Curaleaf Holdings, Inc. (OTCPK:CURLF) Q2 2020 Earnings Conference Call August 17, 2020 5:00 PM ET
Daniel Foley – Vice President, Finance and Investor Relations
Boris Jordan – Executive Chairman
Joe Lusardi – Chief Executive Officer
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Joe Bayern – President
Neil Davidson – Chief Operating Officer
Mike Carlotti – Chief Financial Officer
Conference Call Participants
Vivien Azer – Cowen
Andrew Partheniou – Stifel
Neal Gilmer – Haywood Securities
Scott Fortune – ROTH Capital
Graeme Kreindle – Eight Capital
Pablo Zuanic – Cantor Fitzgerald
Matt Bottomley – Canaccord Genuity
Bill Kirk – MKM Partners
Aaron Grey – Alliance Global Partners
Matt McGinley – Needham
Russell Stanley – Beacon Securities
Jesse Pytlak – Cormark Securities
Good day and welcome to Curaleaf Holdings’ Second Quarter 2020 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 Vice President of Finance and IR, Daniel Foley. Please go ahead.
Thank you. Good afternoon, everyone and welcome to Curaleaf Holdings’ second quarter 2020 conference call. Today, I am joined by Boris Jordan, Executive Chairman; Joe Lusardi, Chief Executive Officer; Joe Bayern, President; Neil Davidson, Chief Operating Officer; and Mike Carlotti, Chief Financial Officer.
Earlier today, we issued a press release announcing our results for the fiscal quarter ended June 30, 2020. The press release is available on our website under the Investor Relations section and filed on SEDAR.
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 completion of announced acquisitions and the impact of COVID-19 and are subject to risks and uncertainties that could cause the 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 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 pro forma revenue, adjusted EBITDA and managed revenue, the definitions of which maybe found in our earnings press release. Please note that all financial information is provided in U.S. dollars unless otherwise indicated.
With that, I would like to turn the call over to Executive Chairman, Boris Jordan.
Thank you, Dan. Curaleaf delivered another impressive quarter of strategic and financial achievements highlighted by record pro forma revenue, managed revenue and adjusted EBITDA. More importantly, our overall operation strengthened as the quarter progressed, with June retail and wholesale revenues growing over 40% from April. We believe our strategy of building a diversified portfolio of assets across multiple markets with strong underlying fundamentals rather than narrow focus on a few strategic markets is the key to building long-term sustainable profitability in this industry. More importantly, it aligns with our strategy to build nationally recognized brands. We take the long-term view that the cannabis industry will ultimately be much like traditional consumer packaged goods where trusted brands will be differentiating, defensible and value-creating in the long-term, continuing to capture higher margins and consumer wallet share.
With this, what we are building with Select is the cannabis industry’s first true national lifestyle brand, complementing our Curaleaf medical and wellness focused brand. Our second quarter results demonstrate the reserves of our business, our customers and the cannabis consumer overall in the tough economic environment. We started the quarter in the depths of COVID-19 with our adult-use retail operations in Massachusetts, closed for nearly 9 weeks and Nevada only able to offer limited delivery service for nearly 7 weeks. However, through this dedication of our employees and the loyalty of our customers, we were able to weather these temporary setbacks and by the end of May all of our operations will once again open. Despite these headwinds, we once again achieved record results.
Even as the country continues to experience hotspots related to COVID-19 pandemic, we continue to expect significant and profitable growth in the second half of 2020. A key driver of building momentum into the second half of 2020 and into 2021 is material investments we have been making in expanding our cultivation capacity across our key markets. This is critical as we largely operate in the supply constrained environment and continue to seek old consumer demand across medical and adult-use markets. This is before any further or expected cannabis legalization activity in 2020 and 2021. We expect to add more than 250,000 square feet of new capacity by the end of 2020 in key states, such as Arizona, Florida and Massachusetts, which will provide a powerful growth engine for our business in 2021 and beyond as these new harvests come online.
As a result of our ongoing investments, we expect that by the end of 2020 we will have almost doubled our flower canopy square footage for more we started the year. This does not include capacity acquired through Grassroots. In addition, in early 2021, we will bring a 110,000 square foot facility online in New Jersey in anticipation of adult-use. Given the significant investments we are making in our business and the sheer scale of our footprint, we expect our business to be substantially larger than our peers as we enter into the second half of 2020 and 2021.
We continue to remain steadfast in our strategy to be the industry leader with a significant presence in each of the states we operated through vertical integration and continued capital investments to improve our market share. While much of the industry has slowed its capital investments due to capital constraints, we believe that this is the perfect time to continue our national expansion strategy and feel that we have ample capital to do so. This positions us well into 2021 and beyond as several large states are considering adult-use operations.
Turning to our acquisition of Grassroots, I am extremely proud of the Curaleaf and Grassroots teams and love to thank them as well as the state regulators who work tirelessly to successfully close this milestone transaction of July 23. As a reminder on June 22, we announced that Curaleaf-Grassroots agreed to an amended deal terms. We believe these amended terms allow the combined company to further optimize cash for future growth. In connection with the closing of the deals, we completed the private placement for approximately $25 million to help bolster cash for future growth and satisfying the technical requirements related to the closing of the Grassroots acquisition. The addition of Grassroots, the nation’s largest private operator immediately strengthens our portfolio, adding important assets and increasing our U.S. footprint from 18 to 23 states, particularly in high growth markets.
Curaleaf’s expanded geographic dispensary presence now offers access to medical or adult-use cannabis to more than 192 million people or roughly two-thirds of the United States population. Curaleaf is now the world’s largest cannabis company by revenue and the most diversified vertically integrated cannabis company in the United States, the world’s largest cannabis market. Our overall portfolio now contains over 135 dispensaries and over 50 combined processing and cultivation licenses. Grassroots is a strong market leader throughout the Midwest with a portfolio of over 50 dispensary licenses, including 31 operational at close as well as 15 cultivation and processing licenses. Grassroots has a leading presence in certain large markets in which clearly Curaleaf did not operate strategically accelerating our continued expansion across the U.S. And Illinois and Pennsylvania, which are among the fastest and largest growing cannabis markets in the U.S., are also most significant immediate opportunities. Grassroots also expands Curaleaf into Arkansas, North Dakota and Vermont as well. Grassroots’ footprint is also complementary to our existing businesses in 7 other states, giving us increased scale operating leverage in major markets such as Arizona, Maryland, Michigan, Connecticut and Ohio.
I am also pleased with our integration of Select, which is rapidly becoming the first true national adult-use brand. Select is now available in 12 states as we added 6 new states to Select’s reach since the closing in February. We are still in the early stages of realizing the full potential, including improving margins. Wrapping up our discussion on acquisitions, I believe it is important to point out – speaks to the quality of our management team, our processes and our credibility. Curaleaf has successfully closed on every one of its announced acquisitions a rarity in a space dominated by fits and starts in M&A. I am pleased with not only our track record of identified complementary assets, but in our execution to close on these important growth opportunities.
Turning to legislative issues, as I stated last quarter at the federal level, there is much work to be done. However, at the state level, things continue to move rapidly. 2020 is setting up to be another positive year for potential cannabis legalization. Adult-use is on the November ballot in two key large cannabis states in which Curaleaf has a leading presence, Arizona and New Jersey. Separately, Mississippi and South Dakota will vote on measures to legalize medical cannabis in their states and Montana will vote on a measure to legalize adult-use. If these ballot measures pass and all indications are they will, as highlighted by broad polling support, this would bring the total number of medical states to 39, representing approximately 85% of the U.S. population and adult-use states to 14. Further, we believe the potential legalization of adult-use in New Jersey could kick off a wave of legalization in the northeast with New York, Connecticut and Pennsylvania likely to seriously consider adult-use legalization. As a reminder, Curaleaf has a significant leading presence in each of these states.
