U.S. cannabis companies’ first-quarter results have shown a clear emphasis on generating positive cash flow while still aiming for growth. Unlike most early-stage industries, U.S. cannabis firms face a challenge of carefully balancing investments in expansion with the limited availability of traditional capital due to federal cannabis’s illegality. The current situation of economic uncertainty and rising interest rates has further limited access to capital, making it necessary to rely on internally generated cash flows to fund their businesses. Nevertheless, with strong operational leadership, companies are demonstrating their ability to create accessible internal cash flows and position themselves as industry leaders.
Green Thumb Industries GTBIF had an impressive $75 million in positive operating cash flow on $249 million in revenues during the first quarter alone. Meanwhile, the company invested $65 million to capitalize on opportunities in New York, New Jersey, Minnesota, and Virginia, positioning Green Thumb to benefit in the long run. As New Jersey’s adult-use market continues to grow, and Minnesota and Virginia prepare to launch their own adult-use markets, CEO Ben Kovler recognizes the delicate balance between growth and sustainability, emphasizing the company’s ample resources and cash flow to pursue profitable expansion and create long-term value.
Curaleaf Holdings CURLF achieved 14% year-over-year top-line growth and generated $31 million in operating cash flow on $336.5 million of revenues for the first quarter. The company’s cost management has made a valuable contribution to its solid financial performance, enabling it to invest globally for long-term growth. By reducing its exposure to subscale markets, Curaleaf aims to strengthen margins and cash flows and redirect them towards attractive opportunities. During the company’s earnings conference call, Executive Chairman Boris Jordan highlighted the potential of upcoming U.S. markets entering the adult-use sales segment and expressed optimism for robust growth in Europe as cannabis adoption accelerates overseas.
Although the emphasis on financial performance has yielded positive results, U.S. cannabis firms still wrestle with challenges within the current operating environment. Many management teams have seen pricing compression in markets like Massachusetts, Arizona, and Nevada, leading to a significant decline in cannabis flower prices due to supply outpacing demand. Additionally, cost-conscious consumers are opting for more value-oriented options, prompting companies like Ascend Wellness AAWH to adapt by opening “outlet model” dispensaries in Massachusetts and Michigan. To remain competitive, cannabis operators are adjusting their approaches to accommodate the various needs of cannabis consumers.
Despite the headwinds in the near term, first-quarter results underscore the potential of strong operators to generate positive cash flows while strengthening their balance sheets and investing in future growth. Companies that maintain financial discipline and a well-defined strategy are poised to emerge as industry leaders as the cannabis market continues to evolve.
Disclaimer: The author has positions in the equities mentioned.