Should You Invest in Curaleaf Holdings?
Recommendation: See Below
Curaleaf Holdings, Inc. engages in operating licensed, vertically integrated cannabis businesses that cultivate, process and dispense cannabis products and cannabis-derived products. The Cannabis segment focuses on the production and sale of cannabis. The Non-Cannabis segment provides non-cannabis services to licensed cannabis operators in the areas of cultivation, extraction, and production, and retail operations. Should you invest in Curaleaf Holdings?
HQ: Wakefield, MA USA
Facilities: Arizona, Florida, Connecticut, Maine, Maryland, Massachusetts, Nevada, New Jersey, New York, Oregon, Penn.
Symbol: CURLF (OTC), CURA (CN)
Curaleaf operates and owns 12 cultivation sites, 28 dispensaries and 9 processing sites with a focus on highly populated, limited license states, including Florida, Massachusetts, New Jersey, and New York. Curaleaf leverages its extensive research and development capabilities to distribute cannabis products in multiple formats. They are focused on patient education, physician engagement and community outreach to build a national retail brand.
Market Cap: US $2.15 bil
Enterprise Value: US $2.22 bil
Primary: Operations in eleven states (Arizona, Florida, Maine, Maryland, Massachusetts, Nevada, New Jersey, New York, Ohio, Oregon, and Pennsylvania)
Secondary: Approvals growing
Majority: PalliaTech MD Processing, PalliaTech AZ, Curaleaf Midtown, Spark Dispensary
Minority: Groen Investment Group
Direct sales: Yes.
Store networks: Current footprint allows for 71 stores operational by 2020 YE. Curaleaf’s primary method of sales currently occurs in its brick-and-mortar dispensaries across the U.S. However, the Company also offers home delivery services across the State of Florida, in compliance with all state regulations. Also in Florida, the Company offers drive-thru service at one of its dispensaries. In multiple States, the Company offers customers the option to order online to pick-up in store. Curaleaf aims to expand its e-commerce operations and delivery operations, where permitted, to offer convenient access for its customers and meet the demands of an evolving retail landscape.
Supply agreements: In August 2018, Curaleaf entered into a purchase agreement to acquire 100% of the membership interests of ATG, a registered marijuana dispensary licensed by the Massachusetts Department of Health, operating a 53,600 square foot cultivation facility in Amesbury, Massachusetts and a medical dispensary in Salem, Massachusetts. In the same month, they also entered into a purchase agreement to acquire 100% of the membership interests of HMS Health, LLC, a holder of Stage 2 licenses to cultivate and dispense medical cannabis and a Stage 1 license to process medical cannabis in the State of Maryland
Vertically integrated: Yes.
Horizontally diversified: Yes, they are entering hemp and cannabis-based medicine business arms.
Previous Year Income after Taxes: ($26.4 mil)
Outstanding shares (diluted): 457.5 mil
CEO: Joseph Lusardi
COO: Stuart Wilcok
CFO: Neil Davidson
Curaleaf financed its expansion through its listing on the Canadian security exchange. CEO Mr. Lusardi has almost a decade of cannabis experience through which he has cultivated bottom-up expertise in cannabis company implementation and management, as well as 20 years’ experience in finance, private equity and entrepreneurship. To support this company, he raised over $500 million dollars to invest in the Company’s infrastructure, research and development, and staff (through Russian investors, Boris Johnson).
Curaleaf has become the most accessible national cannabis brand with the largest operational branded dispensary footprint in the country and the recent launch of our CBD line under Curaleaf Hemp. Their strategic presence in highly populated, limited license states, which has served as an important foundation for an aggressive expansion plan across the country.
Multiple product formats provide an array of administration options (inhalation, ingestion, sublingual, topical) for the novice user to the experienced user.
Current share price: US $4.70
Price to Sales: 15.71 (Biopharma industry Avg. = 7.5)
52 week low/high: US $3.88 to $11.73
Price to Book: 5.01
Curaleaf raised approximately C$520 million (US$400 million) in an oversubscribed private placement offering led by GMP Securities L.P. and Canaccord Genuity Corp. (the “Co-Lead Agents”), on behalf of a syndicate of agents, including Cormark Securities Inc., Eight Capital, and Haywood Securities Inc.
The risks of investing in any cannabis or hemp company are currently high given the newness of the market. Given the rapid changes affecting the global, national and regional economies generally, and the cannabis industry in particular, no company can guarantee to maintain a competitive advantage in the market. Identify all risks prior to investing.
Should You Invest in Curaleaf Holdings?
Curaleaf Holdings operates an integrated network of medical and wellness cannabis facilities throughout the United States. Curaleaf cultivates, processes, markets, and dispenses marijuana products in a range of forms, including flower, pre-rolls, and flower pods, dry-herb vaporizer cartridges, concentrates for vaporizing, concentrates for dabbing, tinctures, lozenges, capsules, and edibles. Multiple product formats provide an array of administration options, including inhalation, ingestion, sublingual, and topical.
Curaleaf is one of a very large group of operators to successfully obtain cultivation licenses in more than one of the modern, limited license, merit-based application state programs. Recently they pulled back on their Cura Partners deal to 55 million shares down from 95.5 million shares. This lower value is the current reality for many cannabis deals.
Curaleaf also provides non-cannabis management and consultative services to licensed cannabis operators, to assist with cultivation, extraction, production, and retailing. Founded in 2010, Curaleaf currently operates a network of 34 dispensaries, 12 cultivation sites, and 10 processing sites in 12 states.
Curaleaf Holdings was the largest marijuana initial public offering (IPO) ever, with the company temporarily boasting a lofty valuation of more than $4 billion, after its debut in late October. Managed Revenue grew to $87.8 million in full-year 2018, up 209% on a year-over-year basis, and Total Revenue increased 298%, driven by a combination of organic growth and acquisitions.
Curaleaf is currently improving its finances as net income is on a downward slope. In the fourth quarter of 2018, despite growing revenue, the company reported a net loss of $16.5 million, compared to net income of $628,000 in the same quarter a year ago.
Will its stock price improve in the long term? We think so. The low price of 4.70 is pretty fair considering revenue projections for 2020.
There’s a bull case, and it’s persuasive. A strong capital position with $266.6 million cash on hand at year-end, supported by a prudent capital allocation strategy is focused on strategic acquisitions and rapid store expansion. Curaleaf should start to see an improved bottom line, as it generates synergies throughout the marijuana supply chain. The company currently covers 70% of the U.S. cannabis market, reaching 134 million of the addressable population.
For these reasons, we think Curaleaf, at or near its current price of $4.70 a share, is a very good investment opportunity. Watch the P/S ratio also dropping over the last six months; very telling!
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