Turning to our financial results, despite the difficult operating environment in Massachusetts and Nevada during the quarter, I am very pleased with the results we posted in the second quarter. We once again delivered record pro forma managed revenue and adjusted EBITDA. And in addition, cash flow from operating activities during the quarter was $23.4 million. We expect our overall free cash flow conversion profile to improve in the current quarters. Pro forma revenue of $165.4 million reflects the power of our platform and leadership position in the sector. Managed revenue grew 16% sequentially to $121.4 million and adjusted EBITDA grew 40% sequentially to $28 million. We believe this growth is impressive despite an estimated $25.5 million revenue impact from COVID-19 during the quarter and demonstrates the operating leverage present in our business as we scale. In addition, during the quarter, we incurred higher operating costs of approximately $1.8 million associated with our efforts to manage through the COVID-19 pandemic. These expenses were not added back to our reported adjusted EBITDA.
Based on the current operating environment and assuming a continued recovery in Massachusetts and somewhat challenged recovery in Nevada, we expect to generate quarter three pro forma revenue for the third quarter of approximately $205 million to $215 million. We expect managed revenue to be approximately $190 million to $200 million, which includes the recently acquired Grassroots assets for the period of July 23 to September 30. Mike will go into more detail on our outlook in his section. Meanwhile, we continue to work with regulators to close our transactions with Alternative Therapies Group, or ATG, which continues to be included in managed revenue, but ultimately removed to wholesale revenue once we closed on the acquisition of ATG’s cultivation and processing assets. We currently expect to close on the acquisition of ATG by the end of the third quarter.
Our balance sheet remains strong with approximately $122.8 million of cash on hand at the end of quarter two. The change from quarter one to quarter two cash was primarily driven by continued capital investment in our businesses and funding for additional accretive acquisitions that expanded our footprint. Subsequent to the end of the quarter, we raised approximately $42 million of cash proceeds through sale and leaseback transactions and $24.5 million of net proceeds from the July private placement. During the third quarter, we expect that our capital expenditures and acquisition cash spend related to the previously announced deals will increase from the second quarter levels. At this time, we continue to believe we are well-positioned to fuel our organic growth and strategic acquisition needs in such a way that did not require raising additional equity capital.
Looking back on the first half of 2020, we have accomplished a lot in the short period of time despite the challenges brought on by COVID-19. However, we also recognized there is much work to be done. As the cannabis industry continues to consolidate and states announced and expanded initiatives, my partners and I remain committed to funding up to $100 million for particularly attractive opportunities that may arise in this cash constrained environment. Our strategy as always is to structure any deal or capital commitment in such a way as to advance our market leading position and most importantly drive shareholder returns.
As part of this strategy, I reiterate that I have no plans to sell a single share of Curaleaf and they have fully committed to the growth and success of the company. I will now turn the call over to Joe.
Thanks, Boris. Before I begin my state by state review, I want to reiterate our appreciation for all the hard work of our employees, the Grassroots team, regulators and the loyalty of our customers for helping Curaleaf weather the COVID-19 crisis. Our second quarter results reflect the strong fundamentals of our underlying business and then tremendous operating leverage inherent in our business as we continue to scale. Our strategy, our vertical integration, early in the lifecycle of our core markets is paying dividends. We believe our focus on driving return on invested capital in markets with attractive qualities, is key to driving long-term shareholder value. We continue to see tremendous opportunity to further solidify our position in each of our markets of operation, while keeping a watchful eye out for new opportunities that may present themselves organically or through acquisition.
With the strategic focus we closed on four key acquisitions to-date in 2020: Select, Grassroots, Arrow Alternative Care in Connecticut and BlueKudu in Colorado, as well as securing important license awards in Utah and Pennsylvania. As Boris touched upon, our most recent acquisition of Grassroots is a true game changer. With Grassroots, Curaleaf gains a business that has grown tremendously over the last year and brings us immediate operational exposure to two of the fastest growing cannabis markets in the nation, Illinois and Pennsylvania as well as several other new markets and complementary assets in existing markets. This important acquisition, along with the previously mentioned acquisitions, license wins and the robust organic growth, we are experiencing positioned Curaleaf for strong future growth.
Organically, we expect to add an additional 17 Curaleaf dispensaries across 5 states and expand our cultivation capacity by over 250,000 square feet across Arizona, Massachusetts, Illinois and Florida all by year end and complete our New Jersey expansion in early 2021. When coupled with our strategic acquisitions, our reach will grow to more than 100 dispensaries. Ultimately, we expect to grow our operations to nearly 140 dispensaries and 2.3 million square feet of cultivation space. This will further enhance Curaleaf position as the most well-diversified, vertically integrated cannabis company in the United States with access to nearly two-thirds of the entire U.S. population. We believe our growing profitability and track record of successfully closing every announced transaction speaks for itself. But as Boris alluded to, there is still a large opportunity for us to pursue additional growth opportunities through faster deployment of additional growth capital. As such, we will continue to focus on opportunities that further position Curaleaf as the national enterprise allowing us to further expand on our national brand strategy, which is already well underway.
We continue to make improvements in our operations and I am encouraged by the rapid progress. For example, on the technology front, we now have 8 states accepting debit tender and we plan to enroll this technology out in 3 additional states by the fall. In aggregate, we have seen a nearly 20% increase in average transaction value we made in debit transactions as compared to cash and the adoption rate is over 20%. Higher average basket size debit card transactions have not led to a decline in customer visits. We are in the early stages of this rollout, so we expect that debit transactions as percentage of overall transactions volume will continue to increase meaningfully over time.
Overall, we continue to focus on improving our online and cashless solutions and are seeing robust growth in online commerce with the launch of our new customer-facing website in May of this year. We will continue to invest in improving our online presence as well as ease of transaction for our customers. Our goal is to create a cannabis transaction that is more in line with modern retail practice thereby giving the consumer flexibility to tailor their unique Curaleaf cannabis experience to their specific needs.
Turning to a recap of second quarter operations in our significant progress in key East Coast and Central States, in Florida, we maintained our market position while completing significant additions to our cultivation capacity. We began populating the first room and our new 50,000 square foot indoor facility in July and along with further ongoing expansions within the existing footprint of our 270,000 square foot Dutch glass greenhouse, we will more than double our flower capacity by year end to increase sell through in our current stores, and to further support our growing retail dispensary footprint. We expect to finish the year with 39 stores located in every major population center in the state. We also continue to innovate in Florida, and recently launched the first sublingual chewable product in the market. We recently introduced Select of the state and have several innovative products in the pipeline for launch this year. Medical Cannabis demand in Florida remains strong. The market added nearly 20,000 new patients in June and other 20,000 in July, for a total of over 380,000 patients. We expect Florida realize over $1 billion in sales in 2020. And we remain laser focused on capitalizing on the immense long term opportunity in the state and Massachusetts adult use sales were prohibited for all of April and most of May.
During this time, we continue to serve patients at our medical stores and Hanover and Oxford. And once adult use sales were again permitted on Memorial Day, we immediately resumed adult use sales in Provincetown, Oxford and where while it was frustrating to have shut down some of our stores for nearly two months, we remain bullish on our position in Massachusetts. Currently the only adult use market on the East Coast in Curaleaf home state we are one of the few companies in the state to operate the maximum three adult use dispensaries and are one of only 25 companies licensed for adult use cultivation and manufacturing, with the number one market share based on total licenses held. Our growth facility currently consists of 50,000 square feet of fully built indoor production and we expect to receive our final approval for an additional 50,000 square feet during the third quarter. This will more than double our cultivation capacity of high quality indoor flowers. In a state that commands the highest dollar per pound of wholesale flower in the nation, according to cannabis benchmarks.
