CuraLeaf Memo

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Pennsylvania State University *

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Apr 3, 2024

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Strategy Recommendation Full memo Curaleaf (CURA) Date: 4/18 Author: BACKGROUND & MARKET POSITION Curaleaf Holding Inc. is a cannabis producer and distributor in the North American region and has operating dispensaries. CURA was founded in 2010, and was originally operated under the name “Palliatech”. The brand has had major growin the past decade, which can be attributed to their dispensary operations in 23 states, which has cemented them as the largest national retail dispensary brand in the U.S. It started operations in New Jersey with a research center also located in Colorado, it is now headquartered in Wakefield, MA and has generated about $1.2 Bn in revenue. The new CEO of Curaleaf, Joseph Bayern, started his position on January 1st, 2021 The corporate portfolio consists of 2 reported operating segments: Cannabis Operations vs Non-Cannabis. These reported segments are divided among different producers, Cannabis segments operate in various delta-9 strains, while non-cannabis segment products consist of mostly CBD products. Whether Cannabis or Non-Cannabis, the product line is very similar, CURA sells: Vape Oils & Concentrates, Flower, Prerolls & Flower Pods, Topical Lotions, Capsules & Tinctures, Mints & Lozenges, Edibles. Recent acquisitions have a large contribution to the company growth, in 2019, CURA acquired Select , an cannabis oil company, making them the largest cannabis operator at the time. In 2020, CURA expanded their edible (infused chocolate and gummy products) business by acquiring BlueKudu from Colorado. Next year Curaleaf became the largest cannabis company by revenue after acquiring Grassroots Cannabis, which also helped them expand in 23 states in the U.S. INTERNAL ANALYSIS STRENGTHS ● Vertically Integrated. CURA’s has control over almost all of their operations from fields to dispensary making them one of the most vertically integrated cannabis companies in North America. Curaleaf assets contain 26 cultivation sites and 126 dispenarisies, more than any other competitor, giving them a competitive advantage. Cost advantage also comes from their vertically integrated business as cost per production is lower because it is company sourced.

● Expansion Through Acquisitions. Curaleaf’s ability to acquire other top competitors has helped them make major breakthroughs in the cannabis industry, specifically in their expansion to new territory. The Grassroot Cannabis acquisitions, for example, added to their footprint in Arizona and Nevada. Also acquiring Select helped them increase their product diversity by introducing select brand, and hemp products within the product line. WEAKNESSES ● Operating at a Loss. Curaleaf has been operating at a loss for a while, and even though there is growth potential in the future this loss could have serious effects. Firstly, their return on invested capital has been negative for the past 5 years and is currently -1.63% as of 2021. If a major regulation were to be enforced CURA could experience major losses, more so then they are now which can put them in jeopardy of going out of business. EXTERNAL ANALYSIS OPPORTUNITIES ● Investment in Cannabis. Cannabis industry is expected to grow significantly as more states legalize both medical and recreational use of marijuana. The compound annual growth rate of the industry is 26.7% from 2021 to 2028. CURA hads the opportunity to invest in themselves and other companies early so they can make long term assets cheaper down the line when stock prices start to become more expensive. ● Brand Extension. Increasing brand and product diversification, especially completely new innovations of products, can create major growth for Curaleaf. Being that the industry is relatively new, it would be smart for Curaleaf to be the first mover into a smaller category of Cannabis products so they can become an industry leader in that facet. Creating top brands for different categories is a strategic way for growing company equity and overall exposure. THREATS ● Pace of Legalization. How fast the legalization of cannabis determines when and where cannabis can be sold, but in recent years the government’s expansion of this can be too fast or too slow which can affect the market prices severely. Also this pace may change depending on which political party is in office, as the issue of legalization is very divisive. ● Black Market. The black market is a direct risk to the profitability of legalized cannabis companies because the black market operates with no regulations and taxes, ultimately making the cost advantage for them superior.

