This Low-Priced Pot Stock Could Deliver Big Returns
When even the big blue-chip companies can see wild swings in their share prices, investing in an over-the-counter pot stock may seem like a risky move. But for those who want to chase the profits in the fast-growing cannabis industry, this low-priced pot stock deserves attention.
I’m talking about Curaleaf Holdings Inc (OTCMKTS:CURLF, CNSX:CURA), a vertically integrated multi-state cannabis operator in the United States.
Like many pot companies, Curaleaf stock is listed north of the border on the Canadian Securities Exchange. U.S. investors can find the stock trading over the counter under the symbol “CURLF.”
At the time of this writing, CURLF stock trades at around $7.00 per share. While there are plenty of bigger names in the cannabis industry, this over-the-counter pot stock could deliver some big returns.
Allow me to explain.
Acquisition Strategy Fuels Growth
Curaleaf’s origin can be traced to a medical device company in 2010. Its first cannabis dispensary opened in 2015. Today, the company operates in 17 states, with 57 dispensaries, 15 cultivation sites, and 24 processing centers. (Source: “Investor Relations,” Curaleaf Holdings Inc, last accessed July 14, 2020.)
One of the reasons for Curaleaf’s growth is its acquisition strategy.
For instance, in February 2020, the company completed the acquisition of Select, the most well-known cannabis wholesale brand in the United States. Select’s tetrahydrocannabinol (THC) products are sold in more than 900 retailers across the country. (Source: “Curaleaf Investor’s Presentation June 2020,” Curaleaf Holdings Inc, last accessed July 14, 2020.)
Then in April, Curaleaf acquired three Arrow Alternative Care dispensaries located in key metro areas in Connecticut. Curaleaf is already one of the four licensed growers in Connecticut. Acquiring these three dispensaries helped the company become vertically integrated in the state.
Most recently, Curaleaf announced that it completed the acquisition of BlueKudu, a Colorado-based producer of cannabis edibles. Serving both medical and recreational pot customers, BlueKudu has already sold more than one million THC-infused chocolate bars.
Today, Curaleaf is one of the most successful acquirers of cannabis assets. The company has completed every acquisition that it has announced. It also helps that Curaleaf’s key shareholders have committed to providing $100.0 million in additional capital if the company needs it for opportunistic acquisitions.
As Curaleaf successfully integrates its newly-acquired businesses, we could see some significant improvement in its financials.
Speaking of financials, here’s the second reason why I’m digging this $7.00 pot stock: while recent acquisitions could fuel future growth, the company is already churning out some very impressive numbers.
According to the company’s latest earnings report, Curaleaf generated $96.5 million of total revenue in the first quarter of 2020. The amount represented a 174% increase year-over-year and a 28% increase sequentially. (Source; “Curaleaf Reports Record First Quarter 2020 Financial and Operational Results,” Curaleaf Holdings Inc, May 18, 2020.)
The company generated $20.0 million in adjusted earnings before interest, tax, depreciation, and amortization (EBITDA), which not only represented a 45% increase quarter-over-quarter, but also marked a new record for the company.
Note that this was the fourth consecutive quarter in which Curaleaf earned positive adjusted EBITDA.
An Essential Business
One thing that some investors might be concerned about is how this company will do during the COVID-19 pandemic. Well, that brings us to the third reason why Curaleaf stock could be an opportunity: the “essential” nature of its business.
You see, Curaleaf Holdings Inc has received an “Essential Services” designation in all of its operating markets. And that means, when many industries are still struggling, this company might be able to continue on its growth path.
Of course, the economic environment is still challenging for this multi-state operator, and management has said that the temporary closures in Nevada and Massachusetts have impacted their expectations for the second quarter of 2020.
However, they are still projecting $120.0 million in managed revenue for the second quarter, which would represent a sequential growth of around 14% and year-over-year growth of around 118%. (Source: “Curaleaf Holdings, Inc.’s (CURLF) CEO Joe Lusardi on Q1 2020 Results – Earnings Call Transcript,” Seeking Alpha, May 19, 2020.)
Curaleaf’s Chief Financial Officer Mike Carlotti said the following in the company’s latest earnings conference call:
We expect to report another record quarter of managed revenue for the second quarter of 2020, albeit at a slower sequential growth rate due to the temporary COVID-19 related restrictions placed on operators in Nevada through May 8th and the temporary closure of adult dispensaries in Massachusetts. These factors are expected to be offset somewhat by increased strength in key states such as Arizona and New Jersey.
Curaleaf Holdings Inc (OTCMKTS:CURLF) Stock Chart
Chart courtesy of StockCharts.com
Looking at the chart, we see that Curaleaf stock tumbled in March, but it has made a steady recovery lately.
Curaleaf Holdings Inc is scheduled to report its second-quarter 2020 results on August 17 after the closing bell. If the numbers are good, it could allow the uptrend in the CURLF stock price to continue.