In July, we launched Select branded products in Massachusetts, and couldn’t be happy with the market’s initial response. Select is America’s number one oil brand. And we look forward to continuing to expand Select’s presence in the rapidly growing Massachusetts market we remain extremely optimistic about the overall prospects for the adult use market in 2020 and beyond. In New Jersey, the team continues to exceed expectations in both on our leading market share in this fast growing medical state that is very likely to legalize adult use later this year. And adult use measure will be on a November ballot and recent poll show over 60% support. In July, we completed a refinancing on our new 110,000 square foot production facility at Winslow, which provides us up to $2.9 million to build out the state-of-the-art cultivation and processing operation. The completion of the facility, will more than double our capacity in this undersupplied market.
We have already begun construction and can’t wait to get this new facility online in early 2021, creating hundreds of new jobs to the state. We also continue to make progress in opening additional dispensaries and expect to open at least one additional location by year end on top of all that, earlier this quarter, we completed the process of reorganizing our New Jersey operations into a for profit entity, giving us 100% ownership of this key asset in short Curaleaf is currently the leading retailer and wholesaler in this state of nearly 9 million residents. Our continued retail and cultivation investments position us extremely well to catch outsized gains as a medical market expense and if adult you cells are approved by voters, which we believe is likely based on recent polling. When we went to New York, in the second quarter, our retail operations once again achieved over 25% market share according to state tax data.
Combining with a strong wholesale operation, we estimate we have the number one market share in the state Curaleaf was the first company in New York to offer ground flower. The first to offer chewable jaw product, the first in our license class to open the maximum four dispensaries and we remain poised to continue to leave New York as the market expands. While coronavirus slowed momentum for adult-use legalization in the legislature this year, our 4 stores, delivery service and fully built that 72,000 square foot production facility will allow us to maintain and build our market share going forward. As you said before, we believe New York represents one of the largest untapped opportunities in the U.S. And we look forward to playing a key role in the development of the state of over 19 million residents. We also think that New York will ultimately become an adult use state and are already formulating plans to materially increase our cultivation capacity within the state.
In Maryland, Curaleaf is a leading operator with vertically integrated operations in 4 dispensaries. Select is also quickly establishing itself as a leader in the vape category, with the number two market share in the second quarter despite only launching in the market late last year. The Maryland market continues to see impressive growth with over 100,000 certified patients and Q2 sales increasing over 20% to $110 million. We are currently working on divesting certain of our Maryland assets in order to achieve regulatory approval to combine the Curaleaf and Grassroots operations in a way that complies with regulations that prohibit any company from owning more than 4 dispensaries and more than 1 cultivation and processing facility. This gives us the opportunity to select the best assets from Curaleaf and Grassroots to fully optimize our footprint.
As such, on the production side, we plan to divest Curaleaf’s 22,000 square foot facility and replace it with Grassroots fully built out 55,000 square foot facility, more than doubling our output. On the retail side, the combined company will have 4 dispensaries strategically located across the state, 1 dispensary in Reisterstown Curaleaf’s top performing store, 1 dispensary in Gaithersburg, which is the current Curaleaf’s dispensary we plan on relocating in Q4 to a new, better location within the same city, and 2 operational dispensaries, that are movable anywhere in the state. These are 2 of only 10 dispensary licenses in Maryland that can be moved to any location giving us the opportunity to move them to the best and most strategic retail locations in the state. We have already secured one site and have the other identified and couldn’t be more excited about optimizing our footprint. In the meantime, our current positioning remains strong as we seek to maximize the value of the divestment opportunities for our shareholders.
Moving on to Connecticut, Curaleaf now has 4 of the state’s 18 dispensary licenses and 1 of 4 production facilities, giving us the number one market share in the state. In Q2, we closed the acquisition of Arrow Alternative Care’s 3 dispensaries and overnight became the leading retailer in Connecticut. Grassroots further strengthened our retail footprint by adding a dispensary in Groton, which opened on July 24. Combined with our existing 60,000 square foot production facility in Simsbury, the addition of the 3 Arrow dispensaries has been immediately accretive to our margins and it couldn’t have come at a better time. In June, chronic pain was out as a qualifying condition, which according to the Commissioner of the Department that oversees the program is expected to double the number of patients in the state. Also in June, we launched Select in Connecticut by introducing Select Elite Live cartridges and have been overwhelmed by the positive feedback from patients.
On the legislative front, we are seeing growing bipartisan support for adult-use legislation and are optimistic that adult-use cannabis will be a reality in Connecticut in the next year or two. Again, Curaleaf is well-positioned to capture current market growth driven by the addition of chronic pain as well as any future adult-use sales. In May, we completed a transaction that will enable us to consolidate 8 of the 8 medical license holders, which we have previously managed under a managed service agreement and continued to lay the groundwork for Curaleaf to be a leader in the adult-use market when it launches in early October.
We intend to open a maximum of 4 adult-use retail locations early in the program with locations secured and in development, while greatly expanding production capacity across the state. Towards that end, we have secured a new 40,000 square foot production facility and are also increasing the size of our current growth facility from 28,000 to 50,000 square feet. This expanded capacity will not only support our floor plan dispensaries, but also provide us with a bigger wholesale platform and drive the growth of the Select brand, which we launched in Maine in July. Maine’s strong support of cannabis and sizable tourist market bode well for growth in 2020 and beyond.
In Ohio, we are pleased to announce final cultivation of processing licenses as well in July for the 32,000 square foot Ohio-grown therapy facility in Johnstown. The facility includes the maximum allowable cultivation of 25,000 square feet plus processing square footage that will allow us to deliver nearly 12,000 pounds of flower per year, bringing a full breadth of products, including Select to the market. Grassroots provides Curaleaf with 2 of the state’s 51 operational dispensaries completing our vertical integration in the state. In the meantime, we will divest Grassroots’ existing 10,000 square foot Level 2 cultivation and processing facility to conform with state regulations. Ohio already has over 100,000 registered patients despite starting sales just late last year and Q2 market sales were around $50 million. We are excited about the opportunity for growth in this important Midwestern state that has approximately 11.7 million residents.
In Pennsylvania, after the closing of Grassroots in July, we immediately became a top player with 9 dispensaries in 75,000 square feet of fully built-out and operational cultivation and production in this fast growing medical market, with over 350,000 registered patients, a fill of 2.8% of the state’s population. We are extremely pleased with how these assets are performing. Grassroots has the right to open additional few dispensaries in Pennsylvania and Curaleaf has a clinical registrant license with the University of Pennsylvania, which we were awarded early this year can open an additional 6 dispensaries and 50,000 square feet of cultivation capacity. As such, we are now strongly positioned in this market, the nation’s fifth largest with 12.8 million residents and we expect Pennsylvania to quickly become a key market for Curaleaf. Pennsylvania is another state on the eastern seaboard that we believe will strongly consider adult-use legislation in the next 1 to 2 years.
Another Grassroots state we are excited about is Illinois. Illinois is the nation’s sixth most populous state, with 12.7 million residents and the newest adult-use market in the U.S. In this key state, Grassroots has 6 operational dispensaries and 70,000 square feet of fully built-out indoor cultivation. We will be expanding our cultivation in Illinois through a new 55,000 square foot greenhouse, which will be funded with new capital and completed in early 2021. 4 additional stores are expected to open by year end for a total of 10 stores strategically located across the Greater Chicago area, including Grassroots’ newest stores, which opened in downtown Chicago in early July. This footprint will make Curaleaf one of the only three operators in Illinois, with vertically integrated operations and the statewide maximum of 10 dispensaries. It’s no secret Illinois has quickly grown into one of the nation’s largest cannabis markets, with annualized sales already approaching $1 billion after only 7 months of adult-use. Through Grassroots, Curaleaf will immediately become a market leader and we look forward to continuing rapidly developing these important assets.
