Curaleaf Holdings, Inc.’s (CSE:CURA) acquisition of Grassroots should further solidify its market leadership position south of the border
Capital Ideas Media | August 13, 2020 | SmallCapPower: It has been a little more than one year since the cannabis stock bubble burst, but that doesn’t mean the sector is dead – far from it. COVID-19 might have slowed marijuana’s global growth prospects but legalization is here to stay.
(Originally published on Capital Ideas Media on June 30, 2020)
[Editor’s Note: Shares of Curaleaf Holdings have appreciated 41% since Capital Ideas wrote about the stock less than six weeks ago.]
Grand View Research estimates the global legal cannabis market will reach US$73.6 billion by 2027, representing a CAGR of 18.1%.
And, it’s not just dope-smoking hippies driving demand. There is a growing adoption of cannabis as a pharmaceutical product for treating severe medical conditions, such as cancer, arthritis, Parkinson’s, and Alzheimer’s disease.
Much like any other commodity, we believe the cannabis industry will be dominated by a few global giants in the future, as is the case with beer and alcohol sales today.
This is why we favour shares of Curaleaf Holdings, Inc. (CSE:CURA) going forward.
Curaleaf is a U.S.-based cannabis company, currently operating in 18 states with 57 dispensaries, 15 cultivation sites and 24 processing sites. Since going public in October 2018, through the end of 2019, the Company has acquired and integrated 11 businesses, including Select, which collectively represents 16 dispensaries, 6 cultivation sites, and 15 processing sites.
As well, Curaleaf’s pending acquisition of GR Companies, Inc. (Grassroots) should further solidify CURA’s market leadership position south of the border. With the addition Grassroots, Curaleaf will have a presence in 23 U.S. states, with an addressable market of nearly 200 million consumers, giving the Company a strong retail presence in key limited-license states.
Thus, the combination of both Grassroots and Select should provide Curaleaf with a vertically-integrated retail and wholesale cannabis model that will serve much of the United States.
Canaccord Genuity analyst Matt Bottomley considers Curaleaf to be his “Top Pick” in the firm’s cannabis-sector coverage, with a “Speculative Buy” rating on the stock and a C$15 per share price target.
Mr. Bottomley said Grassroots has a leading presence in many U.S. Midwest cannabis markets, believing the addition of Grassroots will significantly increase CURA’s positioning in Illinois’ recently implemented adult-use market as well as increased exposure in Pennsylvania.
At the end of the first quarter 2020, Curaleaf had an “attractive” balance sheet compared with most Multi-State Operators (MSOs) with US$176 million in cash along with CURA’s fourth-consecutive quarter of positive adj. EBITDA, which currently sits at an annualized run-rate of approximately US$80 million, according to the Canaccord Genuity analyst.
We believe a significant catalyst for U.S.-based cannabis stocks could come in November, if the Democrats manage to win the White House as well as the Senate and hold onto their majority in the House of Representatives.
The Democrats are considered more pro-cannabis compared with the Republicans, and could quickly pass favourable legislation for the industry, including the Secure and Fair Enforcement Banking (SAFE) Act, which protects banks and insurers from federal punishment for doing business with cannabis-related firms.
Regardless, for those investors tempted to jump into Curaleaf be prepared to wait this one out – it’s definitely a long-term play.
[Disclosure: Associate Editor Sean Mason is long Curaleaf stock, hopefully for a long, long time]
To read our full disclosure, please click on the button below: