Curaleaf Holdings, Inc. (OTCPK:CURLF) Q2 2022 Earnings Conference Call August 8, 2022 5:00 PM ET
Company Participants
Jakob Feinstein – Manager of Investor Relations
Matt Darin – Chief Executive Officer
Neil Davidson – Interim Chief Financial Officer
Joe Lusardi – Executive Vice Chairman
Boris Jordan – Executive Chairman
Conference Call Participants
Vivien Azer – Cowen
Andrew Partheniou – Stifel GMP
Matt McGinley – Needham
Matt Bottomley – Canaccord Genuity
Aaron Grey – Alliance Global Partners
Scott Fortune – Roth Capital
Ty Collin – Eight Capital
Eric Des Lauriers – Craig-Hallum Capital Group
Bill Kirk – MKM Partners
Operator
Good afternoon, and welcome to the Curaleaf Holdings Second Quarter 2022 Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note this event is being recorded.
I would now like to turn the conference over to Manager of Investor Relations, Jakob Feinstein. Jakob, please go ahead.
Jakob Feinstein
Good afternoon, everyone, and welcome to Curaleaf Holdings second quarter 2022 conference call. Today, we are joined by Boris Jordan, Executive Chairman; Joe Lusardi, Executive Vice Chairman; Matt Darin, Chief Executive Officer and Neil Davidson, Interim Chief Financial Officer.
Before we begin, I would like to remind you 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 can cause actual results or outcomes to differ materially from those expressed in the forward-looking statements on certain material factors or assumptions that were implied 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 Canadian Securities Exchange.
During today’s conference call, Curaleaf will refer to non-IFRS measures that do not have any standardized meaning prescribed by IFRS, such as adjusted EBITDA, the definitions of which may be found in our earnings press release. Please note that all financial information is provided in U.S. dollars unless otherwise indicated.
With that, I’d like to now turn the call over to Executive Chairman, Boris Jordan.
Boris Jordan
Thank you, Jakob. Good afternoon, everyone. And thank you for joining us. I’m pleased to report that Curaleaf had a record breaking second quarter with revenue growth of 8% to $338 million quarter-over-quarter. Our momentum coming out of the last quarter continued with strong performance in quarter two. Adjusted EBITDA grew by 18% to $86 million. Gross margins increased by 267 basis points to 52% and we were able to raise adjusted EBITDA margins by 223 basis points to 26%.
Our performance demonstrates the power of the Curaleaf platform in 22 states plus eight countries in Europe, 136 retail locations, and 2,200 wholesale accounts and the returns we are realizing on our early investments in vertical integration, scale and strength in core markets. We’re also seeing the benefits of our continuing focus on products, leadership and operational excellence that Matt will tell you about later. The Curaleaf platform, our size, scale, cash flow and balance sheet are competitive advantages among the multi-state operators. We have historically raised capital at the lowest cost in the industry, allowing us to build operations organically, while picking up assets at accretive rates to extend the reach of our business.
Our long-term debt financing plus our future cash flow generation positions Curaleaf to be selectively opportunistic to continue our growth strategy, and the wave of consolidations that will inevitably hit the industry. We are and always have been focused on long-term value creation and our original vision of global cannabis leadership has arrived. Cannabis legislation is now a global story, and today Curaleaf is the leader in this emerging global industry. We built our leadership in the U.S. not just on scale, but with early investments as product innovation brands, quality and safety, legislative reform efforts, CSR initiatives, and talent development.
We have established a strong presence in Europe and intend to take that Curaleaf model to emerging markets around the world. To this point, Europe is undoubtedly the next big opportunity as an estimated $229 billion market with medical and adult use making headway in several countries.
Most notably in Germany, with the population of 80 million Germany is the economic powerhouse of the EU, and is leading the way in cannabis reform with adult use program expected in early 2024. Our early focus on Europe has given Curaleaf a formidable strategic asset and strong foundation and one of the industry’s critical global markets. We see Europe as a major driver of our growth in 2024 and beyond. In fact, I’m spending more time on Europe and traveling the continent to ensure we are best positioned to leverage this enormous opportunity.
Curaleaf International continues to build our platform in eight markets, and we are engaged with government at all levels across the continent, with regard to legal reform and regulatory oversight in emerging medical and adult use markets. We expect to be making some exciting announcements soon. In the U.S., we are feeling optimistic about the prospects for meaningful legislative reform, as Washington is increasingly being pressured to act. With the introduction of the Cannabis Administration and Opportunity Act in July, Congress can shift from a fully legalization proposal to one that has a better chance of garnering the 60 votes necessary for passing.