Now, I want to take some time to touch on our Western strategy. In Arizona, where Curaleaf has the number two market share based on licenses held, our 8 stores have seen for associate extremely strong revenue growth in 2020. We added an additional dispensary license in July via Grassroots to further strengthen our dispensary footprint. We have identified the location for this license within the metro Phoenix area and look forward to opening this store our ninth in early 2021. In Q1 of this year, we doubled our canopy in our 100,000 square foot facility in Holbrook with a focus on improving gross margin and free cash flow through increased vertical integration and have additional expansion projects underway to complete the build out of the entire facility. Select is already a leading vape brand in Arizona with top three market share and has expanded its product line to include gummies and tinctures. We plan to win additional market share for Select by further integrating Select within our existing production assets and introducing new products, including live resin.
Arizona continues to be one of the largest cannabis markets in the U.S. with over 250,000 registered patients, or 3.6% of the state’s population. And we remain confident residents will vote to approve adult-use on the November ballot. Curaleaf is extremely well-positioned to capitalize on adult-use sales if approved. In California, the largest cannabis market in the world, Select continues to be a top three vape brand and has expanded its family of products to include gummies, live resin and tinctures. In Q2, we signed HERBL, California’s largest cannabis distributor and supply chain solutions company, as the exclusive distributor of Select products in California. This partnership has resulted in an immediate gain, including an increase in deliveries, expanded customer footprint and more cost effective delivery method as well as opportunity for continued growth bringing Select to more than 850 licensed dispensaries and delivering partners across the state. Meanwhile, we continue to harvest regularly on our 190,000 square foot cultivation facility in Salinas, providing Curaleaf with additional wholesale revenue and improved margins through the backwards integration of Select into this asset.
In Nevada, we quickly pivoted in Q2 to deliver only sales when storefronts were ordered to close and safely reopened our 2 dispensaries on May 8 per state regulations. On the production side, we have continued to operate on plan at our 3 production facilities in the state. With our focus on local residents, the pace at which tourism rebounds will be a key sales driver for Curaleaf in Nevada. We closed on the acquisition of Acres in late 2019 and we are working to increase the productivity of these assets allowing us to backward integrate Select into our supply chain. A renewed emphasis on this wholesale market with the recent launch of new Select products, including gummies and tinctures will allow us to achieve the full potential of the brand.
Towards that end, Select captured a top three vape market share in Q2. In Oregon, where Select is again a top three vape brand, we have improved our margins by backward integrating Select in our established vertical operations with 37,000 square feet of cultivation. We are committed to growing Select brand profitably and in a way that continues to earn customer and patient trust. In Colorado, we closed the acquisition of BlueKudu in July, a producer of cannabis chocolates, baked goods and gummies that utilizes high-quality ingredients. With this, Curaleaf obtained an 8,500 square foot processing facility to support the expansion of Select brand in Colorado. Select successfully launched there in January and we view this market as an attractive opportunity to grow brand identity and gain market share through a robust dispensary market. Colorado was the second largest state in terms of cannabis revenues.
In Utah, we plan to open a dispensary in the City of Lehigh later this month. Lehigh is near the geographic center of Salt Lake City, Provo-Orem, combined statistical area, which contains 82% of the state’s 3.2 million residents. Curaleaf will be one of only 4 operational dispensaries in this market out of 14 dispensary licenses in January of this year. We are also nearly complete with the construction of our new 7,500 square foot pharmaceutical grade processing facility in North Salt Lake City.
Finally, I would like to highlight the significant progress we have made since closing the acquisition of Select on February 1. Our goal with Select is clear to create a national lifestyle brand that consistently resonates with consumers through its value proposition and innovative product offerings. We have been intensely focused on three key areas: launching fresh and new markets, introducing new in-demand form factors and formulations around the Select product suite and realizing cost synergies by integrating Select supply chain within Curaleaf’s fast production infrastructure.
As part of our initiative to expand Select’s presence, in the past 4 months alone, we have introduced Select in 6 new states, including Colorado, Oklahoma, Connecticut, Massachusetts, Maine and Florida. Select is no longer just a West Coast brand as its products are now available coast-to-coast in a total of 12 states and we plan to rollout Select to several additional markets by year end, including newly acquired Grassroots markets. When we launched Select in a new market, we are not just doing it to check a box that’s introduced trusted products to consumers and drive reliable repeat business. This is evident in the fact that according to BDS data, in Q2, Select had top three vape market share in California, Oregon, Nevada, Arizona and Maryland. And importantly, when we launched Select in an existing Curaleaf state, our in-house data shows that Select has incremental revenue to Curaleaf, such that when we launched Select products in Connecticut, Maryland and Massachusetts, three states with existing Curaleaf wholesale businesses. We have seen higher average units sold and higher average revenue per week in aggregate when compared to Curaleaf’s historical sales. This proves that as we roll Select out across our entire platform, we can expect to see additional revenue gains without cannibalization. The main driver behind this is Select’s high-quality and targeted product line.
After closing the acquisition in February, we launched a brand new product for Select, Select Elite Live, which is a broad spectrum oil product derived from fresh frozen flower, capturing more essence of the living plant and higher terpene content resulting in enhanced flavor. In Q1, we launched Elite Live in Arizona and California, quickly expanding to Maryland, Michigan, Oregon and Connecticut in Q2 and further rollout the product in several additional markets by year end. We have also launched like Select Nano Gummies made with Nano-emulsion technology, which provides the faster onset and later offset the traditional edibles and offers a more predictable experience for the consumer. Due to the precise and calibrated effects, Nano Gummies are a perfect micro dosing solution and an optimal choice for consumers looking to try cannabis for the first time or for those seeking alternative consumption methods. So, like gummies are now available in Arizona, California, Massachusetts, Maine, Nevada and Oregon, with several additional new state launches planned by year end.
Combined with Curaleaf industry leading production infrastructure, we have been able to realize significant synergies and a more streamlined supply chain for Select. For example, in California, we have been able to reduce Select’s input costs by sourcing raw materials from our cultivation facility and our existing processing operations in the state. The same is true in just about every state where Select is sold. Those synergies were a big driver in our thesis for this acquisition. And what remains, we are pleased with cost savings we have been able to realize this far and our ability to develop the Select brand into both a strategic and profitable manner.
In summary, I am pleased with our progress as we moved through 2020. Despite the challenging environment presented by COVID-19, we have managed to weather the situation extraordinarily well. And it goes in general remains a bright spot in the consumer space. And we are confident that Curaleaf remains one of the best positioned companies to emerge from the crisis stronger than ever. As we enter the second half, we are poised to deliver strong growth to have successfully completed acquisitions. Additional license wins and organic growth of our existing business. We are executing on all fronts, prudently deploying capital to key markets, expanding both our brick-and mortar and online presence. We remain focused on growing our cultivation and processing, sales and marketing in innovative and proprietary R&D to deliver brands that resonate with both our patients and lifestyle customers. We continue to make progress and plan investments in several key states, many of which will be completed The second half of 2020 we expect these to yield strong growth both in the top and bottom line, leading the Curaleaf becoming free cash flow positive after all plan capital expenditures in the coming quarters.
Now I will turn the call over to Mike Carlotti to review our financial.
