Good day, welcome to the Curaleaf Second Quarter 2023 Earnings Conference Call. All participants will be in a listen-only mode, and should you need any assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note that this event is being recorded today. I would now like to turn the conference over to Camilo Lyon, Chief Investment Officer. Please go ahead.
Good afternoon, everyone, and welcome to Curaleaf Holdings Second Quarter 2023 conference call. Today, we're 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 very 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, as a result of new information, future events, or otherwise, except as required by applicable law. Additional information about 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 release on SEDAR and the Canadian Securities Exchange. During today's conference call, in order to provide 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 measures 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?
Thanks, Camilo. Good afternoon, everyone, and thank you for joining us to discuss our second quarter 2023 results. In the second quarter, we delivered revenue of $339 million. That's up 4% compared to last year's revenue of $327 million. Adjusted gross margin was 44%, which was negatively impacted by intentional inventory reduction efforts, pricing pressure in Florida and New York, and 80 basis points of additional expenses we reclassified into COGS from SG&A. Adjusted EBITDA margin was 21%. We ended the second quarter with $85 million in cash on the balance sheet and generated $8 million in free cash flow from continuing operations. That's after making tax, interest, and acquisition-related payments that totaled $77 million.
My vision has always been to build Curaleaf for long-term global growth by ensuring the company was positioned to capture the significant demand the cannabis industry was poised to garner. Over the past four years, this strategy drove a rapid expansion in infrastructure investments across the country and into Europe in anticipation of forthcoming growth catalysts that would unlock healthy demand, many of which materialized, and some of which have been delayed due to politically motivated regulatory bodies disinterested in the development of the free market. In response to these delays, we have taken steps to aggressively reduce inventory, idle excess capacity, and close older facilities, actions that at the moment are weighing on our margins but are necessary in today's normalizing growth environment. That said, some of our current capacity is levered to the markets in which we anticipate significant catalysts will yield step function growth.
Florida, New York, Pennsylvania, Germany. I am confident we will scale into our footprint in these states and Europe as the conversions to adult use or expanded medical consumption unfolds over the next several quarters. We are also cognizant of the need to balance investment and cash generation. With the majority of our U.S. cultivation investments largely completed, we took actions in the quarter to reduce our inventory and idle excess capacity. To this point, the story in quarter two is one of controlling the controllables. We successfully prioritized our brand portfolio in our dispensaries, as evidenced by our 65% vertical mix. We also reduced our inventory by 6% from quarter one, as we intentionally focused on cash generation at the expense of near-term margins. A step up in the promotional landscape in key states like Florida and New York also had an impact on our margins.
Despite this price compression, we continued to manage our expenses tightly, reining in costs and generating 300 basis points of year-over-year expense leverage. Rest assured, we are scrutinizing all aspects of our business and making the necessary improvements to create a global platform that will deliver significant operation, operational leverage when, not if, the many growth catalysts we see turn on. Thus far in 2023, we have eliminated $80 million of annualized expenses, double our initial $40 million goal, while reducing inventory by $17 million from Q1. We are adopting COGS, reducing automation in our Tier 1 facilities. That said, price compression has been the only reliable mechanism for clearing excess supply this year. I'm encouraged by the amount of excess inventory the industry has worked down, and supply that has exited the market.
However, we are likely to see price compression remain a recurring theme through the end of the year, despite modest green shoots we see forming in Select markets. Our international segment continued to produce impressive growth, as evidenced by the 93% year-over-year increase in quarter two revenue. Europe is growing quickly, but still represents a continued 150 basis point drag on our AE EBITDA margins. International was once again driven by our two key markets, the U.K. and Germany. The U.K. experienced robust growth of 76%, despite a patient acquisition process that remains lengthy and cumbersome. Curaleaf has a dominant share position in the U.K., and we are well-positioned to continue organically growing the market through education, innovation, and technology. With a population of 67 million people and modest penetration, the U.K. promises to be a significant contributor to our business over the coming years.