We’re all energized by fast moving support for SAFE and the bipartisan desire to finally pass meaningful legislative reform for our industry. We have recent increasing bipartisan support for SAFE banking. Just last week, Senator Cory Booker of New Jersey who was considered a major obstacle to the bill went on the record in support of SAFE Plus, calling it a very important piece of legislation. It’s another bullish sign that our industry advocacy is having an impact in Washington, and this key reform is closer than ever.
Also, the House just passed that Medical Marijuana and Cannabidiol Research Expansion Act, a significant bipartisan bill to allow federally sanctioned scientific study of the users efficacy and the effects of cannabis. This research is critical for the future success of legalization, Curaleaf is a leader of our industry’s lobbying, and we remain confident that meaningful change can come to our industry this year. Regarding our new business venture spearheaded by Joe Bayern, as we put the final pieces of this business in place ahead of our launch, we are very excited, this opportunity may be bigger than we originally expected.
We look forward to providing details soon. But meanwhile, I’ll leave you with this, cannabis will sooner than later become an omni channel CPG category and Curaleaf is aggressively exploring the winning operational sales distribution strategies of the next generation of global vertically integrated multi-channel cannabis companies.
All of us at Curaleaf are pleased with our record breaking results this quarter, especially considering the uncertain macroeconomic backdrop with equity and debt markets contracting, interest rates rising, record inflation and recessionary conditions putting pressure on all businesses. That said Curaleaf is not standing idle. We’re preparing for a recessionary environment by appropriately tightening our belts, being aggressive about cost savings, improving supply chains, we’re pursuing opportunities to reduce costs and withstand pricing pressures, primarily the West Coast markets. And we are closely — we are looking closely at headcount, travel at all controllable expenses to continue our performance in any economic environment.
An example of actions we have taken to improve our profitability improved rationalizing low margin states such as California and Colorado. While having a presence in these markets is critical to long-term brand building, we see no need to participate in rational pricing behavior and prefer to preserve cash and wait for these markets to complete their natural rebalancing. In light of the macro economic trends, coupled with regulatory delays that have impacted the opening of our Bordentown store in New Jersey, and our proactive decision to rationalize wholesale in lower margin states, we now expect to be closer to the bottom end of our $1.4 billion to $1.5 billion revenue guidance.
I have experienced the highs and lows and the drivers of emerging markets in over 30 years of building successful businesses. And right now, where we are today with Curaleaf, I couldn’t be more excited about what’s in store. Otherwise, I would not still be working this hard for our team members, our customers and our shareholders after all these years. I believe in this business in the future of cannabis, it’s the most exciting global growth opportunities in a generation. I also believe that Curaleaf is the first company in the world poised to leverage the massive opportunity in front of us, both domestically and internationally, and accomplishments that will reward our shareholders with growth and profitability for years to come.
Finally, a key distinguishing factor why I believe Curaleaf has the wind in our sails is that we have assembled the best leadership team in the industry. On that note, I’m pleased to introduce, Matt Darin to make some exciting announcements briefly on the impact of this first 90 days of CEO and chair some highlights for the quarter.
Matt Darin
Thanks for us. I’d like to begin with some exciting news for all of us securely besides the record breaking quarter. When I assume the CEO role 90 days ago, I focused on three key areas leadership and culture, operational excellence, and delivering quality products at scale. We know that successful organizations are built on leadership and culture. Over the past three months, we have reorganized Curaleaf for the long-term success and stability by assembling an executive leadership team that is second to none in the industry. Tyneeha Rivers joined us in May as our first Chief People Officer and she’s made an impact since day one.
Today, I am pleased to announce and welcome three outstanding additions to our executive leadership team Ed Kremer, Camilo Lyon and Mitch Hara. Ed Kremer will be joining Curaleaf as Chief Financial Officer. Ed brings a wealth of experience as a public company CFO and leader at companies such as Oakley, and Beats by Dre, as well as the background of the cannabis industry including our recent U.S. GAAP conversion and SEC registration process.
Neil Davidson will be staying on for a transition period to help onboard at in his new role. I want to thank Neil for his continued partnership and dedication to Curaleaf. [Audio Gap] the officer. Make sure the season strategist and dealmaker with years of experience on Wall Street and in cannabis, and will be a dynamic leader for our M&A international and R&D functions.
