Curaleaf Holdings stock could go much higher, says Beacon Securities

US cannabis play Curaleaf Holdings (Curaleaf Holdings Stock Quote, Chart, News CSE:CURA) is digging roots deeper into Massachusetts’ tough regulatory environment for its adult-use market, a positive for the company and the stock, says Russell Stanley, analyst for Beacon Securities.

In a client update Thursday, Stanley reiterated his “Buy” rating and C$25.00 target on CURA, which represented a projected return of 150 per cent at the time of publication.

Stanley reports that dispensary company Alternative Group Therapies has opened an adult-use store in Salisbury, Mass, representing ATG’s second adult-use store in the state and only the 26th outlet overall as of this week. Last August, Curaleaf entered into an agreement to acquire ATG for $50 million in cash, with Curaleaf currently working to restructure the deal to make it compliant with regulations.

Stanley says he likes ATG’s progress.

“We view this store opening positively, as it demonstrates continued operational progress by ATG. The roll-out of adult-use dispensaries in Massachusetts has been far more challenging than many industry observers expected, so to have two locations up and running at this point (out of just 26 state-wide) is a significant accomplishment. Pending restructuring of the agreement, new store openings such as these also serve to expand CURA’s addressable wholesale market,” writes Stanley.

Curaleaf Holdings stock is trading at a discount to peers, the analyst says…

Currently, multi-state operator Curaleaf has 69 operating dispensaries across the US with licenses for 62 more. It has interests across 19 states including 20 cultivation sites and 26 processing facilities. The company, which is headquartered in Wakefield, Massachusetts, has major interests in Florida’s medical market where it recently opened its 26th dispensary in Port Charlotte, Florida.

The market has reacted well to CURA’s latest quarterly report, delivered on August 27, with the stock now up almost 17 per cent since the release. For its second quarter ended June 30, 2019, Curaleaf posted total revenue of $48.5 million, up 231 per cent from a year earlier and up 38 per cent sequentially, with adjusted EBITDA of $3.4 million, up from a loss of $3.8 million a year ago.

“CURA recently reported Q2 results that beat our forecasts, introduced F2020 pro forma revenue/EBITDA guidance, and announced an extension of the lock-up agreements,” Stanley writes. “The technical picture looks solid, with the stock having recently broken the downtrend that began in the spring (along with the 50-day moving average and 200-day moving average), leaving little apparent resistance before $11/sh.”

Stanley says CURA is currently trading at 6x his fiscal 2021 EBITDA estimate, which represents a discount of 19 per cent to its broader peer group at 8x and a two per cent discount to the 6x average among US-operating cannabis companies.

The analyst sees upcoming catalysts for the stock in progress on the Select and Grassroots acquisitions, the closing of other pending acquisitions and the company’s third quarter results due in November.

Looking ahead, Stanley thinks that Curaleaf will end fiscal 2019 with $294 million in managed revenue and $35 million in attributable EBITDA. For fiscal 2020, he is predicting $1,118 million in managed revenue and $363 million in attributable EBITDA.