Thanks, Joe. Looking at the second quarter, we once again posted record results as we remain focused on generating strong revenue and adjusted EBITDA growth that we believe will drive long term value creation for our shareholders. In the second quarter, we not only posted record pro forma and managed revenue, but also posted our fifth consecutive quarter of record adjusted EBITDA despite the challenges presented by COVID-19 in Massachusetts in Nevada, our broad geographic base and product diversity, a key strength of Curaleaf allowed us to deliver these outstanding results.
Second quarter results were driven by strengthen Arizona, California, New York New Jersey and Connecticut as we continue to see strong growth and operations in these key states. Vertical integration remains a key component to our strategy. We are increasing cultivation capacity in each of our states of operation, where we continue to see expansion of medical programs and or ongoing discussion around legalizing adult use consumption in the near term. This includes Arizona and New Jersey, and longer term, Pennsylvania, New York and Connecticut.
Our gross margins from cannabis sales increased nearly 250 basis points to 42.9% as compared to the second quarter of the prior year. The increase was primarily due to higher operating capacity the company’s cultivation and processing facilities in several states, offset somewhat by COVID-19 related impacts in Massachusetts and Nevada. As mentioned on our previous calls while we expect our gross margins from cannabis sales to trend, upward it will continue to fluctuate quarter to quarter based on our investment cycle and processing and cultivation as we continue to expand and bring new facilities online. Over time, we expect this fluctuation to moderate as our investments continue to ramp and the capital intensity of our investments continued to moderate in the second quarter managed revenue increased by 120% over last year to record $121.4 million and was up to 16% sequentially.
We estimate the impact from COVID-19 the managed revenue was approximately $25.6 million during the quarter. Total revenue for the quarter was a record $117.5 million up 142% over the last year and up 22% sequentially, demonstrating strong growth that exists in both our core and managed business operations in order to provide more clarity, we have once again provided a breakdown of retail, wholesale and management fee income as it pertains to total revenue. As a reminder, Select is largely contained in the wholesale revenue line. Sales of Select products in our retail operations are contained in retail revenue.
We reported record adjusted EBITDA $28 million in the second quarter, up 40% sequentially and up over fivefold compared to $4.4 million in the second quarter of 2019. The increase year over year was primarily due to continued scaling of operations and higher gross margins across several states, notably in Arizona, Florida, New York and New Jersey. This was offset somewhat by continued investment in key markets where we are expanding capacity to meet demand and the impact from COVID-19 in Massachusetts and Nevada. We are pleased with the flow through and strong growth in adjusted EBITDA despite the impacts of COVID-19. Our retail and wholesale revenue more than doubled to $99.6 million during the quarter, as compared to $37.7 million in the second quarter of the previous year. Management fee income was up 66% to $17.9 million in the quarter versus the comparable prior year period. The increase in retail revenue was primarily due to organic growth and new store openings in Florida, Massachusetts, New York, the Select acquisition as well as the acquisition of three dispensaries in Arizona two dispensaries in Nevada and from Maryland, offset somewhat by the impact of COVID-19 related closures in Massachusetts and Nevada. We grew our retail footprint to 57 operating dispensaries as of June 30, 2020, up from 45 on June 30, 2019. As of today, we operate 87 dispensaries with the inclusion of three dispensaries required in Connecticut in April and the addition of Grassroots operational dispensary.
SG&A for the quarter was $40.5 million as compared to $28 million in the prior year period, and $45.9 million in the prior quarter, adjusted for one time charges, SG&A for the quarter was $36.3 million, compared to $34.7 million in the prior quarter, or 29.9% of managed revenues, a decrease of approximately 320 basis points compared to the prior quarter. As we identify additional cost savings, and scale overall operations, expect our SG&A to continue to decline as a percentage of managed revenue, resulting in significant operating leverage. During the quarter income tax expense was driven by deferred taxes associated with the increase in biological assets. Net loss attributable to purely holdings for the second quarter of 2020 was $2 million has compared to a net loss of $24.5 million in the second quarter of 2018. Due to our acquisitive nature, we believe adjusted EBITDA is still the best measure of our performance as it excludes the impact of $43.3 million non-cash charges related to biological assets, depreciation and amortization and stock based comp as well as $4.2 million of one-time items primarily related to extraordinary legal fees, integration costs and startup costs. We have provided a reconciliation of net loss to adjusted EBITDA on the press release.
Moving on to the balance sheet, as of June 30, 2020, we have had $122.8 million of cash on hand, despite our expectation that capital expenditures and cash acquisition and will increase in the third quarter versus the second quarter. We remain confident in our financial position and believe we have sufficient cash on hand to fund all of our current business initiatives to support future growth. Furthermore set of our key states continue to generate increasing operating cash flow, which paves the way towards generating significant organic cash flow. Finally, as Joe noted, we believe the capital investments we made in 2019 continue to make in 2020. Elite care leads to becoming free cash flow positive after all planned capital expenditures in the coming quarters. Weighted average fully diluted shares outstanding were $533.2 million. This is the non-include the approximately 116.3 million shares issued in the Grassroots transaction, or the 4.4 million shares issued in the July private placement.
A quick recap of the amended Grassroots deal terms, as Boris mentioned, on June 22, we announced the Curaleaf and Grassroots have had agreed to amended deal terms whereby the base consideration 102.8 million shares remained on changed, with the additional shares we initiated Grassroots shareholders increasing from 40 million to 90 million. In aggregate, we issued 116.3 million Curaleaf shares to Grassroots’ existing shareholders and convertible bond holders. Combined, these mutually shareholders will own approximately 18% of the pro forma combined activity. As the technical condition of closing, we raised net proceeds of approximately $24.5 million in a private placement of 4.4 million shares which closed in July. Additionally, today we will be filing a Notice of Intent to file a shelf registration. The shelf registration is intended to provide the company with increased long-term balance sheet flexibility. While we do not have any current plans to utilize the shelf registration, we believe it’s prudent to add this incremental financing flexibility should unforeseen opportunities arise to deploy capital in the future.
With respect to guidance, as Bruce mentioned, based on current trends in our business and the ongoing recovery in Massachusetts and somewhat challenged recovery in Nevada due to COVID-19, pro forma Q3 revenue is expected to be approximately $205 million to $215 million. We expect to generate Q3 managed revenue of approximately $190 million to $200 million, which includes the partial Q3 benefit of the recently acquired Grassroots assets from the period of July 23 to September 30.
The following is a bridge for our Q3 managed revenue guidance of approximately $190 million to $200 million. We expect to generate approximately $150 million to $160 million of managed revenues from core Curaleaf’s Select operations. We estimate Grassroots to contribute approximately $40 million in reported net revenue. Had Grassroots closed on July 1, it would have contributed approximately $55 million of revenue in the third quarter, net of assets now being held for sale in Maryland and Ohio to meet maximum license requirements. As Joe noted in his remarks during the quarter, we converted one of our main assets, Remedy to a for-profit, which was included in our Q2 financials.
In early July, we also reorganized Maine Organic Therapy and New Jersey leading Alternative Therapies Group, ATG, as the only outstanding entity still in managed revenue. We continue to work on securing final approval and we hope to consolidate during the third quarter. Once the acquisition of ATG’s cultivation and processing assets is completed, we will no longer provide managed revenues in our earnings releases reporting only IFRS total revenue. Please note that the conversion of these entities will modestly reduce our adjusted EBITDA margin as the operating costs of these entities will now be consolidated on to our income statement versus recognizing the profits from management fees. Lastly, these expectations assume no further changes in the operating environment due to COVID-19 for the remainder of the quarter, including potential new re-lockdowns or closures.
With that, I will turn it over to the operator to open the line for questions.
We will now begin the question-and-answer session. [Operator Instructions] Our first question today comes from Vivien Azer with Cowen.