With these hires that we have added significantly securely as capabilities and finance, investment and strategy. I’m very excited to have Ed, Camilo, and Mitch join the team that’s building the leading vertically integrated multi-channel cannabis company in the world.
My secondary focus as CEO has been building a culture of operational excellence and continuous improvement throughout the organization. We’ve made this a key priority of the executive leadership team with a focus on execution, building scalable global enterprise processes and systems and using data to make informed decisions. We’ve delivered on several key initiatives already.
Curaleaf has executed business optimization strategies to consolidate operations, invest in automation, outsource non-value add functions, and reduce costs, especially in the mature market for more advanced supply chains have formed. These strategies have contributed to our 52% gross margin in the second quarter, a sequential 267 basis point increase. We’ve integrated retail, wholesale and planning teams to enhance communication and business strategies, speed decision making, and increase discipline and inventory management.
We’ve made exciting strides in using data analytics to optimize labor productivity, a major cost area for our business. Our team is producing increasingly sophisticated reporting, providing a retail, cultivation, operations and shared services leaders with enhanced visibility into performance.
Our presence and scale in key markets in both retail and wholesale channels throughout the U.S. provides Curaleaf with the biggest window on consumers their preferences and behaviors. We are rapidly developing the strategic assets and our ability to apply our proprietary market intelligence and insights across the company in R&D, commercialization, marketing and strategy.
Another focus of my first 90 days was products and brands. I am very excited about our current suite of products and brands, as well as our pipeline of innovations. Early investments in R&D in quality standards are paying off with industry leading innovation and commercialization. Let me highlight a few key areas. We’re building Select into the number one vape brand in the world by leveraging the power of our distribution platform and investing in innovative extraction technology, hardware, and product development.
We have successfully taken a regional West Coast brand in four states and have now expanded into 19 states with more to come including Europe, achieving revenue growth approaching 400% since acquisition. In flower we are executing on our plan to expand the premium grassroots brand known for high quality indoor flower and premium concentrates to market throughout the U.S. Our launch of grassroots in two new markets Massachusetts and Nevada is going extremely well. More key markets are on the way including California and Florida.
Additionally, our farmers select program in California has been a great success. We partner with licensed legacy and diverse farmers in Northern California and a testament to the power of the industry working together large and small players and welcoming a legacy talent into the legal ecosystem. We’re very, very proud of these partnerships.
At the premium end, we launched Live Rosin in Florida using our proprietary solventless ACE extraction system and continue to grow this product line. We plan to launch in Colorado later this year. Our Select essential line is resonating with the value focused consumer and has built strong consumer loyalty in the seven states where it’s available with more on the horizon. We launched our innovative Cliq pod system in three new markets in the second quarter, making it now available in 16 states. We’re enjoying the greater than 50% repeat purchase rate. This is a very strong platform we’re building on in the coming months.
All told, we are very pleased that the written on investment and continued performance of the Select brand. Curaleaf fruits are in health and wellness and we have introduced a new product line with many more opportunities to come. Our plant precision line is designed for specific wellness categories with low dose THC combined with minor cannabinoids. The high absorption shell is the first of its kind and we expect time precision to be a popular favorite with a variety of consumer segments.
Beverage of the category we expect will grow in the coming years and in May we launched our endless coast seltzer product to serve the market. Endless coast had a very successful pilot launch and sold out at all dispensaries. We expect to roll out endless coasts in more states in the coming year.
Neal will take you to the second quarter numbers in a few minutes. But before I turn it over, I’d like to step back and share some highlights of the quarter. New Jersey has been one of the industry’s bright spots since adult-use sales launched on April 21. Our New Jersey business has already doubled year-over-year and we are the largest cannabis retailer and wholesaler in the state. Generating outside returns with more growth on the horizon.
Our Belmar dispensary is the number one destination in the state with the best customer service and experience. The launch of adult-use in New Jersey was also a testament to the strength of our organization. Faced with huge day one demand and a booming market thereafter with transactions more than doubling quarter-over-quarter securely teams stepped up and executed exceptionally well delivering high quality product and a great experience to customers in New Jersey.