SWOT KEY ISSUES AND IMPLICATIONS The cannabis market is very new so a lot of the implications will change depending on the landscape of the industry. A lot of the threats CURA faces will be minimized when cannabis becomes federally legal; black market will decrease significantly and prices will lower for legalized weed which will turn their operations from a loss to a gain. The cost advantage they have through being vertically integrated will give them more accessible assets to invest in future ventures and increase product/brand diversity. SUSTAINABLE COMPETITIVE ADVANTAGE (SCA) For CURA to sustain their competitive advantage they must sustain their cost advantage through being vertically integrated. As cannabis starts to become legal in more states they will have to acquire new cultivation and dispensary locations to keep vertical integrations in new locations, otherwise other companies can control the market in those areas. While growing geographically, they must grow internally with new diverse and innovative products that will help extend their line. This can be done by acquiring companies with specialized products. These products can open new marketing segments and extend their portfolio. PROPOSED SMART GOALS ● Current goals consist of 15% annual revenue growth through the year 2031 which is driven by increased volumes with more legalization, less black market customers and new customers in general. And the company’s adjusted EBITDA margin will reach roughly 46% by 2031. ● New Cultivation Acquisitions. Acquire cultivation/agricultural companies to help vertical ingreatration expansion by 2025. As legalization continues to increase, more cultivation sites are needed to become easier movers in new regions. ● Increase Investment. Increase investments to 2% of revenue to ensure cheaper assets for the future. Invest in your own company and other start-ups early and when the stock is cheaper will make assets in the future cheaper when selling old stocks. PROPOSED CORPORATE LEVEL STRATEGIES To maintain the growth strategy CURA must improve on (1) Product Development. Improving products will keep customer satisfaction and improve brand equity and recognition. (2) Acquisition Strategy. After acquiring companies like Select and Grassroot Cannabis the company has increased overall revenue gains and brand diversity. Lastly (3) Investment.

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Investment in cannabis companies with specialized products and also digital investments to help customers satisfaction in store locations. Proposed - Product Expansion. Gaining new locations will open up a new market of customers with different wants and needs, and as the market grows so do products specialized for certain people. Cultivate new strains that haven’t been realized that will help people's medical and recreational needs. Proposed - Acquire Digital Companies. Acquiring and investing in digital companies will increase customer satisfaction. New, easily accessible functions in stores will give customers a better experience then competitors making them want to come back. PROPOSED BUSINESS LEVEL COMPETITIVE & FUNCTIONAL STRATEGIES CURA utilizes a cost advantage strategy through being vertically integrated from field to dispensary locations. This strategy is successful in this business because other competitors struggle to keep prices low due to federal taxes and sourcing their products from outside cultivators. RECOMMENDED MILESTONES AND MEASURES OF IMPACT From proposed initiatives Product Expansion- New product release can be measured by the sales of the product and can be a predictor of its future success. If the product breaks even relative to the cost of production it may be a predictor of future success. Acquire Digital Companies. Testing new customer experiences in store can be tested by surveys and amount of time spent in store. Both of these can be an indicator of consumer experience. KEY MESSAGES Since the industry is new, CURA must be careful when making certain moves compared to their competitors. Investments are a major opportunity that they must start doing now so they can make large amounts of gain once the market takes off when it become federally legalized. KEY SOURCES "Brands | Curaleaf | Cannabis With Confidence". Curaleaf , 2022, https://curaleaf.com/brands .

"Curaleaf Holding Inc.". Www-Mergentintellect-Com.Ezaccess.Libraries.Psu.Edu , 2022, https://www-mergentintellect-com.ezaccess.libraries.psu.edu/index.php/search/companyExecutives/ 117180428. "IBIS World". My-Ibisworld-Com.Ezaccess.Libraries.Psu.Edu , 2022, https://my-ibisworld-com.ezaccess.libraries.psu.edu/us/en/industry-specialized/od4142/industry-at- a-glance#swot-in-the-industry . "Curaleaf". Ar-Morningstar-Com.Ezaccess.Libraries.Psu.Edu , 2022, https://ar-morningstar-com.ezaccess.libraries.psu.edu/mirc/equity/sal.aspx?s=0P00016WGM#Morni ngstar_Report.

CuraLeaf Memo

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