Curaleaf Holdings has 75 per cent upside, GMP Securities says

US cannabis retailer Curaleaf Holdings (Curaleaf Holdings Stock Quote, Chart CSE:CURA) gets a “Buy” rating at its going public debut from GMP Securities analyst Robert Fagan, who says the vertically-integrated pot co is now the industry leader among US public cannabis companies.

Wakefield, Massachusetts-based Curaleaf has a multi-state platform across 12 states with 28 dispensaries and 14 operational production facilities representing about 437,000 sq. ft of production footprint, the largest among its US peers.

Fagan estimates that the Curaleaf brand has the highest visibility at the national level, which should translate into strong customer awareness and support its market share. The analyst also sees CURA as having the broadest exposure to current and likely future state conversions from medical to recreational markets, singling out states such as Massachusetts, New York and New Jersey.

“We believe CURA has emerged as the new industry leader amongst public US cannabis operators, with a multi- state retail footprint and production base which is double the size of its peer group average,” says Fagan in a coverage launch on Tuesday. “We believe CURA’s industry leading operating platform argues for the highest valuation metrics in the sector.”

Fagan estimates Curaleaf’s total cash position at roughly $455 million pro-forma recent debt financings and net proceeds from the reverse takeover. And while management has outlined a plan to deploy about $255 million of that over the next 12 months including $80 million in capex, that leaves about $200 million for M&A activity, which Fagan thinks will get deployed quickly. (All figures in US dollars unless otherwise noted.)

The analyst says that rec conversions in New York and New Jersey alone will result in about a $5 to $10 per share upside for CURA, while deploying the $200 million M&A funds should result in a $5 per share upside.

Fagan’s coverage launch comes with a target price of C$20.00, representing a projected return of 74.7 per cent at the time of publication.

“We value CURA using an EV/EBITDA methodology based on our 2020 forecasts, which we believe will represent the year in which the majority of the company’s markets will be approaching maturity (assuming no MED to REC conversions) and most of CURA’s operations will be at full scale,” says the analyst. “We use a target multiple of 25x, and an exchange rate of 0.76 USD/CAD, applied to our 2020 EBITDA forecast of $297 million to derive our C$20.00 target price. Our net debt calculation is pro-forma for CURA’s pending acquisitions and minority buy-outs, but does not include any cash deployment on potential M&A.”

Fagan projects CURA will generate revenue and EBITDA in 2019 of $307.8 million and $118.1 million, respectively, and revenue and EBITDA in 2020 of $600.2 million and $296.9 million, respectively.