Our strong execution continued in Florida during the second quarter. We opened our 51st dispensary last week in Tampa and expect to approach 60 operator dispensaries by yearend. Our performance in quarter is best-in-class. Our dispensaries are the most productive in the state and we are gaining market share by focusing on providing customers what they want. High quality products with an assortment that meets all needs supported by exciting, innovative product launches.
We have a solid and growth share position and continue to be very profitable in Florida. Our new dispensaries are opening up in top retail locations throughout the state and we broken ground and expansion of our cultivation facility as we continue to invest there. In Illinois, we are seeing the benefits of the expansion of our Litchfield manufacturing facility. We have doubled the vertical mix in our retail locations since the beginning of the year with continued expansion of selecting grassroots in Illinois.
We’re encouraged by the 7% sequential market growth we’ve seen in the adult-use market in July, and have continued opportunities to drive growth margin expansion there and in other key markets as we scale production and launch new products. We’re also pleased that an additional 185 social equity licenses have been issued. And we are building relationships with these owners to serve their wholesale needs in advance of openings, which we expect in early 2023.
We have some significant catalysts coming in the Northeast with the expected launch of adult-use in Connecticut and New York. We are preparing in advance for these opportunities and continue to invest in both states. We’ve seen strong momentum in Connecticut with 9% quarter-over-quarter growth versus Q1. And we are already the largest established player and the market leader in New York, which represents an estimated $4 billion market.
Our retail business showed significant improvement over the last quarter. We added seven new dispensaries closing the second quarter with 135 retail locations nationally. Retail revenue was up 11.4% quarter-over-quarter our 18 consecutive quarters of growth. The focus on our vertical mix is paying off. We saw a 500 basis point improvement this quarter alone. As important 65% of our retail product consists of Curaleaf brands. We think this is a significant competitive advantage.
On the wholesale side, we’re focused on growing profitable market share in our core states and improving margins. This is coming as small cost to top line as we saw a 2% reduction in revenue during the quarter, largely as a result of continued price rationalization in California and Colorado. Offsetting these declines New Jersey led our growth with wholesale revenue increasing 220% quarter-over-quarter.
Finally on International, Curaleaf International revenue was up 50% year-over-year, with U.K. up 320% year-over-year and 18% quarter-over-quarter. We see Europe as the next frontier for growth in the cannabis industry and are leveraging the experience and resources we’ve developed in the U.S. to be first movers as major European countries legalize cannabis for medical and eventually adult use.
Across the continent, we’re executing on plan to bring our industry leading products and brands to Europe to fully establish Curaleaf as the global leader in cannabis. In the U.K., our recently acquired Sapphire Clinics have seen an 800% increase in patient counts and the U.K. as a market right for expansion.
In Germany, we’re building a larger presence in advance of adult use with a focus on supply chain and distribution. Germany will be the driver for Europe and we’re investing considerable time and resources to capture leading market share in advance of adult use legalization with more announcements to follow soon.
In Portugal, we’ve driven capacity expansion and operational improvements at our cultivation campus and are growing high quality flower to export through Europe. Our Portugal campus is a strategic asset for our European footprint, and we are continuing to invest in all aspects of operations there. We secured two additional licenses at our Spanish EU GMP facility and have increased production capacity by 20 times for extraction and manufacturing of our products and brands into Europe and other markets, including Israel, the largest medical cannabis market outside of North America.
Overall, the fundamentals of our business remains strong despite macro pressures on the consumer. However, in the current environment of inflation and economic uncertainty, we are seeing some distinctive shifts in customer behavior that we’re optimizing on. Our typical customers are coming in more frequently, which is driving more traffic to our dispensaries, the transactions increasing 20% quarter-over-quarter, but they’re spending a little less each visit.
This aligns with a partial shift to the cycle driven behavior consumer brands seen in times of economic uncertainty. The other good news is that current customer behavior indicates that our business is a recession resistant staple. We’ve seen that despite disruptions in the economy, politics and culture, people want their cannabis. In some markets, we’re even seeing premium products showing stickiness with repeat buyers. And we continue to meet the customer where they are with value oriented products, strategic promotions, and best-in-class service.
While I’m very pleased with the quarter’s results, I’m even more excited about Curaleaf’s future. By focusing on leadership and culture, operational excellence and delivering quality products and brands at scale, we will continue to grow, improve our margins and drive profitability. There is simply no other cannabis company with the power of our platform, the commitment and resources to execute our long-term strategy and the leadership drive to cement this industry as a powerful force we know it will be for years to come. Now I’d like to turn the call over to CFO, Neil Davidson. Neil?
