Curaleaf is my Top Pick in cannabis, this portfolio manager says

The sector may be down on its luck but that’s all the more reason to be thinking about buying one of cannabis’ gold standards, says Brian Madden of Goodreid Investment Counsel, who argues there’s a lot to like about Curaleaf (Curaleaf Stock Quote, Charts, News, Analysts, Financials CSE:CURA).

“We were early, long-standing and vocal skeptics about the marijuana industry for years. That all changed last summer and we initiated a position in Curaleaf Holdings, which is the world’s largest producer of marijuana by revenue,” said Madden, speaking on BNN Bloomberg on Friday where he called Curaleaf one of his Top Picks for the 12 months ahead.

“We actually wrote an article entitled, ‘The cannabis industry comes of age,’ and it lays out how we see the sector evolving, competitive forces and critical success factors for success in the industry. Curaleaf stacks up strongly on all of them,” Madden said.

Curaleaf has been on a slide since February when the market started turning sour on cannabis stocks, with CURA going from a high of C$22.83 on February 10 to now around C$14.00. That’s about a 38 per cent drop and one which took the stock to a year-to-date return of negative eight per cent. 

That’s not out of line with the rest of the sector, however. The Horizons Marijuana Life Sciences ETF (Horizons Marijuana Life Sciences Stock Quote, Charts, News, Analysts, Financials TSX:HMMJ), which attempts to track the industry as a whole, also hit a high in February but has been trending downwards ever since, currently standing at a year-to-date return of five per cent.

But Curaleaf is kicking it on a quarterly basis, showing revenue up 166 per cent year-over-year and up 20 per cent sequentially in its latest report, the company’s second quarter 2021, delivered in early August. 

There, CURA hit $312.2 million in revenue, beating its own forecast by $4.4 million, while delivering a net loss of $7.2 million compared to a loss of $17.2 million a year earlier. The company had positive $84 million in adjusted EBITDA for the quarter. (All figures in US dollars except where noted otherwise.)

Curaleaf chairman Boris Jordan spoke in the company’s Q2 press release of the changing winds with regard to cannabis in the United States, where currently marijuana remains a Schedule 1 narcotic at the federal level. In July, Democratic senators put forward a draft bill called the Cannabis Administration and Opportunity Act which would expunge non-violent cannabis crimes, set a minimum age requirement and a top at ten ounces for sales while also allowing cannabis companies to access financial services. That last move would let the banking industry into cannabis, a potentially watershed event for the still-emerging US sector.

“July saw the introduction of the most comprehensive cannabis reform ever proposed at the Federal level,” said Jordan. “Combined with US state-level liberalization and the significant investments we are making in cultivation, production and distribution, Curaleaf is creating a strong foundation for future growth.”

“Nearer-term this includes the expansion of New York, New Jersey and Connecticut from medical to adult-use markets representing a potential new $8 billion annual addressable market opportunity. Longer-term, our acquisition of EMMAC and establishment of Curaleaf International this quarter marks our entry into Greater Europe, with a population of 750 million representing a potential market size twice that of the United States,” Jordan said.

Curaleaf is in a great position, according to Madden, who likes management along with the company’s heft within the US sector.

“It’s vertically integrated, it has a great geographic footprint in 23 states with 23 cultivation sites, 30 processing facilities and 109 dispensaries and it recently planted a flag in Europe via an acquisition,” Madden said.

“It has good organic growth, with new doors opening all the time and licenses to open more still and it has been a serial acquirer and has done so successfully,” he said.

Headquartered in Wakefield, Mass., Curaleaf announced last month the opening of a new dispensary in Bordentown, New Jersey, the company’s second opening in the state this year. New Jersey has been a medical marijuana market for a while now but this earlier this year ushered in an adult-use market.

“[Curaleaf] is leveraging its roots in medicinal marijuana and moving into recreational marijuana, taking the advantage of the opportunity as more and more states legalize it,” said Madden. 

“Probably most importantly, unlike most of the other cannabis plays in Canada, this is a company with a great management team a sound strategy and very solid corporate governance in which we have a lot of confidence,” he said. “So the pullback year-to-date in these shares in our view is very buyable. This is going to be a big addressable market and this is going to be a very big company in time.”