Curaleaf today announced the proactive closure of the majority of its operations in California, Colorado and Oregon, beginning this month, as part of its continued effort to streamline its business.
Additionally, in an effort to further optimize operations and reduce costs, the company will consolidate cultivation and processing operations in Massachusetts to a single facility in Webster, resulting in the closure of its Amesbury facility. Curaleaf expects to record non-cash restructuring and impairment charges that it will detail on its fourth quarter earnings call in March.
Concurrent with these actions, the company has reduced its payroll by 10 percent which, when coupled with other cost savings initiatives, it expects to realize $60 million in gross run-rate expense savings in 2023, exceeding its initial savings target by 50 percent.
The company will exit production and cultivation facilities in California, Colorado and Oregon. While these states have contributed to the growth of Select and other Curaleaf wholesale brands, the company acknowledges the difficult operating environment in these investment states and will instead place a focus on cash generation in its core revenue-driving markets moving forward.
Curaleaf began aggressive cost-cutting measures in these states in 2022 through facility closures and reductions in workforce. These adjustments were necessary for the future success and profitability of the business and were made as a result of recent legislative decisions, price compression, and lack of enforcement of the illicit market. For context, these markets contributed less than $50M in revenue to Curaleaf last year. Curaleaf expects these market closures will be immediately accretive to its adjusted EBITDA margins and positions it for robust positive free cash flow generation in excess of $125 million this year as management executes on its strategic priorities.
"Today's announcement reflects a decision that we did not arrive at lightly, and one that makes sense for our business at this time," said CEO Matt Darin. "We have a fiduciary responsibility to our shareholders to improve margins and fortify our balance sheet by controlling what we can in our business. 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. We are confident that these moves, made to improve our cashflow and margins, are the right ones to bolster the future success and profitability of Curaleaf. Optimizing the existing portfolio in this way allows us to enter 2023 in a position of strength and further enhances our visibility around continued margin expansion and highly profitable growth. We remain excited about our future growth prospects both domestically and internationally, and now can devote greater resources to tangible growth opportunities in emerging markets such as Europe."