Neil Davidson
Thank you, Matt. First, I want to welcome Ed to the role of CFO and most importantly, I want to thank everyone at Curaleaf for one of the best experiences of my life. I’ve met some amazing people since joining in 2019. And I’m proud to have played a role in the company’s continued success. A quick update on our accounting firm, as part of our plan transition to U.S. GAAP, no later than the first quarter of 2023 and in connection with an eventual listing on a senior U.S. National Stock Exchange, we will be transitioning from the PKF Calgary Office of our accounting firm to the PKF New York office.
As such, I wanted to thank the PKF and Terry’s team for all their hard work over the years and welcome. PKF O’Connor Davies on board.
With that, let me provide some details on our second quarter 2022 results. Total revenue for the quarter was a record $338 million representing quarter-over-quarter and year-over-year growth of 8%. Retail revenue was $252 million compared with $222 million in the second quarter of 2021 representing 13% year-over-year growth. Wholesale revenue decreased 6% year-over-year to $84 million representing 25% of total revenue.
Sequentially, retail revenues were up 11%, resulting in our 18th quarter of sequential retail growth, while wholesale revenues declined 2%, a result of continued rationalization of our wholesale business in lower margin states. Our gross profit on cannabis sales was $175 million for the first quarter, an increase of 13% year-over-year from $155 million. Gross profit margin was 51.9% compared to 49.6% in the year-ago period. Sequentially gross margins increased 267 basis points from 49.3% to 51.9%, due largely to the increase in vertically integrated products sold in our dispensaries and the mix of revenue in higher margin states. Moreover, despite a 2% decline in wholesale revenue, both gross margin and gross profit on cannabis sales from wholesale revenues improved sequentially.
SG&A expense was $108 million in the second quarter, compared with $100 million in the prior quarter and $88 million in the year-ago period. The year-over-year increase in SG&A primarily reflects increased headcount and support a new store openings in the launch of adult use in New Jersey, higher travel costs as revenue facing travel resumes, and higher levels of expenses related to research and development activities, and sales and marketing spend during the quarter. SG&A as a percentage of revenue was 32% in the current and prior-quarter, and 28% in the year-ago period.
Our second quarter SG&A included approximately $5.7 million of adjusted EBITDA add backs, versus $6.5 million in the prior-quarter. Excluding the add backs, our SG&A represented 30% of total revenue in the current and prior-quarter. Adjusted EBITDA for the first quarter was $86 million, a 2% year-over-year increase. Sequentially, adjusted EBITDA increased $13 million or 18%. The increase over the prior-quarter was attributable to the 267 basis points increase in gross profit margins as discussed offset by SG&A excluding add backs increasing by $8.6 million for the reasons previously mentioned.
Our investment markets including Europe impacted our consolidated adjusted EBITDA margins by approximately 517 basis points, versus 515 basis points in the first quarter.
Turning to our balance sheet and cash flow. Our balance sheet remains strong with cash and cash equivalents of $187 million as of June 30 2022. At the end of the second quarter, our outstanding debt was $587 million net of unamortized debt discounts, and debt issuance costs and had a weighted average interest rate of 7.3% with almost three quarters of our outstanding debt, not due until December 2026.
Net capital expenditures during the quarter were $30 million, bringing our year-to-date total to $60 million. Our investments continue to be focused on expanding cultivation and processing capacity, as well as strategically increasing our retail presence. As a result of evaluating a number of our projects and prioritizing certain investments, we now expect our full-year capital expenditures to approximate $125 million. We remain focused on our cash position, as well as on generating positive operating cash flow this year and beyond. In fact, for the six months ended June 30 2022, our cash flow from operations was positive $12 million.
Inventory this quarter declined $5 million contributing to working capital and to operating cash flow expansion. Excluding inventory and biological assets, as well as the expected tax payment made during the quarter, working capital was neutral to our operating cash flow. We expect these trends to continue and expect to generate substantial positive operating cash flow for the full-year 2022 which will be sufficient to cover our current obligations and anticipated capital expenditures.
On the margin front, we continue to increase our vertical mix in our retail stores. Overweight retail revenue growth in higher margin states, rationalize wholesale markets in lower margin states and monitor our SG&A expenses. As a result, we expect to see further leverage in expanding adjusted EBITDA margins sequentially in the remaining quarters of 2022.
