over to the operator to open the line for questions.
[Operator Instructions] Today's first question comes from Aaron Grey with Alliance Global Partners.
Congrats on the quarter there and the year. A question for me is going to be on Germany. Obviously, a lot of big potential opportunity for you with the reform that's coming or expected to come. The market in Germany is set up a bit differently in the U.S. where the doctors prescribe often a specific brand as we understand it. So can you speak to the importance and planned investments you have in terms of getting in front of the doctors and helping them to educate not only the broader benefits of cannabis but also Curaleaf's brand as well? And then any color on how telemedicine could be tied in to help build that?
Yes. So great question. Thanks. The -- as I said, the German market does distribute very differently. It distributes mainly through pharmacies. But I think the most important aspect of this decision, and this is what many don't understand, this is -- under the current regime, where cannabis is a narcotic, German doctors can only prescribe a certain amount of narcotics per year to their patients. So it was always a third or fourth option for the doctor because they were prescribing mostly heavy narcotics to -- and synthetic narcotics to their patients. That's why the medical program in Germany was as low penetrated as it has been up until now. What this reform does is it takes cannabis off the narcotics list or basically de-schedules, which allows doctors to have an unlimited amount of prescriptions that they can write for cannabis. And so that frees up their ability to write these prescriptions. That should increase the amount of patients, but we estimate at least 3 to 5x to more reflect what the U.S. medical markets look like as an example, Florida. The -- in terms of what we've done, we've built the whole vertical chain to supply the German market. We have both indoor and outdoor and greenhouse-based flower in order to supply. We have our brands registered. We have the strains registered. It takes over a year to file -- to register any strain in Germany, so it's very high barriers to entry. So we've got all of our various strains and products ready. We've been doing that over the past 3 years in order to supply the increase in volumes that we expect as soon as the law comes into effect. As far as the telemedicine platforms, we work with all the telemedicine platforms in Germany. We also, through a close relationship of ours, through a VC firm, which I've been associated with, own a stake in one of the larger medical platforms in Germany and Curaleaf works with them as well. And so we feel very, very comfortable with our positioning in that market and most importantly, with our brands. And just to remind you, we have around a 23% -- between 23% and 25% market share on flower in that market currently.
The next question comes from Frederico Gomes with ATB Capital Markets.
Just on the margin side, you mentioned your gross margins approaching 50% for the first quarter. I'm curious if you could expand on what's driving that? How much of it is related to improvement in your capacity utilization or overall improvement in production? And how much more efficiency do you think you can continue to achieve there beyond Q1?
Yes, Frederico. This is Ed. I think -- thank you for your question. The bulk of the margin expansion that we see and we said it was going to be ahead of schedule is due to our absorption coming online or a production coming online, reducing our absorption drag earlier than originally anticipated. So the big bulk of the margin expansion we expect is due to our production capacity being absorbed. It's also in conjunction with a high quality of our sales mix, I think to some extent, price -- we've seen pricing stabilize. And our discount levels have decreased in some states such that the overall mix is accretive in our margin growth profile.
And what I would just add to that is that it's an amazing turnaround story in that regard because, for instance, in New Jersey, our original Belmar grow, which we were actually -- we shut down about a year ago, when we were planning to sell, we actually decided to keep it and have reopened it and are fully stocking it now, and we're almost short. Even with the large capacity we have coming out of our main grow at Winslow and the Belmar grow, we're still almost hand to mouth in terms of the capacity required for that market. So we've seen a resurgence of demand throughout the whole country, not in every single market, but I would say in the bulk of our larger markets, we're seeing a resurgence of demand from customers and patients.
The next question comes from Russell Stanley with Beacon Securities.
Maybe if I could, just following up on the decision to bring more third-party products in your retail. I'm wondering -- can you, I guess, elaborate on which markets are focused on doing that in? And I guess, what's prompted that? And where do you think the vertical mix might settle when you complete the adjustment? Where do you think the best balance is?