In Germany, we are leading with our Four 20 brand. We are preparing for the country's medical market expansion under the Pillar 1 proposal. All indications from the German health minister point to the expanded program commencing in early 2024. In fact, yesterday, we got more positive news out of Germany that stated that the proposed legislation will be presented to the cabinet on August 16th, with the final vote in the Bundestag slated for the fall. Pillar 1 would significantly expand patient access to medical cannabis by removing it from the narcotics list and allowing telemedicine prescriptions. Simply put, the hurdles that exist today in the patient journey would effectively be removed, and we are there and ready to capitalize on this liberalization of demand. Recall, Germany's population is equivalent to four times that of Florida, with the current patient count roughly at just 200,000 people.
Under Pillar 1, we estimate the patient count would conservatively quintuple to 1 million patients, although historical medical market adoption rates suggest total patients could be closer to 3 million or 4% of the 84 million person population. There seems to be some confusion around the impact social clubs will have on the German market. In our view, social clubs do not present a risk to the medical market as they will be nonprofit, have highly restrictive zoning laws, and have a limited number of members allowed to join. Also, their cultivation and overall operating costs would be too prohibitive, thus making them economically unviable. Most cannabis consumers will use the established network of 20,000 plus pharmacies to access their cannabis prescriptions or rely on delivery, something social clubs cannot do.
Among the many growth levers we're anticipating in the U.S., Germany could very well be the single largest growth driver in our business for the next three to five years, one that is exclusive to Curaleaf among the U.S. MSOs. While the opportunity in the U.K. and Germany is massive, given the combined populations of 150 million people, what's more exciting is the expectation that other EU nations will follow Germany's lead, putting cannabis on a globally accepted trajectory. In fact, we've already made our first wholesale shipment into Poland, a country with a population of 40 million people. Federally in the U.S., we continue to work hard and devote resources to getting SAFE over the finish line. It is encouraging to hear Senator Schumer call it a priority. I expect positive movement to resume in September when Congress returns to session.
On rescheduling, we see an encouraging path for cannabis to get to Schedule III, even despite hurdles that remain with getting the DEA on board. The next nine to 12 months could be very exciting for the cannabis industry. However, we are not running our business on the assumption that anything will change. We continue to evaluate a potential TSX up listing and have had constructive conversations with the Canadian regulators to this effect, while in parallel, taking the necessary steps to prepare for this potential move. We have been studying the benefits of such a move and are encouraged by the recent actions taken by several U.S. financial institutions to open up custody solutions and trading for other TSX-listed cannabis operator.
We believe a move from a venture exchange like the CSE to a major exchange like the TSX would benefit Curaleaf shareholders by broadening our shareholder base to global institutional investors that require greater liquidity, thus, providing increased stability and less volatility in our share price. We will have more updates on this topic over the coming months. Finally, regarding our outlook, we are reiterating our low to mid-single-digit revenue growth outlook and annual AE EBITDA margin of mid-20s%. Given the heightened level of promotions in a few markets, we now expect to come in towards the lower end of the AE EBITDA range. With that, I'll turn the call over to CEO, Matt Darin. Matt?
Thanks, Boris. I have a clear and singular vision of solidifying Curaleaf's position as the global leader in cannabis. In the second quarter, we made solid progress toward these objectives. We grew revenue 4%, while our expense base shrunk by 7%. We increased our vertical mix to 65%, and we reduced our inventory by $17 million versus the first quarter. That said, we had two distinct opportunities in the quarter we are actively addressing: wholesale and Florida. Wholesale contracted 4% sequentially due to our intentional actions to reduce inventory and reduce sales to partners with increased credit risk, as evidenced by our stable account receivables. Regulatory delays that continue impacting new store openings in Illinois, New Jersey, and New York have not helped expand the market.
Between these three states, there are roughly 80 new stores that have opened this year for a combined population of 42 million people. While we're having success selling into many of these independents, the pace of openings needs to accelerate. Regardless of the regulators' inaction, wholesale remains a priority and one we can get back on track quickly. We have reorganized our sales team, and with the benefit of an expanded product portfolio focused on quality, we are confident we will return wholesale back to growth in the back half of the year. Second, price compression in Florida accelerated throughout the quarter, thus impacting our sales and margins disproportionately. While Florida is an important and highly productive state for us, we chose not to match the discounts we saw emerge in the market dollar for dollar.
