Cannabis Watch: Curaleaf’s strong quarter sets it up for a better-than-expected year — and that’s without sales in New York and New Jersey


Curaleaf Holdings Inc.’s stronger-than-expected first-quarter earnings have put the company on track to deliver above-consensus numbers for 2021 and beat its own guidance for full-year revenue of $1.2 billion to $1.3 billion, analysts said Tuesday.

“We see Curaleaf as offering an all-encompassing proposition for cannabis investors given its balance of breadth and depth within US markets, preparation for potential federal legalization, international exposure (via its EMMAC acquisition) and strong balance sheet,” said analysts Aaron Grey and Andrew Bond at Alliance Global Partners. “Furthermore, we believe the company is now positioned to come in at the high-end and potentially beat 2021 sales guidance following the 1Q’s beat and strong 2Q guide (above Street).”

The analysts reiterated their buy rating on Curaleaf stock


and C$29 ($23.99) price target, which is about 71% above its current price. Curaleaf stock trades on the small Canadian Stock Exchange and on the U.S. over-the-counter market because of federal rules blocking U.S. cannabis companies from trading on most larger exchanges.

MKM analyst Bill Kirk noted that the company’s guidance does not include any sales in New Jersey or New York, two states that recently legalized cannabis for adult recreational use, as well as medical use, or from EMMAC, Europe’s biggest vertically integrated independent cannabis company, which Curaleaf acquired in a deal that closed in the first quarter.

“Even without EMMAC and NJ/NJ adult-use, guidance looks conservative,” said Kirk, who said Curaleaf is his top pick across sectors covered by MKM.

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Curaleaf posted a first-quarter loss of $17.2 million, or 3 cents a share, on sales of $260.3 million Monday afternoon, after reporting a loss of 3 cents a share on sales of $96.5 million a year ago.

Analysts on average were expecting Curaleaf to report a loss of a penny a share on sales of $254 million, according to FactSet. They were also projecting second-quarter revenue of $289 million on average, but Curaleaf’s chief executive forecast a bigger gain Monday.

“With our revenue projected to increase to $305 million to $315 million in the second quarter, we also expect to generate significant improvements in terms of achieving positive net income and positive operating cash flows in the back half of 2021,” CEO Joe Bayern said in a statement.

The company said its adjusted EBITDA — earnings before interest, taxes, depreciation and amortization — came to $62.6 million, up 213% from the year-earlier period. Cannabis companies, most of which are still far from posting a net profit, like to use adjusted EBITDA as a metric to show progress from period to period, although the adjustment of an already adjusted number has more to do with cash flow than profit. Curaleaf’s adjusted EBITDA also excludes share-based compensation expense and one-time charges related to business development, acquisition, financing and reorganization costs, according to its earnings release.

Cantor Fitzgerald analyst Pablo Zuanic said he is sticking with his overweight rating on the stock and 12-month price target on the U.S. listed stock of $26.50, which is almost double it’s current price.

“Curaleaf management expects Sen. (Chuck) Schumer to introduce a cannabis reform bill this month, which we believe should be positive for multi-state operator stocks,” Zuanic wrote in a note to clients.

Don’t miss: U.S. cannabis producers are now favored by Wall Street analysts, who’ve soured on Canadian companies

Schumer, the New York senator and Democrat, has pledged to make reform of the U.S.’ strict cannabis laws a key plank of the current Congress, raising hopes he may even push for a full lifting of federal prohibition. Cannabis is still a Schedule I drug under federal law, grouping it along with heroin. That law has hampered the development of the legal sector and kept it confined to companies in those states that have legalized for medical or adult-use purposes. That list is growing, however. There are now 36 states that have legalized cannabis for medical purposes, while 17 states allow recreational adult use, according to the National Conference of State Legislatures.

See now: New York’s 13% cannabis tax may be too high, since state has ‘one of the most sophisticated’ black markets in U.S., expert says

“With the acceleration of cannabis liberalization momentum at the state and federal levels, Curaleaf’s prospects for growth in the United States have never been stronger,” Executive Chairman Boris Jordan said in the earnings release. “The recent approvals of adult-use cannabis in New Jersey and New York, which are states where Curaleaf has a leading market share, will unlock vast new markets, worth an estimated $2.1 billion and $5 billion in sales, respectively.”

Curaleaf has more than 100 retail pot stores across the U.S., including four in Illinois and Pennsylvania that have opened since the end of the quarter, and is approaching 2,000 wholesale partner accounts, according to disclosures made Monday.

The company’s revenue from its retail operations grew to $187.7 million in the first quarter from $56.6 million a year ago, while wholesale revenue — which focuses on the company’s Select brand of cannabis products — grew to $72.2 million from $20.4 million. Management fee income fell from $19.4 million to less than $450,000, Curaleaf reported.

The company is planning to add 247,000 square feet of cultivation this year, in states including Arizona, Florida, Massachusetts and New Jersey.

“No specific expansion plans were provided for EMMAC, but Curaleaf can grow flower at the company’s Portugal facilities, process in Spain, and distribute across European markets (it may consider buying local distributors to better
reach pharmacy chains, as per our interpretation of management’s comments),” said Cantor Fitzgerald’s Zuanic.

Curaleaf shares were down 0.2% Tuesday in deeply negative markets, but have gained 20% in the year to date. The Cannabis ETF

has gained 33% and the AdvisorShares Pure US Cannabis ETF

has gained 11% this year, while the S&P 500

has gained 10% in the same period.

Additional reporting by Jeremy C. Owens

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