Russell, it's Matt. Good question. So for the full year, we were in the -- around the 62% range on the vertical mix as we mentioned. We sold about $680 million of our branded products through our stores. And so I do think that's a pretty healthy place we want to be. In some markets, we have looked at assorting with some more third party very selectively as we're looking at the ideal assortment. So it certainly does vary market. But I think it's something that we're really looking closely at. And as we continue to accelerate the growth of the wholesale channel and ensure that we're meeting all the demand that you're seeing a lot of new stores opening up in a number of these markets, New Jersey, Illinois, New York, et cetera, we do want to make sure we have the right mix for both revenue channels and ultimately, have the right assortment at the retail stores as well.
The next question comes from Matt Bottomley with Canaccord Genuity.
Congrats on a strong end to the year here. Just wanted to get a better understanding maybe of some of the sequential tailwinds that you guys saw that you guys came well ahead of guidance for your -- or the implied guidance for the full year 2023. Specifically, we know New Jersey did very well in Q4, but I know there was a lot of new store openings where maybe you didn't get the full uplift from it. But I'm just wondering, in some of those core markets that you mentioned where you're leading, New Jersey, Florida, Pennsylvania, Arizona, where did you see some of the growth versus Q3 that led to the stronger-than-anticipated print?
Yes. So look, in all these markets, we're definitely -- there's an evolution taking place as you're seeing a lot of these new stores that were delayed due to regulatory reasons and other reasons that are now opening up and the markets are really maturing. So take New Jersey as an example. I think you had 19 stores at the beginning of the year, ended the year at 90. Today, there's over 100. And so I think what we're seeing is a really big opportunity on the wholesale side to meet the demand, to fill the shelves of all these new wholesale accounts. It's a core focus of ours because we see in a number of these different markets -- Illinois is another example; New York, obviously, with the adult-use; Maryland; Connecticut, et cetera. There's an evolution taking place where the wholesale business, which was previously challenged due to a lot of the market dynamics that were in place, is really now back on offense. And that's why we invested so heavily in the product portfolio and innovation pipeline, in our sales teams and really focusing hard on it. And so that is an area that we continue to see great growth opportunities as we continue forward. Look, on the retail side, there's no doubt, there's more stores opening in many of these markets, and it's something that we're monitoring for the retail channel. So we see the big opportunity continue to fill the shelves on the wholesale side.
The next question comes from Scott Fortune with ROTH MKM.
Congrats. Just want to follow back up on the international side and kind of you mentioned Germany. Thank you for the market share there. But kind of the sense for is this 50-50 insurance versus out of pocket? And is this going to be more insurance being paid that will really drive the growth there? And then how are you kind of looking at kind of market share in Poland with your recent acquisition there in the Czech Republic and these kind of growth opportunities coming onboard into '24 but more of a '25 story? Just kind of looking at kind of the cadence for these different countries coming onboard would be great.
Yes, I think you're absolutely right. I think it starts in '24, but really, we anticipate most of the growth, the real sort of significant growth to come into '25 as these markets start to ramp up. And people understand how to use the new legislation in those markets. But as far as Germany is concerned -- sorry, can you -- Scott, can you repeat -- what was the question on Germany exactly?
Is [ not ] about insurance being paid for it...
Yes. So insurance, that's right. So that's a very good question. So that's -- so at the moment, it looks as though insurance companies are most likely going to be forced to have to refund cannabis purchases under this new legislation. And so that's going to open up a very significant amount of demand as patients not only -- there will be patients obviously that will choose to buy on their own. But for the most part, patients will be allowed to go to their insurance companies. We do expect with this new rescheduling and the law that insurance companies will be paying for cannabis prescriptions. We intend to expect that there will be challenges by insurance companies. But so far, most of the insurance companies have lost their challenges in Germany and not paying. And so we do expect in the second half of the year to see insurance companies paying for these cannabis prescriptions. We do anticipate that, that will obviously add a significant amount of volume to the business. And so we're in a wait-and-see view on that, but the law clearly stipulates that they will be paying those insurance proceeds. In terms of Poland, too early to tell. We just entered the market in the third quarter of last year. We made an acquisition locally there in order to control our distribution and our branding. But as in most markets in Europe, so far, if you look at the U.K., we have about a 43% share in Germany between 23% and 25% share. We'd like to get to a 20-plus percent share in the Polish market as well. Thank you.