Rather, we have taken proactive measures to organically increase our store traffic through an expanded product assortment and targeted marketing initiatives. While we're only one month into the third quarter, I'm pleased to report that these measures are yielding positive results. Florida is a key growth driver now and when it converts to adult use, and we prefer winning customers on lasting drivers of demand and loyalty, such as quality, innovation, and customer service. Innovating around our brand and product portfolio remains a priority and distinguisher. At the end of the quarter, we launched Briq, our revolutionary two-gram vape, into six markets, including New York, Florida, Arizona, and Maryland. Briq has been in market for five weeks, and sales have far exceeded our initial targets. Without doubt, Briq has been our most successful product launch to date. We are rapidly increasing supply to accommodate robust retail demand and wholesale reorders.
What's more, Briq has been incremental to our Select vape line. Over the coming months, we are bringing Briq to four more states. JAMS, our new edibles line, launched in Arizona, Florida, New Jersey with an assortment of gummies, tarts, and chocolates. JAMS is now in three states, with 10 more coming in short order and proving very popular with our customers. In our premium flower line, Grassroots, we launched diamond-infused pre-rolls in Arizona, Illinois, Maryland, and Nevada, a favorite among the seasoned cannabis enthusiasts. We also just launched our first Liquid Diamonds vape in Florida to our VIP customers, and tomorrow, it will be available in all of our Florida stores. This is our proprietary water-based extraction vape for our premium-focused customer that we've been working on for some time, and the early reception has been strong.
These innovations serve as the lead products we will leverage, not just across our domestic markets, but also our international ones. Consumer demand remains robust, particularly for Curaleaf products in our stores. Retail transactions were up 27% year-over-year, underscoring the efficiency of our dispensaries, aided by leveraging technology and our mobile app to provide a best-in-class customer experience. This traffic strength was partially offset by average order values that were down 14%. While we continue to feel price compression to varying degrees by market, with some states like Florida worse than others, we believe the clearing of supply is healthy and necessary. In fact, some markets have shown signs of stabilization. Separately, we've been very pleased with both our Connecticut and Maryland adult use conversions this year.
In Connecticut, we had two of our four stores open for adult use during the quarter, with our third location in Groton that began adult use sales last month. Our fourth location in Manchester got approved for adult use last week. We continue to see a solid ramp in demand as consumer awareness grows, and expect a robust contribution from Connecticut through year-end. I'd be remiss if I didn't congratulate our team members that made the Maryland launch highly successful. Not only did our operations team execute to meet surging demand of wholesale orders prior to the July 1st adult use launch date, but our retail and marketing teams created strong activations at our four stores, which had long lines and healthy demand throughout opening weekend, far surpassing our lofty sales expectations.
We continue to see strong demand in this market and expect it will be a solid contributor to the business for the balance of the year. On the international front, we are laser-focused on ensuring we are prepared for the massive market expansion slated to come next year in Germany. Through strategic agreements, we have secured ample supply of high quality, high potency THC strains. In the U.K., we will be the first to launch gummies this quarter, with vapes coming shortly thereafter. We are leveraging our U.S. marketing and R&D assets in Europe to accelerate brand awareness. Heading into the second half of the year, it's clear we're doing more with less. We've taken aggressive actions to rightsize our inventory, our expense base, our headcount, and our facilities.
Specifically, we've reduced annualized payroll hours by 13%, an increase of 300 basis points versus our prior reduction earlier this year. We are also focused on driving COGS down through automation. We've already seen a jump in productivity and efficiency metrics in the first three states where we've installed more advanced automation, boding well for the next round of states coming online next month. Overall, we expect to see the COGS benefits begin to materialize toward the end of this year and more fully in 2024, as we work through existing inventory. As Boris said, we are controlling the controllables. The investments we are making in the U.K. and Germany, coupled with state catalysts from Florida, Pennsylvania, New York, and more recently, Ohio, will provide us an unparalleled advantage as we build, leverage, and scale our global cannabis platform.
