Looking for an undervalued pot stock? Try Curaleaf, says Beacon Securities

There’s another big catalyst coming up for US cannabis name Curaleaf Holdings (Curaleaf Holdings Stock Quote, Chart, News CSE:CURA), says Beacon Securities analyst Russell Stanley, who on Monday updated clients on the company.

Headquartered in Wakefield, Mass, Curaleaf is a US multi-state operator with currently 57 dispensaries, 15 cultivation sites and 24 processing sites across activities in 18 states.

The company announced on Monday the completion of the acquisition of exclusive rights to Grassroots’ cannabis license in Arizona, under the All Rebels Rockers name. The transaction comes ahead of Curaleaf’s closure on acquiring Grassroots itself, a deal first announced a year ago.

With the new license, Curaleaf will open its ninth store in Arizona, one of the largest medical pot industries in the US with one of the highest percentages of registered patients per capita.

“Our acquisition of our ninth license in Arizona further strengthens our presence in the state, which continues to be one of the largest medical cannabis markets in the country. It also marks one of the final milestones before we formally close our acquisition of Grassroots,” said Curaleaf CEO Joseph Lusardi in a press release.

Stanley said the full acquisition of Grassroots — which is expected next week and is the culmination of plenty of work on the regulatory front to clear US antitrust processes and state and local approvals — should be good for CURA shareholders.

“The acquisition would add major positions in the highly coveted Illinois and Pennsylvania markets, while adding additional strength or new exposure in a number of other states. We therefore view the progress positively and expect closing to be a meaningful catalyst for the stock,” Stanley wrote.

On the Arizona market, Stanley said while only the 14th-largest state by population, AZ is now the fourth-largest medical cannabis program with 245,533 qualifying patients as of May data.

“This represents 23 per cent year-over-year growth in qualifying patients and gives AZ a patient penetration rate of approximately 3 per cent, which we believe is amongst the highest penetration rates for major markets,” Stanley said.

The analyst also said the chances of AZ legalizing adult-use are strong. “Supporters of the Smart and Safe Arizona Act have already submitted approximately 420,000 signatures for validation, well over the required threshold of 237,645 valid signatures. We therefore believe the odds on the adult-use legalization initiative making it onto the November 2020 ballot, and gaining voter approval, are very strong,” Stanley wrote.

As for CURA, the analyst maintains it trades at 6.4x his fiscal 2021 EBITDA forecast, which is a 32-per-cent discount to the 9.4x average of US peers and a 43 per cent discount to the 11.1x for the broader peer group.

Along with the Grassroots closing, Stanley said other potential catalysts include the closing of the ATG transaction in Massachusetts, the company’s second quarter 2020 results and additional buildout updates.

With the update, Stanley reiterated his “Buy” rating and C$22.00 target, which at press time represented a projected 12-month return of 147 per cent.