The next question comes from Sonny Randhawa with Seaport.
Just kind of looking at the wholesale numbers, obviously, much better than we were anticipating. I know that you're looking to potentially get it back to around 30%. Within the context of your current 2024 guidance, where do you see wholesale as a percentage of revenues trending towards as we go through 2024? Obviously, lots of opportunities in Illinois and New Jersey. New York is coming on at the end of Q4, so not really in those numbers. Just wanted to kind of get some color on that.
Sonny, so look, we expect it's going to continue to grow, and we're going to see the wholesale mix as a total percentage of the revenue climb from the approximately 20% where it's at today continue to climb as we move forward into the year, largely based on a few different things. First of all, as we've talked about, you have many new stores that have opened up in some of our most core markets here. So the opportunity and the demand for really high-quality formulated products as well as, of course, high-quality flower is there in the market in many of these key markets. And it's something that we're heavily investing in to ensure that we're meeting that demand. You also have some new markets such as New York, which we are very excited for to finally be in that adult-use market and really seeing a lot of demand for product there. So we expect it to continue to grow. I'm not going to give a specific target there, but we're expected to grow quarter-over-quarter and continue to increase as time goes on and the market evolves.
The next question is from Eric Des Lauriers with Craig-Hallum Capital Group.
With respect to capacity utilization, can you comment on some of what you've learned over the past several quarters? We've had some idling and restarting of capacity. I'm just wondering sort of what you've learned and how you can minimize the risk of mismatches between production and demand going forward. And then if I could just squeeze in a housekeeping question. Q4 showed a tax benefit for the first time in several years. Just wondering if you can expand on the cause of that.
So 2 -- let me take the first question. Look, we -- in the earlier quarters, we said that we started to take down our inventory quite intentionally. When we were running -- the company was historically running at fairly high inventory levels. We wanted to optimize for cash and make sure we have lots of working capital throughout the year. And that's been a continuous thread that we continue to execute on. So part of the idling of the capacity was to make sure we can work through some of our inventory as it started to age and our production was probably running ahead of demand and the amount of capacity that we've had. As we rightsize that and part and parcel with it, frankly, what we've learned is quality of product sells, and it carries lesser discounts with it as a result. So part of the improvement as we kind of go into 2024 and beyond is to make sure that our product is rightsized and we're optimizing for quality over quantity and really are bringing those facilities on thoughtfully to match demand where we need it. So there's been a lot of learnings throughout the year. I think we're in a very good shape at this point. Our inventory is down to 16% of our revenue. We're going to continue to improve in that metric throughout the year. We have a longer-term target to get even more productive than that, but it won't come at the same level of decreases. I mean I think the working capital is probably right about where it needs to be and we hope incremental improvement, but it's not so much overall. But those are the learnings. And what was your second question again?
There was a tax benefit in Q4. It was the first time we've seen that in several years. Just wondering what the driver of that was.
Some of that has to do with our deferred taxes and our current tax payable. I mean we did pay quite a bit of taxes in the fourth quarter as a catch-up payment. But overall, there's a little bit of a timing difference between the years in terms of some of the states and some of the deferred. So it's just a little bit of a -- it was a higher number in the prior year coming into the end of the quarter, so mostly timing related.
The next question comes from Pablo Zuanic with Zuanic & Associates.
Boris, I guess it's a three-part question regarding international opportunity. Number one, you only own 69% of your International business. Given all the growth opportunities, I suppose, you would plan to buy that 32%, while you hold the money on the table. Number two, to add more credibility to the international story, it would be nice if you could disclose the international sales number. I mean, Tilray, Aurora, they report those numbers. How much of the $345 million was international? Number three, what I remember from EMMAC, although they did have outdoor capacity and very limited indoor capacity, it seems to me that your growth in Europe at the moment is still quite limited compared to the opportunity that we've talked about, right, 3, 4x in Germany, 10, 15x on the high end. Would you need to make an acquisition, I don't know, look at cultivation in Canada or other parts of the world to be really fully integrated to the other opportunity?