There's certainly more work to be done, but I'm excited about what our future holds. We are not running our business based on expectations from Washington, I do believe that when seismic growth catalysts like Germany, rescheduling, and SAFE unlock the potential of this industry, Curaleaf will be incredibly well-positioned to lead globally. With that, I'll turn the call over to our CFO, Ed Kremer. Ed?
Thank you, Matt. Today, I'll review our second quarter 2023 results. Total revenue for the second quarter was $339 million, representing a year-over-year increase of 4%. Growth was driven by strength in Nevada, Arizona, Connecticut, New Jersey, and Massachusetts, as well as a 93% growth in our international segment. By channel, retail revenue was $277 million, compared to $251 million in the second quarter of 2022, up 10% year-over-year. Wholesale revenue decreased 20% year-over-year to $60 million, and represented 18% of total revenue. This decrease was in line with our expectations as we prioritize sales of our own product portfolio, work down inventory as we spoke about in our last call, and reduced sales to accounts with increased credit risk.
Looking at our customer metrics, transactions remained healthy in the second quarter and were up 3% sequentially from Q1, partially offset by a 2.6% decline in average order value. Our second quarter gross profit was $147 million, resulting in a 43% gross margin. Adjusted gross profit was $150 million, or 44%. Sequentially, Q2 adjusted gross margin decreased 360 basis points compared to the first quarter due to the following factors: price compression in Florida and New York and higher discounts around Four 20, intentional actions to reduce inventory through a reduction of our cultivation and production utilization in New Jersey, Florida, and Illinois, and 80 basis points of reclassified expenses into COGS. These factors were partially offset by a 510 basis point sequential improvement in our vertical mix.
We believe the second quarter was the low point on gross margin, with modest improvement expected as the year progresses, setting us up for a strong rebound in 2024. SG&A expenses were $110 million in the second quarter and increased $2 million from the year ago period. Core SG&A was $96 million, a decrease of $7 million from the prior year. The year-over-year decrease in our core SG&A primarily reflects tight expense controls and headcount reductions, partially offset by expenses associated with the addition of Tryke, Four 20 Pharma, and new store openings. SG&A, as a percentage of revenue, was 32.5% in the second quarter, down 40 basis points compared to the year ago period.
Our second quarter SG&A included approximately $14 million of ad backs, versus $5 million in the prior year, with increase driven by consulting and legal fees associated with the GAAP conversion and expenses associated with acquisitions. Our core SG&A rate in Q2 was 28%, a decrease of 300 basis points year-over-year due to a further acceleration of expense cuts we began implementing at the start of the year. Second quarter net loss from continuing operations was $69 million. Net loss per share from continuing operations was $0.10. Adjusted EBITDA for the second quarter was $70 million or 21% compared to $87 million or 20% last year. A 20% decrease resulting in an eight EBITDA margin of 21% and 27% respectively.
Sequentially, our Adjusted EBITDA margin decreased by 100 basis points from Q1 due to gross margin contraction, partially offset by expense leverage. Our international segment was a 150 basis point drag on our EBITDA margins as we invest ahead of our future growth catalyst in the U.K. and Germany. Turning to our balance sheet and cash flow. We ended the quarter with cash and cash equivalents of $85 million. Inventory decreased $17 million or 6% compared to the first quarter. We will continue to stay laser-focused on managing down our inventory balance through the year-end, progressing toward our goal of reaching 15% of sales by year-end. As previously mentioned, we held our accounts receivable stable from Q1 due to a concerted effort to reduce credit risk from Select wholesale partners. Net capital expenditures in the quarter were $9 million.
This included an $8 million contribution from asset sales associated with our discontinued operations. Consistent with our prior outlook, we expect CapEx spend will slow in the second half of the year and continue to anticipate spending approximately $70 million in capital projects this year. Our outstanding debt was $574 million, net of unamortized debt discounts, of which 83% is not due until December 2026. We ended the second quarter with 719 million fully diluted shares outstanding. We generated $13 million of cash flow from operations, excluding a $3 million use of cash from our discontinued operations. Cash flow from continuing operations was $16 million in the quarter and $37 million year-to-date.