Hi, thanks so much for the question and congrats on the closing the Grassroots acquisition. My first question I will keep it short to two given where we are on the time is just double click on the guidance obviously looking for very robust sequential growth. Can you just offer any commentary on where you guys are seeing the business quarter-to-date offer some comfort around the achievability of that? Thanks.
Vivien, this is Joe Lusardi. Thanks for the question. Yes, in terms of the guidance, I think we feel pretty good about where that’s going to come out. I think, last quarter we guided and that we came in slightly above that, but I think we are feeling pretty confident we can get to those numbers.
Any specific callouts in terms of particular areas of strength?
No, I mean, to be honest, we are seeing strength across the board. We are seeing increased demand across the country without exception, all markets and we are feeling very good about where we are positioned. We have done a lot of work to solidify the business and manage through COVID and we are feeling pretty confident in mid-August where we are sitting.
Okay, that’s fair. One quick second question then, Joe, I believe you mentioned you have an aspiration to get to 140 dispensaries, but do you have a timeline in mind for that target?
Yes, I think we will get there by early 2021 hopefully by Q1. We are – as we said, we are going to open up another 11 dispensaries in Florida to get to 39 this year. Those are all either completed or almost nearly completed and Grassroots has a number of stores in the pipe. So, I am feeling very confident we can get to 140 by early next year.
Terrific. Thanks for the color.
Our next question comes from Andrew Partheniou with Stifel.
Hi, good evening and congrats on the impressive quarter. Maybe if I could ask about Select a little bit, you guys called out all the work that you have done so far and also the fact that there is still a lot to be done. Just trying to get a little bit more color on that? Can you maybe quantify how many stores Select is in now? I think at the end of Q1, it was about 800 stores. And as well on the reverse integration, could you guide a little bit of color on where Select stands in terms of the margin perspective and how far along you are in sourcing your input costs internally?
Sure. I mean, what I would say is that Select is very much a work in progress, but we are very happy with how it’s going to date. Select is now in more than 950 stores. We mentioned on the call that we have just entered 6 new markets in the last, call it, 8 weeks and so still very early days, but a very strong reception for Select on the East Coast, both in our stores and on a wholesale basis, so feeling very good that we can get Select to be the leading national adult-use brand in the country and opened up many more doors between now and the end of the year. In terms of integrating Select in our operations, we are making progress in markets like California, Nevada, Oregon, Arizona, where we already had existing footprints as well as in Maryland and we are launching Select in markets where we already had established footprints like Connecticut, Florida, Maine, Massachusetts. So as we go into new markets, where Curaleaf is present, we will most certainly be driving margins that are better than where Select was as we are a specialty manufacturer. And over time I think margins will improve on Select, but it’s still very much a work in progress. It was called a low single-digit EBITDA business and we need to work that margin higher and we intend to do so as we move into more profitable markets on the Illinois and on the East Coast.
Yes. And just to give you a sense of top line for Q2, Select’s monthly revenues were up over 20% versus Q1 and the June – the month of June was a record month for Select.
Thanks. That’s great color. And just a follow-up one if I could. Your margin this quarter was very impressive given all of the headwinds that you guys faced. Could you maybe rank in order of magnitude of beneficial impact between the Select backwards integration, expanding production capacity for greater scale benefits or maybe even going forward a source of margin expansion could be adding profitable Illinois and Pennsylvania?
Well, I mean, I will let Mike expand if he wants to, but I think what you are going to see from Curaleaf has a continued scaling of our business. And as we do so, particularly in highly profitable markets on the East Coast and in Illinois, you are going to see more profitability margin improvement. So, feeling very optimistic, we agree there were some headwinds in Q2 – some very slight headwinds still in Q3 as we deal through COVID and add some additional cost, but I think that will be more than compensated for by adding capacity in markets like Florida and Massachusetts, Arizona, Illinois, Maryland, Pennsylvania as an example. So we are feeling very good about where we are going from a profitability and margin perspective.
Yes, just to give a bit of color on the Q2 gross margin, it was down from Q1. Like we talked about obviously, the impact from COVID-19 in Nevada and Massachusetts, obviously, higher mix of Select revenue relative to total revenue, but on the positive side, Arizona, Connecticut and New York, all showed margin improvement over Q1.
Thanks for that additional color and thanks for taking my questions. Congrats again.
Our next question comes from Neal Gilmer with Haywood Securities.
Yes, thanks very much. Good evening and good quarter. Maybe I will just actually be following on, on that question on the overall margin profile, not necessarily focused on gross margin, but maybe EBITDA margins. As you bring in Grassroots in the quarter, are there any integration costs or obviously, I think there is going to be some time as we figure out what synergies you can achieve? Should we be anticipating just a very short-term blip in the in the margin improvement, just with that integration process or any color you can provide on that aspect?
Yes, this is Mike. So, I think in terms of integration costs, there won’t be a lot. Obviously, there is limited overlap between the states that we operate in and that Grassroots operates in. So from a cost cutting perspective, obviously, we will be looking at corporate overhead. With respect to margins for Grassroots specifically, they are already EBITDA positive and EBITDA was positive in Q2. That being said, Grassroots EBITDA margins are not yet at Curaleaf levels. However, as they continue to scale, we do expect that their EBITDA margins can improve each quarter. And by Q4 or Q1 of next year, we would expect their margins to reach the levels that are roughly similar to where Curaleaf is today.
Thanks very much. That’s helpful. And then maybe just your comments on Pennsylvania now that you have the Grassroots assets folded in and you have those other Curaleaf licenses you have what sort of just your plan there. I know you mentioned in your prepared remarks with respect to the stores open and the additional like you have are you still going to go forward and continue to build out those licenses?
Absolutely, yes. We really like the Pennsylvania market, maybe the fastest growing market on the East Coast that in Florida, very strong consumer demand, as we said in our prepared remarks with, the Grassroots’ 9 stores plus the ability to open up 3 more that will take us to 12 retail stores and we will build out the clinical registrant license as well. And that will take us to 18 locations, the leading separate in the state and we are very excited about the business. as Boris and I have said, we also believe that New Jersey is a very important catalysts in the fall, it’s likely to go adult use and, you can imagine that many of the states in the Mid Atlantic will follow including Pennsylvania. So we think that, the timing is right to continue to build out in that state.
Sounds great. Thanks very much.
Our next question comes from Scott Fortune with ROTH Capital.
Good afternoon and thanks for taking the questions. As far as the impacted $25.6 million impact on the quarter, most of that came from Nevada and Massachusetts. Where are we at those levels for each of those states that kind of pre COVID and then looking at those, each of those states going forward expectation I know Massachusetts has come backup but from a Nevada standpoint?
Yes, we are definitely still feeling some COVID impact most notably in Nevada the recovery has been challenged. I think it’s a function of really where our dispensaries are located. They are down on the strip. As you aware tourism is a, fraction of what it was once was in Nevada. So we are most certainly feeling the impact of the lack of tourism. Although we catered to a local crowd it very much was a lot of service workers and people that work down the strip and so we are definitely feeling that impact numbers are getting better but certainly not pre COVID levels. We also still feel the drag of Massachusetts because the numbers are most certainly getting better. But, we have very high expectations for example, in a market like Province Town for a strong tourism season, and tourism is very muted right now in Massachusetts. So the recovery is much farther along in Massachusetts, but still a bit muted given where our expectations were pre COVID and I think we will see we will continue to feel that through Q3.
Okay, now thanks for the color on that. And then focusing on Florida a little bit I know you guys are putting a lot efforts there. That sounds like you have come on board now July that means harvest starting in September, and October to double that capacity. But can you provide more color on that and are we seeing the growth of patients? Are you seeing New York residents in Florida increasing that? Are you gaining market share from new consumers are expensive others just kind of step up through how you look to grow Florida? Going forward on that 4Q ramp primarily here?