So I'll start with the last question -- with the last part of the question first, right? So we have all the capacity we need to meet all the demand that we're foreseeing over the next 2 years in Europe. And we will be shortly making some announcements regarding our plans. But as we speak right now, we do have that capacity in place. We did a lot of work on Terra Verde. We invested quite a bit of capital in Terra Verde. We also bought the EU GMP assets of PharmaCielo. So we are in a very, very strong position in coming out of our facilities in Portugal to be able to supply the market. As we've always said, at the moment, we are about at a 50-50, where we supply 50% ourselves and 50% we buy in. But we anticipate being at almost a 75-25 situation where we're 75% of our own product and 25% that's bought in shortly, and we'll be making some announcements in that regard. So we have plenty of capacity. Pablo, can you...
[indiscernible]
Yes. So international sales, we do disclose that in our filings, so you'll see those in our filings. But more importantly, the anticipated revenue this year is around $100 million. And it will be the first year that becomes meaningful. So 2024, we anticipate around $100 million in European revenues with a significant ramp going into '25. And on the minority shareholder side, so it's pretty clear in our -- all of our documents, if you review them, that we have a call option on our minority stake at the end of 2024. We fully anticipate exercising that call option.
The next question is a follow-up from Matt Bottomley with Canaccord Genuity.
I know that you said in your prepared remarks, you're going to be looking at the potential strategy for 280E tax refund here. So I know there's a lot of legal opinion buying that. So I don't expect you to expand on it, but I guess I'll leave the door open if there's any other commentary on it. I guess the only question I have is, in your guidance of having free cash flow from operations of $100 million, how does that relate to the $91 million you printed this year? Is that an apples-and-apples comparison with respect to your plans on the timing and remittances of 280E tax going forward for 2024?
So I'm going to correct you first. It's $100 million of operating -- over $100 million of operating cash flow. And you can come -- if you take our CapEx numbers, you could come to your conclusion on free cash flow. And no tax deferrals or anything is calculated in those numbers at all. So it's like for like. As we -- as I indicated on our third quarter call, at the moment, Curaleaf is taking the position of paying all of our taxes. And we made, I think, $55 million in tax payments in fourth quarter.
The next question is a follow-up from Pablo Zuanic with Zuanic & Associates.
Look, Boris, regarding Florida, you said that you expect to be competing there for leadership once the market goes [ reg ]. At the moment, Trulieve has 132 stores. You have 61. You're #4 in stores. Trulieve stores do about 2x the flower volume per store compared to your stores. Is the plan to get there organically? Or will you need to make an acquisition in Florida to really compete for leadership in that market?
So Pablo, first of all, that's an incorrect number. They don't twice the flower per store that we do. That's not correct. We have the most efficient stores, I believe, in the state in terms of volume that goes through them. Secondly, we are currently under a CapEx investment program in Florida that we had started before. We learned from DeSantis on the program but one that we're now accelerating that we've heard that the program will make the ballot. That will put us on equal footing, not in store. We'll certainly have the same capacity in terms of production capacity and cultivation capacity as Trulieve. But where we will be different is in stores. We're anticipating a target of around 85 stores in the state, which we have a funnel for to complete by the time the program gets launched in July. We believe that, that footprint under our calculations will give us the right geographic spread in the state to cover fully the population required. We don't believe we need to go to the 130 stores. We don't believe we'll get the incremental benefit from that number. We believe the 85 stores that we're looking at having will cover geographic spread in the state in order to be able to not only compete but hopefully win and have leadership in Florida. And that's our goal.
This concludes our question-and-answer session. I'll now turn the call back over to Matt Darin for closing remarks.
Thanks, everybody, for joining us, and we look forward to seeing you in the next quarter.
The conference has now concluded. Thank you for your participation. You may now disconnect your lines.