Free cash flow from continuing operations during the quarter was $8 million, after having made tax, interest, and acquisition-related payments that totaled $77 million. We remain comfortable with our ability to fund our growth initiatives and pay all of our obligations. We continue to expect our cash balances will build through the remainder of the year, consistent with the cadence we discussed last quarter. With respect to guidance, we are reiterating our revenue guidance of low to mid-single-digit revenue growth compared to $1.3 billion last year, which excludes discontinued operations. Given the promotional backdrop in some states, we expect EBITDA margins to come in at the lower end of our mid-20% guidance range.
We still expect to generate $100 million in operating cash flow and be free cash flow positive, with a precise amount dependent on costs needed to fund the German market expansion coming early next year. With that, I'll turn the call back to the operator to open the line for questions.
We will now begin the question and answer session. To ask a question, you may press star, then one on your touch tone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw a question, please press star then two. Before we begin, we also ask that you please limit yourself to only one question on today's call. At this time, we will take our first question, which will come from Aaron Grey with Alliance Global Partners. Please go ahead.
Hi, good evening, thank you very much for the question tonight. My question, I wanna go a little bit towards the guidance, specifically on the EBITDA, the lower end of mid-20s. You know, this is, as we look at it, towards the first half, you did about, you know, 21% EBITDA margin. Even if we get to, you know, the lower end of mid, you know, call it, you know, 23%, still implies a nice uptick in EBITDA margin in the back half. You talked about gross margins being up modestly in two ways.
If you could help us in terms of, you know, SG&A expectations and maybe just give them more color in terms of the gross margin expectations within that, so we can get to that, you know, lower end of the mid-20s for the full year and what that implies for the back half. Thank you.
Aaron, this is Ed. I'll take that question. Look, we did mention the margins are gonna expand. We have underutilization that impacted the second quarter. It'll continue to impact us to some extent. We do expect our wholesale sales to rebound, thereby increasing our throughput on that end of the margin curve. Our SG&A will continue to be levered. We've made additional cuts to our expense structure, as I mentioned in my prepared remarks, and some of that will be flowing through our COGS structure as well.
We believe where the sales are gonna continue to ramp in the 3rd and the 4th quarter, as we're sort of reiterated that, that, that guidance, we have enough leverage coming out of the organization to get, get to the lower end of the range. Obviously, depending on where sales, sales fall in and what market conditions are, but from where we are today, we believe that trajectory is achievable.
Our next question will come from Matt McGinley with Needham. Please go ahead with your question.
Thank you. Excluding that reclassified expense and gross margin, how much of that three-point decline was driven by price compression versus intentional efforts to reduce inventory? How long do you expect that pressure from the inventory reduction to last? With that reclass, I think it was 80 basis points, but was that the first and second quarter all jammed into the second quarter, so that headwind is just naturally 40 basis points into the third and fourth? Am I thinking about that right, or is that an 80 basis point headwind from that reclassification in the back half as well?
Hey, Matt, it's Ed. Your, let me take the second part first. Your assessment is exactly right. It was the first half of the year into the second quarter. 40 basis points a quarter is about the right way to think about it, but pick up. On the gross margin erosion, listen, it was multiple areas, right? I mean, price compression certainly had a large impact on that, given Florida is our single biggest contribution to the business. You did have capacity utilization that will persist to some extent through the balance of the year, though it will be offset by some of the firming in the pricing that we're seeing and the increase to growth in wholesale.
It's probably somewhat of a balanced, balanced decline in margin, though I would say pricing had an outsized impact to it. We also obviously decreased inventory, health, in a healthy manner for the quarter, by $17 million, and as that production slowed down, that obviously had an effect.
Our next question will come from Russell Stanley with Beacon Securities. Please go ahead.
Good afternoon. Thanks for taking my question. Maybe if I could, around automation, you mentioned 3 states where you're already seeing benefits there. Understanding the margin benefits will take some time to see, but can you elaborate, I guess, on what you've done and which markets and, which markets are prioritized next for similar upgrades? Thanks.