Yes, sure. For us, as you rightly pointed out, we will be harvesting in late September early October and I would really define our limitations in Florida are around supply chain. The demand for cannabis is incredibly strong in Florida. Frankly, our supply chain hasn’t caught up to our store count, but it will in October. And we intend to open up 11 more stores through the end of the year. And we think that we will be able to capture a lot of market share as a result of having additional products and bringing innovative new products to Florida. As we said in our call, we were the first ones to launch a chewable product. We have got a number of new innovative products up our sleeves. We recently launched Select into the market and select is having a very strong early reception. So we fully intend to capture new consumers as well as take market share from some of the other competitors. And we are going to work very hard to get to the number one position in that market.
Okay, thanks. I will jump back in the queue.
Our next question comes from Graeme Kreindle with Eight Capital.
Hi, good afternoon and thanks for taking my question. I just wanted to follow-up with a question respect to the brand portfolio, appreciate the comments earlier about Select and the lack of cannibalization that you are seeing when introducing that market into new markets. I was just wondering with respect to the Curaleaf brand and its wellness position, has there been anything that surprised you as of later or throughout Q2 given its positioning and maybe some of the changing use cases that we have seen from consumers during the height of COVID lockdowns or even sustaining coming out of that? Thank you.
Hey, Joe Bayern, you might pick on that one?
Yes. Hi, how are you? This is Joe Bayern. Yes, I think we are – sorry, my dog is barking in the background. But no, we haven’t seen any drastic changes in Curaleaf as a function of health and wellness other than increased usage by the consumers and more frequent trips to the dispensaries. Over time, we will see some separation between Select and Curaleaf as Curaleaf is really focused on health and wellness and Select is more lifestyle. But we just continue to see adoption of new form factors, growth and things like edibles throughout our retail platform. And we continue to see – we expect to continue to see that into the third and fourth quarters.
Okay, appreciate it. Thank you.
Our next question comes from Pablo Zuanic with Cantor Fitzgerald.
Thank you and congratulations on the quarter, Boris, can I ask two questions more on the regulatory side, obviously, your Belmar store, it’s a goldmine, right, if you look at the Metro Philly area, 22 stores on the Pennsylvania side, only 1 store yours, Belmar on the New Jersey side. Do you have any insight in terms of how that plays out after the November ballot? I mean, do you – are you able to start right away on the 1st of January or is that going to take another year or two for them to agree on the rules that we saw in Massachusetts, just some color there in terms of how strong is that position over the next 6, 12 months, 20 months in terms of competition, I understand the market is going to grow? And the second question on the reg front, just in terms of the notion of a federal medical program as proposed in the Biden plan, do you think that would eventually be implemented given that you are going to have 40 states with different medical programs, how would that work? Would that be beneficial or negative for similar companies like yourselves just some color there would help? Thank you.
Thanks, Pablo. I think as far as New Jersey is concerned, it’s our view that New Jersey will take some time to write the regulations. So, unlike Arizona, which has basically come out and said that they are going to start recreational sales on April 1, New Jersey hasn’t given the timetable. And so we do anticipate that there will be some haggling between the various parties and various groups, social equity groups, the Democrats, Republicans, everybody has got their own view. So, we do think it will take some time. However, the good news is that the most competent, one of the most competent regulators in the country is New Jersey. They have done a very, very good job in regulating that market. And so, they are very, very easy to work with. And I suspect because of that the timing maybe slightly accelerated. If this was, I won’t name one other states we all know, but it was another state, it could take a long time. But it’s my view that New Jersey will probably be reasonably quick. Plus, there is the added pressure of tax revenues. We all know that a lot of the states have budget deficits. And so they are really looking to increase their tax revenues. I think the recent numbers coming out of Massachusetts did not go unnoticed on the East Coast in terms of the potential tax revenues one can receive.
The second question on the medical side, I think follow that frankly, it almost becomes a new point that the medical law, because by the time they get around to passing it, if you get a Biden administration, I suspect that most of the East Coast will be adult-use. And so I just don’t understand how they are going to deal with the fact that almost 80% of the population will have access to adult-use, about 85% will have access to medical. My viewers is that they will move reasonably quickly to some kind of either SAFE Act or something short of full legalization and maybe they will make some kind of special dispensation for medical. But as I think, as I heard you earlier say on CNBC, I think that the issue is going to be very difficult, because you are going to have almost 80% of the U.S. population having access to adult-use. So from our perspective, we really are looking more at the dynamic of the state level with especially the New Jersey ballot because as I think you’ve said and I’ve said many times, I think New Jersey is a watershed event. If New Jersey goes adult-use, it is almost certain that Pennsylvania, New York and Connecticut will do it as well. And I think if we are talking again this time next year, on our second quarter earnings call, I suspect that most of the East Coast will be maybe buying only Florida, most of the East Coast will be adopted. That is kind of our view on it at this point in time.
Thank you. That’s very helpful.
Our next question comes from Matt Bottomley with Canaccord Genuity.
Good evening, everyone. Thanks for taking the question. Just another follow-up question on Grassroots considering, where this sector has gone, particularly in their two leading markets of Illinois and Pennsylvania. Can you comment if that deal is accretive to cash flow from operations upon closing And then also a follow up on Select I apologize it is in the prepared remarks, but do you have the organic growth of the lack normalized for its closing date?
Yes, with respect to cash flow from operations, we will have a better lead into that on our Q3 call it’s certainly accretive to EBITDA on day one. And like I said earlier, we expect Grassroots EBITDA margin to continue to increase quarter after quarter as they continue to scale. The second question?
Yes, just on Select apologies if it is in the prepared remarks, but you have a 60% growth quarter over quarter in your wholesale. So I’m just curious if you ignore the closing date and just look at Select business organically, including all of the markets that have been rolled out just what the growth profile was for that?
Yes, I mean, putting aside the new markets that are Curaleaf markets. So we went from four states to eight states in the last year. quarters, their Q2 revenues were up approximately 22% from Q2 to Q1 and June was a record month for Select. So that’s the core states that they are in. Obviously, we have expanded Select into four new states that are Curaleaf states where we are seeing incremental revenues as a result of launching their products in our dispensers.
And yes, and obviously, on the East Coast with Curaleaf has very substantial cultivation assets, the margins on Select are much better than they are for instance, in California, where we are still building up the supply chain, it’s going to take us probably another 12 months to fully build out the supply chain because supply Select fully in its in its operations, but we are moving very quickly there as well. But once exposed like Arizona and Nevada. All of the East Coast the margins will be very, very similar to Curaleaf margins, where it would be difficult, more difficult to sell in states where we don’t have cultivation, but places like Colorado, flower is reasonably well priced. And so we were able to acquire biomass for our products at a good, good level. So we are encouraged, but it’s, as Joe has already said it’s work in progress. And we anticipate over the next 6 to 12 months, that that’s Select will start to resemble much closer to Curaleaf in terms of the overall margin.
Got it? And then just last quick follow up on my interest on the retail side of things. Do you have any estimate of what the organic growth was on the Same Store basis? I understand there is different levels of ramp depending on state. So maybe just to consider, was I mature what the Q2 over Q1 growth rate was for those?
I think we prefer to give that answer. Mike I will let you give in a minute. But I think what my view on this is that, especially with COVID, it’s been very, very difficult to compare states. I think Curaleaf is going to be very in a good position. As of the first quarter to start forecasting, on same store basis, and we have got numbers, but you have to understand we opened new stores and states all the time. And so that comparison is very difficult at this stage. But Mike, if you want to give it a shot, go ahead. But I think it’s easier. Probably by the time we reach capacity, and those doors have been open for at least a year, it’s going to be much easier to forecast same-store sales.