Finally, we initiated full-year 2022 revenue guidance of $1.4 billion to $1.5 billion in March of this year with where we fell in this range being largely dependent on the macro economic environment, and the timing of regulatory approvals. Given what we know today, we still expect to be within this range, albeit at the lower end, with third quarter revenue up flat to low single digits sequentially and the fourth quarter accelerating as we expect to close strike. With that, I’ll turn the call back to the operator to open the line for questions.
Question-and-Answer Session
Operator
Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question today comes from Vivien Azer of Cowen. Please go ahead.
Vivien Azer
Hi, thanks. Good afternoon. You guys are clearly being very proactive about balancing a lot of puts and takes in managing your margin outlook, which is clearly commendable. I was just wondering if you could unpack a little bit some of that margin tension you are de-prioritizing California and Colorado, which is great. But certainly got a lift from New Jersey. So if you can help us think about dimensionalizing that as we think about those different levers in the back half of the year, I think that’d be great. Thank you.
Neil Davidson
Matt, you wanted to take that?
Matt Darin
I’ll take that. Yes, so I think we are very focused on continuing to drive growth in our high margin states. New Jersey is certainly one of those and has been a major catalyst in the second quarter. And we see a lot more upside with our Bordentown dispensary opening and continued wholesale opportunities. But there’s a number of other high margin markets that we continue to really focus on places like Florida, and Illinois and Arizona and those.
So I think it’s really a diversified mix of high margin states that we’re really focusing on, continuing to drive growth in those markets. And yes on some of the other West markets, where it has been a bit more challenging, we’re really being judicious with the way we’re managing our wholesale business, our customers, et cetera to ensure that we are maximizing margins, even given some of the headwinds that exist. And so that’s a lot of what we’ve been doing that you’re seeing fall through in the margin profile that is improving.
Operator
The next question comes from Andrew Partheniou of Stifel GMP. Please go ahead.
Andrew Partheniou
Hi, good evening. Congrats on the strong quarter and thanks for taking my questions. Just looking at your guidance, could you detail what are your major assumptions embedded in 2022 in your sales and EBITDA as well guidance, namely, when do you think the Borden store could open in New Jersey for that and you expect that track to contribute fully in Q4? Thanks.
Matt Darin
Good, Neil.
Neil Davidson
Yes, so I would say, looking at guiding towards the bottom end of our range, largely has to do with rationalizing our wholesale revenues, which as you’ve seen, the benefits are already showing in our margins. The second piece we’re being a little bit more conservative with respect to New Jersey Borden Town, that’s simply a regulatory approval, so that we really are expecting a full benefit in Q4.
And then just some general assumptions about what everybody’s seen around the macro, around the consumer. So that kind of all bundled together led us to thinking of Q3 as flat to low single-digit increase the course off the robust 8% growth in Q2. And then going into Q4, I think the big step function there is obviously Tryke, which we do expect a full quarter of, and then Bordentown, which we do expect a full quarter of.
Operator
The next question comes from Matt McGinley of Needham. Please go ahead.
Matt McGinley
Great, thank you. Maybe a two that I’ll bundled together in CapEx and taxes payable. You mentioned that the — you’re dropping your CapEx from 1.5 to 125. And my question is that a shift related to timing of projects? Are you reassessing a need for capital investment in some state, and none of the taxes payable. Looks like they only made about $60 million in cash tax payment in the second quarter, but you’re still sitting on an overall balance of a $125 million. If you have the cash on hand, and you’re confident and your ability to generate cash flow why not pay on time and save yourself the penalties going forward?
Neil Davidson
Yes, so the first one with respect to CapEx, we’ve always looked at the return on investment on some of those capital expenditures. And given this environment, we’ve just scaled back on some of the want to haves versus some of the things that are going to impact growth in the immediacy or in 2023. So we’ve just taken a slightly different lens and been able to carve it down to $125 million.
With respect to the cash tax payment. I think once you see our 10-Q file tomorrow, the tax payment is actually closer to $110 million. We are reassessing quarterly tax payments. But I think what you’re including in the number that you provided is the current quarters provision as well. So we did make $110 million tax payment, and still even with that generated positive $12 million cash flow for the full-year, or for the six months — sorry.
Operator
The next question comes from Matt Bottomley of Canaccord Genuity. Please go ahead.