Hey, Russell, it's Matt. We're certainly prioritizing our Tier 1 markets, as we call them, where we're really heavily investing in automation, you know, led by Florida, but some of our other large markets as well, including New Jersey and Arizona and Illinois.
Those are some of the markets that we're really investing heavily in, what I would call more advanced automation. We've had various aspects of our supply chain that have been automated, but now with some of the advancements that are available in terms of whether it's vape filling or edibles manufacturing, packaging of various varieties, you know, we're seeing a lot of opportunity to continue to get more efficient and to bring down costs, increase efficiencies, and make automation investments where the ROI is in months, not years. We view that as very good capital investments to make, and we're continuing to roll that out with a real focus on our higher volume states.
Our next question will come from Matt Bottomley, with Canaccord Genuity. Please go ahead.
Good evening, everyone. Thanks for taking all these questions. Mine just relates to the potential for incremental capital, if it's needed. Just wondering if you can give any sort of indication, whether it's, you know, through sales and leasebacks, or whether it's through increased delays in 280E payments at the federal level, if needed. What are the avenues that you think incremental capital could be accessed if we, this environment, you know, in the MSO, U.S. operator world, sticks around for longer than anyone's anticipating?
Well, let me, let me take that. At the moment, we don't foresee any reason to raise capital. Obviously, everyone knows that, we may have to do a small, if we decide, in the end to do a up list on the TSX, we may have to do a mandatory small raise for that, similar to what TerrAscend had to do. There is no intention at the moment to do any significant capital raises. We feel the capital build in the second half of the year is more than adequate to pay our bills for the company, and we feel very strong as we're going into next year, that we'll continue on that trajectory as all the steps that Matt and Ed laid out continue to operate.
Obviously, that doesn't leave us any substantial capital to go in and do any kind of significant M&A. Given where prices and market caps are here, it's not, y ou know, unless it's a very, very attractive share deal, we wouldn't do it. Really, for the CapEx that we have, the requirements on CapEx, requirements on debt service that we have right now, we feel very comfortable that the business and its trajectory is such that we don't need to raise any additional capital. However, we have constant offers for capital, both from lenders and from obviously, equity investors at these levels, but we have refrained from doing that. We do have around a $50 million revolving credit facility that's available to us to the extent that we need it.
We haven't had to tap it.
Our next question will come from Scott Fortune, with Roth MKM. Please go ahead.
Yeah, good afternoon. Thanks for the questions. Can you just dig a little bit deeper on, on the pricing? You know, obviously different from state by state. I'm kind of hearing mixed out there, where some we're starting to see stabilization, but for the most part, it sounds like you, you guys prepared more. You'll see price compression throughout the year here. You know, and then kind of more digging into really Florida, specifically there, the discounting and the promoting going on there. Is there a lot of this, this heavy, I mean, price pressures come from the inventory reductions, or kind of distressed operators or just pure supply? Just kind of touches through kind of the pricing side, if we're seeing any stabilization and more specifically with Florida market, that'd be great.
Yeah. Hey, Scott, it's Matt. Look, I would say on a national level, at a high level, we are definitely seeing firming in some markets, so we're seeing stabilization. Prices are not, you know, going down further in, in many markets, you know, I think it's too early to say that they're rebounding, you know, too heavily. We are definitely seeing firming in a lot of different markets. You know, Florida has been a market that we have continued to see increased promotional activity as we've had more players come online, more supply into the market, and a lot more dispensaries that have opened up for that medical market in advance of adult use. You know, we've seen a lot of aggressive promotional activity, you know, really across the board.
As we said, you know, we really held the line on our promotions activity there, you know, in Florida. That is a dynamic that we're seeing. There's some other markets as well, I would say that, you know, certainly there's, there's still some oversupply that needs to get worked through. You know, we think that's healthy, and it's all, you know, kind of underway, and we're gonna hopefully continue to see stabilization and rebounding occur.