Yes, exactly. I mean, organic growth in the quarter benefited from growth in Arizona, New Jersey, New York, and a few other markets, obviously, offset by Massachusetts, Nevada. The real only key driver to inorganic growth would have been from Connecticut because of the acquisition of Arrow.
Okay. Thanks a lot, guys.
Our next question comes from Bill Kirk with MKM Partners.
Hey, thanks for taking the question. So back on Florida, what’s the current thinking for the timing of edibles being permissible? And what is your kind of strategy for when that day arrives?
Well, Bill, we wish we knew what the exact timing was going to be. From our perspective, it can happen soon enough. We are certainly ready for it. And we are looking forward to being able to offer another whole suite of products. But as I mentioned in my remarks, we did launch the first chewable product in the state and its being well received. And we are hopeful that we can go behind now with more products as you are aware, Curaleaf makes products that run the entire gamut of the menu across the country. We have got a full bakery in Connecticut. We make edibles all over the place. And so we certainly have the know-how the recipes and the facilities to do it. We are just waiting on the state. So we will fully embrace the opportunity when it comes to us in Florida.
Thank you. That’s it for me. Thank you, guys.
Our next question comes from Aaron Grey with Alliance Global Partners.
Hi, congrats on the quarter and thanks for the questions. So, first one for me, just on in the PR, you mentioned, multiple key tuck-in acquisitions potentially in the back half of the year, just wondering if you could give any color in terms of – depends on what states you are looking at and whatnot be more on the wholesaler, dispensary center, any color you could offer there? Thank you.
I mean, I will take that. I think that the – we don’t want to specifically address states, because we don’t want to raise prices. But I think you can imagine there are states where we don’t have limits, where we can continue to require licenses obviously states turning to adult-use are primary targets for us where we want to continue to expand our retail base, but there will also be other states where we are entering a sort of different strategy where we might be building substantially large stores in key markets in order to address those markets. So, we have acquisition targets probably in two or three different places. If the prices are right, we will make the acquisitions, if not, we will move towards organic growth. But right now, we probably have two or three different states that we are looking at very closely to make strategic acquisitions to enlarge our market share in our base for distribution.
Okay, great. Thanks. That’s helpful. And then just second one, just want to comment on the debit tender you guys talked about, I think you said 8 states now accepting and it’s bringing a higher basket. I was just wondering if you could offer any commentary in terms of the timing of that expected increase rollout you guys mentioned and then also the potential impact, the SAFE Act could potentially have in terms of different types of plastic being used and also bringing a bigger basket for the consumer. Thank you.
Yes, I will start.
Yes, go ahead, Mike.
I am sorry I was going to say we now accept debit cards in 8 states and we will add 3 more by the fall. What we have noticed is that typical transaction is about 20% higher than the average cash transaction and we have not seen any changes in visitation patterns as well. So, people are using the debit cards, they are spending more with those debit cards than they would otherwise if they just had cash.
Yes, in terms of safe banking, I mean, we are optimistic that it’s not a partisan issue it’s probably the least controversial cannabis bill in Washington. Every major banking association, now including Visa, MasterCard are lobbying for the passage of this bill, because it makes sense its good public policy. So, we are hopeful that we will get a passage at some point and that will unlock credit card transactions in much bigger basket sizes that you would expect from like traditional retail. So, we are optimistic that we will continue to make progress on electronic processing of payments.
Alright, great. Thanks for the color.
Our next question comes from Matt McGinley with Needham.
Thank you. You had alluded to higher CapEx in the back half, but I didn’t hear anything on the magnitude what was the CapEx in the second quarter and what does that look like as you move into the back half?
Yes, so CapEx for the second quarter was about $25 million. We expect that, that will increase in Q3. We haven’t given a number out, but we also expect in Q4 that, that will moderate as well. So, the CapEx increase in Q3 is really related to the additional spend we are making in Arizona, Florida and Massachusetts as we built out those cultivation facilities.
Yes, Matt, this is Joe. Just to put color on that, our feeling is that this is not the time to retrench, we feel very optimistic about the industry and we see huge demand on the horizon. And so we are investing aggressively in our own operations to capture demand, which we fully expect to realize. So, we feel very – a lot of conviction in our strategy.
Great. And on the COVID impact, I mean, it’s remarkable that you had a 20% reduction in your revenue from the $25 million impact you had in Nevada and Massachusetts, but you can’t really see a visible impact in the margin rate or the dollars. How much of an impact did that have on the EBITDA? Was that a – was that kind of equal to what we should expect from a EBITDA rate standpoint or was it maybe not as big of an impact?
Yes, I would say, it wasn’t as quite as big of an impact on the EBITDA line. Obviously, our SG&A excluding one-time expenses declined from 33% in Q1 to 29.9% in Q2 as we continue to scale and manage our SG&A costs. So, on the gross margin line, we talked about how that did have a negative impact, but on the EBITDA margin line, I would say it was less of an impact due to the way we managed our SG&A during the quarter.
Okay, okay. Very good. Thank you.
Our next question comes from Russell Stanley with Beacon Securities.
Thanks for taking my question. Just following up on New Jersey, you have had a growing wholesale business there, but have also seen I think a few new competitors come on the scene in terms of retail. Just wondering, are you seeing that additional competition bite into your retail business at all? And then a follow-up after that just related to legalization, if I could?
No, Russell, we are not feeling that at all. I mean, what we have said consistently, particularly on the East Coast is our competition is the illicit market. More and more people are coming out of the illicit market to buy regulated tax cannabis. So, our business continues to grow. We are both the leading retailer and leading wholesaler in the state and we fully expect to maintain that position for the foreseeable future as we continue to invest in the market, which we see huge growth ahead of us.
I am sorry, gross revenues and gross margin increased during the second quarter over Q1 as well in New Jersey.
Thanks for that color. And just to follow-up on that, given the likelihood the voters approve adult-use in November, there has also been an ongoing legal battle around the licenses out for which where the application period closed a year ago. Just wondering how you see that legal battle playing out given there will likely be pressure to increase the number of players in this market?
Yes, Russell, I would just – I would characterize that as par for the course. I mean, you see legal battles in Nevada and many states that issue new licenses, right. These are highly coveted licenses and when people don’t win, there is going to be disputes. We all know that the markets are going to liberalize. There is going to be more competition without a doubt. But Curaleaf is investing aggressively in expansion and we fully intend to capitalize on that growing market both as a retailer, but even more importantly, as a wholesaler, we are going to bring Select into the market and we view multiple points of distribution as an opportunity to carry our leading brands. So, we embraced the idea of more dispensary points and we are going to certainly have a lot of capacity to capture that market.
That’s great color. Thanks again.
Our next question comes from Jesse Pytlak with Cormark Securities.
Hey, good evening. Most of my questions have already been asked. Just one kind of follow-up on the use of debit cards, beyond the three markets that you plan to expand that offering into through the fall, you said, are there any limitations from taking this more further across your footprint or are there some types of restrictions from a banking regulatory perspective that would limit you from kind of going beyond these 11 planned markets?
Yes, this is Mike. I would say that we – our goal is to get into every state obviously there are state by state regulations. So we are working as fast as we can to bring debit cards into the states that will allow it. So, we should be up to about 11 states by this fall.
Alright. Thank you.
This concludes our question-and-answer session. And I would like to hand the call back over to Daniel Foley for any closing remarks.
Thank you, operator. Thank you all for joining us today. We would like to invite those of you listening to join us at upcoming conferences and events, including the Needham Cannabis Day Conference to be held on Wednesday, August 26. For more information, please visit the Investor Relations section of our website under Events. We look forward to speaking with you at these events and on our third quarter 2020 results call. Stay safe and well.
The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.