Matt Bottomley
Good evening all. Congrats on the strong quarter. Just wanted to pivot back to some of the commentary on the decisions around your wholesale contribution and obviously safeguarding your margin. I’m just curious, because, when you look back to before buying Select, that was a brand that I guess, anecdotally you’d sort of see everywhere, and in sort of the Pacific West Coast. I’m just wondering how you balanced the decision between near-term margin mitigation on the decline versus overall brand building view.
There’s a risk of tapering back your exposure with some of your wholesale contribution in the short-term given that some markets arguably like California will be beneficial for long-term brand building. So that question, just wondering how you balance those two, those two elements?
Neil Davidson
Matt?
Matt Darin
Sure, yes. So look, I think, as we touched on in the call, we brought Select from 4 to 19 states. So in terms of the growth of the Select brand, we’re very focused on that growth, and very focused on continuing to launch new products under that brand, and I think is really executed well on that. As it relates to markets like California, we are taking a closer lens at kind of how we’re managing hundreds and hundreds of different accounts to ensure that we are continuing to focus on margin, especially in the near-term here.
You’re right, we are certainly focused on continuing to keep the brand exposure, and the distribution of a Select and our other brands in these large markets. And so that is a focus of ours, and we’re continuing to do that. But and we’re in ’22 honored in counting doors throughout the country and seem to be more in Europe. But I think we are also really focused on making sure that we’re properly servicing the high value accounts and the large customers and that overall.
Operator
The next question comes from Aaron Grey of Alliance Global Partners. Please go ahead.
Aaron Grey
Hi, good evening, and thank you for the question. So just on the guidance. Just shifting over to the fourth quarter, right. You said 3Q flat to top 3% standing by, about a $50 million increase in 4Q. Just want to know in terms of your expectations for Tryke. It was a $110 million, I believe in 2021. Can you comment on in terms of how those sales have turned in? Maybe some expectations that you might have in terms of the contribution to 4Q. Is that we think about the organic, uptick and anything about on top of the acquisition closing? Thank you.
Neil Davidson
Yes, we’re expecting approximate $20 million contribution on Tryke in the fourth quarter. So you can extrapolate the growth on the organic side.
Operator
The next question comes from Scott Fortune of Roth Capital. Please go ahead.
Scott Fortune
Good afternoon. Little more — can you — if you can dig in a little bit more in New Jersey, the cadence there is a little bit better than you originally thought from that side, but you still weighing open one more store and you’re getting real good, strong wholesale sell through, kind of step it through as you look at the end of 2022 into 2023. You’re positioning from New Jersey and the opportunity to continue to be the leading wholesaler there and the opportunity overall for New Jersey going forward here. A little more color on that, that’d be great?
Neil Davidson
So obviously with more store openings, we anticipate the market breadth to grow. And so we’ll have much more wholesale opportunity. Today we are the largest wholesalers in the market, although they — we have some competition as well. With two other players having extra capacity for wholesale purposes. As more stores open up and we anticipate that more stores will be opening up every single quarter. The opportunity on the wholesale side will grow.
Obviously the big one for us also will be the opening of board in town. Board in town is a very strategically located store on a major thorough way in New Jersey. It’s our most northern store, so it’s close to very large population centers like Trenton, very easy to get access to. And it’s also our biggest store. So I think it’s a 14,000 square foot store, 31 POS stations. And so we’re able to process a tremendous amount of people through that store. And it’s north enough from our Belmar store that it won’t cannibalize the business in Belmar.
If you look at Belmar and Edgewater, those two stores are quite close to each other. And so there’s a lot of small level of cannibalization, they’re about 20 minutes apart, whereas this one is much more north. And so won’t be cannibalized. And it’s a very, very, very good store. And so we have the opportunity of both board in town as well as additional stores opening up on the wholesale side. Curaleaf invested very heavily in cultivation early on. And so we have not only do we have good inventory, but more importantly, we have great capacity to continue to expand our ability to provide product to the marketplace.
And so we’re very excited about New Jersey. We think that New Jersey is a $2 billion market. It’s early days in terms of its start, and we think it will continue to grow as stores open up every single quarter.
Operator
The next question comes from Ty Collin of Eight Capital. Please go ahead.
Ty Collin
Hi there. My questions on Curaleaf International. I’m wondering if you could help us understand what level of additional investment would be needed in Europe to supply a major adult use markets? Specifically, are there any pieces missing from a talent or facilities perspective or is it basically plug and play at this point?