Our next question will come from Frederico Gomes, with ATB Capital Markets. Please go ahead.
Hi, good evening, thanks for taking my question. Just on Germany, I think you mentioned a potential 5x increase there in that market, with the new regulations. How fast do you think that ramp can occur, you know, with the new legislation going to vote in the second half? Thank you.
Yeah, that, that, that's a very good question. We, we don't think that this is an overnight thing. We do think the program will most likely launch on time. Germans tend to hold to their schedules, and so far, they've been ahead of schedule on this launch. We do think that it will launch around January 1st. We do think, though, that at least the preliminary ramp will probably take some time. We, we, we anticipate sort of a 12-18 month period to move the market to what we think will be the $1 billion mark. We think it'll take, you know, very similar to the sort of Florida ramp. It'll take over four years.
to get to the sort of 4, 3% to 4% penetration that we anticipate will eventually happen with the medical light model. The models are very similar. I mean, there's 20,000, there's, there's 20,000 pharmacies, so the distribution is there, and, and it's already in place for the medical market. With taking this off the narcotics list, the patient journey is gonna be very, very easy for German patients. They won't have to go to a specialized doctor. They can go to their GP, which is gonna make the process very, very simple. Telemedicine will become very simple. They'll, they'll be able to issue you a medical card and medical prescription through telemedicine.
We think it'll be a very similar market to Florida in terms of its development, and therefore, we think it's gonna develop on a very similar line. Again, it's just a much bigger market with 84 million people. And if you look at the Florida market, it's about a $3 billion market. You can imagine over a 5 to 6-year period, what the German market could become. Curaleaf has a 23% share. We're the largest operator in that market today, and we hope to build on that over the next several months as we go into January 1st and the adult use ramp. Sorry, the medical ramp.
Our next question will come from Ty Collin with Eight Capital. Please go ahead.
Hi, thanks for the question. This one's for Ed. Ed, earlier in the Q&A, you mentioned your expectation that sales, and I think particularly wholesale, will accelerate into Q3 and Q4. Could you maybe elaborate on what gives you confidence in that scenario, given the ongoing price compression and macro pressures on the consumer, and what you see the key sources of that growth being?
Hey, Ty, it's, it's Matt. I'll take this one. Look, I think in Q2, you know, as we said in the prepared remarks, you know, we made some intentional moves to scale back the wholesale business. You know, really prioritizing, moving inventory through our vertical retail channel, where the cash conversion is, is the quickest, and we're able to maximize margin there. Look, we also You know, had concerns about the credit quality of some of the medium and smaller players, that there's been some collections risk associated with that, where we're seeing, you know, getting on the other side of much of that. I think that's a dynamic that we don't necessarily see persisting in the back half of the year as much.
We are seeing real opportunities, you know, whether it's the, the Maryland adult use launch, Connecticut increased opportunities and a number of different markets, frankly, where as we continue to round out our product and brand portfolio and launch new products, you know, such as our new edibles line, JAMS, and a number of other things, we're seeing a lot of opportunities to grow that wholesale business. We think there's, you know, we're at a base that we're gonna really continue to, you know, build on, but we're, you know, also cognizant of the environment as well, so.
Our next question will come from Eric Deslauriers with Craig-Hallum Capital Group. Please go ahead.
Thank you for taking my question. I'm wondering if the EBITDA margin guide, the updated guide here, if that assumes sort of stable pricing from, you know, either Q2 or current levels, or if that assumes continued pressure in markets like Florida for the second half. Thank you.
I'll take that. We, we're assuming pricing is somewhat stabilized at this point. I think there's been a tremendous amount of compression year to date. Our belief, and with some of the comments that have been made by Boris and Matt, is the pricing has reached a level where we think we can rebound from largely. That'll ebb and flow between different markets, but on balance, we believe our, we believe our market, we're baking in, I should say, that our pricing is gonna be relatively stable.
This concludes our question and answer session. I'd like to turn the conference back over to Matt Darin for any closing remarks.
Thanks, everyone, for joining for the call today. We'll look forward to speaking to you again after the third quarter. Thank you.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your line.