The cannabis sector has taken a hit along with the rest of the stock market providing a great opportunity to own U.S. multi-state operators (MSOS) that are stepping up to become major forces in the industry. A prime example is Curaleaf (CURLF) that has several pending acquisitions that place the company is a market leading position. The stock is down to $8 from a recent high of nearly $12 providing a great time to own Curaleaf and the cannabis sector.
Q1 Revenue Surge
As the domestic cannabis stocks report quarterly results, the companies are generally able to report substantial revenue growth that places the stocks into different market size realms. In the case of Curaleaf, the company reported Q1 managed revenues of $40.7 million, which increased 260% from only $11.3 million last Q1.
The bigger key is that pro-forma revenues were up at $75.1 million. The company has acquisitions with Eureka Investment Partners, Acres Cannabis, Cura Partners and Absolute Healthcare that weren’t included in the business operations during Q1.
Curaleaf is long on its path to create a national cannabis brand. The company has targeted managed revenue reaching $400 million this year placing Curaleaf on a glide path to the magical $1 billion revenue mark as targeted by several other American and Canadian cannabis companies.
The Q1 results don’t provide a lot of insight into operating efficiencies from these acquisitions. The company promises to turn into a profitable and cash flow positive business, but the numbers included an adjusted EBITDA loss of $3.7 million in the quarter.
The key is that Curaleaf is rather close to breaking even during the last quarter. The company can improve margins and quickly flip the equation into positive operations with the slightest operating efficiency improvements after closing these deals.
The U.S. cannabis market is in constant flux due to most market leaders having multiple acquisitions in the works and aggressive expansion plans. Curaleaf provides this handy view of the market cap leaders amongst the U.S. MSOs.
(Source: Curaleaf presentation)
Most of these stocks have dipped from the April 30 levels in the 25%+ range. Curaleaf had a listed diluted share count of 453.6 million shares at the end of March and another 95.6 million shares listed from the acquisitions which primarily focus on the ~$950 million deal to buy the Select brand from Cura Partners. The stock now has a market cap of ~$4.4 billion.
Other leading MSOs like Cresco Labs (CRLBF) and Harvest Health & Recreation (HRVSF) have both seen their stocks dip in the 30% range. In comparison to pro-forma revenues, Cresco Labs listed Q1 revenues at $33.9 million and Harvest Health at $51.0 million leaving Curaleaf has the clear leader here.
The key investor takeaway is that Curaleaf is in the process of building the market leading American cannabis company. The recent Q1 results show the largest actual revenues and pro-forma revenues of any MSO in the U.S. for the March quarter by a wide margin.
The next step is to improve the financials after incorporating all of these deals and reaching substantial scale by the end of 2019. In the process, Curaleaf could just build the market leader in the most valuable cannabis market in the world while the stock doesn’t trade at the valuations of the Canadian cannabis stocks.
To read more on the nitty gritty of what’s going on in the rising cannabis industry, click here.
Disclosure: The author has no positions in Curaleaf stock.