Neil Davidson
So we’re going to devise our supply chain capacity based on the rules that come out of Germany in October. So we’re expecting the first pieces of draft legislation on the adult use market out in in early or mid-October. At that point in time, we’ll be able to make an educated guesses in terms of what capacity we’re going to need to building on that program. But we already expanding capacity based on our current demand coming from the U.K., Israel and Germany.
Obviously, with adult use, we anticipate that that capacity will have to be doubled, if not tripled, in order to meet that. We have some information coming out of our European business very, very shortly. So will give more transparency on that. But we are anticipating that the German adult use program will be a $1 billion increase in the first year moving to over a four year period to about a $5 billion market.
So it’s a very large market with very significant penetration. And so we do anticipate that we’ll have to grow our current ability of 250,000 square feet to probably triple that in order to be able to supply that marketplace. But the good news is it’s capital light to the extent that we don’t need to build a facility in each one of the German states or anywhere we can build in Portugal and export to Germany from there.
And so, we are, however waiting for the final rules, the final law to come out or the draft law to come out to see what the rules are going to be in terms of imports. At that point in time, we’ll make the assessment and make the investment we have had all our teams out there in the last two months, assessing and seeing whether or not we have enough power, enough land and et cetera. In order to build the facilities, we’re going to need to supply the German adult-use market.
Operator
The next question comes from Eric Des Lauriers of Craig-Hallum Capital Group. Please go ahead.
Eric Des Lauriers
Great. Thank you for taking my question. My question is on the wholesale side. So understand that you are rationalizing your wholesale sales in markets like California and Colorado with the pricing there. But you’ve also commented pretty extensively on the increasing mix of vertical sales. Can you help us quantify how both impacted wholesale growth this quarter? And then maybe help us identify some of the markets where you expect continued total growth in terms of retail plus wholesale, but and then we could see some flattening wholesale, as you either focus on increasing the vertical mix, or maybe just experiencing some pricing there as well? Great, thank you.
Neil Davidson
Yes, let me give you one quick tidbit, and then I’ll hand it over to Matt. But I said in my prepared remarks, we saw a decrease of about 2% on wholesale revenues, but our gross profit increased, I will also tell you gross margin dollars, increased slightly. So hopefully, that that helps you modeling, but basically think of it as a 2% decline in revenue with about the same contribution or gross margin. Matt, you want to comment on growth?
Matt Darin
Yes, so look, certainly vertical mix has been a focus. As I mentioned, our vertical mix for Q2 is 65%, across 135 retail locations, and we continue to see that as an opportunity, especially in some of our larger retail markets. We also see tremendous opportunity on the wholesale side, in many of those same markets, and some different ones, really prompted by a few different catalysts. One is just additional new dispensaries that are going to be opening in places like New Jersey and Illinois, and key markets like that.
So those are all new customers for us to be able to service. And we’ve invested in capacity, and then to product innovation and things in anticipation of that knowing that there was going to be more wholesale customers coming online in many of those markets. Certainly adult use on the horizon in places like Connecticut and New York are also going to create a number of other wholesale opportunities as well. So we’re focused on being very prepared for those as well.
Operator
The next question comes from Bill Kirk of MKM Partners. Please go ahead.
Bill Kirk
Thank you. So forgive me if I missed it. But do you have any early thoughts on the Florida initiative filed for the 2024 ballot?
Neil Davidson
We’ve just recently been introduced to it, Matt had a meeting with the CEO of Curaleaf from about a week ago, they discussed it, so we’re still looking at it. We like the fact that there’s an initiative to get this adult-use program going in Florida. We think it’s not going to be a cheap exercise, it’s going to be very, very expensive. So we’re going to need the whole industry to chip in to do it. In the past, however, my efforts in getting the industry to chip in on Washington efforts has been more difficult. I’m hoping the CEO of Curaleaf will have better luck in getting everybody together. Certainly, Curaleaf would be very supportive of a program to get the adult use in Florida.
Operator
Seeing no more questions in the queue. This concludes our question-and-answer session. I would like to turn the conference back over to Executive Chairman, Boris Jordan for any closing remarks.
Boris Jordan
I’d like to thank everyone for joining our call. We’re delighted with the quarter. And any other questions investors may have you can DM us or reach out through our IR Department. Thank you very much.
Operator
The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.
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