Curaleaf Stock: Undervalued Pot Company Reported Record Profitability

CURLF Stock Has 128% Upside

Cannabis stock investors are patiently (or not so patiently) waiting for Congress to get on board with what the majority of Americans want, the federal legalization of marijuana.

While the legal status of this $100.0-billion opportunity continues to weigh down the entire industry, some cannabis companies are doing a lot better than others, even if it’s not reflected in their share prices.

Curaleaf Holdings Inc (CNSX:CURA, OTCMKTS:CURLF) continues to surprise the pot industry—in a good way. The company recently reported record second-quarter revenue and adjusted profitability.

Despite economic and political headwinds, Curaleaf Holdings Inc has been executing its growth strategy for Europe, increasing its retail footprint, expanding its distribution partnerships, and launching new product lines.

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Curaleaf Holdings Inc’s fundamentals are strong, with recent developments setting up 2022 to be a milestone year. This isn’t reflected in the Curaleaf stock price, though. As of this writing, CURLF stock is:

  • Up by 14% over the last month
  • Down by 31% over the last six months
  • Down by 32% year-to-date
  • Down by 50% year-over-year

While Curaleaf stock has recently made some solid gains, it continues to be significantly undervalued—at least according to Wall Street. Of the analysts providing a 12-month share-price target, their average call is for CURLF stock to reach $9.33 and their high estimate is for it to reach $13.70. That translates to potential gains in the range of 55% to 128%.

Chart courtesy of StockCharts.com

Curaleaf Holdings Inc Overview

Curaleaf is a leading international provider of cannabis products. With a presence in 22 U.S. states, it owns and operates 136 dispensaries and 26 cultivation sites.

The company’s operations are focused on highly populated states, including Florida (51 dispensaries), Pennsylvania (17), Arizona (14), and Illinois (10). (Source: “Investor Presentation,” Curaleaf Holdings Inc, last accessed August 17, 2022.)

Its cultivation space covers 4.4 million square feet, or the equivalent of about 76 NFL football fields. Curaleaf International is the largest vertically integrated cannabis company in Europe, with a unique supply and distribution network throughout the European market.

And its presence in Europe just got a lot bigger.

On August 9, Curaleaf Holdings Inc announced that its international holding company signed a definitive agreement to acquire a 55% stake in Four 20 Pharma GmbH, a fully licensed German producer and distributor of medical marijuana. (Source: “Curaleaf Announces Majority Stake and Forms Strategic Partnership With Germany’s Four 20 Pharma,” Curaleaf Holdings Inc, August 9, 2022.)

Four 20 Pharma GmbH is among the largest cannabis operators in Germany, with a market share greater than 10%. Through the agreement, Curaleaf Holdings Inc can acquire complete control of Four 20 Pharma within two years of the start of legal recreational marijuana sales in the country, which is expected to be in late 2023 or early 2024.

Germany represents the largest medical cannabis market in Europe, with a total addressable market of more than €200.0 million ($203.5 million) this year. By the end of 2024, that number is projected to approach €1.0 billion ($1.02 billion).

Record Second-Quarter Results

For the second quarter ended June 30, Curaleaf announced that its total revenue increased by eight percent sequentially and year-over-year to $337.5 million. (Source: “Curaleaf Reports Second Quarter 2022 Results,” Curaleaf Holdings Inc, August 8, 2022.)

The company’s second-quarter adjusted earnings before interest, taxes, depreciation, and amortization (AEBITDA) went up by 18% sequentially and two percent year-over-year to $86.0 million. Management reported a second-quarter net loss of $28.3 million, or $0.04 per share.

Curaleaf Holdings Inc ended the quarter with $187.0 million in cash and $587.0 million in outstanding debt.

Boris Jordan, the company’s executive chairman, commented,

Our record breaking second quarter got off to a great start with the launch of adult use in New Jersey and a historic 4/20. We bounced back from earlier headwinds to grow revenue 8%, and AEBITDA 18% sequentially, while continuing to execute on our growth strategy for Europe, a key differentiator for Curaleaf and a significant advantage over our competitors.

(Source: Ibid.)

During the second quarter, Curaleaf Holdings Inc:

  • Added seven new dispensaries, bringing its total to 135 locations
  • Began recreational marijuana sales in New Jersey
  • Reported a “historic” April 20 (4/20) net sales jump of 45% year-over-year
  • Launched “Endless Coast” cannabis-infused seltzer beverages
  • Signed a distribution agreement with WB Canna Co. & Wellness LLC, which will launch Curaleaf’s “Hemp” and “Select” cannabidiol (CBD) product lines in several countries

Subsequent to the end of the second quarter, Curaleaf Holdings Inc:

  • Opened its 51st dispensary in Florida and its 136th dispensary overall
  • Launched “The Farmer’s Select” program, an ongoing series of limited-edition collaborations with licensed legacy farmers and operators in California
  • Launched “Plant Precision,” a health and wellness product line

Analyst Take

The marijuana industry might be facing political headwinds, but it has massive potential. It’s expected to grow from $24.0 billion in 2021 to $45.0 billion by 2026, representing a compound annual growth rate (CAGR) of 14%.

Curaleaf Holdings Inc is well positioned to capitalize on this growth. The company’s business footprint positions it as a global leader, it has one of the best balance sheets in the cannabis industry, and it recently reported record revenue growth and profitability.

Curaleaf stock is way undervalued, but it might not stay that way for long.